>>Hi, everyone. My name is Dan Bonnie and I want to thank the organizers for inviting me to speak. Since I only have 15 >>minutes, I decided to talk about something relatively simple that will hopefully be useful to entity. This is joint work with my students Sabah Eskandarian and Sam Kim. And with Morrissey, this work will appear it, uh, the upcoming Asia crypt and is available on E print if anyone wants this to learn more about what I'm going to talk about, So >>I want to tell you the story >>of storing encrypted data in the cloud. >>So all of us have lots of data, and typically we'd rather not >>store the data on our local machines. But rather we'd like to move the data to the cloud so that the cloud can handle back up in the cloud, can handle access control on this data and allow us to share it with others. However, for some types of data, we'd rather not have the data available in the cloud in the clear. And so what we dio is we encrypt the data before we send it to the cloud, and the customer is the one that's holding the key. So the cloud has cipher text, and the customer is the only one that has the key that could decrypt that data. >>Now, whenever dealing with encrypted data, there is a very common requirements called key rotation. So key rotation refers to the act of taking a cipher text and basically re encrypting it under a different key without changing the underlying data. Okay. And the reason we do that is so that an old key basically >>stops working, right? So we re encrypt the data under a new key, and as a result, the old red key can no longer decrypt the data. So it's a way for us to expire keys so that Onley the new key can decrypt the current data stored in the cloud. Of >>course, when we do this, we have to assume that the cloud actually doesn't store the old cipher text. So we're just going to assume that the cloud deletes the old cipher text, and the only thing the cloud has is on Lee, >>the latest version of the cipher text which can only be decrypted using the latest version of the key. >>So why do we do key rotations. Well, it turns out it's actually quite a good idea for one reason. Like we said, it limits the lifetime of a key. If I give you a key today, you can decrypt the data today. But after I do key rotation on my data, the key that I gave you no longer works. Okay, so it's a way to limit the lifetime of a key. And it's a good idea, for example, in an organization that might have temporary employees. Basically, you might give those temporary employees a key. But once they leave effectively, >>the keys will stop working after the key rotation has been done. >>Not only is it a good idea, it's actually >>a requirement in many standards. So, for example, this requires key rotation, the payment industry and requires periodic he rotation. So it's a fairly common requirement out there. The >>problem is, how do we do key >>rotation when the data is stored in the cloud? Yeah, so there are >>two options that immediately come to mind, but both are problematic. The first option is we can download the entire data >>set onto our client machines. Things could be terabytes or petabytes of data so it's a huge amount of data that we might need to download on to the client >>machine, decrypt it under the old Ke re encrypted under the new key and then upload all >>that data back to the cloud. So that works and it's fine. The only problem is it's very expensive. You have to move the data back and forth in and out of the cloud. The >>other option, of course, is to send the actual old key in the new key to the cloud and then have the cloud re encrypt using the old key and re encrypt, then using the new key. And of course, that also works. >>But it's insecure because now the cloud will get to see your data in the clear. So >>the question is what to do. And it turns out there is a better option, which is called up datable encryption, so obtainable encryption works as follows. What we do is we take our old key and our new key, and we combine them together using some sort of ah kee Reekie generation algorithm. What this algorithm will do is it will generate a short key. That's a combination of the old and new key. We can then send the re encryption key over to the cloud. The cloud can then use this key to encrypt re encrypt the entire data in the cloud. So in doing so, basically, the cloud is able to do the rotation for us. But the hope is that the cloud learns >>nothing about the data in doing that. Okay, so the re encryption key that we send to the cloud should reveal nothing to the cloud about the actual data that's being held in the cloud. So obtainable encryption is relatively old concept. I guess it was first studied in one of our papers back from 2013. There were stronger definitions given in the work of Everest power it all in 2017. And there's been a number of papers studying this this concept since. So >>before we talk about the constructions for available encryption, let me just quickly make >>sure the syntax is clear. Just so we see how this works. So basically there's a key generation algorithm that generates a key from a security parameter. Then, when we encrypt a message using a particular key, we're gonna break the cipher text into a short header and the actual cipher text the hitter and the cipher text gets into the >>cloud. And like I said, this header is going to be short and independent of the message length. Then when we want to do rotation, what we'll do is basically will use the old key in the new key along with the cipher text header to produce what we call >>a re encryption key will denote that by Delta. Okay, so the way this works is we will download the header from the >>Cloud Short header Computer Encryption key, send their encryption key to the cloud, and then the cloud will use the re encrypt algorithm that uses the re encryption key and the old cipher >>text to produce the new cipher text. And then this new cipher text will be stored in the cloud. And again, I repeat, the assumption is that the cloud is gonna erase the old cipher text. It is going to erase the re encryption key that we send to it. >>And finally, at the end of the day, when we want to decrypt the actual cipher text in the cloud, we download >>the cipher text on the cloud we decrypted using the key K and recover the actual message in. >>Okay, So in this new work with my students, we set out to look Atmore efficient constructions for available encryption. So the first thing we did is we realize there's some issues >>with the current security definitions and so we strengthen the security definitions in particular, we strengthen them in a couple of ways, but in particular, we'd like to make sure that the actual cipher text has stored in the cloud doesn't actually revealed a number of key rotations. Yeah, so a rotated cipher text should look indistinguishable from a fresh cipher text. >>But not only that, That actually should also guarantee >>that the number of key rotations is not leaked by from just looking at the cipher text. So generally, we'd like to hide the number of key rotations so that it doesn't reveal private information about what's what's encrypted inside the cipher text. >>But our main goal was to look at more efficient construction. So we looked at two constructions, one based >>on a lattice based key home or fake. Prof. So actually, the main point of this work was actually to study the performance of a lattice based key home or fake prof relative to the existing of datable encryption systems >>and then the other. The other construction we give is what's called a nested. Construction would just uses plain old symmetric encryption. And interestingly, what we show is that in fact, the nested construction is actually the best construction we have as long as the number of key rotations is not too high. Yes, so if we do under 50 re encryptions, just go ahead and use the nested construction basically from symmetric encryption. However, if we do more than 50 key rotations, all of a sudden the lattice >>based construction becomes the best one that we have. >>I want to emphasize here that are our goal for using lattices. That was not to get quantum resistance. We wanted to use lattices just because >>lettuces are fast. Yeah, and so we wanted to gain from the performance of lattice is not from the security that they provide >>eso I guess before I talk about the constructions, I have to quickly just remind you of how >>what what the security model is, what it is we're trying to achieve and I have to say the security model for available encryption is not that easy to explain here, You know, the adversary gets to see lots of keys. He gets to see lots of re encryption keys. He gets to see lots of >>cipher text. So instead of giving you the full definition, I'm just gonna give you kind >>of the intuition for what this definition is trying to achieve. And I'm going to point you to the paper for the details. So >>really, what the definition is trying to say >>is the following settings. Right. So imagine we have a cipher text that's encrypted under a certain key K. At >>some point later on in the future, the cipher text gets re encrypted using a re encryption key Delta. Okay, so now the new cipher text is encrypted under the key K prime. And what we're basically trying to achieve in the definition is to say that well, if the adversary gets to see the old cipher text >>the new cipher text and they re encryption key, then they learn nothing about the message. And they can't harm the integrity of the cipher text. >>Similarly, if they just see the old key and the new >>cipher text. They learn nothing about the message, and they can't harm the integrity of the cipher text. And similarly, if you see an old cipher text in a new key, same thing. Yeah, this is again overly simplified because in reality, the adversary gets to see lots of cipher, text and lots of keys and lots of encryption keys. And there are all these correctness conditions for when he's supposed Thio learn something and whatnot. And so I'm going to defer this to the paper. But this gives you at least the intuition for what the definition is trying to >>achieve. So now let's turn to constructions, so the first construction we'll look >>at it is kind of the classic way to construct available encryption using what's called the key home or fake. Prof. Sochi Home or for Pierre Efs were used by the or Pincus and Rain go back in 99 there were defined in our paper. BLM are back in 2013 the point of the BLM. Our paper was mainly to construct key home or fake pl refs without random oracles. So first, let me explain what Akiyama Murphy pf >>is. So it's basically a Pierre F where we have home amorphous, um, >>relative to the key. So you can see here if I give you the prof under two different keys at the point X, I can add those values and get the PF under the some of the keys at the same point x. Okay, so that's what the key home or fake property lets >>us dio. And so keyhole Norfolk PRS were used to construct a datable encryption schemes. The first thing we show is that, in fact, using keyhole graphic PRS, weaken build an update Abel encryption scheme that satisfies are stronger security definitions. So again, I'm not going to go through this construction. But just to give you intuition for why key Horrific Pff's are useful for update Abel encryption. Let me just say that the re encryption key is gonna be the some of the old key and the new key. And to see why that's useful. Let's imagine we're encrypting >>a message using counter mode so you can see here a message is being encrypted using a P r f applied to a counter, I >>Well, if I give the cloud K one plus K to the cloud >>can evaluate F F K one plus K two at the point I and if we subtract that from the >>cipher text, then by the key home or FIC properties, you'll see that F K one cancels out. And basically we're left with an encryption of them under the ki minus K two. So we were able to transform the cipher text for an encryption under K one to an encryption under minus K two. Yeah, and that's kind of the reason why they're useful. But of course, in reality, the construction >>has many, many more bells and whistles to it to satisfy the security definition. Okay, so >>what do we know about Qihoo? Norfolk? Pff's? Well, the first key home or fake prof is based on the d. D H assumption. And that's just the standards PF from D d H. It's not difficult to see that this >>construction actually is key human Norfolk. >>In this work, we're particularly interested in the keyhole morphing prof that comes from lattices. So our question was, can we optimize the ski home amorphous prof to get a very fast update Abel encryption scheme? And so the answer is yes, we can. And to do that we use the ring learning with error problems. So our goal was really to kind of evaluate obtainable encryption as it applies to lattices. So that's the first construction. The second construction, like I said, is purely based on symmetric encryption, and it's kind of an enhancement of what we call the Trivial Update Abel encryption scheme. So what's the Trivial Update? Abel encryption scheme? Well, basically, we would look at >>a standard encryption where we encrypt the message using some message key. And then we encrypt the message key using the actual client key. These are all symmetric encryptions. The client basically clinic. He would be >>K, and the header would be the message encryption key. Now, when we want to rotate the keys, all we will do is basically we would generate a new message. >>Encryption key will call a K body prime. We'll send that over to the cloud that the >>cloud will encrypt the entire old cipher text under the new key and then encrypt a new key along with the old key under a new clients key, which we call Cape Prime. So what gets sent to the cloud is this K body prime and header prime and the cloud is able to do its operation and re encrypt the old cipher text. The new client key becomes K prime. And of course, we can continue this over and over in kind of an onion like encryption where we keep encrypting the old cipher text under a new message. He The benefit of the scheme, of course, is that it only uses >>symmetric encryption, so it's actually quite fast, so that's pretty good. >>Unfortunately, this is not quite secure. And the reason this is not secure is because the cipher >>text effectively grows with a number of key rotations. So the cipher text actually leaks the number of key rotations, and so it doesn't actually satisfy our definitions. Nevertheless, we're able to give a nest of construction that does satisfy our definitions. So it does hide the number of key rotations. And again, there are lots of details in this constructions. I'm going to point you to the paper for how the nested encryption works. So >>now we get to the main point that I wanted to make, which is >>comparing the different constructions. So let's compare the lattice based construction with a D. D H but its construction and the symmetric nested construction for the DTH based construction. We're going to use the GPRS system just for a comparison point, >>so you can see that for four kilobyte message >>blocks, the lattice based system is about 300 times faster than the D. D H P A system. And the reason we're able to get such a high throughput is, of course, lattices air more efficient but also were able to use the A V X instructions for speed up. And we've also optimized the ring that we're using quite a bit specifically for this purpose. Nevertheless, when we compared to the symmetric system, we see that the symmetric system is still in order of magnitude faster than even a lot of system. And so for encryption and re encryption purposes that the symmetric based system is the fastest that we have. When we go to a larger message blocks 32 kilobyte message blocks, you see that the benefit of the latter system is even greater over the D d H system. But the symmetric system performs even better Now if you think back to how the symmetric system works. It creates many layers of encryption and >>as a result, during decryption, we have to decrypt all these >>layers. So decryption in the symmetric system takes linear time in the number of re encryptions. So you can see this in this graph where the time to decrypt increases linearly with the number of re encryptions, whereas the key home or FIC methods take constant amount of time to decrypt, no matter how many re encryptions there are, the crossover point is about 50 re encryptions, Which is why we said that if in the lifetime of the cipher text we expect fewer than 50 re encryptions, you might as well use the symmetric nested system. But if you're doing frequently encryptions, let's say weekly re encryptions, you might end up with many more than 50 re encryptions, in which case the lattice based key home or fix scheme is the best up datable system we have today. >>So I'm going to stop here. But let me leave you with one open problem if you're interested in questions in this area. So let me say that in our latest based construction, because of the noise that's involved in latest constructions. It turns out we had toe slightly weaken >>our definitions of security to get the security proof to go through. I think it's an interesting problem to see if we can build a lattice based system that's as efficient as the one that we have, but one that satisfies our full security definition. Okay, so I'll stop here, and I'm happy to take any questions. Thank you very much.

(upbeat music) >> From our studios in the heart of Silicon Valley, Palo Alto, California, this is a CUBEConversation. >> Hi everyone, welcome to the special CUBEConversation. We're in Palo Alto, California, at theCUBE studio. I'm John Furrier, co-host of the CUBE. We're here with Chris Yeh. He's the co-founder and general partner of Blitzscaling Ventures, author of the book Blitzscaling with Reid Hoffman, founder of LinkedIn and a variety of other ventures, also a partner at Greylock Partners. Chris, great to see you. I've known you for years. Love the book, love Reid. You guys did a great job. So congratulations. But the big news is you're now a TV star as one of the original inaugural contestants on the Mental Samurai, just premiered on Fox, was it >> On Fox. >> On Fox, nine o'clock, on which days? >> So Mental Samurai is on Fox, Tuesdays at 9 p.m. right after Master Chef Junior. >> Alright. So big thing. So successful shows. Take us through the journey. >> Yeah. >> It's a new show, so it's got this kind of like Jeopardy vibe where they got to answer tough questions in what looks like a roller coaster kind of arm that moves you around from station to station, kind of jar you up. But it's a lot of pressure, time clock and hard questions. Tell us about the format. How you got that. Gives all the story. >> So the story behind Mental Samurai is it's from the producers of American Ninja Warrior, if you've ever seen that show. So American Ninja Warrior is a physical obstacle course and these incredible athletes go through and the key is to get through the obstacle course. If you miss any of the obstacles, you're out. So they took that and they translated it to the mental world and they said, okay, we're going to have a mental obstacle course where you going to have different kinds of questions. So they have memory questions, sequence questions, knowledge questions, all these things that are tapping different elements of intelligence. And in order to win at the game, you have to get 12 questions right in five minutes or less. And you can't get a single question wrong. You have to be perfect. >> And they do try to jar you up, to kind of scrabble your brain with those devices, it makes it suspenseful. In watching last night at your watch party in Palo Alto, it's fun to watch because yeah, I'm like, okay, it's going to be cool. I'll support Chris. I'll go there, be great and on TV, and oh my, that's pretty interesting. It was actually riveting. Intense. >> Yeah. You have that element of moving around from station to station and it's dramatic. It's kind of a theater presence. But what's it like in there? Give us some insight. You're coming on in April 30th so you're yet to come on. >> Yes. >> But the early contestants, none of them made it to the 100,000. Only one person passed the first threshold. >> Right >> Take us through the format. How many thresholds are there? What's the format? >> Perfect, so basically when a competitor gets strapped into the chair, they call it Ava, it's like a robot, and basically they got it from some company in Germany and it has the ability to move 360 degrees. It's like an industrial robot or something. It makes you feel like you're an astronaut or in one those centrifugal force things. And the idea is they're adding to the pressure. They're making it more of a challenge. Instead of just Jeopardy where you're sitting there, and answering questions and bantering with Alex Trebek, you're working against the clock and you're being thrown around by this robot. So what happens is first you try to answer 12 questions correctly in less than five minutes. If you do that, then you make it through to the next round, what they call the circle of samurai and you win $10,000. The circle of samurai, what happens is there are four questions and you get 90 seconds plus whatever you have left over from your first run, to answer those four questions. Answer all four questions correctly, you win $100,000 and the official title of Mental Samurai. >> So there's only two levels, circle of samurai but it gets harder. Now also I noticed that it's, their questions have certain puzzles and there's certain kinds of questions. What's the categories, if you will, what's the categories they offer? >> Yes, so the different categories are knowledge, which is just classic trivia, it's a kind of Jeopardy stuff. There's memory, where they have something on screen that you have to memorize, or maybe they play an audio track that you have to remember what happened. And then there's also sequence where you have to put things in order. So all these different things are represented by these different towers which are these gigantic television screens where they present the questions. And the idea is in order to be truly intelligent, you have to be able to handle all of these different things. You can't just have knowledge. You can't just have pop culture. You got to have everything. >> So on the candidates I saw some from Stanford. >> Yeah. >> I saw an athlete. It's a lot of diversity in candidates. How do they pick the candidates? How did you get involved? Did your phone ring up one day? Were you identified, they've read your blog. Obviously they've, you're smart. I've read your stuff on Facebook. How did you get in there? (laughs) >> Excellent question. So the whole process, there's a giant casting department that does all these things. And there's people who just cast people for game shows. And what happened with me is many years ago back in 2014, my sister worked in Hollywood when I was growing up. She worked for ER and Baywatch and other companies and she still keeps track of the entertainment industry. And she sent me an email saying, hey, here's a casting call for a new show for smart people and you should sign up. And so I replied to the email and said hey I'm Chris Yeh. I'm this author. I graduate from Stanford when I was 19, blah blah blah blah. I should be on your show. And they did a bunch of auditions with me over the phone. And they said we love you, the network loves you. We'll get in touch and then I never heard. Turns out that show never got the green light. And they never even shot that show. But that put me on a list with these various casting directors. And for this show it turns out that there was an executive producer of the show, the creator of the show, his niece was the casting director who interviewed me back in 2014. And she told her uncle, hey, there's this guy, Chris Yeh, in Palo Alto. I think would be great for this new show you're doing. Why don't you reach out to him. So they reached out to me. I did a bunch of Skype auditions. And eventually while I was on my book tour for Blitzscaling, I got the email saying, congratulations, you're part of the season one cast. >> And on the Skype interviews, was it they grilling you with questions, or was it doing a mock dry run? What was some of interview vetting questions? >> So they start off by just asking you about yourself and having you talk about who you are because the secret to these shows is none of the competitors are famous in advance, or at least very few of them are. There was a guy who was a major league baseball pitcher, there's a guy who's an astronaut, I mean, those guys are kind of famous already, but the whole point is, they want to build a story around the person like they do with the Olympics so that people care whether they succeed or not. And so they start off with biographical questions and then they proceed to basically use flash cards to simulate the game and see how well you do. >> Got it, so they want to basically get the whole story arc 'cause Chris, obviously Chris is smart, he passed the test. Graduate when he's 19. Okay, you're book smart. Can you handle the pressure? If you do get it, there's your story line. So they kind of look from the classic, kind of marketing segmentation, demographics is your storylines. What are some of the things that they said to you on the feedback? Was there any feedback, like you're perfect, we like this about you. Or is it more just cut and dry. >> Well I think they said, we love your energy. It's coming through very strongly to the screen. That's fantastic. We like your story. Probably the part I struggle the most with, was they said hey, you know, talk to us about adversity. Talk to us about the challenges that you've overcome. And I tell people, listen, I'm a very lucky guy. A lot of great things have happened to me in life. I don't know if there's that much adversity that I can really complain about. Other people who deal with these life threatening illnesses and all this stuff, I don't have that. And so that was probably the part I struggled the most with. >> Well you're certainly impressive. I've known you for years. You're a great investor, a great person. And a great part of Silicon Valley. So congratulations, good luck on the show. So it's Tuesdays. >> 9 p.m. >> 9 p.m. >> On fox. >> On Fox. Mental Samurai. Congratulations, great. Great to be at the launch party last night. The watch party, there'll be another one. Now your episode comes out on April 30th. >> Yes. So on April 30th we will have a big Bay area-wide watch party. I'm assuming that admission will be free, assuming I find the right sponsors. And so I'll come back to you. I'll let you know where it's going to be. Maybe we should even film the party. >> That's, well, I got one more question on the show. >> Yeah. >> You have not been yet on air so but you know the result. What was it like sitting in the chair, I mean, what was it personally like for you? I mean you've taken tests, you've been involved with the situation. You've made some investments. There's probably been some tough term sheets here and there, board meetings. And all that experience in your life, what was it compared to, what was it like? >> Well, it's a really huge adrenaline rush because if you think about there's so many different elements that already make it an adrenaline rush and they all combine together. First of all, you're in this giant studio which looks like something out of a space-age set with this giant robotic arm. There's hundreds of people around cheering. Then you're strapped into a robotic arm which basically makes you feel like an astronaut, like every run starts with you facing straight up, right? Lying back as if you're about to be launched on a rocket. And then you're answering these difficult questions with time pressure and then there's Rob Lowe there as well that you're having a conversation with. So all these things together, and your heart, at least for me, my heart was pounding. I was like trying very hard to stay calm because I knew it was important to stay clam, to be able to get through it. >> Get that recall, alright. Chris, great stuff. Okay, Blitzscaling. Blitzscaling Ventures. Very successful concept. I remember when you guys first started doing this at Stanford, you and Reid, were doing the lectures at Stanford Business School. And I'm like, I love this. It's on YouTube, kind of an open project initially, wasn't really, wasn't really meant to be a book. It was more of gift, paying it forward. Now it's a book. A lot of great praise. Some criticism from some folks but in general it's about scaling ventures, kind of the Silicon Valley way which is the rocket ship I call. The rocket ship ventures. There's still the other venture capitals. But great book. Feedback from the book and the original days at Stanford. Talk about the Blitzscaling journey. >> And one of the things that happened when we did the class at Stanford is we had all these amazing guests come in and speak. So people like Eric Schmidt. People like Diane Greene. People like Brian Chesky, who talked about their experiences. And all of those conversations really formed a key part of the raw material that went into the book. We began to see patterns emerge. Some pretty fascinating patterns. Things like, for example, a lot of companies, the ones that'd done the best job of maintaining their culture, have their founders involved in hiring for the first 500 employees. That was like a magic number that came up over and over again in the interviews. So all this content basically came forward and we said, okay, well how do we now take this and put it into a systematic framework. So the idea of the book was to compress down 40 hours of video content, incredible conversations, and put it in a framework that somebody could read in a couple of hours. >> It is also one of those things where you get lightning in a ball, the classic and so then I'd say go big or go home. But Blitzscaling is all about something new and something different. And I'm reading a book right now called Loonshots, which is a goof on moonshots. It's about the loonies who start the real companies and a lot of companies that are successful like Airbnb was passed over on and they call those loonies. Those aren't moonshots. Moonshots are well known, build-outs. This is where the blitzscaling kind of magic happens. Can you just share your thoughts on that because that's something that's not always talked about in the mainstream press, is that a lot of there blitzscaling companies, are the ones that don't look good on paper initially. >> Yes. >> Or ones that no one's talking about is not in a category or herd mentality of investors. It's really that outlier. >> Yes. >> Talk about that dynamic. >> Yeah, and one of the things that Reid likes to say is that the best possible companies usually sound like they're dumb ideas. And in fact the best investment he's been a part of as a venture capitalist, those are the ones where there's the greatest controversy around the table. It's not the companies that come in and everyone's like this is a no-brainer, let's do it. It's the companies where there's a big fight. Should we do this, should we not? And we think the reason is this. Blitzscaling is all about being able to be the first to scale and the winner take most or the winner take all market. Now if you're in a market where everyone's like, this is a great market, this is a great idea. You're going to have huge competition. You're going to have a lot of people going after it. It's very difficult to be the first to scale. If you are contrarian and right you believe something that other people don't believe, you have the space to build that early lead, that you can then use to leverage yourself into that enduring market leadership. >> And one of the things that I observed from the videos as well is that the other fact that kind of plays into, I want to get your reaction, this is that there has to be a market shift that goes on too because you have to have a tailwind or a wave to ride because if you can be contrarian if there's no wave, >> Right. >> right? so a lot of these companies that you guys highlight, have the wave behind them. It was mobile computing, SaaSification, cloud computing, all kind of coming together. Talk about that dynamic and your reaction 'cause that's something where people can get confused on blitzscaling. They read the book. Oh I'm going to disrupt the dry cleaning business. Well I mean, not really. I mean, unless there's something different >> Exactly. >> in market conditions. Talk about that. >> Yeah, so with blitzscaling you're really talking about a new market or a market that's transforming. So what is it that causes these things to transform? Almost always it's some new form of technological innovation, or perhaps a packaging of different technological innovations. Take mobile computing for example. Many of the components have been around for a while. But it took off when Apple was able to combine together capacitative touchscreens and the form factor and the processor strength being high enough finally. And all these things together created the technological innovation. The technological innovation then enables the business model innovation of building an app store and creating a whole new way of thinking about handheld computing. And then based on that business model innovation, you have the strategy innovation of blitzscaling to allow you to grow rapidly and keep from blowing up when you grow. >> And the spirit of kind of having, kind of a clean entrepreneurial segmentation here. Blitzscaling isn't for everybody. And I want you to talk about that because obviously the book's popular when this controversy, there's some controversy around the fact that you just can't apply blitzscaling to everything. We just talk about some of those factors. There are other entrepreneurialship models that makes sense but that might not be a fit for blitzscaling. Can you just unpack that and just explain, a minute to explain the difference between a company that's good for blitzscaling and one that isn't. >> Well, a key thing that you need for blitzscaling is one of these winner take most or winner take all markets that's just enormous and hugely valuable, alright? The whole thing about blitzscaling is it's very risky. It takes a lot of effort. It's very uncomfortable. So it's only worth doing when you have those market dynamics and when that market is really large. And so in the book we talk about there being many businesses that this doesn't apply to. And we use the example of two companies that were started at the same time. One company is Amazon, which is obviously a blitzscaling company and a dominant player and a great, great company. And the other is the French Laundry. In fact, Jeff Bezos started Amazon the same year that Thomas Keller started the French Laundry. And the French Laundry still serves just 60 people a day. But it's a great business. It's just a very different kind of business. >> It's a lifestyle or cash flow business and people call it a lifestyle business but mainly it's a cash flow or not a huge growing market. >> Yeah. >> Satisfies that need. What's the big learnings that you learned that was something different that you didn't know coming out of blitzscaling experience? Something that surprised you, something that might have shocked you, something that might have moved you. I mean you're well-read. You're smart. What was some learnings that you learned from the journey? >> Well, one of the things that was really interesting to me and I didn't really think about it. Reid and I come from the startup world, not the big company world. One of the things that surprised me is the receptivity of big companies to these ideas. And they explained it to me and they said, listen, you got to understand with a big company, you think it's just a big company growing at 10, 15% a year. But actually there's units that are growing at 100% a year. There's units that are declining at 50% a year. And figuring out how you can actually continue to grow new businesses quicker than your old businesses die is a huge thing for the big, established companies. So that was one of the things that really surprised me but I'm grateful that it appears that it's applicable. >> It's interesting. I had a lot of conversations with Michael Dell before, and before they went private and after they went private. He essentially was blitzscaling. >> Yeah. >> He said, I'm going to winner take most in the mature, somewhat declining massive IT enterprise spend against the HPs of the world, and he's doing it and VMware stock went to an all time high. So big companies can blitz scale. That's the learning. >> Exactly. And the key thing to remember there is one of the reasons why somebody like Michael Dell went private to do this is that blitzscaling is all about prioritizing speed over efficiency. Guess who doesn't like that? Wall street doesn't like because you're taking a hit to earnings as you invest in a new business. GM for example is investing heavily in autonomous vehicles and that investment is not yet delivering cash but it's something that's going to create a huge value for General Motors. And so it's really tough to do blitzscaling as a publicly traded company though there are examples. >> I know your partner in the book, Reid Hoffman as well as in the blitzscaling at Stanford was as visible in both LinkedIn and as the venture capitalist of Greylock. But also he was involved with some failed startups on the front end of LinkedIn. >> Yeah. >> So he had some scar tissue on social networking before it became big, I'll say on the knowledge graph that he's building, he built at LinkedIn. I'm sure he had some blitzscaling lessons. What did he bring to the table? Did he share anything in the classes or privately with you that you can share that might be helpful for people to know? >> Well, there's a huge number of lessons. Obviously we drew heavily on Reid's life for the book. But I think you touched on something that a lot of people don't know, which is that LinkedIn is not the first social network that Reid created. Actually during the dot-com boom Reid created a company called SocialNet that was one of the world's first social networks. And I actually was one of the few people in the world who signed up and was a member of SocialNet. I think I had the handle, net revolutionary on that if you can believe that. And one of the things that Reid learned from his SocialNet experience turned into one of his famous sayings, which is, if you're not embarrassed by your first product launch, you've launched too late. With SocialNet they spent so much time refining the product and trying to get it perfectly right. And then when they launched it, they discovered what everyone always discovers when they launch, which is the market wants something totally different. We had no idea what people really wanted. And they'd wasted all this time trying to perfect something that they've theoretically thought was what the market wanted but wasn't actually what the market wanted. >> This is what I love about Silicon Valley. You have these kind of stories 'cause that's essentially agile before agile came out. They're kind of rearranging the deck chairs trying to get the perfect crafted product in a world that was moving to more agility, less craftsmanship and although now it's coming back. Also I talked to Paul Martino, been on theCUBE before. He's a tribe with Pincus. And it's been those founding fathers around these industries. It's interesting how these waves, they start off, they don't get off the ground, but that doesn't mean the category's dead. It's just a timing issue. That's important in a lot of ventures, the timing piece. Talk about that dynamic. >> Absolutely. When it comes to timing, you think about blitzscaling. If you start blitzscaling, you prioritize speed over efficiency. The main question is, is it the right time. So Webvan could be taken as an example of blitzscaling. They were spending money wildly inefficiently to build up grocery delivery. Guess what? 2000 was not the right time for it. Now we come around, we see Instacart succeeding. We see other delivery services delivering some value. It just turns out that you have to get the timing right. >> And market conditions are critical and that's why blitzscaling can work when the conditions are right. Our days back in the podcast, it was, we were right but timing was off. And this brings up the question of the team. >> Yeah. >> You got to have the right team that can handle the blitzscaling culture. And you need the right investors. You've been on both sides of the table. Talk about that dynamic because I think this is probably one of the most important features because saying you going to do blitzscaling and then getting buy off but not true commitment from the investors because the whole idea is to plow money into the system. You mentioned Amazon, one of Jeff Bezos' tricks was, he always poured money back into his business. So this is a capital strategy, as well financial strategy capital-wise as well as a business trait. Talk about the importance of having that stomach and the culture of blitzscaling. >> Absolutely. And I think you hit on something very important when you sort of talk about the importance of the investors. So Reid likes to refer to investors as financing partners. Or financing co-founders, because really they're coming on with you and committing to the same journey that you're going on. And one of the things I often tell entrepreneurs is you really have to dig deep and make sure you do more due diligence on your investors than you would on your employees. Because if you think about it, if you hire an employee, you can actually fire them. If you take money from an investor, there's no way you can ever get rid of them. So my advice to entrepreneurs is always, well, figure out if they're going to be a good partner for you. And the best way to do that is to go find some of the entrepreneurs they backed who failed and talked to those people. >> 'Cause that's where the truth will come out. >> Well, that's right. >> We stood by them in tough times. >> Exactly. >> I think that's classic, that's perfect but this notion of having the strategies of the elements of the business model in concert, the financial strategy, the capital strategy with the business strategy and the people strategy, all got to be pumping that can't be really any conflict on that. That's the key point. >> That's right, there has to be alignment because again, you're trying to go as quickly as possible and if you're running a race car and you have things that are loose and rattling around, you're not going to make it across the finish line. >> You're pulling for a pit stop and the guys aren't ready to change the tires, (snapping fingers) you know you're out of sync. >> Bingo. >> Chris, great stuff. Blitzscaling is a great book. Check it out. I recommend it, remember blitz scale is not for anyone, it's for the game changers. And again, picking your investors is critical on this. So if you picked the wrong investors, blitzscaling will blow up in a bad way. So don't, don't, pick properly on the visa and pick your team. Chris, so let's talk about you real quick to end the segment and the last talk track. Talk about your background 'cause I think you have a fascinating background. I didn't know that you graduated when you're 19, from Stanford was it? >> Yes. >> Stanford at 19, that's a great accomplishment. You've been an entrepreneur. Take us through your journey. Give us a quick highlight of your career. >> So the quick highlight is I grew up in Southern California and Santa Monica where I graduated from Santa Monica High School along with other luminaries such as Rob Lowe, Robert Downey, Jr., and Sean Penn. I didn't go at the same time that they did. >> They didn't graduate when they were 17. >> They did not, (John laughing) and Charlie Sheen also attended Santa Monica High School but dropped out or was expelled. (laughing) Go figured. >> Okay. >> I came up to Stanford and I actually studied creative writing and product design. So I was really hitting both sides of the brain. You could see that really coming through in the rest of my career. And then at the time I graduated which was the mid-1990s that was when the internet was first opening up. I was convinced the internet was going to be huge and so I just went straight into the internet in 1995. And have been in the startup world ever since. >> Must love that show, Halt and Catch Fire a series which I love reminiscing. >> AMC great show. >> Just watching that my life right before my eyes. Us old folks. Talk about your investment. You are at Wasabi Ventures now. Blitzscaling Ventures. You guys looks like you're going to do a little combination bring capital around blitzscaling, advising. What's Blitzscaling Ventures? Give a quick commercial. >> So the best way to think about it is for the entrepreneurs who are actually are blitzscaling, the question is how are you going to get the help you need to figure out how to steer around the corners to avoid the pitfalls that can occur as you're growing rapidly. And Blitzscaling Ventures is all about that. So obviously I bring a wealth of experience, both my own experience as well as everything I learned from putting this book together. And the whole goal of Blitzscaling Ventures is to find those entrepreneurs who have those blitzscalable opportunities and help them navigate through the process. >> And of course being a Mental Samurai that you are, the clock is really important on blitzscaling. >> There are actually are a lot of similarities between the startup world and Mental Samurai. Being able to perform under pressure, being able to move as quickly as possible yet still be accurate. The one difference of course is in our startup world you often do make mistakes. And you have a chance to recover from them. But in Mental Samurai you have to be perfect. >> Speed, alignment, resource management, capital deployment, management team, investors, all critical factors in blitzscaling. Kind of like entrepreneurial going to next level. A whole nother lesson, whole nother battlefields. Really the capital markets are flush with cash. Post round B so if you can certainly get altitude there's a ton of capital. >> Yeah. And the key is that capital is necessary for blitzscaling but it's not sufficient. You have to take that financial capital and you have to figure out how to combine it with the human capital to actually transform the business in the industry. >> Of course I know you've got to catch a plane. Thanks for coming by in the studio. Congratulations on the Mental Samurai. Great show. I'm looking forward to April 30th. Tuesdays at 9 o'clock, the Mental Samurai. Chris will be an inaugural contestant. We'll see how he does. He's tight-lipped, he's not breaking his disclosure. >> I've got legal requirements. I can't say anything. >> Just say he's sticking to his words. He's a man of his words. Chris, great to see you. Venture capitalist, entrepreneur, kind of venture you want to talk to Chris Yeh, co-founder, general partner of blitzscaling. I'm John Furrier for theCUBE. Thanks for watching. (upbeat music)

prepare for the extraction point we've been briefed on all the important stories and events in the world of emerging information now it's time to extract the data and turn it into action live from the silicon angle studios in the heart of Silicon Valley this is extraction point with John furrier okay we're live back in the palo alto studios i'm john furrier for the extraction point we extract the signal from the noise and my special guest today i'm excited to have here is Paul Martino who is the founder of aggregate knowledge and also storied entrepreneur in Silicon Valley who now lives in Philly with his family comes out here Paul is known for among other things being a great entrepreneur tech geek loves tech loves to build build startups started one of the first social networks with Mark Pincus called tribe started his own company funded by Kleiner Perkins with his partner Chris law called aggregate knowledge which is booming and doing great and now more famous for being the first round investor in zynga company that is exploding with revenue as Kleiner Perkins said is the of all their portfolio comes in the history more than Google's made more money faster than anybody Paul Martino welcome to the extraction point great to see you John as always awesome to see you first I got to start with your now I forgot to mention that you're actually running a venture firm so in addition to being famous with Zynga you're running bullpen capital so first give the folks out there an update and first confirm or deny you were in the first round of Zynga or not yes the the first round of Zynga there were several institutional investors and several individual investors Morocco me Reid Hoffman were individual investors Avalon Union Square accelerator ventures and foundry where the institutional investors in that first round Peter was Peter Thiel yeah Peter was also an individual investor in the first round so that's officially the first round investors of Zynga we have clarified that and that is now hot on the books but now you're you've been successfully founded aggregate knowledge you know have a CEO running that what's the update with aggregate knowledge yeah so great guy runs that company as a guy you need to meet and have on this show Dave jakubowski aggregate knowledge really went in a direction where all of the focus was on providing data and analytics to the major ad agencies and John John Nelson who started organic one of the first agencies is now the CEO of Omnicom digital joined the board and I said look we got to get a guy who's an ad heavy in here and jakubowski was previously the GM of microsoft adcenter and had a senior position at specific media and we brought him in and he's just been kickin butt our greek knowledge has really really made a significant significant contribution in the area of data and analytics for these major agencies and he was very able to bring in a crew of people know exactly how to run that business so you're a big fan of big data then mm-hmm oh yeah we just had a big special yesterday on Big Data mentioned about it so that's cool we're going to get into a lobbyist I was just kind of get the small talk out of the way here your current role is the founder of bullpen capital right so bullpen to me I'm a baseball not I love baseball bullpen means you go the bullpen for relief right yep thank God close the game out hopefully or mid-innings relief so tell us about what bullpen is it's a special fund as I know from reading talk to you to target an expansion of this new seed and explosive new funding environment Bryce plain force right I'll tell you how we got the name at the end too so here's what happened I've been investing with a lot of the so-called super angels and that's kind of a misnomer because they really are actually in some cases actual small venture firms to I've been investing with a lot of them since they got off the ground Josh Kopelman from first round is one of the first investors in aggregate knowledge mike maples was an early advisor to the company I've known Jeff claw be a who run soft tech since he was at Reuters and with the late 90s and so I've worked with these guys done a lot of investing and we were me and my buddies Duncan Davidson rich Melman were sitting around over summer of 09 doing a little bit data analysis right another big data assignment we realized that as more and more these seed funds got created they were creating an inventory of companies that weren't quite ready to go to the traditional venture guy but we're also difficult to bridge from just the seed guys because the see guys at that time didn't have really big funds so wait a minute you've got some really good companies here is to clarify the for the folks out there seed funds don't traditionally have follow-on big funds like a VC firm right that's what you're referring to yeah they tend not to have as bigger reserve so if a big fun writes you a five-million-dollar check and you stub your toe you can probably get some more money to get through the hardships but a lot of the the new super angel funds or smaller funds and you get a five hundred thousand dollar check and if you need another five hundred thousand dollars it can frequently be very difficult because they make so many investments with smaller reserves yeah and so you've got dave McClure clavey a maples first round capital true ventures made the first round truevision more traditional VC then say dave McClure and mike maples and claw VA they're out doing some really good work out their funding really good company spending a lot of time I know I've seen them working their butt off yeah they need some air support right they need some cover the little bullpen is that that's you come in and say hey for your stars they're going to rise up yep and so that's exactly right so what happens is here's what the analysis we did turned out of their portfolio thirty percent of their portfolios in aggregate quickly are really exciting companies you know and they quickly go up to a venture auction and the guys and sandhill rotor excited about it about twenty percent of their deals you know that they don't like too much it's kind of just floating there yeah that you know the entrepreneur wasn't a fit that team didn't execute that left fifty percent of their deals in the middle which they kind of were too early to tell as Mike maple sometimes says they were in an extended learning and discovery phase they hadn't quite figured out what their models yeah and this de pivoting stuff's going on right now the Marcus changes turbulence so these guys are right and so you look you look at some examples and you go well wait a minute for every zynga that goes up into the right immediately go look at the stories of chegg and modcloth and etsy and quite frankly the in-between round on twitter and for everyone Zynga that you find that just hits it out of the park the right way there were four to five companies that went through that hard intermediate round that it was difficult in the environment where you have only a potentially thinly capitalized seed fund in front of you go get through that difficult point I said guys you need a bull pen and way we came up with the name is I'm involved in a deal with Chad Durbin who used to pitch for the Phillies and now as a relief pitcher for the cleveland indians and he was in our office and we were talking about this idea and Chad said yeah it's kind of like you're building a bullpen for the seed guys I'm like that's exactly right that's the name we got to go with and so fortunately I was involved in in this company called showcase you which is actually cool cited suppose for recruiting for college scholarships for a collegiate athletes right you're a high school student you throw 80 miles an hour left hand it and you're in 10th grade how do you figure out where the right scholarships are so Durbin and some of the Phillies where the original investors in this company called showcase you it's actually a cool company as the combine work out online basically fries for the high school kids and because the high school kids sometimes are in tough geographies to get to you're in you're in a small rural area in Nebraska how do they find out that you're the guy who can throw 89 miles an hour great so I mean this VC market so basically you're referring to with bullpen right now is an innie and you've been in our sprayer so you live through classic you know classic financing your last company financed by kleiner perkins and a tribe i forget who financed tribe yet Mayfield was the lead investor may feel again another traditional VC firm all tier 1 VCS although may feel people are you now is slipped a little bit that's some of their key partners who have slipped away but they've all moved on what you're really referring to is there's a new dynamic of entrepreneurship going on now we're now there are some break outcomes that just need a little bit more time to mature in the old model they just be kind of closed down the VC guy would be on the Bora has just a pain in the ass and you know really not growing and do another round it's they get kind of lazy in a way if they got 10 10 boards are on so with the super angels and the fact that does take a lot of cash to start a company you've got more deals getting done so the the Y Combinator the Dave McClure's and chef claw va's in the mike maples and sometimes SiliconANGLE labs which we're doing here is telling you about right we're funding companies the more [ __ ] is funded a better will you come in as you keep them alive longer just wreck the pivot possibly that's right and so what happens is right now the venture industry is being disrupted the same way the venture industry has funded companies that have rupted other industries they are being disrupted in the exact same way and the disruption happened from below as always happens it started in seed stage now in order for the disruption to go all the way through there need to be companies that come after seed stage investors that have the same philosophy and mentality pro entrepreneur easy terms operating people who get their hands dirty to get deals done you need that in the B stage and in the sea stage and here's what our prediction is John our prediction is a few years from now there'll be a company that comes after bullpen that does series c and series d financing or mezzanine financing but the same philosophy is bullpen and then DST s at the end of that chain and you can imagine building companies that go all the way to liquidity that you got money from maples first bullpen second this unnamed company third and you went quasi-public with DST and you've bypassed the entire venture scheme entirely and the entire institutional public markets complete liquidity wealth creation companies creating jobs I mean this is new paradigm I mean this isn't amazing I mean this is a potentially amazing point in the history of us finance the idea that you could go two billion dollar outcomes by passing not only the public markets on the back side but the traditional venture ecosystem on the front side I mean that is a disruption if ever there was one amen I mean hi and with you a hundred percent the other some people who will argue regulation is if market forces first of all I'm a big believer in market forces so I think what you're doing is clearly identifying an opportunity that dynamics are all lying lining up entrepreneurs are validating it and so but the questions are regulations I mean first of all I'm anti-regulation but as you start to get to that liquidity and some are arguing I even wrote a blog post about saying hey you know basically Facebook's public merry go buddy what do you say to those guys this is the change in the history of this financial asustor we want the government regulating this yeah so my co-founder of both i started bullpen with two really good guys Duncan Davison who was the founder covad was advantage point for years asking them to buy government regulation would go bad i mean what happened then because of the I lack warsi like Wars but only that the some extent covet doesn't exist unless the telco 1994 happens through in some ways a creation of the government to good point it's social right but but think about it the arbitrariness of government as opposed to a well-thought-out centralized plan so anyway so Duncan sometimes uses that phrase you know he talks a lot about the way in which the government you know that the worst thing you can ever hear is I'm with the government I'm here to help right i mean that's about the way it goes but his point around the the the new quasi public markets is money we'll find a way yeah and when sarbanes-oxley happens and it's tough to go public and you're a CEO like Pincus who's running one of the great all-time companies in Silicon Valley at Zynga he says you know going public is not an entrance is not an exit it's an entrance that's that's this quote what why would I why do I need that headache I mean I was just talking with Charles beeler who sold for the hell dorado he sold to compel in one of his investments to dell for over a billion dollars and and 3 para nother firm he wasn't on that one that was sold to HP during storage wars he's talking about the lawsuits literally this shakedown of immediately filed lawsuits you know you could have got more money so this is this public markets brutal no doubt no doubt i think what you're doing is a revolution I'm all excited about this new environment again anything with his liquidity wealth creation with the engine of innovation can be powered that's fantastic look back the startups okay get back to where you're playing yeah the history of Silicon Valley was built on the notion of value add some have said over the past 10 years venture capital has not been truly value add and some were arguing value subtract and then just money so what you're talking about here is getting in and helping me stay alive what's the value added side of the equation mean I know that a lot of these folks like like like ourselves here it's looking angle McClure Xavier and maples and true ventures they roll their sleeves up first round capital right before we can only provide so much it kind of expands right you guys are filling in the capital market side right how are you guys helping out on the value add because a lot of those companies may be the next Twitter right you've got a bridge to finance that's right allow them to do the pivot or get the creative energy to grow and they hit that market if they hit that hit it going vertical you got it kind of sometimes nurture it you guys have a strategy for that talk about the so let me let me give you my perspective on that so I think 10 years ago when you're starting a company the name of the venture firm was more important than potentially the partner on your board ten years later the name of the firm matters much less and it's the name of the partner and it's the operating experience that that partner partner brought to bear and you go talk to the 24 year old entrepreneur verse the 34 year old entrepreneur the 24 entrepreneur 24 year old entrepreneur wants a guy like you or a guy like me on his board he wants have been there done that started a company was a CEO exited it got fired hired people fired other people scar tissue scars knowledge experience exactly and if a good friend of mine who's in the traditional business I'll leave his name out of it he sometimes says the following phrase the era of the gentleman VC is over and what he means by the era of the gentleman VC is over is you know if your background is you were a junior associate who came in with a finance degree in an MBA and it never started a company you're not going to get picked by the entrepreneur anymore in 10 years from now almost everyone in the business is going to have a resume that looks more like a Cristal Paul Martino a mark pincus that you name all the people who we've started our companies with if there's a lot more hochberg with track record certainly with with the kind of big companies in the valley just in our generation yet started with netscape google paypal right now i want to see facebook is and then now's inga either the ecosystem is just entered intertwined I mean for every failure that spawns more success right so that's right that's a Silicon Valley way yeah well a tribe was tribe was a perfect example of a successful failure tribe was not a successful outcome but it was in many ways a very successful way to actually pioneer what became social networking you know investments got made into Facebook as a result of that Zynga in aggregate knowledge were both the outcrops of what was learned to some extent the original business case of Zynga was remarkably simple there is a ton of time being spent on social networks and after you get done finding your buddies and looking at photos what do you do and Pincus is original vision to some extent was let's have games to play and that insight doesn't happen that way unless you don't do tribe and go into the trenches and get the scars on your back and your in your your second venture of our adventure right at the tribe was aggregate knowledge was similar concept people are connected I mean you got to be excited though I mean you know you were involved in tribes very early on all the stuff that you dealt with activity streams newsfeed connections the social science you know the one that one of the nicest pieces of validation of this recently was over in q4 of 2010 seven of the patents that me Chris law Elliot low and Brian Waller wrote got issued now they're all owned by Cisco Cisco bought tribe in the end they bought the assets in the and the patent filings but there are patent filings that go back to 2002 on the corner stones and hallmarks of what social networking really is that we wrote back then that have now issued order granted or sitting in the cisco portfolio and well that's kind of like a consolation prize and that there wasn't a big outcome for tribe it is very validating to see that those original claims on really cutting-edge stuff have been had been issued and I'm excited about that you should be proud i'm proud to know your great guy you have great integrity you're going to do well as a venture capitalist i think you people will trust you and you're fair and there's two types of people in this world people who help people people who screw people so you know you really on one side of the other you're you're not in between you're truly on the on the good side I really enjoy you know having chatting with you but let's talk about entrepreneurship from that perspective about patents you know I'm try was an outcome that we all can relate to the peplum with Facebook of what Zuckerberg and and those guys are doing over there that's entrepreneurship so talk to the entrepreneurs out there yeah hey you know what you do some good work it all comes back to you talk about the the Karma of entrepreneurship a failure is not a bad thing it's kind of a punch line these days I'll failures are stepping stone to the next thing but talk about your experience and lets you and i talk about how to deal with faith for those first-time entrepreneurs out there in their 20s what just give them a sense of how to approach their venture and if it fails or succeeds what advice would you give them yeah well like winning and losing is important part of the game I mean certain companies are going to be successful in certain ones art and if you go and start ten unsuccessful companies maybe this isn't exactly the business for you but that said how you the game is important as well and if you're a high integrity guy who gets good investors and you make quality decisions and let's say the market wasn't a fit you're going to get the money the second time because people said you know I work with that guy that guy really did a good job you know they never got it quite right but this is a guy learn the right lessons so when I'm coaching a first-time CEO and i'm the CEO coach of a couple guys now you know i'm looking for someone who's sitting there going hey i not only want to do this to win and be successful but i want to learn i I want to do this better than no one no one walks in and says I learn from my failure I hope I'm successful I mean you let it go and say hey I'm gonna be successful I want to win failure is not an option but failure happens right i mean you know it's bad breaks that mean but but here is the key less I tell this to all of the entrepreneurs I work with you will not be successful if you're making mistakes that were made by those before you if you make novel mistakes you're in good company right and so only ever make a novel mistake I made a good example this is one claw and I started Chris law and I started aggregate knowledge aggregate knowledge was the original business model was around recommendations and there were dead bodies in front of us there was net perceptions there was fire fly and she was in the office this morning with Yazdi one of the founders of [ __ ] cast with it man yeah so predictive analytics residi what did we do we went out and we I flew out and met John riedle University of Minnesota who was the founder of net perceptions I dug up yes d i got these guys on my advisory board and while aggregate knowledge was not successful in the recommendation business and pivoted into the data management thing we made novel mistakes we did not repeat the mistakes of met perceptions and firefly and so i think that's an important important lesson to an entrepreneur if you're going into an area that has dead bodies in front of you you better research them you better know who they are you better know what happened and you better make sure that if you screw it up you at least screw it up in a way which none of us could have predicted yeah that's the only way you're going to get a hall pass on that well let's talk about talk about some of the hot Renisha of activity saw so you're in that sector where you're feeding the seed the super angels in the first rounds early stage guys and it's a good fit what about some of the philosophies on like the firms out there there's of this to this two philosophies I just taught us to an entrepreneur here you met on the way out a street speaker text and there at seven you know under a million dollars in financing hmm series a yeah and then you got in the news yesterday color 41 million dollars building to win magnin flipboard a hundred million dollars i got this is these guys that we know i mean there are yep our generation and a little bit around the same time and certainly they have pedigree so remember the old days the arms race mentality right when the sector at all costs right that's kind of what's going on here i mean some of the command that kind of money there's actually an auction going on what do you make of that I mean bubble is an arms race so so rich Melman inside a bullpen de tu fascinating analysis he looked at the full portfolio of 28 took about 20 of the best super angels by the way the super angles are all different some are micro vc summer buying options etc so so first off super angel is a weird word but it's everybody from Union Square and foundry on one side first round and flooding but any take the top 20 or so of these guys and look at their portfolios what's amazing about their portfolios is the unlike 10 and 20 years ago in prior tech bubbles there are not 20 companies doing the same thing when you categorize them yeah ten percent are in ad tech ten percent our direct-to-consumer consider but like forty percent are one-offs that is this is I think one of the first times in the history of venture that forty percent of the deal flow is a one-off unique business idea that there aren't 30 guys going to do and I think that the importance of that to what happens in this next stage of the tech boom we don't know what that means yet because back in the day well we need to just we're venture firm we need to disk drive company okay so your venture firm you've got your disk drive companies and I'll 20 venture friend knows if drive out and created the herd mentality everyone talks about with venture yep mean I was an opponent on a talk on here in the cube and I don't think I actually put in a blog post but I called the era of entrepreneurship like with open sores and low cost of entry with cloud computing and now mobility the manure of innovation where you know in the manure that's being out in the mark place mushrooms are growing out of it right and these you don't know what's going to be all look the same in a way so how do you tell the good ones from the bad ones so it's hard right so you have a lot of one you have a lot more activity hence angel list hence the super in rice so so the economics and the deal flow are all there the question is how do you get them from being just a one-off looked good on paper flame out the reality yeah well look in my opinion seed stage investing is about investing in people and I think when big firms trying to seed stage investing there's an impedance mismatch a lot of times because they want more evidence they want to know did the market work to the management then this is this is an early stage venture and am I going to want to go in a foxhole with this person and in many ways the good super angels are instinctive investors who are betting on people that they want to be in the foxhole with and yeah did they do it before do they know how to hire people is the market reasonably interesting but guess what they're probably gonna pivot three times so wait a minute at the end of the day you got to invest in people later stage venture is not you can look at discounted cash flows you can look at mezzanine financing you can do traditional measures but if you're going to invest in two people who have a prototype and need five hundred thousand dollars you're investing in people at that point what do you think about the OC angel is I'm a big fan of and recently was added thanks to maybe out there but even though i'm not i don't really co-invest with anyone else other than myself maybe you guys would bullpen but but if that's a phenomenon you don't have angel list which is opening up doors for deal flow companies are getting funded navales getting yeah a ton of activity nivea doing great job with venture hacks i get y combinator which I called the community college of startups they bring in like they open the door and I mean that an actually good way don't mean that negatively I mean they're giving access to entrepreneurs that never had access to the market right and now you have Paul Graham kind of giving the halo effect or thrown the holy water on certain stars and they get magically funded but yesterday at an event and they're they're packed right I've heard from VC saying I'm not invited because I didn't wasn't part of the original investment class so it seems that Y comma day is getting full yeah so do you see that you agree is there will be an over lo y combinator you know kind of like I've TED Conference has you know Ted they'll be you know y combinator Boston little franchises will be like barcamp for sure I mean look and look at techstars they franchise they'd I was over there with Dave Tisch in New York there's TechStars New York after those TechStars older in techstars seattle there is no doubt in my mind that right now there is an over investment in the seed stage meaning that there is a little bit of a seed bubble going on that's not necessarily bad though because in terms of raw dollars there's not a bubble yet Rory who's over at rafi it smells like a bubble it looks like a bubble but when you look at the mechanic when you look at the actual total dollars it's not a bubble rory who has a hinge recent Horowitz been said that that it's a boom not a bubble yeah so don't be confused it looks like bubbles and booms kind of look together the same right I actually I'm not quite sure I had the exact data right but here's the quick summary if you take a look at venture capital investment as a percent of GDP historically it's been something like point one percent of GDP in the bubble back in 99 it went to one percent something like it went 10x higher right now we're still at point one percent but since it's very much centered around the seed stage investing you see this frothiness in the sea but until that number goes from point 1 percent of GDP back up to one percent there's no real bubble because the tonnage of money hasn't come in yet and so so it's starting but this is what a tech boom feels like the early stages are excitement and lots of ideas and lots of flowers blooming and then the big money comes in because John I'll bet you're your brother and your sister and your mom haven't invested in a tech startup back in 99 video there's no public market that supports seven in a way that's a good and bad star basement yeah there's no fraud going on and most of the companies that are out there whether their lifestyle business or seed or bullpen funded are actually generating income the entrepreneur he has any earlier Mike was saying that he could a business deal so people are kind of like saw the old bubble and said shoot I don't want to do that again I gotta have at least revenue right and so companies didn't seem to start out with cash so you know that because you invested it but you know Pincus was getting some cash flow in the door from day one that's right that company was company was profitable the first day it started basically so talk about you know so I'm with Paul Martino by the way with bullpen capital entrepreneur wrote the patents on social networking which he sold the cisco when they sold the company now with bullpen capital huge dynamic you're a company out there this is exactly the positive dynamic you want to see because mainly you know dave mcclure jeff clavier mike maples have been kind of getting their butts handed to them in the press about super angels not having the juice to kind of go anywhere and it's been kind of a negative press there so you know this is the kind of void that's been filled by you guys to show the market that look at this there's a road map here so even though that the McClure's and clubs don't have big funds that there's a path to follow on financing so that the vc's can't shut them down and i've heard some pc say that so a lot of traditional venture guys would like to say that you know this little disruption we nipped it in the butt and it stopped after the seed stage but that's not the history of disruptions the history of disruptions are they start from the bottom then they get ecosystem support and then they grow and they disrupt the incumbents and I think we're halfway there so so the Angel gate thing that Arrington reported on was interesting because you know essentially what happened there it was a lot of him fighting Ron Conway I was not happy you can't be happy about competition I mean this is competition that increases prices right so you know in the short term prices have been inflated on valuations true or false that's true but but but I think I think the whole way angel gate was reported was absurd the most Pro entrepreneurial venture people perhaps in the history of the business are the guys who were supposedly at those tables I mean mike maples Jeff claw VA josh cop and Ron Conway fired his guy that was there I I understand suppose again suppose a key are right these are the most Pro entrepreneurial venture guys in the history of the business so I think that turned into something that it never was yeah well I mean that's the thing you know good for content producers who want page views I got to create some drama and you know as you know SiliconANGLE doesn't have any banner ads on our site quick plug for us we are motivated by content not page views so thanks for coming in today no but seriously I mean there's a there's a black cloud over the super angels has been since Angel gate I've heard privately from VCS that super angels it's been kind of a scuttlebutt they're misaligned just rumors I completely overblown and you know their business model threatens the incumbents and you know someone needed someone needed a piece of fodder to start a you know start a techcrunch discussion right there's no doubt that the market is need in need of a new ecosystem for the early stage because individual angels traditionally were wealthy individuals but now you have people with more experience like yourselves and entrepreneurs from google and facebook etc coming out and doing some things okay so next topic more on a personal kind of professional note k last final question is I know you got to run appreciate your time you're a technologist a lot of folks don't know that you're hardcore computer science guy and our model southern angles computer science meet social science right in your wheelhouse so with that just kind of final parting question what gets you excited technically right now I mean I'll see you have roots in both comps I and social Iran Zynga's early investor roster you got a bullpen capital you're looking at a lot of deals outside of that you as a computer scientist geek mm-hmm what gets you jazz what do you see in the horizon that's not yet on the mega trend roster that kind of you can't put your finger on it truly we might really get a good feeling well so I think you'll be disappointed with this answer because I think it's now cross the chasm to start being one of those mega trends it's called consumerization of enterprise and that's now the buzz word for it but what is it really mean and why do I think it's for real look you've got cool self-service applications for everything you can go do home banking by logging into a portal you can go to an ATM you can go do these things but you know go bring a new laptop into your big stodgy fortune 500 company and you know it's like getting a rectal exam right you know we got to install this we got to give you this private key yet that's TSA it writes like going through TSA exact idea that IT inside of big fortune 500 companies is going to stop being this gatekeeper to new technology I think look how long do you think it'll be until pick your favorite fortune 500 company the IT people know how to deal with the ipad 2 but how many people bought an ipad 2 into the off already everyone and so this to me is going to be the big next deck the next decade are going to be self service offerings for the enterprise getting around a very frustrating gatekeepers inside of you know the IT department etc and that's going to lead to an awesome boom of everything from security to auditing to compliance etc that's the convergence question Paul Martino my friend entrepreneur great guy venture capitals now on the good side helping the seed Super Angel micro VCS great to have you consumerization of IT that hits the cloud mobile social it's everything so that I was buzzword compliant on that great job great to have you know you're busy got to have you in again thanks so much for time that's a wrap thank you very much great thank you John