VC Power Laws, Ecommerce Shifts, and Git for Data

Welcome to this week's edition of CM weekly featuring stories I find interesting on technology, investing, and fintech broadly.

A few housekeeping notes: 

• A week ago, we hosted legendary VC investor Bill Janeway. Here is a recording of our Zoomcast. 
• The above conversation helped clarify my own thinking on how the environment of low interest rates affect the startup ecosystem. I then recorded a podcast with my friend Nathaniel Whittemore of The Breakdown and shared my thoughts around this. 

Now onto this week's edition! 

Written by - Chris McCann, General Partner @ Race Capital, former Greylock Partners. More about me. 

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Power Laws in Venture Capital Portfolio Construction

Power law distributions may be the norm in venture capital (Only 1 company out of 10 investments will return above 10x), but are very difficult to work with in a model. If you invest in an outlier company then your VC will return money, but if you don’t, your fund will underperform. 

Jerry Neumann wrote one of the most in-depth posts on modeling out a VC portfolio, including lots of data and detailing of his methodology. It is well worth the read if you are in the VC business. 

My end conclusion after digesting the post is - if you believe active management improves outcomes - the question is how many startups can you actively manage as a firm? What your firm considers “active management” and how many companies you can scale to will ultimately inform your portfolio.

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Rolling Venture Funds through the Good Times and the Bad

Last week I featured a post about “Rolling Funds,” and received so many questions about what they are and what the risks about them are. VC lawyer Chris Harvey breaks down what a rolling fund is, how the legal structures operate, and what the potential downsides are for investors (LPs) who invest in them.

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Ecommerce shift 

Ecommerce as a whole has had a slow and steady increase in % of all addressable retail, and now COVID-19 has had a huge impact on ecommerce, shifting brick and mortar spending online. 

Benedict Evans compiled numerous graphs on what this ecommerce surge looks like across the US and the UK and on the grocery sector specifically. 

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Git for Data: Not a Silver Bullet

Version control had a huge impact in the world of source code (Github, Gitlab, etc.) - why wouldn’t it have a similar impact in the world of data? 

Michael Kaminsky lays out the case on why he is skeptical of this kind of system.

TLDR: 

• In most systems, data is increasing but not changing.
• The logic of data analysis could change, but not the underlying data itself. 
• A version control system for data vs. an immutable log of source data, seems like solving the wrong problem. 

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