Technology

You can tell a lot about whatgoing on in a home from how much electricity itusing — especially when that information is collected every few minutes and recorded centrally. Itrevealing enough that a federal judge has ruled that people with smart meters have a reasonable expectation of privacy and as such law enforcement will require a warrant to acquire that data.

It may sound like a niche win in the fight for digital privacy, and in a way it is, but itstill important. One of the risks we&ve assumed as consumers in adopting ubiquitous technology in forms like the so-called Internet of Things is that we are generating an immense amount of data we weren&t before, and that data is not always protected as it should be.

This case is a great example. Traditional spinning meters are read perhaps once a month by your local utility, and at that level of granularity therenot much you can tell about a house or apartment other than whether perhaps someone has been living there and whether they have abnormally high electricity use — useful information if you were, say, looking for illicit pot growers with a farm in the basement.

Smart meters, on the other hand, send exact meter readings at short intervals, perhaps every 15 minutes, and these readings may be kept for years. With that much detail you could not only tell whether someone lives in a house, but whether they&re home, whether the fridge has been opened recently, what room they&re in, how often they do laundry, and so on. The fingerprints of individual devices on the houseelectrical network aren&t that difficult to figure out.

To be sure this can help the utility with load balancing, predicting demand and so on. But what if the government wants to do more with it, for example to establish whether someone was home at a certain time in a criminal investigation

A group of concerned citizens sued the city of Naperville, Illinois, which mandated smart readers several years ago, alleging that collection of the data was unconstitutional as it amounted to an unreasonable search.

An earlier court decision essentially found that by voluntarily sharing electricity consumption data with a third party, residents surrendered their right to privacy. No privacy means itnot a &search& to ask for the data.

But as the 7th Circuit pointed out in its ruling on appeal (hosted at the EFF), there isn&t really a third party: the city collects the data, and city authorities want to use the data. And even if there were, &a home occupant does not assume the risk of near constant monitoring by choosing to have electricity in her home.& So it is a search.

Collecting the data is not an unreasonable search, however, when it is done with no &prosecutorial intent,& the court ruled. That means that when the city is acting in its own interest as far as administrating and improving the electrical grid, itperfectly reasonable for them to collect this information without a warrant.

But should it be required for more than that, for instance in a criminal investigation, a warrant would certainly be required.

This distinction is important and not always observed. Systematic collection and analysis of metadata can produce remarkably detailed records of a personmovements and habits, and it can be difficult to find and plug the holes by which that data pours out of protected containers like the Fourth Amendment.

Although itpossible that this could be appealed up to the Supreme Court, it seems unlikely as this is not a major issue of free speech or government access. A warrant for electrical usage is rarely, one presumes, a matter of life or death, but could indeed be critical in a court battle — for which reason requiring a warrant is not an unreasonable requirement.

It seems more likely that the city of Naperville, and others in its position, will abide by this decision. Thata win for your privacy and a foot in the door for other data collection practices like this one.

On August 16, Xiaomi celebrated the seventh anniversary of the release of its first phone, and the eighth anniversary of MIUIlaunch. As an early investor in Xiaomi in spring 2010 and a former board member of the company, I attended XiaomiIPO in Hong Kong on July 9. I felt nostalgic and grateful, and marveled at how much Xiaomi — which seemed like a crazy idea to many back in January 2010 — has achieved over the past eight years.

Xiaomibusiness model is not the easiest to appreciate if you have never tried its products. Its holistic value proposition doesn&t have an easy equivalent in the US.I frequently get asked questions about how the company works and what justifies its valuation for each round over the years. Heremy take on the five most asked questions:

1. Why is Xiaomi an &Internet company& Isn&t it just a manufacturer of cheap smartphones with really low margin

At first glance Xiaomi may seem like a hardware company, which traditionally has lower gross margins. But if you look at the company as a whole and how it engages with users, itmuch more & itan Internet company.

It is true that around 70% of Xiaomirevenue comes from smartphones, 20% comes from connected devices and lifestyle products, and 10% comes from Internet services in 2017.Yet, you can actually think of smartphones as Xiaomicustomer acquisition tool for its Internet services.

Once users get a taste of Xiaomi through its smartphones, they fall in love with the brandsuperb design, ease of usage, quality, and amazing price-to-performance ratio, and are more likely to buy a Xiaomi smart TV next, then Xiaomismart home appliances, and finally use Xiaomiapps. Over time, XiaomiInternet service revenue will grow more rapidly than most people think.

As of March 2018, Xiaomi already had 38 apps with more than 10 million monthly active users, and 18 apps with more than 50 million monthly active users, including the Mi App Store, Mi Browser, Mi Music, and Mi Video apps.Rather than paying search engines to acquire users, Xiaomi is essentially getting paid for acquiring users through selling its smartphones. This allows Xiaomi to have a negative CAC (customer acquisition cost) for its Internet services.

Another under-appreciated pillar of Xiaomigrowth is its &ecosystem strategy.& Xiaomi strategically invests in many startups as well as the many Internet services providers they work with, both in China and outside of China.Companies in the Xiaomi ecosystem include SmartMi (air purifiers), Zimi (power banks), Huami (Mi bands), Chun Mi (rice cookers), and 80-plus more.

Thanks to these prolific investments, you can find a wide variety of products in any Xiaomi store, from scooters to ukeleles (see below). As a result, every time consumers visit a Xiaomi store, they can find something new, and the frequency of store visits is a lot higher than typical smartphone brands, even Apple.

Xiaomiusers are often loyal to the brand because there are so many great Xiaomi ecosystem products consumers can buy. Over 1.4 million users already own more than five connected Xiaomi products (excluding smartphones and laptops).The rising middle class in China and other emerging markets trust, embrace, and identify with the Xiaomi brand & similar to how Muji and Uniqlo from Japan are loved by consumers worldwide. Overtime, as more users become &Mi fans&, XiaomiInternet service revenue will grow, but there is a lagging effect, which many public investors don&t fully appreciate yet.

In addition, Xiaomi also invests in Internet service providers. It then preloads their content into its own apps, or preloads their apps into its own phones and smart TVs. For example, within the MiVideo app, you can access content from top Chinese video platforms likeiQiyi and Youku Tudou, because Xiaomi was an investor in these companies.Xiaomi shares advertising and subscription revenue with these platforms, allowing it to rapidly grow its revenue from Internet services, which have extremely high margins.

• What key factors made you want to invest in Xiaomi In your opinion, what was the biggest risk about this investment

I have known CEO and founder LEI Jun for almost 10 years. We first met when he became an angel investor in early 2008. When Lei Jun first told me about his idea for Xiaomi in January 2010 in Beijing,I listened to his pitch (there wasn&t even a PowerPoint) and it took about 90 minutes before I decided to invest. He used five arguments to convince me.

1. In the next 10 years, smartphones will replace laptops as the dominant way people interact with technology.
2. He believed that listening to consumers& feedback and iterating on products rapidly based on that feedback are essential for success, especially for building customer loyalty. This is a different approach from the one that Apple, HTC, Samsung, Motorola, Nokia, etc. had at that time. He wanted to build a phone that is Android-based but with a localized wraparound &MIUI& so that users will feel itan OS that listens to them and can grow with them.
3. Internet companies have high margins and therefore are less likely to fully commit to a low margin business like hardware. Think Google and Amazon.
4. Ensure the price of the hardware is as low as possible so the company can grow market share and users. Sell the phones online, direct-to-consumer, bypass the middlemen, and past the enormous cost savings to consumers.Overtime, the company will monetize on Internet services.
5. Build a world-class team that has a combination of overseas returnees and locals.

The team he assembled was the only one that had experience in four out of the five areas that I considered to be critical to the success for his &triathlon model&:

1. E-commerce (via his second startup Joyo.com, which was sold to Amazon in 2004),
2. Software (via Kingsoft, where he was the CEO)
3. Internet services such as online gaming (via Kingsoft, where he was the CEO).
4. Online brand building (via the startup Vancl, where he was an angel investor)
5. Smartphone design (this is the area where his initial team did not have direct experience, but I was confident that he would hire the best talents in smartphone design given his 1 million Sina Weibo fans in 2010)

No one else had all these skills under one roof. This is why I thought Xiaomi might have the chance to do something very special.

However, for anyone who passed on Xiaomi early, it was very a reasonable and logical decision.In the history of mobile phone companies around the world, no startup had ever been successful. Some even predicted that for Xiaomi to succeed, Motorola, Ericsson, and Nokia would all have to fail. In 2010, that seemed a crazy idea. But the rest is history.

• What do you think of Xiaomiinternational expansion strategy

Xiaomi did a great job in recruiting Hugo Barra, who was formerly an executive at Google Android, to join themas Head of International in 2013. Hugoexperience lent credibility to Xiaomi, as he became the international face of the company for the next three to four years. He also recruited several young executives and country managers, mostly in their late 20s or early 30s back then, many of whom were first-generation Chinese Americans or Western educated immigrants. These executives have helped Xiaomi become a global company, and they all have a bright future ahead of them with more responsibilities to come. Itreally important to hire the right head of international and country managers to make it work.

Conversely, when US companies go to China, itharder to hire young millennials to spearhead the China business because the Chinese Internet space is a lot more difficult to navigate. But as there are more and more Gen Z and millennial consumers in China, American and international companies can take more chances, recruit young entrepreneurs to join them, and form an advisory board of industry veterans and investors around their China initiative.

• How can Xiaomi expand into the US, given Huawei and ZTEtroubled relationship with the US government and the recent trade tensions betweenthe US and China

In my opinion, the US market is not an immediate priority for Xiaomi today. Emerging markets, which include India, Southeast Asia, Eastern and Southern Europe, and Latin America, represent much bigger and immediate opportunities.

Xiaomi is already in 74 countries today. In the first quarter of 2018, over 36% of Xiaomirevenue came from markets outside of China.According to IDC, in Q4 2017, Xiaomi was among the top five smartphone brands in terms of unit shipments in 15 countries, including India (No. 1), Indonesia (No. 2), Russia, Poland, Greece, and Israel.Xiaomi also has plans to double down on markets in Latin America such as Mexico.

Why is this significant Allow me to share a historical lesson. When Yahoo! Invested in Alibaba (another GGV portfolio company) in 2005, the world had 1 billion Internet users. Now, the world has 3.5 billion Internet users. Over the last 13 years, Alibabavaluation increased 100 times from $5 billion to $500 billion. The fact that China was the fastest growing market for Internet users during this period, coupled with Alibabaamazing ability to execute, turned the company into a growth miracle.In the next 12-13 years, the world will most likely grow to 5 billion Internet users. The worldnext 1 billion Internet users that will come online in the next decade & via affordable but high-quality smartphones & are outside of the US. They are in the 74 countries that Xiaomi is already in today.Going forward, Xiaomi is very well-positioned to take advantage of the next phase of growth through selling hardware, software, and bundled Internet services, as well as by investing in partner companies in those countries.

• What do you think of XiaomiIPO price

I think Xiaomi is undervalued at HK$17 per share. Xiaomiwas the worldlargest tech IPO since Alibabain 2014 and it has a relatively complicated business model, so it might take time for public investors to understand and appreciate. I believe Xiaomi will deliver performance that beats expectations going forward.

If you look at the IPO price of HK$17 a share, Xiaomi was valued using a revenue multiple of 10x for its Internet services (a discount to Alibaba and Tencent), and 2x for its hardware-related revenue (an average multiple for one of Chinafavorite brands), based on the 2017 numbers. So there is still a lot of potential for upside both in terms of operational growth and multiple expansions. I remember when Facebook went public in 2012, its share was priced at $38 and its first day of trading ended at $38.23. Obviously, six years later, Facebook is now worth about five times its valuation at IPO. Similarly, therea lot of room for Xiaomi to grow.

I&d like to give a shoutout to other major early investors in Xiaomi, including Richard Liu of Morningside Venture Capital, Tuck Koh of ShunWei Capital, and Yuri Milner, Shou Zi Chew (now XiaomiCFO) of DST Global. Their continued support has been instrumental to Xiaomisuccess.

For more on our take on Xiaomi, listen to the latest episode of the 996 Podcast where we discussed XiaomiIPO and an earlier episode of the podcast where we interviewed Xiaomicofounder Lin Bin. You can find the show on Apple Podcasts, Overcast, Spotify, or SoundCloud. Just search &996& wherever else you listen to podcasts.You can also watch Hans discussing Xiaomi on CNBC and Bloomberg, or read his previous TechCrunch article &Xiaomi on Its 5^th Birthday.

To reach Hans and Zara directly, join the 996 listeners& community via WeChat/Slack at 996.ggvc.com/community

They also run a biweekly email newsletter on tech trends in China. Subscribe at 996.ggvc.com.

The Sill, a startup that sells potted plants online and in physical stores, announced this weekend that it has raised $5 million in Series A funding led by Raine Ventures.

The company was founded in 2012 and has now raised a total of $7.5 million. It was bootstrapped until last year, when it raised seed funding from Brand Foundry Ventures, Halogen Ventures, BBG Ventures, Tuesday Capital, Blueseed and The Chernin Group. (BBG Ventures is backed by TechCrunchparent company Oath.)

That seems like a long time for a startup to go without outside funding, and indeed, CEO Eliza Blank acknowledged that she &probably waited too long to go out and raise.& Still, she said those first few years also gave her time to find the right business model (like focusing &exclusively on the direct-to-consumer business,& rather than selling to offices as well).

And while iteasy to group The Sillamong all the startups using the internet to build a consumer business around a traditional category of retail, Blank said her vision is bigger than &just putting plants online and being another direct-to-consumer brand.&

After all, there are plenty of people (myself included) who are interested in owning plants but don&t really know how to care for them properly. And our casual interest level probably isn&t going to get us to the local horticultural society to learn more.

Blank said she founded the company in response to her own experience wanting to buy plants, and realizing how limited the resources were for learning &how to approach the category as a newbie.&

So The Sill doesn&t just sell you a plant (along with basic care instructions). It also allows you to ask questions of the companyplant experts — and with the opening of its first brick-and-mortar stores in New York City, it also offers weekly workshops.

&We have a much longer relationship than a typical transaction business,& Blank said. &Making the purchase is almost like the start — or maybe the middle — of a conversation.&

The company says it sold more than 75,000 products in the last six months, with sales up 500 percent year-over-year, and anticipated revenue for the year of more than $10 million.