VC Cliche of the Week

So far, all of the cliches I’ve blogged in my weekly post on the subject have been taken from others.

Today, I am going with one that was hatched in the offices of Flatiron Partners in late 1996.  Jerry and I were sitting around talking about something and we came up with:

What’s the analog analog?

Brad credits Jerry with coining this term and that may well be the case, I don’t recall.  But we loved it from the minute it came out of whomever’s mouth and we used it all the time at Flatiron.  Before we’d invest in something, we wanted to understand what the same business looked like in the offline world.  We would then use that analog to map out what the new business was likely to look like in the online world.

For the next three years, we steadfastly avoided ecommerce companies.  For the analog analog for an ecommerce company was a retailer.  And we all know that retailing is a tough low-margin business with little differentiation.  And so we felt that ecommerce was going to play out the same way on the web.  We were right for the most part.  Then came mid 1999 to mid 2000, when we started ignoring our own rules, and we did some ecommerce and proved that we were right about it in the first place.

We saw as The Wall Street Journal, we saw ITXC as MCI, we saw Comscore as IRI, and so on and so on.  For the most part it worked.

But you know what?  If you stick with this approach to investing you miss some really interesting stuff.  There was no analog analog for Geocities and that was our biggest winner on a multiple of dollars invested.  There is no analog analog for Yahoo! and Google either.  And what about eBay?

We still talk about the analog analog.  It’s a useful construct when there is an analog analog.  But it feels very Web 1.0 to me and its not the primary thing we worry about in a deal anymore.

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