Understanding Mary Meeker’s Report on the Internet in 5 minutes!

Mary Meeker, venture capitalist and Partner at Kleiner Perkins Caufield & Byers, publishes a report every year – since 1995 – on the state of the Internet.

Her 2018 report was presented at the Code Conference in Rancho Palos Verdes, California, on 30 May. In a 294-slide presentation, her report covers a wide array of topics, including internet usage trends, advertising and e-commerce, as well as the role of migrants in the tech industry. Here are some interesting takeaways from her report:

The Rise of Online Life

In 2016, Mary had estimated that about 3 billion people (about 42 percent of the world’s population) was online on one device or another. That number has now become 3.6 billion people, roughly half the world’s population!

As a result of the global increase of internet users, internet user growth advanced only 7 percent in 2017, whereas the number was 12 percent in 2016. Moreover, this resulted in a sharp increase in the number of smartphone users, as a result of which, smartphone shipments didn’t see any growth at all in 2017. This was the first year in recorded history in which there was no growth in smartphone sales.


Mary also made note of the fact that despite these unimpressive numbers, the time an average internet user spends online in the US grew from 5.6 hours in 2016 to 5.9 hours in 2017. Of these, 3.3 hours were spent on mobile, and this was responsible for the overall growth in digital media consumption.

She also highlighted the accelerating speed of technological disruption, noting that the internet became ubiquitous within a decade, whereas it took Americans close to 80 years to adopt the dishwasher.

Tech is the Way Forward

In Mary’s estimation, tech companies constituted about 25 percent of US market capitalization as of April 2018, in comparison to the boom at the turn of the millennium, which saw 33 percent of the market cap made up by tech companies. A part of this reason is that tech firms are expanding into different verticals from the ones in which they had started out, including Google – which is now becoming a commerce platform via Google Home – and Amazon, which is slowly moving into advertising now. Moreover, voice-controlled products like Google Home and Amazon Echo are taking up a significant part of the market share, the latter growing 50 percent from third to the fourth quarter of 2017.

As this trend continues, Google and Amazon are estimated to offer more artificial intelligence services or platforms as AI becomes a bigger part of their enterprise expenditure. In doing so, however, they will face a “privacy paradox”, as we have already seen happening to Facebook – they will be caught between using data to provide more holistic consumer experiences while the same can become the reason for breaching consumer privacy.

Mary shortlisted six technology companies, among the highest spenders for R&D in 2017, which are likely to continue to grow at a steady rate due to their investments. These companies are Facebook, Amazon, Intel, Apple, Microsoft and Alphabet.

China’s increasing role in the tech space

Mary notes China’s accelerating influence in the tech space with the increase in mobile payment adoption, in which it leads the world, having more than 500 million active mobile payment users in 2017. China is quickly marking its path to competing with the world’s biggest internet companies, most of which are in the US. As of now, China houses nine of the world’s 20 biggest internet companies in terms of market capitalization, while the U.S. has 11 companies. Just half a decade ago, China had only two companies, while the U.S. had nine.

Immigration and the Future of Jobs

Mary’s report also emphasized the importance of immigration for the tech industry. In her reasoning, over half of the most highly valued tech companies in the U.S. have been founded by first- or second-generation immigrants, some examples of this being WeWork, Uber, Wish, and Tesla, all of whose founders are first-generation immigrants.

Amid all this, Mary’s vision of the future is one of uncertainty. This is partly due to the fact that E-commerce sales have been continuing to grow as well as accelerate. In 2016 it was 14 percent in the U.S., and it grew to 16 percent in 2017. And while Amazon has been partaking in the market share, grabbing close to 28 percent of overalls sales last year, physical retail sales have been continuously declining.

In this connection, Mary tells us to expect that technology may also disrupt the way we work. Just as America had made a collective shift from agriculture to services in the early twentieth century, the different kinds of employment generated in the age of immense tech consumption will be significantly different from what we are so far familiar with. Mary says that we should expect more internet-related and on-demand jobs to predominate, moving away from primarily physical or manual labour.

To Conclude: Mary has given us a glimpse of what the future for the tech industry looks like, with the rise of AI, the increasing requirement of immigrants, and the growing influence of China, among other factors. However, despite the complexity of her analysis of China’s unwavering presence in global tech, she does not mention India’s contribution to the tech industry in the report.

A March 2018 report by KPMG ranked India third, after the US and China, in tech innovation leadership in the world, noting that it prioritized government support for entrepreneurship, and helped build a culture of innovation. It also added that many startups are attempting to leverage imminent technologies so as to service India’s mobile-first generation. Given that this is the potential for future growth – and it is massive – one might raise significant questions about India’s obvious and somewhat conspicuous omission from the report.

But otherwise, Mary’s report can lay the groundwork for how to approach the foreseeable future in tech. You can view the full presentation here.

8 Pieces of Advice for When Your Startup is Low on Cash

Originally published on Startups.co


In June 2013, I met the CEO of a data analytics startup here in the Bay Area. They had raised many millions already and I was on a mission to pitch them our services. However, as I stepped into their foyer, I was already filled with questions.

This was a handsome office for a company that had just raised a Series A round. Rather outsized, like a gangly teenager wearing his father’s jacket. Looked nice, but why does a small startup need a 5X office in one of the priciest real estate areas?

His answer caught me off guard. “I don’t ever want to feel cramped again!” he said, squishing his shoulders together.

Not far from this office, not so long ago, Steve Jobs had made a speech about “Stay Hungry, Stay Foolish”, and here was a company that got him exactly half-right.

I’ll let you determine which half.

This guy actually committed ~50% of the funds raised to the lease he signed for his “non-cramped” office. We never ended up working with this company, and needless to say, they ended at the auction block soon after.

Startup shows and the media flaunt the flamboyant lifestyles of entrepreneurs, and once the VC money hits the bank, this temptation is difficult to resist for even the saner ones out there.

If not personal extravagance, a lot of companies go on a wild hiring spree, or gleefully hand out big contracts to marketing agencies.

Founders often claim this defense: “But the money is raised to be spent!”

Of course it is. VCs did not invest in a Savings account. However, it’s important to figure out a scalable and sustainable business model first, before going out all guns blazing to promote a half-baked business with no product-market fit.

Mohit Bhatnagar, the Managing Director of Sequoia, agrees:

“In the new regime, startups are shunning previously popular buzz-phrases such as ‘growth over profit’ and ‘winner take all’ and adopting new ones instead — getting ‘unit economics’ right and reducing the ‘cash burn rate’.”

In an earlier article, I talked about watching the red flags that signal a #BurnRateZombie. Let’s now talk about how to avoid becoming one. Here’s how to rein in your spend:

1. Audit Subscriptions and Online Services:

I was going through the bank statements of one of my clients when I noticed that their AWS bill for the month was almost a $100,000. This was about 10X their usual bill and curious, I rang the CEO. He had no idea; he’d never even read the bill. After some legwork, we found out that every click on the website was spawning a new instance on AWS, and when we argued with the vendor, we ended up saving them $20,000.

Seriously though: read your bills. Especially for the online services you and your team has subscribed to. You need to make sure your licenses are only for the services you regularly use. Sometimes different employees authorize services to bill your card and then they leave the company, letting the billing continue for months or even years. There should be at least a quarterly audit checking the justification for each subscription, and an automated system to stop existing subscriptions when the person using them quits without bringing in a replacement.

2. Fire your Worst Clients, Not your Best Salespeople:

Don’t cut your best sales guys, instead fire your worst clients. 20% of your clients contribute to 80% of your stress. Focus your energy and effort on the good ones.

Good clients want you to survive. Ask them for an advance or best, a full payment on the bill they owe you.

3. Increase Performance Standards:

Firing your team is not an easy decision to make. Sometimes you might not even be sure whom to cut without affecting performance and team morale. Increasing performance standards might help make this decision easier.

4. Deferred Compensation and Salary Catch-ups for Employees:

If the situation is dire enough that you can’t meet the upcoming salaries of your key people, be honest with them. If they believe in your vision and sense a genuine opportunity, they might go for deferred salaries, freeing up your immediate cash reserves for more crucial expenses.

5. Fixed vs Variable:

Break down your burn into two subparts: fixed and variable. Fixed expenses are one you incur irrespective of the number of customer transactions. For example, salaries, rent, office equipment etc. On the other hand, variable expenses are directly related to your transaction volume. These are more flexible, because your cost moves proportionately with your revenue.

Try to keep fixed expenses at a minimum, and make them as variable as possible. For example, link a percentage of your sales team’s salary to a bonus linked to the business they bring in, or sign a lease agreement that gives you the right to expand your office at the same location, but doesn’t weigh you down if you don’t need the space right now. This will help you control the burn if business dips tomorrow.

6. Message Cuts:

Sometimes your team doesn’t catch up to the fact that you’re running low on money. They’re used to having free beer in the office fridge, Friday-night parties, and a daily gourmet lunch. You might have to get the message across the hard way: tone down the splurging. It might not make a big dent on the bottom line, but all the drops add up to make the ocean.

7. Be shy to commit to expenses that are difficult to reverse once committed.

Like a Vegas wedding that’s quick to get into, but harder to get out of, think of renting or leasing a big ticket item instead of purchasing it. Outsource instead of hiring in-house, to save money on benefits. This way, pulling the plug is also a lot easier if they don’t perform.

8. Quick Burn Vs Slow Burn:

Take the office space on lease, it will still burn your money, but slowly. Buy the same place and kiss that money goodbye forever.

Survival is tough. It is taking a series of decisions that go against consensus, and require continuously maintaining a shoe-string mentality when you have millions in the bank. It’s important to maintain this mentality consistently; cutting back after you’re used to splurging is very difficult. Like an always-broke college student suddenly on the payrolls of a rich company, who finds it impossible to go back to operating on his student budget.

Have you come close to becoming a Burn Rate Zombie? Which of these tips helped you survive? Share your story in the comments below.

Funding Downturn And What It Means For Entrepreneurs

Last night, I was sifting through my inbox, when I noticed a pattern.

Mail 5: CEO of a $1m seed funded company informing me that they’re shutting down shop since neither the Series A nor the bridge loan came through.

Mail 67: Another seed-funded company planning to wrap up operations at the end of the month.

Mail 96: A B2C startup with 1M active users but with no clear path to monetization. Unsuccessful in raising any money. Hoping for an aquihire, but planning for a shutdown.

Mail 128: CEO of a well-funded seed-stage company (high single digit, in millions) had to sell because they’d run out of money. It was an acquihire – so the team stayed intact, the product wasn’t shut down. They consider themselves lucky.

Should entrepreneurs be worried?

According to CB Insights’ annual report, the first quarter of 2016 saw the lowest number of deals worldwide in nearly three years, down by 15% from Q4 2015. Interestingly,  according to another report, Series A deals made up 48% of Q1 transactions, a level not seen in over a year. However, total dollars invested were the lowest since Q3 of 2014 for the U.S.. Even Asian markets have taken a hit, with funding down 32% (in dollars).

Yes, entrepreneurs should be worried.

VCs have less funds available. (No exits lately!) If they have a portfolio of ten companies, they’re analyzing them, and backing the winners, instead of equitably distributing the available funds between all of them. Think of a mother picking favorites when there are five kids to feed, and food only enough for two of them.

What can entrepreneurs do?

Raising funds is going to get even more difficult. Call it a correction or a normalization, the bottom line is that there are going to be more unicorpses than unicorns this year.

Here are some tips for early stage startups:

  1. If you are raising funds: Aspire to raise a larger amount than planned, since the next opportunity for fundraising may not come soon. This strategy is different than the past strategy of raising a very small pre-seed or seed round, getting traction, and then going for larger rounds.

Because, well, you will probably not be around for that round.

  1. If you are not or cannot raise funds: Cut down your expenses.Ruthlessly prioritize.

If you are still building your MVP, don’t invest in a sales and marketing team just yet, because they don’t have anything to sell.

If your product is ready, see where you can scale back on the R&D spend, and put all that you have in your sales team. Lean in. You are guaranteed to NOT get traction if you don’t invest in sales, so why not risk it?

  1. Track your KPIs. If they are looking good, you’ll survive. Focus on customer validation and your monetization path. Your metrics should prove two things:
  1. You’re actually solving a problem
  2. The problem is so significant that users spend a good chunk of time on your product, and not just two minutes a day.

Sad fact: If you are running out of money in 2016, and KPIs don’t look good – you’re in trouble.

  1. Approach your current investors, have a heart-to-heart. Figure out if you’re the favorite child, or the one who’s going to be left to die. If you think you might need money, discuss the possibility of bridge financing before you go for the next round.

I know the situation is difficult, but in the long run, this is a good change. Evolution is at work. The strong will survive. This will make companies more resilient, and will make sure the more deserving ideas get funded, and competition gets thinned. The capital to go around is limited, and with less startups clamouring for their attention, the money would be spent more judiciously.

However, if you’re the ones left in the cold…stop worrying.

Welcome to the graduation ceremony of the School of Hard Knocks. Learn from your mistakes, prepare for the next cycle, and come back with better ideas.

And if you need a sounding board for those ideas, I’m available on LinkedIn or email at sshroff@mystartupcfo.com.

Good luck!