Posts from December 2010

Howard Lindzon has been asking people to think about The Next Ten Years. He says:

Few of us are thinking of the next TEN years. It’s hard not to get excited and short term distracted with Twitter, Groupon and Facebook adding billions in value as private companies in just a few years.

Thinking about the future is what VCs and entrepreneurs must be doing. Focusing on what is working now is not the way to join that billion dollar club in the future.

Last week I wrote a post about mobile OS market share and where developers should be focusing. It generated a great discussion in the comments and led to a number of posts in the blogs and traditional media. Many of those who disagreed with my conclusions focused on what is working in iOS today. And my counter to them is what is going on today will not be going on a year from now and certainly not five years from now.

If there is any certainty in the tech business, it is things are going to change. What we should all be doing is thinking about how those changes will develop, what forces are at work, and what new directions things will head in.

This blog is a big part of how I do that kind of thinking. And I am not the only VC who is thinking out loud. Mark Suster wrote a great post this past week where he lays out his vision of how the cloud stack is getting built out. Maybe Mark is right and maybe he is wrong. Maybe I am right about Android and iOS and maybe I am wrong.

The most important thing is that we are all thinking about where things are going and making bets about the future. Because betting that things will stay the same is a bad bet. I am sure of that.

I got an iPad as a gift earlier this year. I use it in my home gym. Here's how it looks on my treadmill:

It was pretty simple to do this. I got some double sided velcro tape and put two strips on the treadmill:

And then I put two strips on the back of the iPad:

If you have more than one type of workout machine (ie treadmill and elliptical), you can move the iPad back and forth between both.

My partner Albert wrote a post about email today. In it he says:

I just don’t see a way anymore of answering everything that hits my inbox and theoretically should get an answer.

It's a familiar tale and I sympathize with Albert. I have been struggling with this issue for years. I've blogged endlessly about it and you all have been very helpful with suggestions. I moved to gmail which has helped. I use labels and shortcuts which help. I use priority inbox which helps. But everytime I make a productivity gain, the volume eventually overwhelms me.

One of our portfolio CEOs told me an entrepreneur complained to him that "fred wilson never returns my emails." That hurts to hear but I suspect it is more true that I want to admit.

Like Albert, I am sorry. I wish I could return every email I get. But I can't and I don't. In the past I've suggested everyone out there just keep trying. I'm beginning to wonder if that is good advice.

I've thought about getting an email assistant. But I am worried that putting more capacity into the system will simply create more volume that will eventually overwhelm the increased capacity.

So I've decided to adopt other approaches to be more available to entrepreneurs, like office hours, meetups, more skype chats, more blogging, more events. I'm not sure if that is better either, but it's where I'm headed at the moment in my never ending effort to solve this problem.

Imagine if there was a blog that wrote about one person who works in NY Tech every day and over time built the seminal database (like Crunchbase) of everyone working in NY tech. How cool would that be?

Don't imagine it. Just head on over to We Are NY Tech and witness it in action. You can also follow We Are NY Tech on Twitter.

Unlike silly lists like the Business Insider "Coolest 100 People" which is bullshit and I hate it and wish they would stop putting out nonsense like that, We Are NY Tech is democratic, wonderful to look at and read, and is exactly the kind of service we need in NYC to identify who is who and who is doing what and why.

We Are NY Tech was build by the team at Simande, a creative shop that builds great websites. If We Are NY Tech is a anything, its a great example of their work. I suspect this is a labor of love by the Simande team, but if I were Silicon Valley Bank, Gunderson, Cooley, Ambrose, and a host of other service providers to NYC's startup community, I'd be trying to buy sponsorships of We Are NY Tech. No better way to show the support of the community than to support a living breathing database of the community.

Well done We Are NY Tech. I'm following you and I hope the rest of the NY Tech Community is too.

Rachel Sklar is one of the women leading the charge on #changetheratio, a cause I am totally and completely behind. She's also the editor at large at Mediaite and the founder of Charitini.

When Rachel saw that we are doing the AVC Donors Choose Meetup tomorrow (wednesday) night, she figured she'd tie that into her own Donors Choose Birthday Campaign and do an after party she calls the "Follow On Round". I like that name and the idea.

Here's how it works. If you want to come to the after party (whether or not you come to the AVC meetup), you need to donate a minimum of $20 to one of the classrooms on Rachel's Donors Choose Giving Page. That's it. Then you are then on the list.

The "follow on round party" will be from 9-12 tomorrow (wednesday) night at The Red Room at the Merc Bar in Soho. The bar is open from 9-11 thanks to sponsor Jess3 (a data viz agency). The event is also being supported by BirchBox, Rent The Runway and Fashism (all women-run startups) and they will be taking donations at the door via Square.

Here are the details:

This is the first post on the "acquisition finance" series we started last week in MBA Mondays. I am going to try to lay out the basics of mergers and acquisitions in this post. Then we can move on to some details.

As the term M&A suggests, there are two types of deals, mergers and acquisitions. Acquisitions are way more common. It is when one company is taking control of the other. A merger is when two like sized businesses combine. An example of a merger is the AOL/Time Warner business combination ten years ago. I am not a fan of mergers. I believe it is way better when one company is taking control of the other. At least then you know who is in charge. Mergers are very complicated to pull off organizationally.

I have done a few mergers in the startup world. The best example is Return Path and Veripost which merged in 2002. The two companies started at about the same time, both got venture funding, and built almost identical businesses. They were beating each other up in the market and getting nowhere quickly. The management teams knew each other and the VCs (Brad Feld and yours truly) knew each other. We finally decided to put the two companies together in a merger. It worked because we decided that Matt Blumberg, Return Path's CEO, would run the combined companies and because Eric Kirby, Veripost's CEO, was fully supportive of that decision. Even so, it was not easy to execute.

Acquisitions are way more common and I believe way better. Most of the deals you can think of in startupland are acquisitions. A larger company is acquiring a smaller company and taking control of it.

The next distinction that matters a lot is how the consideration is paid. The most common forms of payment are cash and stock. In fact, you'll often hear corporate development people say "it's a stock deal" or "it's a cash deal." Companies can pay with other consideration as well. Debt is sometimes used as consideration, for example. But in startupland, you'll mostly see stock and cash.

Most people think cash is preferable. If you are selling your company, you want to know how much you are getting for it. And with cash, that is clear as crystal. With stock you are simply trading stock in your own company, which you control, for stock in someone else's company, which you don't control.

However, over the years in maybe a hundred deals now I have made more money in stock based deals with the acquirer's stock than I have lost in acquirer's stock. I don't know if that is just my good fortune or not. But I certainly have had the experience of taking stock in an acquisition and having that stock crumble and lose it all. So if you are doing a stock based deal, make sure you do your homework on the company and its stock.

The third and final distinction we will cover in this post is what the acquirer is purchasing. Typically the purchaser can either buy assets or buy the company (via its stock). If you are selling your company, you'll generally want to sell the entire company and thus all of its stock to the buyer. The buyer may not want to entire company and may suggest that it wants to do an "asset deal" which means it cherry picks what it wants and leaves you holding the bag on the unwanted assets and some or all of the liabilities.

For obvious reasons, fire sales are often done as asset deals. Healthy companies with bright futures are not often purchased in asset deals. They almost always sell the entire company in a stock deal. If you are selling your company you should try very hard to do a stock deal for the entire company.

That's it for this post. We've covered the three most important distinctions; merger or acquisition, paying with stock or cash, and buying assets or the entire business. We'll get into more detail on each of these issues and more in the coming weeks. 

I sent out this tweet yesterday:

I got a bunch of replies suggesting that Apple will remain the market share leader when measured in dollars and I really wasn't focused on that. I don't own Apple stock or Google stock. I'm not really focused on who makes more money in smartphones. But I care a lot about where our portfolio companies should be focusing their precious mobile development resources.

And this chart from comScore tells a very interesting story:

Apple is stuck at about 25% of the smartphone market. RIM is losing share and Google is gaining share. If we have two more quarters like this past quarter, Google will have 37% market share, RIM will be at 29%, and Apple will be at 26%.

Of course there is no certainty that the next two quarters will play out the same way the past quarter went. Many people replied that getting the iPhone on Verizon will be a boost to Apple's numbers. I suspect that will help. Apple could get into the mid 30s with the help of Verizon.

But the most interesting number in that table is the 6.5% increase in share by Android. I believe that is coming from three factors. First, I think many Blackberry users who still want a keyboard are moving to Android. Just look at this picture of the Droid Pro and you'll get my point.

I don't think you'll ever see an iPhone that looks like that. And Blackberry users want a phone that looks like that but also has a great browser and great mobile apps. That's a big factor in Android's surge and it is coming at the expense of RIM.

The second thing that is working in Android's favor is low cost. Only one in four mobile subscribers has a smartphone. But that ratio is changing fast. The number of smartphones rose 14% last quarter according to comScore. It's not that the other 75% all don't want smartphones. Many do want them. But they can't afford them. But when T-Mobile sells an Android powered smartphone for $30, that's a game changer. Android smartphones are cheap and getting cheaper. So I think a big part of Android's growth is coming from people who are getting their first smartphone.

The third thing that is working in Android's favor is the declining share of the "also rans" which include Microsoft and Palm. Microsoft's Windows 7 mobile may halt their slide, but I am not convinced. Palm is down to less than 4% market share. It's hard to see how they can remain viable in this market. People who have Windows and Palm powered phones could have bought iPhones. But they did not. Maybe they were deterred by AT&T and will move to Apple when the iPhone is offered on Verizon. But I think this market may also end up using an Android powered phone.

I am pretty convinced we are going to see the mobile OS market split between Apple and Google, with Apple having the better business in terms of revenues and profits and Android having the bigger market share.

I think RIM is going to struggle more and more every day. Moves like they are making against Kik, which provides cross platform BBM, are likely to come back to haunt them. They should be making it easier for their users to chat with iPhone and Android users, not harder. Open platforms win and closed platforms die. And RIM still does not get what being an open platform means.

So, when thinking about where to invest your precious mobile development resources, I'd say Android first and iPhone second. And think hard about HTML5. You may want to hedge your bets by having a kick ass HTML5 experience. I learned in the comments to this HTML5 post last week that there is an awesome open source library called Phone Gap that lets you port HTML5 apps to Android, iOS, Blackberry, Palm, and Symbian. Seems like developing in HTML5 and then porting to the mobile OS platforms is an interesting option as well.

One thing I am sure of is that developing solely for iOS, which is a very common thing I see out there, is not the right strategy unless you only want to serve 25% of the market.

There's a front page story in the NY Times today about the hyperactivity in web startupland. They quote from a few posts I've made on this blog and I think Jenna and Evelyn did a nice job with the story.

The thing that's clear from reading the story is the hyperactivity is in the early/seed stage market and the late stage market. Investors are throwing money at energetic entrpreneurs with plans, hopes, and dreams and at emerging winners like Groupon, Gilt, Twitter, Facebook, etc.

But from where I sit, there is none of that hyperactivity in the middle stage, which I like to call the ugly adolescent stage. The ugly adolescent stage is when you've built the product and are now building the business. It is when the team grows beyond the intial founding group and not everyone is getting along so well. It is when you are no longer that "bright shiny thing" that everyone wants to talk about. It is when your users are complaining that the service is not reliable or they hate that new feature or interface. It is when you have to figure out how to make money and get profitable. It is when the founder starts to wonder whether this CEO thing is for him or her. It is when you need that next round of financing and it isn't so easy to raise this time.

This is the messy stage of startup life. I have watched hundreds of startups go through this phase. Some don't get through it at all. Some throw in the towel and find a home for the company and the team. Many make it through and into adulthood.

Right now, this is where venture capital investing remains attractive. Like all forms of investing, the hard investments to make are the ones that are the most rewarding. Everyone knows that Facebook is a winner. Investing in Facebook is not hard and it is expensive, although it may well be rewarding.

Not everyone knows how to invest in the mess. But experienced VCs should know how to invest in the mess because they have all had to help their companies get through this stage. They understand the issues, they understand what it takes to cure them, and they should have the courage to know that investments made at this stage will be handsomely rewarded when the companies emerge into a successful adulthood.

We have plenty of portfolio companies in the ugly adolescent stage. And most of them are not finding it easy to raise money. We are doing many of these rounds as inside rounds, meaning the existing investors are funding the company without a new lead investor. I see this as a big opportunity for our firm and I am excited about it and entusiastic about making these investments. I know that not all of them will be great investments. But I know that many of them will be. And we are getting to make these investments at attractive valuations that don't have the least bit of irrational exuberance written on them.

I know that many of my friends in the VC business are doing these inside rounds in their portfolio companies as well. And I think they will be similarly rewarded. What I don't see is a lot of firms interested in leading these messy middle stage rounds as a new lead investor. I'd like to see more deal flow from other VCs at this stage because I think this is where you want to be in the VC business right now. I think you want to invest in the mess.

A journalist at the NY Times emailed with me the other night about tracking technologies on the web. I knew she was working on a Room For Debate series. I didn't actually realize my email was going to be printed verbatim. I might have edited it a bit. But I totally stand by what I said.

Here's the thing. I've always felt that the majority of web users understand that tracking technologies provide value and that they put up with them even though they are slightly creeped out by them. I also feel that there is a small but vocal minority out there pushing the privacy agenda. I stated that view in the comments the NYT printed.

And if you look at the comments, you can see that the vocal minority is out in force. But you barely hear from the silent majority.

I think the silent majority ought to speak up or we are going to risk losing one of the most important and powerful technologies on the web.