Posts from February 2010

Own Your Online Brand

This past friday afternoon, I joined David Karp, founder/CEO of Tumblr, Dennis Crowley, founder/CEO of Foursquare, Aaron Earls of New Media Strategies, and Chris Grosso of NBCU at the MBA Media and Entertainment Conference to talk about social media.

This is a yearly event that brings together MBA students from Duke, Wharton, MIT, Columbia, and NYU who are interested in working in the media and entertainment sectors. 

At one point in the panel discussion, we got a question about how these MBA students should use social media in their job search. The woman asking the question specifically wondered how prospective employers would react their Facebook pages and Twitter feeds.

David Karp gave an interesting answer. He acknowledged that you have to be careful what you post to Facebook and who you “friend” and how you set your privacy settings. But even more important, David argued, was the need to “own your online brand.”

David suggested that the way to combat the unflattering photo of you is to “post lots of flattering ones.”

David’s point is that you can’t control what other people do (tag you in photos, post pictures you’d rather not see online, say awful things about you), but you can control what the Internet sees about you by overwhelming it with your social media presence.

I think David is right and I’ve certainly done that. If you search for fred wilson, you’ll see links to at least a half dozen social media properties that I’ve built a strong online presence on. You don’t see links to negative articles or blog posts about me, and there are some of them if you look hard enough.

Let’s contrast that with NYC Speaker Christine Quinn, who I know well and like. If you search for Christine Quinn, one of the top links is to a site called christinequinn.com not a website she’d like to have in her top links. What we don’t see in her top links is her blog, her Twitter, her Tumblr, etc. If she had all of those up and running and was actively posting to them, she might be able to run christinequinn.com off of the front page of her google search results.

A few years ago, I bought the internet domains of all three of my children’s full names. My two daughters now operate active blogs on their domains (I link to them on the upper right of this blog) and both of them come up in the first page of search results when you google their names. They still spend way more time on Facebook than their blogs but they are building their online brands at a young age. And they can tightly control what goes on those pages.

Chris Dixon and Charlie O’Donnell both advocate the value of the “blog as resume” and recommend starting one to everyone who asked for their career advice. I’ll join that chorus as well. We have hired all of our junior investment professionals largely on the basis of their blogs, not their resumes or linkedin profiles. You can learn so much more about a person by reading their blog.

So to all the people out there wondering about the role of social media in their career plans, I second David Karp’s recommendation. Build and own your online brand and don’t let others define it for you. 

Entrepreneurship and Social Change

I posted about The Blue Sweater recently and said:

I have always believed in the power of entrepreneurs and for profit initiatives to change the world.

So I am really excited about an event next Thursday night where I get to talk more about that idea. Joining me will be Jacqueline Novogratz, author of The Blue Sweater, Roger Ehrenberg, Jacob Gray, and Scott Edward Anderson (aka greenskeptic). 

The event is being put on by goodcompany ventures, an incubator for "socially conscious entrepreneurs" and it will be held at Green Spaces, a co-working space in Tribeca for "environmental entrepreneurs."

If you'd like to attend, here's a link to the RSVP page. Tickets are $35. I hope to see some of you there. Should be an interesting discussion.

More Patent Nonsense

Facebook has received a patent on the idea of "Dynamically providing a news feed about a user of a social network."

As if this was a novel idea whenever the patent was filed. 

Here's a comment I read on the story linked to above:

This is weird news. I run a small local social community and also use some kind of newsfeed system. Yet the earliest version of my newsfeed dates from 2003, way before facebook’s feed. If they wanted to, they could easily crush me with this patent as I dont have the judical knowledge and financial power to enter a legal battle with facebook. The could close me down, although everyone would know that it’s only because they have this patent, not because I copied the newsfeed from them.

Weird news indeed. But not surprising. As another commenter on that story wrote, "Shoot, I’ll patent “friendship”." 

Software patents make no sense. Like music, art, and other creative pursuits, software is almost always derivative work. There is not a chance in hell that Facebook invented this idea. I am certain there have been social news feeds around for at least a decade or more. I am not going to spend the time finding all the prior art, but I am sure there are patent lawyers doing that already for various social networks who are now potential subjects of patent litigation from Facebook.

Don't take this post as a slam on Facebook. They have done an incredible job of executing on an entirely obvious idea. I was chatting this past week with a tech journalist who was in college when Facebook launched. She was not at Harvard but at another ivy league school. She told me that there were "facebooks" launching all over the ivy league that year. Facebook out executed everyone and took the market. That's how it is done. But they did not come up with the idea that "we should take a facebook and put it online". They simply did it better.

Same with social news feeds. They are the dominant provider of social news feeds in the world. Because they out executed everyone else. But not because they invented the idea. Giving them a patent on this idea is lunacy. But the whole idea of software patents is lunacy. We need to eliminate software patents and we need to do it now.

The Startup Visa (update)

I've written about the Startup Visa movement on this blog before so many of you know what it is all about.

For those that don't, it is the idea that anyone who wants to start a business here in the US and can attract a modest amount of investment capital should be granted a visa to stay and work here in this country. It was first proposed by Paul Graham, founder of Y Combinator early last year and it was seconded by Brad Feld, founder of the Foundry Group venture capital firm. Brad is  a good friend and a co-investor of mine over the years. Brad roped me into the small group that has been pushing this idea forward. I will say that I haven't done much work on this, mostly cheerleading and making noise about it. But the small group has moved the ball forward pretty far.

Yesterday, Senators John Kerry (D) and Richard Luger (R), the two ranking members of the Senate Foreign Relations Committee formally proposed legislation to create a Startup Visa. A while back Representative Jared Polis (D) proposed very similar legislation in the House. So now we've got legislation with strong sponsorship in both houses of congress.

Brad Feld tells me that about 0.1% of all legislative ideas get this far. So we should be proud of what our small group has done with no lobbyists, no budget, no advisors, and no expertise. 

But he also tells me that about 1% of bills that get this far turn into laws. So we've got a lot more to do. We need everyone to contact their Senators and Representatives and explain why this is such an important issue. You can do that now on your own. But I expect that the Startup Visa blog will develop and roll out some tools shortly to make it even easier to do that.

I am certain that anti-immigration forces will find something not to like in this proposed legislation and fight it. But we have to fight back. So many great american corporations, like Intel, Proctor & Gamble, and Google were founded by immigrants. We need more jobs in this country and we can't expect our large corporations to deliver them all by themselves. We need to create new businesses that can employ our citizens. And the history of our country is rich with stories of immigrant entrepreneurs. We have to embrace them, welcome them, fund them, and let them do their thing. A startup visa is one important way to do that.

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Extension.fm

One of my favorite Firefox extensions is download them all, you visit a web page that has mp3s on it and in one click, you can download all of them.

But that requires a bunch of additional steps. I have to then add the files to itunes and doubletwist libraries and then synch with my iPod and google phone.

Our friend Dan Kantor, creator of the awesome Streampad service that powers fredwilson.fm has come up with an even better idea; create a library in your browser and autofill it with the songs you come across on the web. The service is called Extension.fm and it is only available for Chrome right now and is invite only (but I’ve got 50 invites).

Here’s a video that shows how it works:

My favorite feature of Extension.fm is it allows you to play the last fifty songs in your tumblr dashboard as a playlist. That is something I’ve wanted to do for at least a couple years now. I’m doing it right now as I write this post. A total game changer for me. Thanks for doing that Dan!

If you want an invite, leave a comment and a way to reach you, email, twitter, etc. The first fifty requests in the comments gets an invite. No direct emails please because I need a way to calculate the first fifty so we have to keep all the requests in one channel.

I hope you like Extension.fm as much as I do.

Mobile Audio

There's a reason why radio and outdoor (billboard) advertising together became a $30bn to $50bn annual domestic market. When people are mobile, like driving a car, they are not reading, they are not watching video, they are not opening email. At least they should not be doing those sorts of things while driving a car.

While radio and billboards will still be attractive advertising opportunities for some time to come, there is a new way to reach the mobile consumer – on his or her phone.

I'm not talking about calling you or text messaging you on your phone. I am talking about when you connect your android phone into your car's audio jack or when you put on your iPhone headphones and hop on the treadmill at the gym.

In these situations, you are likely listening to audio and increasingly streaming audio. That audio stream can contain commercial messaging if it is done right. And because the phone, as opposed to the car radio or the billboard, knows a lot about you, including where you are, the messaging can be targeted (ie made relevant).

This is the opportunity our portfolio company TargetSpot was built to go after. When the company was started, it decided to focus on terrestrial radio companies and help them monetize their internet streams. It is the leader in that market today. Then it added "pure play internet radio" providers like Yahoo! Music, MySpace Music, and AOL Radio to it's network and further solidified its lead.

And today, TargetSpot is rolling out its first mobile audio advertising service, in partnership with Slacker. If you want to reach people who are listening to streaming audio via their phones in their cars, in the gym, at work, and at home you now can do that via TargetSpot.

Slacker is one of several streaming audio companies focused on the mobile phone. Others include Pandora and Last.fm. I expect we'll see hundreds of providers over time.

And I expect that we'll find out that the audio format is one of the most powerful forms of mobile advertising. Just like it has been in the offline world for the past century.

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Corporate Entities

I'm taking a turn on MBA Mondays today. We are moving past the concepts of interest and time value of money and moving into the world of corporations. Today, I'd like to talk about what kinds of entities you might encounter in the world of business.

First off, you don't have to incorporate to be in business. There are many people who run a business and don't incorporate. A good example of this are many of the sellers on Etsy. They make things, sell them, receive the income, and pay the taxes as part of their personal returns.

But there are three big reasons you'll want to consider incorporating; liability, taxes, and investment. And the kind of corporate entity you create depends on where you want to come out on all three of those factors. 

I'd like to say at this point that I am not a lawyer or a tax advisor and that if you are planning on incorporating, I would recommend consulting both before making any decisions. I hope that we'll get both lawyers and tax advisors commenting on this post and adding to the discussion of these issues. I'll also say that this post is entirely based on US law and that it does not attempt to discuss international law.

With that said, here goes.

When you start a business, it is important to recognize that it will eventually be something entirely different than you. You won't own all of it. You won't want to be liable for everything that the company does. And you won't want to pay taxes on its profits.

Creating a company is implicitly recognizing those things. It is putting a buffer between you and the business in some important ways.

Let's talk first about liability. When you create a company, you can limit your liability for actions of the corporation. Those actions can be for things like bills (called accounts payable in accounting parlance), promises made (like services to be rendered), and lawsuits. This is an incredibly important concept and the reason that most lawyers advise their clients to incorporate as soon as possible. You don't want to put yourself and your family at personal risk for the activities you undertake in your business. It's not prudent or expected in our society.

Taxes are the next thing most people think about when incorporating. There are two basic kinds of corporate entities for taxes; "flow through entities" and "tax paying entities." Here is the difference. Flow through corporate entities don't pay taxes, they pass the income (and tax paying obligation) through to the owners of the business. Tax paying entities pay the taxes at the corporate level and the owners have no obligation for the taxes owed. Your neighborhood restaurant is probably a "flow through entity." Google is a tax paying entity. When you buy 100 shares of Google, you are not going to get a tax bill for your share of their earnings at the end of the year.

And then there is investment/ownership. Even before we talk about investment, there is the issue of business partners. Let's say you want to split the ownership of your business 50/50 with someone else. You have to incorporate to create the entity that you can co-own. And when you want to take investment, you'll need to have a corporate entity that can issue shares or membership interests in return for the capital that others invest in your business.

So now that we've talked about the three major considerations, let's talk about the different kinds of entities you will come across.

For many new startups, the form of corporate entity they choose is called the LLC. It stands for Limited Liability Company. This form of business has been around for a long time in some countries but became recognized and popular in the US sometime in the past 25 years. The key distinguishing characteristics of a LLC is that you get the limitation of liability of a corporation, you can take investment capital (with restrictions that we'll talk about next), but the taxes are "flow through". Most companies, including tech startups, start out as LLCs these days. Owners in LLC are most commonly called "members" and investments or ownership splits are structured in "membership interests."

As the business grows and takes on more sophisticated investors (like venture funds), it will most often convert into something called a C Corporation. Most of the companies you would buy stock in on the public markets (Google, Apple, GE, etc) are C Corporations. Most venture backed companies are C Corporations. C Corporations provide the limitation of liability, provide even more sophisticated ways to split ownership and raise capital, and most importantly are "tax paying entities." Once you convert from a LLC to a C corporation, you as the founder or owner no longer are responsible for paying the taxes on your share of the income. The company pays those taxes at the corporate level.

There are many reasons why a venture fund or other "sophisticated investors" prefer to invest in a C corporation over a LLC. Most venture funds require conversion when they invest. The flow through of taxes in the LLC can cause venture funds and their investors all sorts of tax issues. This is particularly true of venture funds with foreign investors. And the governance and ownership structures of an LLC are not nearly as developed as a C corporation. This stuff can get really complicated quickly, but the important thing to know is that when your business is small and "closely held" a LLC works well. When it gets bigger and the ownership gets more complicated, you'll want to move to a C corporation.

A nice hybrid between the C corporation and the LLC is the S corporation. It requires a simpler ownership structure, basically one class of stock and less than 100 shareholders. It is a "flow through entity" and is simple to set up. You cannot do as much with the ownership structure with an S corporation as you can with a LLC so if you plan to stay a flow through entity for a long period of time and raise significant capital, an LLC is probably better.

Another entity you might come across is the Limited Partnership. The funds our firm manages are Limited Partnerships. And some big companies, like Bloomberg LP, are limited partnerships. The key differences between a Limited Partnership and LLCs and C corporations are around liabilities. In the limited partnership, the investors have limited liability (like a LLC or C corporation) but the managers (called General Partners) do not. Limited Partnerships are set up to take in outside investment and split ownership. And they are flow through entities.

There are many other forms of corporate ownership but these three are among the most common and show how the three big issues of liability, ownership, and taxes are handled differently in each.

The important thing to remember about all of this is that if you are starting a business, you should create a corporate entity to manage the risk and protect you and your family from it. You should start with something simple and evolve it as the business needs grow and develop. 

As an investor, you should make sure you know what kind of corporation you are investing in, you should know what kind of liability you are exposing yourself to, and what the tax obligations will be as a result.

And most of all, get a good lawyer and tax advisor. Though they are expensive, over time the best ones are worth their weight in gold.

The Ten Golden Principles For Successful Web Apps

I am going to be in Miami this week for the Future Of Web Apps conference. This is my kind of conference; lots of developers and entrepreneurs and not much else. And Miami in February sure adds to its appeal.

The conference organizers assigned me this topic for my 9am talk on Tuesday morning:

The Ten Golden Principles For Successful Web Apps

Here’s the slide deck I sent them yesterday afternoon. There still is time for changes so comment away.

Note: I’ve been updating the presentation based on feedback in the comments. Thanks to everyone who is helping me to improve it.

Code As Craft

Software engineers are the guts of every company we are invested in. Their work is often behind the scenes and all that most of us see is the end product, and often just the front end of the end product.

I've noticed a trend in our portfolio and elsewhere to change that. A good example is Etsy's new engineering blog, Code As Craft. I love the name. Code is craft, and a very important craft at that. Chad Dickerson, Etsy's VP Engineering, writes in the first post on the Code As Craft blog:

At Etsy, our mission is to enable
people to make a living making things.  The engineers who make Etsy
make our living making something we love: software.  We think of our
code as craft — hence the name of the blog.  Here we’ll write about our
craft and our collective experience building and running Etsy, the
world’s most vibrant handmade marketplace.

Well said Chad.

Here are a couple other examples in our portfolio:

I am sure that there are a bunch of other great examples of this going on. If you know of any, please leave a link in the comments. I'm pleased that the work of the software engineers is starting to see the light of day. 

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Permissionless Innovation and Patents

My partner Brad Burnham wrote a post today explaining why he disagrees with Nathan Myhrvold's recent Harvard Business Review piece in defense his patent holding company,Intellectual Ventures.

In the post, Brad talks about the power of "permissionless innovation" and says:

The real reason the independent software industry emerged is that operating systems and APIs made it possible for independent software vendors to develop applications independently. They no longer had to ask permission of the hardware vendors. This same characteristic of permissionless innovation led to the explosion of independently created services on the internet. The rampant abuse of the patent system has created the opposite condition for the creators of software and web services today.

Brad ends the post with the following observation:

We have all benefited from the extraordinary innovation delivered first by the independent software industry and more recently by the web services industry. In both cases, this innovation was a direct result of the ability to innovate without permission. Nathan proposes to replace this world of decentralized innovation on open platforms with one dominated by a new gatekeeper, "intellectual property market makers". In this world, young companies, may not need to ask permission of Dell, Microsoft, or Verizon, before they launch a new web service, but they will have to negotiate with Nathan's firm to as he puts it "get all the patents they need to roll out an innovative product faster and at the same time reduce the risk that they'll miss a necessary license and get blindsided by an infringement suit"

I agree 100% with Brad that software and business method patents are a major inhibitor of innovation. If you'd like to engage in a discussion this topic, I'd encourage you to do so on Brad's post on the USV blog.

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