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Supercell raised $130M at a $770M valuation and got a lot of press for it recently. It is well on its way to being a billion dollar game company. Also on that track are companies like Kixeye (a Lightspeed portfolio company), Kabam, and many others in the social, mobile and tablet space, joining Zynga, Riot Games, Wargaming and others who already have a valuation north of a billion dollars.

The last 5 years have seen more Western gaming startups create this much value than in the previous couple of decades. Why is that?

It’s because the last five years have seen three new gaming platforms grow from nothing. I’m not talking about a new console launch, where the incumbents from the last generation of game makers have been the winners in the new generation. I’m talking about Facebook, mobile and tablet. Each of these started as tiny markets. The incumbent game makers didn’t pay attention to the new playtforms until they were significant, the classic innovators dilemma. The early talk about games on these new platforms was very dismissive, “barely games at all”. This opened the door for startups, and in each case, startups seized the opportunity.

Today though, it is much harder for a startup to break through on any of these platforms. Development costs, and the “discovery problem”, make it very hard for a new games startup to get reliable, meaningful traction on any of these platforms. (Casino games are a notable exception in the last couple of years.)

None of these gaming platforms started out as gaming platforms. They all had other uses that initially propelled their adoption. But games are and have always been a key consumer use case, and whenever someone can play games on a device, she will.

Many of todays game startups that already exist may continue to grow to become billion dollar companies. But I do not believe that a new games startup will get to that level until we see a new mass market consumer platform get launched.

Today there are two candidates for such a mass market consumer platform. The first is Google Glass. The second is an Apple watch. Of the two, I’m much more optimistic about Glass as a gaming platform. I worry that the screen real estate isn’t big enough on a watch for games. It could end up being about utility, not entertainment. But Glass clearly has the capacity for entertainment.

What will games on Glass look like? Who knows? Certainly different from anything we’ve seen before. Incumbents will eventually port their existing hits across, but it will be startups once again who pioneer innovation in game control, game dynamics, game play, all optimized for the platform. Since Glass likely won’t be readily available until 2014, and won’t be popular for a few years after that, the incumbents won’t dedicate their best teams to building games for the platform. They will always put their A team on their biggest money spinner, whatever they grew up on.

That will be the opportunity for the next billion dollar games startup. You need to wait until Glass is readily available. You’ll build games that the industry experts laugh at when you first launch. But you’ll have mid single digit percentage of all Glass users playing, maybe more. That may only be a few hundred thousand players at first. But you’ll grow with the platform and you’ll learn faster than anyone else because you’ll have real users. And when you’re ready, I’ll be waiting, because I believe in that future.

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This week, the price of Bitcoin hit an all-time high of $266 and then a “flash crash” brought the price tumbling down to $105.  What happened?  The largest exchange Mt. Gox reported that it had seen dramatic increases in new account creation and executed trades, leading to long system lags.  At its worst, orders were taking more than an hour to execute, and panic led people to sell Bitcoin en masse.  Near the bottom, Mt. Gox then began experiencing a distributed denial of service attack (DDoS), where hackers continually hammered the exchange, hoping to cause greater system lag, thus causing an even greater sell-off.  Finally, in an unprecedented move, Mt. Gox halted trading for 12 hours as it upgraded its systems.  When trading resumed, prices were down 35% and have remained volatile – as of the time of this post they are down to around $75. This is still up 50% from where it was trading a month ago.

Some Bitcoin critics are saying “I told you so” and calling this the beginning of the end for Bitcoin, which they describe as a ponzi scheme. Mostly these folks are writing in Barrons, Forbes, and other publications, the same sort of places where people were calling Facebook a failure because prices dropped after the IPO. Silicon valley is more used to the wild swings and pivots of startups, whether companies or currencies, and takes a longer term view. Facebook built $65bn of value in 9 years, so what happened since the IPO is missing the point. Similarly, Bitcoin has grown to around $1bn in market cap in the last four years, so what happened in the last 48 hours also missses the point.

Bitcoin has had five crashes since it started, and five bull market runups before each one. Astute observers have noted that up until the latest crash, the price of Bitcoin had been doubling at an accelerating pace.  It took 21 days to double from $33 to $65, then 14 days to double from $65 to $130, and only 6 days to double from $130 to $260.  Acceleration in price increases at this rate could not have lasted more than another week, so it was just a matter of time before prices came crashing down.

It’s important to highlight that although prices have cooled off, the Bitcoin economy is alive and well.  Bitpay, a startup enabling merchants to accept Bitcoins as payment, reported that the company processed $2M in the first 25 days of March and ended the month at $5.2M processed.  Overall transaction volume continues to climb steadily. Transaction volume will always be the key driver of underlying value for Bitcoin, although speculation may run ahead of this underlying value from time to time, as it has recently.

Many in the Bitcoin community have noted that Mt. Gox’s transaction execution performance and recent downtime contributed to the volatility and panic selling. Their current trade execution time is extremely slow compared to any major marketplace – upwards of an hour or more at peak volume. Part of this is created by malicious DDOS attacks, part is due to deliberate price manipulation and scaffolding, but none of this is an acceptable excuse.  Will Mt. Gox be able to fix its operational issues before a new exchange can gain liquidity?  Growing exchanges like Bitstamp, Bitfloor, and the newly-launched TradeHill may be able to capitalize on Mt. Gox’s missteps.  But Gox still has the liquiduty today, and they understand the problems that they have to solve better than anyone. Wherever things end up, we are confident that the Bitcoin community will find solutions to these temporary setbacks and by this time next year, we’ll be seeing sub-second execution times on trades and more overall stability in the Bitcoin world.

Once we get to those sub second execution times, with the liquidity that we already see in the Bitcoin marketplace, we will have the fundamental requirements in place for merchants to be able to accept Bitcoin without taking meaningful currency risk. Once that happens I think we will see a lot more adoption of Bitcoin as a low cost payments mechanism, and this will drive the underlying value of Bitcoin up again in a much more sustainable way.

What do you think?

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I’ve been fascinated by the potential disruption that Bitcoin represents. Disruptions like this could create both massive value destruction for incumbents and massive value creation for startups, which is exactly where entrepreneurs and VCs should be playing.

I recently did a couple of guest posts about Bitcoin, one at American Banker, is a quick retrospective on the opportunities and challenges in Bitcoin. The other, at Techcrunch, talks about how much the Bitcoin market needs to grow to build billion dollar markets, and what this means for startups.

I’m excited about the potential for startups. We’ve made a couple of small investments in the ecosystem and are looking to do more. Let me know what you think.

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Over the past several years, MuleSoft has quietly emerged as one of the leaders in providing platforms for powering the New Enterprise. Lightspeed was an early investor in MuleSoft, and we’re excited to be partnered with a company that has …

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Courtesy of visual.ly. Click through to see a bigger version.

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Hyperink is an interesting startup focused on reinventing publishing in an e-book world. (We are not investors). They have published a number of great “blogs to books”, including ones from Jeff Atwood (co-founder of Stack Overflow), Sean Ellis (growth hacker …

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Last week, Lightspeed Venture Partners and the Amazon Web Services team brought together top technologists, startups, students, former Lightspeed Summer Fellows and venture capitalists to discuss how big data trends are impacting companies today. Companies like Boundary, DataStax, …

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PernixData introduces a software-defined “Flash Virtualization Platform” that aggregates and virtualizes flash storage distributed across servers into a scale-out data tier for enterprise data centers to provide low cost, deterministic high performance to any out-of-box application.

 

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The enterprise …

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Almost a year ago, my partner Barry Eggers and I met with Craig Elliott and Scott Hankins to talk about their vision for a new company, Pertino. Over a coffee in a small office in Cupertino (yes, their name is …

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When we invested in Snapchat a year ago it had a few hundred thousand installs, but incredible retention and frequency of usage. Evan and Bobby painted a compelling story of how ephemeral messaging created a more real and authentic mode …

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