Posts from August 2009

It's accepted wisdom that managers need to get out from behind their desks and walk around the office checking in with the team, talking to people, answering questions, and firing people up. I encourage every entrepreneur and manager we work with to do that regularly.

But how does a VC "get out from behind your desk"? We work in small offices surrounded by our colleagues and usually are connected to our portfolio companies by email and the phone (and twitter).

Yesterday was a great day for me. I got to get out behind my desk not once but twice.

In the morning, I hopped on the subway and headed up to visit one of our portfolio companies. They showed me some new stuff they are working on and we talked over a few features, how they should implement them, and some interesting design choices they are making. It was an hour and a half of deep dive on product and I loved it. I hope they get as much out of the meeting as I did.

Then in the late afternoon, I hopped on the same subway, headed up to the same part of town (the garment district which is quickly becoming the web district) and talked to the entire team of another company I am involved with. They asked me to talk to the team about the venture business, what we invest in, why I wanted to get involved with that specific company, and what I am excited about in their business. Then I took questions for about 25 minutes. The Q&A was fast and furious and very stimulating. Again, I hope they got as much out of that talk as I did.

I was supposed to do something similar with another one of our companies this week, but it was postponed for a couple weeks. I am looking forward to that talk too.

These kinds of sessions, where I get to engage deeply with one of our investments, are the best part of the work I do. I love meeting new people, hearing new ideas, getting excited about new investments. And of course I love watching our companies launch new things and drive their business forward. I particularly love that magic moment when they become profitable and are no longer dependent on the mercy of VCs and the capital markets. But the very best part of the venture capital business is when we get out from behind our desks and get into the portfolio companies. I want to do it more and I suspect every VC does.

Our portfolio company Boxee announced a second round of funding today, led by General Catalyst. With half of the last round still in the bank and now $6mm of new capital, there is a lot that Boxee could be doing. But in his blog post announcing the financing, Boxee's CEO Avner Ronen listed the four things that Boxee is doing right now and will continue to focus on:

Going forward we plan to focus on:

• Improving the product
  – We are working on the Beta release (due later this fall), but also
  looking beyond Beta and into the roadmap of 2010. The idea is to have a
  healthy mix of development driven by user feedback (which is the
  essence of the upcoming Beta) and innovation that comes from within
  Boxee.

• Adding more content – We believe Boxee
  can be a great partner for independent content producers as well as big
  media companies. We will try to bring more TV Shows, Web Shows and
  Movies from ad-based, subscription-based and a la carte type services.

• Attracting more developers
  – While we have an App Store on Boxee, we know it needs some love. For
  Developers, we know it needs to be easier to develop and monetize apps.
  For users, we're going to make it easier to find apps on Boxee. Last
  but not least we're going to extend the APIs so everyone can do more
  with Boxee.

• Bringing Boxee into devices – Boxee
  today is mostly serving a tech-savvy audience – those who feel
  comfortable connecting a computer to a TV. To make Boxee more
  accessible for a mainstream consumer it's important for us to get Boxee
  embedded into connected TVs and Blu-Ray players, game consoles and
  set-top boxes. We're already talking to device makers to ensure Boxee
  works on a variety of platforms for 2010.

I like that there are only four things Boxee is doing right now. It could even be three or two. And I like that Avner has clearly and concisely articulated what they are, both inside the company and outside the company. The more everyone knows what you are working on, and what the priorities are, the better off you'll be.

My partner Brad Burnham, with whom I started Union Square Ventures, thinks as much about the markets we invest in as anyone I know, but he doesn't share his thoughts as frequently as I do. But when he does, it's always worth reading.

Yesterday Brad posted his thoughts on the freeconomics debate that Chris Anderson and Malcolm Gladwell had a while back. Brad thinks they are both wrong.

I'm going to tease you all by giving you three quotes from Brad's post and then I hope you go read it in its entirety. It's a quick read, a few minutes is all it will take.

Here are the three quotes. Enjoy.

Update: Nik thinks I missed a good one, so I'll add a fourth:

I'll be turning 48 in a ten days. I was born on August 20th 1961. It was a good month and has produced one President already.

As I get older, and 48 does seem downright old to me, I've gotten harder to buy presents for. Some claim I'm impossible to buy presents for. That's largely because I don't like presents. At least material presents. I love handwritten notes and home cooked brownies.

But most of all, I like it when people do something nice for others in an effort to be nice to me.

And so this year I've decided to ask people to give to a donors choose project of their choice as a way to send me a birthday present. Fortunately Donors Choose makes it easy to do this. Anyone who wants to do a "birthday challenge" can set one up here. You can "tweet it up", share it on facebook, and put a widget on your blog or myspace page.

I did that yesterday and here is my birthday widget. I'm dedicating this campaign to music education programs in schools that are struggling to make ends meet.

This widget will appear on the right sidebar sometime today and remain there until my birthday ten days from now. So if you want to celebrate 48 years of my time on earth and do something good for kids in public schools at the same time, give something to donors choose. I promise you that it will be a great experience for you and the teachers and students who benefit from your generosity.

I wrote a post recently called "Double Down, But Only On The Right Hand" that was about Yahoo!'s decision to bail on search and Microsoft's decision to double down on it. It was also about new forms of search, like real time search, that are worth investing in.

Since writing that post, I've been thinking a lot about "doubling down." Conventional investing wisdom is when an investment goes against you, the thing to do is get out and move on to the next one. Most of the great traders I know practice that approach and it works well for them.

But in venture capital and private equity, it is not easy to "get out." These are illiquid investments that you can't simply sell and move on. So when an investment is not working, you are faced with walking away, shutting the company down, or making an additional investment. And these are hard decisions.

Like most VCs, I am guilty of sticking with our investments too long and putting too much money into the ones that are not working. It's an occupational hazard. As I've gotten more experience in the venture business, I've gotten better at this part of the business, but it is still a challenge for me and most VCs I know.

Bliss McCrum, one of the two VCs who taught me the venture business early in my career always said, "if you are going to put more money into a company that is not working, make sure to change the strategy, team, or cost structure, or all three." It's good advice. You will not get a different result doing the same thing.

The important thing to focus on when making a follow-on investment in a company that is not working is to figure out what's wrong with the company and use the financing discussion to fix it. That's when the investors have the most leverage and when change is most easily obtained.

It is also important to recognize that some investments cannot be fixed. And in those cases, painful as it is, the right thing to do is shut the company down or sell it if a buyer can be found. I prefer the latter outcome, even if getting it is more costly to the investors. Finding a "home" for a company and a team has reputation benefits that accrue to the VC investors over a hard shutdown.

The biggest "double down" I ever did in my career was on the Flatiron portfolio in late 2000/early 2001. We had invested $500mm in 60 companies from 1996 to 2000 and had taken out about 3x that number in cash and stock distributions on 24 companies. The remaining 36 companies were all struggling in the wake of the bursting of the Internet bubble and the portfolio was basically worthless on paper.

Our financial partners wanted out, as did we, but there was the little problem of a portfolio of 36 companies. It would have been easier to take our 3x and be done, but that is not what we did.

Our financial partners agreed to invest another $75mm into the portfolio and my partners and I agreed to triage the portfolio and invest the $75mm wisely into the survivors. We shut down roughly a third of the companies and sold off another third over the next year. But on the final third that we thought had real potential, we invested the additional $75mm.

I am not going to get into the full details of that $75mm "double down" but I will say that three of the twelve companies we doubled down on, Bigfoot Interactive, comScore, and Mercado Libre, have produced north of $300mm in combined value for that portfolio. The other nine have produced even more value and we still have four companies left in the portfolio.

I've told this story before on this blog so it may not be new to some of you. But I like to tell it because it was a very formative experience for me. I learned that when times get tough, you can't cut and run. You have to commit yourself to finding a way out. And the way out involves a double down, but it also involves some hard choices, taking some losses, and restructuring the remaining assets so you can go forward.

In times like we are in, most people are living with situations like this. I am as are most of my friends in the VC business and elsewhere. I hope this post helps those of you who are struggling with this process. The ending of the story can be a good one if you do the right thing, are honest with everyone, and double down on both your financial and personal commitment to the investment.

This post has very little to do with technology and venture capital. Every once in a while I like to share things with all of you that simply blow me away. This post is about a restaurant in Chicago that I went to thursday evening with my friends Dick and Eric. Dick has been telling me for quite a while that I had to go there. And so we did. And we had a meal that I don't think I'll ever forget.

Alinea is the creation of an amazing chef named Grant Achatz. He is a food artist and his food challenges every convention and then some. I've been to restaurants, like WD50 in NYC, that attempt to do the same. I've always felt the adventure in these restaurants compromises the taste they deliver. But Grant has figured out how to combine absolutely amazing tastes with adventursome presentations and that is why Alinea is one of the top restaurants in the world.

You don't order at Alinea. You simply choose between the 12 and 24 course tasting menus and decide if you want them paired with wine. We did the 12 course paired with wine. Here is our menu. Every diner is presented with one on their way out.

While every dish was amazing, my favorites were the pork belly, the foie gras, the crab, the wagyu beef, the bubble gum, and the chocolate.

The chocolate is prepared directly on the table. They clear the table, lay down a special table cloth, and Grant and one of his chefs come out and literally "paint" the table with chocolate, berry sauce, and malted cold chunks. Here's a photo I took of the presentation.

Alinea is expensive and it is also hard to get a reservation. Be prepared to spend in excess of $200 per head and possibly as much as $300. It's not something I would do often, maybe only once (I've got to go back with the Gotham Gal), but it is an incredible dining experience and easily in my top ten all time.

If you love food and memorable dining experiences and don't mind spending the money, make sure to visit Alinea next time you are in Chicago. I promise you that you won't be disappointed.

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Image by fredwilson via Flickr

I was in Boulder Colorado yesterday for Techstars demo day. This is the second year that I have attended this event.

Techstars started in Boulder three years ago and this year expanded to Boston. It's one of the many Y Combinator style startup programs and in my opinion, one of the best. They work very hard to connect their teams with mentors and the value of the mentoring shows in the quality of the projects and the presentations.

I saw ten companies present yesterday morning and every single presentation was good. Like all early stage investments, not all of these teams will end up being successful, but I am sure that many of them will.

My favorite projects were Next Big Sound, Everlater, Take Comics, and Vanilla. I almost hate to mention my favorites because all the projects were strong and the ones I like best reflect the areas I am most interested in as an investor.

If you want to see a list of all the companies that presented, Don Dodge has a post up on Techcrunch with a description of all ten.

Everlater actually used our recent trip to Stockholm and Slovenia as a demo for their service so I can't help but like what they are doing. As a family that does a lot of travel blogging, I can attest to the fact that there isn't anything that does a great job in this sector. I'm eager to use Everlater on our next trip this winter.

Next Big Sound is "compete for musicians". They made the strongest presentation, the service shows very well, and they know exactly what they want to be and why. It is interesting that they were accepted into Techstars with a different plan and switched it during the program. There was no hint of that. Nicely done.

Take Comics is "iTunes for comics". I confess that I am not a big comic fan and never have been. So this one is not in my sweet spot but I was very impressed by the product they have built. I think they will be successful.

Vanilla is open source forums software for the web. The team has been working on this project for quite a while before joining Techstars. So the value they got out of Techstars was not a product. They got mentoring and motivation to build something bigger. And they announced a hosted version yesterday which is the beginning of a revenue model and a business. That's great to see.

There are nine more Techstars companies in Boston and they have their demo day in early September. I'm not sure I'll be there someone from our firm will be there. Speaking of these programs more broadly, we are very big fans of them. We've been attending Y Combinator demo day since the early days and this year we will attend six different demo days and wish we could attend more.

These "startup programs" are teaching hundreds of teams each year how to start and build businesses, they increase the pool of talented entrepreneurs, and they increase the number of quality opportunities we can invest in. That's great for everyone.

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I checked out my twitter replies this morning and there was one from farhanlaji:

Farhan is referring to comments Rupert Murdoch made on News Corp's earnings call about turning all of News Corp's news sites into paid properties.

I'm eager to see News Corp do this. We can talk until we are blue in the face about whether people will pay for news or not. Talk is cheap. Actions are not. So I'm eager to see the experiments begin.

I've said that I think a freemium model is best where the "drive by visitor" does not have to register or pay to view content on news sites. I like the model where the more frequent a visitor is, the more is required of them. Maybe registration on the third or fourth visit, once the content has proven to be valuable. And maybe payment for the most frequent visitors/users. I blogged about this model recently.

But there's more than one revenue model for online content. Clearly advertising is going to be part of all of them. For some, advertising is enough. I'm close to several niche online properties who are making money with an "ad only" model. It works for some. For others, a subscription model will have to be used to supplement ad revenue. And so I am eager to see what News Corp comes up with.

They already have a subscription model in place at the WSJ. I don't like the WSJ's model as much as the FT's model and I explained why in the post I linked to above. But News Corp has a model they could propogate across their other news sites. It's not clear to me that newspapers like The Sun, The Times, and The Post will be able to make the WSJ's model work. And that's what interests me. What will News Corp do for those properties? And will it work?

So let's get on with it. Let the experiments with paid news begin.

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I was talking to the Gotham Gal today about board meetings. She was talking about a board call she had participated on and I asked "why didn't you do the meeting face to face?". She said, "you're right, we should".

In the past week, I've traveled to Ljubljana Slovenia and today to Boulder Colorado to attend board meetings. It's a lot of travel but I don't think you can do it any other way. If you are going to be on the board (as opposed to a board observer), I think you have to attend the meetings.

I don't have a perfect attendance record in my almost twenty years sitting on boards, but I've made the effort to be there in person and I estimate I'm at the board meeting 80-90% of the time.

This is one of the reasons VCs like to invest locally. It's a breeze for me to attend all my NYC boards in person. I wouldn't think of doing anything else. But getting on a plane, flying to the west coast and back to attend a three hour board meeting is always a big "ugh". Of course, you can build a whole trip around it and I do that. You can also do multiple investments in other cities and try to arrange all the board meetings for the same couple days. I do that too.

The benefits of being there in person are too many to list, but I'll name a few. Looking someone in the eye and seeing the body language will tell you so much more than a voice on a speakerphone. Being there and spending face time with the team, other than the CEO, is also hugely valuable. And building board chemistry can only be done face to face.

Last night we did a board dinner before the meeting today. We talked a little business, but it was mostly catching up on each other's lives and summers. You might think that is wasted time. But it is not. Boards are like every other group. You need the people to like each other, enjoy each other's company, and be able to work well together. Board dinners and board retreats are the best way to accomplish that.

So that's why face to face is a requirement for me when it comes to board meetings. There will always be the urgent call to approve a transaction or deal with a crisis situation. And those are almost always calls. But the regularly scheduled meetings should be in person.