“If I never again have to read a bunch of entitled tech bros mansplaining on twitter about their way of working is the only way, I will die a happy man.” Canadian Investor Chris Neumann on Venture Vibes, Who Helped Him Along the Way, and the Qualities of a Founder Who Could Fail But He’d Back Again

I’m always a fan of investors who write consistently, while blending personal experience and utility, versus just content marketing. Chris Neumann (of Canada’s Panache Ventures) checks these boxes so I asked him to come on my blog (currently less consistent, hopefully still the other two) for Five Questions.

Hunter Walk: So why venture capital, why early stage, and why Canada?

Chris Neumann: I’ve been lucky to have been a part of 5 startups going back to the late-90s, including two that were VC-backed (DataHero and Aster Data). After DataHero was acquired, I felt like it was time to try something new. 500 Startups was looking to add someone with an enterprise background to their investing team, so I made the leap into venture at the start of 2017.

At 500, I had the opportunity to work with early-stage founders from around the world and quickly realized that this was where I wanted to spend my time. I really enjoy the creativity and problem-solving that takes place during the early stages of a company, when founders are trying to solve a crazy number of challenges in parallel in order to get to product-market fit.

As to “why Canada?”, I’ve spent a lot of time in international ecosystems over the years (I’ve invested in startups in more than 20 countries and helped run accelerators on 5 continents). That exposure gave me insight into the significant knowledge gap that exists between Silicon Valley and the rest of the world. When you spend most of your time in the Bay Area, you’re oblivious to how much of a global outlier the region really is in terms of the density of experience and availability of people who have “been there before”. I felt that there was an immense opportunity to help narrow that gap for international founders, which led me first to found Commonwealth Ventures and eventually to move back to Canada and join Panache Ventures.

In the last 5 years, the Canadian tech ecosystem reached a significant inflection point in terms of the frequency with which world class startups were being founded and the ability of the ecosystem to support the creation of globally-impactful tech companies at scale. Toronto has now firmly established itself as the third largest tech/startup ecosystem in North America (sorry Miami) while Vancouver has finally embraced its proximity to Silicon Valley and the advantages that come from being the only major international city in the same time zone as San Francisco. What’s happening in Canada right now from coast-to-coast-to-coast is really quite remarkable.

HW: Your blog, which I love, tries to bridge a knowledge gap between founders and investors, often explaining ‘why investors do/care about X’ and so on. If you could magically give one piece of advice to every founder seeking venture capital what would it be?

CN: Thanks so much – that means a lot coming from you.

Speaking to international founders – which is really my focus – the number one piece of advice I would give is to spend time in the Bay Area. And I don’t mean going for a vacation or one of those week-long “startup tourism” trips, but really spend time there. Like a month or two.

The corollary to my earlier comment on Silicon Valley’s outlier status is that many people who live outside of the U.S. downplay or outright dismiss the advantages of being in the Bay Area, without really understanding them. They latch on to the narrative that “great companies can be built anywhere” and assume that founders around the world are competing on a level playing field, when they couldn’t be further from the truth. It’s a mix of naivety and nationalism that is detrimental to the success of both the individual companies and the broader ecosystems.

That doesn’t mean I’m advising founders to permanently move to Silicon Valley, but all of the best founders I’ve met have spent serious time in the Bay, immersing themselves in the tech culture and dynamics of the region. They return to their home countries far more informed and educated in terms of what they’re up against and far better positioned to win vs. relying on bad advice and what they read in the media.

HW: Of the companies you’ve backed that truly failed financially (let’s define that as weren’t able to return the invested capital back), what percentage of those CEOs would you back again? What are some differences between those you would line up again to support and those you merely wish best of luck to?

CN: That’s a great question. I’d have to say that number is probably less than 10%.

For me, there are three major differences between CEOs I would back again and those I would not:

First and foremost, how capable were they as CEOs? In many cases, it becomes apparent over time that a particular founder isn’t actually well-suited to the role of CEO. Maybe they can’t sell. Maybe they’re too stubborn and their own idea gets in the way of hearing the market’s feedback. Maybe they have trouble letting go of things and empowering others as the team grows. Being the CEO of a company is a singularly unique role with demanding expectations and responsibilities, and most people really don’t belong in that role.

Secondly, how effective are they as communicators? The best CEOs I’ve worked with prioritize communication and keeping key stakeholders in the loop. That doesn’t mean that I expect to get a weekly call from a founder, but it’s essential that I have some idea of what’s going on with the company if I’m to gain confidence in the CEOs ability to navigate the ups and downs of a startup. That’s why investor updates are so important.

Finally, are they able to thoughtfully reflect on and learn from their failures? Once the dust has settled and the CEO has had time to process the emotions that come with having your startup fail, can they look back objectively and identify things that they might have done differently or decisions they made that turned out to have negative long-term consequences? That’s a big one for me.

It also goes without saying that how a CEO handles themselves in the final days and weeks of a company plays a crucial part in how investors ultimately see their legacy. You’ll never be able to tie everything up with a bow, but acting ethically and with integrity while trying to take care of your team is ultimately what matters.

HW: What’s the dumbest argument that our industry is currently having and why is it “remote vs hybrid/in-person?” But seriously, you’ve been a founder/CEO – what choices did you make about the culture of your startup that you think suited you well, and which ones would you revisit (or try to do differently)?

CN: If I never again have to read a bunch of entitled tech bros mansplaining on twitter about their way of working is the only way, I will die a happy man.

When we founded DataHero back in 2011, there was a trend going on where people were obsessively trying to “design” their company cultures. I never understood that – how on earth you could reason from first principles about culture and simply proclaim “this is what it will be” (Later, when Ben Horowitz published his book “What You Do is Who You Are,” I realized that I wasn’t the only one). Overall, we just tried to do the right thing. Treat people well. Show them that you respect and appreciate them. But also make sure everyone understands that startups are hard and work ethic is important – so keep the bar high.

In terms of specific choices, I think we did a really good job of being pragmatic. We didn’t overthink things. For example, we had a hybrid work schedule starting in 2012. M/W/F in the office. T/Th work from home. Why? Because Bay Area traffic sucked. That’s it. That simple.

We also worked really hard to keep a pulse on how people were feeling and take breaks when needed. For example, I remember one period where the whole company had been grinding for a couple of weeks leading up to a big release. It was apparent that everyone on the team was getting really stressed, so one day we declared that we were closing the office at lunch and going to get massages. We then took the entire team down the street to a Thai massage place, paid for everyone to get one, and went out for beers afterwards.

I think the hardest choices for me were around people who were underperforming. It’s easy to proclaim that you’re going to “hire slow and fire fast,” but when it comes down to it, very few people do that effectively – especially in resource-constrained startups. I can think of a few cases where I kept underperformers far longer than I should have, leading to longer-term cultural issues amongst the rest of the team.

HW: Who’s an investor you consider to be a role model and why?

CN: There are so many investors I’ve had the privilege of learning from over the years. Josh Kopelman was an early investor in Aster Data and for me really exemplified what it means to be generous with your time as an investor and show respect for founders. When Aster Data was acquired and I left to found DataHero, he spent more hours than I can remember meeting with me and brainstorming about the potential for cloud BI. On the one hand, he was definitely playing the long game and hoping for a potential investment, but it was more than that. Even after passing on our Pre-Seed round, he continued to make time. It was only later that I realized how much of an outlier he was in the way he interacted with founders.

From a partnership standpoint, the guys at Foundry (who ultimately led our Pre-Seed round) have been another role model for me. They make a point of encouraging founders to reach out to any of the partners – and have no ego around that. When I was a founder, it was such a powerful way of supporting portfolio companies. Now that I’m an investor, I can see how much efficiency and effectiveness comes from trusting your partners – not only when it comes to deferring on “risky” investment decisions, but also in terms of handing over a bit of “control” of the relationship with portfolio founders. There are a lot of things they do from a portfolio support perspective that we’ve looked to as examples at Panache.

Thanks Chris! Everyone subscribe to his blog.

Linkblog: What AI Model Should Your Startup Use, What Your VC Can’t Do For You, and More

I’ve got a few flights next week so hopefully more original content coming then, but for now, sharing some good reads.

a raccoon, sitting in a tree, reading a book, while drinking a soda, cartoon art

Which AI Model Should You Pick for Your Startup? (Tomasz Tunguz) – My former Google colleague and fellow VC provides a guide to Big Model vs Small Model (as well as a Third Way).

“A product manager today faces a key architectural question with AI : to use a small language model or a large language model?”

Where Your VC Can’t Help (Ellen Chisa) – Product manager turned founder turned VC chimes in with some of the areas that your VC can’t (or shouldn’t) help. Specifically “I can’t tell you what product or company to build,” “I can’t find your first engineer,” “I can’t help you ship,” and “I can’t make someone use your product.”

Entrepreneurial Archetypes (Jared Hecht) – The founder of GroupMe and Fundera compares and contrasts five types of entrepreneurial motivation (the serial inventor, the opportunist, the problem obsessor, the industry expert, and the academic), along with the pros/cons of each. Jared starts to get into what I think would be a great follow-up post, which is what about cofounder pairings? Which combo well together and which are too much, or too little, of a good thing.

What Happens When Small and Large VC Firms Decouple and Have Less in Common? (Charles Hudson) – You all know how much I love Charles’ posts and tend to agree with most of them. Here he talks about the bifurcation of models and incentives among funds of different sizes.

“In a world where all funds were part of the same ecosystem, the venture capital business worked like a relay race. The pre-seed and seed investors worked with companies to get traction, the Series A and B investors provided capital and support to help them prove out scale, and growth-stage investors helped prepare them for life as public companies. Each participant had their own lane and specialty and mostly focused on the thing or things they did well until it was time to transition that company to the next person in the chain.”

He also touches on how company exit size (and its return to normal expectations on average) is such a huge impact on fund models. The smaller funds that lack concentration will find that even winners don’t really move the needle enough (you need several) and the larger funds are trapped by their own AUM. Summer 2022 this was one of my two biggest statements about what the downturn means for startups and venture.

Enjoy the reads!

Why a Seed VC Should Care More About Ownership Than Valuation on Each New Investment, But Understand the Fund Impact of Paying Too Much Too Often

My friends at Weekend Fund recently put out a round-up newsletter of some investor responses to the question “Do Valuations Matter?” It’s all worth reading but I’ll excerpt my thoughts here since it’s a discussion Satya and I have often with new VCs.

scales of justice statue with dollar bills on each scale, cartoon art

How Hunter Walk @ Homebrew approaches valuations 

Homebrew is an evergreen fund investing primarily in pre-seed, seed and Series A rounds. 

Like NEA, Homebrew takes an ownership-driven approach to investing. They view valuation as an important guardrail in evaluating an investment opportunity. Hunter also breaks down their framework for evaluating an investment opportunity when achieving their target ownership exceeds their maximum check size, and the “opportunity cost” of doing so resulting in less diversification. 

More from Hunter: 

“In our historically concentrated approach to seed stage investing, hitting our ownership target mattered more than valuation *but* valuation was an incredibly important guardrail in evaluating an opportunity, for it has great impact on the company and our portfolio management overall. 

We set a ‘max check size’ for our initial investments which was meant to get us, on average, 10-15% ownership and if held to, would overall guide us to an investment period that provided both time and company diversification for the fund. It also drove our reserves strategy. So in any negotiation, whether we wrote our ‘max check’ to get the target ownership was a factor of round size, company stage, and so forth. But we would rarely walk away from an opportunity based on valuation if it fits within that target ownership and check-size box. 

In situations where targeting the 10-15% ownership would have required a commitment larger than our ‘max check size’ we had to decide whether (a) the opportunity here was worth 1.5 or 2 slots – ie are we going to make one fewer investment out of the fund in order to do this one or (b) would we stick with our check size but take lower ownership as a result or (c) walk away. Of these three, (c) was the most common decision for a variety of reasons that were about being consistent in our strategy and product offering.”
— Hunter Walk (Homebrew) 

Compare your level of conviction to the price the market is setting

“The ‘valuation question’ is one that comes up frequently in our discussions with the emerging managers we back via Screendoor (where we will invest up to 10% of a fund’s target raise and bring them into a community of investors ongoing for these types of questions). While situations can differ, my general rule is that the market determines the price, so you have to kind of decide whether your conviction in a company is equal to, greater, or less than price the market is telling you they are ‘worth.’”

Be disciplined to ensure you can hit a minimum portfolio size 

“It’s a power law business so an EM wants to be able to show the quality of their access, picking, and winning. Having hard and fast ceilings on what you’re willing to pay, or trying to over focus on the upper bound of your ownership target too early in your venture lifecycle might make it tougher to prove selection success. So don’t routinely overpay or outbid, especially when you don’t believe in the company as much as the market does, but potential LPs will be more interested in the number of successful investments you picked than your entry price in them. Just maintain enough discipline to ensure you can hit a minimum portfolio size.”

Valuation negotiations can reveal a lot 

“Besides the math of it all, valuation negotiations can tell you a lot about what matters to the founders, the type of relationship they want to have with their investors, and the goals they need to achieve to complete successful next financing.”

I Can’t Stop Marveling at SF’s Driverless Cars

My daughter and I love San Francisco’s driverless cars from Cruise and Waymo. It’s extraordinary to see these autonomous vehicles putter around our streets, sometimes with non-driver passengers in the back seats.

I know they’re not perfect. I know lots of capital was spent and commercialization has been slower than some pundits imagined (although some of the reasons are up for debate). And the left-turn problem is more interesting to me than the trolley problem. But I can’t help but think ‘moonshot in motion’ when I see them and it brings wonder to our faces, which helps reinforce and remember that technology continues to have amazing potential.

Sunday Linkblog: What Do Investors Really Want From Founders; Stop Hiring Mediocre Executives; and Practical Tips for Investor-Led Go To Market Help

Some recent reads that I’ve enjoyed

a bunch of children sitting on a colorful rug in a classroom reading books, digital art [Dall-e]

Fund Size is Still Strategy – The Growing Disconnect Between Founders and VCs (Charles Hudson)

“The biggest understanding gap I see between founders and VCs today is this understanding of the relationship between the investor focus on terminal outcome and the founder focus on the microeconomics and unit economics….. The net result is a lot of of frustrated founders who don’t understand why they can’t raise with $1-2 million in ARR and investors who don’t understand why founders don’t realize they are in small markets, regardless of early traction.”

As Charles also notes, this is exacerbated by the rapid increase in venture fund size. Every dollar increase effectively needs another several dollars of startup exit value to justify the AUM growth.

Tips for Talking With Your Investors About Bridges and Extensions (Charles Hudson) – Charles covers a bunch of the questions VCs and founders should consider, and hopefully align on, when raising an incremental insider financing.

Beware the “Mediocre Recycled.” The Zombie Executives of SaaS (Jason Lemkin) – The type of folks who are at a bunch of companies, some of them actually good, for 1-2 years, never really getting the job done but polished enough to fake it for a while.

Skip the Line – make it easy for your VC to walk you in the door of potential customers (Ellen Chisa) – Bunch of practical things you can do to tee up your investors for sales help and make it easier for them to execute your asks.

Investor Relations Should Not Be Scary (Sean Byrnes) – Sean’s a repeat founder/CEO and gets to the heart of these conversations between founders and VCs.

“The expectations of most investors are very simple. Your investors want:

A credible plan for the business that you, as a leader, believe strongly in.

That’s it. That’s what they want. It sounds simple, but let’s break it apart to see what it takes to give that to them.”

Three Reads Over a Holiday Weekend: Encrypted Phones Spill The Beans On Criminals, Yard Signs Ruin Democracy, and the Costs of a High Regulation/Low Trust Society (as told through a bus stop)

Just articles, posts and thoughts that I’ve found interesting

falling asleep on the beach while reading a book, anime style art

Crooks’ Mistaken Bet on Encrypted Phones (New Yorker) – How European police have cracked “safe” encrypted phones often used by criminals, and the wealth of data it’s provided. Come for the tech story and stay for insight into why cocaine is huge in Europe, how smuggling logistics work, and the slang used to describe murder.

The Dangerous Rise of ‘Front-Yard Politics’ (The Atlantic) – Derek Thompson on why obsessing over slogans and words (and the performative display of them), is further distracting us from getting stuff done and creating artificial conflict.

Why the US Can’t Have Nice Thing – a Rant on Bus Stops (Chris Arnade) – Our continue slide into incompetence, as demonstrated by a Los Angeles bus stop project.

“To get big-brained about it, something like La Sombrita could only happen in a high-regulation/low-trust society like the US. In every other variation (low regulation/high trust, high regulation/high trust, low regulation/low trust) you get either larger public works without fear of vandalism or misuse (a proper bus shelter), or like in Quito (a lower regulation society) you get natural ad hoc bottom-up solutions.”

Follow-up On “Sell Your Startup in Public”

Got a lot of reactions to my last post about acquihires (specifically, lack of them) and how that might change the approach startups take to pursuing ‘soft landings.’ Wanted to clarify and respond to some of those questions, backchannels, etc.

  • It’s often ok to just shutdown. I wasn’t suggesting that every founder/team/investors would prefer an acquihire to other forms of wind down, and definitely not that founders always “owe” their investors this attempt. If anything I was trying to emphasize to founders that it’s ok to try a different process, often against the common wisdom.
  • To founders (some in our portfolio) who assumed I was specifically subtweeting them. Nope. Of course the suggestion was spurred on by what I’m observing in the market – including a lot of stories from founders we haven’t backed – but I was commenting on the market at large.
  • I don’t want to fund an acquihire marketplace. If you want to build a marketplace for small acquihire transactions go right ahead but my post wasn’t a Request for Startup 🙂
  • Some people disagreed with me! “Nah, you give up all leverage when you do what you recommended,” was the feedback from a few readers. My POV is that it’s more nuanced than this. You have no leverage – or at best fake leverage aka bluffing – when you don’t have alternatives. Go have some private conversations, float some trial balloons, etc. But I truly believe the strategy I detailed is UNDERUSED in our industry.
  • Makes the Founder Seem Like a Loser? No way. I think it’s artful and thoughtful when done correctly. All of this is changing IMO – analogous might be layoff lists these days – no shame in being included in one when you know you did the best you could but the company had to make cuts. Obviously more falls on the CEO/founder shoulders but again, I think my strategy is going to be self-selecting for the type of leaders who authentically can articulate the situation and has some value to transact.

Appreciate the discussion – it’s why I enjoy blogging 🙂

The Acquihire Market for Early Stage Startups is Ice Cold. One Better Strategy? Announce You’re For Sale.

“Worst case scenario we’ll sell to a larger startup or public company for about ~$1.5m per engineer.” Yes, this was the ‘fallback plan’ for many team in the web2 era and they weren’t wrong. Especially in the early days of mobile/iOS engineering, if you hired strong technical talent into your early stage company, you basically created an acquisition outcome floor. I was on both sides of these transactions – buying startups for Google/YouTube and angel investing in high quality technical founders. Sometimes you’d even get lucky and receive stock in the acquirer, which was how I gained pre-IPO equity in high growth stars like Pinterest and Facebook.

Starting our venture fund Homebrew professionalized and scaled my insights into soft landings. Acquihire potential absolutely isn’t enough in and of itself to justify venture funding (we play to win!), but in certain situations investors do talk about these things as positive optionality. And during our first few years we leaned in to help teams find the right home when it didn’t work out for them as an independent company. This produced two successful intra-portfolio acquisitions where one team joined a larger startup we previously seeded (Chime and Bowery Farming were the buyers) and a whole bunch of other transactions. The proverbial win-win-win: founders got to land their company often with some retention premium; employees got job offers; and we got capital back, that even if it wasn’t a power law return, allowed us to recycle into new investments or the existing portfolio. I’d say that for a small, two person fund we got pretty good at this motion when needed!

And now I’m telling you the world is different. Very different.

a busy city intersection with lots of giant billboards and people walking, at night, digital art [DALL-E]

In 2023 with few exceptions acquihires are dead as we knew them. The majority of typical acquirers (large and small) don’t have incremental headcount budget. Those who do, often believe they can hire from the open market without the hassle of an acquisition. Cash is at a premium so it’s not going to cap tables (preferred or common walk away from the deals with no dinero). In fact, sometimes acquirers are asking for the remaining cash on hand from the startup in order to ‘zero out’ the salary burden they’re taking on [HW note: 99.9% of the time my answer is no fucking way]. And when they’re giving stock to existing shareholders instead of cash it’s at high 2021 valuations, buried below a preference stack.

None of this means we’ve backed off helping founders in these situations, but we do try to set expectations with them and collaborate with the other investors. My personal rule of thumb is that to the extent there’s cash or valuable IP still in the company, we need to make sure that we’re good stewards of those assets (per above, why I balk at giving up cash in an acquisition where there’s little bidirectional value exchange). But when it comes down to the forward-looking time of the founders and team – eg do they actually want to go work at the potential acquirer – their opportunity cost and happiness is really important. No founder should feel compelled to sign up for four years of earn out misery just to get their venture investors a few cents on the dollar.

Times like these call for somewhat different strategies, perhaps shifting from the ‘companies are bought not sold’ mindset (which is very much true in situations where the startup has optionality or at least competitive offers). My counterintuitive suggestion is that more founders should publicly announce they need to find a home when seeking this outcome. Put together a great post or deck about the situation, quality of the team, what they know how to do better than anybody else, and why they’ve had trouble raising additional capital. Let potential acquirers find you (who knows you might even end up with some funding offers). It’s sort of a litmus test – if you can’t make the argument convincingly in public I’m suspect you’re going to somehow magically figure it out in a quiet, closed door process. Not in today’s market conditions.

Downsides? Emotional I guess. But really, “this didn’t work out the way we hoped” is the theme song of startups so join the chorus.

Giving up negotiating leverage with a potential acquirer? Again, not really in this market. The only way you get to negotiate is if you have a BATNA, and my POV is this will increase that likelihood for 80% of companies in this position. So go talk with a few of your most promising relationships first, but don’t hesitate to go wide when you’re not getting immediate traction.

Some VC with an operations team should go build out the template for this – make it easy for founders and normalize this process, removing any stigma. Instead of spending your last quarter of existence digging through haystacks for needles, build a magnet, and pull the needles towards you. If over the course of the next year you see any Homebrew portfolio company try this out, I’ll let you know! And good luck, it’s rough out there.

Instead of Asking AI Companies to ‘SLOW DOWN’ We Should Encourage Them to Move Even Faster

An AI Safe Harbor Provision Would Create Guidelines For Development & Safety Without Premature Regulations

The conversation around Artificial Intelligence has started to take on a binary quality, rather prematurely, as if we were debating the two sides of a coin rather than a more complex shape. “Let builders build as is” vs “Regulate.” Ironically, both positions are outputs of acknowledging the incredible early power and promise of the tipping point we’ve reached, but neither incorporate the ambiguity. Fortunately there’s some case law here which might help, and we only have to go back to earlier Internet days and the concept of safe harbor.

a 19th century sailing ship, with robot sailors on deck, docking in a harbor, cyberpunk [DALL-E]

Safe harbor’ is a regulatory framework which provides that certain conduct won’t break a rule so long as specific conditions are met. It’s used to provide clarity in an otherwise complex situation, or to provide the benefit of the doubt to a party so long as they abide by generally acceptable reasonable standards. Perhaps the most well-known example in our industry is the 1998 Digital Millennium Copyright Act (DMCA) which provided safe harbor to Internet businesses around copyright infringement performed by their end users so long as several preconditions were met (such as direct financial benefit, knowledge of infringing materials, and so on).

The DMCA allowed for billions of people globally to express themselves online, prompted new business model experiments, and created guardrails for any entrepreneur to stay legal. It’s not perfect, and it can be abused, but it met the reality of the moment in a meaningful way. And it made my career possible, working with user generated content (UGC) at Second Life, AdSense, and YouTube. During my time at the world’s largest video site, I coined the ongoing public metric ‘# hours of video uploaded every minute” to help put YouTube’s growth in perspective and frame for regulators how unfathomable and unreliable it would be to ask human beings to screen 100% of content manually.

Now 25 years later we have a new tidal wave but it’s not UGC, it’s AI and, uh, User Generated Computer Content (UGCC), or something like that. And from my point of view it’s a potential shift in capabilities as significant as anything I’ve experienced so far in my life. It’s the evolution of what I hoped — not software eating the world, but software enabling it. And it’s moving very very quickly. So much so that it’s perfectly reasonable to suggest the industry slow itself, specifically stop training new models while we all digest the impact of the change. But it’s not what I’d advocate. Instead let’s speed up creating a temporary safe harbor for AI, so our best engineers and companies can continue their innovation while being incentivized to support guardrails and openness.

What would an AI Safe Harbor look like? Start with something like, “For the next 12 months any developer of AI models would be protected from legal liability so long as they abide by certain evolving standards.” For example, model owners must:

  •  Transparency: for a given publicly available URL or submitted piece of media, to query whether the top level domain is included in the training set of the model. Simply visibility is the first step — all the ‘do not train on my data’ (aka robots.txt for AI) is going to take more thinking and tradeoffs from a regulatory perspective.
  • Prompt Logs for Research: Providing some amount of statistically significant prompt/input logs (no information on the originator of the prompt, just the prompt itself) on a regular basis for researchers to understand, analyze, etc. So long as you’re not knowingly, willfully and exclusively targeting and exploiting particular copyrighted sources, you will have infringement safe harbor.
  • Responsibility: Documented Trust and Safety protocols to allow for escalation around violations of your Terms of Service. And some sort of transparency statistics on these issues in aggregate.
  • Observability: Auditable, but not public, frameworks for measuring ‘quality’ of results.

In order to prevent a burden that means only the largest, well-funded companies are able to comply, AI Safe Harbor would also exempt all startups and researchers who have not released public base models yet and/or have fewer than, for example, 100,000 queries/prompts per day. Those folks are just plain ‘safe’ so long as they are acting in good faith.

Within the 12 month period, AI Safe Harbor would be extended as is; modified and renewed; or eliminated for general regulations. But the goal is to remove ambiguity + start directing companies towards common standards (and common good), while maintaining their competitive advantages locally and globally (China!).

Whatcha think?


The Industry Needs to do One Thing to Avoid Regulation: Provide Better Phone Support

Why Tech Companies Avoid Customer Service and the Opportunity That Comes With Actually Engaging Your Users

Thirty years from now when you’re reading my memoir pay attention to Chapter 8 because that’s when I became President of the United States. The populist momentum that resulted in an unprecedented third-party ascension was all based on a single premise: the large tech companies should staff competent, responsive and empathetic customer service departments.

a telephone locked inside a clear plastic box, digital art [DALL-E]

My YouTube video went viral. Where I picked up a Yellow Pages, looked straight into the camera, and ranted about how we can get a locksmith on the phone, the local supermarket will pick up when it rings, even (with a little bit of effort) my doctor. But try to call Google. Try to call Facebook. Try to call most of the tech companies no one is there to pick up. Send them an email or file a ticket? Good luck. We are dependent on them for our lives and our businesses, and we make them billions of dollars, and their employees wealthy. But they won’t help us navigate through this new world they’re creating. And that’s why I’m challenging our government to regulate them. Not about monopolies or privacy or copyright, but customer service. They want DMCA safe harbor? They want Section 230? Well I want someone to answer the GD phone!!!!

Snapping out of my daydream where our fractured country is united behind the idea of 1–800–4GOOGLE (by the way, in the Presidential fantasy my VP led a grassroots uprising for standardized charging plugs — their logo was a Guy Fawkes and USB-C plug), I do want to seriously suggest that one way for our industry to improve its standing with average consumers and small business owners is to be more user friendly when those folks have questions. Through my years at Google and YouTube I heard from lots of people about how much they loved our software but when something went wrong (locked out of an account, wrong information on their business listing, confusion around advertising) they went down a rabbit hole trying to get an answer from our company. And didn’t understand why these powerful corporations couldn’t afford to try and help their customers/users figure out this new world together. It was, and still is, a good question! I think there are four answers:

I. Software Margins

It costs money to staff support team (duh) and if you’re not showing a high margin structure you risk being penalized from an enterprise value multiple. The pernicious impact of striving for ‘software margins’ means that support is typically a cost center to be minimized, rather than a point of excellence that’s invested in and rewarded.

II. Humans Don’t Scale

Sure you can help human workers be more productive over time but they’ll never be as efficient as software automation or customer self-service. “Won’t scale” is historically a way to kill any idea, even if it, for the meantime would make a situation better (obviously there are exceptions to this when the stakes are really high). I’m sure AI-driven chat, etc will be a boon here too. But sometimes it’s not just about an answer, it’s about feeling respected and served.

III. Engineering Stereotypes Create Permission Structure

How do you tell an extroverted engineer from an introverted one? The extroverted engineer looks at *your* shoes when he talks.

While many of the engineers I’ve know are perfectly sociable, well-adjusted, highly conversant people, the ‘sullen hacker in a hoodie on the spectrum’ is anywhere from an antiquated stereotype to a true segment of our community. And either way it lets too many of us get away with not having to deal with the actual implications of the products we build. Because we’re not asked to serve on the front lines of our businesses hearing the challenges real users are facing. Rotate everyone through the support queues periodically is my solution.

IV. Elites Get Special Treatment

Maybe the real reason these issues don’t get solved is that the 1% have their backdoors into these companies. You’re a big enough advertiser or business partner to have an account manager. You went to grad school with the COO. And so on.

That’s why one of my periodic troll tweets was something to the extent of “I don’t know why everyone says [Instagram, YouTube, Google, etc] has such terrible customer support. Whenever I have a question I just email the VP of the product and they respond really quickly.”

And there you are, Chapter 8 of the autobiography.

Besides my random power fantasies, this post was prompted by a discussion with a very smart marketing and comms exec in the wake of the SVB bank run. The conversation evolved to one about how our industry (venture, startups, tech in general) could better message about the positive role we play in the economy. I quipped that besides good phrasing we needed actions too. When she asked what would I recommend my response wasn’t about getting rid of carried interest or breaking up the big companies but about customer support. Why?

There are going to be people who believe capitalism is flawed — we won’t win them.

There are going to be people who long for a world where things moved slower and they didn’t have to deal with disruption and could keep the status quo because it serves them better — shrug emoji.

There are going to be people who use tech as a punching bag when convenient to further their own goals — we should stand up to them.

But there’s an even bigger percentage of average Americans, who *like* technology and find many of the companies aspirational. These citizens, these business owners, these leaders — we have the opportunity to show them we can help them navigate the new world that we are helping them build. If takes a few margin points and some empathy it might be healthier and more sustainable than just lobbying and tweeting. The bigger structural issues need examination and *some* regulation, but there’s lots we can do on our own.