Unpause - Week in Review 06/01
N26 Mafia, Sweetgreen Growing, Gaming Ascendant, and some Fine Books and Movies
|Jan 6, 2020|
Hello everyone, great to be back. I hope the holidays were a fun and relaxing time for you all. I was able to get in some skiing, though I was sick for most of it, visited some family and hung out with my college friends back home in NYC. Berlin, I’ll see you Tuesday the 14th!
I am making some progress on my long-form paper. I will take a look at a few established entrepreneurial ecosystems, analyze their theological, spiritual and philosophical origins, and then try to chart a way forward for the European scene.
I’m very much looking forward to publishing it!
Now on to the content ;)
N26 Talent Exodus
On Four Important Managers Leave N26 (German) by John Hunter and Caspar Schlenk
Startup ecosystems are built by the alumni of early trailblazing companies. Silicon Valley itself was born from a massive wave of defections from the first truly disruptive startup, Fairchild Seminconductor, led by the legendary Robert Noyce. Household names like Raytheon, Advanced Micro Devices, and, most importantly, Intel, were all started by alumni of Fairchild (often called the Fairchildren), who, in their time under Noyce, learned what it took to build and scale a new business by experiencing rapid growth themselves. More so, Noyce and the other leaders of Fairchild had famously left their previous employer, Shockley Semiconductor Laboratory, desiring more space to innovate on their ideas.
Of course, the alumni of Paypal, the Paypal Mafia, serve as the most prominent contemporary example of this phenomenon.
These guys (yes, they were all dudes) built many of the household names in Silicon Valley today. Included in this group are the founders of: Tesla and Space X (Elon Musk), LinkedIn (Reid Hoffman), YouTube (Steve Chen), Yelp (Russell Simmons and Jeremy Stoppelman) and many others (such as Peter Thiel’s Palantir). Additionally, these people went on to finance many other technology companies in their roles as VCs (almost all of Founders Fund, Roelof Botha @ Sequoia and the extremely underrated David Sacks @ Craft Ventures).
Now, this may all seem a bit hyperbolic when speaking of the departure of four executives from a young albeit fast-growing neo-bank in Berlin. However, it is not just these four members of the leadership team who are leaving to start their own ventures. Having struck up a friendship during the summer with a former PM at N26 who left a few weeks after I met him to build something in the wellness/productivity space, I wondered if there were more like him. It turns out that my hypothesis was confirmed to a truly unexpected degree.
In an internal document I prepared for the team at Project A Ventures, I identified over 10 such people who held PM or similar roles who had left N26 in the past 9 months or so. A clear majority of these folks have now transitioned to being founders themselves, working on exciting projects in the German capital.
In my view, this is a fantastic development for the Berlin ecosystem. While in my first investor role here in Germany, I rather quickly realized that a large portion of the entrepreneurs who receive funding from the “top” VCs come from consulting backgrounds. While there is no doubt that former management consultants can and have built industry-disrupting startups (Sennder is a great example), the evidence from SF and elsewhere strongly suggests that the best founders emerge from roles in which they played a large role taking other tech concerns from zero to one.
I am extremely excited to see and potentially fund these great people who cut their teeth at Berlin’s most recent success story!
Sweetgreen Chasing that Sweet Green through Innovation
On In a Burger World, can Sweetgreen Scale Up? by Elizabeth G. Dunn
For my European friends who may not have heard of Sweetgreen, it is an LA-based restaurant chain selling salad bowls with a focus on sourcing local, sustainable ingredients. Valued at over $1.5 billion, it is the only restaurant unicorn. They largely cater to wealthier customers in the prosperous American metros (NY and LA are their biggest markets) and have 103 locations. The salad bowls cost between $12-$20.
On the food side of things, they innovated by developing “meal-like salads” that are characterized as a bit nostalgic and rather “un-saladish”. The author reports that their longest-running menu item is “chips and dip rendered healthful” in salad form.
The company posted revenue of $300 million for 2019, around $3 million per store.
In the next iteration of their product, called Sweetgreen 3.0, the team plans on building a sophisticated network of ghost kitchens to facilitate delivery service that will offer a wider array of dishes and meals. Per the article, they are testing sandwiches and are developing a hot bar of dinner items (Sweetgreen is mostly thought of as a lunch place for urban office workers) sold as single portions or bundled to feed a family of four. Moving to selling family meals seems like a great move, though it could be difficult to convince the middle class mother to pay ~$100 for family dinner.
The most interesting part of the article concerns the success of Sweetgreen’s early adoption of technology, particularly via the release of a mobile app way back in 2013 which enabled customers to order on the go and seamlessly pick up their items, long before this was standard practice. Due to their status as first-movers, Sweetgreen calculates that 55% of order volume comes from their app, compared to only 18% for Chipotle, largely considered a mobile ordering pioneer.
While customer demographics certainly play a role in this disparity, Sweetgreen’s success at facilitating business through mobile is a hugely positive indicator. Such a customer relationship facilitates stickiness through habit-forming behavior, along with far easier ability to up-sell through the mobile app experience. Additionally, data collection through in-app purchases can assist the company in marketing and sales efforts, allowing them to tweak their offerings based on customer profile.
Finally, Sweetgreen has managed to avoid getting caught up in the unit economic depressing delivery wars. Instead, the company has eschewed working with firms like DoorDash, who charge margin-murdering commissions, by building something called Outpost, which entails branded shelves in office and apartment buildings where Sweetgreen can deliver dozens of salads at the same time. In just 18 months, the company has built 700 Outposts, and will, without question, scale them as they open more ghost kitchens in their core markets.
While its founders are quick to point out, in contrast to say WeWork, that Sweetgreen is not a tech concern but a food company, beholden to the growth and scaling constraints that define culinary preparation, it is abundantly clear that Sweetgreen has effectively integrated developments in both new technology and management/company building practices to create a dynamic food service firm with a bright future ahead.
The Bull Case for Gaming
I have been an optimist for a while with regards to gaming’s emergent potential as a dominant media category. Back when I was a young (2009-2010), I was a semi-professional Halo 3 player, captaining a team called Side Effect. The competition at the time was Major League Gaming (MLG). MLG would host 5 tournaments a year, four regional and then a national championship, where the winning squad would take home $100k in prize money (split 4 ways, I might add). The tournaments were broadcast live over the internet for free, with the league financing the streaming by selling ads to consumer goods firms with significant adolescent male clientele—I recall Bic razors, Dr. Pepper and Stride bubblegum.
While my memories of the league are very fond, in retrospect, it is clear that as business it faced quite a large set of challenges, the largest of which was likely the constraints of streaming technology at the time, along with the difficulties of providing a truly immersive (read: monetizable) experience. In fact, MLG, having raised ~$70 million in venture financing, ended up being acquired by Activision for a paltry sum of $46 million in early 2016.
Over ten years after I was involved, gaming as a disruptive force in the media landscape has arrived, argues Matthew Ball, a venture capitalist focused on investing in interactive media companies and a former Amazon executive.
Ball goes into great detail in his piece, but, for brevity’s sake, I will isolate, what I believe to be the most fascinating trend that, if it develops robustly, should drive this industry forward rapidly.
The gaming ecosystem is now competitive with bundled television.
Back in 2009, video games suffered from serious limitations of access, discovery and functionality.
In the old days, the only way to play was to purchase the disc online or from your local Gamestop. In the past, the player was completely stuck to a single device in a single location. Not anymore. Now, the emergence of cloud gaming enables players to take the game with them everywhere they go. Further, with cloud memory systems, it is easier than ever to access saved files from a wide range of devices.
Ball writes, “historically, the number of games played and the amount of total play time have been limited by the high barriers to finding and trying a new game - namely a $40-60 price tag plus the need to spend a half-hour downloading a game, or more time literally picking up or receiving a physical copy”. This has changed significantly. Due to improvements in technology, along with a shift in IP attitudes and monetization strategies, the major platform players (Microsoft, Sony, and Apple) offer a bundled, buffet-style offering of many titles for a subscription fee. In theory (and in practice: Microsoft reports that customers of their subscription product increase playtime 40%), users being able to widen their library of games should lead to considerably more engagement not just with the games, but the interactive universes built around this IP.
Finally, games used to have only one function: immersive entertainment. Ball argues that not only have games generally become more immersive through technological improvements, but as Fortnite shows, the function of games has broadened considerably. Now, due to both a large cultural and technological shift, the most successful of games are evolving into their own cultural universes, in which spending time with friends and sharing relevant experiences are paramount.
In the next few years, as gaming properties continue to evolve and fix their sights on conquering the TV industry (Netflix believes one of their biggest risk factors to be the rise of Fortnite), there is much evidence to suggest that, for venture capitalists and founders alike, there will be much value to be captured in the realm of gaming.
I love vacations/holiday breaks because, especially in winter, as there is so much time for reading books and watching movies.
I have been enjoying some great fiction in the last two weeks. My two favorites of the four I have read thus far are The Elementary Particles by Michel Houellebecq and Other Men’s Daughters by Richard Stern. Quick notes on each to follow:
Whew, where to start with Elementary Particles. Truly an insane book, it is extremely French. Lots of sex, lots of pessimism, lots of misery, all rendered hilariously. The form of the plot is rather clever and society is heavily critiqued throughout, especially hippies. Just great.
Other Men’s Daughters, on the other hand, is extremely well-written. Phillip Roth, one of America’s finest writers, evaluated it by saying it “was like if Chekhov had written Lolita”. The book follows an aristocratic, WASP professor of medicine at Harvard who falls in love with a student amid his crumbling marriage and the rapidly changing world of the late 1960s. The writing is truly special and there is one scene, in particular, that I will likely never forget involving his girlfriend’s father flying to Provence to take her back home. Profoundly great, highly recommend.
As for films, I have seen quite a few as well in this time, mostly because I have been hanging out with my pals Daniel and Kyle, who are filmmakers. Two best from the break have been Uncut Gems and Portrait de la jeune fille en feu (Portrait of a Lady on Fire).
Uncut Gems is a riotous piece of film making that paints an extremely convincing and hilarious picture of New York Jewish neurosis and anxiety through a remarkable performance by Adam Sandler and an ensemble cast, many of whom were first time actors. Portrait of a Lady on Fire, on the other hand, is a stunning period piece, taking place in 19th century France, somewhere on the Atlantic coast. The story follows a beautiful painter sent to a country estate to paint a portrait of the lady living there, so that her suitor, a Milanese nobleman, can decide if he wishes to propose. The two fall in love in a fiery and dramatic romance. Gorgeously done film with plenty of meditations on art, love and friendship.
And finally, a quick mention of the Amazon and BBC series Fleabag. Watch it if you haven’t, hit me up to discuss if you have. It’s so so good. The second season, which came out early in 2019, is as close to perfect television as I have seen.
Phoebe Waller-Bridge, forget Martin McDonagh, I’m your guy :)
Thank you so much for reading,