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The Hustle Tues, Jan 17

The rise and fall of Lily

About 18 months ago, camera drone startup Lily Robotics promised to deliver a drone that would follow you around, no controller required, and there was much rejoicing.

But, as of last week, the company announced that it will be shutting down, product-less, despite raising $15m from investors and $34m in pre-sales by mid-2015.

Welp, that was fast…

Especially when you realize that, as of December, Lily was tweeting about shipping their first drones later that month.

But, according to its founders’ blog post, the company had been “racing against a clock of ever-diminishing funds,” and were unable to secure additional financing to ship their first units.

And their employees have been quiet… a little too quiet.

Ah, a lawsuit, just as we suspected

Turns out, the city of San Francisco has been investigating the company for months. And the District Attorney's office is now suing Lily on behalf of heartbroken fans everywhere for intentionally misleading customers with its promo video that “greatly exaggerated” their drone’s abilities.

Specifically, the shots it claimed came from a Lily drone were filmed with a GoPro camera stuck on top of a drone prototype. And, it’s not like they didn’t know what they were doing.

In an email cited by the San Francisco DA’s office, Lily CEO Antoine Balaresque cautioned the video’s producer, “We should be extremely careful if we decide to lie publicly.” Not careful enough, apparently.

And you can’t just leave people hanging

Lily sold over 60k drones long before the product was ready to ship, which is an issue, because, after 30 days of delays, they were legally required to obtain permission from buyers to ship the delayed product, or offer full refunds.

Instead, they continued to delay, while accepting more pre-orders at a steadily increasing price. Now, the company says it will refund pre-orders over the next two months — assuming they still have the money.

 

Something’s not adding up here…

While there’s no shortage of venture capital being funneled into new startups, it doesn’t seem to be coming back out again.

According to funding data from 2016, VC funds collected $41B (a 10-year high) from investors last year and gave about $101B to various startups, but the return on these investments is slowing.

How’s this equation supposed to work out?

As Bloomberg puts it, in incredibly simple terms, the VC ecosystem works like this:

  1. VCs convince investors to give them money.

  2. They use this money to buy shares in startups.

  3. When these companies IPO or get acquired, VCs cash out.

  4. VCs bring a (hopefully) bigger wad of cash back to investors (minus a “funder’s fee,” of course)

In theory, it’s a great setup, but…

It looks like they skipped step 3

Unfortunately, 2016 was a record low year for IPOs and the total value of public offerings and acquisitions for US startups with venture capital investors came out to just $46.8B. That’s under half of what VC funds shelled out for new investments.

Some of this is due to a disconnect between private and public valuations, which has resulted in some highly disappointing IPOs. For example, Square’s $9 per share public valuation, which put it nearly $4B under private projections.

In other words, the grow-at-all-costs startup model might not scare VCs, but Wall Street’s not giving these companies the same benefit of the doubt.

Plus, there are still 184 private tech startups valued at over $1B that haven’t yet shown returns for their investors (lookin’ at you, Snapchat).

But, there’s some good news

We’re betting that the pendulum will swing back. As we’ve noted, there are predictions of a big pick-up in IPOs for 2017.

This is thanks in part to a renewed focus on profitability over pure growth, via responsible company spending and startups actually turning down huge sums of money they don’t need.

Huh, reminds us of a company we know…

 

Planes, trains, and (flying) automobiles

Here’s some of the latest news about those things that take you places while you sit inside of them.

Farewell to the 747, aka “The Queen of the Skies”

United Airlines will take its last Boeing 747 out of service by the end of the year, joining its rival Delta Air Lines in phasing out the model.

“The Queen of the Skies” first took off in 1969, and since you could fit so many passengers onboard, it helped make transcontinental and international air travel affordable for the first time. BBC calls it the “plane that changed the world.”

Keep an eye on Florida’s new rail system

This summer, Florida will officially open the first privately owned passenger rail system in the United States in over a century.

The service is called Brightline, and it will have stations in Miami, Fort Lauderdale, and West Palm Beach — one of the country’s largest population clusters.

Will All Aboard Florida (the company that runs Brightline) be able to make a profit? Will South Florida residents actually use the service, considering they’re obsessed with cars and rarely use public transit?

Those questions will be answered soon enough. And considering states like California and Texas are already working on similar intercity rail projects, let’s hope we get the right answers.

Say hello to flying cars

Airbus just announced that, by the end of 2017, it plans to test out a prototype for a self-piloted flying car as a way of avoiding gridlock on city roads.

And, despite all the speculation that flying cars are too expensive or too outlandish, it sounds like the company is taking its pursuit quite seriously.

“One hundred years ago, urban transport went underground, now we have the technological wherewithal to go above ground,” said CEO Tom Enders. “If we ignore these developments, we will be pushed out of important segments of the business.”

 

The robot teachers are coming

According to futurist Thomas Frey, the largest internet company in 2030 will not be Apple, Google, or Amazon. Rather, it will be an “education-based company that we haven’t heard of yet.”

This prediction is directly tied to Frey’s belief that the future of education is all about artificial intelligence — and more specifically, machine learning.

Well, machine teaching, actually

14 years from now, Frey envisions a massively enhanced version of today’s open online courses (like the ones you can find on Khan Academy or Coursera).

But here’s the kicker — the instructors won’t be humans beamed through video, they’ll be bots.

And thanks to machine learning, Professor Beep Boop will be intelligent enough to personalize each course to the student staring into the screen… picking up on their strengths and weaknesses and using algorithms to tailor the lessons accordingly.

Just imagine the efficiency!

Learning the way most of us did — in a classroom with a bunch of other students and one teacher — has many benefits. But is it efficient?

Nope, not when you have 20 students competing for the teacher’s attention, while they all learn the same exact material at the same exact pace.

That’s what makes these artificially intelligent bots so exciting. In fact, Frey believes this new system would allow students to get through course material at 4, or 10 times the speed, making it possible to complete an undergraduate education in less than 6 months.

This sounds cool, but is it actually realistic? Or even possible?

14 years is a long time. Heck, in 2002 the internet was only just becoming omnipresent and Nickelback’s “How You Remind Me” topped the charts.

So, considering all the research that’s already taking place (Google’s working on DeepMind, IBM’s got Watson, Amazon’s got drone delivery), it’s not crazy to imagine Frey’s predictions coming true.

Plus, research suggests that this personalized, one-on-one method is the most effective at improving kids’ overall achievement. So there will be plenty of support for this kind of revolution taking place.

 
 
a few good reads
 

Originals: How Non-Conformists Move the World (Adam Grant)

Highly recommended by our head of sales, also named Adam. This book is about how going against the grain can be a winning strategy. He goes into stories and case studies of when (and how) people reject conformity.

Steve Jobs and Jeff Bezos Meet “Ginger” (Harvard Business School)

An article written back in 2003 detailing Dean Kamen’s Segway scooter, and his compulsive meeting with the kingpins of Apple and Amazon. An absolute joy to read and a true reminder of the genius of Steve Jobs, in particular.

How One Founder Went Dark On Social Media And Found The Light (Mattermark)

The CEO of a software company shares what she discovered when she blocked herself from social media.

The Inside Story of BitTorrent’s Bizarre Collapse (Backchannel)

About a year ago, a group of Silicon Valley outsiders with a controlling stake in BitTorrent set out to turn it into “the next Netflix.” Instead, they blew through millions and nearly killed the company.

 
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*Disclaimer: Hustle Con Media, Inc. ("The Hustle") is offering securities under Regulation CF through SI Securities, LLC ("SI Securities"). The company has filed a Form C with the Securities and Exchange Commission in connection with its offering, a copy of which may be obtained here https://www.seedinvest.com/the.hustle/seed/filing.

 
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