Posts from February 2011

Bridge Technologies

When the tech landscape changes; from web browsers to mobile browswers, from flash to HTML5, from laptops to tablets, from typing on keyboards to typing on screens, from local storage to cloud storage, there are always companies that are started to solve the pain points that crop up from that technology change.

I call these "bridge technologies" because they bridge from one technology to another. I don't like to invest in companies built upon these bridge technologies. Most of the time they do really well while the transition pain is high but once most individuals and enterprises have made the change, their business slowly disappears.

There is a chance that they can use that brief period of time to pivot into something with a lasting differentiation and value prop, or that they can build a large enough user base and figure out how to provide additional value to that user base before the initial bridge technology loses its luster.

But from my experience very few bridge technology compaies successfully make those kinds of moves that lead to lasting sustainable value. More often than not, these bridge businesses are not successful investments and very seldom are they the top performing investments in a venture fund.

Bridges are rarely good things in the venture business.



Super Priority Inbox

I love gmail priority inbox. I can't imagine doing email in an email client that doesn't have this feature. For those who are not familiar with priority inbox, it's a feature that splits the gmail inbox into three sections.

The top section is your "priority inbox." Google tries to figure who are the most important mail senders to you and it puts their mail in the top section. You can and should train it by using the +/- buttons to identify who is actually priority and who is not.

The middle section is the emails you have starred to return to later.

The bottom section is "everything else." For me this is mostly mail I don't want or need but it not technically spam. I do a quick scan of my "everything else" mail every day or two and pull the one or two emails out of it that I want and then delete the rest.

Now that we've gotten through what priority inbox is and why it works so well for me, I'd like to suggest a new feature to the gmail team. I'd like a "super priority inbox" which would be a fourth section on the page and above everything else. I'd enter the email addresses of a couple dozen people who I always want in my super priority inbox.

I know you can do this with filters and labels. I've done it. But the layout of the main inbox page in gmail is powerful. If I have to click over to a label to get to a filtered view, I just don't do it regularly.

One last thing about priority inbox and super priority inbox – it is even more awesome on mobile. The gmail client for android supports the priority inbox and ideally would support the super priority inbox when this feature is rolled out 🙂

UPDATE: Seems like this may be supported already. I got this comment below. I will try it out later. So excited.

Hi Fred – you can do this now..

goto settings, select priority inbox

There is a section called priority inbox sections:

1. Important and unread Options
2. Starred                              Options
3.                   Options
4. Everything else              Options

You can set the first to be the label that you have predefined, second to be important, 3rd starred, and 4th everything else.



MBA Tuesday

Yesterday I went up to Harvard Business School and participated in a lunch and a class. My friend Jeff Bussgang arranged the trip and we were hosted by HBS Professor Tom Eisenmann. Jeff and I sat in front of Tom's class Launching Technology Ventures and talked for almost 2 hours on topics like Lean Startup Methodology, Pivoting, doing a startup vs joining a startup, and more.

I can tell you this, the HBS I visited is not the HBS I used to know. The students I had lunch with had all built a startup and exited before going to HBS. The knowledge and passion for startups evident in Tom's class was off the charts. If business school is turning into entrepreneur school, then that's a damn good thing.

Anyway, Jeff took notes from the day and posted them on his blog. Every time I talk in front of a large group and take questions, some things come out of my mouth that are new thoughts that I've not expressed before. Between Jeff's post and the tweet stream from the class, I was able to review the talk and a few thoughts struck me as good enough to share here.

– There is a very high correlation between lean startup approach and the top performing companies in our two funds.

– Lean startup methology is great, but it is really a lean startup culture you want.

– Lean startup is a machine, garbage in will give you garbage out.

– Early in a startup, product decisions should be hunch driven. Later on, product decisions should be data driven.

– Hunches come from being a power user of the products in your category and from having a long standing obsession about the problem you are solving.

– Domain expertise to the point of obsession is highly correlated with the most successful entrepeneurs in our portfolio.

– Ideas that most people derided as ridiculous have produced the best outcomes. Don't do the obvious thing.

– Monetization should be native and improve the experience for users.

– If you have an idea that you can't get out of your head, do a startup. Otherwise join a startup.

– If you are not technical, get product experience. Get your hands dirty and work with engineers.

– Take risks when you get out of business school. If you don't take risks, you won't find yourself in an interesting job and career.

Finally, I'd like to say that Tom encouraged his class to tweet during class. I think that is fantastic. The tweet stream is like publicly available course notes for the class we did yesterday. Every time I talk to a class full of students I am going to call out a hashtag at the start of class and encourage tweeting.

I'm very encouraged with what is going on at HBS and some of the other top business schools I've visited this year. Entrepreneurship is alive and well and a growing theme of business education. As it should be.



Hackdays

We spent quite a bit of time yesterday in USV's regular monday meeting talking about hackdays. I had attended Music Hack Day at General Assembly on Sunday and was inspired by all the amazing hacks (72 in all) that I saw there.

These 72 hacks were built over a 24 hour period between early saturday afternoon and sunday afternoon. Like all hacks, very few, if any, were fully polished products, but they showcased new ideas, new directions, new technologies, and most importantly the talents of the hackers. I was like a kid in a candy store.

As I sat there and watched hack after hack present, I started counting up all the free publicly available resources that were being used; MongoDB, JSON, jQuery, Ruby, Django, SproutCore, AppEngine, Soundcloud API, Last.fm API, Spotify API, Twilio API, Twitter API, etc, etc, etc). There were literally hundreds of these resources that the hackers were using to put together ther projects.

General Assembly is an excellent phrase to describe what was going on. It is also a great place to do a hack day. Our new USV offices will be perfect for that as well.

And so we talked yesterday about how to get more of this kind of thing happening. We know that our portfolio companies like Foursquare, Twilio, Etsy, and Twitter are sponsoring hack days like this. Foursquare's hackday is this coming weekend at General Assembly.

We hope to see more of our portfolio companies doing this. But we also recognize that hacking in specific verticals (like music) is a great idea. We'd love to see a Education Hack Day (Hacking Education for real), an Art Hack Day, a Robotics Hack Day, a Big Data Hack Day, and so on and so forth.

There's a great group in NYC called nyhacker.org. We hope we can leverage their network as well as locations like General Assembly and other coworking spaces around NYC to activate the hacker community in specific verticals to do more of this. It's so much fun and so important too.

I'll end this post with the Music Hack Day theme song, courtesy of the Soundcloud guys:


Forss feat. MC Lenberg - We Will Hack by Eric

M&A Issues: Governmental Approvals

Continuing our discussion of M&A Issues, this week we'll talk about governmental approvals. When two companies combine, the government can sometimes get involved. It mostly happens when two large businesses combine and the most common reason for governmental review is antitrust considerations. It is also possible that foriegn governments can take interest in a business combination.

The most common governmental review process for an M&A transaction is a review by the DOJ/FTC of anti-trust considerations. These reviews are done under provisions laid out in the Hart-Scott-Rodino Act. Wikipedia has a decent description of the provisions of that act. If a transaction is for more than a certain amount of value, the government will review it. From that same Wikipedia article:

The rules are somewhat overlapping to some degree, but the basic requirements are that all transactions of $252.3 million or more require a filing. All transactions worth more than $63.1 million require a filing if one of the parties is worth at least $12.6 million, the other is worth at least $126.3 million and the total amount of assets now owned by the acquirer reaches $252.3 million.

The DOJ and the FTC will look at every transaction over these amounts and try to determine if there are antitrust considerations. If they are concerned, they can negotiate provisions to the deal to remedy the concerns or they could simply not approve the transaction.

A similar process can happen in the EU. The Google Doubleclick transaction, for example, received very close scrutiny in europe.

There are other government agencies that can also be interested in an M&A transaction. They include the SEC, the FCC, and other agencies with specific oversight over certain businesses (EPA for example).

These governmental approvals are important for a bunch of reasons. First and foremost, they can prevent a transaction from happening. And they can also require significant changes be made to the transaction which may not be acceptable to the buyer. Bottom line, the government can mess with your deal.

For transactions that are large enough to merit review, governmental approvals represent risks to the transaction that need to be considered upfront. From the buyer's perspective, they will want to be confident they can get the deal approved in a reasonable time frame without significant concessions. From the seller's perspective, they do not want to be tied up in a long governmental review process, be in limbo business wise, and risk not getting the transaction closed.

The way that most letters of intent deal with these risks is they establish a breakup fee that the buyer pays the seller if the transaction does not close on substantially similar terms. The breakup fees can be considerable.

From the seller's perspective, a long review followed by a failed transaction is a horrible outcome. And a large breakup fee may be suitable compensation for that kind of damage. But it may not. Imagine having your entire team thinking they are going to be working for someone else, being in limbo for a long time, and then hearing that it is back to business. It is hard to get back the operating mojo once your team has adopted a different mindset.

If your M&A transaction is small, you don't need to worry about this stuff. But if it is a large transaction, you need to focus on the government approvals you will need and you need to consider what should happen if the approvals are not forthcoming. This stuff matters a lot.



Difficult Is Good

Entrepreneurs come in all shapes and sizes. There is no single formula for determining what type of entrepeneur will succeed. But one of my favorite stories about entrepreneurs comes from Don Valentine, the founder of Sequoia, which is one of the best venture capital firms in the business.

When one of the younger partners in the firm started, Don took him aside and drew a four square quadrant. Along one axis, he put "easy to get along with" on one end and "hard to get along with" on the other end. One the other axis, he put "normal" on one end and "brilliant" on the other end.

He then said, "sometimes we make money with brilliant people who are easy to get along with, most often we make money with brilliant people who are hard to get along with, but we rarely make money with normal people who are easy to get along with." 

That has been my experience as well. Getting along with difficult entrepreneurs is one of the secrets to success in the venture capital business. It is also true that finding management teams that can get along with difficult entrepreneurs is critical to succeeding in venture investing. 

The "brilliant entrepreneur" can do a lot for a company. They can come up with the initial idea. They can create the vision and market position. They can get the initial product built. They can set the values and mission. But they cannot do it all by themselves. So they will need a team of people around them to execute the mission, achieve the vision, and do the hard work of building the business. 

Venture capitalists often find themselves in the middle of this stuff. They sit on the boards and sometimes control the boards. They are often asked to choose between the difficult brilliant founder and the easier to get along with "operating management." In a perfect situation, the boards will not be forced to make this choice. There are tools and techniques that can be used to help everyone get along.

I've mentioned before on this blog that coaches are one way to address this issue. I have seen a number of difficult situations where coaches made a huge difference. 

Recruiting is also an important way to deal with this situation. There are some people who have an easier time getting along with difficult people. If you can find them and get them into key positions in startups, you will be better off.

The reality of startup investing is that the greatest entrepreneurs are almost always challenging in some way or another. It is never easy to work with them. But they can and do make great things happen and it is often worth every aggravation to be invited along for the ride, whether you are an investor or a management team member.

Continuous Deployment

Last winter John Allspaw joined Etsy to run tech ops. John has written several important books on web ops and is one of the experts in operating large scale web services. One of the first things John did when he arrived at Etsy is work with the dev and ops teams to put in place a continuous deployment system.

Continuous deployment is the idea that you push out changes to your code base all the time instead of doing large builds and pushing out big chunks of code. Here's an Eric Ries post on continuous deployment if you want to get a longer description of what it is and how it works.

At Etsy, they push out code about 25 times per day. It has worked out very well for Etsy and has led to faster cycles, improved morale, and a more stable and reliable web service. We were talking about all of this during the board meeting yesterday and Chad Dickerson, Etsy's CTO, invited me to push out some code after the board meeting.

I sat at Chad's computer, we pulled up the queue of code that had been reviewed and approved and was ready to push, I selected the code I was going to push out, I hit the "deploy" button, and then we watched as the code was pushed out into the production system. Then we watched all the key metrics to make sure I hadn't broken the service with my push. I pushed some small changes to the checkout system. We watched to see that checkouts continued to get processed. We looked at all the charts and graphs. Everything seemed fine. And we were done.

Fred deploys.

After we finished the deploy, I asked John (who took this picture) what would have happened if I did break the site. I asked how to roll back the changes. He said "we don't roll back, we fix the code." I asked what was the longest time it took to "fix the code" after a push had broken something. Kellan (who is on the right in the picture) told me that the longest fix for something that had taken a critical service down was about 4 minutes although they had seen longer periods of diminution of service.

I really like this model. Big changes create big problems. Little changes create little problems. I realize that this model doesn't work in desktop software and mobile apps. But cloud based web services can be operated this way and it really jives with whole culture of building and managing web apps. 

The next time I am at Etsy, they are going to let me make a small change to the code base and then push that out. As Pete Miron said on Twitter yesterday, "so simple, a VC can do it."

TechCrunch.tv

A couple fridays ago, I walked down Broadway to the AOL building and met up with Chris Dixon and we talked for about thirty minutes in a small TV studio they have there. The result was a couple episodes of Founder Stories on TechCrunch.tv.

You can watch both of them here. They are both good discussions. I particularly like this one about failure and investing when nobody else wants to. It's about 5 1/2 minutes.

 

Peer Producing National Geographic

My friend Tommy came rushing into my office yesterday and said "I have to show you something."

He asked me to pull out my android and download an app called Project Noah. I did that and we played around with it a bit. Project Noah is a mobile app (iPhone and Android) that people use to document and share the wildlife and plantlife they encounter in their daily life. I don't have much wildlife and plantlife in my office so there wasn't a lot I could do right then and there. But we did take a look at the website where all of the activity is displayed in map form and by species. The app had just been approved and released and there was already close to 10,000 "spottings" all over the world.

Project Noah is a small team that came out of NYU's ITP program and they started working on this idea while they were in school. They are now full time on the project and I think what they are up to is very interesting. Will this be a great business? Not sure, but then National Geographic has been around for a long time. Can this be impactful in the way that wikipedia and wikileaks have been? For sure.

With a little imagination you can see where all of this can go. Photos are just one piece of the puzzle. Audio (via soundcloud?) and video are natural additions. And the places and ways the content can and should be syndicated are many and myriad.

I'm going to play around with the app a bit. For anyone who is a fan of nature and wildlife, I suggest you might also want to do that.



What A Management Team Does

Last summer I wrote a post called What A CEO Does. It was a popular post and I’ve seen and heard people reference it frequently. In that post I suggested that the three things a CEO needs to do is set and communicate the overall vision, recruit and retain the best talent possible, and make sure the company never runs out of cash.

Matt Blumberg, the CEO of our portfolio company Return Path wrote a post yesterday talking about the three things a management team must do.

He suggests these three functions:

  • Create an environment for success
  • Nip problems in the bud, or prevent them entirely
  • Exploit big opportunities
  • If you want more detail on each of them, go read the post.

    I particularly like #1. The best management teams create cultures that people enjoy working in. And from that comes great things. I see that every day. As Scott Heiferman said recently “teams win.”