Posts from entrepreneurship

Zemanta – From SeedCamp to Outbrain

In the summer of 2008, I attended the SeedCamp in London and the winner of that class was a company called Zemanta, out of Ljubljana Slovenia. I was taken with everything about Zemanta; a small team (three founders), out of a place that I had never been to and had barely heard of, winning the SeedCamp with a really smart blogging tool that I just had to have on my blog.

USV invested in a seed round that summer that was led by the SeedCamp folks and Eden Ventures. Zemanta was USV’s first European investment. Today, we have ten out of sixty-seven active portfolio companies (~15%) based in Europe.

The seed investment in Zemanta led to a nine year journey with Bostjan and Andraz, who founded Zemanta along with Ales.

The blogging tool is amazing. It recommends links and images in real time as you type into your blogging tool. I still have it running in my WordPress web application. It looks like this right now.

Zemanta sold the blogging tool to a company called Sovrn a while ago and refocused on the native advertising market. They understood how to place related content into a content feed as well as anyone and they decided to focus the company on that. Bostjan and Andraz recruited Todd to lead the new business opportunity. Over the course of the last three years, Zemanta DSP has become the leading buying tool for native advertising.

And the largest company in the native advertising market, Outbrain, became their largest customer. So a few months ago, Outbrain asked the Zemanta founders to join their team and help build some important new technology for Outbrain. After haggling for a few minutes, the deal was sealed and Outbrain now has an office and a team in Ljubljana.

Like every investment, Zemanta taught me a few important things. I learned how to work with founders from a different part of the world, I learned that Ljubljana is a lovely little city with wonderful cafes and restaurants along a gorgeous river, I learned that you can keep a company alive for almost a decade on less than five million dollars if you have a crack team of product managers, data scientists, and software engineers in a place that most people don’t know about, and I learned that tenacity wins, always.

I am pleased that Zemanta has found a home inside a larger company with a bigger opportunity, I am pleased that Ljubljana has a startup success it can point to, and I am pleased that USV is now a shareholder in Outbrain, an investment I mistakenly passed on a decade ago. But mostly I am pleased that Bostjan and Andraz, with a lot of help from Todd, were able to go all the way, from startup to exit, never losing that which makes them special. That’s a big win in my book.

Working Across Many Time Zones

I was in Europe for most of June and working on a lot of things with people in the bay area. The nine hours of time zone difference was challenging. I was doing a lot of calls in the evenings with people who were just waking up.

There were many times when I woke up in Europe to a brief window where I could talk to people in the bay area who were still working and had not wrapped things up for the day before.

Our portfolio at USV spans ten hours (Estonia to San Francisco/Los Angeles).

Being based in NYC helps a bit as we have longer overlaps between Europe and the Bay Area than those two locations have with each other.

But I continue to find working across many time zones challenging.

Yesterday I had a conference call between people in five time zones. Getting everyone to agree to the correct time was almost laughable.

I’ve learned to use the time zone feature in Google Calendar to make sure I’ve got the time right. That helps me a lot.

As the world becomes more globalized, we find that we can do business more easily across time zones. And so we do more business across time zones.

That in turn leads to longer days.

When I am in LA, I often wake at 5am to an inbox that is full and active.

When I am in Europe, I am often on conference calls on the way to dinner.

I suspect there is someone working at a USV portfolio company at every hour of every day.

And new technologies is pushing this trend even farther.

Traditional capital markets open and close. The NYSE will open for trading today at 9:30amET after being closed all day yesterday for the July 4th holiday.

But crypto traders can trade on GDAX 24/7 and do.

So the tech and startup business is quickly becoming a 24/7 affair.

It wasn’t that way at all when I got into the business in my mid 20s.

But thirty years later the pace and rhythm is very different.

Keeping up with that pace and rhythm can be exhausting if you let it be.

Video Of The Week: Purpose, Mission, Strategy

Last month my colleague Nick Grossman gave a really great talk at The Next Web in Amsterdam. In it, he talks about the importance of purpose, mission, and strategy and how to connect them in your company. And he shares a lot of great examples from our portfolio in his talk.

Flip

Last year our niece decided to move about half way through her lease and ended up having to Airbnb her apartment for six months until she got out of her lease.

This summer our daughter is at graduate school upstate and rented her apartment to her friend for the summer.

One of our analysts decided to move to Brooklyn and had to figure out what to do with her apartment in Manhattan.

This is how millennials live. They go from apartment to apartment, roommate to roommate, city to city, job to job.

But this is not how apartments are rented. The apartments are leased for one year, two years, three years, with upfront security deposits, brokers fees, and a bunch of other costs that make the “fluid” approach to living difficult.

Enter Flip.

Flip is “the easiest way to sublet or get out of your lease and it is 100% free to list”

So if you or someone you know is looking to move and wants help with a sublet or needs to get out of a lease, Flip is the place to go.

The Gotham Gal has been an investor in Flip since the very beginning. I have been watching the company grow and build out this market opportunity with interest.

Earlier this year, she introduced the Flip founders to my partner Andy and the result is that USV is now also an investor in Flip.

Andy explained why USV is so interested in Flip on the USV blog a couple of days ago.

It’s a great post and you should go read it, but my favorite part of the post is this word cloud, taken from Flip’s listings, that explains why people use Flip:

Finally, Flip is looking to hire some engineers. They have built everything with just four people. That’s bootstrapping. I love it. They plan to double the team to eight people with this new investment. So if you want to work with great people, building technology that helps people with important changes in their life, Flip would be the place to do both of those things.

Doing The Heavy Lifting

Most venture capital investments are made, over time, by syndicates. This means a group of venture capital firms develops around a company, usually built over multiples rounds. Some of the firms in the syndicate agree to (or require) having a partner from their firm join the Board of the company.

If you look at the roughly dozen boards I am on, most of them have multiple venture capitalists on them. Some also have independent directors, something I believe strongly in and have written about frequently.

Not all venture capital firms in your syndicate will be the same. Not all of the VCs on your board will be the same. Some will be challenging to deal with. Some will be unproductive and distracting. Some will be nice to have around but won’t do much. A few will roll up the sleeves and do the “heavy lifting.”

It is this latter group that is super valuable. You saw it in action last week when the partners of Benchmark apparently negotiated a change in leadership at Uber. That is hard, painful work. But someone has to do it. And I have seen the partners at Benchmark do it before. They don’t shy from the tough stuff. Nobody enjoys doing things like that, but they know when it is needed and they step up and do it.

I was talking to another VC I work with yesterday about a completely different situation. The company is doing great. We have some important decisions in front of us, all good choices to have to make, but selecting the right ones will matter a lot. This VC has been deeply engaged in the process, providing a lot of super valuable advice, and saying things that need to be said, even if they are not popular. I feel incredibly lucky to have someone like that in a syndicate with me. And I told him that yesterday.

You can put together a list of the top VCs by returns. That is done annually. It’s all nonsense. There are a ton of shitty VCs on that list. Returns matter, for sure. But what really matters is who shows up when the hard conversation has to be had. What really matters is who provides the right advice at a critical time. What really matters is who puts aside their own personal interests and does what is in the best interests of the company. What really matters is who steps into a vacuum and provides leadership when it is badly needed.

When you are picking investors, you should call around and check references. Ask about this stuff. Find out who does the heavy lifting and who goes along for the ride. Pick the one who does the heavy lifting. Because you will need it, frequently.

Open Source Funding Documents

Cooley, one of the top startup law firms, has open sourced the legal documents required to do a Series Seed or Convertible Note financing.

They are available on Cooley’s CooleyGo document generation platform and also on GitHub.

Kudos to Cooley for doing this. We need to make the transaction costs of getting a financing done as low as possible and putting the legal docs into the public domain is a great step forward in doing that.

Should Your Company Be Profitable?

Mark Suster just put up a long post on this topic. His message is “it depends” and he explains the rationale for investing in growth vs getting profitable.

I have come to think about this differently.

If you are bootstrapping your company without the help of outside investment (ie angels, VCs, etc), then you have to be profitable from day one. No debate or discussion there.

But if you have the ability to lose money because of the availability of outside investment, then you can and should lose money in the first three stages of your company’s development which are; 1) building the product, 2) shipping the product, 3) scaling the revenues. But once you have achieved those three objectives, I believe you should move on to #4 – getting profitable.

There is this idea that you can’t grow really fast and be profitable at the same time. There is also this idea that you have to keep adding engineering and product resources as you scale your business. And there is this idea that more salespeople equals more sales. I have found that all three of those ideas are wrong to some extent. And I have found that really strong execution in product, engineering, and sales, based on doing less, not more, and based on having a high performing team without a lot of baggage, will allow your company to grow fast and be profitable at the same time.

We have a number of portfolio companies that are now seven, eight, nine, and ten years old that for most of their lives have been unprofitable and focused on growing users, revenues, and the team. I have been working closely with a few of them in the last year or two to help them to change their mindset to get profitable. This has, in some cases, meant reducing the size of the team, in a few cases significantly.

It has been enlightening to watch what has happened with this cohort of companies. They have kept growing, sometimes at a higher growth rate than before the belt tightening. They are better places to work, more stable, more focused, and more successful. They are better companies and they are more valuable companies. They are easier to finance and they are easier to exit.

I would encourage all entrepreneurs and leaders out there to embrace the idea of getting profitable sooner than you might think you can or should. It’s good for your companies and it is good for you.

Being Transparent About Your Long Term Strategy

Elon Musk famously posted Tesla’s long term strategy in 2006 and ended the post with “don’t tell anyone.” That has led may entrepreneurs around the world to follow suit and be transparent about what they are up to and why. I think its a great practice for companies to follow. It helps the outside world understand your company and it helps with recruiting as potential employees can better decide which companies they want to work for and why.

Our portfolio Coinbase has been doing that for a while now and Founder/CEO Brian Armstrong just posted the latest version of their “secret master plan” to use Elon’s words.

You should go read the post as I think it does a nice job of explaining where they have been and where they are going. But if you want the quick summary, here are the four steps:

  1. First, we will make it easy for consumers to invest in digital currency by building a retail exchange (Coinbase). The differentiators for this product are trust (security, compliance, etc) and ease of use (access to convenient payment methods, intuitive interface, etc). This will allow more people to own digital currency, especially non-technical people.
  2. Second, we will enable professional traders and institutions to trade digital currency (GDAX). This will support the investment use case in step one, but also scale it by driving larger trading volumes. More liquidity in the markets will reduce volatility of the underlying assets, which is important to enabling the payment network. The differentiator for this product will also be trust (security, compliance, etc) to encourage larger, traditional investors to enter the market.
  3. Third, we will create a mass market consumer interface for people to start getting value from the payment network (Token). Now that a critical mass of early users have been drawn in by the investment use case, the industry is ready for its “Netscape moment”. This product will make it dramatically easier for consumers to use digital currency as a payment network, and for developers to build applications that utilize the payment network.
  4. Fourth, by lowering the barrier to create new digital currency applications, we’ll see an explosion in the number of ideas tried. We’ll invest in, partner with, or build a number of new applications in this space, including replacements for many of the services people use in finance 1.0. Some examples include merchant processing, remittance, loans, fundraising, venture capital, escrow, credit scores, and more.

If you have a secret master plan for your company, think about posting it publicly. I think it will do a lot more good than bad for you and your company.

There Is No Free Lunch

I am reminded time and time again that things that sound too good to be true almost always are. There really is no free lunch, in business or in life.

Here are a few examples of things that seem so tantalizing to entrepreneurs and the companies they create but turn out to be just as costly (or more) than the alternative:

  1. Taking on debt instead of equity in the hope that it will be paid off in the future with equity sold at much higher prices. Or convertible debt that converts in the future at a much higher price, which is basically the same thing. I have seen this go badly so many times that I now almost throw tantrums when our portfolio companies choose to do this.
  2. Raising another round to buy more time to figure out the business model vs figuring out the business model now. “Buying time” is one of the greatest free lunch fallacies of all time. I strongly believe that now is almost always a better time than later to do something.
  3. Hiring a service provider (lawyer, accountant, PR firm, etc) who will do your work for free in return for your company’s business later. This sounds great but unfortunately locks you in to using this firm later on when others may be a better choice for your company.
  4. A big enterprise company will pay you to modify your software to work “better” for them. Sounds great now, when you need the revenues/cash so badly, but little did you realize that you just outsourced your roadmap to a big company.

I could go on and on, but hopefully I’ve made my point. I encourage everyone to make the hard and painful choices when they have to be made and avoid the free lunch fallacy. It mostly leads to indigestion.

Starting Is Easy, Finishing Is Hard

Starting a company has gotten much easier over the past decade.

The capital requirements to get started have come way down in both software and hardware businesses.

The supply of seed and venture capital has increased dramatically as well.

And there are all sorts of programs aimed at helping entrepreneurs get started.

All of this has caused a rapid expansion of entrepreneurship, startups, and innovation.

This is all great.

The one thing that has not gotten appreciably easier in the last decade is finishing.

Finishing can be anything that ends a startup project.

It can be an M&A exit, becoming a sustainable business, becoming a public company, or it could also be failing and shutting down.

None of those have gotten easier in the last decade.

There was a period where the “acquihire” was a thing and many companies that could not figure out how to become a business got bought for their talent.

But it feels like that wave has come and gone.

And so entrepreneurs and the investors who support them are back to grinding it out, trying to get to the finish line.

And, for many, that finish line feels like it is moving farther and farther away every step you take.

Startups are not for the faint of heart, both on the founder and investor side.

It takes great tenacity to see things through. And I think that may be truer today than ever.