Posts from May 2011

My New Setup

cloud, productivity applications, mobile

I've finally completed my long standing desire to be done with desktop software and desktop files. The final piece of the puzzle came yesterday when I unplugged my windows desktop as part of our office move. I'm so excited about my new setup and thought I'd blog about it. I realize that many of you made this move years ago. I'm not suggesting I am ahead of the curve here. I'm just happy to finally be where I've wanted to be for a number of years.

The main goal I've had is to have the applications and files I need available on any device I might want to use. I moved my email to gmail a while ago. I was using gmail while the rest of our firm was still on outlook and exchange. Over the past year, our firm moved to google apps. We now run our mail, calendaring, and contacts on the google apps platform. Earlier this month, I made the move from gmail to the USV google apps service. At the same time, I moved my calendar and contacts which were still on exchange to the USV google apps service.

I now use google docs for most of my word processing and spreadsheet work. And we use dropbox to share files with each other and between the various devices we use. I've got dropbox on my android which is really helpful for accessing files when I'm on the road.

As for devices, I've got a macbook pro in my office at home which I take on the road with me. I'm moving that device to a macbook air as soon as they update that line. I've heard that's coming in a few months. Our family shares a macbook in the kitchen and I do a ton of work on that machine. I'm using it now. In our new office, I am getting an iMac. And we will have mac minis in our conference rooms which I can use when I'm working out of one of those rooms.

And maybe most importantly, I'm using a Nexus S android phone that has all the google apps and dropbox on it. I tend to use my phone more than any other device. On the flight west to SF this past week, I did the entire 6 hour flight on my Nexus S with gogo inflight mobile. I was streaming music using rdio, blogging on typepad, doing mail and calendaring on google apps, and reading blogs on the android browser. It worked great.

I realize that it will be a while before I'm completely ridden of word, excel, powerpoint, keynote, and a few other desktop software packages. I still get plenty of files sent to me that are best viewed in these applications. So I have them on pretty much every machine I use regularly. And I use the preview function on android to read them when I'm on my phone. I'm hoping we can move away from these applications quickly, but I'm realistic about the intertia that exists in things like this.

The sense of freedom that exists when you know your applications and files are available from any device with an internet connection and a browser is amazing. I feel lighter already.

In thinking back to the way I've worked over the past twenty years, I am not going to miss taking my laptop back and forth to work. I'm not going to miss trying to sync files across multiple devices. I'm not going to miss upgrading software all the time. I'm not going to miss being anal retentive about backing up all my files. I'm not going to miss windows and windows networking. I'm not going to miss outlook, exchange, and blackberry exchange server. All of that was overhead that got in the way of being productive, mobile, and free and I'm so happy to be done with it.


Worthless Stock Certificates

Longtime readers know that I'm a bit obsessed with worthless stock certificates. I like to keep them around and displayed so that I see them on a regular basis. They are a reminder that we make mistakes in the venture business. I think it's a good idea to remind yourself on a regular basis (particularly when markets are like they are now), that everything you touch doesn't turn to gold.

We are moving our offices upstairs to a new office and we've spent a fair bit of time this week cleaning out old files. I came across a big stack of worthless stock certificates from the Flatiron Partners portfolio and thought I'd share one of them with all of you.

Kozmo stock cert
Kozmo was a decent idea that actually worked in NYC. But in the mania that existed in 1999, the company raised hundreds of millions and went on a spree opening up something like 18-20 cities. That expansion was largely unsuccessful and the result was that the company went under. We lost our entire investment as did all the other investors.

On a week when we are celebrating lots of good news in the Internet world, I think its useful to also remember what didn't work and why so we don't repeat those mistakes.

#VC & Technology

Protect IP (fka COICA)

There's a legislative effort underway in the US Congress to pass a bill that attempts to "counter the illegal online sale of counterfeit goods." In its earlier incarnation, it was called COICA. Now it is called Protect IP. Regardless of the name, I've never liked this legislation for a number of reasons.

First, it provides for the ability of law enforcement officials, and even rights holders via injunctive actions, to meddle with the core architecture of the Internet, via shutting down domain name services (DNS), requiring "servers of links" to remove links to purportedly offending services, and by cutting off advertising and payment services.

Second, it tips the delicate balance of power set up in the Digital Millenium Copyright Act (DMCA) in favor of rights holders and away from innovative new services. The DMCA works well and rights holders have been very successful getting infringing material taken down when they request it.

Entrepreneurs who build innovative new Internet services like Google, YouTube, Facebook, Twitter, etc will inevitably see rights holders come after them for aiding and abetting infringers. The purpose of services like Google, YouTube, Facebook, Twitter, etc is not to aid infringers, it is to allow the rapid and unfettered discovery of information throughout the world. Ultimately these services enable and enhance free speech and learning throughout the world. And a small byproduct of that is rights infringers will use these services too. Giving law enforcement officials and rights holders powerful new tools to go after important and innovative new services with little or no due process is unecessary and potentially very dangerous.

When asked about Protect IP recently, Eric Schmidt, Chairman of Google, said "I would be very, very careful if I were a government about arbitrarily [implementing] simple solutions to complex problems."

The entire set of issues surrounding copyright in an increasingly digital world are extremely complex. There are no simple solutions. Trying to recreate a world that has come and gone is not going to work. Technology is a genie that cannot be put back into a bottle. We are better served imagining, inventing, and financing new models and new services that will allow creative activities to thrive in the digital world. We are doing that with investments in new services like Kickstarter, Shapways, Etsy, and others. And others are doing the same with services like Netflix, Rdio, Spotify, Pandora and many more. There is a new model for distributing and profiting from copyrighted material and it is working. Pirates will always exist. But if rights holders make it easy to get their works in Internet native models, they can and will have bright futures. If they spend their money hiring lobbyists and buying off legislators, they will fail. But they might bring down some great new companies along the way. And that would be a shame.


Sizing Option Pools In Connection With Financings

We've talked about this issue before here at AVC. Investors like to require that an unissued option pool is in the pre-money valuation calculation when they put money into early stage companies. If you don't entirely understand what I am talking about here, go click on that link at the start of the post. Hopefully it will explain the issue.

This post is about how to size the option pool. Many investors just want the number to be as big as possible. They'll put 15% into the term sheet and then let the entrepreneur negotiate them down from there and maybe if you are lucky you'll get them to 10%. But there is no logic in that kind of negotiation. It is just a price negotiation disguised as something else. It is bullshit. And I see investors engage in that kind of practice all the time. It annoys me.

What I like to do, as I mentioned in the post I linked to, is agree with the entrepreneur that the option pool will have enough unissued options to fund all the hiring and retention grants that need to happen between the current financing and the next one. Then we'll do the same thing at the time of the next financing. That makes sense to me. And it is pretty easy to do.

Let's say you are raising $1mm at $4mm pre-money. And the investors want the option pool to be in the pre-money valuation. Let's say the $1mm will last you 18 months. Then you determine how many people you are going to hire in the next 18 months. If the financing is $1mm, it's not going to be that many. You probably have three to five employees already. Without revenue coming in, five employees will suck up half of that money over 12 to 18 months. So at most you are going to hire another 5 employees.

Here's a formula I like to use. Take the cumulative salaries of all the hires you need to make betwen the current financing and the next one. Let's say it is five employees at an average of $75,000. Then that number is $375,000. Then divide that number by the post-money valuation, in this case $5mm. That gives you 7.5%. That's the size of the option pool you'll need. And it is conservative because I don't recommend giving options equal to the dollar value of the annual salary of your hires. I like anywhere between 0.1x to 1x (depending on role and responsibility), with the average being in the .25x range. But early on in a company, you will need to and want to be more generous.

This approach assumes you have already granted employye equity to the existing team. Ideally they will have founders stock or restricted stock. But whatever they have, they should be holding sufficient equity to keep them happy and excited to be working in your startup. If that isn't true, you will need to add some additional equity to the pool to take care of them.

The bottom line is that sizing up option pools should not be like horse trading. It should be a science. It should be based on an option grant methodology that is driven off annual salary, and an option budget based on headcount and hiring plans. And if you do it that way, you will end up with a lot less dilution. Which is what you should always be trying to achieve.

#MBA Mondays#VC & Technology

Art and Tech

On Saturday the Gotham Gal and I attended Seven On Seven, a Rhizome project sponsored by AOL and held at The New Museum. Seven On Seven pairs seven notable artists with seven notable technologists. The seven two person artist/technologist teams are given 24 hours to develop and present a project. We attended the presentations on Saturday afternoon.

On Sunday, our son joined us and we attended the ITP spring show where NYU ITP students show off their senior projects. I’ve been attending the ITP spring show for quite a while now and it is one of my favorite technology demonstration events of the year.

Both events were showcasing what happens when art and technology come together. And both events provided glimpses into the future of technology and society. These projects could turn into startups, a number of the ITP projects have. But most of what we saw this weekend was art in the sense that it is intended to inspire and push boundaries more than have a commercial purpose.

It is not easy to try to stay out ahead of the curve in web innovation. And that is something I try very hard to do. I have found that these artistic exhibits are quite helpful for me in that pursuit. I would encourage everyone who is working in and around web startups, either as an investor or as an entrepreneur, to spend time attending events like these. There are no crystal balls in this business but art is as close a proxy as I’ve found.


Financing Options For Small Tech Companies

I went back and looked at all the MBA Mondays post I've written to date and what jumped out at me was a lack of discussion of financing options. Since the audience for MBA Mondays is largely entrepreneurs and the technology industry, I will frame this discussion in the context of what options are available for small tech companies. In this series of posts we will discuss the following financing options:

Common Stock

Convertible Debt

Preferred Stock

Venture Debt

Capital Equipment Loans


Bridge Loans

Accounts Recievable Financing

These are the options I've seen used most frequently in my time working with small tech companies. If you have suggestions for other financing options to be covered, please leave them in the comments and I will consider adding them to the list.

We will start next week talking about common stock and go from there.

#MBA Mondays

Game Hack Day NYC

Back in february, I wrote about hackdays and in particularly music hackday. In that post, I said:

There's a great group in NYC called 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.

I'm happy to report that some of the same people who were involved in music hackday have been working on a new vertical hackday, Game Hack Day. It will be at General Assembly on the weekend of June 25th and 26th. If you want to participate in Game Hack Day, leave your email address here.

There are a number of ways to get involved. If you have a company that wants to demo your API and/or sponsor the event, you should go here.

If you want to volunteer to help put Game Hack Day on, you should go here.

If you want to write about or cover Game Hack Day, you should go here.

Gaming and Hacking seem so well suited for each other. Some of my favorite hacks from various hackdays I've been to were in fact games. So I'm really excited about this one.


Social Media's Secret Weapon - Email

The theme in board meeting after board meeting in recent months is driving repeat usage and retention. Whether the product is a mobile app, a social app, a mobile social app, a marketplace, an ecommerce business, or something else, everyone is looking at montly actives/total registered users and saying "let's push that number up and to the right." And I'm nodding my head in violent agreement.

I asked one of the best product centric entrepreneurs I know why he thinks that Facebook does so well on that metric (monthly actives/total registered users) and he said to me "when I get an email from Facebook that a friend has tagged me in a photo, I click on it and go check it out every time." 

I've always thought that photo tagging was the killer feature and that photo sharing is Facebook's primary utility. I've said that on more than a few occasions. But there's another piece to this that you cannot leave out. That is the email you get that tells you that someone has tagged you and brings you back to Facebook.

I remember four or five years ago, people, myself included, were asking if social media was going to lead to the end of email as we know it. In an ironic twist of fate, it turns out that email is social media's secret weapon. And more and more social applications are leveraging the power of email to drive repeat usage and retention.

Our portfolio company Return Path is the category creator and market leader in email deliverability. I asked Matt Blumberg, Return Path's founder and CEO, yesterday if they are seeing an increase in the usage of email among their social media and mobile clients. He told me that they are seeing very strong growth across the board in that part of their client base. I'm not the least bit surprised. If you are going to start sending a lot more email, you need to make sure you do it right so that you don't just send all the mail into junk folders.

I do think the rise of alternative notification channels; sms, mobile push notifications, direct messages on twitter, facebook messaging, etc are going to move some of this kind of thing off of email over time. But today, if you want to drive retention and repeat usage, there isn't a better way to do it than email.


Startup Lessons Learned

There are no shortage of conferences you can attend in the startup world. Everyone knows the big ones. But I find the little ones are often much better. One that I have my eye on is Startup Lessons Learned from Eric Ries and his Lean Startup gang.

The conference is in SF on May 23rd. It is a one day affair, which I also like. And they are simulcasting the conference in a bunch of cities around the world. This is a very cool concept and I wish more conferences would do this.

I am shocked that NYC does not have a simulcast location for Startup Lessons Learned yet. If our new USV event space was open, I'd fix that but it won't be open for a few more weeks. So if you have a space that can hold a bunch of people (my guess is up to 50??), then please apply to simulcast this event in NYC.

I think it's well understood that I am a big fan of the lean startup methodology and the program looks excellent. No panels!!! Just case studies, short talks, and keynotes. That's the way to do it.

It's on a Monday so I can't make the whole thing (our team meets on Mondays), but if a NYC simulcast location opens up, I'll certainly stop by to take in parts of the show.

#VC & Technology

Gerardo Miguel Rosenkranz

My friend Jerry Rosenkranz passed away early wednesday morning. He was the best angel investor I have ever met. He was also the nicest person. He was an angel in every sense of the world. He will be missed by so many.

I met Jerry in the spring of 1997. Flatiron Partners had just committed to lead a $3mm "series A round" in Starmedia, which went on to become the leading Internet portal in Latin America. Fernando Espuelas, Starmedia's co-founder and CEO, brought Jerry in to meet me. We sat at the corner of the huge conference table in Chase Capital Partners' main conference room and Jerry drilled down on our firm, fund, and approach to investing. He was doing Starmedia's diligence on their new investor. He was thorough and insightful. He was also charming. I left that meeting thinking that Fernando had chosen his angel well. That was the beginning of a seventeen year business partnership and friendship that has blessed me and the firms and investments I've been involved with in so many ways.

Jerry, Susan Segal (Chase Capital's Latin American investment head) and I went on to build a portfolio of about a dozen leading latin american Internet companies in the late 90s. That portfolio included companies like MercadoLibre,, Starmedia, Submarino, and a host of others. I don't write or talk much about that experience. It ended painfully and I've not ventured back to latin america (from an investing point of view) since 2001. But looking back on that period, it is clear to me that Jerry was hugely influential in bringing and funding technology and internet entrepreneurship into latin america. The companies we funded and he helped get started were the first seeds of an important emerging market for technology and entrepreneurship in the world.

Jerry was raised in Mexico and graduated from Stanford. He was a geek. He loved technology and entrepreneurship. He also loved Mexico. I remember being with Jerry at some fancy event and walking into the kitchen and watching him speak in his native tongue to the mexican workers. They loved it and he loved it. A part of Jerry was Silicon Valley, where he had tremendous relationships and connections. A part of Jerry was Mexico and latin people and culture. And a part of Jerry was NYC, it's power, money, and emerging technology community. His ability to work in all three worlds was unique and hugely impactful.

But the most important thing about Jerry and the thing I will miss the most is his character and his friendship. He was the nicest person. He had a way of walking into the room and making everyone feel better. He had an incredible smile. When he got behind something, as an angel or in any other way, he was 100% behind it. You never had to worry about Jerry being with you. He was a rock.

The last seven years of Jerry's life was a battle with an illness that eventually took his life. He fought that battle with courage and an attitude that was an inspiration to anyone who saw it. He used his body as a test tube for medical treatments that will certainly benefit many in the coming years. He approached it like everything else he did, with curiosity, intellect, ambition, and a positivity that was characteristically Jerry.

The things Jerry helped create will live on in testament to his greatness and his kindness. There are a few people who have made me what I am and Jerry is one of them. For that I thank him with all my heart.

#VC & Technology