Why Drone Delivery Will Be an Awesome Business

September 13, 2022

Drones are starting to deliver packages in some parts of America. But can drone deliveries be a viable business?

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Bloomberg is skeptical. From an editorial out this morning:

The biggest hurdle is that drones will be making point-to-point deliveries, which is the quickest but most inefficient way to take packages to homes or businesses.

Despite the hype in the e-commerce market, it’s unlikely the sky will be studded with packages coming in for a landing on doorsteps.

What Bloomberg is missing is drone delivery’s massive advantage in labor costs.

The average UPS driver makes $22 an hour and does about 120 deliveries a day. Even if he’s very efficient and can finish in 8 hours, that’s still $1.47/delivery in labor costs alone.

Compare that to a drone. This sleek model from DJI is a mere $300 on Amazon. If it could make even 1 delivery per hour, 8 hours a day for a year before it wears out, that’s just $0.10 a delivery.

And remember, you don’t have to buy a huge truck, fill a gas tank, or pay benefits to a driver!

Drones may be able to do far fewer deliveries each than a driver can. But drones cost so little, you can afford to buy a swarm of them and still save money.

What’s more, drone delivery makes the most sense where drivers are least efficient: suburban and rural areas. Here, it takes drivers much longer to get to the next stop than in dense cities.

But it’s a perfect environment for drones — lots of space to land!

In a world of ever cheaper hardware, labor costs overwhelm almost everything else. If you can cut out labor and still get the job done, it’s hard to lose.

I look forward to having packages land on my roof. I just hope the porch pirates don’t send their own drones to steal them!

What do you think of drone delivery? Leave a comment at the bottom and let me know!

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Robot Pizzas and the Future of Fast Food

Adam Neumann Was Their Biggest Investor — Now He’s Their Biggest Competitor

The Last Fast Food Worker in California

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Giving Investors What They Need to Say Yes

September 12, 2022

I see a lot of awesome startup ideas every day, from plant-based salami to rocket fuels. These entrepreneurs know how to build great businesses, but often have no idea how to communicate with investors.

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Some founders give me tons of details — but none of the facts I actually need! Let’s go through what information investors need in order to give you that “yes”:

1) Explain exactly what your business does, succinctly. If if takes paragraphs to explain, you’re doing it wrong.

You should be able to explain what you do in a single sentence. For example: “Uber makes it easy for you to get a ride anywhere, anytime.”

If an investor can’t understand what you do and why, he isn’t going to invest.

2) Show revenue clearly. You would not believe how many people get this wrong.

Report your revenue month by month. Don’t just tell investors your last month’s revenue, or add all your revenue up and report it as a single number.

Investors want to see a trend. Are you growing fast, or just treading water?

Showing revenue broken down properly allows them to see that trend.

Here’s an example of how it should look. Give investors both a table and a graph, so they can see exact numbers and visualize the trend.

Bonus points if you calculate your monthly growth rate using a tool like this. At that point, you’ve done everything but write the check for them!

That’s what you want to do: make it easy for them to say “yes.”

3) Be clear about terms and legal.

If you have a lead investor, the terms and valuation will already be set. Be sure to communicate those to every investor you speak with, so they know what they’re agreeing to.

If you don’t have a lead, be sure investors know that too. Some investors, like me, do not lead rounds.

Others only lead rounds, so the fact that you don’t have a lead is actually a positive for them!

Also, clearly explain how you’re incorporated. Most investors only want to invest in Delaware C Corporations.

If you can give this basic info on what the company does, how it’s performing, and how the investment will work, you will have answered most questions right off the bat. When a founder has her presentation dialed in like that, I assume she is experienced and highly competent.

Remember, if investors don’t have the info they need, the default decision is always no.

Make sure that doesn’t happen to you! Present the key facts clearly so you’ll have the greatest chance of success.

Where do you find founders struggling to communicate with investors? Leave a comment at the bottom and let me know!

More on tech:

I Pitched a Robot VC

How Wordcab Will Change Business Communication Forever

The Last Fast Food Worker in California

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New Index Will Drive Demand for AMC, Other Meme Stocks

September 9, 2022

Note: This is not financial advice.

Robinhood Markets is launching a new index fund to track meme stocks. From a report that broke this morning in The Wall Street Journal:

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Robinhood Markets is launching an index to track the favorite stocks of its millions of predominantly young, social-media-savvy customers.

The brokerage firm’s new “Robinhood Investor Index” will track the performance of the 100 investments most popular among its user base. Initially, the top five stocks in the index will be Tesla , Apple, Amazon.com, Ford Motor and meme-stock favorite AMC Entertainment Holdings. Robinhood said it would update the composition of the index monthly, offering a view into its customers’ changing tastes.

In an unusual approach to constructing an index, Robinhood said it would weight stocks in the index by the “conviction” customers have in them, defined as the percentage of assets in a customer’s portfolio devoted to a particular stock.

The new index will increase demand for meme stocks, especially those weighted heavily like AMC and Tesla.

When a stock is included in an index like the S&P 500 for the first time, the price generally jumps. This is because so many index funds track the S&P 500.

When a stock is added to it, those funds must buy the stock. Similarly, when investors buy shares of the new Robinhood index, Robinhood must buy stocks like Tesla, AMC, etc.

This increases demand for those stocks.

Indeed, a McKinsey study found that stocks added to the S&P 500 jumped a median of 5%. But the increase was short-lived, disappearing in just 20 days on average.

The effect of inclusion in the Robinhood index is likely to be more modest, given that $5.4 trillion tracks the S&P and the Robinhood index is just getting off the ground. Still, I expect a modest tailwind for meme stocks from this change.

The Robinhood index is an interesting approach. It allows investors to profit from the “wisdom of the crowd,” following investors who have strong conviction about particular stocks.

If an investor is confident enough to put their entire portfolio into a single stock, maybe they know something I don’t.

I’ll be curious to see how the Robinhood index does against other index funds. And you can bet every broker is rushing to create a meme index as we speak.

What do you think of Robinhood’s new meme stock index fund? Leave a comment at the bottom and let me know!

Have a great weekend everybody! 👋

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How Wordcab Will Change Business Communication Forever

September 8, 2022

Like everyone else, I get invited to a ton of Zoom calls these days. Even if the information sounds useful, I often don’t have time to attend!

But what if I could read a brief, accurate summary of every call in minutes?

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That’s what Wordcab’s API can do. This incredible new startup based in NYC can summarize Zoom meetings, customer service phone calls, sales calls, and a whole lot more.

When the co-founder, Aleks, pitched us, he even summarized his own presentation using Wordcab!

Sure enough, a perfect one sentence summary popped up.

You can even vary the length of Wordcab summaries depending on the level of detail you need.

Do you want to get the information down to a sentence or two? Or would you prefer a few paragraphs that give you more info?

Either way, Wordcab is on your side.

I was extremely impressed with Aleks’ strong customer focus. He knows exactly what his customers need and makes sure they get it, no matter what.

That’s the kind of company you want to do business with. It’s also the kind of company I want to invest in.

In time, Wordcab may be used to summarize emails, documents, and all forms of business communication. This would be a true revolution in the way we work, making us dramatically more productive.

I’m delighted to be an investor in their recent pre-seed round! I can’t wait to see this great team scale up and change the business world forever.

More on tech:

The Last Fast Food Worker in California

I Pitched a Robot VC

Mark Twain: Venture Capitalist

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The Last Fast Food Worker in California

September 7, 2022

Who will be the last fast food worker in California?

Yesterday, California passed a new law dramatically raising fast food wages.

It sounds like a victory for the working class. But it’s likely to put them out of a job.

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From Bloomberg:

California Governor Gavin Newsom signed the fast food recovery act into law, giving restaurant-chain employees more input over wages and working conditions even after strong protests from the industry.

A study by Harvard Kennedy School and UC San Francisco showed that wages for California’s fast-food workers hover around $16.21 an hour, or 85 cents on the dollar compared with other service sector workers in the state. AB 257 could raise wages as high as $22 an hour next year for chains with 100 or more locations across the US. It’s the first US law of its kind, leading the way for other states.

Let’s see how this will play out at a restaurant. And where better than the oldest McDonald’s in America, in Downey, California?

In business since 1953, the Downey McDonald’s is one of the area’s biggest tourist attractions. And it still serves Big Macs and fries, 7 days a week.

The Downey McDonald’s is open from 6am to 10pm every day. That’s 112 hours a week.

McDonald’s employees in Downey actually do a little better than that $15 minimum wage. They average $16.41 per hour.

Increasing that to $22 means every employee-hour costs $5.59 more. Staffing the restaurant for those 112 hours now costs $128,000 per person per year, instead of $96,000.

Instead of paying that, restaurant owners may hire Flippy.

Flippy is a robot from Miso Robotics that runs an entire fry station. It can make french fries, onion rings, and even chicken tenders.

It costs about $36,000 a year. And unlike humans, it never comes in late, gets sick, or tries to unionize.

Flippy can’t do all the jobs in a McDonald’s — yet. But in combination with order kiosks and automated drive through lanes, there may soon be few fast food jobs left.

Is all this fair? I don’t know.

But it’s going to happen. And blunt instruments like this law only bring our robot future closer.

Instead, politicians like Gavin Newsom should focus on helping working class people get more skills. This is a durable path to better wages and a better life.

I hope for a future where humans do stimulating, meaningful work. Let Flippy handle the rest.

What do you think of the California law? Leave a comment at the bottom and let me know!

More on tech:

COFFEEBOTS AND THE SEARCH FOR THE PERFECT CUP

GROWING VEGGIES ON MARS

I PITCHED A ROBOT VC

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Brave Beats Safari in Security

September 6, 2022

Today, I saw something that would really piss Steve Jobs off.

Let me explain.

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Websites are constantly trying to track us. Meanwhile, every browser seems to claim to protect our privacy — but do they really?

Today, I ran an identical test on two leading browsers: Apple’s Safari, which I use every day, and Brave.

Safari is second only to Chrome among internet users, with a 19% share. Brave is much smaller but claims to have 50 million monthly active users, doubling every year.

I tested Safari and Brave using an awesome tool called Cover My Tracks. This tool shows how easy it is for trackers to identify you.

Safari

Safari produced mediocre results. It only blocked some trackers and allowed websites to “fingerprint” me.

A browser fingerprint is the unique combination of characteristics your browser has.

What add-ons do you use? What fonts are installed?

When you look at these and other factors, it turns out two browsers are rarely the same. When you see my unique combination on the internet, you can be pretty sure it’s Francis.

Brave

Brave crushed it. It blocked trackers and stopped fingerprinting cold.

Brave does this by randomizing your browser’s fingerprint.

Remember all those characteristics about your browser that make you unique? Brave slightly modifies them, making you very hard to trace.

Imagine if every time you touched a doorknob, your fingers left a slightly different print. You’d be pretty hard to track down!

I’m appalled that a multitrillion dollar corporation that talks about privacy nonstop gives you worse security than a tiny startup. If Steve Jobs were here, he’d be screaming at the Safari team and having them escorted from the building.

It’s no wonder Brave does such an awesome job at protecting our privacy. Its founder and CEO Brendan Eich created Javascript and co-founded Mozilla.

With such a great product, awesome founder and rapid growth, I only wish I were an investor in this one!

Test your browser’s privacy here. And check out Brave to see how it compares!

How do you protect your privacy online? Leave a comment at the bottom and let me know!

More on tech:

I Pitched a Robot VC

Where Are All the Startup Acquisitions?

Mark Twain: Venture Capitalist

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Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

September 2, 2022

Hedge fund manager Neil Phillips has been arrested in Spain this week.

He is charged with masterminding a market manipulation scheme that reached from the UK to Asia. His strategy shows how hedge funds manipulate markets from currencies to stocks.

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From a new report in Bloomberg:

Phillips was charged with conspiring to manipulate the US dollar-South African rand exchange rate in late 2017. The indictment, which was returned in March but previously sealed, describes at least two co-conspirators, raising the possibility of charges against more people.

Phillips faces up to 20 years in prison if convicted. His scheme involved buying an option on the dollar-rand exchange rate, then manipulating the exchange rate to make his option pay off:

With the option set to expire, Phillips began making spot trades in an effort to push the exchange rate lower late on Christmas Day, while directing a Singapore-based employee of an unidentified bank to sell $725 million in exchange for more than 9 billion rand, according to prosecutors. That pushed the exchange rate below the barrier, triggering the $20 million option. Phillips collected more than $15.6 million from the deal and also allocated $4.34 million to an unidentified client.

Phillips’ moves show us how market manipulation works.

He took advantage of thin trading late Christmas Day. Markets are easier to manipulate when trading is light.

He also used trades in an underlying asset to benefit an options position. The same approach is likely common in stocks.

Phillips even went as far as involving a co-conspirator on the other side of the world in the hopes of hiding his illegal trades. But he was foolish enough to discuss the whole thing in chat messages on his Bloomberg terminal.

Bloomberg routinely gives chat records to the government in subpoenas. Phillips might not be facing prison had he used an encrypted app like Signal.

I find the Phillips case fascinating for how it trains us to spot hedge fund manipulation of markets.

If we suspect price manipulation, we should look for big trades at odd times. Major sell order right before the close on the last trading day of the year?

It might be worth a look.

Where do you see signs of market manipulation? Leave a comment at the bottom and let me know!

There will be no post on Monday for the holiday. Have a great Labor Day weekend everyone! 👋🥳

More on markets:

AMC Fails to Deliver Pass 700,000 in New Report

Why Hedge Funds May Pile into APE Shares

Is Melvin’s Gabe Plotkin Headed to Prison?

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Photo: “prison fence” by Brad.K is licensed under CC BY 2.0.

I Pitched a Robot VC

September 1, 2022

Every day, founders pitch me on their startups. This morning, I thought “Why not turn the tables for a change?”

So I pitched 3 VC’s on a startup idea. But they weren’t your usual investors — all 3 were robots. 🤖

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These robot VC’s live on a new platform called PitchExpert. They use GPT-3, a form of AI, to ask questions and help you refine your pitch.

I started with an elevator pitch:

It costs $10,000 or more to move into an apartment in many cities. The average person can’t afford that. We provide a loan so you can move into a great apartment today!

Here’s what the grizzled veterans had to say:

VC 1:

I like it! You’re onto something with this idea. Here are a few suggestions to make your firm more attractive to investors and increase its valuation:

Make sure you have a solid business model in place. Figure out how you’re going to generate revenue and profit from this service.
Do some market research to validate your assumption that there is indeed a need for this service. Talk to potential customers and get feedback on what they think of the idea.
Put together a strong team of co-founders and employees who can execute on the business plan and grow the company successfully.

Hey hey, not a bad reception! And talking to potential customers and figuring out an exact revenue model are great suggestions.

VC 2

Make sure you are clear on your target market. Who is your ideal customer?
Do your research on the competition. What are they doing and how can you differentiate yourself?
Have a solid plan for how you will make money. How will this business be profitable?

Not quite as sunny but probably even more useful. Knowing everything about potential customers and competitors is a good tip.

VC 3

This is a terrible idea.

Don’t try to solve the problem of high rent prices.
Instead of a loan, try a subscription model where people pay a monthly fee.
Use that money to help people move into better apartments.

Jerk. I’m going to unplug this guy.

What’s more, a subscription model when people move only occasionally doesn’t make much sense. Why would you pay for a subscription to something you use only once every 5 years, for example?

I’m actually amazed how spot on the first two VC’s were.

I like the mix of VC’s: Mr. Friendly (VC1), Mr. Just the Facts (VC2), and Mr. Abrasive (VC3). It mirrors real life.

I found VC2 to be the most helpful. His suggestions made a lot of sense and could help me refine the business model.

As an investor, I try to be closest to VC2. I mostly ask questions and don’t offer too many judgements, positive or negative.

I am mostly there to learn, not to direct the founder.

What do you think the robot VC’s got right? What did they get wrong?

Leave a comment at the bottom and let me know!

More on tech:

Where Are All the Startup Acquisitions?

Mark Twain: Venture Capitalist

The Power Law (Part One)

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Photo: “Robot at the British Library Science Fiction Exhibition” by BadgerGravling is licensed under CC BY-SA 2.0.

AMC Fails to Deliver Pass 700,000 in New Report

August 31, 2022

Note: This is not financial advice.

Fails to deliver in shares of AMC Entertainment Holdings hit massive levels this month.

Failed trades peaked at over 700,000 shares, according to a report out this morning from the SEC. They remained in six figure territory for all but two days in the period, which covers the first half of August.

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This many failed trades is highly unusual for most stocks. Let’s zoom in on August 8th and compare AMC with some of the largest stocks in the market:

Alphabet (Google):: 22

Amazon: 533,744

Apple: 379,843

Microsoft: 0

Tesla: 49,705

AMC: 723,636

Keep in mind, these other companies are dramatically larger. But month after month, little old AMC has far more failed trades.

Fails to deliver can happen for benign reasons, like administrative errors. But why would such errors affect this stock way more than others, time and time again?

The more likely explanation is naked short selling. This involves selling short shares you never actually borrowed.

It’s a powerful weapon to push down a stock’s price.

You don’t have to find any shares to borrow. And you don’t have to pay any interest to borrow them!

This means you can sell short an unlimited number of shares. Awesome, right?

It’s illegal for a hedge fund to do this. But that may not stop them, especially given lax enforcement.

But perhaps the most incredible thing is that 723,636 may understate the number of trades that are failing.

The Depository Trust & Clearing Corporation (DTCC) puts failed trades that don’t resolve for a long period into an “obligation warehouse.” At that point, they essentially disappear.

Earlier this month, over 9 million shares worth of failed trades in AMC stock suddenly vanished.

Maybe the DTCC were busy beavers cleaning it all up. Or maybe they just swept them under the rug.

We won’t know until the DTCC and SEC offer transparency on what happens to failed trades.

Something tells me we’ll be waiting a while.

What do you think of the new SEC report? Leave a comment at the bottom and let me know!

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Photo: Melvin Capital founder Gabriel Plotkin

Where Are All the Startup Acquisitions?

August 30, 2022

It’s tough times in startupland. Valuations are down and fundraising is hard.

For cash-rich tech giants, it should be shopping season.

But the big boys are sitting it out. From a report out this morning on Crunchbase News:

The four most valuable American companies have enough capital to acquire any startup they desire.

But despite their deep coffers, Apple, Amazon, Google and Microsoft aren’t doing a lot of buying.

So far this year, the “Big Four” have made just five acquisitions of private, venture-backed companies, per Crunchbase data. Of those, none were known unicorns and only one had a disclosed purchase price. That indicates the rest were smaller deals by tech giant standards.

And it’s not just a few megacaps that aren’t buying. M&A of VC-backed startups in general has fallen this year.

This is a strategic mistake for big tech. When the prices are low, that’s the time to buy!

A downturn is the perfect time for a company like Google to solidify its competitive advantage. It can expand its offerings, making sure it owns the products of the future.

Let’s take an example. I recently came across a new search engine called Andi.

Ask Andi a question, and it gives you an answer in what looks like a text message.

It’s pretty cool! And given how popular texting is, it could be the future of search.

Of course, Google could tell a bunch of engineers to build an Andi knockoff. But Google would start the race way behind.

Or Google could buy Andi for a tiny fraction of its massive cash pile. If this could be the company that disrupts your massively profitable business, why not just buy it and remove the risk?

What’s more, acquisitions are a great way to bring on a bunch of highly skilled people at once. It’s easier to hire a group of great people who are experienced at collaborating than to hire one by one.

And those small acquisitions can have a big impact.

Google bought Android for just $50 million. The company that became AdSense cost them just $102 million.

And yet, big tech isn’t shying away from acquisitions altogether.

Microsoft is acquiring Activision for $68 billion, it’s biggest deal ever. And Amazon is scooping up One Medical, Signify Health, and iRobot in multibillion dollar deals.

With checks like that being written, big tech should pick up some startups for a song while they’re at it. After all, as Jeff Bezos said, “big things start small.”

What are the best acquisitions big tech could make and why? Leave a comment at the bottom and let me know!

More on tech:

Adam Neumann Was Their Biggest Investor — Now He’s Their Biggest Competitor

Mark Twain: Venture Capitalist

Startups’ Secret Weapon for Recruiting: Their Investors

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More on Fundrise in this post.

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Photo: “Jeff Bezos” by jurvetson is licensed under CC BY 2.0.