Posts from July 2011

A Word From Your Sponsor

Many of you know this but I thought it was worth addressing again since I get tweets like this one a lot.

@fredwilson – I'm just curious why someone as financial successful as you has advertising on their blog? Extra cash? Does it go to an NPO?

The answer to that last bit, "does it go to a non-profit organization?" is yes.

Both the Gotham Gal and I take all the revenue we get from running display ads on our blogs and advertising in our feeds and run it through our family foundation where it ends up in the hands of any number of deserving non-profit organizations. It turns out to be a meaningful sum of money each year and it can do a lot of good in the right hands.

Just one of many reasons that blogging is a force for good in the world.

30/10/10

We see a lot of metrics on web and mobile apps. Our portfolio companies share their metrics with us, which we keep confidential and do not share with anyone outside of our firm. And companies that are seeking investment from USV also share their metrics with us. We also keep these metrics confidential and do not share them outside of our firm.

One thing that never ceases to amaze me is how similar some of the metrics are from service to service and company to company. I like to call these the web/mobile laws of physics. One fairly common "law of web/mobile physics" is the ratio of registered users/downloads to monthly actives, daily actives, and max concurrent users (for services that have a real time component to them).

I call this ratio 30/10/10 and so many services that we see exhibit it within a few percentage points here and there. Here's how it works:

30% of the registered users or number of downloads (if its a mobile app) will use the service each month

10% of the registered users or number of downloads (if its a mobile app) will use the service each day

the max number of concurrent users of a real-time service will be 10% of the number of daily users

We see these ratios across social web apps, social mobile apps, games, music services, and many other consumer web and mobile services.

Companies can change these metrics in their favor. I wrote a post a while back called "Social Media's Secret Weapon – Email" that outlines one way that companies change these metrics in their favor. When you see an email that says that someone has tagged you in a photo on Facebook or @mentioned you on Twitter, you are very likely to click on it and go visit the service. That can materially increase the ratio of monthly and daily users to registered users.

Another similar technique is mobile notifications which I also blogged about recently. Seeing an Android notification that a friend has checked into a location near me on Foursquare almost always generates a visit to my Foursquare app.

The best social media companies and services will push these metrics up with engaging features and quality experiences. But when I see a blog post that says "XYZ company only has 30% of their users active every month" like that is some horrible fact, I am reminded how little the market actually knows about the underlying dynamics of these emerging services and how users relate to them. Hopefully this blog post and others like it will help to change that situation.

Continuous Financing

Chris Dixon has a good post up called The Downside Of Accelerated Investment Decisions in which he talks about "shotgun weddings" and why they are often bad decisions for both entrepreneurs and investors. I could not agree more with Chris. We hate financings that go down like this and often choose to sit them out.

I believe that entrepreneurs and investors should be engaged in a non-stop dating process that starts as early as possible and goes on continuously regardless if the entrepreneur is actually in the market for capital or not.

Mark Suster wrote a seminal post called Invest In Lines, Not Dots in which he said:

We want to make sure we’re in love.  This sometimes frustrates entrepreneurs who just want to “get back to running the business.”  But if you understand it you’ll see that it is perfectly rational and it should also influence how you form relationships with investors.  And remember, if we get married you’re stuck with us, too.

The perfect entrepreneur/VC relationship is one where each has established respect and trust with the other well before an investment transaction is broached. When an entrepreneur we know well, like, trust, and want to be in business with walks into our office looking for some capital, we almost always say yes, and we say yes quickly and on reasonable and fair terms.

This is why VCs can't just sit in their offices reading business plans and taking pitch meetings. They need to be out in the market meeting entrepreneurs super early, breaking bread with them, watching them in action, and learning about them, their products, and their visions.

This is why entrepreneurs can't ignore VCs until they are ready to raise capital. They need to hang out with them, get to know them, find out who they like and who they don't, and figure out who they want to be in the boat with when it's taking on a lot of water and things don't look so good.

I've said many times on this blog that the entrepreneur/VC relationship is a lot like a marriage. You date, you get engaged, you get married, and you hope you don't get divorced because only one of you gets to keep the kids. Don't do shotgun marriages. They are a bad idea.

Things That Tweet

I was at breakfast with a friend yesterday who told me about a project he did with some Twitter data around weather. He said as he was pouring through the data, he saw that there were bursts of tweets at certain times. He dug into the data and saw that it was weather vanes and thermometers that were tweeting out their data.

It got me thinking about things that tweet (like weather vanes, refridgerators, traffic lights, etc) and their role in the land of social media. I believe that devices and sensors that broadcast their data via social media channels are an important source of social data and engagement. And for some reason, they are way more common on Twitter than any other social platform.

Have you ever seen a weather vane on Facebook? I have not. If they exist I'd love to know about them. I want to understand the Internet of Things and its role in social media. I suspect that the symmetric friending model and the use of real names/real people in the Facebook system is a hindrance to devices updating Facebook pages, but I could be wrong.

Services that are too determinent in their use case are ultimately limiting in their extensability to important new uses. Machines are reliable sources of information and the social services that are friendly to them have a number of interesting opportunities in front of them.

Two Kickstarter Projects You Should Know About

I backed a couple Kickstarter projects this week and I thought you ought to know about them.

The first is from Josh Harris. Yes, the Josh Harris who was one of NYC's most notable entrepreneurs in the mid and late 90s. The Josh Harris who threw killer parties, did the Quiet and We Live In Public projetcs, and the Josh Harris who was the first person I ever met who did podcasting and videocasting on the internet. Josh wants to build an Internet Television Network called The Wired City. Here's the video introducing the concept.

The Wired City is an extension of everything Josh has been working on over the past fifteen years and is exactly the kind of super creative project that Kickstarter is perfect for. If you'd like to back this project like I did, click here and go for it.

The second one is from Brian August. He wants to build an augemented reality app for the iPhone that will allow users to document their stories of the Twin Towers of the World Trade Center in NYC. Here's his video:

Brian's project has 17 days left and he's closing in on his target. If you'd like to insure this app becomes a reality, click here and back it.

Disappearing Into The Fire – The Berlin Edition

In April of this year, I blogged about the Disappearing Into The Fire Workshop. This is a workshop put on by Jerry Colonna and Ann Mehl that seeks to provide CEO Coaching "at scale." What I mean by that is for most people CEO Coaching is a one on one experience, and a very good experience which I highly recommend. These workshops take the same approach but provide it to a room full of people at a single time. If you think you might want to get a CEO Coach but aren't sure what its like, this workshop is an excellent start.

I've talked to a number of entrepreneurs and CEOs who attended the first workshop in mid May in NYC and they all were very complimentary of it.

Jerry and Ann are taking the "show on the road" and doing the Disappearing Into The Fire Workshop in Berlin on Saturday September 10th. The details are here.

Berlin and NYC are like sister startup cities. They remind me of each other in many ways with Berlin a few years behind NYC in terms of its overall development. I'm super excited to see Jerry and Ann take this workshop to Europe and I think the choice of Berlin is a great one.

Too all entrepreneurs in Berlin and Europe, do yourself a favor and check it out.

Financings Options: Venture Debt

It's Monday, time for MBA Mondays and the next post in the Startup Financing Options series. Today we will talk about Venture Debt.

If there were two words less likely to be found together, it would be venture and debt. Startups are not credit worthy enterprises. They have little to no assets and no cash flow. Equity is the appropriate way to finance startups.

However, there is a large, growing, and vibrant market for something called Venture Debt. It is indeed debt, largely provided by a number of banks and finance companies who specialize in this market. The terms are usually three years, interest only, balloon payment, with warrants for the equity kicker. Now that I've just thrown out a bunch of buzzwords, I'll explain each of them.

The term is how long you have to pay back the loan. Three years is the typical term for Venture Debt.

Interest only means you pay the interest on the loan each month but you don't pay the loan down each month.

Balloon payment means you pay the loan amount in full when the term expires.

Warrants are like options, you get the right to buy equity at a fixed price for a period of time, usually five or ten years.

Equity kicker means an equity component to the deal to goose the returns.

So who can get Venture Debt? Venture Debt is available largely to companies that have secured at least one round of venture capital financing by a recognized venture capital firm or syndicate of venture capital firms. It is also available to more developed startups that are credit worthy by virtue of significant assets or cash flow.

So why do banks loan to startups when they have raised VC but not when they have not? The answer lies in the key understanding about Venture Debt. The banks are not loaning against the credit worthiness of the startups, they are loaning against the creditworthiness of the venture capital firm or syndicate. Basically the banks are betting the VCs will keep funding the company well past the term of the veture debt loan.

I'm not a fan of venture debt for early stage companies. If the startup is getting the money because of the credit worthiness of my firm and the other firms in the deal, then I'd rather be putting more equity in instead and getting paid for my capital at risk. I've told this to every venture debt lender who has come to see me so it's not a secret how I feel about this kind of funding.

I am a big fan of venture debt late in the life of the startup. It can be a bridge to a sale or a bridge to an IPO or can be used to fund an acquisition or some other value enhancing transaction. I encourage our portfolio companies to tap the Venture Debt markets all the time once they have become credit worthy on their own. It is smart to use debt vs equity when you can absolutely pay the debt back.

But financing companies with debt when the company has no obvious means other than their VC investors to pay the loan back is bad financial management in my opinion and I am not a fan of it in the least.

Voice Texting

As a parent of two young adult drivers and a third soon to hit the road, nothing scares me more than texting while driving. Drinking and driving scares me too, but since that danger has been around since long before I started driving I've somehow internalized that risk a bit better.

Being an engineer at heart and by training, I've been looking for a solution to the problem. I know that the buzz of the phone and the unread/unresponded message is like a drug to many and that the best solution would be a "hands free" way to read and respond. And the bluetooth/hands free voice solution works so well on most cars and most phones now, so why can't we do the same with texting?

I've been trying out an app on my Android called Blue Control ($2 in the android store) that a friend suggested to me. I can't seem to make it work with my car's bluetooth service, but it is very possible that the problem is operator error.

So I went looking for other options. I found an app available on iPhone, Android, and Blackberry called Text'nDrive. The iPhone version only supports email right now but the Android and Blackberry version supports SMS and email. I went ahead and purchased the Pro version for $21 even though there is a free version on Android as well. Apparently the free version only reads your texts while the Pro version lets you reply as well.

I got Text'nDrive to work but not on my car's bluetooth service (even though that was the selected audio input/output device in the app). It does indeed read your incoming texts to you and tells you who they are from and then you can reply via voice. I couldn't get the reply by voice thing working right but again, it may be operator error. If I could get Text'nDrive to work with my car's bluetooth audio, then I'd work harder to figure out how to get it to do the reply thing correctly.

I'm all ears if anyone out there has found an app that does this well. "This" to me means connects seamlessly to any car's bluetooth audio service and reads your incoming texts and lets you reply with voice. That is a killer app in my opinion and it will have the added benefit of making the roads safer for us and our kids.

On Negotiations And “Middle Men”

Mark Suster has another gem on his blog this week about negotiations and relying on intermediaries to handle them for you. Here's a VC speaking the truth about VCs (and recruiters, bankers, lawyers, and PR people). You gotta love that.

Mark says:

You have an interest in pursuing the absolute best outcome you can get. Often others have an interest in pursuing the best possible outcome they can get, without sinking in extra time, without risking ruffling feathers and without breaking conventions & norms.

Chart your own path.

Super advice. Go read it.

Forced Email Bankruptcy

Sometime yesterday morning between 5am and 7am all the mail in my inbox that had come in but had not been responded to in the past ten days disappeared. It appears that it is in my archive (along with a ton of mail that came in the past ten days that I have responded to and archived). Somehow I auto archived ten days of mail in my inbox.

In any case, I am not going to go through the laborious task of fishing out all that unresponded to email out of my archive and put it back in my inbox. So if you sent me an email in the past ten days and I didn't respond, there is a good chance your mail got auto archived. I'm sorry about that. Feel free to send it again.

The good news is for about three minutes I was at inbox zero. It felt good.