Posts from May 2011

Mark Suster has been writing and speaking out about the challenges of a 50/50 partnership between two cofounders. He makes a ton of great points. I would like to provide the counterpoint.

I've started two venture capital firms. The first with Jerry Colonna. The second one with Brad Burnham. Both were 50/50 partnerships. Both have been fantastic experiences. I knew Jerry for a few months before I partnered with him. I knew Brad for a decade but had never worked in the same organization as him. I recognize that venture capital firms are different than companies and that a partnership model works better in VC firms than it does in companies. But these two experiences have taught me that a 50/50 partnership, like a marriage, forces the two founders to come together on all the key decisions and can lead to better decision making.

When I look through the USV portfolio, I don't see a lot of 50/50 partnerships. Of the 38 companies listed on our website, only seven started out as 50/50 partnerships. But some of our best teams were formed that way. Paul and Rony, the founders and leaders of Indeed, are the iconic version of a partnership at the top of a company. They have built possibly the best all around company in our portfolio and they have done it via a partnership model.

Two other partnership driven startups come to mind as I think back over my investment history. Gian Fulgoni and Magid Abraham at ComScore has always been a partnership and they have built a fantastic company. And Jordan Levy and Ron Schrieber, the first entrepreneurs that I worked with as a board member, introduced me to the partnership model. They were even co-CEOs.

So while Mark is right that you don't need to be 50/50 partners with your co-founder, I would say that if you feel comfortable in a 50/50 partnership, it can be a terrific way to operate and build a business. It has worked very well for me over the years and when I see a true 50/50 team show up in our office, I am always more inclined to say yes. I have a great history and pattern recognition with this model.

My friend @David asked me to revisit the post I wrote about Skype spinning out of eBay back in the spring of 2009 in the wake of the news that Skype is headed into the hands of Microsoft. David quotes this part of that April 2009 post:

But the best thing about this is getting the asset back into the hands of the entrepreneurs who created it and built it. We all saw what happened at Apple when Jobs took back the reins of the company and I suspect Niklas and Janus would not be thinking about this if they didn’t have a strong strategic plan for Skype.

I’ve said this many times on this blog and I’ll say it again. Big companies mostly mess up entrepreneurial companies when they buy them and it really is best that companies like Skype stay independant and run by their founders if that is possible. And it looks like that might be possible with Skype. That makes me happy.

We all know that Niklas and Janus were unsuccessful with their bid for Skype. And it is entirely possible that Microsoft will not end up owning Skype. There are plenty of rumors that don't actually come to pass.

But it is equally clear that Skype is very likely headed toward some form of corporate ownership. And my hope that Skype could stay independent will not come to pass.

When Niklas and Janus failed to conclude their attempted purchase of Skype, it traded into the hands of Silver Lake Partners and a group of other investors. This investor group initially tried to keep Skype independent by virtue of an initial public offering. Skype filed to go public last year but the offering never came.

In the past six months, something changed at Skype and now we see the end game is a sale to another corporate owner. We can speculate on what those changes were. Maybe the public market was not that receptive to the offering. Maybe the company was having difficulty growing its revenues as fast as the public markets wanted. Maybe the investors lost confidence in the management's ability to continue to build and grow Skype as an independent company. Whatever the reasons, Skype's experiment with being independent is over and I am disappointed.

We use Skype every day in our office. It is our videoconferencing system and increasingly our phone system. It works amazingly well. Recent UI changes to the new client have been frustrating. On a Skype conference call yesterday, we were all lamenting the loss of the old client where we knew where everything was. Skype brought VOIP to the masses and I'm very certain that someday we will all be communicating by voice and video over IP, maybe via Skype, maybe be other services. It is the future for sure.

I'm not particularly inspired by the idea that Microsoft will do something great with Skype. But I do think they are a better corporate owner than eBay. The second acquisition of Skype isn't likely to change our daily usage of the service. But it may be an inspiration to VOIP entrepreneurs everywhere to think big and create new services that can someday be as big or bigger than Skype. And that's a good thing.

Today on MBA Mondays we are going to talk about competition. For most businesses, competition is a given. When I walk to work, I am often struck how many local businesses have competitors literally right across the street. Clearly competition is something you can learn to live with and still operate successfully. In fact, there are some very good things about competition. And there are some challenging things. This post will attempt to outline both.

I was having breakfast with the CEO of one of our portfolio companies recently. And we were talking about how the sales team dislikes competition but the marketing team appreciates it. That gets to the heart of the pros and cons of competition. When your company is competing for a piece of business and you have a tough competitor in the mix, you can often lose the business. The sales team, who is compensated directly on revenues, hates that. But when your competitor spends heavily on marketing its offerings and identifying the pain point both your company and their company solve, that is good for you. It generates additional demand, and some of that demand will come your way. The marketing team, which is always trying to do more with less, loves that.

There are a number of good things about competition. As described above, competitors will invest in marketing and the combined marketing efforts of a number of competitors will accelerate the development of a nascent market. It is very hard to build a market all alone. Also, when a large company enters a market, it validates the market in the minds of many who had not been paying attention to it before. That means customers and also eventual acquirers of your company. And there is nothing quite like a competitor to fire up a team. I've seen many companies start to coast a bit after they have successfully taken control of a market. Then a pesky new competitor enters, takes some business from them, and then all of a sudden the team is fired up again. All in all, I'd rather see our portfolio companies have competitors than be the only participant in the market.

But competition is challenging. First, when you have strong competitors, you will lose business to them, often frequently. That increases sales costs, time to close, and makes it harder to grow rapidly. Competitors will also spread fear and doubt (FUD) in the marketplace. This is particularly galling. I've heard all kinds of crazy nonsense spread by competitors to our portfolio companies. Some of that "crazy nonsense" stuck around for a long time and hurt our portfolio company in the market. Competitors can also strike business deals with powerful allies and gatekeepers who can make it hard and at time impossible to enter certain parts of the market. Competitors are a pain in the rear and make operating a business harder in many ways.

Competitors will also impact your fundraising and exit plans. When you have a competitor that is raising capital, it will often cause an entrepreneur to think they need to raise capital to compete. I don't think that is normally the case, but it is hard to convince an entrepreneur otherwise. That said, competitors will compete with you in the capital markets and the M&A markets. If an investor puts money into your competitor, most likely they will not invest in your company. If a big company buys your competitor, most likely they will not buy your company. This kind of competition is particularly anxiety infusing in the minds of entrepreneurs.

Very few companies will operate in a market for long without competition. Imitation is the greatest form of flattery. So be prepared for it. Make sure everyone on the team knows that competition is both good and bad. Sharpen your elbows and get ready to play tougher in the market. Get ready for cheap shots and lost opportunities. And make sure you draft on your competitors when you get that chance. And most importantly, make sure competition makes your company better. Because it should and that's almost always a good thing.

The Gotham Gal wrote a post last week about motherhood and work. In it she argued that motherhood is a given for many/most women and that it hasn't gotten in the way of many great accomplishments by women over the years and we should not penalize women for the fact that they have another side project that they will be doing for the rest of their lives. She ended the post with the assertion that women were designed for this and that they thrive on it.

I've watched the Gotham Gal go right back to work a week after our first child was born because it was a startup and they needed her. She managed it pretty well. We used to swap days we had to be home early to relieve Betty (our child caregiver at the time). I've watched her take on another startup working in an office in the basement of our house selling ad space in between driving the kids here and there. And as she says in the post, she always had dinner on the table, always made sure the kids had what they needed, and always made sure our home was functioning. She still does that even though she's got something like a couple dozen projects going right now.

So on Mother's Day, I'd like to acknowledge that motherhood is simply a fact of life for many/most women and that it should not be a hurdle for women entrepreneurs. We just need the men in their lives (husbands, cofounders, investors, etc) to be supportive of their side project. It's a damn important one.

And on that note, I'm waking up the kids and going out to get stuff to make breakfast for our women entrepreneur and mother. Happy mothers day everyone.

In the megatrends post this past week I mentioned that:

A third of Netflix' new subscribers are opting for the streaming only plan

We've been Netflix customers for a long time and we currently have the "4 DVDs at a time Unlimited" plan. But when I went to look at our Netflix account this morning, I saw that we've only ordered one DVD in all of 2011 and we have streamed eleven movies in the past seven days. We are not ready to go to streaming only because the Netflix streaming library isn't complete enough and there are times when we really want to see a film and we order it on DVD. That's happened once so far this year so we probably should cut back our account to 1 DVD at a time.

Last night the Gotham Gal and I decided to make dinner at home and watch a movie. We made that decision around 6pm. There are no video rental stores anymore west of seventh avenue between 14th and Houston that I know of. So it was a pretty easy call. We went with Netflix Watch Instantly. We found a good film we hadn't seen (City Island) and enjoyed it. We could have watched the movie on any one of four devices we have connected our our family room display (boxee box, xbox 360, sony blue ray player, and mac mini via the browser). We went with Boxee for obvious reasons.

In addition to Netflix, there are a few other streaming services for movies worth mentioning. Amazon Instant Video is a great service. They have over 5,000 movies and TV shows available for streaming. And if you are an Amazon Prime member (we are), you get Amazon Instant Video for free. Amazon needs to follow Netflix' lead and get Amazon Instant Video on as many devices as possible. It is not yet on the Boxee Box, for example. And I'm not sure how many blue ray players and game consoles it is on either. But I believe Amazon will be a strong player in this category.

And Vudu is another service to check out. Vudu is now owned by Wal-Mart so it certainly has the resources and distribution potential to compete in this market. I think Vudu has the best library of movies and certainly the largest library of HD content. Vudu is currently a pay per view model and I prefer an subscription model. I hope they move to subscription soon. Vudu is available in HD on the Boxee Box and we use it a lot in our home, particularly for movies that are not available yet on Netflix.

I've written a lot about the end of "file based music" and I believe we are moving rapidly now to that end game. Likewise, I think we will see the end of "file based video" in the not too distant future. One third of new Netflix subscribers are already there. I bet that number of 50% by year end.

Sony has a mess on its hands as a result of the numerous hacker attacks on their services. When thinking about this situation, it bears stating that companies and governments ought to be careful messing around with the hacker culture.

As I understand it, celebrated hacker George Hotz hacked the PlayStation 3 and Sony's lawyers went after him hard. What we are seeing now is the revenge of the nerds against Sony.

I am not saying what George did was right (although I am very sympathetic to hackers opening devices like the iPhone, the Kinect, the PlayStation, etc so that developers can build on them). I am not saying that Sony's lawyers weren't in the right when they sued George. This is not a post about what is right and wrong, legally or morally.

This is a post about the realities of the world we live in. Hacker culture is strong and getting stronger. Companies and governments should not underestimate the power of hacker culture to extract revenge on institutions they feel have wronged them. Unfortunately, it looks like Sony did just that and is now dealing with the repurcussions.

Yesterday our portfolio company Disqus announced a bunch of numbers including the fact that they had raised $10mm to fund their rapid growth. The AVC community is powered by Disqus and we are big fans of the company here. So I'm pretty sure many of you already saw the news and are happy for the Company. For those that did not see the news, click on that link above. For those who would rather get a brief summary, here's what they announced:

– Disqus is four years old this week

– Disqus communities are viewed each month by almost 500mm users worldwide.

– Over 750,000 blog communities have adopted Disqus

– 35mm commenters actively participate in these communities

– The company grew 5x across all its core metrics in the past year

– 75% of blogs that use a third party comment system use Disqus

– All of this was achieved by just 16 people, but they hope to increase that number in the coming months

If you are interested in working for a rapidly growing category leader, here is their jobs page.

In other news, Disqus released some new features, one of which I discovered in the comments to yesterday's post. If you mention other people in a Disqus comment by typing @ then his or her Disqus name, mentioned people will be notified via email or Twitter. I saw a number of people using this yesterday. Let's do this as much as we can around here. It will make the disqussions even more lively.

It is an exciting time to be an entrpreneur and an investor in tech startups. The history of tech investing is a series of waves or megatrends that come one after another. Mainframes to minicomputers to PCs to client server to Internet, for example. But right now we are in the midst of a number of these megatrends all happening at the same time. There are at least four big ones going on at the same time:

– Mobile – yesterday I wrote that at least 16% of the visits to this blog are coming from mobile devices and that number is up from essentially zero six quarters ago

– Social – Facebook will have 1bn users in the next year or so

– Cloud – A third of Netflix' new subscribers are opting for the streaming only plan

– Global – companies like Skype, Facebook, Twitter, Google see upwards of 80% of their users from outside the US and these numbers are growing faster than ever

Each one of these megatrends would be an investable wave on its own. But we are in an environment when all four are crashing on the shore ata the same time. Twitter, for example, is mobile and social and global. It is the world in your pocket. And it is changing the world too.

All of this is happening in the context of a very frothy investment climate. Investors are acutely aware that this is a time of great opportunity in tech investing. Capital has come gushing into the venture capital and startup sector. Maybe it is appropriate given all the opportunity. Or maybe it is irrational exuberance. But as my friend Tom Evslin says, "nothing great has ever been built without irrational exuberance."

Investing in the midst of these megatrend crosscurrents is both exciting and challenging. And I certainly wouldn't want it any other way.

I noticed that 16.2% of the visits to AVC in the past 30 days were from mobile devices so I did a little digging into that number. I opened a spreadsheet and went back in time on google analytics and the result is this chart. If you want to make it larger, click on the chart and load it in its own tab.

I then drew up a couple graphs. Here is total visits from the four most popular devices over time:

But traffic to AVC has been growing pretty rapidly, so then I looked at this chart expressed as a percent of total visits:

So what does all of this tell me? Well first, a lot of people are reading AVC on mobile devices. Total mobile visits to AVC in the past 30 days was just north of 45,000. But the mix is equally interesting.

Probably the most interesting figure is iPad vists per month. In September 2010, AVC had 17,091 visits from iPads. In the past 30 days, iPad visits were 17,219, essentially flat. And on a percentage of total visit basis, the number was 7% of all visits last September and it is 6% of total visits in the last 30 days. That is not what I would have expected. iPad visits to AVC are not growing and are declining on a percent of total traffic basis.

iPhone, on the other hand, continues to grow month after month and now represents 6.7% of all visits. However, it was 5% of all visits in June of 2010 and 6% of all visits in September of 2010. So iPhone visit growth is slowing after a tear in the second half of 2009 and the first half of 2010.

Android is coming up fast. It grew 4x as a percent of visits from March 2010 to March 2011. But Android is not growing fast enough to overtake iPhone and iPad anytime soon. At the current growth rates, that would not happen until late 2012 at the earliest and that assumes continued flattening of iPhone and iPad.

Blackberry trails the other three devices by a lot and Blackberry visits to AVC have not grown in absolute numbers since the middle of last year.

The AVC audience are early adopters and the leading edge of technology users. So these numbers are not likely to be representative of blogs or online media broadly. But it is still very interesting to see them.

The iPad numbers in particular are interesting. I'm wondering if iPad users are reading via applications that Google Analytics does not record as an iPad. That would make sense. If so, the iPad numbers could be significantly higher than the numbers shown above.

But the big message is the early adopters are reading more and more on their mobile devices and at the current growth rates, half of the visits to AVC could be on mobile devices by the end of 2012. That is a megatrend. And it is investable.