Posts from August 2005

Downturns

New_orleans_1The morning paper this morning is not a pretty picture.

New Orleans is flooded.

Large swaths of the southeast are down and out.

Energy prices are spiking.

The war in Iraq shows no sign of ending anytime soon.

Interest rates are headed up.

The housing boom is showing signs of ending (finally).

We have a federal budget defecit that makes my head ache every time I think of it.

And our trade defecit shows no signs of abating.

Ugly, ugly, ugly.

And yet we’ve had an abundant supply of capital for early stage businesses for the past several years that has led to the formation of many new companies.

What if that capital supply tightens?

What if we have a recession in 2006 like many economists are now predicting?

What if risk premiums return to normal levels?

These are the questions on my mind this morning.

Fortunately, I’ve lived through a few downturns in the venture business.

The worst by far was the 2001-2003 downturn which was brought on by the burst of the internet and telecom bubbles and made much worse by 9/11.

But I started in the business in the mid 80s in the midst of the post PC bubble downturn.

And I witnessed the bursting of the biotech bubble of the late 80s/early 90s and saw how hard it was to finance a biotech company in the early 90s.

And even during the Internet boom period from 1996 to 2000, we had a period after the russian debt crisis where capital supplies tightened significantly.

We are surely going to have another of these periods at some point, and given my read of this morning’s paper, I am concerned that it might be just around the corner.

So what to do?

First, remember why you made your investments in the first place.  Go back and read the investment memos.  If your thesis remains sound, don’t panic.  If you had no thesis and were doing momentum investing, you’ll probably have your head handed to you and you deserve it.

Second, talk to your companies. Make sure they have a plan B for their capital needs. 

Third, talk to your co-investors.  Make sure they still believe in the company and are going to be supportive.

If all of these factors are postive, then keep your head down and execute.  Deals will take longer to close.  People will become risk adverse.  Plan accordingly.  If you need to slim down, do that.  If you need to put off that big 10 year lease, do that.  In fact, do that no matter what the situation is!

Downturns can be a period of incredible opportunity. 

I look at the Flatiron portfolio and the companies that hunkered down and built businesses in the 2001-2003 time period came out of that experience with some amazing businesses.

It takes tenacity, skill, experience, and facing up to hard decisions when the downturn hits.

It is probably a good time to take measure of your company, your team, and your plans to make sure you are prepared for the downturn.  Because its going to come at some point.

VC Cliche of the Week

I am going to take advantage of Brad Feld’s post on the world play for this week’s cliche.

I am not sure it is technically a cliche but it’s a phrase you hear all the time in the venture business.

People will say, "we need an RSS play"

Or "VideoSense is our video advertising play"

Entrepreneurs will blurt out during a pitch, "think of us a play on the intersection of wifi and mutiplayer gaming".

This terminology is a sympton of a disease that the venture business suffers from.  That is the disease of always needing to be invested in the latest and greatest big thing.

There are some investors who subscribe to the theory that you need exposure to all the big investment themes.  These investors tend to be very transaction oriented and build and manage (I am using that word generously in this case) large portfolios.

We don’t subscribe to that theory at Union Square Ventures.

We subscribe to the theory that you need a well thought out and sound investment thesis and you need to find a small set of interesting companies that should benefit if your thesis turns out to be directionally correct.  We believe that small is better and that active management of a small portfolio is the best way to generate exceptional returns.

We most likely won’t have a China play in our portfolio even though China is possibly the most interesting investment theme right now.

We most likely won’t have an energy play in our portflio even though energy is a very investable area right now.

Frankly we don’t want any plays in our portfolio.

We’ll take a few really smart entrepreneurs who we can help build great management teams and great businesses. 

That’s our only play.

Portastatic

Bright_ideasEarlier this summer, The Gotham Gal read a story about   Mac McCaughan and Merge Records in the NY Times.  If I could find the article on the web, I’d link to it, but for some reason I can’t.

She went to Rhapsody and listened to the new Portastatic record, Bright Ideas, and told me it was great.  Portastatic is one of Mac’s bands, the other being Superchunk.

We didn’t pay enough attention because we moved on to other stuff.

Then we got into M. Ward, who is also on Merge Records.

And Raj, who is rapidly joining Chervokas on my music guru list, also had Portastatic on his listening list.

All it takes is three of four mentions to get my attention and so I’ve been listening to Bright Ideas a lot in the past couple days.

This is a great record.  It rocks pretty hard, but its the songwriting that makes the records so special.  I honestly don’t think there is a bad song on the entire record.

Here is the link to bright ideas on Rhapsody.

Or you can buy the record at Amazon.

Mac played a free live acoustic show last night in NYC at Other Music. 

I sure wished I’d been there to see that.

Positively 10th Street

Our new weekly podcast is up.

This one got pretty hilarious as the kids are getting bored with summer vacation and let us hear about it live and in color.

We also were treated to a critique of the fall fashions by Joanne and Jessica.

Here’s The Song List:

Joanne’s Song – My Boyfriend’s Back – The Raveonette’s
Josh’s Song – Rock and Roll All Night – KISS
Emily’s Song – Kingdome Come – Coldplay
Jessica’s Song – Happy Kid – Nada Surf
Fred’s Song – Hi-Fi – M. Ward

Listen Live Here.

To listen in iTunes or on your iPod, get iTunes v 4.9, then select Advanced, Subscribe to Podcast, and then enter this into the box:

http://feeds.feedburner.com/Positively10thStreet

DRM Doesn’t Scale

In the world of technology, geeks, and hackers, saying something doesn’t scale is one of the worst things you can say.

But in the case of DRM, it’s true and it’s time to admit it and move on.

We (the wilson family) are moving very quickly to a peer to peer archicture in our home music setup.

About five years ago, I decided to create an all digital system for playing music at home.

It was based on a central server architecture and we selected the music servers from Request Media (formerly Audio Request).

We connected these servers to a multi-room audio system and we control them with a combination of crestron panels, java clients, and web browsers throughout our home.

After having that system for a couple years, we decided we wanted it at our second home at the beach.  So we took one of the servers out to long island and connected it to our house in the city via our cable modem internet connection so it could synch with the main server.  It was simple to do.

We control that server with our TV set, java clients, and web browsers.

We have been buying CDs, ripping them onto our servers, and then putting the CDs away for posterity for the past five years and its worked great in both homes.

But in the past year, the music has been migrating off of the servers onto the growing array of computers we have in our homes.  There are a ton of reasons for it, but I think the main one is the emergence of the iPod as the way everyone wants to listen to music outside of the home.

So each of us, including our kids, have iTunes on our computers, and an iPod that we synch to.  We pull the music off the servers and onto our computers.

And now, at an ever increasing rate, we buy music directly from iTunes onto our computers, bypassing the Request servers completely.  That is a big problem that I have not come up with a good soultion for since Request can’t deal with the DRM that iTunes uses.  We often end up buying music two or three times, a couple times via iTunes (multiple people) and then we buy the CD to get the music onto our servers.

iTunes has a music sharing service built into it so we’ve started connecting to each other’s computers and sharing music with each other, again bypassing the Request servers.  That tends to limit the number of times we buy a song on iTunes, but since there’s no single directory for all of our shared music, it doesn’t solve the issue completely.

And then last spring, I connected a low end Dell PC which runs two applications, iTunes and Rhapsody, to the music systems in both homes.  And using the music sharing services, we can play music anywhere in either home that resides on any computer.

Although we still use the Request servers to play music, we are using them less and less and I see a time coming when we won’t use them at all.

So how is this related to DRM and the scaling issues?

I recently got the Gotham Gal a new Mac mini for her office.  I signed her up for iTunes and configured it to use the same account everyone uses.  She bought some music and when she went to play it, she got the message that the account can only serve 5 users.  So she bought the music, paid for it, and she can’t even play it on her own computer.  That’s the DRM wreaking havoc on our home music system.

In the central server architecture, we bought the music once on a CD, put it on the central server, and then were able to play it in any room in our two homes.  That makes sense.

In the peer to peer world, with DRM working behind the scenes, we end up buying the music several times, and then can’t play it on every computer we own.  That doesn’t make sense.

So maybe they should up the DRM limit to 10 users?  That might work, but we’ve got close to 10 computers in our two homes when you include the two dedicated machines we use to play music, the five computers (one for each person), a kitchen computer, and shared machine in our beach house because not everyone has a laptop to bring with them. 

What if we get a couple more laptops? 

When is enough enough? 

What if we get a few more dedicated music computers so we can play different music in different rooms in the house?

After thinking about this problem for the past couple months, I think its pretty clear that DRM doesn’t scale.

What we need is music dial tone.

Then DRM can scale.  Either you have the dial tone or you don’t.  It will be that simple.

Until then, we are going to be fighting an every increasing battle with complexity that is going to hamper the migration from the analog music business to the digital music business.  And that sucks for everyone who loves music.

MP3 of the Week

LipsThe Rolling Stones have been front of mind this past week.

First, I spent a lot of time last week listening to 60s Stones and that resulted in my final top 50 post.

And the Stones are on tour again and I got a glimpse of their Fenway Park show.

Then Chervokas, one of my main blog/music gurus, turned me on to the fact that some of the music from the new record is available online.

I am not sure how Mick feels about that, but frankly I don’t care about too much about it.  I’ve said my piece on the online music thing and here is my MP3 posting policy for anyone who wants to read it.

What I do care about is the setlist for the Giants Stadium show on Sept 15th, when the Gotham Gal and I are going to take the kids to see the greatest rock and roll band of all time.

And specifically Mick and Keith, if you do by chance read this, please play Rain Fall Down.

Because after listening to the all of the music from A Bigger Bang that I can get my hands on, the one song I can’t keep off the airwaves in the Wilson house, car, and iPod, is this funky groovy track.

Last night, as we were headed home with the top down, wind in our hair, we cranked Rain Fall Down and everyone in the family was singing along and digging that classic Keith Richards riff that runs through the entire song.

So with that, probably the biggest buildup for any MP3 of the Week track to date, here is Rain Fall Down.

I hope you like it because I sure do.

The Death of a Web Service (continued)

A couple weeks ago, I blogged about the potential death of a web service called Bloglet that I use to manage my email subscriptions to this blog.

Bloglet has been working, but barely, and I’ve found a good replacement.

It’s called FeedBlitz and it works almost identically to Bloglet.

If you look carefully at the Subscribe field at the top left of this blog, you’ll see that it has changed a tiny bit and that it is now powered by FeedBlitz.

If you don’t subscribe to this blog by email, that’s the only change you’ll ever see.

If you do subscribe by email, you are going to get a different looking email every morning.

It will include the entire blog post so you do not need to click thru to the web to read my posts.

I have mixed feelings about that and would encourage you to click thru and read on the web if that’s what you like to do.

But if you’d rather read in the email, that’s fine with me too.

FeedBlitz uses any RSS feed I choose and since I chose my Feedburner feed, you’ll now see Google RSS ads in the daily emails.  I wish these ads were more effective but they are not that relevant.

If there were something better, I’d be happy to switch that too.

FeedBlitz has a great Bloglet import feature so if you signed up to get my blog emailed to you with Bloglet, you’ll now automatically get it from FeedBlitz.

I have two requests for those readers who get the blog via email

1 – if you don’t get it starting tomorrow from FeedBlitz, please let me know.  You can comment to this post or send me an email.

2 – If there is anything you don’t like about the new emails, let me know. I can change them pretty easily and will if I get any consistent feedback encouraging me to do that.

That’s it.  I hope you like the new service.  And I hope this one doesn’t die on me.

This Man Is A Pawn

Crawford_1On Friday, the food and drug commissioner, Lester M. Crawford,
announced that he would indefinitely postpone a ruling on Plan B, the
morning-after pill made by Barr Laboratories.

The law states that the Food and Drug Administration was required to reach a decision on Plan B eight months ago, last January.

But instead we’ve gotten nothing by delays.

The following is from the New York Times today.

Dr. Crawford said Friday that the F.D.A. would seek public comments
over the next 60 days on whether it had the authority to approve Barr’s
application and whether it could enforce any regulation that would stop
girls younger than 17 from buying the pill freely.

Here is my public comment Lester:

This pill, which does not abort a pregnancy, but simply stops one from happening, like the birth control pill does, should be available over the counter.  In fact, it should have been last January.

UPDATE:  Jason Chervokas writes in his excellent comment to this post:

What exactly is the compelling states interest in making sure that the
fertilized eggs of 16 year old girls implant on uterine walls?

No sex
without pregnancy, seems to be the goal.

Sure does Jason.

M. Ward

Transistor_radioI just added M. Ward’s Transistor Radio to my Heavy Rotation list becaue I can’t stop listening to this amazing record.

Raj Bala turned me on to it with his top 10 list a couple days ago.

And since then I must have listened to it three or four times.

I really don’t know how to describe this record.  It’s a bit like Tom Waits I guess.  And a bit like The Eels. If you like either of them, get this record.

If you have Rhapsody, then here’s the link to Transistor Radio.

If you have iTunes and are willing to spend three or four bucks, check out songs like:

I’ll Be Yr Bird
Here Comes The Sun Again
Fuel For Fire
Hi Fi

Or if you are willing to spend 10 bucks, just download the record and get groovin’ with M. Ward.