The Wearable Future

This article initially appeared on TechCrunch.

There may be debating when the wearable first came into being or what industries will be most impacted by the technology but there is no debating that startup activity in the wearable space has accelerated; if Apple moving into a category is one sure sign of anything, it’s that.  Between consumer interest and investor attention, the wearable category is exploding. In fact, it is exploding so much so that a deep dive look can help determine exactly what is driving growth in the space.

What Consumers Are Buying

Probably the best proxies for gauging consumer interest in startup wearable devices are crowdfunding sites. Of the 443 crowdfunded projects previously analyzed, 64 were what one would call a wearable device. The category, as a whole, was among the most dominate when it came to consumer appetite: although wearables only accounted for 14% of all projects, with $41.0M they accounted for 22% of all dollars raised by consumers in hardware projects.

Of these 64 wearables, 53% were worn on the wrist/hand, 25% were worn on the head and 14% were worn on the body. It seems that consumer interest is highest in the wrist/hand wearable category, specifically with connected watch projects like Pebble, Kreyos and Omate each preselling north of $1M of product. Clearly the idea of a watch as a third screen is resonating with the crowd.

What Investors Are Backing

Consumers aren’t the only group whose interest in wearable technology has grown over the years. Investors also are increasingly attracted to the category. In order to get a view into how exactly the venture capital community is thinking about wearables, data from Mattermark and Crunchbase was used to see how much money various wearable startups have raised.

Viewing wearables through the eyes of where investors are putting money paints a different picture. While the crowd spent $41.0M on wearable devices between 2008 and today, investors put an impressive $463.0M to work in the category across 82 companies. That means that for every dollar of product consumers spent on a crowdfunding site, investors plowed in another $11. Surprisingly the majority of dollars, 58%, went into companies that did not take the crowdfunding route prior to raising money. Equally surprising is that only a total of 19 projects in the wearable category that crowdfunded their way to $100,000 or more went on to raise venture money. On a percentage basis, this means that only 23% of wearable projects that raised venture capital since 2008 had their start on a crowdfunding site, suggesting investors are using crowdfunding success as one indicator of potential but not the only one.

From a category view, if investors speak with where they put their dollars they are most bullish about wearable plays involving wrist/hand devices: these took 32% of dollars invested and appears to mirror consumer excitement in the category. In contrast to consumer interest, however, was the body wearable category: here consumers only spent nine percent of their dollars yet the category accumulated 26% of investor dollars. Also different is the addition of a “software” category to capture software intended to augment or enhance wearable devices – something that the crowdfunding world has not contributed to.

The Wearable Future

If the data shows anything it shows that both consumer and investor interest in the wearable space is high and continues to grow. Six years ago the number of wearable companies of any significance could have been counted on two hands; now you’d need 15. The area of overlapping interest between the crowd and investors is strongest in devices either worn on the hand or on the wrist, demonstrating a shared vision of the future.

This overlap suggests something unique. While consumers back products on crowdfunding sites, investors back visions. The convergence of consumer and investor interest in connected watches specifically suggests that there are compelling individual products available today and that there is an inspiring vision for these products in the future; something Apple has keyed into. No matter if you’re a consumer or an investor, that’s something everyone can get excited about.

For access to all the data used to generate this report, check out the full document here.

Hardware Crowdfunding: Where The Venture Dollars Flow

This post initially appeared on TechCrunch.

$211,290. That was the magic number that the data suggested was the “success” threshold in hardware crowdfunding. The analysis also showed that people love 3D printers and that almost half the crowdfunded dollars went to 37 companies. That deep dive into 443 projects provided some insight into where consumers are spending their money (and time) in the hardware ecosystem but it felt like something was missing.

Crowdfunding dollars are only one source of capital for hardware startups. The other source, the one that gets even more attention, is venture capital. In the years since Kickstarter came into the world, venture investing in hardware has gone from non-existent to mainstream. Crunchbase data shows 115 companies tagged as Hardware + Software got funding in 2007 compared to 383 in 2013 – an increase of 233%.

While there has been some recent writing on how many crowdfunded hardware startups go on to raise venture money, the analysis of what categories of hardware companies raise money has yet to be done. In other words it was impossible to answer the question: what parts of the hardware ecosystem do investors think are hot?

Using the same data set as before (hardware projects raising $100,000 or more on crowdfunding sites as of late June 2014) and combining it with data from Crunchbase and Mattermark, I’m here with that answer.

Making it Rain

Of the 443 hardware projects analyzed, 94 have gone on to raise a total of $503.8M from investors. Much like the crowdfunding data, the vast majority of these 94 companies ran their campaign on Kickstarter: just 17 companies, or 18%, of the total who raised money started on Indiegogo.

The category perspective provides a glimpse into where VCs are putting their money. The $503.8M raised is broken out as follows:


Comparing this to the previous map, there are a few things to note. Most obvious is the domination of the Entertainment category that received $188M of venture funding or 37% of all venture dollars that went to crowdfunded companies.

Across the board, many of these venture dollars went into a few “winners.” Specifically, of the $503.7M venture dollars that crowdfunded hardware projects brought in, nearly 40% went to 4 companies: Oculus, Gramofon, Misfit and FormLabs. There were 14 companies who raised more than $10M in funding post campaign, bringing in $335.8M. In addition to the “big 4”, these were: Ouya, Lifx, Loop, SmartThings, tado, Canary, Peloton Cycle, Emotiv, Pebble and Scanadu.

The set of 94 raised venture dollars from a number of investors. Almost everyone you would suspect is represented but the most prolific may surprise you. That would be HAXLR8R who invested in 10 of the companies, although only invested $25,000 each time.


The dollar investment measure is one way to understand how VCs think of hardware. An alternative way of looking at just how excited VCs are about various categories is exploring the relationship between crowd dollars committed and venture dollars raised. I call this leverage.

I calculate leverage as: Venture Dollars Raised / Crowd Dollars Raised. Leverage of 1.0x means that for every dollar the crowd put in, VCs put in another dollar. The higher the number, the more dollars (ie interest) VCs had in the category. The lower the number, the more skeptical VCs were compared to the crowd.


Now things get interesting.  Remember, this measures investor interest relative to the crowd. As you can see, the wearable space, specifically wearables that are worn on clothing or attached to the body somehow, garnered way more love from investors than from the crowd: in the body wearable category, the crowd preordered $3.5M worth of product and investors later plowed in $37.6M. From a leverage perspective, this even outpaced Gaming despite the fact that category holds the largest venture bet from the crowdfunding cohort: the $91M Oculus. In the 3D printing category, a category that consumers feverishly poured $25.6M into across 50 projects, investors were much more tepid, choosing to deploy $26.5M of capital across just 5 companies.

At a macro level, each crowdfunded dollar resulted in $2.71 of venture dollars invested and the Medical category faired best with $7.11 of venture dollars per crowd dollar – although across a very small sample set of 3 companies. Next best is the wearable category mentioned above, where the sector had 4.76x leverage and 18 venture funded projects.

What It Means

While investors are absolutely using crowdfunding success to vet hardware startups - the rate of investment across these $100k+ campaigns is orders of magnitude higher than the general startup investment rate - not all project categories are created equal. Your camera campaign is unlikely to be a home run with investors even if you hit it out of the park with the crowd. Conversely, even a mediocre outcome in an automation campaign may hold the keys to investors’ wallets. It just goes to show, investors want to back companies that not only deliver what people want today but also represent a compelling vision for the future.

As before, I’ve shared the source data in Google Docs. Feel free to dig in with your own analysis.

Learning From the Crowd: The Hardware Ecosystem

This post initially appeared on TechCrunch.

In the past six years crowdfunding has become a popular, if not the most popular, form of financing for hardware startups, potato salad distractions notwithstanding. Over the years we’ve seen a variety of successful crowdfunding campaigns translate early crowd love into great venture capital rounds. We’ve even seen a few, like Oculus, manage to use successful campaigns to catalyze massive exits. Crowdfunding has changed the face of hardware investing, giving startups a chance to prove product-market-fit without the massive costs of going into mass production.

Given that crowdfunding is the initial step more and more hardware startups are taking, the need to better understand what types of products do well on crowdfunding platforms feels in order. The problem is that the two dominant platforms, Kickstarter and Indiegogo, don’t do a great job of categorizing projects. Hardware project types are loosely categorized at best. There has to be a better way to understand what is going on in these marketplaces - after all, knowing what categories are “hot or not” can help determine where there may be opportunity.

To this end, over the past two weeks I hunched over my computer and crunched the data. Here is what it shows.

The Data Set

To somewhat narrow the scope of work, only hardware projects raising $100,000 or more on Kickstarter or Indiegogo made the cut. Hardware projects were defined as any project requiring electronic components. For example, connected bike locks made the cut but “dumb” metal ones did not. There are plenty of more platforms and project types out there but this sample should be broadly representative of the broader hardware crowdfunding community. It’s worth noting that the data is a moving target since these platforms are constantly seeing new projects. The data here represents a snapshot taken around 6/20/14.

There were 443 total hardware projects that raised north of $100,000 across Kickstarter and Indiegogo since the platforms started. Those 443 raised a total of $187.5M in crowdfunding. Kickstarter accounted for 83% of the projects and Indiegogo made up 17% of them. The average project raised $423,188 across both platforms but it’s telling to note that the average Kickstarter project raised nearly 40% more than the average Indiegogo project (likely due to the greater number of huge projects found on Kickstarter). So, an average “win” on these sites is a $420,000 raise and, at least based on historical performance, you’re better off going to Kickstarter than Indiegogo.

Bringing in the Money

Hardware projects come in a wide range of forms. The only way to accurately tell what types of hardware projects are raising money from the crowd is to categorize each. This allows for a much more complete view of the hardware ecosystem. In an attempt to categorize each project, I created 12 broad categories and broke those into a total of 26 more sub categories. When broken out by dollars, you can make a map of the crowdfunded hardware ecosystem that looks something like this: image A few winners jump out looking at this. The big four categories, Wearables, Entertainment, Home and 3D Printing, made up 67% of all dollars raised in hardware. Inside of those the big winners were the Home 3D Printing category and Wrist / Hand Wearable category which accounted for a shocking 27% of all dollars. Those categories also did remarkably well in terms of average dollars per successful campaign but at the expense of being the most crowded:


In fact, while Home 3D Printers have been wildly popular in terms of dollars raised, the category is also the most crowded with 47 3D printing companies having gone to raise $100,000 or more in crowdfunding. Likewise, there have been 34 Hand / Wrist Wearable crowdfunded companies at that level. The outlier in terms of average dollars is the Gaming category, owning huge campaigns at Ouya ($8.6M), Oculus ($2.4M) and Virtuix Omni ($1.1M), suggesting if you win over the hearts of gamers, they’ll open their wallets.

Not fairing so well are the categories of Medical Devices, Kid Focused Products and Flying Objects. Medical Devices are naturally limited due to the fact they have historically been not allowed on Kickstarter and the children’s category has been difficult to build businesses in. The fact that drones and UAVs have not garnered much traction is surprising given the investor interest here. Perhaps the majority of drone companies are too commercial focused to be good targets for crowdfunding.

Between these bookends, there are lots of categories in-between. The distribution of dollars suggests that the long tail in the hardware category is quite long: 43% of all dollars raised were from the 37 projects that surpassed $1M in total crowd funding. The remaining 368 projects made up 57%.


What can we learn from the crowd when it comes to hardware startups? A few things. For one, in order to really feel like a campaign is a big success it should raise $211,290 or more - it’s at that level that it has done better than 50% of all hardware crowdfunding campaigns (the median). Another takeaway is that when it comes to categories, not all are created equal in the eyes of the crowd. 3D printing, for example, has done incredibly well but medical devices have not. And while both 3D printers and wrist / hand wrist wearables have done well historically, they are becoming crowded and run the risk of hitting consumer crowdfunding fatigue. The pet and gaming categories, on the other hand, do not suffer the same overcrowding concern. There are lots of insights in the data but really what it suggests is that the ecosystem for crowdfunding hardware projects is alive and well.

In the spirit of openness I’ve shared all the data collected in the making of this post on Google Docs here. Feel free to poke around, get more granular on the data or create your own version.

The Future of HomeKit

As predicted, Apple made their first foray into the connected home space last week with HomeKit. It may have not been the “Designed for iOS” program many anticipated but essentially the same thing: a software protocol developed by Apple to allow iOS 8 devices to control connected devices.

I did some quick digging into the documentation for HomeKit and was surprised at just how limited it is today. The framework only contemplates 5 different device types:

  • HMServiceTypeLightbulb - A light bulb.
  • HMServiceTypeSwitch - A switch.
  • HMServiceTypeThermostat - A thermostat.
  • HMServiceTypeLock - A lock.
  • HMServiceTypeGarageDoorOpener - A garage door opener.

And within these device types, only a few characteristics are supported:

  • HMCharacteristicTypePowerState - The power state of the accessory.
  • HMCharacteristicTypeHue - The hue color used by the accessory - typically a light.
  • HMCharacteristicTypeSaturation - The saturation of the color used by the accessory - typically a light.
  • HMCharacteristicTypeBrightness - The brightness of the color used by the accessory - typically a light.
  • HMCharacteristicTypeTemperatureUnits - The units of temperature used by the accessory.
  • HMCharacteristicTypeCurrentTemperature - The current temperature measured by the accessory
  • HMCharacteristicTypeTargetTemperature - The target temperature set for the accessory to achieve - for example on a thermostat.
  • HMCharacteristicTypeHeatingCoolingStatus - The healing (nb: this is a typo in the documentation!) or cooling status of the accessory - for example on a thermostat.
  • HMCharacteristicTypeCurrentRelativeHumidity - The current relative humidity measured by the accessory.
  • HMCharacteristicTypeTargetRelativeHumidity - The target relative humidity set for the accessory to achieve - for example of a humidifier.
  • HMCharacteristicTypeCurrentDoorState - The current door state.
  • HMCharacteristicTypeTargetDoorState - The current target door state - doors take time to move between states, so the current target door state may not match the current door state at a given time.
  • HMCharacteristicTypeObstructionDetected - Indicates wether the accessory has detected an obstruction - for example, an automatic garage door opener may have the ability to tell if something is blocking the door.
  • HMCharacteristicTypeLocked - The locked or unlocked state of the accessory.

So there are 5 types of products HomeKit will support at launch and a pretty limited set of functionality that those devices can support from the framework. I suppose that’s why the list of launch partners for HomeKit are pretty run-of-the-mill.

By my count there are 4 thermostat makers, 3 lock makers, 2 light makers, 1 garage door maker, 1 switch maker, 1 speaker maker and 4 semiconductor partners. There is one notable exception, however: Skybell.

Skybell, far from the household name that Honeywell or Schlage may have, makes a connected doorbell: it’s a button that rings your iPhone when pressed and allows you to stream video from it and audio to and from it for 2-way communication. Not super novel - proprietary systems have done this for years and Skybell has a number of open startup competitors - so why is it interesting?

It’s interesting because, from what I can tell, the functionality of the Skybell is not supported by HomeKit at all. Not only is a connected doorbell not a supported device type, none of the characteristics of HomeKit contemplate the type of functionality that Skybell offers, namely audio and video. Skybell can’t lock doors, it can’t tell temperature, and it can’t tell if a door is open or closed.

It’s hard to know exactly why Skybell is a HomeKit launch partner or how they plan to use it but my guess is that it’s a harbinger to things to come. One of the most active categories in the connected home space is the home security / monitoring space. Between Canary, Scout, SimpliSafe and a bunch more, there is a huge portion of the market that HomeKit in its initial form does not address. Apple would be missing out on a huge opportunity if they did not play here, especially if the rumors about Google’s Nest moving into the space later this year.

So is Skybell a tell of things to come out of HomeKit? Hard to say but don’t be surprised if Apple adds audio/video capabilities to support the security market in the months to come.

Made for iOS

This morning I tweeted:

How do I know this? Well, I should have known it months ago but it was only when the FT published their article on the topic earlier this week did I put two and two together. See, for the past 6 months or so, various hardware companies I met with shared that Apple was encouraging them to add BTLE to their designs. I’m told it was a wink-wink-nudge-nudge type of arrangement where the business development folks at Apple wouldn’t give specifics but strongly hinted that adding iBeacon-compatible technology into their designs. They wouldn’t say how it would be used or why it should be added but the suggestions were enough for at least two companies I know to incur the additional cost of integrating BTLE into their product without any immediate benefit.

I’m now convinced that this was all a build up for Apple to launch their “Made of iOS” program on Monday. Remember, timelines in hardware are such that Apple would need to prime the pump 6-12 months in advance of any launch to have products close to ready for when the program goes live.

Good move Apple.

The New Norm?

In the past few months I’ve noticed a trend in hardware startups. The trend goes something like this:

  • Hardware company raises small amount of angel / seed money
  • Hardware company launches crowdfunding campaign and presells around $1M of product
  • Hardware company raises a $8-15M series A

It started as an observation. Since the start of the year I have seen 3 such startups come through that fit the profile: one being Canary and the other two being unannounced hardware companies. But three examples does not a trend make. So I decided to take a look at the data.

The analysis here is imperfect due to the fact that I’m only able to rely on publicly available sources of information. This means companies that presold product on their own site but did not disclose sales figures, like Coin, are omitted from the list: it is limited to what I found on Kickstarter and IndieGoGo. It also means that companies that raised rounds seed and series-A rounds but did not disclose them have data omitted. I know at least 3 companies on the list that fit this profile. Also, for simplicity’s sake, I kept the bar at companies that had presold $800K or more. This results in losing a few companies who presold less but still raised post crowdfunding, like Seamless Toy Company. And I left out Healbe’s GoBe because it’s not real.

With those caveats, onto the data.


Of the Kickstarter and IndieGoGo projects that raised $800K or more, 9 went on to raise a disclosed round post campaign. Add to that the the 3 that have raised but not disclosed and you have 12 out of the 33 projects with a raise post crowdfunding, or 36%. Let’s focus on the red box: the companies with a disclosed post crowdfunding raise.

It seems that my observation is supported with a bit of data. The majority of the boxed companies raised seed money before launching their campaign, with four exceptions (including Misfit with their large $7.8M raise). The majority of companies also raised $10M or more in their post crowdfunding raise: the median amount is a pretty impressive $15M and the average is $11.7M among the group. 

One interesting fact that didn’t strike me until this analysis is that the majority of companies waited 9-12 months before closing their next round of funding. Chalk some of that up to the fact that closing a larger round takes more time but also to the fact that, post successful campaign, there is lots to focus on besides just fundraising.

So what does this mean for the hardware entrepreneur? A few observations:

  • It’s pretty clear that a successful crowdfunding campaign can help catalyze a large financing. This may not be obvious on the above chart but odds of raising a round for any hardware company are much less than the 36% observed in this chart.
  • Budget 3-6 months post campaign to fundraise. Given that there will be around 3-6 months of legal work and press planning prior to announcement, I would guess that’s the average time it took the companies in the box to raise their rounds.
  • Smaller dollar raises post crowdfunding take less time: look at SmartThings and Buccaneer, both of whom set their financing targets lower and both took much less time to raise.
  • Raising money before your crowdfunding campaign increases your chance of getting funded post campaign. Six of the nine red box companies raised before launch. If you filter out EMOTIV and Occipital (two companies that were well established before launching their campaigns), only three companies that raised before launch and had a campaign north of $800K have yet to announce a new round of funding.
  • I don’t know how these rules hold up for people who hosted their own presales campaigns but I suspect they hold pretty true. 

There’s more data here to work with. In my next post I’ll try to dissect why some of the companies in the list outside of the red box have not raised additional capital.

Voice as an Interface

After months of speculation, last week Amazon finally announced its entry into the living room with the Fire TV. It arrived with a bunch of fanfare, at a price point equal to that of the Apple TV and Roku 3 but with a number of extras including (moderately) high performance gaming. From my perspective, the most notable feature was not one that that you saw but one that you heard. See, unlike the simple voice commands of electronics past, the Fire TV includes a voice interface that combines complex command interpretation with full speech-to-text capabilities. It can do amazing things like search for all titles featuring Mila Kunis by just speaking her name.

Voice interfaces this sophisticated have been a long time in the works in a story that has played out over three discrete phases.

Phase 1: The PC Era

The early days of consumer-grade speech recognition came in the mid 1990s with Dragon NaturallySpeaking. For $695, a fully loaded PC in 1997 could, barely, hear what you were speaking in a perfect environment and translate roughly 90% of it into text after a 45 minute training session.  As processor speeds increased and voice recognition research advanced, so did the ability for full blown  computers to take voice and translate it into text. But given the ubiquity of a mouse and keyboard in the computer world, the use of voice as an interface never really took off. In the same amount of time or less that you could say “search for all movies directed by Wes Anderson” to your computer with a headset on, you could type “Wes Anderson movies” into a search box and get the same results.

Phase 2: The Mobile Era

By 2011, compute technology and cloud access had advanced such that voice could finally take on a new form factor while maintaining the accuracy needed for consumer adoption. That form factor: the mobile phone. In the interface-light world of a smart phone, voice as an interface made lots of sense. With Apple’s internally developed dual-core A5 processor and massive North Carolina data center, a mobile device finally had enough power and connectivity to handle complex voice tasks and Siri was born. Siri could listen for a set of keywords, like “call” or “text,” and then immediately voice-to-text transcribe the next words, passing them to the appropriate application. Texting your mom from the car no longer felt like flirting with death - it felt magic. Google quickly realized this as well, releasing Google Search (now Google Now) on Android phones using similar high-power processors and cloud connectivity. Even Microsoft is coming to the party with Cortana.

Phase 3: The Standalone Era

The latest phase of voice interface advancement arrived just a year ago. Thanks to the accelerating sophistication of processors and low cost cloud connectivity, even inexpensive hardware devices are now beginning to support advanced voice control and interfaces. Google Glass was one of the first examples of this, allowing users to say “OK Glass” (a set trigger) followed by a variety of set commands (like “search” or “email”) followed by any freeform text. At $1,500, however, it was hardly low cost. Soon Microsoft followed suit with the Xbox One at a more reasonable $499. With the Xbox One, users can not only control key features of the system (like tuning TV channels and recording shows) but they can also interact with games in new ways. Dead Rising 3, for example, requires voice commands to play.

The Fire TV brings this sophisticated voice interface to a whole new price point. At $99, complex voice as an interface technology is finally easily accessible. Powered by a Qualcomm Snapdragon 600-series processor and wired/wireless internet connectivity to AWS, the Fire TV is the latest innovation bringing voice interface to a whole new class of devices.

With the Fire TV, the speed and connectivity needed for complex voice has finally hit mainstream, and that’s something that has the potential to change the way we interact with devices all around us.

Box’s Not So Magic Number

One of the key metrics we encourage our SaaS portfolio companies at Flybridge to be focused on is the magic number. Sure growth rate and lifetime value and customer acquisition costs and churn are all important but the magic number is magic for a good reason: it gives a great sense for how much sales and marketing spend are driving monthly recurring revenue growth. In other words, it summarizes a number of metrics in a single number. If you’re not familiar with the metric, made famous by Josh James, take a read here to get up to speed.

Our praise of the magic number often translates to religion at our SaaS portfolio companies. In one particular company, after implementing magic number reporting and discovering it to be 1.9, a sales manager cold emailed James to share his excitement. James responded “Hire more reps then” and introed the company to his CTO at Domo (who went on to become a customer).

While we get to apply this metric to our portfolio companies - most of our SaaS companies report it on a quarterly basis - it’s sometimes fun to apply the same lens to other companies. With Box filing their S1 earlier this week, we wondered what sort of numbers they have been seeing. The quick: not such magic ones. 

As we go through this, remember that James’ rule of thumb:

[I]f you are below 0.75 then step back and look at your business, if you are above 0.75 then start pouring on the gas for growth because your business is primed to leverage spend into growth. If you are anywhere above 1.5 call me immediately.

Revenue and Sales and Marketing

Finding the numbers to calculate the magic number by quarter for Box based on their S1 filing is pretty straight forward: just go to the Quarterly Results of Operations section, find the revenues and sales and marketing costs by quarter and use James’ magic number equation (QRev[X] - Qrev[X-1]) * 4 / ExpSM [X-1]. That leaves the following:

Now this is slightly imprecise in that it looks only at new revenue growth not new annual contract value growth in a given quarter, a more true way of calculating the magic number, but it’s the best we can do with the data reported. Given James’ rule of thumb, ever quarter since the quarter ending 7/31/12 has been one worthy of stepping back from, not one worth pouring gas on.


The issue with the calculations above is that they do not take into account what Box counts as Sales and Marketing expenses. Normally this line would contain just expenses associated with the various functions but, in Box’s case, there is more to the story. Box offers free trials of their product and the Sales and Marketing section of the S1 gives a hint of how Box accounts for the expenses associated with the free trials:

Sales and marketing expense also consists of datacenter and customer support costs related to providing our cloud-based services to our free users

Being true to James’ calculations, it’s not really fair to burden the magic number with the cost of datacenter and customer support expenses so, for the benefit of Box, let’s back these out. It’s impossible to be precise here since the company doesn’t break these items out individually but we can use a note in the filing to guessestimate:

Sales and marketing increased by $72.0 million, or 73%, during the year ended January 31, 2014 compared to the year ended January 31, 2013. The increase was primarily due to an increase of $45.5 million in employee and related costs, including higher commission expenses of $16.0 million, driven by headcount growth from 374 employees as of January 31, 2013 to 513 employees as of January 31, 2014, and higher sales, an increase of $12.6 million in datacenter and customer support costs to support free users, an increase of $6.4 million in allocated overhead costs, and an increase of $2.8 million in travel-related costs.

If you assume that all the expenses grew at the same rate from 2013 to 2014 (and this is a pretty big assumption but really the only one that can be used), you can roughly calculate what percent of sales and marketing expenses go towards each line item:

If you apply this same rule of thumb to the reported Sales and Marketing expenses and back out the 19% costs associated with free customers, you arrive at the following:

Better (because the sales and marketing expenses have been adjusted downwards) but still far from great. So how do these compare with some other enterprise SaaS public companies? The answer: not so well.



The magic number isn’t the end all be all for SaaS metrics but it’s a very useful one. It doesn’t take into account things that may benefit Box’s business such as longer than average lifetime values and increasing customer values over time, but it’s an important metric nonetheless. The magic number analysis in Box’s case suggests that the company is spending money faster yet growing slower than comparable public SaaS companies - essentially throwing cash at growing top line revenue with decelerating results. If one of the Flybridge portfolio companies demonstrated these magic numbers, especially on a downward decline, we’d be wondering if it made sense to keep pouring fuel on the fire. We’ll see if the public market will wonder this as well. 

Note: A big thanks to Bart Hacking, CFO of BetterCloud, for running the numbers and germinating this post.

Wearing the Future

If Facebook’s bombshell announcement yesterday that they are buying Oculus Rift does anything, it solidifies the fact the next great platform wars will be waged on the body. Whether it’s Facebook with Oculus, Google with Glass or Sony with Morpheus, it’s clear the big boys are big believers in the wearable future. Expect to see some large companies left out of the phone/tablet wars acquire technologies that position them well in the new wearable ecosystem - I’m looking at you, Microsoft - and others move to develop aggressively in house - say, Amazon.

It’s not clear what part of the body will be the dominate wearable space. The past months have put a lot of focus on the eye but not only are there multiple implementations of this concept (full headset vs augmented reality), there are plenty of other areas of the body that are getting smart. The wrist is one but don’t forget about the neck or hands or feet or ears.

While all these other body parts may be getting connected, they all lack the special feeling of actually seeing the technology in front of you regardless of what you are doing. That’s why the head is so special; it allows for high resolution, persistent information via our most powerful sense - sight. That’s what Google sees in Glass and what Facebook sees in Oculus (pun fully intended).

Business as Usual

The big news yesterday (at least for my mom, my dad, Amanda and The Beast) was that I was promoted to General Partner at Flybridge. I have had an incredible 6 years at Flybridge and am thankful every day that I get to work in such an incredible industry with such an amazing team. My partners Chip, David and Jeff are great friends and even better investors. I’m lucky to be spending my career with them and the rest of the amazing Flybridge team.

I couldn’t be more excited about the times ahead. New York is an awesome place to be building my venture career, and with our strong NYC portfolio (MongoDB, BetterCloud, Tracx, 33 Across, Carnival and two unannounced new investments) Flybridge is a great platform for me to do so.

My title may have changed but how I work will not. After all, being a partner at a venture firm doesn’t just mean being able to sit around a table of coworkers and be viewed as a peer, it also means being able to be a better partner to entrepreneurs. And that remains job number one.

So it’s business as usual for me. Well, business as usual with maybe some fancy new cards.