If you work at a startup in Silicon Valley it’s impossible to go around without hearing about THE bubble. Everyone has an opinion – it’s not a bubble, it’s a bubble but only for early stage, it’s a bubble just like the one in the 90s, it’s a bubble but not for facebook, and I could go on.

Bubbles explained like you’re a four-year-old

Let’s first go to Bubble Economics 101. A bubble, which is a process, happens when assets are valued at an unreasonably higher price when compared to their intrinsic value. In other words, you’re selling chicken liver for the price of foie gras (I love food analogies!). A bubble is the result of an abundance of cash, scarcity of assets, or a combination of the two. A bubble is also a vicious circle since every time you buy something for an unreasonable price you’re taking one asset out of the market and injecting cash into that same market. In brief, a bubble is a legal-ish Ponzi scheme and you don't want to be the one without a chair when the music stops.

The big problem of calling something a bubble is that you need to know what the intrinsic value of an asset is and that is a very tricky question because we like to rationalize. For example, you know what the price of bread is so it should be easy to spot a bread bubble if tomorrow you go to the bakery and they’re charging $50 for a baguette. But if this process occurs in the course of 4 years in the context of a shortage of wheat, we’ll rationalize it. If you don’t believe me, just look at gas prices. There are bubbles happening around us all the time but only a very small number of those actually get big enough to become relevant. And yes! The dating scene is very prone to bubbles. 

False positives

Back to THE Bubble, you can see how evaluating the intrinsic value of startup assets is really hard – companies are private, we know very little about their business and we mostly know the good news (or you're facebook's PR department). But say we had access to all the numbers, would that help? The intrinsic value of a company is a function of future earnings and we’re not exactly talking about large stable businesses. You can imagine that anyone who claimed Google was overvalued at IPO is right now hitting her head against the closest wall. Hit it hard, but who could tell? Would you have predicted MySpace implosion 5 years ago? Hell no!

Or would you? That's when we get to the problem of type I errors or false positives. There is always someone predicting bubbles, economic crisis and the end of the world (BTW, it’s tomorrow so if those guys are right someone should give them a prize in the after life). You know the story, every time there’s a bubble or crisis, a few stories come out of “the guy” who saw it coming. What nobody asks is how many times that guy saw it coming and it never came. If you’re not a false positive kind of person (usually that comes with high doses of pessimism), trying to predict a bubble is like buying the winning lottery ticket. And if someone starts arguing with “the fundamentals”, please say out and loud “Bullshit!”

It is not a bubble until it bursts

When finally the bubble bursts, everyone saw it coming, and that is when the false positives and false negatives all gather around beers talking about how obvious it was and how “the fundamentals” just didn’t make sense. That is the moment when the bubble really happens! It’s when it bursts.

So you have three options. You can be the bitter let-me-hide-in-my-bunker-everytime-I-hear-armageddon false positive, the condescending it-was-so-obvious-that-I-never-told-anyone-about-it false negative, or you can tell those two to screw themselves, ride the wave, and raise money as early as you can. You know, once the bubble bursts it’s too late to say, “I saw it coming”.

 

Last night I had dinner with a friend from Portugal and eventually we talked about the economic situation in Portugal and why the country can’t be competitive in the global market. There are a ton of theories but at that point I looked at the bottle of wine we ordered and thought that was a great example of why Portugal is in deep shit. The bottle was a red Rioja from Spain that had ‘Tempranillo’ stamped on the label.

For those who have no idea what this means, most wines from Rioja are blends although Tempranillo is the most prominent variety. Outside Europe people don’t understand blends because it’s too hard to explain. It’s easier to say ‘I like Cab, Pinot and Merlot’, which can apply to several different countries, than ‘I like Rioja, Penedes, Umbria, Veneto and Alsace’ to speak of 5 wine regions in Europe (there are dozens). So if you’re not Bordeaux, the easier way to export is to promote a variety and then allow a bunch of wines from that country to jump in the varietal bandwagon.

Spanish producers have identified this trend and have been promoting Tempranillo as their variety of choice. Then regions like Rioja use that brand to produce varietals that are roughly the same as the blends but with a more consumer-friendly label.

What about Portugal? Not so much. Let’s jump into the facts. Portugal is the 7th-8th largest wine producer in the world. It should be a large exporter given the size of the domestic market (10 million people). In addition, it has the world’s top selling wine – Mateus – and an internationally recognized brand – Port. Despite this solid base, Portugal is usually no. 9-10 in the top wine exporters and mostly thanks to Port – you can hardly find regular Portuguese wine outside Portugal. Why? You can blame the lack of consumer focus. I keep hearing producers in Portugal complaining that the consumer needs to be educated, that you shouldn’t make wine easier to drink just because the consumer wants it, or name a wine after a variety just because it’s good for marketing. They sound like the guy who’s been running his business for 4 years with no success but keeps complaining that users don’t get it. If they don’t get it after 4 years, you should change your product.

As an entrepreneur, this is something that particularly pisses me off. When businesses don’t look at the consumer as the ultimate reason why they’re in business, they’re doomed to fail. As a company, I exist because of my consumers. Consumers could not care less if I exist or not.

P.S. If you want to know my opinion, I think Portugal should promote Touriga as the variety of choice – it’s Portuguese, it’s easy to identify, and most producers are using it anyway.

Fundraising is like dating, and when it comes to dating I have a theory – the theory of the stove burner. Imagine you have a stove with 6 burners and you’re using all 6 of them to cook. If you have all 6 in max something is going to get burned, or you’re the fucking master of the stove burner (aka the Casanova). If all 6 flames are low you’re not going anywhere and you can be there all day and do no actual cooking. If you want to master the stove burner you need to play with the flames and make sure you have 1 or 2 high, another 1 or 2 medium and the remaining low enough that they’re still cooking but not too fast. And of course, when you’re at the point you’re finishing something, put everything else in low and focus on that one because you’re going to need to turn it up. 

This is my stove burner theory and I hope the parallel with dating is obvious enough. Now that I’m back to the dating game (for investors, don’t get me wrong), I feel the need to get back to my stove. If this lead looks promising, turn that burner up and the other ones just a tad down so I don’t get burned. Just like with dating and cooking, it’s hard to articulate what’s too much and too little but I feel that after a while adjusting I’ll get the feel of it.

Just like with dating, every new encounter can be a hit or miss – but you’ll never figure that out if you don’t try. Just like with dating, you can be setup and that will likely improve your chances. And yes, just like with dating, you can be left with blue balls, it’s just part of the game.

And now I have go back to my stove, I smell something.

 

Tuesday was a big day. We were at The Founder Conference where we had the first opportunity to pitch Piictu in front of 600 people and reactions were good. We need to improve though and that’s not news, especially at this stage. We received great feedback from Robert Scoble and we’ll have to target our demographic very well.

But going back to the pitch, it was a 1-minute pitch. The 1 minute is my favorite pitch but also the hardest one. It’s my favorite because you can really say a lot in 1 minute and something meaningful that can get people excited. It’s not just the 5-second “I’m doing blah blah” and it’s short enough to keep your audience engaged throughout. It’s hard though because you don’t want to get lost in the details but you also don’t want to be too generic and cover too many ideas.

We spent a few days writing different pitches using different approaches – Should we talk product first or opportunity? Should we talk of a use case? What’s the punch line? At the end of the day it has to be a story but there are several ways of telling a story.

And then I screw up the delivery! Well, I didn’t exactly bomb the pitch but it was dull. I need to switch from consulting presentation mode to entrepreneur sales mode. The video is here and the transcript is below. Feedback on both the pitch and delivery is appreciated although I can already tell you that we’re changing the pitch.

I’ll go straight to the point: Photo sharing is lame. You take a bad picture with a bad camera, put heavy make up on it and post it on a wall. And then what?

Piictu addresses the “then what”

Piictu is a mobile application that enables conversations through photos. It’s like a photo orgy on your mobile phone.

Just snap a picture, post it and watch it come to life with photo-replies from friends and strangers.

Just 2 days ago I was in NYC when I heard the big news, so I walked to Ground Zero and took a picture of the crowd. Imagine immediately anyone can see my picture, and I start getting picture responses from the crowd in DC; I also get reactions from people in their homes and from the military overseas; I even get some pictures of people in Pakistan. It’s such a powerful story-telling tool.

We are using our cameras to communicate emotions. Photos are becoming objects of interaction and Piictu enables this trend by unleashing many-to-many communication through this powerful medium.

Piictu has been getting a lot of positive feedback from the community. We currently have 2K signups for our beta and we’re going on private beta tomorrow.

 

 

Yesterday I attended The Founder Conference, where Piictu was invited to pitch (which is the main reason for my silence but more on that tomorrow). I met a good bunch of fellow European entrepreneurs and they all complained about how hard it is to start a company in Europe. I met people from Germany, Czech Republic, Austria, Iceland, Serbia, Spain, France, and although this is not a representative sample of European entrepreneurs, it is a pretty damn good one and they are saying loud and clear that Europe sucks at entrepreneurship.

Why is that? I recently wrote a post about how we can change but I keep thinking why are we not changing? Let me start saying that the pain point has been identified. For more than 10 years, the European Union has been making efforts to promote entrepreneurship but I already explained why that will not work. Likewise, Europe doesn't lack entrepreneurs and creative minds, although you have to wonder if some of the brightest aren’t getting tired and making the move to the US.

So again, why is this happening?

It’s easy to blame the “system” – the VC industry is inexistent or ineffective, the legal system is too bureaucratic, the stock market is not active enough, etc. All these are real issues and produce huge amounts of friction, but there is a bigger issue – the entrepreneur.

Too many entrepreneurs in Europe think about their markets as if we were in the old economy – I’m starting a business in Switzerland for the German-speaking market, or even worse, I’m starting a business in Portugal for the 10 million people that live in my country. Damn! That’s roughly the size of the Bay Area, how can you compete with that? I can spend $100 in stickers and get more buzz in a week that you can get in a year!

I’m building a company that from day 1 (pre-launch) has been getting sign-up requests from all over the world, a lot of them from Europe. I don’t think about my company as being US-based or focused on the US West Coast market. Entrepreneurs in Europe have to think like that. If language is a barrier, default to English. If PR is a barrier, ask for help to understand who is who in the media industry and who to target – people are willing to help, including me. If financing is the problem, build a great product for the global market, get some traction, and then look for those VCs (in the US if you have to) that invest in companies around the world – they exist.

It’s easy to blame the system. There’s nothing you can do about the system but you can change the way you think and break the chicken and egg problem. If more entrepreneurs in Europe build successful businesses and get consistently funded by VCs around the world, the VC industry in Europe will have to change. That’s the beauty of globalization and I do believe in it.

P.S. I will sure get angry reactions from those who don’t review themselves in this portrait of the European entrepreneur – but look around and check if you’re not the exception.