Posts from January 2011

The awesome Music Hackday is coming to NYC. Twilio's John Britton has the news and details. It will take place the weekend of Feb 11th and 12th. Location is TBD at this time. NY Hacker is involved as well.

There have been ten Music Hackdays to date and none of them have been in NYC, which is certainly one of the top music and tech destinations in the world. So now it is our turn to bring it.

If you are into hacking in and around music, I hope to see you there. I plan to swing by a couple times during the weekend and be there for the presentations Sunday afternoon.

The startup accelerator movement continues to gain momentum. And now we are starting to see sector specific startup accelerators. Last year I posted about Startl, which focuses on education entrepreneurs.

And now we've got a Fintech focused accelerator program here in NYC. It is called The FinTech Innovation Lab and it is an annual program runby the New York City Investment Fund and Accenture. In the spirit of full disclosure, I am on the Board of the New York City Invesstment Fund, which is twelve year old investment fund operated by The Partnership For New York City.

The Fintech Innovation Lab is focused on "entrepreneurs and early stage companies that are developing cutting edge technology products targeted at financial services customers."

Here's the cool thing. The customers are participating in this program. The CTOs and CIOs of firms like Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, State Street, and UBS will be participating in this program.

So not only do you get some funding but you also get mentoring and coaching by your potential customers. If you are an early stage Fintech entrepreneur, it sure seems like a fantastic opportunity.

The program runs from May 2nd to demo day on July 22nd. Applications are DUE SOON, on January 31st. If you want to apply, here is the application form, and here are the details.

We continue with our M&A case studies on MBA Mondays. Last week we saw the impact VCs can have on your exit. This week we are going to look at the opposite situation: what happens if you've entirely bootstrapped your company. AVC community member @daryn introduced me to David Geller who, over ten years, bootstrapped, built, and sold an email company called WhatCounts. It's a great story, but a bit long for one blog post. So we've cut it in two. This week, the events leading up to the sale. Next week, the sale itself.

As always, the comments will be the most interesting part of this dicussion. Make a point to stop by, check them out, ask a question, or answer one.

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Daryn Nakhuda, a friend, Fred Wilson groupie, former colleague and my co-founder at Eyejot before he left to become CTO at TeachStreet.com, suggested to Fred that I write about my company WhatCounts. WhatCounts was bootstrapped several years ago and was recently acquired. I agreed to accept the invitation knowing that bootstrapping is a sometimes under-appreciated funding path that startups often dismiss too quickly. Why is that? What's the attraction for new businesses, particularly technology-focused ones, to seek VC funding?

Iʼm a believer in self-funded companies. When I started WhatCounts it was seeded with $50K of my own money. It grew organically to be successful and was acquired in late 2010. With my co-founder, Brian Ratzliff, we were able to operate the company autonomously. Initially, I did all the product development and Brian orchestrated our sales and marketing programs. We jointly pursued new clients. Brian had more formal business training, including an MBA, but we both shared the same pragmatic approach to operating and growing a business. We liked the independence that came with self-funding and knew that the success, or failure, of our venture would hinge entirely upon our ability to win and keep business. Instead of VC funding we used customer funding. Our exit event was successful and the transaction benefitted the companyʼs original shareholders without any dilutive effect.

Is bootstrapping your business and funding it without outside capital a good idea? It was for us, but I have to admit that we arrived at that position more out of necessity than prescient planning. We actually tried to attract outside funding, without success, when we founded WhatCounts in 2000.

A brief introduction to WhatCounts may be useful.

WhatCounts developed a SaaS platform for creating, managing, deploying and analyzing mass email campaigns for transactional and marketing applications. It grew from the two of us to 50 employees and attracted clients like Costco, Alaska Airlines, Virgin America, MSNBC, FOXNews, Ziff-Davis, Pandora, REI and many other, well-known consumer-facing brands and media organizations. Many of you received emails over the years that were generated by our platform. WhatCounts became known as a technology innovator (later releasing an on-premise appliance solution to compliment the SaaS offering) and a company that did a surprisingly good job (for its size) attracting prestigious clients and providing them with exemplary service.

Thus far, so good.

We decided to do some informal investigating to see if WhatCounts could get VC funding. Using contacts Brian and I had established during our time working at Paul Allen's Starwave (me running an engineering team and Brian a marketing team) and later at other startups, we setup informational interviews with a few Seattle VC firms. Not surprisingly, our few meetings failed to generate a lot of excitement. Weʼre both good communicators and present strong messages, but I suspect the VCs we visited knew that we didnʼt believe in the hockey stick growth story – for us or anyone else in our space.

As cool as we thought what we were doing was (or was going to be), we also came to realize that the email industry, in the 2000-2001 time-frame, was not an overly attractive investment space for VCs. This was certainly true for pure email service providers, of which we were one. Other businesses involved in email were still garnering excitement from investors. Fred mentioned the 2002 merger between Return Path and Veripost in his Dec 6, 2010 post. He highlighted the fact that both of those firms had received VC funding. When we started we were confident weʼd be successful operating a small business but didnʼt believe we were going to turn the company into a $100 million juggernaut. We became convinced that we would not be able to grow to that level in the time horizon we believed VCs were typically interested. We also looked suspiciously at some of our competitors that were making VC-friendly (and overly optimistic) growth projections.

Now, we could have retreated and tried to retool our business model and presentation materials in preparation for a new round of meetings. We could have created a more exciting story or twisted things to appeal to our potential investors. But we liked our business model. Our customers did too. We were making money! We knew that if we decided to ignore outside funding opportunities weʼd potentially be jeopardizing our chances of growing the company at an accelerated pace. But the benefits we saw and were experiencing running things ourselves seemed to out-weigh the potential value and overhead VC funding would deliver.

To recap, the facts Iʼve described, so far, are the following: (1) we started a company; (2) we had some early VC meetings; (3) we didnʼt gain much traction from those meeting (admittedly we didn'tʼ try very hard);  and (4) we settled back onto our original plan of utilizing a customer funded growth strategy.

One of the most obvious benefits to a simplified, self-funded growth strategy is that if youʼre lucky enough to grow the business and get acquired youʼre going to gain all the benefit from that transaction without sharing it with outside investors. Calculate your ownership position and compare it with a diluted position after one round of funding. Then identify the intersection where they deliver the same benefit to you. Now consider a second round of funding and further dilution. Or a third. Of course, building simplistic models like this is for illustrative purposes only. Yet, itʼs important to know that a bigger piece of a smaller pie, at some point, is the same as a smaller piece of a much larger pie.     And, donʼt let anyone tell you that baking a bigger pie isnʼt a whole lot more difficult.

Self-funded businesses, by their very nature, involve fewer outsiders. So there are control benefits that can be enjoyed in their absence. Fewer outsiders dictating (or strongly suggesting) direction means that you will be able to pursue your goals more closely and with less friction. Back in 2001 Brian and I knew we had a great platform. Our customers told us so. Slowly, but surely, we started gaining traction by winning new customers. Weʼd hire additional staff whenever we had a large enough financial buffer to keep them employed even if our growth were to slow or even regress a little. Itʼs the model we had been told Microsoft had adopted early on. We both felt personally responsible for every person that trusted us and trusted our vision enough to join the firm. Many of the people that joined WhatCounts had sacrificed potentially higher salaries from larger companies to work in an environment that was smaller, people and pet friendly and somewhat more lifestyle-oriented – with the belief that we would grow. So, we tried to make sure there was always enough in the bank to cover payroll for approximately six months. We also disbursed bonuses to everyone each year.

Despite our early success, we were still aware that we were a relatively small company. When new competitors began appearing we decided to consider additional sources of funding. We had about $1 million in the bank but, with an increasingly growing employee base, considered a large portion of it to be part of our special payroll reserve. That led us to apply for an SBA loan that was quickly approved and provided us with an additional $500K in the form of a line of credit. We never needed to draw on the credit line and turned it off within the first year.

Throughout the years WhatCounts continued to grow. New engineers were hired. Our support and account management teams grew. New leadership for engineering, sales and customer service all helped the company to mature and appeal to larger, more sophisticated clients. The business continued to invest in our technology and the infrastructure required to support ever-increasing client expectations and requirements.

Two events in 2010 proved to be important for the company. First, after operating the business for almost ten years Brian and I decided to see if we could find a buyer. We had started to see consolidation in the space and M&A activity appeared to be increasing after an almost two year lull. Second, a few weeks after inking terms with a banker we were approached, literally out of the blue, by another firm about the same size as WhatCounts asking if weʼd consider being acquired. They had the backing of a large PE firm and quickly delivered an LOI. The process that began with their first phone call and ended with their acquiring our company was complex, challenging, long and, at times, nerve racking.

Next week Iʼll share some of those details with you.

I got this comment from @Daryn on yesterday's SoundCloud post:

I still have commitment issues with audio. I find myself saying "Cool, Fred did a podcast. I should listen to that later…" Is there a save for later app like instapaper or the boxee bookmarklet?

To which I replied:

what's the device you want to consume it on eventually?  a sonos home audio system?  an iPhone or Android?  a tablet?

Once you use a service like Instapaper or Boxee Watch Later, this kind of thing becomes muscle memory. You want to be able to content shift everywhere and onto every device.

I found this amazing artist yesterday on SoundCloud named James Vincent McMorrow (also courtesy of yesterday's comment thread – thanks Mark). Here's his new record called Early In The Morning. I'm listening right now on my laptop, but I really want to listen on our Sonos system.

I saw that the Black Keys played SNL last night. I found the video on YouTube and sent it to Boxee so I can watch on the big screen.

I heard some great music on Sirius XMU in the car yesterday afternoon. I want an easy way to get it from there onto fredwilson.fm.

I saw the DOJ court order to Twitter regarding Wikileaks yesterday on TechCrunch/Scribd. I want to get the document on my iPad so I can read it on the couch in the family room.

You get the idea. With the proliferation of devices and content types, all connected to each other via the Internet, content shifting is becoming a huge deal and a real pain point.

Some content shifting is pretty easy right now. Getting a web page onto a phone or tablet, like Instapaper does so well, does not require any magic tricks.

Some content shifting is pretty hard. Getting a song from Sirius XMU to fredwilson.fm is not straightforward. Getting Soundcloud playing on Sonos is not straighforward either, as Matt Galligan points out in this post pleading for a open Sonos platform.

I see this as an opportunity for entrepreneurs. In some cases, the content shifting will be a killer feature of a bigger platform, like watch later is for Boxee. In some cases, the content shifting will be a service in its own right, like Instapaper. 

But I am certain people want to shift content from discovery oriented devices (laptop, satellite radio, etc) to consumption oriented devices (tablet, sonos, etc) and I am certain that we will see this get easier and easier in the coming years.

Our portfolio company SoundCloud wrote a blog post today welcoming our firm and Index Ventures to their company. I also wrote a blog post on USV.com explaining why we are excited to be involved with SoundCloud.

And I recorded my first podcast in over three years and talked a bit about SoundCloud. Here’s the podcast. 

Thoughts on SoundCloud by fredwilson

In the absence of a blog post today, here's an advertisement (of sorts) for the new Boxee iPad app, straight from the show floor at CES:

When people ask me what the city and state government can do to help the technology driven startup community in NYC, I tell them two things.

First, there is not one tech ecosystem. There is the software, internet, digital media sector which is thriving and on a tremendous growth spurt. And then there are the biotech, bioengineering, materials science, and energy sectors. These sectors are languishing in NYC with very little commercial activity given how much research and science goes on in the city.

I don't work every day in the latter category and I don't have much advice for how to stimulate these sectors commercially, but I do know that much must be done.

I do work every day in the former category and I have some advice for how to continue to stimulate the sectors that are working. I would focus on two areas; talent and bandwidth.

NYC has a tremendous workforce advantage over most any other city in the world. With one exception. There is a dearth of well educated engineers coming into the workforce every year in NYC. We have a large exisiting workforce of engineers, but they are in high demand and there are scarcities in NYC like those that exist in the bay area. Talented engineers are expensive and are always being recruited away from companies.

So the obvious answer is to develop ways to bring engineers right out of school into the local workforce. One way to do that is to develop strong engineering programs here in the city. The Bloomberg administration has announced an initiative to do that. I am very supportive of that effort. But that will not be enough. We also need to support our existing educational institutions, like NYU, Columbia, Fordham, CUNY, etc, etc.

And we need to start recruiting newly minted engineering grads to come to NYC to start their career. If you are a 22 year old man or woman just starting out in life, would you rather live in suburbia and work on a campus or would you rather live in Williamsburg and work in Flatiron? I think the answer to that is obvious. We just aren't making that case to the best and brightest engineering grads. There are emerging programs, like HackNY, that need our support, both financial and emotional, to do this work. It is critical. Charlie O'Donnell has put forth a challenge to bring 250 new software developers this year to NYC. I think that's a good start but I'd like to see a bolder number, like 1000 a year, or even more.

The other area is bandwidth. I mean data bandwidth. I mean fiber to every school, institution, business and home in the five boroughs. Other localities have built community owned fiber networks. A good example is Lafayette Louisiana. NYC needs to do this and it needs to do this now. The fiber plant should be owned by us, the citizens of NYC, not some company that will charge us a fortune for using the network and potentially restrict what we can do on the network.

There is a company I know of that is one of the most exciting new startups in NYC. They are locating their new office in the emerging area in Brooklyn between DUMBO, Fort Greene, and the Brooklyn Navy Yard. This is a cool new neighborhood that could be home to a lot of startups looking for great workspaces at low rents. But there is no commercial grade Internet service in this neighborhood. TIme Warner Cable wants this young startup to guarantee them $80,000 in revenues so they can afford to dig up the street and lay the cables.

That is nuts. We need to wire up this city from Staten Island to the Bronx, from Harlem to Rockaway Beach. And we need to own this fiber plant and we need it to be the best in the world.

These two moves will do it. We have everything else we need. We have the capital to fund startups. We have the real estate to house them. We have the legal, accounting, marketing, and other service providers. We've got it all. We just need talent and bandwidth to keep it going. Bring it on.

This is a followup post from yesterday's one on RSS. Two things I want to add.

There is now an RSS feed just for MBA Mondays. It is available in the AVC RSS page. But for all of you who want to separately subscribe to MBA Mondays, here is the MBA Mondays feed. There's your MBA Mondays book everyone 😉

There were a bunch of requests to see the full refer logs for AVC. People wanted to see if engagement differed measurably by source of traffic (with most of the interest in people who click thru from RSS readers). Here are the refer logs for the top 25 referring sites over the past 30 days. If you want to see it larger, click on the image.

There are clearly differences but I don't really see any evidence that RSS subscribers are more engaged. The most engaged readers seem to come from TechCrunch! Go figure.

I immediately thought of that great Monty Python skit when I read a series of posts in the past week declaring RSS "dead." If you look at the number of refers/visits coming from RSS, you might conclude that services like Facebook and Twitter are taking over the role of content syndication from RSS. That's essentially what MG Siegler concludes by looking at TechCrunch data in this post.

But as some of the commenters on that TechCrunch post point out, many RSS users consume the content in the reader and don't click thru. That's certainly what goes on with AVC content. Here are AVC's Feedburner stats for the past 30 days:

The blue line is "reach" meaning the number of unique people every day who open an AVC post in their RSS reader. It was almost 10k yesterday and it averaged 7,730 per day over the past month.

Here is AVC's web traffic over the same period:

So AVC averages about the same number of web visits every day that it gets RSS opens (about 7,500 per day).

Not dead yet.

A few other things worth noting. The direct visits of ~80k per month include a substanital amount of Twitter third party client traffic that doesn't report to Google Analytics as Twitter traffic. That's been a missing piece of the analytics picture for a long time and I wish someone (Twitter and Google??) would fix it.

AVC gets about 2,500 visits a day from RSS. That means about 1/3 of the people who open a post in their reader end up clicking through and visiting the blog. I suspect the desire to engage in the comments drives that.

The twin tech news aggregators, Techmeme and Hacker News, drive a ton of traffic to AVC. Thanks Paul and Gabe!

Bottom line is that RSS is alive and well in the AVC community. While I do agree that Twitter and Facebook have gained significantly in terms of driving traffic across the web, for technology oriented audiences, RSS is still a critically important distribution platform and is very much alive and well.