Business & Money

I read a recent blog post wherein I happened upon a new financial ratio, the “hype factor.”

The hype ratio = VC / ARR (annual recurring revenue). On the theory that SaaS startups input venture capital (VC) and output two things — annual recurring revenue (ARR) and hype — by analogy, heat and light, this is a good way to measure how efficiently they generate ARR.

For example, take Trupanion, which I wrote about a couple weeks ago in VIC 126. They raised $9 million in venture capital and had $84 million in revenue in 2013 (before listing on the Nasdaq in July 2014). So the hype ratio would be 9/84, or 0.11. Put another way, they convert VC into revenue at a rate of 909%. For every dollar of investment, you get $9 in revenue and no hype (all heat and no light).

By contrast, Dropbox raised $1.7 billion in VC, and had $1.1 billion in revenue the year before their IPO, for a hype ratio of 1.55. So they’re converting VC into revenue at a rate of 65%. Every investment dollar produces $0.65 in revenue and $0.35 of hype (65% heat and 35% light).

I don’t think you’ll find the hype ratio in brokerage interfaces any time soon, but I think it’s a very interesting point of analysis, particularly comparative analysis.

Human Progress

You hear a lot these days about intellectual property theft perpetrated by Chinese companies, and by extension the Chinese government. From what I can tell, there seems to be some truth to this, while it also seems like excellent fodder for identity politics.

In any case, what I find more interesting is China’s borrowing of our strategic approach to international development following WWII.

One of the most intensively covered topics in Chinese media (at least as it appears from the outside) is the Belt and Road Initiative. It’s a foreign policy initiative proposed by the Chinese government that focuses on infrastructure investment and regional connectivity with neighboring countries in Asia, Eastern Europe, and East Africa. It’s easy to list out tons of motivations for the BRI (new markets for Chinese companies, export excess capacities of commodities, economic development of Western China, etc), but the largest and most apparent would appear to be the creation of an economic and political powerhouse in Eurasia, led by China, similar to the transatlantic one dominated by the US.

Maybe it’s just me, but this seems fairly similar in motivation to the Marshall Plan. It’s easy to say that the Marshall Plan was all about rebuilding Western European economies following WWII (though its impact is up for debate), and a worthwhile goal that would be. And I hate to be a cynic, but foreign policy initiatives are never as altruistic and benign as their authors would have you believe. I don’t believe it would be crazy to say that the Marshall Plan was about rebuilding Europe in the image of America. In other words, it was about making strategic investments and building institutions that would further our values and cultural norms. And it worked perfectly. A long period of harmony and economic expansion continue right up into the present moment.

So, while DiDi may have cloned Uber and Baidu may have cloned Google, I think Xi Jinping is studying the history of empire building a bit more closely than the source code of our internet giants.

Philosophy

My wife loves plants, succulents to be specific. Those tiny little plants seem to melt her heart.

So I started to think about what plants, or perhaps what category of plants, might be my favorite. And for a while I was drawing a blank. But then I landed on moss.

You might be wondering, “why moss?” They don’t offer any blooming flowers or colorful designs. They just cover surfaces with a few centimeters of their little green fluff.

But in reality, mosses are exquisite.

These tiny plants aren’t very competitive in an ecological sense. They’re quite small and they don’t acquire resources very efficiently. So, as a result, they have to occupy spaces where many plants don’t do very well.

Yet, they’ve managed to persist as one of the oldest plant species that we know. They’ve been around for something like 350 million years. So I’d say they’re doing something right.

What’s fascinating is that they have an incredible ability to cooperate with surrounding organisms and their environment. Mosses manufacture soil. They purify water. You might say they’re something like coral reefs of the forest floor in that they provide homes for a myriad of tiny creatures.

They may not grow very tall (unless on a wall, of course), but mosses are powerhouses of persistence and biodiversity. And I happen to think they’re pretty cool.

My Latest Discovery

This game is so much fun!

If you have a barbecue, picnic, or beach outing coming up, I’d highly recommend picking one up.