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:
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.
I thought along the same lines as I saw the public courtship take place, as in “Damn, he must be getting crushed in these negotiations because everyone knows how badly he wants in” and “I hope he doesn’t stop being so open about it; I hope he realizes in the long run, he wins more than he loses.” Good to see you have.I think this is a great investment (had a discussion on Twitter with Ouriel Ohayon about it this morning), so congratulations. But most of all, congratulations for understanding and embracing openness. We’re all the better for it.
Nice move! I’m really enjoying Foursquare so far. From the get go it was clear to me that they could have a bright future ahead of them, but with the support of USV that future is looking even brighter now.
I’ve been watching this little drama unfold from various sides. Fred – The thing is that your influence especially around consumer internet has gotten to be such that your liking something creates a bit of a self-propelling investor frenzy. This not only creates a more competitive deal dynamic but also risks clouding people’s judgments. I think Dennis is great, and the product is really cool, but a lot of investors I know who desperately wanted to do the deal hadn’t even tried the app. Their entire thesis was “Fred Wilson likes it.”
i told dennis that he had an easy filter – “check their checkins”
maybe he should add a badge for whether you can invest.
turns out he was already using that filterev and jack did the same thing at twitterit’s smart
With all due respect Fred, your analysis must surely be biased by the fact that USV managed to get in. If your public interest had played a role in someone else beating you to the deal, perhaps your opinion would now be different.
surely it wouldhasn’t happened to us yet though
I promote other people’s blog posts all the time, and I don’t get anything for it. Worst case it passes some noise to folks that subscribe to my twitter or friendfeed stream. I’d imagine Fred would still be foursquaring away whether or not he got in this round. But you can bet he’d squeeze in the next round if he still liked the product.
Hi Mark. As Fred said above, it hasn’t yet happened. So it remains a hypothetical question. I’m not arguing against the approach, I’m just saying that until it does, it may be too soon to draw any general conclusions.
I’m an expert at jumping to conclusions, it’s landing I haven’t quite got the knack of.
Haha, the Fred Wilson effect in action. And I thought Stephen Fry or Oprah had cornered that market.
When I read your earlier foursquare postings I assumed you were already an investor. Had I checked the financing history it would have been clear that foursquare was still operating on seed/angel money, but I didn’t check.This is a corollary to your second point, I suppose: the company appreciates your endorsement and publicity, and on the flipside you also create an association in the minds of the public between the company and your firm.
Hmm. Wonder what people would pay to see and participate in the investment decision-making process, in real time? I mean literally “putting their 2 cents in” in return for a share of the back-end.
By having your investment strategy public — and not in one post, but in a steady stream of daily thought-sharing — you also make yourself a more valuable investor. I’m not speaking directly to your obvious crush on Foursquare specifically, but on maintaining the blog generally. I know of another VC’s blog which I originally subscribed to (via RSS) because he basically outlined his theory in one post, and I was hoping for more. He’s had ten posts since — and I subscribed almost two and a half years ago.I think the tradeoff you make, by increasing your volume of posts so dramatically, is that we — your readers, and maybe your future investees — (perhaps wrongly) expect a lot of honestly and transparency from you. If you are posting once or twice a day on consumer internet startups and *don’t* tell us you love foursquare, (a) it’ll be an empty omission as we’ll figure it out anyway and (b) your blog will lose some value. On the other hand, the guy who posts once every 3 months can’t really be a pre-investor fanboy of a would-be investment without being written off as a preening fanboy.And for what it’s worth, your style is much better than the other guy’s, for a lot of reasons both obvious and otherwise.
investment theses are a moving target. within months, it will be outdatedunless it is a stream of consciousness
Right — which is why I subscribed to his RSS feed. He posted his thoughts on what categories consumer internet startups needed to fit into (e.g. “SEO traps”) and I figured he’d flesh out and modify those requirements over time. Oh well.
Amen to that Dan, great sentiments.
Fred, i assume “coming out” publicly with an investment is possible only when you have a public window, which you do with your blog. Do you see other options for doing that otherwise? other of course than just dropping the name of your target investment in a conversation or a public appearance?
It seems like there is a first mover advantage to being open. If you are the third or fourth VC to say “We love foursquare, here’s our investment thesis”, are you still seeing the benefits you outlined in your post?Saying “me too” publicly would hurt more than help, I would guess.
i’m not sure I was the firstBryce at OATV was pimping foursquare on twitter at SXSW
The main consequences of you “coming out” about your liking of foursquare prior to concluding the investment were:1. You once again showed that you and USV are at the forefront of consumer web investments and are bleeding-edge when it comes to your industry knowlege and having your finger on the pulse.2. You may have ended up paying a tad more for the equity you purchased due to the “added heat” your public interest in the company bought about in terms of other potential investors———-Long term – consequence 1 hugely outweighs consequence 2
i guess i could have just said that
I so completely agree with this philosophy. It’s so hard to see the actual downside of this approach to investing / life in the private company / startup domain.
well one downside is the price gets bid up
Yeah, I suppose. But my experience is that there is a natural set point to the price (e.g. maybe I was too low) and give my belief that if the entrepreneur is ONLY focused on price in the early round I’m probably not the right investor for them I’d rather have to deal with this while letting them know me better. And – if it’s something amazing, I’ll meet whatever the clearing price is anyway without regret.
that is exactly how it played out Brad
it’s a great way to do it. i remember the same thing happened at boxee. we were using the product and blogging about it months before we actually made our initial investment(actually I think we first blogged about it after we turned it down for the second time together :)I wouldn’t want to do it any other way.
that’s true about boxeeit’s also true that when you invested in twitter, your twitter usage was aclear sign that you were an active and engaged user
Fred,I’ll take the bait.One can assume that even though you made it in the deal you had to give more favorable terms than you would have liked (because of being so open). So, essentially, the deal was more expensive because of your openness.By the sound of your post, the benefit of being open in your mind is still greater than the higher cost you paid. We’ll see how it plays out.I still think all the benefits you mention could have been had without being open about FourSquare at all. Sure, play with it, talk to people personally about it, but broadcast it on twitter and your blog to hundreds of thousands of people? I couldn’t bring myself to do it.If it works out for you, maybe I will be a “fast-follower” to this approach. Good luck.
Would you rather have slightly better terms or not be in the deal at all? That’s the difference. And how bad could the terms be on a $1.4m round for a service that is already hockey-sticking and has clear revenue potential?
Wow, great deal Fred. As a huge fan of the open business approach you’ve taken, I’m glad to see it pay off. I hope foursquare infects us all and your venture firm takes in a nice profit.
It also gives you more credibility in “talking your book” after the deal is done. Your blog reaches a lot of people and thus you have the ability to be one of the most effective salespeople for the companies you invest in. The fact that you were genuinely interested in a company before you were financially interested in it goes a long way in estabilishing rapport with your readers.Now when you blog about Foursquare or any of your portfolio companies, I don’t think “Fred is just talking his book” but rather “Fred is genuinely interested in this new technology, I should check it out.”You openness beforehand lends a credible voice to your investments after the fact and thus adds value to the money that you invested.
Congratulations. We’re waiting for them to add Toronto to the list of cities covered.
great investment, foursquare is another company i am envious of and wish i had thought of that idea.however if i was to have one beef with the company it is with their lack of focus. if they focused just on new york city, i think the service would be so much better in so many different ways. the new york city game is going to need to be very different than the miami game. can they satisfy both? maybe, although the angle for disruption is set — someone can just focus on one city, and when everyone does that, poof! opportunity gone, faster than it came. this is why i think companies like foursquare would be better positioned not as a consumer-facing destination but rather as a B2B company that lets others build their own niche/local game — a platform for launching placebloggers, so to speak. i like the steps that outside.in is taking in this regard too, although i think to really play the game you need to give the placebloggers the CMS they’ll need, not just the APIs.but lack of niche focus is my beef with pretty much every web service that gets VC recognition, largely because those that are truly niche-oriented will not have the potential profitability/scalability that VC investments are typically associated with. however i think this ties into the pending disruption in VC, in which microfinance will enable smaller investments with a smaller payout. the microfinance revolution goes hand in hand with the niche revolution, in my opinion.but with all that said, mad props to foursquare. i am still green with envy at the awesomeness of their potential. hope you make a killing on it boss and then rub it in and laugh at the suckers who didn’t get a piece.
you are on to something with your beefthat is why i encourage every web service to have an API and allow nichecommunities to develop on themstocktwits is an example of that on top of twitterhttp://www.socialgreat.com/ is an example of what can be built on top offoursquare’s API todayso i agree with your beef but don’t worry about it so much if the platformis truly open
Good point about the focus, I’d let local communities tap in and help out using the API. Foursquare offers the basic layer, locals build on top.I want to help getting the Berlin version started and have talked to several people about adding a Berlin touch to it. I see a high potential for it to be popular within the tech scene over here. For instance Berlin (actually a lot like any other major cities for that matter) lives a lot from the different neighborhoods and the type of people that live there.Local developers could add a local touch to the whole game using a Foursquare API “Mitteschnitte hipster” badge, the “Kreuzbergpunk” badge or the “Burgermeister” badge (Burgermeister is a popular burger joint in Kreuzberg and Bürgermeister actually means mayor in German), etc. Plus, the St. Oberholz is *the* geek cafe in Berlin and the motivation for all geeks to become (and stay) mayor of the Oberholz would give the game a huge boost.Be quick, Foursquare, Germans like doing copycats 🙂
i love it when Business Insider puts the disqus comment thread at the end of these posts. well done. this post is now running on two blogs, but we get to have one conversation about it. well done.
Yesterday morning, I had a friend ask me about what I thought about publicly providing a product roadmap. My reaction is that openness is never a bad thing. Of course, there are always pieces of information or strategies that should be kept under lock and key, but if you treat your users and potential users as thinking adults, there is almost never a downside.I imagine to a certain degree that concept is similar in the investment space. Watching how you and Feld operate over the past couple of years, I have yet to be surprised in the investments you choose.After all, if you cant grow to “crush” on something before investing, whats the fun in investing in the first place?As one of the first people to use Foursquare and really help promote it at SXSW08, I am excited and proud of Dennis and Naveen. They are amazing people, with an innovative product. Cant’ wait to see whats next.
i love your emphasis on the “fun” of investingit is important to have fun doing what you do
From what you write here on your blog, Fred, I would tell that more than an Investor you are acting as a Partner in your ventures.And, as a Partner, you are not looking just for your own best deal (price, conditions) but you focus also on the long term interests of the Invested company. So you are a Partner for the founders of any start-up you funded, right ?
That’s most certainly the goal
I can’t imagine a job, other than teaching, that has such a high “fun” potential as investing. Helping people achieve their visions while making several constituencies money, must be satisfying on multiple levels.———-Sent wirelessly
I doubt any of your regulars were surprised by this investment. I think what’s really exciting about it is training a behavior that can be leveraged in lots of different kinds of games. I assume the API will allow groups to invent new games that get played on the 4^2 platform?I’d like to use it but the Android version seems not to work well. Whenever I try to check in it gives me an error.
ughi’ll let them know although they did not build the android app
‘Error invalid input syntax for integer “null” ‘I’m running 1.5 cupcake on one of the google developers conference give away phones. The only other anomaly is that while I signed up and said I was in Boston, I have actually been in Menlo Park CA trying to check in here.The more I think about it the more you can do with this. Restaurant chains can build their own loyalty programs on the cheap. They could run contests (whoever goes to the most Starbucks in Manhattan in September wins). You can integrate the rewards side of loyalty right into the app with online or SMS coupons). It’s great for the restaurants because of the twitter promotion (coming not from the restaurants, but the users peer group).There could be a lot here.
Agreed that, for an entrepreneur, usage is the sincerest form of flattery. When Redfin has raised money, almost all the people who invested have been active users of the website and ultimately of the home-buying service. Within limits, we’re more usage-sensitive than valuation-sensitive; if a potential investor views our company purely as a big pile of money, we will view the investor purely as a big pile of money, focusing only on price. But if someone understands what we’re trying to do, we think of the investor as a strategic partner, and focus less on price. For an engineer, product usage = relationship = rationality around price…
That’s a great way to put it Glenn
I see no problem with endorsing Foursquare prior to closing an investment with them. It’s a good game with a lot of upside potential and at the end of the day, you let the money do the talking. The fact that you were open and honest about your usage probably helped Foursquare attract more followers and may have hurt you financially in the short term, but the long term effect will be positive for both you and the companies you choose to endorse. Face it, you picked a winner.Now if someone could just convince @bijan that Arctic Monkeys are not the greatest band in the world, everything would even out.
That honor goes to the rolling stones. But the arctic monkeys are the closest thing to the stones we’ve got in this generation of rock bandsI used to think that badge of honor goes to Kings Of Leon but they’ve morphed their sound and are now in U2 land
The Cult is back together and still rocks. Have you ever seen them live? They played not too far from your office (at Irving Plaza) last time they were in town.
Nope. I gotta do that. I’ll add them to my songkick tracking list
They’re also playing in Manhattan next Friday, at Terminal Five, if you want to see them live. I just got tickets yesterday. Their music is usually even better live.
Thanks for that tip. I really don’t live terminal five but I might make an exception
No problem. I’ve never been to Terminal Five before, but it looks really convenient for those of us B&T folks driving in from the mainland.
Its very up and down. You’ll see what I mean when you are there
I see Terminal Five has a Foursquare page — you can leave feedback there.
Not sure what they’ll do with ‘its too up and down’. But I might tell them anyway
Great concert, btw, Fred. I see what you mean about “up & down”, but as long as you stay on one level, as we did, that didn’t seem to be much of an issue. The bigger issue was one similar to other SRO venues — the lack of stadium ‘standing’, so folks have to jockey for position to get a view of the stage.Incidentally, when we got there there was a poster announcing another Cult concert on November 10th on the mainland in Montclair, NJ. You ought to consider that one. If you haven’t been to Montclair it’s got some impressive restaurants. I haven’t been to the concert venue there though.As for the music, I highly recommend you try to find live versions of the band’s older stuff. The album they’re playing in its entirety on this tour, Love, was recorded in ’85 without the best production standards.
So true about KOL. I’ve seen them a handful of times over the years. Their arena shows are still good, but definitely a different sound and vibe than the smaller club shows I saw. I suppose that’s true for many bands.
greatest band today is the arctic monkeys — that’s just a fact :)but the best band ever?it’s a tie for first in my world – the who and the stones.
I think that until the Arctic Monkeys decide to hire bikers to do their security, the world is safe.
More likely rabid swfc fans singing football cheers
So while I agree with this (and as you know practice it), it’s not really about investors desires here, so how would you approach this if an entrepreneur you were discussing an investment with asked you to be more discrete because she was not ready to telegraph to the market who they were – or were not – speaking with?
then you can’t say anythinghappens a lot actually
Right, though as users (often times heavy ones) it can be a balance here
Interesting like to see how things develop.
Leaving a comment like that is lame. Yes, I’m a big fan of disqus. But that not why I think your comment is lame. Tell us why Disqus is lame and what comment system is better and why. That would be helpful to us all
I have always appreciated how open you and your partners at USV are in sharing your interests, observations, and philosophies as investors. Brad’s post,”Arguing From First Principals,” on the USV blog remains one of my all-time favorites, and I reread it often. True, it was shining a light on your investment philosophy, but it also explains why a company like Four Square makes sense for USV. Even if you hadn’t been quite so public in your use of four square, your interest as a potential investor should not come as a huge surprise, as it’s consistent w/ the principles so elegantly outlined in that post.On a personal note, your candor has also been an invaluable resource and opportunity to learn. While I don’t know the financial cost of your openness on this particular deal, I can’t imagine that it outweighs the overall benefit of your commitment to transparency and having an open hand. I suppose this second point would not matter if it were solely about the money, but if it were, I doubt you’d put so much into this blog, nor the other high impact initiatives (such as Hacking Education) that you and your partners undertake.
That’s really great to hear that you see a link between brad’s first principals post and our foursquare investment. That’s how it is supposed to work!
Wow, Congradulations. I’m feeling, errr, weird. I’ll admit to borrowing your crushes and the people who show up here for product reviews. I feel really really weird right now…..
Just curious about your reasoning, why did you decide to use and invest in Foursquare instead of any other startup in the same field, such as Loopt, Brightkite, etc.Have you even used Loopt or thought about investing in them?
We light lightweight web services that don’t try to be too much or do too much right out of the gate. That’s why we like foursquare
i dont use the service and dont know why i would yet but totally agree with your strategy on this always being open. congrats.i do understnad nwy other vc’s are closed though.that just makes being open more lucrative for you thoughgh.
I’m late to the party here and so many people have made good points on both sides of the “discussion.” But in the end I have to agree completely with your “strategy” regardless of whether it was deliberate or not. Being open makes the entire process company/entrepreneur focused and the only downsides (increased competition, potentially higher price) are entirely short-term. It’s not instinctive, of course. The first instinct is to “protect” your “discovery” as if it were a gold mining claim or something. But among the many, many upsides to being this transparent is that it encourages the participation by additional investors. And being dominated by any one investor group–even folks as great as USV or Foundry–is not in the long term best interest of the company. Congrats on winning the deal but more important congrats on being real and authentic.
top notch fred – it was obvious what you were up to, looks like your approach paid off – best of luck
I never was very good at hiding
Fred I think the reasons for the crush are the same reasons it is prime for interactive tv show platform
Congrats! foursquare is the first location based app that really feels “right” to me, and dens, naveen, and harry are the team who can make it work. looking forward to the new version.
Fred, your approach here (and to early stage investing in general) just solidified my opinion of you as the best early stage venture investor there is. The fact that foursquare decided to go with you compared to their many, many other options is a testament to their good judgement and decision making.For all the entrepreneurs that are reading this, ask yourselves. How many of the so called venture investors you know think for themselves to the degree Fred does and share that thought process with everyone so openly? How many value originality of thought as demonstrated by using actually web services and an openness to trying new things, and not just new web services.I’ll try to explain it using a simple example that really drives the point home for me. How many other investors spend time responding and engaging with the commenters on their blog to the degree Fred does? That is, how many investors see their blog truly as a means of connecting and engaging with the people in the startup community, respecting and valuing everyone for their thoughts and opinions, instead of just a marketing vehicle disguised as a blog meant to show off how smart they are and keep their name in the public forum.I love the idea of startups using checkins or usage as a filter. Here’s another one: check to see if the vc has a blog. If they do, check to see what they write about. Is it articles written through a megaphone instructing you on how to do things, or thoughtful posts meant to encourage discussion. Do they actively respond to commenters, or is the focus only on blaring their own message and then forgetting about the post once the marketing blast has fulfilled its purpose?
Thanks for the props aristotle. I appreciate them. Particularly since an entrepreneur cursed me out and hung up on me today
Don’t let it get to you Fred (easier said than done i know). In my opinion before someone can be a great entrepreneur they first have to be a great person. One of the hardest things in life is accepting the truth and reality for what it is rather than what you want it to be, and the fact that other people have different perspectives on that reality. It’s far easier to rationalize things and make excuses. While this is important to be a happy, self fulfilled person, its absolutely essential to being an entrepreneur. Any entrepreneur that doesn’t get that isn’t worth backing in the first place.