Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
For two reasons, I really like Fred Wilson's recent blog post on hypothetical value to real value. Firstly, it is structured in the way that I think good blog posts are structured. He starts with a personal story (about this son) and then uses that to take a position and impart some knowledge about the venture capital industry. It makes for a more engaging read. Secondly, I like how he describes the journey and spread between hypothetical value and real value:
Venture capitalists and seed funds and angel investors make or lose money on the journey from hypothetical value to real value. And when the spread between the two narrows, the money we make is less. When the spread increases, the money we make is more. It is easier to drink your own Kool Aid in the world of hypothetical values. You handicap the odds of winning more aggressively. You trade ownership for capital at work. You accept the new normal. Real value doesn’t move so fast. Because it is right in front of you. You can see it. So it is not prone to flights of fancy. I try to keep this framework front and center in my brain as we meet with founders and work to find transactions that work for everyone. I find it to be a stabilizing force in an unstable market.
All of this is related to the notion that you make real money when you're right about something that most people think is wrong. Because that would be hypothetical value. If it were real value, then everyone would simply believe it. It would be "right in front of you." And this is pretty much true of all competitive marketplaces, including the real estate industry. Risk and uncertainty create opportunity.
Photo by James Sullivan on Unsplash
The Wall Street Journal's recent piece about "Silicon Valley invading Toronto" is, in my view, describing a generally positive outcome.
We are one of the largest cities in North America (the exact ranking depends on where you draw the urban boundaries).
We have more enlightened views around foreign and high-skilled workers (I was given a short window in which to leave the US after I finished my first graduate degree there).
And we have a large and highly educated pool of tech talent (the salary differential discussed in the article looks to be, at least partially, a result of the weaker Canadian dollar).
Last week it was announced that WordPress.com (which is what I use for this blog) had purchased Tumblr for around $3 million. This is, of course, after Yahoo had purchased it for $1.1 billion in 2013 and later wrote it down, having never figured out how to monetize it. Yahoo lost its shirt on the investment. I am sure you've probably seen some of the headlines and searing commentary online:
https://twitter.com/profgalloway/status/1161744881137725443?s=20
I used Tumblr every day for more than 5 years. I started this daily blog on it because I had already been using it to share and collect photos. At one point Tumblr had more active users than Instagram and Pinterest combined. But eventually it lost its way. Yahoo (and later Verizon by way of its acquisition of Yahoo in 2017) didn't know what to do with it.
And so at the beginning of this year I said goodbye to Tumblr and switched this daily blog over to WordPress. A big part of that decision had to do with the fact that Tumblr was never really designed for long-form blogs like this one and its mobile support was even more appalling for this use case. It was impossible to write on an iPad. Switching was the right decision. I should have done it sooner.
But now Tumblr is owned by WordPress.com. At $3 million, it feels like they're almost starting again from scratch. Maybe they'll figure Tumblr out. Or maybe they won't.
For two reasons, I really like Fred Wilson's recent blog post on hypothetical value to real value. Firstly, it is structured in the way that I think good blog posts are structured. He starts with a personal story (about this son) and then uses that to take a position and impart some knowledge about the venture capital industry. It makes for a more engaging read. Secondly, I like how he describes the journey and spread between hypothetical value and real value:
Venture capitalists and seed funds and angel investors make or lose money on the journey from hypothetical value to real value. And when the spread between the two narrows, the money we make is less. When the spread increases, the money we make is more. It is easier to drink your own Kool Aid in the world of hypothetical values. You handicap the odds of winning more aggressively. You trade ownership for capital at work. You accept the new normal. Real value doesn’t move so fast. Because it is right in front of you. You can see it. So it is not prone to flights of fancy. I try to keep this framework front and center in my brain as we meet with founders and work to find transactions that work for everyone. I find it to be a stabilizing force in an unstable market.
All of this is related to the notion that you make real money when you're right about something that most people think is wrong. Because that would be hypothetical value. If it were real value, then everyone would simply believe it. It would be "right in front of you." And this is pretty much true of all competitive marketplaces, including the real estate industry. Risk and uncertainty create opportunity.
Photo by James Sullivan on Unsplash
The Wall Street Journal's recent piece about "Silicon Valley invading Toronto" is, in my view, describing a generally positive outcome.
We are one of the largest cities in North America (the exact ranking depends on where you draw the urban boundaries).
We have more enlightened views around foreign and high-skilled workers (I was given a short window in which to leave the US after I finished my first graduate degree there).
And we have a large and highly educated pool of tech talent (the salary differential discussed in the article looks to be, at least partially, a result of the weaker Canadian dollar).
Last week it was announced that WordPress.com (which is what I use for this blog) had purchased Tumblr for around $3 million. This is, of course, after Yahoo had purchased it for $1.1 billion in 2013 and later wrote it down, having never figured out how to monetize it. Yahoo lost its shirt on the investment. I am sure you've probably seen some of the headlines and searing commentary online:
https://twitter.com/profgalloway/status/1161744881137725443?s=20
I used Tumblr every day for more than 5 years. I started this daily blog on it because I had already been using it to share and collect photos. At one point Tumblr had more active users than Instagram and Pinterest combined. But eventually it lost its way. Yahoo (and later Verizon by way of its acquisition of Yahoo in 2017) didn't know what to do with it.
And so at the beginning of this year I said goodbye to Tumblr and switched this daily blog over to WordPress. A big part of that decision had to do with the fact that Tumblr was never really designed for long-form blogs like this one and its mobile support was even more appalling for this use case. It was impossible to write on an iPad. Switching was the right decision. I should have done it sooner.
But now Tumblr is owned by WordPress.com. At $3 million, it feels like they're almost starting again from scratch. Maybe they'll figure Tumblr out. Or maybe they won't.
US companies are gobbling up office space in Toronto. And presumably, this is one of the reasons why 139 new flights were added between Toronto and Francisco over the last two years. (Source: WSJ)
However, I do agree with the remarks from people like Jim Balsillie (Blackberry) and Harley Finkelstein (Shopify) that a better outcome would be the creation of more massively successful Canadian tech companies.
As Finkelstein points out, there's a big difference between 100,000 square feet of space for the HQ of a new and growing Canadian tech company and 100,000 square feet for a new branch or satellite office.
The stats we read in the papers about the number of tech jobs being created in Toronto generally don't speak to composition. Where in the value chain do these people sit? Where is the value accruing?
The intellectual capital is here. And we should be doing everything we can to foster and finance new homegrown ideas and businesses.
Image: WSJ
US companies are gobbling up office space in Toronto. And presumably, this is one of the reasons why 139 new flights were added between Toronto and Francisco over the last two years. (Source: WSJ)
However, I do agree with the remarks from people like Jim Balsillie (Blackberry) and Harley Finkelstein (Shopify) that a better outcome would be the creation of more massively successful Canadian tech companies.
As Finkelstein points out, there's a big difference between 100,000 square feet of space for the HQ of a new and growing Canadian tech company and 100,000 square feet for a new branch or satellite office.
The stats we read in the papers about the number of tech jobs being created in Toronto generally don't speak to composition. Where in the value chain do these people sit? Where is the value accruing?
The intellectual capital is here. And we should be doing everything we can to foster and finance new homegrown ideas and businesses.
Image: WSJ
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