This isn't really my blog anymore. I still get to decide what the topic of the day is. But the conversation here at AVC is what makes this place special. So, here are the highlights of 2011 (based on disqus and google analytics from Jan 1 to Dec 31):
- Most liked comment: Seth Godin calling bullshit on my marketing post with the line that "marketing /= advertising". That was liked 208 times, 2.5x the second most liked comment this past year.
- Most repied to comment: Andy Swan asking the OWS crowd "What is the negative effect on you when another man earns much more money than you do? Why do you care? Why do you not applaud his success?" Andy is the Howard Roark of this community and thank god we have one.
- Most active thread: No surprise there. Occupying My Mind with 990 comments. I'm tempted to re-open the comment thread and post 1o more comments.
- Most liked community member: No surprise there either. Our very own robot dinosaur. Don't ever change grimster.
Longtime readers will recall that in the early days of this blog, I would spend the last days of the year posting about music. I'd post a record every day for 10 to 14 days. These would be my top records of the year. Then a few years ago, I stopped doing that and went to a single post with my top ten records of the year (usually with a few extras thrown in for good measure). Here is last year's post for example.
This year, as hard as I tried, I could not get up for doing it. It's not that I am losing interest in music. Far from it. I am more into music right now than I have ever been.
As I've been pondering my complete lack of interest in a top ten records post over the past few weeks, I've come to the conclusion that it is the result of two factors. The first is that I don't listen to records much anymore. And the second is that I don't collect music anymore. I guess the two are related.
For me music has become real time, all the time. My current music experience is like a twitter feed. Music comes at me from everywhere on every device I own. I'm on turntable.fm at 5am hanging in the indie while you work room. I'm on soundcloud on my android at the gym at 7am. I'm listening to my girls' recent listens on rdio on sonos over breakfast at home. I'm on the ex.fm app on my android on the subway to work. I'm listening to fredwilson.fm on my computer at work. I'm watching my son's friends YouTube music videos on our kitchen iPad before dinner. I'm listening on the hype machine app on boxee on my family room TV after dinner. And it goes on like that all the day, until I get into bed and go to sleep.
Instead of getting obsessed about a record, I get obsessed about a song. I listen to it over and over. Then eventually I move on. But not before posting it to my tumblr and my music stream. fredwilson.fm is like my delcious feed for music, but you can listen to it. If you want to know what I was into in 2011, that's probably the best thing to do.
But if you don't have 21 hours (that's how long it will take to listen to the past twelve months of my music stream), then here are a few songs I'm obsessed with at the moment.
I returned from ten days of skiing with my family last night. I'm on mountain time and plan to stay there until the new year. Staying up late and sleeping late seems to be a good way to bring in the New Year. But even so, my version of sleeping late is getting up at 8am. My family's version of sleeping late is getting up at noon. That leaves a fair bit of time to read and think.
And so that's what I did this morning. And here is what I am reading and thinking about:
1) Ron Paul is likely to win the Iowa Republican Caucus. Newt Gingrich says "I think Ron Paul's views are totally outside the mainstream of virtually every decent American." Maybe Paul's win in Iowa is the moment when Paul's ideas and the Tea Party movement go mainstream.
2) Occupy's organizers are building their own social network. The idea of a distributed social net that is not controlled by any company or institution has been around for a while. Identica and Diaspora have not taken off. Can a movement make it happen? I think it has a better chance because networks need people in them.
Back in the spring of this year I told the folks at Techcrunch Disrupt that I thought the next big thing was "cultural revolution" fomented by the fact that roughly a billion people all over the world are connected directly to each other. I'm still not entirely sure how to invest in this megatrend, but it sure feels like it is upon us.
Mark Suster has a great post on this topic. In typical Mark fashion, it is long, with a lot of detail and substance. I highly recommend all entrepreneurs take the time to read it end to end.
For those who won't take the time to read it end to end, I'll summarize it.
Many high growth companies can be profitable. They have enough revenue to cover their essential costs and could easily decide to show a profitable income statement. But they don't make that choice. Instead they invest heavily in the business with the expectations that those investments will produce more revenue (by hiring salespeople), or additional products (by hiring engineers and product managers), or additional geographies (by hiring an international team), or any number of other value enhancing aspects of the business. The result of that decision is that the business loses money or simply breaks even (I prefer the latter approach).
There was a discussion of profits (or the lack of them) in the comments to the IPO Market blog post I wrote last week. A number of commenters pointed out that many web companies lack profits. I don't think that is actually true (certainly not for many that have gone public), but it is true that most, if not all, web companies are not optimizing for profits this year or next year. They are optimizing for the ultimate size of their businesss and the total amount of cash flow they can ultimately expect to generate when the business gets to maturity.
This is tricky stuff. If you are going to take all of your potential profits and reinvest them in the businesss in search of higher growth and greater profits in the future, you had better be right about those investments. And it is often hard for investors to see how those investments are going to pay off, so at times you can be penalized for making those choices. Right now the public markets seem to be paying companies more for long term growth than for near term profits, so it seems that public market investors (and VCs) are aligned in this respect. But that is not always the case. Markets are fickle. But the best entrepreneurs are focused on the long term vision and will invest in their businesses without paying too much mind to what investors want at any point in time.
When people ask me, "how do you know which companies and services are going to be the biggest successes?", I usually tell them to look for the companies and services that are mocked and misunderstood. For some reason, that correlates highly with the biggest breakout successes.
Twitter is a great example of this. For years, every post, column, or article written about Twitter would have comment after comment making fun of a service where people "told the world what they had for lunch." Of course, people were doing that on Twitter and people still do that on Twitter. But what those mocking Twitter were missing is that in between the tweets about pizza and pita were posts about politics and poetry. There was substance in the midst of nonsense.
And all the while that those mocking Twitter were obsessing about the nonsense, the substance was increasing and the usage was growing. Comscore has Twitter's monthly users at ~170mm people worldwide, up >60% in the past year. That makes Twitter one of the top twenty websites in the world and it is growing faster than most of those twenty websites. That is what I call "breakout success."
I woke up thinking about this because before I went to bed last night I watched last night's episode of Rock Center with Brian Williams. They had a piece on our portfolio company Kickstarter. The piece itself was pretty good. But at the end, Brian Williams discussed it with the Kate Snow (who did the piece), and he said something like "so this is like the guy on the street asking for a handout?".
Yeah, just like that Brian.
Kickstarter couldn't be farther from the "guy on the street asking for a handout" and yet that was Brian's takeaway after watching the piece (or maybe he didn't watch it). Either way he mocked Kickstarter and misunderstands it. And that is fine with me. Because its a signal that Kickstarter is on to something big.
I knew that already, but situations like this are reinforcing for me. They are the "tell". So when your company and services gets mocked and is misunderstood by most everyone, particularly the mainstream press and media, just smile and keep doing what you are doing. You are on to something big.
First, I will post about what I've seen work in the three phases of a startup that I used in my burn rate posts; Building Product Stage, Building Usage Stage, and Building The Business Stage. Those will be my posts for the next three weeks.
Then I will invite a few founders & CEOs to do guest posts on this topic. I have a few members of this community in mind as well as a few founder/CEOs that I have worked with over the years. I expect there will be four to five guest posts on this topic.
I have not done a lot of guest posts on MBA Mondays to date. But I am not a manager and don't consider myself an expert on this topic. So we'll get some experts in here to make sure we get this right. It's a very important topic.
This is the first Christmas I've spent in the US in eleven years. I wrote a bit about our family's Christmas journey three years ago. We took a break from our annual year end family travel adventure to break in a ski house we bought this spring. The snow isn't great but we've got ten people here, a fire burning, and a Christmas tree up (the first one we've put up in a while).
I must say I've enjoyed getting a taste of Christmas after a self imposed fast. We did a "secret santa" instead of everyone getting presents for everyone. That worked out great. The Gotham Gal prepared a traditional Christmas feast last night. We've had Zooey and Matt's holiday record on repeat play. And we played games together untl late in the evening.
Regular readers know I'm not a believer of any religion. But I am a fan of the traditions and celebrations that come with religion. I enjoy sitting through a passover seder and I certainly enjoy the year end holiday traditions that come with the Christmas season. Anything that can get people together, talking, laughing, and just hanging out together is a great thing.
So whatever faith or non-faith that you subscribe to, I wish you a warm and loving year end holiday.
Our portfolio company Flurry is the leading provider of mobile analytics. They have analytics installed in over 140,000 mobile apps running worldwide. Through this global reach, they have a lot of data on how many iOS and Android devices are in operation throughout the world.
These are the numbers of future potential users of mobile apps worldwide based on total market size, ability to afford smartphones, and the current penetration of each market.
Beyond the US, mobile developers should focus on the BRIC countries (Brazil, Russia, India and China) plus Japan and then western europe.
And if you believe that mobile will be the dominant platform for all web/internet activity going forward (as Marc Andreessen hints at in this interview), then web developers may want to focus on these markets as well.
This post will explain a lot about my disorganized organization system. I am not very organized. I am a brute force type. My desk is a mess. My computer is a mess. But I somehow power through things and get the important stuff done.
I manage my email via the inbox. I label some messages but rarely use the labels as a place to read and reply to email. I star some messages but only visit my starred messages about once a week. Mostly I attack my email from the top. In reverse chronological order.
So one of my favorite features in gmail is "mark unread." I'll open an email, see it has something important in it, and then mark it unread so I make sure it stays in my priority inbox and that I get to it. I use that feature at least 10-20x per day.
But I can't for the life of me find that feature in the current gmail for android app. I do more email on my phone than anywhere else so I badly need this feature. I'm wondering if its in a place that I haven't looked or it google left it out of the app.
If anyone out there knows how to "mark unread" in gmail for android, please let me know in the comments.
And I'm sure there will be all sorts of great suggestions for getting more organized with email in the comments too. Just don't count on me doing any of them. It's like meditating. I know I should do it. I just can't bring myself to spend the time on it.
We have an IPO market for web companies again. I don't have all the names in front of me, but this year has brought IPOs for Pandora, LinkedIn, Groupon, Zynga, and TripAdvisor. These five companies are all trading for north of $1bn market cap. Pandora is at ~$1.5bn. LinkedIn is at ~$6bn. Groupon is at ~$15bn, Zynga is at ~$7bn, and TripAdvisor is at ~$3.5bn.
We can (and surely will in the comments) argue about these valuations. Some will say they are too high. Some will say they are too low. That's what makes a market. But in the aggregate, these valuations do not seem ridiculous to me. The public market investors are valuing these companies at prices that have some rationality to them.
What is possibly more interesting is that the public markets are valuing these companies at less than the late stage private market might value them at. Again, I don't have the data in front of me (I'm on vacation), but I believe that some of these companies had private financings at our above these current market caps.
The past decade (post Internet bubble, post Sarbox) brought a new normal to the late stage venture capital market. Companies are staying private longer. They are doing multiple rounds of growth financing privately. And they are doing multiple rounds of secondary liquidity for the founders, angels, and early investors. Mike Moritz calls these financings the "new IPOs".
This "new normal" is allowing these companies to stay private and develop into real businesses. With a lot of revenue. The five companies I mentioned at the top of this post will have close to $5bn in revenue this year. The company with the least amount of revenue is Pandora which, as of its last quarterly report, is operating at a $300mm annual revenue run rate.
These companies also have built sophisticated management teams that are highly capable of managing a business to meet the expectations of public market investors. They have strong operating executives, strong financial executives, and strong product and engineering leadership. They should be well run public companies.
The five companies I mentioned at the top of this post are carrying a combined market cap of $33bn. So they trade at an average of 6.6x revenues. And that is not including the cash they have on their balance sheets. I am not going to do the math, but I would bet if you back out the excess cash, you might see revenue multiples of less than 6x for this cohort. These are full valuations in a historical context, but these are not crazy valuations. If these companies can continue to grow at the rates they are currently growing, and if they can generate significant cash flow from their businesses (some of these companies already are doing that), then they should be more valuable in the next couple years, generating gains for the public market investors who hold the stock.
When Zynga was pricing its offering last week and getting ready to start trading its stock, I got a note from a friend who said "let's hope for a '99 style first day pop." I responded that was the last thing I wanted to see. And thankfully we did not get that.
It is not healthy for companies to trade at prices well beyond what they are worth. It puts incredible pressure on the team to deliver results that can't be delivered. And when the stock inevitably comes back to reality, the team feels like they somehow failed. Morale is impacted. The whole things is madness. And who benefits from that first day pop? Only the best customers of the banks who led the offerings. Why should they get a windfall when they did nothing to build the company and when they will be out of the stock so fast it will make your head spin?
The IPO market for web companies we have right now is rationale. We can argue whether it is pricing thse offerings correctly. But it feels about right to me. I believe we will see a bunch of IPOs next year, led by Facebook, which is the poster child of this whole "stay private longer" movement. If we as an industry can be patient, keep our companies private longer until they are truly IPO ready, then we should have a sustainable IPO market. That's where we seem to be headed. Let's not get greedy and screw it up.
Disclosure: USV has a significant holding in Zynga therefore I am long that stock through my interest in USV.