Thoughts from 25,000 feet

Comments (Archived):

1. Fred, I think there is a distinction to be made between “developer tools” (which has always been a bad business and probably always will be) and platform products (services that are at least in part intended to be consumed by third parties). The difference is the business model.

   1. Totally agree

2. On point #3 (investors), I think the contraction of the venture business is not a matter of “if” but “when” and “how”.Name-brand firms with (a) recent funds that have returned capital, and (b) recent distributions are getting funds raised, but it’s not easy (and they’re sometimes smaller than planned). Groups without funds returning capital and recent distributions are going to have very tough sledding.There’s also the issue of fund timing with respect to the downturn, just like for portfolio company funding. Firms with last funds in ~2006 plus or minus, and doing funding now are adjusting to the new reality. While groups that closed funds early-mid 2008 may be hoping to “skate over” the contraction, or are at least are delaying the realities of having to deal with it.But going back to your Venture Math post, this is all net good, long-term: hopefully we’ll see fewer of those unnaturally distorted markets populated with over-capitalized, unprofitable companies.

   1. I’m not optimistic on that last point. I see companies that are copying our portfolio companies getting funded by our competitors. Several in the past week alone. Sheese!

3. On point #1 – Thanks for recommendation. Going to buy this book right now.#3- VC is changing, but in what direction? It would be interesting to know about your vision for VC’s future.

   1. I think VC is going ‘back to the future’Smaller funds, smaller deals, smaller partnershipsBut with very specific domain focus, which is not how it was done in the past

4. Fred,Interesting commentary on point #4. I think that Twitter in particular is already growing into a major communication medium. As the traditional news-media evolves I’d be interested to know what role you think Twitter will play in this? I think that Twitter and Twitter-related services could be MUCH bigger than Facebook within the next year. Twitter’s simplicity gives it greater market penetration potential than I think we’ve ever seen with any online service.

   1. Yes, but twitter is hard to use at the start. The ‘out of the box experience’ needs to improve

5. If you really want to feel like you have left the continent (and still eat some great food), try Quebec City. There are loads of great hotels and you will hear even less english.

6. Your point #2 about whether it’s hard to tell if the banking crisis is entering its end game makes me think about swine flu turning into something significant or not.And what happens has a lot to do with whether the swine flu mutates into something much more pernicious. By not preparing for that, and not doing the smartest things to prepare, then we’re not owning up to the fact that it could, and at some point probably will, turn into a full-blown pandemic.Albert brings this up in a recent posthttp://bit.ly/yCpbAand links to a piece by Larry Brilliant in the WSJ on pandemics that makes the point:http://bit.ly/gMau0So, if we have reached some kind of plateau in the banking crisis (and I doubt we have), then it’s not about Krugman and others playing the role of chicken little, it’s about Obama’s team trying to take the path of least resistance, and not preparing for the alternative, more turbulent scenario, whether that’s today or in the future.The only end game, IMHO, is if we design a better banking system and implement it. Otherwise, the game is still on at one level or another.

   1. Sure. But emotion drives markets more than anything else. And with Krugman and Roubini saying that banks are all insolvent and must be nationalized, we get panicNow that we know most banks are solvent and likely to remain so, we can move forward calmly and rationally

7. I don’t think we’ve yet really wrapped our heads around the role of developer adoption and how powerful it is in ramping consumer web services.I think you first have to define what a developer is. As of now, and in the near future that trait will be much more easily accessible by more people who don’t consider themselves developers. Which sounds like it would be bad for current coders, but any decent coder will tell you that the more code that is out there the better. Its an interesting field and a very interesting time to be coding. (I’m a coder). Same thing in hardware (Bug Labs for example).Piece by piece builds the generation, generation by generation builds the advance.

   1. I agree that more people are becoming developers as it becomes easier. I know designers who code, mathemeticians who code, stock traders who code, bloggers who code, and even VCs who code

8. Flying for a ‘long weekend getaway’ – bit difficult to justify from a climate perspective, don’t you think?

   1. Yes it is hard to justify. But you do certain things in a marriageBut what I’d like to know is if a nine hour drive in a car is more carbon efficient than a flight on a full to the brim 50 seat regional airplaneI guess I’ll have to get amee.com on the case

      1. lol, i love amee, that is my favorite investment of yours boss….always provides me with an excuse to drop truthhttp://www.google.com/searc…my favorite is how amee is an acronym for “avoiding mass extinction extinctions engine”…..and the youngsters say i’m a fear mongerer! hahahaha

         1. I’d like to fund more stuff like amee

            1. if by “like amee” you mean companies that are leveraging open systems, i hope you fund more stuff like that too (so i can benefit from the API 🙂 ). and i suspect you will, as you always drop it like it’s hot in that department. that’s why you’re the boss, boss!but if by “like amee” you mean companies that profit based on lies and refuse to look at the truth, i hope you’ll find more compelling opportunities that will yield you even greater returns and the rest of us real social benefit. or if i am wrong, and if amee is delivering a solution that benefits the world, all they have to do is explain how tracking carbon emissions is necessary, useful, and does any good at all. not a single mention of this on their web site, i guess we’re just supposed to have blind faith. as the UN has already called for a global carbon tax, and as cap and trade essentially is a carbon tax, i’m inclined to think there are other motivations aside from benevolent environmental concern.and for a company that claims to understand the openness of the web, i find it humorously disappointing that there is literally no information about who is running that company. i go to unionsquareventures.com i see pictures and bios. i go to etsy.com i even get to do handwriting analysis of the whole freakin’ company! shouldn’t the environmental crusaders at amee who are here to save the world from mass extinction step up to the plate and introduce themselves? after all they certainly deserve credit if their aspirations are as noble as they would like to portray.not hatin’ on you boss, i know you’re a cool dude. but it does kinda suck that the carbon tax is going to hurt me and the whole economy without yielding any benefit. just like how patent trolls suck for you and rob you and your companies of wealth (and by extension, all of us in the technology community) without giving anything back aside from flimsy lies they may try in court.or if i’m wrong (meaning if all the scientists and journalists with impeccable track records who offer compelling evidence against the carbon fraud that i repeat are wrong), all amee has to do is step up and prove it, at which point i will sincerely apologize and shut up.

            2. Good crtiticisms. I don’t share your view that carbon is a bullshit issue. But the critiques are spot on

            3. well, unlike amee, i’m eager to have a discussion about this issue, so if you really believe in the legitimacy of carbon emissions tracking/controlling, why not outline your case in a blog post, and then i can present the other side in the comments? of course amee is the one who really should be having this conversation, but unlike i think every other company in your portfolio, they dont have a blog, or any type of conversational format, so unfortunately i cant have a chat with them about this (whoever “them” might be, as they refuse to disclose their identities)all i seek is the truth, and the truth never fears investigation.

            4. Hello. Am a bit puzzled by your comment, but hope these links will help.Our home page http://www,amee.com has the following links:About our team: http://www.amee.com/?page_i…There is a link there that says “AMEE News and Blogs” http://www.amee.com/newsAnd our contact page: http://www.amee.com/contact which has email and twitter contacts. My twitter handle is @agentGav.We also have a page on how cap & trade relates to AMEE http://www.amee.com/?page_i…In addition, given AMEE’s role to bring transparency to the carbon space, our wiki not only displays all the methodologies and links to the data, but the “discussion” tab is available on every page. http://wiki.amee.comOur role in the emerging world of carbon/environmental reporting is to bring together the many methodologies, policies, factors, etc. into a neutral platform that enables clarity, auditability, coherence and portability.We believe there are many solutions that can reduce energy consumption, increase efficiency and decrease the environmental impact of our actions. Many varied actions are needed to sustain our increasing population. and demands on resource.Our role is to help collect, reveal and connect the data that will help make that possible.

            5. hi gavin,thanks for your comment. sincere apologies if i missed the links earlier, that clarifies a lot. thanks.given the nature of your business, i imagine you have heard concerns that carbon tracking is useless, as well as more sinister allegations that it is really part of an agenda for greater centralized control of society. below is a search results page that might be of relevance in terms of what i am talking about:http://www.google.com/searc…if you guys are ever able to address those issues i’d appreciate it. specifically, there are many scientists who agree with the view that carbon emissions is irrelevant and a politically motivated agenda, nothing to do with the environment or making a better world or anything like that. if you can debunk them, i imagine it would help the cause of your business, as well as unite people on this divisive and potentially controversial issue.sorry again if i missed those links before, and thanks for taking the time to comment.

            6. No problem – I’m glad that was useful.Rather than try and address the entire issue in a blog reply, I’ll offer a few personal opinions – which are entirely based on my own understanding and interactions with people in the space, and my own research.Firstly, the science and data that I’ve seen convinced me over 5 years ago that not only is this a real issue, with a real basis, but most of it is under-estimating the outcomes. I’ve also met many of the researchers, including those behind the Stern Report, and would not question their integrity. FYI, my background is in Astrophysics, 18 yrs internet and 10 years business.Secondly the politics. I’ve met many politicians and civil servants and have yet to meet one who isn’t genuinely concerned – and trying to navigate an extremely difficult set of options that are difficult to grasp. Most of them would like to try to do more but feel constrained by the potential economic and social impacts. I would disagree strongly that there is any overarching “sinister” plot or conspiracy. Apart from anything else, we’re just not that clever.Finally on the markets. I’ve met people who created some of the carbon markets. My understanding is that all markets are “buggy” and subject to gross exploitation (e.g. sub-prime). However, my personal interaction with these people have left me with the impression that a they have a geniune desire to create instruments that drive change. That they have to bridge a divide between economics and sustainability is a “damned if you do / damned if you don’t” position. I believe you have to use market forces to drive change – and build in the checks and balances to enable audit, transparency and accountability. All these systems need improvement so that the guys at the hedge fund desks are pushed to make the “right” decision – some of this requires systemic change, but it’s coming to all our financial institutions.Ultimately we all have massive issues to address around sustainability, and GHG emissions are both a part of the mix, and an excellent “catalyst” for change. I always encourage keeping a healthy cynicism, however I would like to ask that you embrace and help us navigate the transition to a sustainably, transparent future that will enable us to thrive.From another perspective, you may be interested to read my post here where I frame some of this conflict: http://radar.oreilly.com/ga… (although the comments on that post went off on a bit of a tangent!)

9. 2 stories on reinventing educationAplia learning software used by 25% of econ intro courses – http://www.washingtonpost.c…Harlem charter schools – http://www.nytimes.com/2009…

   1. Thanks druce. I’ll take a look

10. re #3 – this is where I thought your earlier post on the “illiquidity premium” was going (but all the comments were more or less academic math discussion)the point is, there is likely no worthwhile “illiquidity premium” in VC (and maybe in LBO and other “althernative investments”) if your job is to manage an investment pool like an endowment or pension that has as its core a social contract with its own investors/contributorsfor years investment committees at pensions and endowments have been distracted by the ostensible longterm gains being made harvard and yale (“ostensible” because they didn’t actually last longterm as evidenced by current situation), and so went headlong into highly risky longterm illiquid assets they should not have.now they are seeing their portfolios radically reduced in valuations, all the while their cashflows are in the doghouse because of illiquidity (plus they now seriously doubt the illiquid assets will even pay off in the longterm)of course, their social obligations haven’t decreased commensurately — no, they have increased, as disbursement requirements naturally grow over time (unless somehow the retirees or university operating budgets spending needs decrease, and that ain’t gonna happen often)any case, this is all good news for those who care about venture and entrepreneurs and innovation. the vc asset class is a bloated sloppy drunk, with people getting way overcompensated for managing poorly performing funds and inventors being drowned in a sea of too easy capital chasing copycat ideasfred, i think it was you who said, small is the new big?

    1. I think jeff Jarvis said “small is the new big” and I just reblogged itThis blog is a rolling conversation, as you well know steve, and each post is a part of a larger discussionSo the post in illiquidity premium should be seen in light of all the other posts I’ve been doing about venture capital as an asset class lately

       1. namaste!;)

11. Fred:The whole developer tools area is unfortunately overlooked by the venture community because of the small TAM perception, sometimes great ideas that can change the industry originate from that sector — case in point, VMWare started off primarily as a developer tool company, and look where it is today.

    1. I think the perception is changing. Open source has been a big win for VCs and that is largely a dev tools play

12. Good post and thanks for the book recommendation. I loved Post American World. Also, i just read Daemon on Craig Newmark’s recommendation and it proved was a fast and exciting read. You don’t seem to read much fiction but i think you’ll like this one. They say it’s a lot like early Tom Clancy except about the internet.

    1. Thanks