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  • jacquideegan 02:14:18 on 2021-04-13 Permalink
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    Discord in talks to sell to Microsoft for over $10B | E1190 


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    Top Insights


    Discord and Slack have had strangely similar journeys

    There is a correlation between gaming-focused founders and making great messaging products

    • Rahul Vohra (Runescape > Superhuman), Stewart Butterfield (Glitch > Slack), Jason Citron (OpenFeint > Discord)

    Microsoft is paying a premium (likely over 75x price to sales), but Discord fits perfectly into their “Netflix for gaming” ambitions

    $10B isn’t too steep considering their market cap is approaching $2T

    Background on Discord


    Recent history:

    Discord is a voice and text-based messaging app that is largely used by gamers for in-game communication, and it was founded by Jason Citron in 2012

    A “server” on Discord is the equivalent of a “workspace” on Slack: a dedicated space for people to communicate about a specific topic

    In June 2020 after COVID hit, Discord capitalized on the stay-at-home orders and changed their tagline to “Your place to talk.” – targeting fan communities of books, music, art, tv shows, and more to expand beyond just gamers

    In January of 2021, Discord ran into some controversy when they briefly banned the r/wallstreetbets server which now has around 600,000 members

    • Wall Street Bets is an infamous subreddit that set off the GameStop fiasco in January – and they use Discord to communicate in real-time via voice chat
    • WSB’s server was banned for one day, and after being reinstated, Discord offered to help WSB moderators due to the amount and intensity of their users
    • We covered the WSB/Robinhood fiasco on an emergency pod back in January

    Discord user metrics:

    Discord has 140M+ MAUs as of December 2020

    • Other MAU stats: (as of Feb. 2021 via Statista)
    • WhatsApp – 2B
    • FB messenger – 1.3B
    • We Chat – 1.2B
    • QQ – 617M
    • Telegram – 500M
    • Snap – 498M

    How they make money:

    • Discord makes money by selling a $100/year premium subscription called Nitro and also by taking fees from games sold on its servers
    • Benefits of Nitro: larger file uploads, HD video screen share, extra server support, personal profiles on servers
    • The core app remains free, so users only pay when trying to access premium features
    • Discord was rumored to be up for sale in 2018 – but did not proceed with buyers due to CEO Jason Citron allegedly opposing an ad-based model proposed by the would-be buyers

    Discord generated $130m in revenue in 2020 and has raised $480M since inception

    History of Discord and how it’s different but similar to Slack


    Discord and Jason Citron had a very similar founding story to Slack and Stewart Butterfield’s

    1. 2002: Launches an MMO (Massively multiplayer online game) called “Game Neverending” which eventually shuts down due to inability to fundraise
    2. Stewart then creates Flickr from the well-received photo-sharing features of “Game Neverending”
    3. 2005: Stewart sells Flicker to Yahoo and starts working there running Flickr
    4. 2008: Stewart leaves and starts a new game called “Glitch”
    5. Glitch eventually fails, so Stewart focuses on the internal chat app they built, which eventually becomes Slack
    1. 2011: Jason Citron sells his social gaming startup OpenFeint to GREE for $100M
    2. While working on his next gaming project, Citron noticed how awful the current voice messaging software was, making it hard to strategize with teammates while playing online
    3. 2012: When his next project showed signs of failing, Citron pivoted to create Discord to meet the needs of its users

    Interesting trend: Talented video game designers making amazing messaging products, for example:

    • Rahul Vohra worked on Runescape before Superhuman
    • Stewart Butterfield worked on Glitch before Slack
    • Jason Citron was a successful gaming entrepreneur before Discord
    • Theory: if you can make a game that engages users, you can make a product that engages customers

    Deal breakdown: Discord at $10B compared to Slack at $27.7B?

    • Slack 2021: ~$900M in revenue (43% YoY growth), sold for $27.7B (~30x revenue)
    • Slack is geared towards enterprise customers, startups and SMBs
    • Discord 2021: ~$130M in revenue, in talks to sell for over $10B (~75x+ revenue)
    • Discord is geared towards communities, social and gaming

    Microsoft is willing to pay a premium for Discord based on its revenue footprint… so what is their thesis?

    Microsoft’s major consumer play


    Every other FAANG company has a massive, industry-leading consumer business:

    • Facebook – social
    • Apple – hardware/app store
    • Amazon – marketplace
    • Netflix – streaming
    • Google – search

    Microsoft’s big consumer bet appears to be in gaming (they own Xbox, Minecraft, and 30+ game studios)

    • With a ~$1.9T market cap, they have the capital to take big swings in M&A

    Timeline for Microsoft’s recent gaming acquisition spree:

    • January 2019 – Microsoft CEO Satya Nadella explained his vision for their Xbox subscription:

    “We describe it as, ‘Netflix for games'” – Satya Nadella

    • December 2020 – The latest Xbox console release helped Microsoft surpass $5B in gaming revenue during their most recent December quarter (Q2 2021 on their fiscal calendar), up 51% year-over-year (via GeekWire)
    • Xbox content and services revenue increased to $3.5B due to Xbox Game Pass subscriptions
    • Game Pass hit 18 million subscribers in Jan. 2021
    • Game Pass costs $10/month for standard and $15/month for the ultimate package (Ultimate includes XCloud, allowing gamers to play cross-platform)

    In summary


    Microsoft (~1.9T market cap) sees every other big tech company with a major consumer business and understands that gaming is the clearest path to building its own

    $10B for Discord is a fair price to pay if Microsoft integrates Discord into their cloud-gaming subscription products ($10B is well under 0.05% of Microsoft’s market cap)

    Microsoft is building a quasi vertical monopoly in gaming – they now own:

    • the hardware (Xbox, Surface, PCs)
    • the software (Bethesda, Minecraft, Xbox Game Studios, dozens of original titles exclusive to Xbox)
    • the communication platform (Discord)

    The post Discord in talks to sell to Microsoft for over $10B | E1190 appeared first on Jason Calacanis.

     
  • jacquideegan 18:21:16 on 2021-04-08 Permalink
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    Joanne Wilson’s Top Insights | Angel S5 E10 


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    Top Insights


    • Raising at a juiced valuation can have devastating downstream consequences for a startup.
    • Recent momentum in funding underestimated founders has helped firms realize the opportunity of having a diverse team of investors.
    • It is harder than ever to be a “generalist” investor. To succeed in today’s market you need a thesis.
    • Portfolio management near the peak is key to thriving in a down market.

    Background / Intro


    • Joanne Wilson is a blogger, businesswoman and angel investor with 130+ investments.
      • She mostly invests in women and underestimated founders.
    • Back in the 1990’s, Joanne was Jason’s top sales executive at Silicon Alley Reporter and taught him a very important lesson: sales solves everything. “If you have a great person who can sell, everything goes in the right direction.” – Jason Calacanis

    Spotting a bubble, impact of juiced valuations on startups


    “… we’ve seen it so many times over the past 20 years. (Founders) end up with a down round even though (they’ve) done a good job.”

    “(After raising a down round) that company is damaged. And then institutional investors have moved on into something new and something else and you’re f****d.” – Joanne Wilson

    • How raising during a bubble can create downstream issues:
      • Founders raise at an inflated valuation, and then have to put up crazy numbers to justify a higher valuation in their next round of funding
      • So, even really good companies can “get ahead of their skis” and fail to justify their mid-bubble valuations
      • If a company then raises a down round, that puts a black mark on their resume that is hard to erase, especially if VC money starts drying up
        • or, as Joanne puts it: “You’re f****d.”
    • There is a direct correlation between media sales and the strength of the overall economy
      • According to Joanne, you can check the thickness of each issue of her four decade Vogue collection to see how the economy was doing that year
    • Ad-based companies should bank as much revenue as possible (and even create new inventory if necessary), because high demand won’t last forever

    Positive changes to diversity in venture capital over the past 15 years


    “There is a whole group of amazing black founders that no one who is a white investor has ever seen. It was the same thing when I started investing in women, there were all these amazing women out there but no one wanted to meet them…” – Joanne Wilson

    • More women and people of color are starting companies and becoming venture capitalists, so the industry is being changed from both sides
    • It’s been 15 years in the making, but the venture industry is finally starting to see real change with funding dollars moving in the right direction
    • Seeing a team page with a bunch of white males on it is an immediate red flag for some investors
    • Investors are funding and hiring people of color for different reasons:
      • some are doing it because they care about making real change
      • others are ashamed at the lack of diversity in their portfolio and on their team
        • both reasons are helping drive change

    Difficulty of being a “generalist” investor in 2021, portfolio management in a bubble


    “…as an angel you need to take money off the table when it has gotten silly.” – Joanne Wilson

    • Being a generalist investor was great 15 years ago when there were fewer startups overall
    • To be a generalist investor in 2021 you need a team of people around you for market research, diligence, etc. since there are so many startups doing similar things
    • Portfolio management in a bubble:
      • Some greener VCs have never seen a down market
      • Selling a percentage of your winners at or near the peak is a great way to hedge against a rapid downturn
      • For example, Joanne’s husband Fred Wilson lived through this during the dot-com crash of 2000

    Watch/Listen to the full episode:

    The post Joanne Wilson’s Top Insights | Angel S5 E10 appeared first on Jason Calacanis.

     
  • jacquideegan 22:24:09 on 2021-03-18 Permalink
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    Lessons from Shopify CEO Tobi Lütke: what he learned from scaling Shopify through the pandemic | This Week in Startups Blog 


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    Click to Tweet about the show

    Watch / Listen to the full episode:

    Top Insights

    • Removing friction creates new opportunities and increases market size.
    • Shared priorities of some of the best companies in the world:
      • Priority #1: Go build the best product you can possibly build
      • Priority #2: Make some revenue so that you can do more of Priority #1
      • Priority #3: Never do #2 at the expense of #1
    • Important technologies of the future look trivial today (like games or toys), just like the Internet did in the ’90s.
      • Examples: Crypto, NFTs, Biohacking sensors
    • Software innovation compounds.
    • Going forward, the best companies in the world will be built fully-remote, with in-person events deliberately distributed (all-hands gatherings, etc.)

    Background / Intro

    • Tobi created Shopify to solve his own problem: running his online snowboard store was really hard, and the only reason he could do it successfully was due to his background in software development.
    • Jason first interviewed Tobi on TWiST at Accelerate Ottawa in 2013
      • At the time, Shopify had ~200 employees with a “crazy” thesis: Amazon would not win it all, and some retailers would want to run their own online stores
      • Jason was originally in Canada to interview Chamath Palihapitiya
    • In their initial interview, Jason was struck by Tobi’s laser-like focus and thought Shopify had huge potential.
      • He remembered:

    “… in that interview [Jason made] some statements about the potential size of [Shopify] being hundreds of millions. I thought ‘I’m gonna roll with this but I’m not entirely sure if Jason is serious or not.'”

    Tobi

    Shopify’s growth & comparing ecosystems with Amazon

    “I have an unbroken track record of underestimating the potential of my own company, which I hope will continue.”

    Tobi
    • 85-90% of all the world’s money exists in databases. The world economy is almost fully digital.
      • The old concept of the e-commerce market is outdated and incorrect.
    • Shopify mainly differs from Amazon regarding direct-to-consumer brands
      • How? By giving them a “home base”, so they can own their storefront on the Internet, rather than “renting” shelf space from someone else.
    • Amazon has a very good sales channel for certain products, and people should use it if it’s appropriate.
    • Shopify’s App Store has helped fuel their growth “Commerce is complex, it’s very hard to build software that can address a lot of different use cases. The inspiration [for the app store] was operating systems.  An operating system that does a good job modeling the primitives can then be used for everything.” – Tobi

    “Commerce is complex, it’s very hard to build software that can address a lot of different use cases. The inspiration [for the app store] was operating systems.  An operating system that does a good job modeling the primitives can then be used for everything.”

    Tobi

    Removing friction creates new opportunities

    “Friction shapes the world a lot more than policy in most cases.”

    Tobi
    • There were roughly 40,000 online stores in the early 2000s. This was because it was so difficult to run an Internet business due to payment processing, order fulfillment, software development, etc.
    • When Tobi started fundraising, investors that said “no” would point to Shopify’s “low” Total Addressable Market (TAM) of 40,000 stores.
    • Shopify grew its TAM by greatly reducing the friction of setting up an online store, thus encouraging more and more people to either start new online businesses or to create a digital version of their physical store.
    • How’d they do it? Initially by building a payment gateway to make it easier to deal with merchants and collect payments.
      • The goal was to allow sellers to collect payments easily, and once they made sales, the entrepreneur could tell Shopify where to send the orders for fulfillment.
    • Like e-commerce, setting up a blog also used to be time-consuming and difficult, involving servers and coding. Now it’s been made nearly frictionless by companies like Squarespace or WordPress, and their markets have expanded as well.

    “Every time an entrepreneur makes it easier, more people participate.”

    Jason

    Lessons learned during the pandemic

    “Almost every model and theory I had about how to work together [and] how to build things got either invalidated or got a significantly higher resolution. For instance, I believed that there was no way to replace proximity as a factor in building fantastic products, the proximity of a team is just so powerful, and so multi-dimensional… clearly that was incorrect.”

    Tobi
    • Early remote work pioneers like Matt Mullenweg (Angel S5 E7), and Jason Fried (E1099) were right. Business efficiency increasing while remote proved Jason and Tobi wrong.
    • The problem with pre-pandemic distributed work was that companies needed 100% remote participation, which was very hard to achieve before lockdowns were enforced.
    • High-quality product creation comes from high-fidelity teamwork, which proximity inherently creates.
      • However, this can also be created by great video conferencing software (Zoom), a solid setup (strong internet, good camera/microphone), and a way to mimic a whiteboard (productivity apps, screen sharing).
    • We are still in the early days of remote work, and the software will only become more seamless in the future.

    “This is the worst the software will ever be for remote work, it will only get better from here.”

    Tobi
    • Jason’s remote management checklist (SOD > EOD > EOW)
      • Start of Day (SOD): At the start of the day put in Slack what you’re working on in 1-3 bullet points
      • End of Day (EOD): At the end of the day when you’re done working, reply to that same post with what you got done and what you need help with
      • End of Week (EOW): On Friday, taking no more than five minutes, share the most important things you got done during the week

    “It’s a contest to see who can inform everybody and how in sync we can be with the least amount of meetings.”

    Jason

    According to Tobi, the best companies in the world going forward will be fully remote:

    “I think I think the best companies in the world will be built completely remotely, at least with no stated headquarters. Being together in person is still going to be very important, but more deliberate.”

    Tobi

    Forced focus of lockdowns

    • Shopify zero-budgeted at the start of the pandemic and realized how unfocused they were.
      • Zero-based budgeting entails redoing an entire budget from scratch, rather than just modifying the previous year’s numbers
    • Due to the initial pandemic scare, Tobi became focused on building an “antifragile” business
      • An antifragile business is one that performs better under duress or in times of uncertainty
      • Antifragile is a book by Nassim Nicholas Taleb
      • Examples:
        • Uber – When people went into lockdown and stopped ordering rides, the demand for UberEats went up. When people come out of lockdown, demand for rides will rise.
        • Disney – When parks shut down, they centered their business around Disney Plus. They surpassed 100M subscribers in the first 16 months after launching in Nov. 2019.
    • Antifragility in practice: Many businesses will take the e-commerce lessons they learned during the pandemic and apply more software when running their physical locations.

    Compounding nature of software innovation

    “The narrative around programming is more interesting than people realize.  Since blacksmithing, we haven’t had a craft where the craftsmen actually make their own tools.

    Tobi
    • Humans are genetically the same as we were 75,000 years ago. The main difference between then and now are the tools we have available that and the stories we tell each other.
    • Innovation compounds when creators build on the innovations of others Hardware example: Battery revolution
      1. Billions of smartphones are produced, competition leads to fast-charging and long-lasting battery technology
      2. Tesla uses batteries in their cars and makes them cheaper and more effective
      3. Battery-driven Vertical Takeoff and Landing (VTOL) aircrafts are now made possible due to the advancements in battery technology
    • Software is the ultimate play of leverage for innovation because it combines zero marginal cost with infrastructure that everyone on Earth can add to and constantly improve.

    1,000 True Fans

    “We want to make entrepreneurship trivial on the Internet.”

    Tobi
    • Spending money on creators via the Internet can now be seen as voting for something to exist.
      • Everyone can now be a “Digital Medici” and sponsor the art/artists/products they want to see exist.
    • The promise of Kevin Kelly’s 1,000 True Fans essay becomes more attainable for a broader set of people with each new technological commerce innovation.

    “…there is a home for creatives in between poverty and stardom. Somewhere lower than stratospheric bestsellerdom, but higher than the obscurity of the long tail. I don’t know the actual true number, but I think a dedicated artist could cultivate 1,000 True Fans, and by their direct support using new technology, make an honest living.”

    Kevin Kelly
    • Shopify’s Fulfillment Network abstracts logistics away from the seller (just like the Payments Network did before it).
      • they reduce complexity by removing unnecessary information/hassle/steps
    • Jason claims to have seen a 100x increase in high-quality direct-to-consumer companies in the past few years, largely due to Shopify making it easier to run an e-commerce business by handling the technical and fulfillment aspects and allowing entrepreneurs to focus on the product.
    • Example: One founder is selling ~$60K worth of hoodies per month with minimal effort on the fulfillment side. Here’s how she does it:
      • Uses influencer partnerships to market the product
      • Takes orders through a Shopify storefront, which handles payments processing
      • Orders hoodies from a contract manufacturer and routes them to a Shopify fulfillment centerBecause the logistical side of the business was automated, the founder was able to focus on perfecting the product, and is now building her own version of “1,000 True Fans”.
    • Most of the modern Internet has been condensed into 3-5 major players. According to Tobi, it’s important to preserve the opportunity space so that achieving “1,000 True Fans” can still be possible.

    Click to Tweet about the show

    Watch / Listen to the full episode:

    The post Lessons from Shopify CEO Tobi Lütke: what he learned from scaling Shopify through the pandemic | This Week in Startups Blog appeared first on Jason Calacanis.

     
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