I don’t believe in the keiretsu model of VC investing that was briefly fashionable in the late 90s. I don’t think you can or should force your portfolio companies to work together. It has to happen organically, if at all. But when it does, it makes my heart warm.
I saw this post on the Etsy blog (called The Storque) yesterday. Apparently a number of sellers in the Etsy community are starting to use Twitter to get the word out on new stuff they have up on Etsy for sale.
My sales have increased since I started twittering. I think as sellers
we’re all looking for ways to get our great items just a few more
seconds of publicity, an Twitter certainly offers that opportunity.
That’s most excellent!
You can also follow The Storque on Twitter. I did just that yesterday.
So many of your portfolio companies have natural synergies with each other. I could see Outside.In pulling geographically relevant twitter messages or tumblr posts. AdaptiveBlue finding comparable handmade products on Etsy. Etsy sellers creating their own Tumblr blogs to advertise their products. Wesabe showing blog posts from Outside.In related to restaurants that people are spending money on and Outside.In showing the average amount of money spent (and if people tend to become repeat visitors) of a restaurant from Wesabe. AdaptiveBlue could show whether a person is currently active in any Zynga game when you view their profile across multiple social networks. Who knows what people will create with Bug. Such an exciting portfolio.
ThanksThat’s how I feel every day
I’m intrigued by your short comments regarding a disbelief in trying to cultivate cross-portfolio company synergies. Could you explain a bit more?
The entrepreneurs who take our investments don’t want to be forced or cajoled into anything by us. They are almost always happy to meet with our various portfolio companies and think about ways to work together, but beyond that, we can’t and shouldn’t do anything to promote it.Fred
What if one of your portfolio companies wanted to work with a competitor of one of your other portfolio companies?
By all means. They have to do what they have to do to succeed.fred
Provocative post. I am going to respectfully disagree with you on this post about driving synergies across portfolio companies. Monster Venture Partners is fundamentally built around the premise that early stage companies need help, and an unfair advantage and that a Keiretsu-style of investing is a winning formula. Why might this model work better now than the 1990’s?1. Web services and standards – interoperability is straight forward in ways that were not possible in the 1990’s. Our portfolio companies are able to quickly stitch together operating partnerships with modest investment. A good illustrative example from within the USV portfolio company is Clickable, in which we are co-invested, that is able to leverage Healthcare.com (a MVP portfolio company) to access the doctor vertical in a scalable way.2. Lower startup costs – Founders are making a best effort to avoid taking on the early dilution associated with institutional VC. Monster Venture Partners provides hosted back-end for a growing array of services in order to help early stage companies get more done with less fixed costs. Later this year we will introduce the “FastTrack program” that is a partnership with leading vendors, starting in Seattle, that are interested in providing services to high potential startups on deferred terms. This practice is fairly common among leading venture law firms, and is now being extended to a range of other service providers. (Disclaimer: MVP hosts Clickable’s west coast office).3. Companies need to go global sooner – I believe it is incredibly difficult for a startup to simultaneously master a vertical and go global. My previous company, Global Market Insite (GMI), did it in 1999 and grew 100% per year for 7 years straight with a team in 23 cities on 6 continents serving customers in 40 countries by the end of year 3, using a modest $2.3 million in capital. These days, 3 years to go global is an eternity. Just look at the number of Twitter clones. For less capitalized companies, the keiretsu model is a way to go global faster. In fact, MVP just opened a Shanghai office, in part to help all portfolio companies with their China strategy both for distribution and sourcing.As for the issue of cajoleing cooperation between companies, obviously the CEO must be empowered. I generally make introductions and provide encouragement but the final word to any CEO we back is something akin to “it is your call”. Part of the way we are about to drive partnership is to share information openly, often in real-time, rather than the annual CEO summit model which is a suitable venue for getting introduced socially but not a convenient forum for testing hypotheses about how companies can leverage off of each other.Finally, I believe the model only works when there is a master architect that specifically knows the operating synergies before the investment is made and gets all sides to buy into the synergies pre-investment. This is my model, and the result is that the companies often prove out the synergies even before the investment closes. I believe early Kleiner Perkins had many of these elements in their model, and it obviously worked. I believe it will work again. The early results are encouraging based on 16 venture investments made in the first year with multiple material up-rounds. Whether or not it racks up Fred Wilson like returns remains to be seen, but I am optimistic both for the fund, and for the entrepreneurs we back.
My impression is that Fred is saying you shouldn’t force these relationships between companies whose only common thread may be a shared investor.Rob – I may be mistaken, but from our brief meeting it seems MVP is a different kind of fund, which puts a lot of weight in picking very early-stage investments that you feel will have synergy with the existing portfolio. My thought is that if you’re doing that from the start, you’re really building the symbiotic environment, and then letting nature (with encouragement) take its course. I think it sounds like a very valid strategy, it just requires you to play a little more of a “CEO Manager” role, as well as balancing merits of individual opportunities as independent entities versus how they contribute to the portfolio symbiosis.The other interesting angle that MVP takes, which I’m a little less bullish on for various reasons, but is worth pointing out, is maintaining a high-value domain portfolio, and seeking ideas to fill them. Certainly a domain like healthcare.com gives the startup a boost getting out of the gate, without having to invest a large amount of cash in securing the name.Wishing you both continued success!
Thanks DarynGoing forward I will refer to MVP’s style of investing as “Ecosystem investing” rather than “Keirestu”, if for no other reason of avoiding the taint of being a 1990’s re-tread. :-)In general though I stand by the hypothesis that Keiretsu model can work if (1) the architect has a compelling vision, and (2) one or more portfolio companies buy into this vision. And for sure not every VC can or should attempt this model.
RobGreat pointsI think we are actually in agreement on most of thisI just think the way you work with the companies to incent this is criticalfred
Seth Godin linked to a posted a few days ago that every Etsy member should read – 1,000 True Fans. A great vision for how to transform a passion into a full-time business by building relationships and having conversations with your “Fans”. http://sethgodin.typepad.co…