Posts from September 2007

In our home, Amazon is the equivalent of the shopping mall. I was playing golf with Josh last weekend and he said he wanted to buy some golf balls. I told him he should pick out his favorite brand and buy a case of them. His reply was "I’ll go on Amazon when we get home". That’s the way it is in our home.

And today, we got to add digital downloads of mp3s to the list of things we can buy on Amazon. It works just like eMusic. You install a small "downloader" on your machine and after that the experience is just like buying anything else on Amazon. You can check out via One Click and within minutes all the files are on your laptop, in mp3 format so you can play them wherever you want, including a Sonos system.

I bought my first record via download on Amazon today. Challengers by The New Pornographers. We’ve been listening to it on Rhapsody and the kids want it on their iPods and I want it on Sonos. It’s not on eMusic and it’s not on iTunes in non-DRM format yet. But Amazon has it the way I want it. Awesome.

I love Amazon just a little more today.

I said I was going to join Covestor and build a public stock portfolio. I did that over the weekend. And I am down 1% already. Public market investing has never been my thing, but I am in this now and I’ll stay at it for a while.

I’ve added the Covestor widget to the right sidebar of this blog (appropriately right next to the Gaping Void cartoon of the day). So you’ll be able to see how I am doing every time you come visit this blog.

And you can follow me on Covestor and even track my trades if you want to get notified every time I trade. These are real trades. Covestor is linked to my E*Trade account. So this isn’t fantasy stock picking, it’s the real deal.

I got an email yesterday alerting me to the fact that my friend Mark sold Google. I don’t own Google so that didn’t impact me that much. But it’s interesting nonetheless.

If you like to buy and sell stocks and are interested in doing that in a social way, join Covestor and let me know your account and I’ll follow you.

I had a funny exchange with Steven Johnson, founder and CEO of our portfolio company outside.in last week. He saw my post about the email address book rankings in Xobni and wanted to know where he ranked. It turned out he was #29 which is pretty high considering that outside.in is the smallest investment we have (by amount invested) in our entire portfolio.

That led me to a simple analysis. I took all of our active portfolio companies (both Flatiron and Union Square Ventures) and I looked at the CEO’s Xobni rating and built a simple spreadsheet table comparing that ranking to the amount of capital we had invested in the company. There was no correlation.

Now you can say that is stupid. We should be consciously giving more attention to the companies where we have more financial upside and more capital at risk. I suppose that is true, but in my experience over 20 years doing this business, that’s not how it works.

VCs pay attention to companies for several reasons:

1) The company is in trouble. I’ve heard many investors say "if you don’t hear from me, it means you are doing just fine on your own". I understand that approach but I try not to take it myself. But one thing is for sure, when a company is struggling, we certainly do our best to help them get through it.
2) The company is killing it. If I was an investor in Facebook for example, I’d be spending as much time on that company as I could. I am sure that the VCs from Accel, Greylock, and Peter Thiel are doing exactly that.
3) The company is just getting going and needs help figuring out its strategy, building its team, etc. The funny thing is that the ratio between attention and stage/capital invested could actually be reverse correlated, meaning that the VC pays more attention when there is less capital invested.
4) The company is interesting to the VC. You can read this blog and know where my mind is. And as much as I hate to admit it, when my mind is focused on something, that’s where my attention goes as well.

There’s another factor which I’ll call the entrepreneur’s ability to engage the VC. There’s a reason that Steven is number 29. He has a great way of including me in company conversations via email and face to face. He doesn’t look to me to sign off on his decisions, but he does look to get my input. He is roping me into the company. Dick Costolo, who is still in my top 20 email relationships even though FeedBurner is now owned by Google, was also a master at that technique.

Not all entrepreneurs want or need to engage the VC in that way. And that’s fine. We have one company in our portfolio that has made most of its decisions without our input and has the best financial profile in our portfolio right now. So there is no rule that says you must engage your VC to be successful.

But if you want to get more attention from your VC than you are currently getting, and you don’t want to get that way by struggling, then you should find ways to rope them into your internal discussions. I personally think email is the best way to do that even though it’s a terrible medium for a thousand reasons.

I was in a board meeting several weeks ago and we were discussing the company’s top priorities. The CEO pointed out that the top priorities were on the company wiki, which is fantastic. But unfortunately, not one of the board members had read the company wiki before attending the meeting. Another truth about VCs is that they are attention constrained for the most part. And they will most likely read information that is pushed out to them, and they are less likely to go find it on their own. That’s why email is best.

Getting attention from your VC means giving them attention. It’s like any relationship. There are no one way streets. And it takes work. But if your VC can help you and you want the help, you have to rope them in.

Back in late June, Jason Kottke wrote a oft quoted post called Facebook is the new AOL. In that post Jason argued that building apps for Facebook’s platform isn’t much different than building apps on AOL’s Rainman platform back in the mid 90s.

I am not sure I totally buy Jason’s argument, but he certainly put out a point of view that was important in the ongoing debate about the value of building Facebook apps.

But today we saw that Facebook is certainly copying parts of AOL’s playbook. Back in 2005 (seems like so long ago now), AOL ran an auction between Google and Microsoft to be AOL’s new search partner. Microsoft had the inside track early on in the negotiations according to friends of mine who were involved. But Microsoft got hung up on parts of the deal, and Google caught wind of the transaction and used their money and incumbent position to steal it away from Microsoft and placed a $20bn valuation on AOL by investing $1bn for 5% of AOL.

So the news that Facebook is talking to Microsoft about buying 5% of Facebook for $500mm seems like deja vu all over again (to take a great line from Yogi Berra). The 5% number is the same. The billions of dollars of valuation is the same. The fact that Microsoft is the incumbent this time may mean this plays out differently. I’ll bet that Microsoft wins the deal and that Google’s in it to play the spoiler more than to win this deal.

The news last week that Google is readying a Facebook competitor could prove to be an interesting factor in this  process. Would Facebook take an investment from a company that is planning to compete with them? That’s certainly not the definition of an ideal partner but stranger things  have happened.

I think the valuation, which many are focusing on, is not the issue to pay attention to here. The $20bn valuation that Google paid for AOL wasn’t a real price and the $10bn valuation (or more or less) that is being discussed isn’t real either. By "unreal" I mean that it’s unlikely that financial investors would pay that price or that anyone would pay that much to buy the entire company right now.

But the strategic partner that Facebook takes money from will be important as it continues to develop its business. That’s the part of this process that bears watching.

Dave Winer has some good thoughts on why Twitter and Netflix should get connected. I agree completely.

Last week Hugh twittered that he had joined Dopplr. I had to surf over to Dopplr, find Hugh, and ask to follow his trips.

That should have been possible right from Twitter.

The web is going social but the interops aren’t there. We have to build them.

I ask this question because the Boston Globe asked it in a piece in yesterday’s paper. The answer depends first and foremost if you are comfortable blogging and are willing to make the commitment to do it often and do it well. If you are uncomfortable with blogging or are unwilling to commit to it, then the answer is no, you should not blog.

My views on the the subject are pretty well outlined in the piece. The journalist who wrote it, Scott Kirsner, had an email conversation with me. I told Scott the following:

[Blogging is] a huge benefit to our business. Of course it brings
incremental deal flow, but it also filters the deal flow and makes it
more targeted and more relevant

Its also a great way to bring needed attention to the companies we invest in

And its a way to do research on new sectors and learn about other companies that compete with our companies

And
its a great way to learn about emerging technologies. Check out the
comments to my andreessen post yesterday or my post on AIR last week.
You can’t buy that kind of education and I get it every day for free

I could go on and on. Its the best tool for vc investing that I’ve ever seen and I’ve been in this business for more than 20 yrs

My favorite quotes in the Globe article come from my friends Woody Bensen and Charley Lax. Woody says:

Woody Benson of Prism VentureWorks says the Needham firm has spent
years gaining venture capital experience, "something that we call our
intellectual property."

"Our goal is to share that in the
confines of the meetings that we have with our portfolio companies and
potential portfolio companies," he says.

That, to me, is the defining argument for and against blogging. There are those who think the best way to manage your "intellectual property" is to hoard it for yourself. There are others who think that intellectual property should be shared, developed out in the open, and that it will grow exponentially. I am in the latter camp. In fact, that is my worldview on almost everything, as readers of this blog well know.

Charley Lax’ quote is classic Charley:

Charley Lax, managing general partner of Grand Banks Capital in Newton
Centre, says the limited partners who put their money into venture
capital funds think blogging is "stupid. They want you to be working on
your portfolio companies and looking for the next great deal."

You can spend you time in the venture business worrying about what your limited partners think or you can focus on your true clients, the entrepreneurs and the companies they create. I prefer to do the latter and I think blogging helps enormously in that effort.

I don’t think there’s a right and a wrong in the "should VCs blog" debate. It works for me and it works for our firm. And I couldn’t imagine doing this business anymore without a blog.

We went to see Across the Universe last night. For those who don’t know, it’s a movie about the 60s using the Beatles’ music as the soundtrack/backdrop.

I liked it but didn’t love it. There were many in the theater who did love it. We couldn’t leave until all the credits had rolled because our entire row was sitting mesmerized as Lucy In The Sky With Diamonds played to a psychedelic background. Most of the audience was 10-15 years older than me. And it seemed that everyone of that generation absolutely loved it from the chatter in the theater on the way out.

There were some great cameos, the best of which was Bono as Dr. Robert singing I Am The Walrus.

My favorite scene/song was Happiness Is A Warm Gun. But it’s always been the "john songs" that got my juices flowing.

Happiness Is A Warm Gun – The Beatles

A big theme at TechCrunch 40 was social/web financial services. Mint and Cake launched there and Mint came away with the top prize.

To many, it seemed that these two companies were the first movers in their respective market spaces. But that is far from the case. In the case of Mint, there are at least three services already in the market, Wesabe (which Union Square Ventures is an investor in), Geezeo, and Buxfer. The social investing market is even more crowded with dozens of companies trying to become "a social Bloomberg".

The twist that Cake brings to the social investing field is that they use real transactions to build your profile by accessing your online trading accounts. Again, they are not the first to do this. A company out of the UK, called Covestor, has been doing the same thing for the past six months and has built a large network of traders who are sharing real trades with each other. My friend Rikki started Covestor and my friends Mark and Howard (both great public market investors) are angel investors in the Company. At this point I do not have any involvement with them.

I’ve joined Covestor and set up an E*Trade account to invest a little money in the market (not something I do very well so I am keeping it small). I’ll probably put a widget on this blog to showcase how I am doing and you can follow my trades. I hope I don’t embarrass myself.

An update to disqus prevented new posts from having
comments. It is now working again.