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Alumni Ventures Group is the most active venture fund you’ve never heard of

Alumni Ventures Group’s (AVG) limited partners aren’t endowment or pension funds. Its typical LP is a heart surgeon in Des Moines, Iowa.

The firm has both an unorthodox model of fundraising and dealmaking. Across 25 micro funds, AVG is raising and investing upwards of $200 million per year for and in tech startups.

Tucked away in Boston, far from the limelight of Silicon Valley, few seem to be paying attention to AVG. There are a few reasons why, and those seem to be working in the firm’s advantage.

Today, AVG is announcing a close of roughly $30 million for three additional funds: Green D Ventures, Chestnut Street Ventures and Purple Arch Ventures, which represent capital committed by Dartmouth, the University of Pennsylvania and Northwestern alums, respectively.

“People don’t really know what to make of us”

AVG walks and talks like a venture fund, but a peek under the hood reveals its unconventional fundraising mechanisms.

Rather than collecting $5 million minimum investments from institutional LPs, AVG takes $50,000 directly from individual alums of prestigious universities. The firm pools the capital and creates university-specific venture funds for graduates of Duke, Stanford, Harvard, MIT and several other colleges. 

“People don’t really know what to make of us because we’re so different,” said Michael Collins, AVG’s founder and chief executive officer.

Collins started AVG to make venture capital more accessible to individual people. He’s been a VC since 1986, formerly of TA Associates, and had grown tired of the hubris that runs rampant in the industry. In 2014, he started a $1.5 million fund for alums of his alma mater, Dartmouth. Since then, AVG has grown into 25 funds each of which fundraise annually and are seeing substantial growth over their previous raises.

“What we observed is VC is a really good asset class but it’s really designed for institutional investors,” Collins (pictured below) said. “It’s really hard for individual people to put together a smart, simple portfolio unless they do it themselves. That’s why we created AVG.”

AVG and its team of 40 investment professionals make 150 to 200 investments per year of roughly $1 million each in U.S. startups across industries. In the second quarter of 2018, PitchBook listed the firm as the second most active global investor, ranked below only Plug and Play Tech Center and above the likes of Kleiner Perkins, NEA and Accel. 

Unlike the Kleiners, NEAs and Accels of the world, AVG never leads investments. Collins says they just “tuck themselves into” a deal with a great lead investor. They don’t take board seats; Collins says he doesn’t see any value in more than one VC on a company board. And they don’t try to negotiate deal terms.

Though unusual, all of this works to their advantage. Founders appreciate the easy capital and access to AVG’s network, and other VC firms don’t view AVG as a threat, making it easier for the firm to get in on great deals.

“We are low friction, we are small and we have a hell of a Rolodex,” Collins said.

VC doesn’t have to be a star business

Despite a deal flow that’s unmatched by many VC firms, AVG manages to fly under the radar and the firm is totally ok with that.

“A lot of VC is a bit of a star business where people try to build their own individual brand,” Collins said. “They get out there; they like publicity; they blog; they speak at conferences; they want to be known as the person to bring great deals to. We don’t lead. We work in the background. We just don’t feel the need to put the energy into PR.”

“Most VC returns are really achieved through investing in great companies as opposed to changing the trajectory of a company because you’re on the board,” he added. “If you’re a seed investor in Airbnb or Google, you were really great to be an early investor in that company, not because you sat on the board and you’re brilliance created Google’s success.”

AVG has completed 115 investments in the last 12 months. It’s investing out of 10-year funds, so at just four years in, it has some more waiting to do before it’ll see the full outcomes of its investments. Still, Collins says 65 of their portfolio companies have had liquidity events so far, including Jump, which sold to Uber in April, and Whistle, acquired by Mars Petcare a few years back.

“I hope that we can be a catalyst to bring more people into this asset class,” he concluded.

“I am a big believer that it’s really important that America continues to lead in entrepreneurship and I think the more people that own this asset class the better.”

Call for social media adtech to be probed by UK competition watchdog

A British Conservative politician, who has called repeatedly for Mark Zuckerberg to come to parliament to answer questions about how Facebook fences fake news — only to be repeatedly rebuffed — has made a public call for the UK’s competition regulator to look into social media giants’ adtech operations.

Damian Collins, the chair of the DCMS committee which has spent months this year asking questions about how disinformation spreads online — culminating in a report, this summer, recommending the government impose a levy on social media to defend democracy — made the suggestion in a tweet that references a news article reporting on a U.S. class action lawsuit against Facebook.

Advertisers in the US lawsuit allege Facebook knowingly inflated video viewing stats and thus mislead them into spending more money on its ad platform than they otherwise would have.

But Facebook disputes the allegations, saying the lawsuit is “without merit”. It has also filed a motion to dismiss the claims of ad fraud.

Although, two years ago, it did ‘fess up to a ‘miscalculation’ around average video viewing times, saying it had mistakenly discounted all the people who dropped out of watching a video in the first 3 seconds in calculating averages — thereby bumping viewing averages up.

At about the same time, it also said it had discovered some other ad-related bugs and errors in its system that had led to the wrong numbers being reported across four products, including Instant Articles, video and Page Insights.

The advertisers in the class action lawsuit — which was filed back in 2016 — had originally claimed Facebook engaged in unfair business practices. After receiving tens of thousands of documents in relation to the case they amended their complaint to accuse the company of fraud, CBS reports.

In its statement denying the suit’s claims, Facebook also said: “Suggestions that we in any way tried to hide this issue from our partners are false. We told our customers about the error when we discovered it — and updated our help center to explain the issue.” 

The company declined to comment on Collins’ remarks about adtech industry practices today.

A spokeswoman for the UK’s Competition and Markets Authority (CMA) also declined to comment when asked whether it has any concerns related to practices in the adtech sector.

Given market sensitivity to regulatory action it’s normal for the CMA to not want to stoke any speculation around a particular company.

For the same reason it would not normally discuss any complaints it’s received until the point of actually launching any investigation.

However this is not the first time the CMA has been urged by concerned politicians to investigate the adtech sector.

This fall another UK committee, the Lords Select Committee on Communications, directly asked the body to investigate digital advertising.

And earlier this month the CMA’s CEO, Andrea Coscelli, told the committee it is indeed considering doing so, if only it can carve out the resources to do so — saying he was worried about “potential gaps” in the regulatory framework around competition and consumer issues.

“A month ago, this Committee asked us to look at digital advertising. That is something we are actively considering, subject to Brexit in the next few weeks, because it has a big resource implication for us,” said Coscelli on October 9. “It is certainly something where we are interested in getting involved. If we did, we would work closely with Ofcom and give serious thought to the regulatory framework in that context.”

The CMA has also generally been ramping up its activity on the digital market front, recently spinning up a new data unit and appointing a chief data and digital insights officer, Stefan Hunt, hired in from the Financial Conduct Authority — to help it “develop and deliver an effective data and digital insight strategy… to better understand the impact that data, machine learning and other algorithms have on markets and people”.

So it sounds like a case of ‘watch this regulatory space’ for more action at the very least.

Elsewhere in Europe competition regulators have also been paying closer attention to the adtech industry in recent years — examining a variety of practices by adtech giants, Facebook and Google, and coming away with a range of antitrust-related concerns.

In preliminary findings at the end of last year, for example, Germany’s Federal Cartel Office accused Facebook of using its size to strong-arm users into handing over data.

While, earlier this year, the French Competition Authority suggested it was planning to investigate Facebook and Google‘s dominance of the adtech market, publishing a report in which it identified a raft of problematic behaviors — and pointed out that the two companies act as both publishers and technical intermediaries for advertisers, thereby gaining a competitive advantage.

Italian regulators have also been probing competition concerns related to big data for more than a year.

As we’ve reported before, the European Commission is also actively eyeing digital platforms’ market power — and looking to reshape competition policy to take account of how tech giants are able to draw on network effects and leverage their position from one market to another.

And when you’re talking about platform power, you are also — in the current era — talking about adtech.

There’s no doubt closer scrutiny of the digital advertising sector is coming. And with a brighter spotlight, tighter accountability screws applied to its practices.

Privacy reviews of adtech platforms have already raised plenty of ethical questions, in addition to flagging actual violations of the law.

This summer the UK’s data protection watchdog also called for an ethical pause of the use of social media ads for political purposes, writing that: “It is important that there is greater and genuine transparency about the use of such techniques to ensure that people have control over their own data and that the law is upheld.”

So while it remains to be seen what any competition investigations of the adtech sector will conclude, political momentum is building to increase transparency and ensure accountability — which makes regulation more likely.

Building a great startup requires more than genius and a great invention

Many entrepreneurs assume that an invention carries intrinsic value, but that assumption is a fallacy.

Here, the examples of the 19th and 20th century inventors Thomas Edison and Nikola Tesla are instructive. Even as aspiring entrepreneurs and inventors lionize Edison for his myriad inventions and business acumen, they conveniently fail to recognize Tesla, despite having far greater contributions to how we generate, move, and harness power. Edison is the exception, with the legendary penniless Tesla as the norm.

Universities are the epicenter of pure innovation research. But the reality is that academic research is supported by tax dollars. The zero-sum game of attracting government funding is mastered by selling two concepts: Technical merit, and and broader impact toward benefiting society as a whole. These concepts are usually at odds with building a company, which succeeds only by generating and maintaining competitive advantage through barriers to entry.

In rare cases, the transition from intellectual merit to barrier to entry is successful. In most cases, the technology, though cool, doesn’t give the a fledgling company the competitive advantage it needs to exist among incumbents, and inevitable copycats. Academics, having emphasized technical merit and broader impact to attract support for their research, often fail to solve for competitive advantage, thereby creating great technology in search for a business application.

Of course there are exceptions: Time and time again, whether it’s driven by hype or perceived existential threat, big incumbents will be quick to buy companies purely for technology.  Cruise/GM (autonomous cars), DeepMind/Google (AI), and Nervana/Intel (AI chips). But as we move from 0-1 to 1-N in a given field, success is determined by winning talent over winning technology. Technology becomes less interesting; the onus on the startup to build a real business.

If a startup chooses to take venture capital, it not only needs to build a real business, but one that will be valued in the billions. the question becomes how a startup can create durable, attractive business, with a transient, short-lived technological advantage.

Most investors understand this stark reality. Unfortunately, while dabbling in technologies which appeared like magic to them during the cleantech boom, many investors were lured back into the innovation fallacy, believing that pure technological advancement would equal value creation. Many of them re-learned this lesson the hard way. As frontier technologies are attracting broader attention, I believe many are falling back into the innovation trap.

So what should aspiring frontier inventors solve for as they seek to invest capital to translate pure discovery to building billion-dollar companies?  How can the technology be cast into an unfair advantage that will yield big margins and growth that underpin billion-dollar businesses?

Talent productivity: In this age of automation, human talent is scarce, and there is incredible value attributed to retaining and maximizing human creativity.  Leading companies seek to gain an advantage by attracting the very best talent. If your technology can help you make more scarce talent more productive, or help your customers become more productive, then you are creating an unfair advantage internally, while establishing yourself as the de facto product for your customers.

Great companies such as Tesla and Google have built tools for their own scarce talent, and build products their customers, in their own ways, can’t do without. Microsoft mastered this with its Office products in the 90s, through innovation and acquisition, Autodesk with its creativity tools, and Amazon with its AWS Suite. Supercharging talent yields one of the most valuable sources of competitive advantage: switchover cost.  When teams are empowered with tools they love, they will loathe the notion of migrating to shiny new objects, and stick to what helps them achieve their maximum potential.

Marketing and Distribution Efficiency: Companies are worth the markets they serve.  They are valued for their audience and reach.  Even if their products in of themselves don’t unlock the entire value of the market they serve, they will be valued for their potential to, at some point in the future, be able to sell to the customers that have been tee’d up with their brands. AOL leveraged cheap CD-ROMs and the postal system to get families online, and on email.

Dollar Shave Club leveraged social media and an otherwise abandoned demographic to lock down a sales channel that was ultimately valued at a billion dollars. The inventions in these examples were in how efficiently these companies built and accessed markets, which ultimately made them incredibly valuable.

Network effects: Its power has ultimately led to its abuse in startup fundraising pitches. LinkedIn, Facebook, Twitter, and Instagram generate their network effects through Internet and Mobile. Most marketplace companies need to undergo the arduous, expensive process of attracting vendors and customers.  Uber identified macro trends (e.g., urban living) and leveraged technology (GPS in cheap smartphones) to yield massive growth in building up supply (drivers) and demand (riders).

Our portfolio company Zoox will benefit from every car benefitting from edge cases every vehicle encounters: akin to the driving population immediately learning from special situations any individual driver encounters. Startups should think about how their inventions can enable network effects where none existed, so that they are able to achieve massive scale and barriers by the time competitors inevitably get access to the same technology.

Offering an end-to-end solution: There isn’t intrinsic value in a piece of technology; it’s offering a complete solution that delivers on an unmet need deep-pocketed customers are begging for. Does your invention, when coupled to a few other products, yield a solution that’s worth far more than the sum of its parts? For example, are you selling a chip, along with design environments, sample neural network frameworks, and datasets, that will empower your customers to deliver magical products? Or, in contrast, does it make more sense to offer standard chips, licensing software, or tag data?

If the answer is to offer components of the solution, then prepare to enter a commodity, margin-eroding, race-to-the-bottom business. The former, “vertical” approach is characteristic of more nascent technologies, such as operating robots-taxis, quantum computing, and launching small payloads into space. As the technology matures and becomes more modular, vendors can sell standard components into standard supply chains, but face the pressure of commoditization.

A simple example is Personal Computers, where Intel and Microsoft attracted outsized margins while other vendors of disk drives, motherboards, printers, and memory faced crushing downward pricing pressure.  As technology matures, the earlier vertical players must differentiate with their brands, reach to customers, and differentiated product, while leveraging what’s likely going to be an endless number of vendors providing technology into their supply chains.

A magical new technology does not go far beyond the resumes of the founding team.

What gets me excited is how the team will leverage the innovation, and attract more amazing people to establish a dominant position in a market that doesn’t yet exist. Is this team and technology the kernel of a virtuous cycle that will punch above its weight to attract more money, more talent, and be recognized for more than it’s product?

Google’s Play Store will no longer be free to Android phone makers in Europe

Android is in for big policy changes in Europe.
Android is in for big policy changes in Europe.

Image: Getty Images/justin sullivan

Months after being hit with a record-setting $5 billion fine from the EU, Google is making major changes to its policies in Europe.

For the first time in its history, Google will charge Android phone makers that want to sell devices with the Google Play Store and other apps pre-installed. 

Under the new European rules, detailed by Google’s senior vice president of platforms Hiroshi Lockheimer, Android phone makers that want to sell devices with Google services pre-installed in Europe will need to pay a licensing fee to Google. 

This includes the Play Store and other apps (like Gmail and YouTube) but does not include Google Search or Chrome, both of which will remain available to OEMs for free. 

Additionally, Google will, for the first time, allow Android phone makers to ship devices with the Play Store pre-installed even if they are running “forked” versions of Android (custom versions of Android developed independently of Google). These variations of Android have long been popular outside of the U.S., but Google hasn’t typically allowed its services to ship on these “unofficial” variants, with Amazon’s FireOS being a notable exception. 

The changes come after European regulators fined Google more than $5 billion for antitrust violations related to Android. At issue was Google’s practice of requiring Android phone makers to pre-install Google Search, Chrome, and other services on handsets in return for being able to use the Android operating system for free. Regulators said this gave Google an unfair advantage over competitors.

In his statement, Lockheimer emphasized that Google remains committed to keeping Android “free and open source,” despite the new changes, and noted that the company is still appealing the E.U.’s  decision. 

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Google tweaks Android licensing terms in Europe to allow Google app unbundling — for a fee

Google has announced changes to the licensing model for its Android mobile operating system in Europe,  including introducing a fee for licensing some of its own brand apps, saying it’s doing so to comply with a major European antitrust ruling this summer.

In July the region’s antitrust regulators hit Google with a recordbreaking $5BN fine for violations pertaining to Android, finding the company had abused the dominance of the platform by requiring manufacturers pre-install other Google apps in order to license its popular Play app store. 

Regulators also found Google had made payments to manufacturers and mobile network operators in exchange for exclusively pre-installing Google Search on their devices, and used Play store licensing to prevent manufacturers from selling devices based on Android forks.

Google disputes the Commission’s findings, and last week filed its appeal — a legal process that could take years. But in the meanwhile it’s making changes to how it licenses Android in Europe to avoid the risk of additional penalties heaped on top of the antitrust fine.

Hiroshi Lockheimer, Google’s senior vice president of platforms & ecosystems, revealed the new licensing options in a blog post published today.

Under updated “compatibility agreements”, he writes that mobile device makers will be able to build and sell Android devices intended for the European Economic Area (EEA) both with and without Google mobile apps preloaded — something Google’s same ‘compatibility’ contracts restricted them from doing before, when it was strictly either/or (either you made Android forks, or you made Android devices with Google apps — not both).

“Going forward, Android partners wishing to distribute Google apps may also build non-compatible, or forked, smartphones and tablets for the European Economic Area (EEA),” confirms Lockheimer.

However the company is also changing how it licenses the full Android bundle — which previously required OEMs to load devices with the Google mobile application suite, Google Search and the Chrome browser in order to be able to offer the popular Play Store — by introducing fees for OEMs wanting to pre-load a subset of those same apps under “a new paid licensing agreement for smartphones and tablets shipped into the EEA”.

Though Google stresses there will be no charge for using the Android platform itself. (So a pure fork without any Google services preloaded still wouldn’t require a fee.)

Google also appears to be splitting out Google Search and Chrome from the rest of the Google apps in its mobile suite (which traditionally means stuff like YouTube, the Play Store, Gmail, Google Maps, although Lockheimer’s blog post does not make it clear which exact apps he’s talking about) — letting OEMs selectively unbundle some Google apps, albeit potentially for a fee, depending on the apps in question.

“[D]evice manufacturers will be able to license the Google mobile application suite separately from the Google Search App or the Chrome browser,” is what Lockheimer unilluminatingly writes.

Perhaps Google wants future unbundled Android forks to still be able to have Google Search or Chrome, even if they don’t have the Play store, but it’s really not at all clear which configurations of Google apps will be permitted under the new licensing terms, and which won’t.

“Since the pre-installation of Google Search and Chrome together with our other apps helped us fund the development and free distribution of Android, we will introduce a new paid licensing agreement for smartphones and tablets shipped into the EEA. Android will remain free and open source,” Lockheimer adds, without specifying what the fees will be either. 

“We’ll also offer new commercial agreements to partners for the non-exclusive pre-installation and placement of Google Search and Chrome. As before, competing apps may be pre-installed alongside ours,” he continues to complete his trio of poorly explained licensing changes.

We’ve asked Google to clarify the various permitted and not permitted app configurations, as well as which apps will require a fee (and which won’t), and how much the fees will be, and will update this post with any response.

The devil in all those details should become clear soon though, as Google says the new licensing options will come into effect on October 29 for all new (Android based) smartphones and tablets launched in the EEA.