The anti-portfolio in the Cloud Age (and beyond)

With Friday’s very interesting talk about cloud computing and the role of Venture Capital in the future of this technology, I’ve decided to write about the “Anti-Portfolio” and considerations about technologies beyond the cloud.

The Anti-Portfolio is a term coined by VC Fund Bessemer Venture Partners (BVP)[1]. Their website states “Bessemer Venture Partners is perhaps the nation’s oldest venture capital firm, tracing our roots back to the Carnegie Steel empire. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.”[1]

In other words, it is a prominent, public, list of missed investment opportunities that would have been huge successes for the Venture Capital Fund. Some other VCs have also released similar lists. Behind the humor is an interesting approach to learning from mistakes and, in some cases, hubris.

To make this more interesting and relevant to the class, I will focus on 3 major points:  the types of companies are in this list and which ones might be in the future, reasons for companies joining the anti-portfolio, and other considerations.

Companies

Some of the (past) examples from the BVP anti-portfolio include Apollo Computer, Apple, FedEx, Dollar Shave Club, Intel, Tesla, Compaq. While there is a mix of technology and non-tech companies in there, what I found interesting was that a lot of the tech companies had physical products, whether or not they were hardcore “hardware” companies. Not surprisingly, however, the next generation of anti-portfolios will likely list SaaS companies that sell a purely software service with cloud computing handling the backend infrastructure side of things. Some examples: Uber (Rincon Venture Partners missed out what could have been a $1.1B deal[2], and a16z also missed “a profit, on paper, of more than three billion dollars”[3]), Twilio [4], and Box [5].

Going forward, I expect that the areas for the next anti-portfolio are those we will discuss in class: AI and ML, Blockchain, IoT, healthcare/biotechnology, 3D printing to name a few. The IoT aspect is particularly interesting to me, since it holds the potential to disrupt the cloud model we talked about on Friday due to the growth of the “Fog” or the “Edge” computing model.

Reasons

I thought it could be interesting to explore some of the reasons VCs gave for passing on investment opportunities.

The first was expertise: VCs themselves were gaining expertise in leading trends at the time and weren’t able to picture how the startup would fare in a different world (eg. with Uber or Lyft or Zipcar, the trend was not to take down the taxi industry but to imagine a world where very few people owned automobiles). On Friday we talked briefly about Blockchain, and how volatile cryptocurrencies were causing hesitation, and I think this could be a reason for missed opportunity in this area.

The second was regulation, or lack thereof: The reason BVP passed on Evolent Health was regulation since the “ACA hadn’t passed yet”[6]. Drawing a parallel to Friday’s lecture, perhaps there were missed opportunities before HIPAA or FedRAMP compliant guide cloud stacks. No doubt we will see this with currency transfers and transactions based on Blockchain.

Other considerations

I found two other aspects that I thought were worth sharing:

The first was about gender in VC “While women start companies at twice the rate of men, female-founded companies get only 13 percent of the total angel financing available.” And that  Female CEOs get only 2.7 percent of all venture funding, while women of color get virtually none: 0.2 percent. A new fund and steering board is in the works to fix this.

The second was a lesson almost all investors, personal and VCs, learned through missed opportunity, which was to trust the team (and in some case, friend) over the idea. This is best summed up by Greathouse who passed on Uber “The ultimate lesson I learned from scoffing at Uber is that I should have honored my friend’s thoughtful (and repeated) suggestions and his nose for great businesses,” [2]

 

References:

[1] https://www.bvp.com/portfolio/anti-portfolio

[2] https://nextshark.com/john-greathouse-uber-investment/

[3] https://www.quora.com/Why-did-Andreessen-Horowitz-pass-on-investing-in-Uber

[4] http://johngreathouse.com/vc-confessions-we-passed-on-twilios-seed-round/

[5] https://pando.com/2014/01/31/box-is-the-unicorn-that-mark-cuban-let-get-away/

[6] https://medium.com/think-with-bvp/evolent-health-another-entry-in-bessemers-anti-portfolio-63e4d56c3090

[7] https://www.inc.com/magazine/201611/kimberly-weisul/new-face-of-funding.html