Posts from March 2005

Although our firm is called Union Square Ventures, we are located between Union Square Park and Madison Square Park, a bit closer to Madison Square.

In the spring, summer and fall, the location is a major asset since we are a short walk from the Shake Shack.  And the good news is that the Shake Shack opens for the season tomorrow! CORRECTION – The Shake Shack doesn’t open until Monday.

So on our way from LA to San Diego yesterday, we had to visit the orignal Shake Shack.

It’s on the Pacific Coast Highway, between Newport Beach and Laguna Beach. 

The shakes were great.

The hotdogs don’t come close to what they offer in Madison Square Park.

They don’t sell burgers.

And the sandwiches were pretty forgetable.

But the view – well that was incredible.

There was a popular book in the early 90s about the communication gaps between men and women.  I bastardized the name of that book for this post.  Although I never read the book, I believe it basically says that the way men and women think about things and talk about them are fundamentally different and unless you understand that, you are likely to have issues in a relationship.

I’ve often compared the relationship between an entreprenuer and VC to a marriage.  It’s clearly not as permanent (hopefully) and it only goes so far as an analogy, but it works to explain a lot of issues.

And there is certainly a communication gap.  VCs and their cliches (a topic I blog on weekly) can really annoy entrepreneurs.

I did that yesterday with my post on the Quick Flip.  Steve Kane, founder of Gamesville and Gamelogic, and one of the best entrepreneurs I know, took issue with some of the comments I made about Gamesville in the post.  And rightly so.  Not because I misrepresented the situation (although he thought so), but because of the language I used.

I said that "Jerry did 3 or 4 quick flips in 1999".  One of them was Gamesville.  What I was saying was the Jerry did 3 or 4 investments that resulted in quick flips in 1999.  That’s true.  Steve interpreted that as saying that Jerry was responsible for the sale of Gamesville to Lycos in 1999.  That is certainly not true.  Steve and his partner Stu were the ones who really made that deal happen.  A classic example of mars and venus at work.

But it doesn’t stop there.  I said that Gamesville was a "quick flip".  From our perspective it was.  We were in and out (holding public Lycos stock) in less than a year and made something like 5 1/2 times our investment in that time.  It was a great "quick flip" from an investors perspective.

But Steve and Stu had spent years building Gamesville and only took venture money late in the development of their company.  It was not a "quick flip" from their perspective and it was not a company that had to be flipped in order to make money. 

Steve is totally right to call me on this stuff.  It’s talk and cliches like this that give the VC business a bad name with many entrepreneurs.  We take credit for the investments we make and they interpret that as taking credit for the companies they build.  And that’s wrong.

So I apologize to Steve for doing that in my post yesterday.

And I am glad to lay all this out because I think its an important issue in the business.  Entrepreneurs build companies and VCs finance them.  When VCs start taking credit for the outcome, its going to create issues.

I’ve got Bubble 2.0 on my mind this week.

And so I am going back to Bubble 1.0 and thinking about what worked, what didn’t, and what we could have done differently.

One thing that worked great in Bubble 1.0 was the Quick Flip.

That’s when you invest in a company and within a year, you’ve sold out for a nice return.  Generally its around 3 to 5x.  And that’s a good return in anyone’s book.

We did that at Flatiron a lot in 1999.  Some of the names that come to mind are Vertical One to S1, Gamesville to Lycos, Abuzz to The New York Times, Patagon to Banco Santander, Liveprint to Kinkos, and Starbelly to Halo.  I am sure the list is longer than that.

In most cases the Quick Flip is made to a large established company that is looking to get in on some new technology (S1, New York Times, Banco Santander, Kinkos, Halo).

Jerry was the master of the Quick Flip at Flatiron.  In 1999, I think he did 3 or 4 of them.

I’ve never been a big fan of the Quick Flip.  It goes against my natural bias that you should go into every investment looking to build businesses.  The Quick Flip mentality is not a good one because what happens if the large companies decide they can build instead of buy and then you wake up and realize that you haven’t built a business and then what do you have?  I think the Quick Flip is part of the broader "no business model" problem that we had in spades in Web 1.0 and I am seeing more and more in Web 2.0.

But, and this is a big but, you must always recognize that venture backed companies are not sold, they are bought.  When the large company comes knocking on the door and offers a good deal, you should generally take it.

So, in summary, I think the Quick Flip mentality is dangerous, but when offered a Quick Flip, its often a good idea to take it.

Attribution – the photo at the top of this post comes from Flickr.  It was tagged "flip".

I am in LA this week mixing some work and some vacation while the kids are on spring break.

When I got back to the hotel after some meetings, I bumped into Malik Rose in the elevator.

Then I realized that the Knicks are playing the Lakers tonite at the Staples Center.

So I called The Gotham Gal and left a message for her suggesting she get the kids back to the hotel by 4pm when the players were going to leave for the game.

That worked out pretty well.

The kids got autographs and talked to most of the players.

The highlights were Josh’s conversation with Clyde Frazier in which he got to see his championship ring, the huddle around Stephon Marbury, and Jessica’s bumping into Jamal Crawford buying skittles and starburst in the gift shop.

It was fun to watch.

You went to a great party, had too good of a time, woke up with a terrible hangover, and promised yourself you wouldn’t do that again.

Then the people who threw the party invite you to the next one.

What do you do?  Go, of course.

I wonder if that’s what’s happening with all the activity in and around Web 2.0 right now.

Money is being made all over the Internet these days.  Some of it by good old fashioned revenues and cash flow.  That’s the foundation for the recovery in Internet investing we’ve been enjoying for the past couple years.

But increasingly money is being made the way we made it from 1998 to early 2000; mometum investing, speculation, fast money chasing deals, caution being thrown to the wind, and amateurs jumping in on the action.

It’s hard to say no to a good party.  I am struggling with the temptations myself.

Because some of the Web 2.0 stuff is very real.  The Internet is being transformed by lightweight and highly compatible web services, a quickly developing architecture of participation, business models that rely on efficient lead generation, a very low cost of entry, and an equally low cost of scaling.  Many Web 2.0-based businesses can have huge operating margins.

But for every good opportunity, there are twenty copycats and hundreds of bad ideas. In the bubble 2.0 market we are now in, these copycats and bad ideas get funded.  And they create all sorts of problems.

I don’t have any good answers to these problems, but I’ll say this:

If you were at the first party, then you should never forget how it felt when it was over. 

Drink responsibly this time.

Thanks to Jonathan who pointed me to Boing Boing this morning.

David Byrne is doing an Internet radio show.

That’s a great thing, I’d love to listen to the music that David’s listening to.

One of the tracks on his current show is Wilco’s California Stars, my current MP3 of the week.

But what I really want is David to program a space on my iPod.

I looked hard for a podcast feed of the show and couldn’t find one.

So here’s a shoutout to David to podcast his show. 

If it happens, I’ll be one of the first subscribers.

They had a bluegrass band playing at Redtail Camp yesterday.  As The Gotham Gal and I came down the bumps under the Grouse Mountain Lift, they were playing California Stars, a great Wilco song off the fantastic Mermaid Avenue album in which Wilco and Billy Bragg collaborated to create songs from a bunch of Woody Guthrie lyrics.

It’s the perfect segue song for me.  We left Beaver Creek today and are headed to California tonight.

So with that backdrop, here is California Stars, my MP3 of the Week.

Many of the best ski resorts have areas where the expert skiers and boarders hang out.  There is usually a base lodge in this area where they serve good food and drinks and there is usually a party atmosphere on warm sunny days.

At Beaver Creek, that area is Red Tail Camp.

There are three lifts that converge on Red Tail Camp; Larkspur Bowl, Grouse Mountain, and Birds of Prey.  I love all three lifts although I can’t wait until they convert the Larkspur chair to a high speed quad this summer.

Larkspur, Grouse Mountain, and Birds of Prey all have great bump runs right under the lift.  I enjoy the ride up watching the action below and I enjoy banging in the bumps under the chair on the way down.

Yesterday, the had a bluegrass band playing at Red Tail Camp and they sounded great.  The food at Red Tail Camp is also great; burgers, ribs, pulled pork sandwiches, and bratwurst with kraut.  And plenty of Fat Tire to wash it down.

Places like Red Tail Camp are paradise for me on a sunny warm spring day

We’ve been skiing in Beaver Creek, Colorado and the weather and conditions have been fantastic.

We all ski and board and generally all go out as a family.  Our kids did ski school when they were younger but in the past several years we’ve decided that a family vacation means hanging out and skiing together as a family. 

That poses a number of problems when there are disagreements about where to ski, when one family member is slowing everyone down, etc. 

But these problems are generally overcome quickly and the time we spend together on the mountain is almost always enjoyable.

We think a family ski vacation is a great bonding experience for the whole family and in particular the kids.

I spend most of my time on skis.  Jessica and Josh spend most of their time on a board.  The Gotham Gal and Emily tend to  mix it up.

One thing that has made skiing as a family a lot easier is cell phones. 

The reception at Beaver Creek has been pretty good all over the mountain and when someone goes the wrong way or signals get crossed, a phone call generally gets everyone back together again pretty quickly.

One thing that skiing with the kids and having a number of boarders in the family gets in the way of is serious bump skiing.

The Gotham Gal and I have always enjoyed bump skiing, particularly in the spring when the temperature rises and the bumps get big and soft.

But we found some opportunities to do that today and the results were spectacular. 

Except for my left knee which is sore as hell. 

Getting older and bump skiing don’t go hand in hand apparently.