Nick Beim

Thoughts on the Economics of Innovation

Dataminr and the Science of Real-Time Information Discovery

Today Dataminr announced a $130m round of financing from a group of leading financial institutions and prominent financial thought leaders including John Mack, Vikram Pandit, Tom Glocer and Noam Gottesman.  

A number of friends have asked me about the company and what I find most interesting about it. This seemed like a good opportunity to highlight a few thoughts. 

What I find most interesting about Dataminr is that in addition to building a business, it is pioneering a new science. The science is real-time information discovery, and it involves sifting through the ever-growing tidal wave of real-time public data to identify and determine the significance of breaking events by their nascent digital signatures, as they happen. Sometimes these events are well-wrapped, for example by someone witnessing an event and tweeting about it, with others providing corroboration. Sometimes they aren’t, with algorithms figuring out what is happening by seeing thousands of facets of something larger. The company has a deep strategic partnership with Twitter that makes this kind of discovery possible. 

This new science is, without a doubt, very cool. It enables one to discover news before it’s news and market-moving information before markets move. It provides a kind of X-ray vision into what is going on in the world in real-time with a filter for what is significant, and to whom. All on the basis of publicly available data.

In a period of five months, Dataminr has become the real-time wire service used almost universally by major news organizations, beating out the next best service by over an hour and discovering troves of unknown unknowns that would never have otherwise come to light. It has become adopted by the lion’s share of leading financial institutions to have access to the frontier of breaking information in real time.  

What’s also interesting is how Dataminr will change the world. In my view most industries that rely on real-time information — an ever-increasing number — will be influenced by it, and some will be transformed by it. The wave of change began in the fields of finance, news and public safety, and I think will move quickly to risk management, security and PR. And undoubtedly to other verticals in ways that are difficult to predict. I am particularly excited about what the company and its technology can do to help save lives in the fields of public safety and humanitarian assistance.  

Dataminr is in the early days of a long journey, but it is already impacting the world in significant ways, and it’s exciting to be a part of.


Are Venture Capitalists Biased Against Female Entrepreneurs?

In her article Taking a Hammer to the Silicon Ceiling, Amanda Bennett hits on a real problem in the venture industry where spoken and unspoken biases have a significant impact: it is harder for women to raise money than it is for men. However hopeful one’s outlook, this is an uncomfortable and inescapable truth that the industry should acknowledge.

What’s the reason for it? I’ve been in the venture business for 14 years, and rarely, but sometimes, I’ve seen it come from unabashed bias about women’s ability to do as good a job as men. Generally this relates to the subject of women already having or potentially having children. I’ve heard people remark: “Wouldn’t that be a big distraction for the company, and how could they possibly be as productive as men in those circumstances?” This particular kind of bias is rarely expressed in a public manner but certainly affects the thinking of some. The good news is that as younger generations of investors assume more prominent roles in the industry, I think it will substantially diminish.

More often, I’ve seen the challenges female entrepreneurs face in raising money result from a bias that is rooted in the primary way venture capitalists make decisions, which is through pattern recognition. In a private conversation, a successful west coast venture capitalist expressed the issue to a friend of mine in a backward-looking empirical fashion that was an attempt to be unbiased: “look at the numbers – most successful startups are started by men in their 20’s and 30’s; the number of successful startups founded by women is much smaller.” Yes, but most startups in any historical timeframe were started by men in their 20’s and 30’s. This doesn’t speak to the likelihood of women succeeding, particularly since a significantly larger number of women are starting companies today than in the past.

Social scientists call this logical flaw selecting on your dependent variable: determining that A is a principal cause of B by looking only at cases of B. Used as the primary lens for evaluating new investment opportunities in venture capital, it creates all sorts of intellectual distortions and inertia and is the principal reason most venture capitalists are late to promising new trends and only jump on board when there is a significant pattern of success. I think this is the cause of the biggest challenge that female entrepreneurs face in raising money. Most venture capitalists have not internalized the success of female entrepreneurs to a sufficient degree to have it influence their intuitive pattern recognition, partly due to what they perceive as a lack of a large enough n and partly no doubt due to the fact that they have not worked with female entrepreneurs directly. It was also the cause of challenges that entrepreneurs faced in raising money in a variety of pioneering new fields, from personal computers to the internet to digital animation. Success by entrepreneurs in these fields was not yet a large enough historical pattern to influence investors’ thinking.

I believe this is changing. When I look at the number of female entrepreneurs who have built successful companies over the past 20 years or are doing so today, a significant historical pattern is definitely emerging. This group is comprised of some very impressive people, all the more so since they’ve had to clear higher bars than their male counterparts. Some of their companies are already significant successes, and others are on their way. A very partial set of examples that come to mind include Judy Falkner (Epic Systems), Diane Greene (VMWare), Julia Hartz (EventBrite), Jilliene Helman (Realty Mogul), Elisabeth Holmes (Theranos), Sheila Marcelo (Care.com), Natalie Massenet (Net-a-Porter), Alexis Maybank and Alexandra Wilkis Wilson (Gilt Groupe), Miriam Naficy (Minted), Alison Pincus and Susan Feldman (One King’s Lane), Kim Popovits (Genomic Health), Victoria Ransom (Wildfire), Clara Shih (Hearsay Social), Adi Tatarko (Houzz), Lynda Weinman (Lynda.com) and Anne Wojcicki (23andMe). And many dozens of others. If one does not see a pattern there, I think it may be due to lack of awareness of the facts.

I personally believe that the magnitude of success of these entrepreneurs and their peers is precisely what will finally move the needle for the silent majority of venture capitalists stuck on historical pattern recognition, for they will represent a significant historical pattern that one would ignore only at one’s peril. It’s only when venture capitalists fear they will miss out on something big that their behavior will ultimately change. Remember all those venture capitalists who thought that it would be challenging to make money on the internet, or in social media or on mobile? Those debates have been definitively won and lost, and today everyone invests in these areas. I think that those harboring concerns about investing in female entrepreneurs, even if they won’t say so directly, will ultimately abandon those concerns in the face of significant and increasing data relating to their success.

There is another bias that Bennett mentions in her article, one that creates disadvantages for female entrepreneurs but advantages for female venture capitalists: that the venture capital industry as a whole, given that it is primarily comprised of men, is slow to recognize opportunities in female-dominated industries. The first people to see big new opportunities in female-dominated industries are generally women, and many male venture capitalists may never catch on. This can lead to a particularly significant adverse selection problem for venture firms in today’s internet world, where social media and ecommerce, to name two major fields, are both dominated by female users. I believe the large number of successful ecommerce and media startups focused primarily on female users — from Pinterest and Houzz to the Honest Company and Net-a-Porter — has now become an historical pattern of sufficient scale that it will help increase the numbers of women in the venture industry going forward (although the industry moves slowly), since they will likely be better able to spot these opportunities than their male counterparts. And this will certainly help female entrepreneurs.

For all the problems that the venture industry has with investing in female entrepreneurs, there are some investors who do care and who do support female entrepreneurs in a significant way. And often this works out particularly well for them given the biases mentioned above. In her article, Bennett asks “would a man have seen what Sheila Marcelo saw: the need for a way to connect caregivers with those who need child, elder and pet care?” Certainly much less clearly than Sheila did, but yes, there was one. I invested in Sheila the day the company was founded based on my belief in her and in her vision. I invested in Alexis Maybank and Alexandra Wilkis Wilson in the very early days of the Gilt Groupe for similar reasons. I am close to investing in my fifth female founder. I invested in these entrepreneurs primarily because they were extraordinary individuals with big ideas who understood their industries and customers extremely well, and sometimes this understanding related to the fact that they were women. I’m very glad I made these investments and look forward to investing in more female entrepreneurs in the future.

I believe that in the long term, markets do tend to be efficient, and the success of these and other female entrepreneurs will ultimately erase the regrettable biases that female entrepreneurs have to fight against today.

Full disclosure: Beyond investing in female entrepreneurs, I actually married one (in a field very different from my own). She has been the greatest source of insight and learning for me on this subject.  


A Very Cool Thing I Learned About My Dad

Every so often a family member does something significant that makes you really proud. That happened to me this week when I learned about the full details of the role my Dad played in trying to prevent regulatory failure by the New York Federal Reserve in a pretty astonishing story that was uncovered by Pulitzer Prize-winning reporter Jake Bernstein at ProPublica and This American Life and covered subsequently by Michael Lewis on Bloomberg and by the Washington Post.

The story involves a former employee of the New York Federal Reserve named Carmen Segarra who was fired for refusing to back down from her conclusion that Goldman Sachs fell short of regulatory requirements for dealing with certain conflicts of interest. Sensing that she was working in an overly deferential regulatory system that would reject her conclusions, she secretly recorded meetings that supported her case.

The most notable smoking gun quotes were from a Goldman employee who said that “once clients are wealthy enough, certain consumer laws don’t apply to them” and from a fellow Fed regulator who responded to Segarra’s surprise at this statement by saying “you didn’t hear that.”

The background for this story is that in 2009, the head of the New York Federal Reserve asked my father, David Beim, a Professor at Columbia Business School, to write an internal report on how the Fed could have missed all the incredibly risky behavior at investment banks that helped cause the 2008 financial crisis.

After dozens of interviews, he came to a conclusion that surprised him. He expected to find a failure of financial analysis, but what he found instead was a cultural failure. The NY Fed had become overly risk averse, and its employees kept their heads down, prioritized peaceful coexistence over challenging conversations and allowed institutional consensus to weaken their findings.

His report suggested a path forward, including recommendations to find more independently-minded employees and to create a culture that would enable them to speak freely, come to uncomfortable conclusions and let the truth bubble up. The Fed sought to take his advice after receiving the report and went on a hiring spree to find more outspoken people like Carmen Segarra, although as suggested by subsequent events, many cultural problems remained.

The report had been kept secret until it was released in legal proceedings relating to Carmen Segarra’s departure from the Fed. Now it is out in the open for all to read. It is, as Michael Lewis says, an extraordinary document.

What impressed me was not only that my Dad hit upon one of the core uncomfortable truths that helped create the financial crisis, but that he did so in a thoughtful, unafraid manner and refused to bend even when the Fed tried to get him to modify his report so they wouldn’t look so bad. Pressured by senior Fed officials to remove a quotation from someone he had interviewed that “regulatory capture” set in very quickly after new employees joined, he refused to do so. This was a core failure of a core institution in the U.S. financial system, and he did not want to let politics interfere with the truth.

Courage, thoughtfulness, honesty and unwavering integrity are things I’ve always admired in my Dad. If the majority of financial managers and regulators on Wall Street were made of similar material, I honestly don’t think we would have had a financial crisis in the first place.

(My Dad recently joined Twitter. You can find him @dobeim.)  #BeimReport

Postscript: The Wall Street Journal just published an article and video interview with my Dad on his report:


A Debate about the Future of NY Tech

HotTopics recently hosted an interesting debate moderated by Jeff Glueck about the future of the NY tech scene that I participated in along with Kevin Ryan, Dennis Crowley, Jessica Lawrence, Alfred Lin and Bob Goodman.

Here are the highlights. Some of the big questions we hit were:

-How is the NY technology ecosystem different than Silicon Valley?
-What are NY’s key strengths and challenges?
-Where does NY tech go from here?
-Does NY favor startups that focus on making money over big-swing platforms that defer their focus on revenue?
-In this inning of information technology, what kinds of industries are disrupted by insiders vs. outsiders?

I wish we had had more time to discuss this last question, as it is a very interesting one worth a debate or series of blog posts in its own right.


A Discussion With Some of New York’s Most Successful Repeat Entrepreneurs

Some of the most helpful advice in building startups comes from entrepreneurs who have been there and done it successfully multiple times. To try to find and highlight the best advice of this kind, we recently hosted a panel discussion with a group of New York’s top repeat entrepreneurs, including:

-Kevin Ryan: cofounder and Chairman of the Gilt Groupe, MongoDB, Business Insider, Zola
-Brian O’Kelley: founder and CEO of AppNexus, CTO of Right Media
-Fabrice Grinda: founder/cofounder of OLX, Zingy and Aucland

Together these entrepreneurs founded or cofounded 14 companies that are worth over $6.3 billion and currently employ over 3,000 people, which is a pretty astonishing statistic. They have also made over 150 angel investments in 10 continents across almost every technology sector.

It was a great discussion with a lot of wisdom on the subject of what matters most in building a successful company and key mistakes to avoid. We also had a chance to share some thoughts on the future of the New York technology scene.