Posts from October 2005

Why am I smiling a mile wide in this photo?

Because there is nothing more fun than learning from some of the smartest people you know.

And we did that yesterday in the first of hopefully many Union Square Sessions events.

When we started our firm, we did a few sandwich lunch get togethers in our conference room where were got 10-15 people who were experts in a particular area and we talked for a couple hours about that area.

Brad had the idea to take it up a notch.  The Gotham Gal came up with the name.  And Charlie and Kerri did most of the work. 

The result was a great day with a bunch of our best friends in the business.

The tagline for yesterday’s event was:

"…a small group of the smartest people we know talking about the
emergence of open, participatory, "peer produced" web services like
craigslist, linux, flickr and del.icio.us and their impact on our
economy and capital markets."

The details of the event, including the attendees, agenda (and soon the entire transcript) are on our public wiki.

Charlie has been blogging some highlights of the event (including some video) on our Union Square Ventures blog.

And I put together this quick 21 photo slideshow on Flickr in case you want a flavor for the people and place.

I am going to post some more on the observations, insights, and conclusions coming out of the event.  We also expect a bit of blogging will go on and I will link to that too.

Stay tuned for more.

One of the best albums to come out of the 1990s is It’s A Shame About Ray from the Lemonheads.

Evan Dando probably had too many Drug Buddies and his career went downhill pretty fast.  But this debut record, which landed on our CD player in 1992 stayed there for a couple years and makes a cameo every now and then, is great punk pop.

The big hit on this record is It’s A Shame About Ray and the cover of Ms. Robinson also got some airplay.  But the softer songs, like Drug Buddie and the country twinged Hannah a& Gabi do it most for me.

I particularly like the backing vocals from Juliana Hatfield on this record. I like the songs where she sings the most.

All in all, its a Rockin’ Stroll.

Get it at Amazon

Get it on iTunes

Listen on Rhapsody.

I may have to replace my VC Cliche of the Week posts someday with a series on great Shakespeare quotes to keep in mind while you are doing venture investing.

This one, from Hamlet, is some wisdom that I should have kept in mind but didn’t.

The story goes like this.

Once upon a time, we had a very early stage company in our sights.

We met the Company shortly after it was formed.

We became users of the service, promoted it to a lot of our friends, and got to know the management team really well.

When it came time to consider an investment, we did what all good VCs do.  We got on the phone and called ten people in the industry that we knew really well to get their take on the Company’s service.

We heard pretty much unanimously that they "would never use it".

We passed on the investment.

But it was a huge headfake.

Because within six months all of the people we called had become customers.

What happened?

Is due diligence actually a bad thing to do?

I told this story last night at a dinner party with some friends and asked that very question at the end of the story.

Our friend Tom Evslin played a bit with his beard (which means he’s thinking) and then suggested that when you get unanimous rejection you are actually hearing fear.  And fear should be interpreted positively, not negatively.  It meant that all of our friends didn’t understand the company’s service and were afraid of it.  Probably because it was highly disruptive.

To which I replied, "the lady doth protest too much"

To which Brad replied, "that’s the title of your blog post"

And it is.

I wrote a post yesterday on the Union Square Ventures blog about a methodology we use at Union Square Ventures that I call the three case analysis.

Here’s a snippet from the post:

For entrepreneurs, I have some suggestions.

– build a good solid model that has at least a couple years of projections for revenues, cost, headcount, etc.
– make sure to create a cash flow projection that ties into the profit
and loss. ideally you’d have a full balance sheet projection.
– make it easy to adjust the model so that it can be used for a scenario analysis
– do the worst case analysis before the venture capital investors do it so you’ll be prepared for the conversation

If you are interested in how VCs play with financial models, go give it a read.  As always comments are appreciated.

I don’t have the inspiration this morning so I am going to turn this post over to the readers.

Please post your favorite VC cliches in the comments section and I’ll bring them up to the front page.
——–
Thanks everyone! I may reblog some of these.  Go to the comments to get the explanations for them.

"There’s no there there" – Charlie

"skin in the game" – Simon

"shoulder to shoulder" – Simon

"We can move quickly" – Jay Rand

"We’re not investing in this space right now" – Charlie Crystle

"You’re too early for us" – Derek Scruggs

"We DO seed stage investments" (when they actually don’t) – Simon Veingard

Sustainable competitive advantage – Daniel Nerezov

"Orders of magnitude" – Greg

"Sweat equity." – Joe

We provide more than just capital. – Alistair

"That’s management’s problem" as opposed to "that’s a management
problem."  – Tom Evslin

Its not just our money its our contacts – Brian

now tell us what you would do with five times the investment amount – Brian

we’re entrepreneurs too – Brian

"They have a good story to tell." – Keith Alioto

"let’s wait until we get our guys in
there to see where the bodies are buried"  – Keith Alioto

"It’s the golden rules.  He who has the gold, makes the rules." – Flint

We have a "hands-on" approach. – Hooman Radfar

This ain’t my first Bar-B-Q. – Jackson

It looks good from my house. – Jackson

Someday this war is gonna end. – Jackson

Water on the lectern. – Jackson

We don’t have a problem building a bridge, but there’s got to be another side. – Johannes Ernst

Friendly Fire – Ken Berger

"How will you reach the beach?" – David Churbuck

"What’s your Microsoft (Google)(AOL)play?" – David Churbuck

"Eat what you kill." – David Churbuck

Scalable and repeatable sales process. – Chris Yeh

"bowling alley effect" – Ruchit

What’s your "unfair advantage"? – An Entrepreneur

"First mover" – An Entrepreneur

Will the dogs eat the dog food? – Bill Bryant

"Can Microsoft develop this too?" – Caspar

"defensible intellectual property" – Bob Chatham

"this will be a long movie" and "I’ve seen this movie before" – Toni

"let’s drain this swamp" – Toni

"Too much has to go right for you to succeed." – Mark Sigal 

"Who do you look like?" – Mark Sigal

"It’s as deadly to be too early as it is to be too late." – Mark Sigal

Deal Rhythm. – Daniel Nerezov

"Value-Added Investor" – James Haft

What’s your value add? – David Cavalier

Let’s not reinvent the wheel – David Cavalier

We’re "value added" investors – David Cavalier

We need smart money in the deal – David Cavalier

Let’s see how they block and tackle – David Cavalier

"Forecasting rain is one thing, building an ark is another." – Mike Santer

"In the beginning
you need the barbarians." – Mike Santer/John Chambers

"If you don’t know your meat,
you better know your butcher." – Mike Santer

"There’s always more month at the end of the money." – Mike Santer 

"If you are not the lead dog, the scenery never changes." – Mike Santer

"Make dust or eat dust." – Mike Santer

"Second place is still losing." – Mike Santer

"That Company’s multiple (earnings or sales) discounts not only
the future, but also the hereafter." – Mike Santer

"It doesn’t much signify whom one marries, for one is sure to
find next morning that it was someone else." – Mike Santer

"You’re telling Noah about high water." – Mike Santer

"Pigs get fat, hogs get slaughtered" – Greg Haslam

"there’s a lot of hair on that deal" – Greg Haslam

One of the reasons I like Mark Pincus is he is never afraid to tell you what he thinks.

In this post, he tells the world what he’d do if he were Rupert Murdoch.

Some good points about where big media needs to look for web value.

David Beisel gives you the due diligence checklist you need to complete before taking the job.

This is really good stuff that every prospective employee should read and take to heart.

Startups are exciting, fast paced, and potentially very rewarding financially.

But they have issues.  David’s list will help you identify and get comfortable with the issues before you take the plunge.

Thanks David.

I posted last month on Reed’s Law, the notion that Group Forming Networks (GFNs) create value more quickly than regular networks.  It makes sense to me that a network whose nodes themselves are networks (think MySpace, Facebook, social networking in general) would increase in value more quickly than traditional networks (think AT&T).

My thinking on this has been greatly influenced by Umair at Bubblegeneration and Nivi, both of whom are younger and smarter than me and thinking hard about this stuff.

But it’s not just the young guys in the business who are thinking hard about Reed’s Law.  Tim Oren has been busy rethinking Reed’s Law on his blog.

And yesterday, Tom Evslin came out and said that he thinks Reed’s math is wrong.

So, to summarize, Reed is right that GFNs set up the potential to create value much more rapidly than traditional networks.  How "much more quickly" this happens is the subject of some healthy debate.  And whether there is a natural limit to how far this goes is another subject of some discussion.

So last night, after a nice event with the Tacoda engineering and operations team, we got talking about Reed’s Law. Joe Wilson, who has been working in the Internet arena for a long time, suggested to me that the value creation equation needs to also take into account the "monetization ability" of each of these GFNs.

Tacoda specializes in helping people who operate online properties "monetize" them. So it wasn’t surprising to hear Joe talk that way.

I guess the bottom line for me on this stuff is that its important to understand the underlying fundamentals of online businesses, but getting the math exactly right may not be the most productive use of time. I’ve met plenty of great entrepreneurs over the years who know that revenues minus costs equals profits, but have no idea what a differential equation is.  And it never got in their way.

Brad Feld has a good post on continuous partial attention.  That sounds pretty much like what the Gotham Gal and my kids complain that I give them.

But in his post, Brad describes something I need (and might also address some of my continuous partial attention issues).

Brad calls it an "email prioritization system".

It’s the next step for spam filters.

As Brad explains:

“email prioritization systems” (e.g. spam has priority=null, email from
Amy or my mother has priority=immediate, email from my partners has
priority=high) where the priorities are automatically tuned by my pci
based on my behavior things become more interesting.  Finally – add one
more layer of abstraction – my pci knows when I am ready to received
different priorities and presents them to me only when I’m ready (e.g.
I always get interrupted by Amy or my mom, I sometimes get interrupted
by my partners depending on the thing I’m working on, but it always
comes at the top of the queue, etc.) – and you’re really getting into
an interesting zone.  Of course, delivering it one time on the
appropriate device (computer, cell phone, television, carrier pigeon)
in the right location is a key part of this.

I need this system immediately.

As this blog has grown I am getting ever more email.  And its all good.  And I try like hell to reply to all of it.  In the process, I miss emails from my mom.  It happened a couple weeks ago. I totally blew off my mom. Not cool.

So if I am totally blowing off your email, don’t feel too bad.  I am giving you the same priority I gave my mom.

I need one of these email prioritization systems badly.  If you’ve got one, please let me know ASAP.