Posts from September 2009


Barack Obama said this in his "back to school speech":

you can’t let your failures define you – you have
to let them teach you. You have to let them show you what to do
differently next time

That's so true. It took me a while to learn that lesson.

When I first started out in the venture capital business, I was afraid to make a mistake. Once I started investing and taking board seats myself, I worked super hard to avoid losing money. I went for almost a decade without making a losing investment.

But then in the aftermath of the internet bubble, the wheels came off of the bus. We wrote off close to twenty investments in the span of two years from late 2000 to late 2002. It was devastating on many levels.

But when I look back on my career, it is not the successes that I think back on most. It is the failures, and particularly those two years when everything that could go wrong did go wrong.

When Brad and I started Union Square Ventures in 2003, we laid out a roadmap for what kind of firm we wanted to create, what kind of investments we'd make, and how we thought the Internet was going to evolve. That work was largely a result of the lessons we both had learned in the aftermath of the bubble.

I think embracing failure is one of the things that makes this country such a great place to do business in. In many parts of the world, if you fail once, you are done. People won't touch you with a ten foot pole. But here in the US, it's almost a badge of honor. And our President explains why.

When we met with entrepreneurs, I'm always interested in their failures. And most people have them, you just have to dig a bit to find them. If someone has failed and taken the time to learn from it, I think that's a big positive. It makes us even more excited to back them the next time.

So don't hide your failures. Wear them as a badge of honor. And most of all, learn from them.

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The Foursquare Announcement

As Robert Burns said so eloquently, "the best laid plans of mice and men go often askew" (that's the english translation). And so it was with Foursquare's planned announcement of their first round of financing which was originally going to be tomorrow.

But when you do a financing, a company usually files a form D with the SEC, and when Foursquare did that late last friday afternoon, PaidContent picked it up and ran this post. And so the news broke over a long holiday weekend. You can see all of the coverage here.

The way the company handled it is instructive. They realized that once the news was out, it was out. They got on the phone with all of the bloggers who wanted to write and gave them the news and the bloggers posted. And the company posted a small blurb on their blog acknowledging the news.

But they also decided to g ahead with their plan to post a longer explanation of why they raised the money and what they plan to do with it. And they decided to wait until everyone was back from the long weekend to do that. That post is up now.

If you are a foursquare user or you want to understand this sector and the company better, go give it a read.

I'll also note that Union Square Ventures also posted about our investment in Foursquare, as we always do when we make a new investment. In that post, we outline why we made the investment and what our expectations are for it.

So that's the story of the Foursquare investment announcement. Not exactly as it was planned. But I think it got the job done anyway. Well done everyone.

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Don't Forget About Email

In this day and age of social media and an ever expanding set of communication tools (SMS, IM, Twitter, Facebook, blog comments, etc) it is easy to forget about email. But that would be a big mistake.

I was reminded of that this morning when I got my first ever weekly email from the Hype Machine. It's a customized auto generated email that is different for every member. Here's an example posted by Anthony, founder of the Hype Machine.

I go to the Hype Machine regularly. At least a few times a week and many times every morning while I am reading, doing email, and blogging. But even so, getting a weekly email from the service with some stats customized for me, live concert suggestions, and new music recommendations is a wonderful thing and builds my loyalty even more.

Our portfolio company Etsy operates a market for handmade items. Etsy has been operating for over four years. For most of its life, Etsy had little to no email communication with its buyers. In the past six months, they built a number of email services and now email is one of the top traffic drivers to the site, passing popular new traffic sources like social networks, blogs, and communities.

If you are building a web service, you should most certainly build regular email communication with your users/members as one of the key features of your service. There are a few things to be aware of though. First, you may have trouble getting your email delivered. Many new services find that their verification emails, friend notification emails, and regular communication emails end up in spam filters. Our portfolio company Return Path has a number of services you can use to address that problem.

You should also make it very simple for users to unsubscribe from your emails if they don't want to get them. Putting an unsubscribe link in every email you send it is best practice and it should take literally one or two clicks to do an unsubscribe.

We expect to see a number of robust cloud-based e-mail sending solutions appear in the next year, including something from Amazon Web Services. They should make adding email to your web services even simpler than it is today.

The bottom line is that email is the most used form of internet communication today and it is likely to remain so for a long long time. So leverage it to get your web service pushed out to your users, just like Anthony has done with the Hype Machine this week.


Founder Liquidity

One of the better VC blogs out there is a newcomer, Mark Suster's Both Sides Of The Table.

Last week he asked the question, "Should Founders Be Allowed To Take Money Off The Table?"  It's a good post and the comments are worth reading (as is the case on most VC blogs).

When I first got into the VC business in the mid 80s, it was considered a non-starter that entrepreneurs would get liquid before the VCs. The mindset was "they get out when we get out". That was what I was taught and I felt pretty strongly about it until the late 90s.

What happened to change my mind is I saw entrepreneurs lose everything even though they had made VCs a lot of money. Most of the time that happened when they took companies public too early, the VCs cashed out, the entrepreneurs couldn't, they ran out of money, and had to sell cheap or in some cases the companies went bankrupt.

That taught me that often the entrepreneurs have to hang in there longer than the VCs in order to get a good exit. If that is the case, then it is entirely reasonable to offer them some early liquidity in return.

I've also seen entrepreneurs choose to sell the company prematurely because they want to take some money off the table. If offered the opportunity to take a bit off the table and swing for the fences, many would prefer to do that. We've participated in several of these situations and I can say for certain that founder liquidity has been a positive for the founder, the company, and the VC investors.

There are some caveats, of course. I don't like to see founders take too much off the table. If they are going to take a ton off the table, then its better to sell the company. And you have to be careful because these transactions will impact the strike prices that you can grant options at. There isn't much that can be done about that, but the fewer times founders do this the better from a strike price perspective.

So I am with Mark Suster on this one. I think the trend in the venture capital business is toward more founder liquidity and I think its a good thing, within reason.

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The Foursquare "Crush"

Yesterday evening the news leaked out about Foursquare's first round financing which our firm is thrilled to be involved in. The company had hoped to announce the financing next week and still plans to post a long post on Tuesday talking about " what this means for foursquare and the things we’ll be building / fixing for our users". If you are into Foursquare, keep an eye out for that.

In the Business Insider's post about the Foursquare financing, Dan Frommer writes:

It became fairly obvious that USV would lead Foursquare's round when partner Fred Wilson revealed his crush on the service several weeks ago.

To be honest this transaction tested my belief that blogging about stuff you are interested in is a good thing. I first wrote that I was playing foursquare in mid July and since then I've blogged about Foursquare, twittered it, and flickr'd it more than few times. Our entire firm was pretty public about our interest in Foursquare.

The Foursquare financing was among the most competitive early round financings I've seen in a long time with a bunch of term sheets offered and even more people trying to get into it once the deal was cooked. Dan's use of the word crush could be also used to describe the pressure on Dennis and Naveen to sort through all of their different options. And in the midst of all of that, our firm was publicly on record that we liked the service and were using it actively.

There are many people in the investment business that believe you have to play your cards close to your vest or you'll get burned. And I understand that approach. And there was certainly a few times during this transaction when I regretted how public we were with our interest in Foursquare.

But as my partner Albert reminded me during one of those "head in hand" moments, we did a lot more good than harm by doing that. First we put our investment thesis out there and got feedback from a lot of people on it. Second, the company appreciated our strong early endorsement of their service long before we had even offered to invest. Third, we saw the market develop around the deal as most interested parties contacted us at one time or another. And most importantly, now that we are investors we have a good sense of what the company is doing, what they need to do, and how we can help.

So I come out of this situation with my resolve to continue to play the venture capital business with an open hand firmer than ever. I'd suggest that other firms give it a try. I think it's a great approach, particularly in consumer web services.

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10 Characteristics Of Great Investors

Matt Blumberg, founder and CEO of our portfolio company Return Path likes to write "counter posts" when he reads something interesting on this blog. Yesterday, after reading the 10 Characteristics of Great Companies, he decided to post the 10 Characteristics of Great Investors.

Most entrepreneurs will enjoy the list that includes some zingers like this one:

Great investors don't publicly take credit for the success of their investments, even if they were major drivers of that success

Go read the entire list. It's a good one.

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RSS Is Alive And Well

Somehow the comments on my "10 Characteristics of Great Companies" post yesterday drifted into the topic of the future of RSS. I was debating whether to wade into this silly debate about whether "RSS is dead" or not and was leaning toward ignoring it. But the discussion yesterday in the comments convinced me otherwise. So here it is.

Mike Arrington wrote a post on TechCrunch the other day suggesting that Twitter was killing RSS.

I think there is some truth to the assertion that Twitter has replaced feed readers for some people. I have never used a feed reader successfully so it hasn't replaced that for me, but I certainly do use Twitter to find links to news and blog posts that I want to read.

But RSS is way more than the readers it spawned. It is a fundamental part of the Internet architecture and is used for all sorts of things. It's the subscribe system of the internet and a 'default function' in the Internet operating system.

Kid Mercury, a frequent commenter on this blog and also its resident "bouncer" said this which I wholeheartedly agree with:

there is only one thing i can say to the "rss is dead" argument: pfft.

think the problem stems from the fact that the geeks embraced RSS and
thought it would be a consumer technology. but alas, it was not meant
to be. however, i think businesses will need to invest in RSS to create
cool things consumers will use, and to help with internal
communications systems.

I don't think RSS is going anywhere and I certainly don't think Twiiter is killing RSS.

Once again we find the tech blogosphere jumping up and down about something 'killing' something else. I've written about this before because it annoys me to no end.

It is rare that one piece of technology kills another, particularly when it is a successful technology that is widely used. Most deaths are self inflicted not brought on by others.

So when you read a post that says 'XYZ is killing ABC', I suggest you see it for what it is, a lame attempt to get pageviews because the author had nothing interesting to contribute on the topic.


Ten Characteristics of Great Companies

Yesterday I got to do one of my favorite things. Our portfolio company Etsy invited me out to their new offices in Dumbo to talk to the entire team. Since they didn't ask me to talk about anything in specific, I picked a topic and composed some thoughts on the F'd train ride out to Brooklyn.

The topic I picked was "What Makes A Great Company?"  I picked that topic because I think Etsy can be a great company and in fact is already well on its way to becoming one. I thought it would be good to share with the team some traits I see in many "great companies."

So here are the ten characteristics that I jotted down on my blackberry on the subway. This is not meant to be a comprehensive list. It is the ten traits that came to me on a 15 minute subway ride. And it is also true that great companies don't hit every single one of these traits. But they hit most of them. And some do hit all of them.

So with that caveat, here is my list of ten traits I see in great companies. This is aimed at web/tech companies but I believe it can and should be applicable to all companies.

1) Great companies are constantly innovating and delighting their customers/users with new products and services.

2) Great companies are built to last and be independent and sustainable. Great companies don't sell out.

3) Great companies make lots of money but leave even more money on the table for their users and partners.

4) Great companies don't look elsewhere for ideas. They develop their ideas internally and are copied by others.

5) Great companies infect their users/customers with their brand. They turn their users and customers into marketing/salesforces.

6) Great companies are led by entrepreneurs who own a meaningful piece of the business. As such, they make decisions based on long term business needs and objectives not short term goals.

7) Great companies have a global mindset. They treat every person in the world as a potential customer/user.

8) Great companies are attempting to change the world in addition to making money.

9) Great companies are not reliant on any one person to deliver their value proposition.

10) Great companies put the customer/user first above any other priority.

So there it is. The Q&A session after the talk was quite stimulating and I expect the comment thread here will be equally so.

#VC & Technology

Birthday Challenge Wrapup

As many of you know, I decided to run a Donors Choose Birthday Challenge during the month of August as a way for people to give me a birthday present that mattered to me. We took the widget down yesterday as the month of August is over and we are headed Back To School.

But before leaving the birthday challenge in the memory bank I wanted to do a wrap up and a thank you.

The details of my birthday challenge are here. We raised $3,327 from 39 donors, including my parents. Thank you mom and dad. They've been struggling to give me presents for years and I think they liked this idea even better than I did.

We also ran the top performing birthday challenge of the month as measured by both donations and donors. And we got August to be the second best birthday challenge month of the year so far. A total of $13,070 was raised by various birthday challenges in August. The only month that did better so far this month was May when Stephen Colbert raised over $8000 for his birthday.

I'm pretty impressed with this community that we can do >40% of what the Colbert Nation can do.

So thank all of you who participated in the birthday challenge. We did a good thing. And if you want to do a birthday challenge of your own, click here and set one up. It's a great thing to do.

#Random Posts

The NY Startup Scene

Jack and the mayor A few weeks ago I had dinner with Jack Dorsey, co-founder of Twitter. Earlier in the day he had met with the Mayor of NYC, Mike Bloomberg. Turns out the Mayor was trying to convince Jack to locate his new startup in NYC. At dinner, Jack asked me about the ability to scale a tech company in NYC and I told him it can easily be done. I pointed to Doubleclick, Right Media, and a bunch of other tech companies that have scaled nicely here. And then I introduced him to Kevin Ryan and Dwight Merriman, co-founders of Doubleclick who have created the Alley Corp incubator that has produced, among other things, Gilt Groupe and our portfolio company 10Gen. Kevin and Dwight told Jack the same thing. NYC is a serious tech startup community with the talent to scale a large tech company.

I tell you this story as a lead-in to yet another link to Chris Dixon's blog. Chris has post where he suggests that NYC is "poised for a tech revival". Chris argues that for the past decade, hedge funds and wall street have been a huge talent suck here in NYC and now that they are scaling back, our kinds of companies will find it easier to attract the best and brightest. I agree completely.

But I take some offense to Chris' view that NYC was "irrelevant" in the 2003-2008 internet boom. TACODA, Right Media, Gawker, Quigo, Delicious, Etsy, Meetup, Indeed, Tumblr, Return Path, etc, etc.  I don't call that irrelevant. I call it misunderstood. Good thing people, including our Mayor, are waking up to what a good thing we've got going here.

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