For all entrepreneurs

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

― Theodore Roosevelt

A good day

Today was a good day.  My prior best at Disneyland's Astro Blasters was around 800,000.  Today:

Yes, that's right.  2.7 million!  My new strategy of only going after diamonds and triangles paid off.  After getting my picture I was told that I was one of the top 10 for the day.  When I had a look to see where I ended up, I saw this:

Numero uno!  By a pretty healthy margin!

Sorry BF...

Why an exploding offer can blow up in your face

Today Y Combinator had a great post called "Exploding Offers Suck".  The key take-away is in the first line:

Exploding offers suck.  Founders should be able to choose the investor they want to work with, not have to make a decision based on time pressure.

I think this is a smart move on YC's part.  They are positioning themselves as being founder friendly, further strengthening the desire of good founders to be with them.  They then get the best founders and the positive cycle continues.  It's also smart for them to be very public about this because they want the perception of YC to extend their reach even ahead of anyone's actual experiences with their policies.

Exploding offers are pretty bad.  This can be common even beyond the accelerator stage.  VCs can and do provide term sheets with short fuses.  One very real reason for this is that the VC does not want to be used as a stalking horse.  If a VC is willing to put their neck on the line by making an offer, they don't want that simply to be used to get a higher offer somewhere else.  This is a completely fair position. 

On the other hand, decisions made by time pressure can backfire.  Back when I was finishing up at business school, a major car company that some of my classmates were interviewing with came up with the following strategy.  They took eight students from top business schools (two from MIT, two from Stanford, two from Harvard, etc) and brought them all together for interviews on the same day.  And the end of the day they announced to the group that they were happy with everyone and that they had two job offers, which would be made to everyone.  The first two people to accept would get the job.  Brilliant idea, right?  What a great way to implement competitive tension and ensure that they would be able to fill the positions!

Wrong.  Out of disgust (for being put in the position, for feeling like this is how they are valued, for feeling interchangeable with everyone else in the group) NO ONE agreed.  It is my understanding that the positions remained vacant for several months.

None of this, of course, addresses the obvious issue of how loyalty will be affected down the road by starting the deal this way.

So, the best approach is to build a strong relationship with someone (as an investor, accelerator, employer, what have you) and make someone WANT to be with you.  Be the VC firm of first choice, independent of valuation.  Make your new employees loyal and excited before they even sign for your company.  Foster a sense of transparency and openness, and that will pay dividends that overcome the stalking-horse problem.

Tax treatment of early-employee options

There is a great post from Sam Altman on Employee Equity.  I think it reflects many things that I've agreed with for quite some time.  The paragraph that I think is particularly salient is as follows:

With regard to tax treatment of options:

I think there are a lot of ways to fix this.  The easiest would be if the IRS would agree to not tax illiquid private stock until it gets sold, and then tax the gain from the basis as long-term capital gains and the original value as ordinary income.

Another might be to create a new class of employee stock.  Today, in an early-stage company, common shares are usually worth much less than preferred shares.  It might be possible to create a class of shares with less rights than common and thus worth even less.  The idea would be to convert these shares into common on an acquisition or IPO, but before that, they would be non-transferable and have no value.  If it were possible to create a class of stock that the IRS agreed had next to zero value, it might be possible to grant employees this sort of stock, have them owe a tiny bit of tax on it now, and then have normal long-term capital gains treatment years later when the startup goes public.

What about it IRS?  I think that it is high-time to fix the tax treatment for early employees of companies.  Right now, there is a huge divide between those employees wealthy enough to hang on to their options, and those that cannot.  This needs to be changed.

Green Power Report

I was interviewed recently on AM 590's Green Power Report and it was a pretty good show. Check out their back catalog of previous interviews; they have some good names on them. At any rate, the audio is attached. I speak about ocean power, California's energy policies, and Energy Cache.

Solve for X Talk

The conference was pretty interesting. Here's a link to the talk.

Solve for X in Washington DC

I've been invited by Google and USAID to speak at the Global Diaspora Forum in Washington next week. If you are going and would like to check it out, I'll see you there!

Register for the next Solve for X, at the Global Diaspora Forum in DC, May 13: goo.gl/ROSmr See you there!

— A Googler (@google) May 9, 2013

Aaron Fyke MIT talk part of Google X - Solve For X Series

I am privileged to be in some pretty impressive company.  My recent talk at MIT was picked up by Google and is hosted as part of their "Solve for X" series of moonshot thinkers.  Link is below.

https://www.solveforx.com/moonshots/global-diaspora-forum-aaron-fyke

Immigration Reform - "Back of the Line"

Obama said something interesting with his speech about comprehensive immigration reform the other day.  He said that illegal immigrants would need to go to the "back of the line".

For unskilled immigrants, there typically *IS* no line.  There is basically no way to legally come to the US, unless they are family members of existing US citizens. See the chart below.

So, I wonder what he was talking about?  I think immigration reform is a necessary step, but I'm really interested in how this is actually going to be implemented.

Politics and Entrepreneurship

"Obamacare" has been cast as a left vs right issue.  Democrats are in favor of it.  Republicans hate it.  However, the reason for this is that it is framed as a "lazy do nothing people being given healthcare paid for by good, hard-working citizens who already have healthcare".  This is silly, yes.  However, as far as entrepreneurship goes, there should be far more right-wing support for Obamacare than there is.

Why is this?  Because, here in the US, healthcare and employment are very tightly linked.  This is fine for those with a job.  However, it is not so fine if you want to quit your job and start a company.  I thought Obama's remarks yesterday summarized it perfectly:

    "They do not make us a nation of takers; they free us to take the risks that make this country great."

Government programs which allow people to walk away from their job and start something new are critical for new company development.  Entrepreneurship and free enterprise should be cornerstones of the Republican platform, and they should favor any policy which promotes new company development. It seems that this point is being lost in the noise.

The CEO's job

I don't often have the opportunity to post on my blog. Usually what I'm doing with Energy Cache is not something that I can talk about. However, recently I had a great experience that I thought was worth writing about.

The job of the CEO is to best manage the company on behalf of the board, who in turn, represent the shareholders. Therefore, it can be an easy assumption that the CEO reports to the board and attempts to meet their needs. While simplistic, and often generally correct, it is a false simplification. There can exist the possibility that different board members have conflicting needs/desires. Under the "serve the board members" model, this puts the CEO in a difficult role if he or she is trying to make everyone happy.  However, truly serving the board means doing what's best for the company, regardless of whether you make people happy. People are looking at you for the decision on what is right - not what everybody else thinks is right (and certainly, not what's right for them). 

Not making these decisions, even to attempt to address the wishes of those you report to, is a breach of duty.  This is a key distinction why the CEO's job differs greatly from many other jobs out there.  In pretty much every other job, your job is to support your customer, who is almost always the person you report to.  With the CEO, it may seem that the customer is the board, but it isn't.  It's the company.  I'll say that another way.  A CEO may serve at the pleasure of the board, but the CEO doesn't serve the board - he serves the company.

As CEO you aren't paid to be popular. You are sometimes paid to be unpopular - even if the people that you are unpopular with are the ones paying your salary.

I saw that recently, it is something I'm going to regularly have to force myself to remember, and thought it was worth talking about.

The math of turning 40, Time Dilation and Back to the Future

First - Happy Canada Day!

Second, I'll be turning 40 pretty soon and it got me thinking about the phrase "middle age".  It's always been my observation that life is "speeding up".  When I was a kid, the time between Christmas from one year to another seemed to take an eternity.  Yet now, I struggle to remember that 1993 wasn't 9 years ago, but 19!  What's going on?

My theory is that we are terrible at tracking time.  Instead we can track "relative time".  When we are six years old, the time from one Christmas to the next is fully one sixth of our lifetime - in fact, given that, at age six, we may not have any memories earlier than age three, we could conclude that each year is fully a third of our existence.  However, once we reach age 40, each year is only a sliver of our total existence, and thus seems much smaller.  This seems to be the only reasonable explanation of where my 30s went in a blink of an eye.

So, I decided to model this behavior and see what I discovered.  I made the initial assumption that our memories start at age 5 and end, with death, at age 80.  I then figured out the relative length of each year, to determine how long each year feels to us.  The results are interesting:

Let's first look at the cumulative chart.  This example takes the relative age for each year.  By measuring the areas under the curve we can determine the age of equal "relative age", or the ranges of ages which should "feel" the same period of time, taking into account the apparent acceleration of the years.

This shows that the first quarter of our life is over by age 10, the second by age 20, the third by age 40, and the last quarter, by age 80 (which, if you think of the math, makes perfect sense).  If I think of my childhood, this also feels right as well.  My teenage years, which technically lasted as long as my 30s, were a lifetime!  My 30s, I believed, happened when I went out for lunch one day.

So, the horror that we can realize is that 40 is not middle age - 20 is!  By the time you reach 40, you've lived fully 75% of your apparent life timeline.  Even though you are halfway through your life, the remaining years will seem like the blink of an eye.

Another way to look at this is with this graph:

This lets us determine what age corresponds to the percentage of apparent life lived.  For example, as shown, the age at which you have lived 60% of your perceived life is actually 25.  On one hand, this is a clear call to enjoy your youth, on the other hand it shows that we've all been given the gift that our youth lasts a disproportionately long period of time - which is great if you had a good youth, not so great if you didn't.

Now, interestingly enough, these results are driven by the assumption that you have perfect memory of your life, and thus each minute seems progressively quicker than the minute before.  This leads to some interesting conclusions.  The first is that there is a real cost to memories - their cumulative effect serves to make your life appear to go quicker.  So, if at all possible, there's little point fixating and hanging on to bad memories.  Relieving them serves to slow down the perceived acceleration of time.  As well, there is possibly the saving grace that, as you age, your memory of earlier events starts to diminish.  This will put more relative weight in the later years and appear to slow time down.  Looking at the first graph, if you were able to forget the first 10 years of your life completely, then the effect is dramatic on shifting the relative weights of the later years.  Is it possible that there is some benefit to dementia and memory loss in your later years?  I doubt the benefits outweigh the dramatic costs, but it's an interesting thought.

This also leads to some conclusions about kids.  As I watch my kids grow up, I get to experience, vicariously, their experiences.  While overall life is zipping by for me, and they are growing up at an incredible rate (from my point of view), they also help to slow my life down by providing an external reference point to my life.  Time dilation may be part of Einstein's theory of relativity, but its also alive and well between two people at dramatically different points of their life.

So, as I round out the first 75% of my life, and I see that we are almost in 2015, the year at which Back to the Future will be as far from me as 1955 was for my Dad when the movie first came out in 1985 (and led him to say that he felt old!), I can really question the phrase that "life begins at 40".  If it does, then life sure felt like it took a long time getting started.  Enjoy every moment that you live, and savor every good memory you have.  Even if you live to 80, you're just not here very long.

MIT news article

It's always nice to get some press from MIT.  Here's a recent story they did on Energy Cache.

VCs moving on?

A lot of venture money was raised in the late 90's, before the burst of the first internet bubble (2001).  There has been a lot of talk [citation needed, but I can't find right now] that, since most VC funds are 10 years in duration, we would see a great VC contraction sometime around 2010.  In fact, I had a list of firms that hadn't made any investments in years, and I haven't gone back to check if they are still around.

However, anecdotally, I have witnessed a contraction of another sort.  Good firms, that are still around, losing good partners.  As I've been speaking to investors lately, I've discovered no less than sixnine different partners that I knew personally, mostly senior, from very good firms, have moved on.  They have all taken senior operating roles with technology companies (no surprise, as that is the typical path in and out of VC), but what's interesting is that this seems to be more than the typical gas diffusion mechanic between VCs and tech companies.

What does this mean for the investing landscape, and how those firms operate?  I'm not sure, but I'll certainly be watching.

Energy Cache Media Presence

Energy Cache was written about recently in a posting on Earth2Tech.  The source of that post was the recent Wall Street Journal’s Eco:nomics conference where Bill Gates commented on a company that he was involved with that was doing “gravel on ski lifts.”  Also, included was a link to our patent and our operational video.  I'd like to comment on a few of the things mentioned, and not-mentioned, in the article.

Reduced Technology Risk for Ease of Market Adoption
Energy Cache's design philosophy, from the company's founding, was that energy markets want minimal technology risk.  This has been my experience starting with my early engineering career developing fuel cell technology, to my more recent experience as an investor in solar companies.  In both those cases, the technological unknowns were the least appreciated by the established, conservative, market. While Energy Cache has made impressive technological developments, we developed the technology so that we could, as much as possible, co-opt the existing expertise, supplier base, and operational knowledge from existing industries and use them to solve the problems that we wanted to address with energy storage.  This is how our small team has been able to design and construct our 50kW installation on impressively efficient schedule and budget.

Ease of Siting
The difficulty, for current technologies, as stated in the article, is siting and permitting times. Pumped hydro needs two large reservoirs; compressed air energy storage (CAES) requires an underground cavern that doesn't leak (the efforts of "above-ground" CAES solutions excepted).  At the recent ARPA-E Summit, Secretary Chu stated that "geologic solutions" would be necessary going forwards, regardless of the current siting and permitting difficulties.  This is a view echoed by Pike Research.  However, one of the pieces of brilliance in Energy Cache's approach comes from the fact that we will likely not experience the same siting and permitting difficulties of pumped-hydro and CAES.  This comes, in part, from the flexibility achieved by using a low-cost base unit.  A typical pumped hydro facility consists of a single, or very few pumps/generators (PG&E's Helms Pumped Storage facility consists of three 400MW turbines, for a total of 1.2GW).  This is the only way to make either the technology, or the economics, work - build at very large scale.  In doing so, such installations become very difficult to find appropriate sites for.  Energy Cache's system deploys many units and can be far more flexible in terms of economic operating size.  Therefore, we have already found a tremendous number of sites suitable for our more flexible technology that would be inappropriate for CAES or pumped hydro.  In addition, we have several other benefits, which I won't discuss here, that we expect to greatly reduce the permitting difficulties that have previously been mentioned.

Outstanding Economics
The article says that "Terrestrial storage isn’t cheap."  This is true in absolute terms, due to the size of these projects (as mentioned above).  However, on a kW or kWh basis, pumped hydro storage and CAES are among the cheapest technologies currently known, as listed in EPRI's Energy Storage Report, page 4-22.  Pumped-hydro storage is the de facto storage solution that every utility would like to deploy.  We believe, and this is backed up by the data, that Energy Cache will have a compellingly competitive cost structure as compared to these technologies. In addition, Energy Cache has solid data that demonstrates that we will be one of the highest revenue earning storage technologies possible.  This puts us in a class of our own in terms of potential profitability.

With a substantial number of operating sites identified, extraordinary economics, a rapid path to market, and the backing of some extraordinary investors and technology visionaries, I'm very proud of what Energy Cache has accomplished in such a short time, and where we'll be headed in the future.

Social Landing Page

I regularly get friend requests for LinkedIn and Facebook (I'm still dabbling with Google+).  One thing that neither of these sites have is a "landing page".  I'd like to have a web presence that lets me state my rules of accepting their connection.  Of course, none of these sites offer this because the strong social pressure to accept all links is part of the reason that they have grown as successfully as they have.  The fact that there is no good way of rejecting someone, other than ignoring them, is great for Facebook, but bad for me.

So - this posting is meant to resolve this.  I am being very selective on my social networking, and I have been since starting on LinkedIn.  In order to connect with you I'd like to know you well enough to ask a favor of you.  At a minimum this means that we have to have met.  Most likely it means that we have had a conversation long enough so that in six months I can contact you and remember exactly the context in which we met.

Since I use LinkedIn mostly as a means of being introduced to people, if I don't have a strong connection to my primary links, I find I have no social capital to ask for introductions to their links, and so the primary link is pointless.  Therefore, this isn't a beauty contest of who is "worthy" to be connected to me; it's just that, if I don't accept your invitation, I don't feel worthy of asking you for favors in the future.

Thanks for your understanding.

The Gates Notes

Bill Gates had a really good writeup on the need for energy storage and what we're doing at Energy Cache.  Check it out.

Why Hubbert’s Peak May Not Happen, and Why That Misses the Point

I was asked by one of the executives at Idealab to comment on today's Wall Street Journal essay by Daniel Yergin, entitled "There Will Be Oil". I'm currently reading his book, The Prize now; unfortunately, I thought very little of his essay. Here's what I wrote:

What a disgraceful, sensationalist, condescending, collection of half-truths! The first half was inexcusable, and the second half was simply bad. The author is partially correct in some areas, but for all the wrong reasons, and his final conclusion is simultaneously wrong, and irrelevant.

Why Hubbert’s Peak May Not Happen, and Why That Misses the Point

Let’s keep something in the forefront of our minds – we care about the future price of oil. Hubbert’s analysis matters because it predicts rapidly escalating oil prices. Any conclusion which claims that massively increasing oil prices will prevent Hubbert’s peak, misses the point entirely, and is so bafflingly daft as to border upon willful intellectual fraud. We’ll be saved from skyrocketing oil prices as soon as the skyrocketing oil prices arrive and are here permanently. Hooray!

It's true that Hubbert's analysis ignored economics. He took his analysis simply from the geophysics of extraction. However, the economic analysis results in some curious results - literally the physical manifestation of the philosophical argument of "what happens when an immovable object meets an unstoppable force?". In this case, the immovable object is the oil supply and an unstoppable force is the demand for oil.

In both cases, neither force is truly unstoppable. Better technology, especially spurred by higher prices, will shift the oil supply curve. As oil gets more expensive, other means of supply become feasible. We can drill deeper and deeper (and expose ourselves to more Deepwater Horizon type accidents). We can turn a frozen mixture of tar and sand into oil by injecting steam and scrubbing like crazy (not too far removed from recovering oil from a Walmart parking lot in Wisconsin in January – see, two can play the sensationalist game). In the mid-90's I've worked in the oil fields in Canada doing what's called "tertiary recovery". Primary recovery is when the oil flows out of the ground. Secondary recovery is when water is injected into an oil field to push up the remaining oil. Tertiary recovery is when solvent (ie, soap) is injected into the field in hopes of scrubbing the last few drops of oil from the rock walls. Tertiary recovery is done when the value of oil recovered exceeds the cost of scrubbing. But let's not kid ourselves on what the value of oil needs to be for these processes to be economic.

On the other side is demand. People have been arguing strongly for conservation since Carter. Here too, we see oil prices at work. As oil prices rise there is a greater and greater incentive to implement conservation and efficiency efforts. These are now becoming fashionable and practical, but during the Reagan administration (and many times since), it was considered downright "un-American" to even consider conservation. However, the article makes the hilarious claim that increased efficiency, which has barely made a dent in the inexorable growth of oil consumption, will actual cause demand to "slacken" by 2020 - in light of booming growth from BRIC (Brazil, Russia, India, China) countries as well as existing first-world countries.

However, before I address the many fallacies in the article, let's examine what we've discovered. Skyrocketing oil prices will increase supply. Huge leaps in the price of oil will spur efficiency savings, "reducing" demand. So, as soon as we see massive increases in the price of oil, and we'll be saved!

Now, back to the argument that we will all be saved from the calamities of skyrocketing oil prices due to Hubbert’s peak through the benevolent gift of skyrocketing oil prices. What actually happens to oil production, and Hubbert's global peak, depends on the relative elasticity of oil supply and demand, relative to oil prices. Which immovable object and which unstoppable force is truly unstoppable? Which of these global titans will win - is it the Earth's relentless difficulty in providing oil, our our insatiable thirst of consumption?

If the supply-side proves to be stronger - if the Earth absolutely will not provide more oil, regardless of price, then we shall see Hubbert's peak occur. We will see oil production decline regardless of demand. Each new day of decreased production will see further escalating prices. Now, if the demand-side proves to be stronger. If people absolutely will not reduce oil consumption regardless of price. If people will pay any price for oil, then we will not see Hubbert's peak. We will see continued oil production, straining to match the daily rise of oil consumption. This oil production will come from further and further fields, and processes, which only become economic through increased oil prices (as we are seeing with the tar-sands, and tertiary recovery, and some other things the author mentions). We could see a production "plateau" that the author mentions.

So, let’s quickly examine the elasticity of oil supply and the elasticity of oil demand in order to determine which is more likely to bend. As a fun example of oil demand elasticiy, let’s look at one indicator of how strong our demand for oil is. Shown below is the total vehicle-miles driven on all US roads (data from DOT). It shows steady growth, almost doubling in amount, from 1985. The only remote dip occurs due to the greatest economic collapse this country has seen since the Great Depression. The consequences of this collapse? It set us back about 2~3 years. Oh, and we’re back to climbing again. So, we can conclude that oil demand is very inelastic, and unlikely to change much.

So, now we turn to our analysis of the elasticity of oil supply, and at the same time, let’s addess one of the author’s more heinous misdirections. Hubbert's analysis was done with the assumption that oil prices would be reasonably stable. This is why he neglected improved technological means of discovery. Since oil prices have been reasonably stable since the 1950’s the analysis has proven robust. However, with extremely high oil prices will come the economic pressure that drives further expansion. The author claims that

“Overall U.S. oil production has increased more than 10% since 2008. Net oil imports reached a high point of 60% in 2005, but today, thanks to increased production and greater energy efficiency (plus the use of ethanol), imports are down to 47%.”

Ignoring the hint that ethanol could save the day (the economic and thermodynamic policy disaster that corn ethanol has been), let’s examine this glorious increase in US production in historical context:

Excellent. So after West Texas Intermediate hit a record high of more than $130/bbl in 2007, the US managed to increase its production to match that of 2003. If only oil prices would hit $2000/bbl, then we’ll be back to the go-go times of the 1960’s and we can all drive cars with fins and big-block V8 engines! It’s pretty safe to conclude that oil supply is very inelastic and huge changes in price are needed to move the needle on oil production.

So, let's look at what has happened - in both cases we see that any increase in oil production, or any decrease in oil consumption require astronomical increases in oil prices, and that's all anyone cares about. I suppose there is a sense of smugness in watching Hubbert's peak not arrive while witnessing $200/bbl oil. But nobody cares about the shape of the curve, we care about oil prices and that's what the author has failed to address.

---

Ok, I was planning on going through the article, paragraph by paragraph, and point out the half-truths, the misstatements, and the childish name-calling, but I’ve got pancakes to make. The only point of this article is, as I see it, to take regulatory pressure off of the oil industry, and to remove pressure (policy or otherwise) from developing alternative energy sources, because we can all realize that “everything will be just fine”. My advice? Buy oil futures. And invest in renewable energy.

What in the world is going on?

I gave a presentation to Idealab today. This was something I prepared when I was at the X PRIZE Foundation in 2009, for a group of manufacturing executives at an MIT conference. I updated the data for what's been happening these past two years.

I am really pleased with the opportunity I had to really dig into finding good data and case studies. I modeled it after Hot, Flat and Crowded by Friedman - a book I can highly recommend.

What in the world is going on web

View more presentations from afyke.

I should make one correction. When I first put this slide deck together, two years ago, the inputs that I provided to the model at www.climateinteractive.org resulted in a temperature increase of 2.6C by 2100. For some reason when I tried the model recently, I noticed some changes to their page, and the temperature increase was only 1.8C by 2100. This is a huge difference, and I'm going to contact them to see what changes they made to their model that resulted in this difference. What's interesting is that the CO2 concentration is similar in both cases, around 450ppm, so the change appears to be in the temperature calculation from the CO2 concentration.

House Renovation

I've been in the joys of house renovation for the past few months. It's been a great opportunity to start with a fresh sheet of paper and radically improve the efficiency of its subsystems (HVAC, insulation, lighting, etc). I've also taken to installing the network infrastructure for the house (which is interesting, given the obsolescence cycles of the computer/networking industry). I'm going to list good vendors that I've worked with, occasionally, in upcoming blog posts, but the first one is Optimized Cable Company (www.optimization-world.com). They were a handy source of cheap, quick networking components for the home.