Extra Crunch: Pro rata rights, immigration, the sharing economy, AWS, Ray Dalio, and China’s smartphones

Saturday, August 3, 2019 By Danny Crichton Let us know how you like this newsletter? What founders need to know about pro rata rights JuliarStudio via Getty Images Pro rata used to be reasonably simple. Venture investors who bought preferred shares in startups had the right to lock in a certain percentage of equity provided they continued funding the company in the future rounds of financing. But as VCs have raised ever larger funds and cap tables have become ever more congested, who gets pro rata — and who keeps it — has become a massive distraction for many founders during their fundraises.   Andy Sparks, the founder of Holloway Guides (which, as my co-editor Eric Eldon wrote this week, raised $4.6 million from the New York Times and others), writes in with an analysis of pro rata rights from the latest Holloway Guide on Raising Venture Capital. We are really digging this new model of covering the issues affecting startups, and wish Sparks and his team well in their endeavor.   Pro rata is Latin for "in proportion." Most people are familiar with the concept of prorating from dealing with landlords: if you're entering into a lease halfway through the month, your rent may be prorated, where you pay an amount of the rent that is in proportion to your time actually occupying the property.   Almost all investors try to negotiate for pro rata rights, because if a company is doing well they want to own as much of it as possible. After all, why not double down on a winner than use that same money to invest in a newer, unproven company? In the 2018–2019 fundraising climate, though, it's safe to say we're at "peak pro rata." Everybody wants pro rata, even those who don't entirely understand how it works or affects companies.   Which immigration headlines should you care about? Guzaliia Filimonova via Getty Images Every day in the United States, immigration issues dominate the headlines. That can be very taxing for startups, which are often founded by immigrant entrepreneurs and often have sizable immigrant employee bases as well. So which stories should you pay attention to and which stories can you ignore and live in blissful ignorance?   Xiao Wang, CEO of immigration-processing startup Boundless, writes in with his views on what's actually happening with immigration that has relevance to tech companies.   Many big immigration proposals require legislative action, regardless of who's in the Oval Office. Unfortunately, there are very few immigration policies likely to pass both the Democratic House and the Republican Senate and even fewer that would then survive a presidential veto. That means that, broadly speaking, if a new policy is legislative and would require pushing a new bill through Congress, you can safely ignore it for now.   On the other hand, if a new policy is something that can be enforced without an act of Congress, either by executive order (like DACA or the travel ban) or by regulatory action (like the public charge rule), then it's worth paying close attention to. Millions of people can be impacted by such measures, and unlike legislative action, some executive-branch changes can be pushed through virtually overnight, with little prior oversight or scope for public input. (New regulations usually take a little longer to implement but still matter more than legislative action.)   What happened to the sharing economy? Airbnb The sharing economy was the hottest topic for startups a couple of years ago, but as our Paris-based corespondent Romain Dillet reports, the disruptors are now becoming the incumbents. He explores why the promise of this industry has seemed to fade with time.   Over time, platforms became bigger and market dynamics took over. Deliveroo keeps asking for a bigger cut of the restaurant paycheck. Fiverr keeps accepting more freelancers in order to drive prices down.   Nobody really talks about the sharing economy anymore. People prefer using other phrases, such as the on-demand economy, the gig economy, the convenience economy (or even mommy-as-a-service). People also consider that Lime, Bird and Mobike are part of the on-demand economy even though it's not a peer-to-peer business model.   Some people became highly dependent on the sharing economy and saw that the sharing economy wasn't the goldmine they were promised. According to JPMorgan Chase Institute, ride-hailing drivers earned around $1,600 per month in 2014. They now earn around $700 per month.   Why AWS gains big storage efficiencies with E8 acquisition AWS was in the news quite a bit this week. First, our enterprise reporter Ron Miller investigates why AWS bought Israeli storage company E8. He finds that Amazon is seeking technologies to continue to increase storage efficiency at its data centers in a bid to outpace the competition from Google Cloud and Microsoft Azure.   While Amazon is always looking to enhance its service offerings, it's also looking for an edge when it comes to running its data centers more efficiently. "This is less about new features that will be delivered as AWS offerings, and much more about optimizing AWS itself. E8 technology will be integrated into Amazon's rack-level architecture," [Steve McDowell, senior storage analyst at Moor Research and Strategy] explained.   Ray Wang, founder and principal analyst at Constellation Research, says that this acquisition gives AWS a big storage performance lift. "There's a battle to drive storage costs down and make IO more efficient. Shared [SSD] storage is a great way to do it and E8 is the market leader in the low latency workloads that require this type of performance. Their benchmarks are 50 to 60% cheaper than what Amazon could do before the acquisition," Wang said.   Why AWS is building tiny AI race cars to teach machine learning Phillip Faraone/Getty Images for AT&T via Getty Images In addition to the E8 analysis, our enterprise editor Frederic Lardinois looks at why AWS introduced its small hardware DeepRacer cars at last year's re:Invent conference.   [AWS general manager for Artificial Intelligence and Machine Learning marketing Ryan Gavin] argues that having a hardware device makes technologies like deep learning more approachable to developers. "We've always asked ourselves what are the ways we can take interesting and new and hot technologies in the world of machine learning and find ways to bring those to developers," he said. "Coming off the success of DeepLens and all the positive feedback we received from developers and data scientists, we kind of looked at what was the next iteration of that and reinforcement learning as a very hot and emerging machine learning technique is certainly getting a lot of traction out there but still has a lot of barriers."   Citizen Ray: Digging in with Bridgewater's Ray Dalio Ray Dalio One of our speakers at Disrupt this year is hedge fund leader and now app developer Ray Dalio, who has made it his mission to improve the culture at companies across the world. Arman Tabatabai wrote a bit about Dalio's background, and our fintech columnist Gregg Schoenberg interviewed him to discuss why he has focused on his "Principles" and how an app can help build the right culture.   To underscore the point, the Principles in Action app for iOS (4.9 stars, 2,000+ ratings), released this April by PRIOS, his 100-person-strong organization dedicated to making his framework come alive, actually contains Principles (as well as another book, Principles for Navigating Big Debt Crises) in full, for free. Alongside case studies and tools designed to help users create their own personalized approach, this makes the app a no-brainer-and-a-half for those with even a passing interest in tapping their inner Dalio. When pressed on his decision to create an arbitrage in favor of the user (an ironic gesture given that his day job involves pouncing on such inefficiencies), Dalio brushed it aside as a non-issue.   Moving forward, PRIOS, which is housed in a separate location, will release several more free applications (e.g., Dispute Resolver, Pain Button, and The Assessment Center, a personality profile testing tool) that are essentially consumerized versions of the sophisticated instruments that have long been utilized by Bridgewater. Dalio wouldn't commit to a specific timetable for when these tools would be sequentially released ('as soon as possible' is the default preference), but he made it clear that they will take the form of both additional standalone apps and features integrated into the mothership Principles in Action app.   A closer look at China's smartphone market cenkerdem via Getty Images Finally this week, our hardware editor Brian Heater was in China to prep for our Hardware Battlefield later this year, and he looks at the current state of the smartphone market in the country, where things are changing quite rapidly.   Like the rest of the world, upgrade cycles have slowed in the country as smartphones have gotten better and upgrades have become more incremental. The skyrocketing cost of flagships, meanwhile, has priced many out of the market.   While it may seem invincible at times, China's economy has suffered of late. As The New York Times noted in July, the country's pace of growth has fallen to its slowest rate in almost three decades.   This is the result of what's being regarded as a kind of perfect storm: the population of working-age citizens has shrunk, due to its one-child policy, while costs of living and labor have both increased. LG and Samsung have both moved production from China to places like Vietnam, and Apple has reportedly considered following suit.   ICYMI: Earlier this week: 'The Operators': Experts from WeWork and Brex talk marketing – Getting the most bang for your buck Inside the history of Silicon Valley labor The dreaded 10x, or, how to handle exceptional employees Wall St analyst Laura Martin on the fate of Netflix, breaking up Google, EU regulation, and a decade of more money for Hollywood The Exit: The acquisition charting Salesforce's future Frontiers in civility: Facebook and YouTube's moderation failure is an opportunity A guide to Virtual Beings and how they impact our world   Thanks To every member of Extra Crunch: thank you. You allow us to get off the ad-laden media churn conveyor belt and spend quality time on amazing ideas, people, and companies. If I can ever be of assistance, hit reply, or send an email to danny@techcrunch.com.   Let us know how you like this newsletter? 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