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General Commentary
May 8, 2016

To Infinity and Beyond…

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Market Snapshot

Indices Week YTD
GSV 300 1.80% 42.10%
S&P 500 0.70% 9.10%
Dow 0.60% 10.40%
NASDAQ 0.80% 16.40%
Russell 2000 1.40% 1.50%
MSCI P/E Fwd P/E/G
Valuations 25.8x 0.7x
GSV 300 17.6x 2.3x
S&P 500 Now YTD
I-Rates 2.17% -11.40%
10-Year Note 1.03% 102.00%
3-Month Bill - Current
Sentiment - 28.1-38.3
Bull-Bear - 0.97
Put-Call - 11.28
Vix Now YTD
Inflation $1 12.50%
Gold $47.86 -11.10%
Oil - Week
Mutual Funds - -$3.40
Fund Flows (bil) 00-09 09-Now
Growth-Value -34% 218%
Growth 87% 133%
Value

Technology and travel have throughout history been inextricably linked to the wealth, sovereignty, and power of nations. China’s invention of the compass in 1044 was a key reason why the Middle Kingdom was a major power for five hundred years. Portugal’s invention of the technologically advanced Caravel ship in the 15th century enabled the tiny nation to rule the seas, effectively controlling global commerce, travel, and power politics for a hundred years.

Orville and Wilbur Wright sparked the beginning of the Aviation Era on December 17th, 1903 — which ultimately meant that if a nation could control the airspace above a country, it could also control what was on the ground.

The next frontier for the wealth, sovereignty, and power of nations is now outer space, with spoils going to the new “Masters of the Universe”.

STATE OF PLAY: SPACE

Until recently, the rule with rockets has been that what goes up usually comes down in pieces. The cost of getting anything into orbit — from satellites to people and supplies — has routinely cost upwards of $250 million per launch because expensive rockets are used once before falling from the sky like confetti. It would be like having a commercial aviation industry where planes were flown once and then discarded — not exactly cost efficient or scalable.

Elon Musk’s SpaceX and Jeff Bezos-backed Blue Origin are shattering the old paradigm by making rocket reusability a reality. In April, Blue Origin successfully landed its New Shepard rocket, its third successful test flight in less than five months. This week, SpaceX landed a rocket on a robotic barge nicknamed “Of Course I Still Love You” off the coast of Florida, its second successful landing in five weeks.

The personal computer paved the way for a new category of software companies. Affordable computing infrastructure like Amazon Web Services (AWS) spawned scores of cloud applications. Today, reusable rockets are poised to drive down cost and catalyze a variety of space applications — from travel to satellite-enabled logistics, business intelligence, and security.

A Timeline of Space Exploration

Source: National Geographic, GSV Asset Management

To date, global Space innovation has effectively existed as a closed platform built on funding from government agencies — headlined by NASA, which spends roughly $43 billion per year on a variety of initiatives. The net result is that a small ecosystem of multi-billion dollar aerospace companies has become a fixture, subsisting for decades on government contracts.

Companies like Boeing, Lockheed Martin, and Airbus — together commanding more than $200 billion in market value — provide a full range of services to get people, satellites, and supplies into Space.

Old Guard Space Companies

Source: Crunchbase, Company Disclosures, GSV Asset Management
*Founded in the 1995 merger of Lockheed Corporation (est. 1912) and Martin Marietta (est. 1961)
**Founded in the 2015 merger of Orbital Sciences Corporation (est. 1983) and Alliant Techsystems (est. 1990, spun off from Honeywell)

A key inflection point for the Space industry came in 2012, when the SpaceX Dragon became the first commercial spacecraft to visit the International Space Station (ISS). It signaled that Space was open for innovation and that SpaceX was more than just an expensive hobby for CEO Elon Musk.

Musk has grabbed headlines with a commitment to colonize Mars in his lifetime, suggesting recently that the company would target sending a spaceship to the Red Planet as early as 2018. He has even enlisted the services of Jose Fernandez — the acclaimed costume designer for superhero movie franchises including Batman and Captain America — to design “stylish and heroic” spacesuits for the company’s astronauts.

But the company has moved beyond capturing the World’s imagination. With a $1 billion 2015 Series E financing in the rearview mirror, led by investors including Google, Fidelity, Founders Fund, Draper Fisher Jurvetson (DFJ), and others, SpaceX is the lead architect of a new platform for Space innovation. Accelerated innovation, entrepreneurial activity, and investment opportunities will follow.

PIONEERS: KEY COMPANIES AND PEOPLE

Next-generation satellite launch and management platforms like Vulcan Capital backed Spaceflight Industries are making it more efficient and affordable for companies to place satellites into orbit. Accion Systems is re-imaging the satellite altogether with advanced components that enable the creation and deployment of Nanosatellites, or “Nanosats”. Ranging from the size of a shoebox to a refrigerator, Nanosats are significantly smaller and affordable than traditional satellites.

Pioneers
People Driving Space Innovation Forward

Source: GSV Asset Management

As James Crawford, the founder and CEO of satellite imaging startup Orbital Insight observed, “In the old days, when satellites were like mainframes, incredibly expensive, if you managed to get an image, you probably spent $10,000 on them.” New satellite technology fundamentals, coupled with declining costs for computing power and data storage, have changed the paradigm.

In the next twelve months, Planet Labs will have deployed 150 Nanosats (“Doves” in Planet Labs vernacular), the largest fleet of Earth imaging satellites in the market — among private companies and government agencies alike.

Will Marshall, CEO, Planet Labs
Featured Speaker at GSV’s 2015 Pioneer Summit

Source: GSVlabs

But small satellites are only part of the equation. Planet Labs, which produced the first set of daily, global earth images, is generating 370,000 images and 11 terabytes of data per day.

The applications for new troves of imaging information from Space are wide-ranging. Weather services can utilize sensors on Nanosats to gather better data and provide a clearer picture of climate patterns. Governments agencies can analyze imagery to monitor deforestation and environmental impact over time. Companies like Spire are dramatically improving global supply chain management by using satellite imaging to eradicate the “data dead zones” that exist across the Earth’s oceans. Until recently, it was possible to track a UPS truck to a city block, but cargo ships carrying millions of dollars worth of goods remained elusive. Spire is changing that.

Data from space will continue to diffuse into broader industries. Investors, for example, can monitor traffic to key retailers as a leading indicator for financial performance. Based on a million satellite images Orbital Insight conducted a historical analysis on cars in the parking lots of Ross Stores, which successfully forecasted the retailer’s better-than-expected quarterly performance. The list goes on.

Nanosatellites Deployed
The International Space Station Deploys Planet Labs Nanosats

Source: The Atlantic

As entrepreneurs continue to apply new ideas and technologies to Space, we expect a drumbeat of game-changing businesses to emerge. Companies such as Planetary Resources and Deep Space Industries are developing the capability to mine resources from asteroids. In the future, minerals and water mined from near earth objects could directly supply the new Space economy without having to spend $10,000 per pound to launch resources into low Earth orbit and beyond.

Emerging “Space” Companies

Source: Company Disclosures, Crunchbase, GSV Asset Management

INVESTMENT ACTIVITY

Investors are taking notice. Steve Jurvetson (Managing Director, DFJ + Board Member at SpaceX and Tesla) has framed the opportunity this way:

Compared to other industries, I have never seen such an enormous margin for improvement. There’s this canonical thing about a startup needing to pitch a 10x improvement to be a worthwhile investment. You rarely see an entrepreneur pitch a 100x improvement. But in Space we’ve seen 1,000x, and really, we’ve seen 10,000x.

Many of the early headlines have centered on high-profile aerospace ventures from a billionaires club, including Jeff Bezos (Blue Origin), Richard Branson (Virgin Galactic), Elon Musk (SpaceX), and Paul Allen (Vulcan Aerospace). But Silicon Valley VCs are also betting big, pouring over $1.7 billion into Space-related companies in 2015 to date.

Space Company Investment Activity, 2012-2015

Source: CB Insights, Forbes, The Tauri Group, GSV Asset Management

Although the venture ecosystem is nascent, early leaders are beginning to emerge. RRE Ventures, for example, has made multiple bets on innovative satellite services companies, including Spaceflight Industries (satellite launch services), Accion Systems (satellite propulsion), and Spire (satellite imaging for maritime) in the past year. Lux Capital joined both a $8.7M Series A for Orbital Insight (satellite imaging & software), as well as a $70M Series C for Planet Labs in 2015.

Most Active VCs Investing in Space Companies, 2012-2015

Source: CB Insights

Ultimately, we are just beginning to sow the seeds of a much broader Space economy. A century ago, on January 1, 1914, the commercial aviation industry began with a single flight in Florida. Since then, commercial aviation has transformed the World in ways that were unimaginable then. Today, a generation of inventors and builders are looking to Space.

We’re headed to infinity and beyond.

For the second week in a row, stocks fell, with NASDAQ down 0.8%, the S&P 500 falling 4%, and the Dow off 0.2%. The GSV 300 was down 3.1%. Sluggish U.S and Chinese economies were the concert du jour. The increasing likelihood of a President Trump or Clinton did not make the natives any less restless.

World Indices

Source: Yahoo Finance, GSViQ

Job growth for April was a disappointing 160,000 increase. With nearly 90% of the S&P 500 having reported first quarter results, the average EPS fell 7.1%. More concerning were revenues that came in even softer than earnings.

There were two Biotech IPOs last week, with both pricing in range. Pop and performance were -8% and +22%, respectively. There are seven IPOs on deck this week including Acacia Communications, a Matrix Partners-backed company that provides low-power, high-speed interconnect modules for optical networks.

On the private financing front, Pivotal, an open source software development platform (“Platform-as-a-Service”), raised $253 million at a $2.8 billion valuation from Ford, Microsoft, EMC, VMware, and GE. Beyond its investment, Ford plans to use Pivotal’s platform to integrate advanced software into its automobiles.

Farfetch raised $110 million at a $1.5 billion valuation — up from $1 billion a year ago — from Temasek, and IDG. The London-based company partners with boutique fashion retailers to sell unique designer clothing and accessories at heavily discounted prices.

Age of Learning, the creator of the popular ABCMouse early learning app, was reported to have raised $150 million at a $1 billion valuation in 2015 from Iconiq. ABCMouse, which offers educational content for kids aged 2-8, recorded over $100M in revenue last year and was profitable. It has over 1 million subscribing families paying $7.95 per month.

China’s leading ride-sharing service Didi Kuaidi closed a $2 billion financing at a $25 billion valuation, raising $500 million more than originally planned. Israeli competitor Via is finalizing a $100 million financing. On a related front, ChargePoint, the world’s largest electric vehicle (EV) charging network with over 28,000 charging stations across the globe, raised $50 million from undisclosed investors.

Additionally noteworthy headlines from the ride-sharing industry included Uber’s reported partnership with Paytm and Alipay — the leading digital payment platforms in India and China respectively — to enable simple payment across 400 cities worldwide. Google and Chrysler announced that they will roll out self-driving minivans by end of the year. GM and Lyft will partner to test a fleet of self-driving Chevrolet Bolt electric taxis on public roads in the next 12 months. (Disclosure: GSV owns shares in Alphabet, Lyft)

It has been a challenging year so far for growth companies despite strong fundamentals and an overall environment of low growth — which should make rapidly growing businesses more attractive. We remain confident that over time, earnings growth drives enterprise value. Accordingly, we are very BULLISH on our opportunity to purchase the best growth companies at modest prices.

Bubblin'

by Luben Pampoulov

Age of Robocop

In 1987, Hollywood screen writers Edward Neumeier, Michael Miner envisioned the future to be guarded by superior “policemen” — human like robots who will protect us from the bad and evil. The movie RoboCop became a mega hit and had 3 re-makes over the following 27 years.

In George Lucas’ original Star Wars, R2-D2 was a charismatic and astromech droid. After successfully starring in a triple trilogy, and 18 years later, R2-D2 was accompanied by a new companion, the modern BB-8. Both are highly intelligent “species” that help fight the dark force.

As has often been the case, Hollywood serves as an accurate preview for the future. Here we are in 2016, with security droids now being reality.

Knightscope, a Mountain View-based startup, currently has two droids on the market — the K3 and K5, both of which provide advanced physical security and serve as high-tech security guards. They can be used in parking lots, at events, in warehouses, at schools, in hospitals or at shopping malls. When you encounter them, you might not realize the surveillance and investigation they are performing: while they “roll”, they capture hundreds of frames per second, they store huge amounts of data, and constantly stream the data to control centers. In case of any emergency, they can launch flashing lights, noises, and even shock waves… See the K5 at work here.

Similarly in China, the AnBot is the newest local Robocop meet R2-D2. AnBot is about 150cm tall, weighs 150 kg, and can move as fast as 18 km/h. According to its lead engineer Xiao Xiangjing, the AnBot will be deployed at certain government and military facilities, border points, airports, bus stations, banks, hotels and school campuses by the end of the year.

Unsurprisingly, the market opportunity in China is enormous, with initial estimates pointing at a $1.3 billion domestic industry.

As we enter a new era for Security, droids will play an increasingly larger role in detecting and fighting crime. Applying software to security guarding increases the effectiveness by a multiple. So watch out next time you encounter a rolling droid. 

Pioneer Notes

by Li Jiang

“Siri, Make Me a Sandwich”

Her, a breakthrough 2013 movie on artificial intelligence

After each of my 8th grade school day was over, I’d rush home to get on AOL Instant Messenger, or AIM.

AIM was the place where all my friends were. We would chat all afternoon and night (multiple chat windows open at once) about everything from games to schools to movies to whatever else was on our 8th grade minds.

A feature of AIM was chatbots. One of them that I remember was called SmarterChild. We would send it messages and questions, often times inappropriate questions, the kinds that people ask Siri. I remember thinking that SmarterChild wasn’t all that smart after the first few minutes, but the novelty was highly entertaining.

Fast forward 15 years and chatbots are all of a sudden the new old craze. Tech giants like Facebook and startups like snips are all entering the field offering to make our lives simpler and more automated using smart algorithms that understand what we want and when we want it. (Disclosure: GSV owns shares in Facebook)

My prediction is that we will see a trove of chatbots that are one dimensional that are helpful but not transformative. Sure I can call a Lyft by asking a chatbot to do it for me…or I can just call a Lyft by pulling out my phone. Helpful but not life changing. (Disclosure: GSV owns shares in Lyft)

As technology, machine learning and natural language processing, advances to be 99%+ accurate, the true long term impact of chatbot will be felt in a new form of interface termed “conversational AI”. This will usher in an era where a wide range of general tasks can be not only completed by a chatbot, but anticipated in advance by a bot.

Instead of asking for a Lyft, the bot would just read my calendar to know that I need to travel to my next meeting and automatically call a Lyft a few minutes before my current meeting is booked to end. I walk outside of the coffee shop and a self-driving Lyft is there waiting for me. It already has the address of my next meeting.

In effect, chatbots are merely a transitional technology to move the world from conversational UI to no UI needed. Just have your phone, watch or whatever device on you, turn on location and all relevant sensors and let the algorithm go to work.

This may sound very utopian to be sure, but it is the natural progression of technology. Each wave of technology is meant to free up human’s time from the drudgery of life.

In the chatbot future of the world, we’ll be accomplish more, in less time and enjoy the sunshine that is Dolores Park.

Typical day at Dolores Park

Market Update

Week ending May 8, 2016

World Indices

America Index 9/20/2017 YTD Week
U.S. GSV 300 107.4 42.1% 1.8%
NYSE 11812.0 6.8% 1.0%
Dow 21813.7 10.4% 0.6%
NASDAQ 6265.6 16.4% 0.8%
NASDAQ-100 5822.5 19.7% 0.5%
Russell 2000 1377.5 1.5% 1.4%
S&P 500 2443.1 9.1% 0.7%
Brazil Bovespa 71073.7 18.0% 3.4%
Mexico IPC 51373.2 12.6% 0.6%
Canada S&P TSX 15056.0 (1.5%) 0.7%
Euro-Asia Index 9/20/2017 YTD Week
China SSE 3331.5 7.3% 1.9%
Heng Seng 27848.2 26.6% 3.0%
Singapore Straits Times 3259.6 13.1% 0.2%
Indonesia JKSE 5915.4 11.7% 0.4%
Japan Nikkei 225 19452.6 1.8% (0.1%)
India Sensex 31596.1 18.7% 0.2%
Russia RTS 1979.1 (11.4%) 2.5%
France CAC 40 5104.3 5.0% (0.2%)
Germany DAX 12167.9 6.0% 0.0%
U.K. FTSE 100 7401.5 3.6% 1.1%



U.S. Indices Snapshot

Valuation P/E Est. P/E/G Price/Sales
LTM NTM Growth LTM NTM LTM NTM
S&P 500 24.2x 17.6x 7.60% 3.2x 2.3x 2.4x 2.1x
NASDAQ 25.2x 17.5x 7.90% 3.2x 2.2x 2.6x 2.2x
Russell 2000 24.7x 17.6x 6.30% 3.9x 2.8x 1.9x 1.6x
GSV 300 50.6x 25.8x 38.40% 1.3x 0.7x 5.5x 4.0x

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