Posts from July 2005

• The Business Experiment – Home
• One Louder
  (tags: nyc music blog)
• The Arcade Fire (2) NYC Shows – a photoset on Flickr
  (tags: music)
• Fractals of Change: Rent-A-Wreck, VisiCorp, and Me
  a great story on the lessons and challenges of being an entrepreneur
  (tags: entrepreneurship)
• Gotham Gal: Extremely Loud and Incredibly Close
  The Gotham Gal highly recommends this book.
  (tags: books)

If I had to choose just one voice to listen to over all others, I’d choose Nina Simone.

Her smooth, smoky, soulful voice is sheer pleasure to listen to.

Nina put out well over a hundred records in her long career and you can get most of them on Amazon.

I have not heard very many of them, although I can say that Nina, Anthology, and Very Best are all must have records for Nina lovers.

But this is about my favorite records.

When I reach for Nina, it’s most often for this record, called The Essential Nina Simone.

Jackson calls records like this "packages".  And it is.  But so what?  It’s a great record and everyone should go get it and put it on and listen to it.  I can pretty much guarantee that nobody will send it back.

• Bloc Party at Roseland
  should be a great show
  (tags: concerts music nyc)

  Cybernostalgia 
  Originally uploaded by fredwilson.

I read a great post couple months ago about Kozmo.com, titled, "Why The Web Still Weeps for Kozmo.com".

Apparently you can still buy old Kozmo paraphernalia on eBay, Craigslist, and elsewhere.

I have my own Kozmo memorbilia and this one – Lady Liberty with the Kozmo bag slung over her shoulder is my favorite.

It used to be that the ultimate career goal was the CEO job at a Fortune 100 company.

And it’s generally the best way to get invited to join Augusta National too.

And if you really made it, you might get invited to join the administration and go to the White House.

But these days, it seems that people are leaving those jobs aside and heading to private equity instead.

In the past week, I’ve read three stories that made this realization hit home

1 – Colin Powell, former Secretary of State and Chairman of the Joint Cheif of Staff of the US Military joins Kleiner Perkins as a special limited partner.

2 – Sandy Weill, former Chairman and CEO, of Citibank wants to leave Citi early to start a buyout firm.

3 – John Joyce, head of IBM’s Services Group, which represents over half of IBM’s revenues, gets off the CEO track to join Silver Lake Partners, a technology buyout firm.

It seems that private equity and venture capital is the career of choice these days.

So when are the invitations to join Augusta going to start coming our way?  🙂

Venture Capital is supposed to be patient capital, willing
to support an entrepreneur for a long period of time while he or she builds the
business. In general, I have found this
to be true of VCs, although there are clearly some in the business who can and
should work on their capacity for patience.

But even the most patient investors can get tired of
supporting an investment. This is called
“deal fatigue”. I have seen deal
fatigue, I have experienced it myself, and I think it’s an important emotion
for VCs and entrepreneurs to recognize and understand. 

The typical life cycle of a venture deal is five to seven
years. I have seen deals that have taken
longer than that. At Euclid Partners, we
had portfolio companies that were double digits in terms of years held. That is patience!

But beyond the years held, there is another factor that I
believe is more important in the deal fatigue equation. 

Everyone has heard of the J-curve. It is used to describe returns in
a venture fund. They are negative in the
early years, get positive in year 3 or 4, and then grow from there.

That J curve can also be drawn to show the typical annual
cash flows of a startup company. They
are negative for two to four years, turn positive, and grow from there, thereby
creating value for the entrepreneurs, operators, and investors. During the early years, the VCs support the
company with capital infusions, thereby acquiring their ownership stake. 

But sometimes the J-curve flatlines. It doesn’t turn positive.

In the simplest case, the patient dies. That’s usually good for everyone
involved. The company didn’t get
customers, revenues, and build a business. 

But it’s rarely that simple. Some companies get customers, revenues, create value, but don’t get cash
flow positive. They end up on life
support and nobody wants to pull the plug for good reason. This is by far the
most common cause of deal fatigue.

It’s important to get inside the head of the investor for a
moment. Let’s take an investor who is
putting up his or her own cash. The
first time they write a check to invest in a startup they are excited about the
possibilities and are eager to make the investment. When the Company comes back for another
investment, the investor often continues to be excited by the possibilities and
eagerly opens the wallet. But a second
emotion starts to creep in and that is obligation. After that, every time the wallet opens, the
excitement dims and the obligation increases. It’s just human nature. 

Now, let’s add to that simple investor emotion equation the
notion of investing other people’s money in a partnership structure. The VC isn’t opening his or her wallet. They are asking their partners to authorize
the investment of other people’s money in the company. That is called “going back to the well” and
is another great VC cliché. Think about
the emotions for everyone involved in this exercise if it’s done time after
time.

So that’s deal fatigue. It’s driven more by money than time and it can be a very destructive emotion
in the board room if it is not managed properly. 

So what can an entrepreneur do to protect him and his company
from investor deal fatigue?

First, don’t let the J curve flatline. Get profitable in a reasonable period of time.
Two to three years is typical, five
years is too long. 

Second, bring new investors into the syndicate every time
you raise money. The investors who wrote
the checks in the A round might be tired by the E round, but the D round
investors will have fresh legs.

Third, start with a low valuation and slowly and carefully
build it in each investment. The
investors will be less tired if they see the value of their investment
increasing in each round. But if you
start at too high of a price and then get stuck there or worse, go down, then
you are in for trouble. There is nothing
worse than a tired investor with a paper loss on his or her hands. 

In summary, VCs as a group are the most supportive and
patient investors I have ever met, but they are investors and are subject to
the same emotions that all investors experience. There is not an unlimited supply of capital
and patience in a venture capital firm and entrepreneurs need to be acutely
aware of that fact if they choose to finance their company with venture
capital.

• Who Killed Davey Moore? – A song by Bob Dylan
  incredible early Dylan song never released until the Bootleg series
  (tags: fred’spodcast fred’sbest)
• The New York Times > Technology > Blogs 101
  (tags: blogs)
• The Gordon Gould Weblog
  Gordon’s musings on “discovery”
  (tags: tagging web20 search discovery)
• The Gordon Gould Weblog – on Blog Overload and Social Search
  (tags: blog search overload)
• Mark Pincus Blog: My 2 Cents on Hotjobs Scraping
  (tags: jobs)

I’ve posted my Adsense stats in the past and I like to do it
fairly regularly, particularly if there is an observation that I can make from
them.

Here is the chart of my Adsense ad views since the beginning
of the year.

The sharp increase in early June resulted from the insertion
of Adsense ads into my Feedburner feed. I have three feeds, only one of which runs through Feedburner, so the
Adsense ad views represent my blog page views plus roughly one-third of my RSS
feed views.

Adsense doesn’t load an ad into a page or a feed unless it
has been opened in a browser or a reader so this is an accurate measure of the
number of views I am getting on the places I have Adsense running.

I know that my blog averages about 2,500 page views per day,
so the increase to about 8,000 ad views per days says that the Feedburner feed
is driving about 5,500 ad views per day. And if I were to add Adsense to my other two TypePad feeds (atom and
rdf), then I’d probably have about 20,000 Adsense ad views per day.

That’s an impressive number for a one guy/part time one
hour/day operation. Assuming I could get
a 1% click through on those 20,000 ad views, that would be 200 clicks per
day. And if I could get $0.50 per click,
I could make $100 per day. That’s $700
per week, and $36,500 per year. For one
guy/part time one hour/day, that’s a huge number.

But alas, it doesn’t work that way. I suppose you all knew that it wouldn’t.

First, I don’t have Adsense running on my two TypePad
feeds. If I could run them through
Feedburner, I could run ads easily. But
so far, neither TypePad nor Feedburner has figured out how to make that happen
for me. I hope they will soon.

That cuts my earning potential by 60%.

Then there’s the nastly problem of little to no click through
in the RSS feeds. I was getting a 0.5%
click thru rate before I added RSS feeds (down from 1% for all of last year, a
decline I still can’t figure out). With
the addition of RSS, my click thru is now 0.2%.

Here is a chart of my click thru rates since the beginning
of the year.

If I assume the web ads still have a 0.5% click thru rate,
then I am getting 13 clicks on my blog on the web on an average day. That means the extra 5,500 RSS ad views are
generating an average of 3 clicks per day.

If you buy that math, RSS is generating a 0.05% click thru
rate (one tenth the rate the blog page generates).

So it’s hardly worth getting ads into my other two RSS feeds
until the RSS click thru rates improve.

I don’t read my blog in RSS so I don’t closely monitor what
kind of ads are running on my RSS feed. I’ll take a look and report back, but this is a concern for everyone who
is betting on ads in RSS to make them lots of money.

So in conclusion, what happened to the $100 per day that I
projected I could make with my current traffic? It’s a tiny fraction of that. Currently its running at around $4/day, and that’s still “labor of love”
territory. Here is a chart showing my
dollars per day since the beginning of the year.

I don’t keep the money I make on Adsense, I donate it to the
Grameen Foundation, but nevertheless I am troubled by something.

In February, I was generating 2,000 Adsense ad views per day
and was making north of $5/day on a good day.

Today, I am generating over 8,000 Adsense ad views per day
and making less than $4/day on a good day.

Some of this is due to the RSS issue, but even without it,
my traffic has gone up by at least 20% since February and I am making less.

Something is wrong and I think it’s the targeting and
relevancy of the ads. There’s $96/day of
opportunity for someone who can address this problem and that sounds like a big
bucket of money to me.

Please let me know what you think.