cdixon

Commoditize the complement: http://www.joelonsoftware.com/articles/StrategyLetterV.html

VCs almost always bring in outside experts to diligence ideas that they are qualified can't diligence themselves. That happened extensively here.

Sounds like you are interested in philosophy after all! :) Whether and how there can be a priori knowledge is an old philosophical question.

Yeah I thought about using "vertical integration" but that's a pretty overloaded term at this point. Usually refers to existing businesses buying up suppliers/buyers to control production and pricing. I think "whole product" (from Crossing the Chasm) might also work. Happy to call it something else but I think it's useful to have a word for what's happening.

It is Bitcoin. I was just trying to present some of the ideas behind Bitcoin without all the baggage of the word.

My view is that the whole system was designed for a different era and not for the web. The problems include 1) consumer having to fill out a form at each merchant, 2) consumer having to decide if she trusts the merchant (1 & 2 lead to the strategic asset of "cards on file"), 3) the bank trying to determine with probabilistic algorithms whether it was really me paying, 4) the security of the whole system is very flawed. 5) all the money spent on marketing these services (including rewards) when instead the services should be baked into the internet.

That said, I agree with you that the digital cash / new behaviors are the most interesting part of Bitcoin. Just much harder to explain.

My guess is the exchange fees will go down over time and instead Bitcoin companies will end up making money selling additional services.

I think the original Bitcoin paper said it well: "small casual payments."

To pay online right now, you have to decide: 1) do I trust this vendor 2) do I want to fill out this form with all my info

Generally this (plus transaction fees) only make sense for transactions above $10.

The vendor responds by trying to build a relationship with you- by building brand trust and by pushing you toward an ongoing relationship (recurring payments, creating an account etc). This is why "cards on file" is considered a major business asset online.

As a result, any online service that doesn't make the cut is forced to resort to an advertising based business model.

Definitely interested in lots of other uses for the ledger. If you or someone you know is working on something, we (a16z) would love to talk. I'm hoping next year we'll see a lot more startups building on top of the Bitcoin protocol.

I also think this issue is going to become more urgent as native mobile apps that do have a "global" (OS-wide) payment system become more dominant. Open web needs something analogous to compete.

Here's one model that could work. Think of Bitcoin as analogous to physical cash. Cash = small casual payments in offline world. Bitcoin = small casual payments in online world. (btw, the original Bitoin paper says this pretty explicitly). I don't keep my savings in (physical) cash. I keep some spending money there. Similarly you will have your internet spending money. You'll converts to and from USD occasionally but not on every transaction. Maybe some people will store value in Bitcoin but they will be the exceptions.

But ultimately smarter people than me will figure out the right model. That's the beauty of software platforms.

Great list. I would also add:

What is Mathematics? http://www.amazon.com/Mathematics-Elementary-Approach-Ideas-...

Yes, our investment was very publicly disclosed on my blog, Coinbase's blog, and multiple news sites. Also, I was posting positive things on my blog about Bitcoin long before I (or a16z) had a financial interest.

I am interested in Bitcoin as a new payment system / economic protocol for the Internet. I don't think people should buy Bitcoins for speculative purposes. On the other hand I'd love to see more developers build things on top of the Bitcoin protocol. My job is to invest in new technologies and I believe Bitcoin is one of the most interesting new technologies in the past 20 years.

We (a16z) would love to see more innovation along these lines and would be excited to try to help.

I agree it's imprecise. But I'd argue the de facto fees in the existing system are much higher than 2.5%. The biggest cost are all the transactions that should happen but don't. Most merchants/payment companies block payments from dozens if not hundreds of countries due to fears of fraud.

We invested in Oculus after we saw a demo of the new prototype. For me, it was up there with the first time I saw Apple II, Mac, the web, Google, iPhone etc.

I'd strongly recommend having a presentation in the pitch meeting. It helps control the flow of the meeting and ensure you cover all the important points.

Agreed. That is a ridiculously hard problem but in my opinion perhaps the most important tech problem of our time.

This follows a classic pattern. Incumbents once argued that having a 3rd wireless carrier per city was a threat to the public: http://cdixon.org/2012/10/10/regulatory-hacks/

"You have to ignore the elephant in front of you, the likelihood they'll succeed, and focus instead on the separate and almost invisibly intangible question of whether they'll succeed really big."

This reminds me of Arthur Rock's heuristic: he said he invested in startups that were "open ended with no limits to their success" as opposed to ones that seemed likely to succeed.

It turns out startups are risky.

I think you guys are being a bit too literal. This is how people talk in colloquially, and it's a common phrase in the hedge fund world where I was working at the time.

I was thinking of 2001-2002 (genuine downturn) and then separately 2003-7 (great time to invest - e.g when I invested in Skype). Obviously 2008-ish (RIP good times) was the 3rd. Maybe I shouldn't have called them "downturns" but instead "depressed VC periods".

Yes. Wall Street grades Facebook by drawing lines through dots of revenues and margins. The more accurate way to view Facebook is as a powerful coil that can spring in multiple directions. (I say this as someone who questions whether Facebook is a positive force on the web).

The canary trap.

Mostly: Less competition for users (e.g. there are 600K iOS apps now - too many), and easier to hire (main alternative right now is to get funding and start a company).

This happens every couple of years in tech. I've personally witnessed 3 downturns now. One was real and two were arguably the best time to start companies. Raising money might be harder, but generally only for bad companies.

I like the idea of getting together to demo stuff you are working on more than hackathons.

Sadly, I think Joel is right. Format is designed for soundbites.

I was the cofounder at CEO of SiteAdvisor before it was acquired by McAfee in 2006. I haven't had control over it since then and left McAfee 4 years ago but my sense is that they are trying to rate sites correctly but just understaffed/underfunded. I read the reddit article but couldn't find the URL in question. When I was running SiteAdvisor we made mistakes but were also accused of being a scam by the biggest spyware distributors etc who hated the fact that we were calling them out. So I think it's important to take it case by case.