What We Are Seeing

The Wall Street Journal has a story out today that says "Web Startups Hit Cash Crunch." There has been a fair bit of reaction in the tech blogs and I thought I'd toss into the discussion some things we are seeing:

1) There are so many startups out there raising money. I don't think this is a bad thing. It's a good thing. Entrepreneurship is in vogue. Innovators are innovating. Makers are making. But I cannot remember a time when we have gotten more inbound traffic. It is not just coming from entrepreneurs. It is coming from angels, seed investors, VCs, lawyers, accountants, friends, aunts, uncles, you name it. I'm waiting for the guy who sits at the front desk in our building to pass me a business plan on my way into the office.

2) There are a lot of "me too" investments out there. And the delineation between startups is getting narrower. Almost every investment that comes our way these days causes us to ask ourselves "is this too close to xyz?" with xyz being one of our exisiting portfolio companies. The startup market is hypercompetitive. The user base is finite at some level. The capital markets are finite at some level. And the number of startups chasing these markets seems to have doubled or tripled in the past couple years.

3) VCs are having a tough time raising money. The conventional wisdom is that 10-20% of venture funds produce 100% of the returns in the asset class. LPs (that's what we call our investors) are all chasing that top 10-20% and that leaves 80-90% of the VC firms struggling to raise money. The one bright sign in LP land is that emerging managers (what USV was a few years ago) are getting more attention from LPs. I'd rather be a new firm raising a first fund than a mediocre firm raising fund five right now.

4) Angels may be topping out, at least temporarily. This is more of a guess than the previous three. What happens to every angel is that they start making investments. They get excited. They make a bunch of them. And then two things happen. First, a few of their investments struggle and fail. And second, a few of their investments can't raise money and come back to them for a second round. They begin to realize that startup investing isn't so easy and that they have a finite amount of money they can invest or that they are willing to invest. They pull back a bit, see how things are going to play out, and become a bit more cautious. Given the massive amount of angel capital that has come into the market in the past few years, I wonder if we are seeing some cooling of that market as all the new investors take stock of where they are and where they want to go next.

5) The internet investing market is transitioning. Social was the driving force for the past three or four years. In the wake of Facebook and Twitter, how could it not be? Mobile has also been a hot theme. Both sectors have consolidated a few winners and a number of additional interesting emerging companies. But how many social platforms of scale will there be? Five, ten, twenty? And mobile is hard because distribution continues to be limited to the app store model where you get on the leaderboard and win or you don't and you don't. Investors are moving into new areas like cloud, peer to peer marketplaces, and trying to take what worked in consumer into the enterprise. There is no lack of interest in internet investing, but investors are having to learn new markets and new sectors. And that kind of transition takes the heat out of an overheated market.

So, is there a "cash crunch" for web startups? Not that we are seeing. Our portfolio companies have all been able to finance themselves when they have wanted to. And we have made more investments this year than any year we've been in business (maybe 10-20% more, not 2x more). But I do believe we are in for a bit of a reality check. We've had quite a run here and all big runs are followed by pullbacks. The public markets for stocks and bonds has been relatively weak all year and that has to have some impact. It is likely that we will see more startups having trouble going from the seed round to the A round, or from the A round to the B round.

That's a good reason to take money from a firm that stands behind its portfolio companies. At USV, we have never failed to do at least one follow-on round with the sole exception of Delicious, which sold to Yahoo! instead. We don't promise the next round. We don't commit to it. But we are supportive to a fault. And we are proud of it. Being an entrepreneur is hard. Having supportive and caring investors helps. In the market we are in (or heading into) it will help more.

#VC & Technology

Comments (Archived):

  1. Dave W Baldwin

    Instructive opinion in compact form.  You’re right regarding it better to be new VC raising vs. existing VC that has had mediocre to fair.

  2. RichardF

    If you are right about 4, and it will be interesting to see if someone like Dave McClure chips in here, then this will definitely take some heat out of the market.  Good in some ways but angels are so important to the start up ecosystem that I hope they are not pulling back too much (but the way cycles go they probably are/will)

    1. fredwilson

      Im not suggest a collapse in angel funding just a pullback

      1. PhilipSugar

        I have been saying there will be an angel pull-back like there has been in cycles for the 20 years.  Its why you see so few angels that have been doing it for 20 years.  You probably can name those guys on two hands.  Unfortunately I think it is going to be much worse than the last couple because the cycle up was much greater.I have seen it at least three times since 1990.  Every angel says they expect to lose money.  The problem is nobody is good at losing money.  You can strive to be not bad at it.  For VC’s its generally other peoples money.   For angels its your very own money.I’ve seen it firsthand many times, how irrational people can be when they realize they’ve lost their money.  The worst actually is the angel funded company that everybody has been hoping was going to be the ninth inning two out homerun that is going to save their portfolio, and let them tell their spouse and friends that they at least broke even.The gnashing of teeth when that last hold-out, the one that has lasted the longest, needs funding and it comes down to getting funding to stay alive, but the angels are getting crammed down, is unbelievable.

        1. ShanaC

          what is the best way to handle the loss?

          1. PhilipSugar

            Gracefully, but its very, very hard.You can even see from Fred’s tone how much he hates loses and takes it personally.  (and I’m saying he must be in the top quintile for taking them well)I’m just saying when you see these angels taking a loss its really not pretty.

          2. fredwilson

            lose gracefully if it must happenbut when it comes to investing, i like al davis’ line:just win baby

          3. PhilipSugar

            I’m totally with you Fred.I never want to see somebody take losing with anything other than it tearing their guts out.  I like Jim Calhoun’s quote that when he stops hating losing more than he likes winning he is going to quit.But the unproductive things you can do when you are losing like the Raiders cheap shots, eventually comes back with Karma.

          4. fredwilson

            the Jets have lost three in a row. i’m apoplectic.

      2. ShanaC

        so more organized and acting a bit more true angelic ( angels only scale so much in the miracle business, according to stories)

      3. bobby dang

        angels underutilized portfolio theory.  In order to manage risk,  investments should be in non-correlated sectors/plays.  The empirical fact of continued investment in ‘me too’ web 2.0 companies, highlights how investors continued to pour into correlated plays, due to the finite market in the web 2.0 space, and overabundance of capital from 07-10.The problem now is that of correlation.  If a web 2.0 business model, or market is shown to be a failure (groupon-daily deals market), valuations in the other me2 correlated companies will collapse.   And angel funds will implode.  Also a hrd linading in China will be devastating to world markets, and capital pools.A

    2. Mark Essel

      Angels provide the admirable role that I first mistakenly thought VCs did, taking on massive risk to aid founders perform product/market research or to fuel “one crazy sun of a bitch’s” idea. After that concept is “proven”, VC is the afterburner.I hope the Angel market swells globally, and provides great returns. Even if only 10% of Angels make money (making up #s), and their market grows, it can be great news for early entrepreneurs.

  3. LIAD

    …and that my friends is why USV kicks ass.

    1. fredwilson

      And now a word from your sponsor 😉

    2. Mark Essel

      I was thinking the same while reading.One of the many reasons

  4. JimHirshfield

    Interesting. Bubblicious, perhaps. Carlota Perez would have us believe the bubbles have popped, no? How many times will this happen with the tech revolution we’re in before we see the healthy expansion? Or is this the healthy expansion?

  5. ObnoxiousGeek

    The tide will go out on the VCs sooner than later. We’ll get to see who was swimming naked – my guess is most of the VCs. Why do I say this?I see too much money chasing dumb ideas, with no conceivable business model. This includes even the so-called “Top tier” VCs.

    1. ObnoxiousGeek

      Regarding Angels, I’m sure a substantial majority of them will fail big-time. The market won’t support a million, “me too”, time wasting consumer apps/games.

    2. fredwilson

      And that could include USVim somewhat conforted by the fact that 2/3 of our portfolio has meaningful revenue and 1/3 is profitableFor our 2004 fund you can multiply those numbers by almost 1.5

      1. ObnoxiousGeek

        Those %s are quite impressive. Congrats.

        1. fredwilson

          But your critique still rings trueHappiness is positive cash flow

    3. Jasonpwright

      Whenever I need a startup/ investor reality check I watch this Jason Calacanis interview with David Heinemeier Hansson.http://www.youtube.com/watc

      1. Jasonpwright

        Skip to 15:00 to get going.

  6. Dan Lewis

    How many of the new(er) entrepreneurs are pitching VC-class fundable ideas/products? My project isn’t one — it’ll never do enough revenue to warrant a multi-million dollar exit — but it definitely can end up supporting one or two (or four or five?) people long-term.  Are you seeing a lot of those?

    1. fredwilson


    2. falicon

      Agree…this is the new challenge for many of us. How to get the project to survive long enough and grow big enough to make it to that support two-three people…I suspect many many many of the things out there right now looking for funding could get to this level if they can just afford to put in the initial time, effort, and somehow cover the initial growth costs to get there (I think this is the reason so many people are pitching angels right now)

    3. ShanaC

      Is it that the web is getting smaller?And why aren’t banks funding these sorts of projects yet (small business funding is supposed to be part of what they do)?

      1. johnmccarthy

        These businesses that grow to a few million and support a few people quite comfortably are so called “lifestyle businesses,” a phrase used by many to filter out deals.  Being branded as someone who wants to build a “lifestyle business” is the kiss of death when raising VC money.  As if building a $3 million spinning off a million or more in cash is something to be looked down upon.  ShanaC, good question. Commercial banks will only fund a small business with hard assets or predictable cash flow or a personal guarantee from someone with $.  Happy to fund a liquor store or dry cleaner, but a web-focused startup not so much.  Hence the need for VCs and angels.  Does anyone have a different experience with commercial banks?

        1. ShanaC

          So again, is there a good reason why a bank wouldn’t fund a vintage store that only exists online as opposed to a brick and mortar location?  But they won’t, which is really odd…

        2. Carl J. Mistlebauer

          Commercial Banks, pre financial meltdown and post financial meltdown….I know a couple of bankers personally and have known them for over 20 years.  I met with them to discuss financing my growth and basically they both told me that they did not have the funds.  Forget receivables, forget inventory, forget the fact of past performance and experience.  Most Chamber of Commerce’s have a listing of business loans given in any particular year, and if you study pre and post financial meltdown you will note that the loan amounts have dropped dramatically.  Your average now is about $200,000 which represents the value of a second mortgage.ShanaC as far as internet businesses go, the two individuals I talked to had nothing but scorn for the internet; “…I really have no idea what the interest in Facebook is all about….” was one response.  Lots of small and medium sized businesses, successful ones, cannot get operating capital to grow and expand.Banks don’t have it, and what they do lend they want it 100% hard asset collateral guaranteed.  The stark reality is that banks no longer serve the purpose that most of us believe they did serve once and honestly I seriously doubt they will ever serve that purpose again.The reality is small banks are fighting for their own lives right now and every week a few more bite the dust.  Then you have the “too big to fail” bunch and they are globally focused and have no incentive or interest to invest domestically.

          1. ShanaC

            Why the scorn?  And if banks are failing as banks, then what will step in to replace banks?

          2. Carl J. Mistlebauer

            Why the scorn? Real simple, I think capitalism is a pretty awesome system, when it works right, to ensure the efficient allocation of resources for a society.Banks and the finance industry were at one time subsidiary to business, they served a role in the system. They no longer serve that role, now you want to know, “then what will step in to replace banks?”What are our options? Individuals, government, or a third option not identified yet?I know we cannot go back in time and I doubt Fred, Andy, and or JLM would be interested in going into the commercial lending business, so that leaves government.Karl Marx always said that only from capitalism can socialism develop and it looks like he might be right, given that capitalists have given us no other choice.I just read an article about the new bill congress just passed inregards to free trade and the article mentioned three times that the passage of this bill will not only create jobs, but it will also make the goods we purchase cheaper AND it will lead to rising incomes in the US. Now, statistics have proven that median household incomes have not risen since we got on this Free Trade kick back in 1994.Again, it facts vs. hype. We freed banks from the regulations that kept them from competing and now we find ourselves with fewer banks and lending at an all time low. The future is the internet and yet banks refuse to lend to companies without hard assets. So, what, are we to change to meet their needs again?Ever wonder why banks want a home as collateral? Could it be because then they can sell the mortgage to the government?SBA is a joke and ends up every year with money left untaken….We have a real problem on our hands and I cannot believe that as exceptional of a nation as the USA cannot come up with better solutions than what we have been implementing the last few years…The CEO of Goldman Sachs claims they are doing “God’s Work” and the CEO of B of A just announced that B of A has a “right” to make a profit. No, you have an obligation to make a profit by providing a service that consumers demand or get out of the way.No business has a right to anything, they may have an opportunity, and of course they have an obligation to their shareholders, but no one has a “right” to anything.That’s the basis of my scorn. Hubris is a character flaw and there is way too much hubris in this country right now.

      2. LE

        Banks don’t fund based on business plan or ideas.  They fund based on collateral that you have and personal guarantees.  Even SBA loans require collateral and personal guarantees and investment of your own money:”All owners of twenty percent (20%) or more of the business are required to personally guarantee the SBA loan.”http://web.sba.gov/faqs/faq… no circumstances can I think of a situation where a bank would float a typicaly internet startup and the losses it sustains until it becomes profitable.

        1. LE

           Disqus box caused the above error. Above should read “under no circumstances can I think of a situation where a bank would float a typical internet startup and the losses it sustains until it becomes profitable”

        2. ShanaC

          Look, I get that.  But reality is – banks are supposed to be lending to SMBs.  If the nature of SMBs as the web grows, more web based businesses grow with it, and more brick and mortar businesses disappear, shouldn’t there be a bank that would want to try this, even if it requires personal guarantees.I mean, how many gas stations, restaurants, coffee shops, florists, and dry cleaners can an area have as SMB before the bank in that area runs out of businesses to support?  I can sell vintage online as well as in person,, shouldn’t a bank be as interested in both models (retail as well as through etsy?)

          1. LE

            “But reality is – banks are supposed to be lending to SMBs.”There is nothing out there that I know of that mandatesthat banks don’t have to use their normal underwritingpractices when deciding whether to loan or not.”even if it requires personal guarantees”It should be no problem getting a bank toloan you money if you have a personal guaranteefrom someone with assets. If you have no assets then the guarantee is almost worthless.And even a guarantee involves costs. aggravation,and legal fees, to collect on (as we are seeingin the foreclosure process.)Look, I knew someonewith a traditional well established (was a 100 year old company let’s say) that wasn’t willing to personally sign for a loan theyneeded.This company had been doing about 10 million in businessand dropped to 7 million.Bank would give them money but wanted a personalguarantee. In fact in the past they hadalways required financial statements and otherthings. Acquaintance didn’t want tosign with personal assets that wouldhave covered the bank in case of default.So no loan was given. And the person didn’tuse their own money either. They wantedto continue in a risky environment withother peoples money.So the company declared bankruptcy. Then thisperson quickly tried to shift assets sohe wouldn’t have to declare personal bankruptcy(because he was on the hook for some previous loans sohe put things in his wife’s name which the bankruptcylawyer advised on…. I thoughtI’d mention it because this is quite common actually.)A few years prior the company was doingquite well actually. The owners biggest problemwas not buying the biggest BMW because hisunion workers would want a bigger raise.They then lost a key account.By the way, each industry and situation has differentpractices. Credit is extended or not (as Fred has writtenabout vendor financing) in different ways and dependingon the particular circumstances and practices competitionetc.”shouldn’t a bank be as interested in both models”(I’m unclear on the question in this paragraph please explain) 

          2. ShanaC

            Having a store on Etsy vs having a store on main street, USA.Aren’t banks supposed to redepolying capital in order to make money.  Why are they sitting on all of this cash.It just seems conceptually very weird that angel money  is being used for what was historically the role of banks and loans.  I’m trying to figure out why banks aren’t jumping on this as an opportunity.

          3. LE

            This is in response to ShanaC below threadwise I can’t reply.”Aren’t banks supposed to redepolying capital in order to make money.  Why are they sitting on all of this cash.”Risk. If they don’t manage it you saw whathappened with housing when they made dubious loans, right?The investing that you are referring to is much morerisky then a bank could ever handle. It’s notthe business they are in. It’s really that simple.”It just seems conceptually very weird that angel money  is being used for what was historically the role of banks and loans. ” Angel money is being used in a gamble to overallmake a killing on a few investments out of many.So is VC. Banks aren’t in that business (am I repeatingmyself, yes.)”I’m trying to figure out why banks aren’t jumping on this as an opportunity.”It’s not an opportunity for banks. Banks in no way shape or form are setup to deal with the cash outlay and losses that startups (of the type that Angels, VC or incubators have) deal with. It simply doesn’t happen.  At least not with what we would traditionally call a bank. Why do you think so many entrepreneurs use credit cards to finance? If they could get a bank loanthey wouldn’t have to do that. They wouldn’t be paying28% on credit cards (or whatever they pay – it’s a bignumber). Look, Fred in comments said this:”2/3 of our portfolio has meaningful revenue and 1/3 is profitable”So another way of putting that is that 1/3 of the portfolio has essentially no revenue and 2/3 of the portfolio is breaking even or losing money. No revenue is no revenue. It means you not only don’thave money to pay back a loan but you don’t have money to pay any bills or employees. So they are simply using investor money to float the company until the idea works. Managing the burn rate. Not somethingthe banks are going to do. If that is the success rateof top tier VC firms do you think the averages of a bankare going to be better? By the way the other important thing is that the upside for angels, vcs, incubators is high. The only upside for a bank is they get the loan paid back at whatever the interest rate they charge.  An angel/vc spreading around money to multiple firms can potentially get a big payout.  There is no big payout for a bank. 

  7. Pascal-Emmanuel Gobry

    Will be interesting to see how/if this plays out. Right now all we have is one WSJ story. The great thing about entrepreneurship, though, is that it’s always a good time to start. When it’s boomtime, money rains; when it’s crunchtime, things are cheaper and your competitors are screwed. 

    1. Rohan

      Yeah. Starting alone doesn’t say much though. Crunch time is crunch time – it’s bloody difficult. 

      1. mike gilfillan

        Yes, damn difficult.  But it forces you to focus on what matters and build a solid business model.  Too much easy money often means too many frivolous expenditures (& hires) and can lead to becoming a money junkie (ie: Groupon).

        1. Rohan

          true that!

  8. Stumpster

    Hate to burst your bubble, but it’s more inevitable than ever now the pop is coming.  Unfortunately this time will be a lot worse than the dot com crash of 2000, so brace yourselves.

    1. fredwilson

      if you are right, then there will be lots of opportunity out there for investors

      1. Stumpster

        Not so sure investors will be so easily convinced in the space this time around.  The industry is maturing and the days of big returns are fading.

        1. fredwilson

          Its all about entry price in a down market

          1. Stumpster

            Worst case scenario for investors doesn’t change in a down market

          2. kidmercury

            what if it’s an inflationary collapse? eurozone, USA, britain, japan all have sovereign debt problems. a crisis of confidence in which capital flees could lead to a currency crisis as has occurred many times throughout history, argentina in 2001, iceland in 2008, etc. then all dollar denominated assets, including startups, are screwed. but no worries! fredbucks are closer to reality than many suspect. #fredsquare

          3. fanny&freddiemercury

            if you look at interest rates on long term treasury notes, i’d definitely be worried about inflationary collapse in the US.i know, i know: bond markets are an inside job. (side note: having vaginal intercourse with my girlfriend is also an inside job. i suppose some inside jobs are better than others.)

  9. Alexander Muse

    I agree completely. We aren’t seeing a dearth of cash for startups – seems like too much money chasing a few deals. Last year we were having problems filling a round, but this year I had to make calls to let investors know we couldn’t get them in. It is a little like it was in 1999. Of course, everything changes. Not sure when this current fund raising environment will stall.

  10. testtest

    consensus is the opposite of opportunity

    1. fredwilson

      ^2(which is the new +1 since google stole that)

      1. RichardF

        if they’ve got any sense they’ll steal the # tag as well

      2. JCWebb

        My brain almost locked up as I attempted to put Hip hop and basketball together with google.

  11. JCWebb

    That is great news. Let the cream rise to the top. We need to innovate ourselves back to greatness and make valuable products for people.

    1. Francesca Krihely

      I agree. I’m waiting to see a huge wave of truly disruptive technology–not consumer web sites or new time social networks but rather game changing code or systems that can alter the consumer web, build better infrastructure for developers and create more solution-based architecture for people all over the globe. This is at the heart of geek culture.I hate to call out USV companies, but I think two examples from their portfolio demonstrates the “next” line of internet investments that I’m craving. They are not consumer, but they are designed to build capacity of the consumer web. The first is Twilio, which is in the next wave of social, building on the capacity of mobile networks in leveraging cloud infrastructure to boost communication. The twilio API is one of the most amazing things I’ve seen in the mobile space–and I saw a great hack with it just a month ago at HackNY. The next is 10gen. Again, a cloud-based innovation, a little older than twilio, and not consumer-focused. I’m not a developer, so I don’t understand a lot of the intricacies of their database system, but they have done a fantastic job not only making their product fantastic, scaleable and flexible, but they’ve also made it “sexy” in the developer community. If I had money I would definitely invest in 10gen. So where are these “geek” culture products? I know it’s out there but it is not getting press. We’re just hyped up on social and advertising and I’m nervous this will be the only fascinations that will trickle down to the university level and influence the next gen of innovators. 

      1. Cam MacRae

        Yep. I quite like 10gen. I’m pretty excited about Revolution Analytics too.

        1. Francesca Krihely

          Wow I haven’t heard of that yet, but by just taking a peek it looks like very compelling stuff. Will definitely take a closer look. Thanks for the rec. 

          1. Cam MacRae

            No problem.They just recently partnered with Cloudera which is also pretty exciting. If ever there was a segment full of slow moving monoliths this is it and in my opinion they’re tearing it up.

      2. JCWebb

        Yes. Right on with 10 gen. MongoDB allows for some tremendous performance and scalability. But I don’t believe we have paid them a dime yet and I’d prefer to keep it that way if we can help it. Haphazard social add-ons can make you want to roll your eyes, but done right and with purpose, they can showcase some of those other technologies you crave and actually help drive them forward. Done right, social is still one of the most powerful applications of technology. I wouldn’t dismiss it too quickly as yesterday’s news.

        1. Francesca Krihely

          You’re absolutely right and I’m sorry if I made it seem like I was dismissing social. Social is almost a new search engine. I think social will definitely stay with us, but when I think of “investing” I think of building current products to scale and investing in the next wave. My framing was harsher towards the current wave, but I do love social. It helps us have conversations like these. 

      3. Trish Burgess-Curran

        Couldn’t agree with you more.  Certainly social is extremely important and it still has a lot – or at least some – space to grow but I am also hungry to see and experience the next stage.  It may not be as ‘flashy’ but it will be just as important, maybe more. I love how you put it ‘geek culture products’!

        1. Francesca Krihely

          Totally! Geek culture–I.e. all open sourced everything–is incredible! Ramen + Linux = our current web economy. Another interesting fact: most geek culture products are made for the common good (i.e. mozilla). Michale Harrison wrote this about geek culture on the Geek Dad Wired blog last year: “geeks are passionate and super interested in whatever it is that turns their cranks. For good or bad — but usually for good — this means they know what the hell they’re talking about when they talk about it. This is a good skill to have!”here’s a link to the whole post (http://www.wired.com/geekda

  12. reece

    i see a lot of young companies as they start to raise moneydefinitely seems #4 is true as many of the angels i know and send new deals to are ‘sitting out’ for a while or ‘need to check with their CFO’ a.k.a. their spouse

    1. fredwilson

      In our family gotham gal is the angel and i am the cfo

      1. reece

        hence why I said spouse 😉

  13. Fernando Gutierrez

    Regarding VCs raising money… if stocks and bonds are performing poorly, doesn’t that put the bar lower for VCs to get money from LPs? relatively speaking startups are getting safer as financial markets go to hell (maybe hell sounds like too much, but I’m in Europe and we are quite pesimistic lately!)

    1. Katie

      Was about to ask the same question. I would think LPs would be all over even mediocre-performing VCs right now with the kind of returns other asset classes are seeing. 

    2. fredwilson

      no because these LPs allocate a percentage of their overall portfolio to venturewhen their portfolio goes down, their venture allocation goes down

  14. Mark

    Thanks. It’s cool to get this perspective. I have to think that this belt-tightening might be a plus from a consumer side. We might get more quality over speed and priority. I look at something like Color, and have to wonder, why are they doing what they are doing? Making money isn’t interesting.I like the creativity of what’s been going on, and love to follow the news more than most, but I think a voice has been missing: On the other end of all of this are people that don’t care too much about the space, or funding, or whatever. These people are just looking to find better ways of doing what they like to do, or to have new experiences. I look at my phone apps, and I don’t use most of them. Most of what I do use is part of the OS, or is getting baked into it. People don’t fundamentally change. I’m expecting that in the new few years the winners will be those that focus more on accomplishing something of value for people, and less on being a product in a space.Kind of rambling. 🙂

    1. Carl J. Mistlebauer

      I have been out seeking funding for a “hybrid” and I have to acknowledge that I did not have a clue what to do (if I ever write a book this will be one outrageously funny chapter to say the least!).  My experience has always been you fund your own growth and if you can’t then you go to a bank.Then, I am not a salesman.  When someone my size gets excited during a presentation it usually intimidates people…Just imagine Fake Grimlock on drugs…I have met quite a few very helpful and interested people, but I have run into the “…gee, we just invested in XXX company and sure wish you had come by sooner….”Or, “…your proposal is very interesting but the scale is too small for us….”Yes, even revolutions have lifecycles.  So now we find ourselves moving downstream; no longer is it the “big idea” or the “change the world” idea that gets funding but rather the smaller ideas that build upon existing ideas, the companies that take the idea and turn it into something different.From worldview to nicheview.  From $20mil to $5mil.  From seed, series A, series B, to seed and profitability.”Innovate or die” applies to all of us……

      1. Elia Freedman

        Carl, if you are not changing the world is the business worth doing? If you are compromising on your vision does that make the business worth accomplishing? Do you really want to work with people who don’t get it and don’t buy in?

        1. PhilipSugar

          There are lots of businesses that don’t change the world that are very much worth doing.  Probably 99.9% of them.  Its what our economy is based on and how great fortunes are made.Just not ones written about in TechCrunch

          1. Elia Freedman

            Good point. I would argue that most of the ones written on TechCrunch are in the 99.9% majority. My question was for Carl, though, specifically. If he has a CTW vision, is he okay with sacrificing that vision in order to raise a round of funding. This issue is one I’ve been thinking about a lot.

          2. PhilipSugar

            I think your point is a very valid one.I would say Techcrunch literally only focuses on technology companies that raise VC which is the vast minority of all tech companies, and the vast vast minority of all successful companies.The breathless discussion of how much and at what valuation totally ignores the end outcome which is almost always vastly different event than the raise.

          3. andyswan

            Exactly right.  I know several wealthy, happy men that started dry-cleaners, online brokerages and liquor stores.Just do it better than them.  It doesn’t have to be rocket surgery.

          4. PhilipSugar

            I do as well !!!

          5. Donna Brewington White

            And don’t forget the “millionaire next door” plumbers.  

          6. Ben Apple

            are you sure they weren’t laundering money?

          7. andyswan


          8. Anne Libby

            Agree!   For example, if someone could solve the general problem of women’s pants (to points made by @eliafreedman:disqus and @tao69:disqus ) it would be both worth doing and world changing. 

          9. Dave Pinsen

            You mean by adding pockets to them?

          10. Carl J. Mistlebauer

            Just when it appears that purses for men is catching on women want pockets with their pants!  :)I just couldn’t resist!Looks like role reversal is almost complete!

          11. andyswan

            It’s impossible for me to articulate how much more I respect a woman that puts her things in pockets than a man who puts his things in a purse.  A line in the sand simply must be drawn.

          12. ShanaC

            So agreed – the problem is that we’re all curvy in different ways.  Levi’s actually changed the way they make pants for women because fo this.I much prefer to have technology that would tell me what pants would fit.  I’m tallish, short waisted, long legged, curvy but thin – and I can’t find pants with long enough inseams that also don’t gap in the back.  I have heard of websites that vaguely help, and of machines that scan your body to size it.  But I still can’t find pants….and @daveinhackensack:disqus – for some of us pockets can be a kiss of death.

          13. Donna Brewington White

            I want to kiss the person who thought of adding spandex to jeans.

          14. Coryndon luxmoore

            You might want to keep an eye on http://www.fittedfashiondes… a member of this years Betaspring incubator class. The beta test I saw was amazing.

          15. Donna Brewington White

            Maybe the product or service does not “change the world” but the presence of that business changes a small part of it — like a community.  That’s important.Personally, I think there is value, in itself, to starting a business and running it well, exercising the entrepreneurial muscle. I just wonder about huge amounts of money being sunk into businesses that really don’t create change in proportion to cost.  Opportunity cost is at stake.

        2. Carl J. Mistlebauer

          Elia,I wish I could compromise and or “get along” but I can’t.  But when you are competing for funding, as a hybrid (part tech/social and part old economy) in a niche market (big and tall/plus sizes) you have to realize that if the world is looking for the next big revolution, like Twitter, which has been instrumental in toppling governments in foreign countries, well, perspective is needed.Fred is an investor, he invests in what he understands, now if he was 6′ 5″ and weighed 350 lbs he would “understand” my company and market; and he would be my biggest champion.All revolutions begin with the toppling of the old regime, then it just takes a while to figure out what to do after that.  That is true of countries and technology.  Edison invented the lightbulb, but how long did it take to get someone to figure out to put a lightbulb in a refrigerator?  Or we all talk about the television and how it changed our lives but does anyone realize what a change agent the “tv table” was?  I mean it revolutionized our eating habits!I represent the “tv table” in the big scheme of things……so you don’t give up but rather just bide your time until its your day….

          1. Elia Freedman

            Nice response and great perspective. Thanks for taking the time. (By the way, my wife complains about this all the time. She is tall and lean – 5’11 – and can never find pants to fit her.)

          2. Carl J. Mistlebauer

            I hope your wife has found the company, http://www.tallwomensclothe…, that is where I buy all my gifts for my sister who is an inch taller than your wife.Eventually even the big and tall/plus size market will realize that there is a difference between “tall” and “big. I always tell folks that when a department store has a “big and tall” department that it is false advertising because what they really have is a short and fat department!The reality is regular sizes created extended sizing and eventually big and tall/plus size will create tall and thin sizing. I already have the specs for a tall and thin tee shirt (Medium Tall to XXL Tall) but that gets unveiled in two years, once you create the mass.

          3. Donna Brewington White

            The idea of a hybrid sounds fascinating.  Someday would like to hear more.  Even though my thinking is becoming more immersed in tech, much of my work is not which leaves ME feeling like a hybrid much of the time.  But, I do wonder sometimes whether the tech and non-tech worlds would each be sharper if there was more interaction between the two.  Or perhaps there is and I’m just missing it.Obviously, someone like you — from a non-tech biz perspective — brings a lot of insight and wisdom into what is to some degree a technology focused forum.Would be interesting to hear how your foray into the tech arena has shaped your perspective on your business.Although one thing that is becoming clear is that the lines are becoming fuzzier because even non-tech businesses are becoming increasingly technology reliant and have an internet interface and may even have tech pockets within the biz.And maybe technology is really more a state of mind.

          4. Carl J. Mistlebauer

            Sometimes we create boxes of differentiation that are just figments of our imagination.I love to play the old “old economy” guy, but the reality is we had an “intranet” long before anyone else did. I used dedicated telephone lines to connect all of our plants and offices together. I even had “email” long before it became common. I used to spend alot of time on the West Coast talking to our Kentucky office and they always complained that I was gone all the time and I couldn’t handle my responsbilties, but the reality was I knew more about what was going on there then they did because I could use a computer and they did not even have ones in their offices.I was scanning orders in long before it became common practice. We used barcodes for payroll/production and inventory long before anyone else did. In 1996 our computer system was bigger than our neighbor, Fruit of the Loom.My favorite line that I used whenever I was meeting with a company we had just taken over, since most were on the West Coast, was “…one thing I hate about flyin’ is they make us wear shoes when we get on the plane!” Then I would proceed to take my shoes off.A friend of mine who is a business professor at the local university informed me that they had created a minor in social media, and I laughed and informed him that they established it within the marketing department which tells me that you have no clue what social media is all about.In 1996 the power of the internet and retail dawned on me and I was slated to give a speech to a bunch of senior Apparel Management Majors at the local university and I basically told them that their majors were useless in the future and that their world was going to suffer a revolution. I never got invited back! :)Yes, I am in a non tech industry, and I favor small non tech companies because that is where innovation has its greatest impact.I admire the innovation, the risk, the thought, and the passion of the tech world; non-tech needs passion and risk takers.No, there isn’t much interaction between tech and non tech and that is a problem. One side feels superior to the other and the other side feels threatened by the other.I still remember the fight over giving our licenses and our major customers access to our computer system. Or the fight over letting people work from their home.I always say, let the dinosaurs die because the quicker they die off the sooner they become something useful for the rest of us!

          5. Donna Brewington White

            Like I said…tech is a state of mind.Thanks, Carl.

    2. LE

      “I’m expecting that in the new few years the winners will be those that focus more on accomplishing something of value for people”If you asked friends and family to invest the first thing they would look at is the idea you have and whether they felt that youhad the experience and knowledge to execute the idea.If the idea didn’t make sense they wouldn’t give you money no matter how much they believed in you (or your team). But what we are seeing with the VC, angel and incubator is investing in teams rather than people. And that’s of course exactly whatthey say they do (at least the ones that are quoted publicly).Where is the motivation for teams to actually come up with “accomplishing something of value for people” when they are raising money? As long as they get in the line with something thatwill fly they can figure it out later. I mean if PaulGraham likes you you’re golden, right? It’s very clear to me that the investing community istotally enamored with a certain age group that talk a goodgame and in some cases (but of course not all) have a certaineducational pedigree. As if that actually TRUMPS thefact that they lack a significant degree of realworld experience and will be able to figureit all out.  (Speaking of Trump by the way back in the 70’s whenhe pulled off his first real estate deals he hadintimate knowledge of the real estate industry anda father who actually was a successful developer whohe had spent a significant amount of time with learningthe ropes in addition to his finance education from Wharton.)

      1. Brad

        wow, that is insightful. I like the comment of teams. I do find it interesting that you hear a VC say, ” we will always invest in…. no matter what.” Even if the product is ridiculous. A good example of this was that color app, have not heard a thing about it since it got it’s money. Frankly it goes against common sense, $40M in a company that gives it’s product away for free. Makes sense…but the team rocks.

    3. Angelo

      @RichardForster:disqus  Mark. O boy well wrote dude. The stuff thats coming out is pretty bad and you can just tell how it was chopped up and put together badly. Cooling down the trend in investor funds will make companies like ours shine. If you have the ability to slow down and have a well thought out platform and one that consumers will benefit or Businesses will save or make money then you have a hit. The challenge for companies like ours have been the Business owner or consumer just getting hammered with all this new stuff and new stuff that really does not work well and trying to compare our offerings to them. I am happy for the slow down get rid of bad competition and have the cream rise to the top then companies like ours can charge a fair price for our product/service.

    4. Donna Brewington White

      It was a good ramble.  Especially gauging how far back up I had to scroll to find the original comment in the thread.

      1. Mark

        Yeah, seriously. Thanks. I think I should get a merit badge. 🙂

    5. awaldstein

      Interesting comment Mark…thanks.I would add two pieces to your thought. First that value to people is not necessarily pragmatic. Fun is value and it’s harder to quantify new variants of fun fueled by new platforms. This is less about a problem than a behavioral need. Easy to see a problem to be solved (find travel destinations easier) that just connect and enjoy in new ways.And second, I believe that people do and are changing. Or evolving in their ability to communicate or even share, with new dynamics that sit at the intersection of off and online. From FB to this community.Liked your site BTW.

      1. Mark

        Thanks Arnold. I agree that fun is real value. Minecraft is one of a million examples. But, even fun is a kind of a resonance with a innate desire, isn’t it? I think the platforms might be new, but the desires they serve are not.I disagree about people changing, but we might also be talking about two different things. I agree that our behaviors change, but I think our motivations don’t. And I suppose that it the ‘missing voice’ I was speaking of, -that we all have the ability to sense value if we are quiet and honest with ourselves. But that’s a tough thing to do in a heated space. Honestly, I’m just clarifying these thoughts in my own mind.”Liked your site BTW.”Thanks, much appreciated.

  15. Donna Brewington White

    I wonder what the number of “me too” investments says about the level of true innovation going on. Still thinking about Carlota Perez and her call for “bold innovation!”  Are we seeing “bold innovation” in this startup market?

    1. leigh

      People misunderstood the blake ross quote:”The next big thing is whatever makes the last big thing usable” to “The next big thing is whatever Fred recently funded so just go copy it”

      1. ChuksOnwuneme

        “Me too” also happens in startup-ville. When/if you’re copying something, the yardstick for measurement is if you’re providing an easier stab at solving the pain.

        1. Alexander Close

          The funny thing is how many market leading companies today were once the “me too” company.  They just happened to execute better.Facebook wasn’t the first social network.Google wasn’t the first search.

          1. fredwilson

            i don’t think facebook or google was me too

          2. Alexander Close

            Not in the sense of carbon copying someone else.  But if you enter a market whereby another company is doing something similar already, (even if you do that thing much better) is that not a “me too” scenario? 

          3. ChuksOnwuneme

            Yeap –they were not, they were innovators in their respective spaces. Now, things are starting to blur, as we see convergence in social and mobile.

          4. Donna Brewington White

            Really good points A Close and @ChuksOnwuneme:disqus . Innovation can be in the execution — doesn’t necessarily have to be in the product itself.  In fact that might even be better.

          5. ChuksOnwuneme

            Innovation is always in execution. In my most recent former life, we (i.e. Nokia) made smartphones before anyone else. In fact, you could even say we spear-headed the mobile innovation –globally. Apple came in the game in 2007, and executed better (well, not immediately, but you get the point). That’s innovation. Our products at Nokia were up to par, but there were certain weaknesses in execution.Though I’m a product person, it really doesn’t matter what product you’re building. All that matters is execution. How are you connecting with your customers? How are you solving their pains? How are your responding to market changes? Etc etc. That’s where the innovation is.

          6. testtest

            agreed. there’s lots of different types of innovation.- product innovation- platform innovation- business model innovation- neutralization innovation- process innovations- value engineering/ value migration innovation and moreeach of these are effective at different points in a category life cycle, with different competitors, and different types of markets (B2B vs consumer).

          7. Donna Brewington White

            @chrishuntis:disqus   Let’s just freaking innovate everything!  ;-)Responding to your comment below.  Good points!

    2. testtest

      i think a good way to innovate is to figure out what the internet is going to look like and then innovate on top of that.two of the most interesting areas i’ve come across so far are the Internet of Things, and Time.- the internet of things will add new objects to the internet.- and communication technologies manipulate space, and i think it will start working with time. and then what will that look like.  

      1. fredwilson

        i like both of those areas chris

      2. Donna Brewington White

        So innovation based on vision?  Now you’re talkin.

        1. Douglas Crets

          I think in some cases consumers can have more of a vision than a leader, or an “innovator.” 

          1. Donna Brewington White

            How so?

          2. Douglas Crets

            You may not agree with this, but as much as we would like to attribute Steve Jobs’ vision to the invention of the iPod, or the iPhone, it was the consumers who had a job to do and needed a device that led to that invention. If consumers weren’t trying to do something, and were not trying to use other things before those inventions to get that job done, I don’t think anything Apple made would have mattered. When I talk about vision here, I mean the struggle and the imagination that comes with taking what products exist and trying to do something with them. Apple is one innovative leader that tapped into that and used design as a way to help consumer’s realize and in some cases create their vision. 

          3. Donna Brewington White

            To be honest, I’m not sure I know enough to agree or disagree. But isn’t part of vision and innovation the recognition of the need and then addressing it with a new solution? Yes, there are those that create the need for the consumer — that’s a whole different level.In Job’s case, for instance, had consumer’s actually voiced the need? Or merely felt it but didn’t quite know what it was? Or are you saying that consumers had rigged ways to meet the need and Job’s introduced the innovation to address this?Not sure I follow.

        2. testtest

          each layer of technology and invention creates the tools for the next.the layers and directions aren’t accidental. there are underlying mechanisms.on the internet these range from the protocols, to human desire, to biological imperatives that are altered by the informational environment.these nascent needs and possibility for advantage derive from the new environment. then solutions can be created that fit perfectly — like a chemical signal (solution) in to a receptor site (environment) (see image). these are real needs that are expressed once the new, and of course temporary, environment is established. they may be explicit, or could be an unarticulated pain-point.pure solutions intertwine with peoples lives to the extent that they have contact with other deep parts of their lives, other needs, at this contact point is where monetization can occur.that’s my current thinking anyway.  

          1. Donna Brewington White

            Good stuff, Chris.  You’re definitely thinking of this from a more systems oriented perspective — which I guess is fitting for the subject matter.BTW, the pragmatist/capitalist in me is glad you brought it around to monetization. 😉  Not that you had to.

          2. testtest

            me too donna:)took a couple of months off to read on economics and  business models. hopefully it’s given me a value/resource lens to look through; which i think may be useful in these matters.

        3. testtest

          …and also, at the new layers there’s opportunity to resolve old problems with new technology, or in a different way; asymmetric competition.

          1. Donna Brewington White

            Yeah, yeah…

      3. Douglas Crets

        For me, the best way to innovate is to find out what consumers are trying to do, then design something (or a few things) that first test out how ways to help them do that. Then, do some research off of that, figure out what helps them the best, and do more of that. I hate products that are delivered through marketing first, and then product second. The product is the thing, but not without the consumer it is trying to help. 

      4. NicolasVDB

        Chris, I get the internet of things, but what do you mean with “Time”, you second future opportunity?

        1. testtest

          twitter being real-time is a rudimentary example.people have a strong internal representation of time. do a search for the word “time” on this blog post: i count 58 uses of the word. we think in terms of time, yet often the metaphor we use with computers is space.

    3. falicon

      There’s a bit of a catch-22 going on right now…with the advancements in communication and technology (and access to so much data through various API), it’s now easier than ever to build stuff…so more people are building light weight things than ever before…And since many of us are starting with the same basic elements (open data, social graphs, lightweight dev. tools), many are ending in very sim. places…or at least taking very sim. paths to places very nearby each other…The problem is that everyone building one of these things also thinks that it’s worthy of being funded and that it could be or should be a *real* business (I suffer from this myself often as it’s easy to get excited about a pet project or hack that people seem to like/use — but the reality is that, just because people like it and use it, doesn’t mean it’s a real business with large [or any] revenue potential).

      1. fredwilson

        so true

      2. William Mougayar

        Agreed Kevin. If you can’t monetize value from the users’s network effect or the service being offered, nothing else matters. What is obvious is not always obvious, and what becomes obvious was not obvious in the first place.

      3. Donna Brewington White

        I wonder if those slim places/similar paths can represent aggregate innovation? 

        1. falicon

          yes – but only for one player/visionary that comes along and plugs in the true missing piece.

          1. Donna Brewington White


    4. ShanaC

      depends – are there multiple version of some technology trying to solve some sort of problem ( like messaging between phones). Are people trying to flip the company into one bigger company one stage ahead (combine industry forces?)…

      1. fredwilson

        i like your tagline shana

        1. ShanaC

          Why thank you.  Hoped it made you laugh a bit.

          1. Donna Brewington White

            Might be more tech to carry an “anti spam device” 😉

          2. ShanaC

            The other kind of spam comes in cans though… 😉

          3. Donna Brewington White

            Oh, that kind of spam. Yuck. Okay, I get it. And tres appropriate.

          4. Peter

            Is ham antispam?

          5. ShanaC


          6. Carl Rahn Griffith

            Love it, lol. ‘Spam’ also reminds me of this classic Monty Python sketch. Apologies in advance to those who don’t ‘get’ Python’esque humour ;-)http://www.youtube.com/watc…

        2. RichardF

          I can’t get used to seeing William and Shana in green, I think either they or you need a change of colour.

          1. fredwilson

            make a suggestion please and i will see if i can do that

          2. RichardF

            I’d probably keep you green as that’s what you have been for a while and change the mods’ colour.  Difficult to suggest a colour without seeing it first because you don’t know how it will clash with the ranks.

          3. William Mougayar

            Actually I was thinking the same and was going to suggest that the mods could have another color than the blog owner. But in Disqus’ defence, there might be other cases where all mods are equal, e.g. a multi-author blog like RWW or Mashable, etc…where their color is homogeneous. It’s really Fred’s call. I’m totally neutral on that. 

    5. Elia Freedman

      I used to think the same thing but came to the conclusion that it is meaningless. Investing and starting businesses is a risky adventure and copying someone else’s idea is perceived as less risky. Copying has been a way of life since commerce began. Someone figured out that if the killed raccoons and made them into hats and jackets then people would buy them. Others copied that idea. The same is true today just on a different scale.

      1. Donna Brewington White

        My comment wasn’t necessarily meant to be a criticism of the “me too” businesses.  But investing in them does represent a value and takes our economy in a certain direction.  There is the question of opportunity cost.Someone mentioned above that a “me too” product or service doesn’t necessarily mean “me too” execution — my interpretation.  That’s a really valid point.  And I think that execution (and even delivery) can represent bona fide innovation in itself.  Can’t it?I think my concern is about whether “nickel and dime” level innovation is serving as a substitute for “bold innovation” rather than existing alongside it and is seen for what it is.

        1. Elia Freedman

          I do, by the way, think you are right. I don’t think we take big risks generally… Or maybe the bigs risks are just overshadowed by the me-toos, which are far more plentiful.Thanks for the compliment, too! Glad I can abide!For the record, I don’t think Facebook was really a me-too. They did something unique, in my mind, by focusing on connecting college students to their peers. Yes it was a social network but that means Twitter isn’t innovative because it is just derivative of SMS and social networks. Except it is.

          1. Ben Apple

            Well FB was a combination of several things.  Social networks already existed, but were pretty poorly executed, and it was a new concept that hadn’t been adopted yet. Zuckerberg and his pals took the idea of the college facebook and threw it online, adding social network features in a much better and controlled way than any other company had done it.  Businesses are never built from scratch in a completely innovative way that had never been thought of before.  There are always building block companies that pave the way for a company like FB to truly do it right and change the world.  

      2. Donna Brewington White

        BTW, Elia, really appreciating your comments in this thread.  As usual.

    6. Peter

      I think there is a fundamental difference between bold innovation in the digital world vs the analog world. But perhaps also similarities.Analog Wolrd-Bold Innovation-One difference is that most important problems facing humanity can only be fully addressed with bold innovation in the ANALOG WORLD. Think biologic threats, environmental threats, energy needs, astronogical threats, etc.But bold analog innovation does not come easily,, perhaps because humans have been innovating in an analog fashion for 2000 years and all the easy solutions for us have been found ,.An example of an analog innovation stall is home owner photovoltaic roof cells. The have been availilbe to us since the 70s, but todays technology is not much better technically or financially.So today, 40 years later,-but still no real innovative advancement.Digital Wolrd-Bold Innovation-The digital world has been created by bold innovative vision and genious. But it seems that nothing important has happened over the last 10-20 years. (other than necessary financing to create a seamless network).Bold innovation include- inventing the harware necessary forthe digital world; creating machine languages to communicate with that hardware; programming languages; lasers, digital photography systems, inkjet printers, in-expensive storage, digital music. etc.But, in the last 10 years what bold innovation? Check- in restaruant software?   Facebook-just another community in a succession that started with Prodigy,AOL, tripod, etc. .Zynga games? Nothing new. Certainly the breakdown of the phone monopolies and access to their hardware led to things today like phone app market. But this was driven by law ,  not innovation.Alot of todays seed money is going into the digital world whereit may be easier to start something perhaps because this digital world has been innovating for only 50 years-there has to be new BIG innovation type things going on  Anyone know what some are? Or maybe the digital world is hitting a rapid growth “wall” like photovoltaics and ideas of enery from the sun? 

  16. Robert Thuston

    time for bold ideas matched with lean thinking, long runways, and supportive investors (believers)…Are the “me too” ideas you’re seeing coincidence or copycats?

    1. fredwilson

      mostly copycats

  17. Rawson Daniel

    Fred, you say that users and capital are finite and you will ask if new potential investments compete with current investments for these resources. Do you ever view revenue sources this way? I.E. If you. All of a sudden have 4 portfolio companies selling similar ad space, does that worry you? Or at this point are you more focused on macro themes like ad dollars coming to the internet from other avenues?

    1. fredwilson

      i don’t like the idea of four portfolio companies selling similar ad space

  18. Rohan

    There’s so much doom and gloom in the media and has been so for many months. A lot of it is justified – Eurozone leadership crisis, no clean up in Wall Street’s behavior post 2008, Obama’s inaction etc But it leads me to wonder if things might be difficult if the media painted a different picture. I’m not saying ‘Marketing’ would solve the problems but a change in outlook and perspective may stem the downward depression spiral.. 

    1. Tom Labus

      Gloom is any easier story to sell.

      1. Rohan

        Yeah. Except what’s easy is hardly ever right.and I think that’s what inspired the mini rant..

    2. Joshua Bolin

      I would personally rather see gloom in the popular media. My thesis is that the truly talent business visionaries be they startup founders or vc’s see the world from a contrarian- charge hell with a bucket of ice water- preference. There is a reason, a very clear reason that the people you see writing and talking this stuff in speculative terms are journalist. By the very definition a journalist is someone who took 10 classes at a college and received a piece of paper that says (hire me).The world changing entrepreneur could have went to the same college as a journalist writing about their industry but the difference is mindset. The true world changing entrepreneur HATES that experience (first hand), likely feels like they are smarter than the professors (first hand), and has likely started several businesses before entering said college feeling like a 19 year old Rodney Dangerfield as a professor tells how the world should be instead of what their experience tells them the world is.In short, if anyone in the circle (founder, vc, or or or) becomes scared because dot com’s are wrote about negatively in the Journal or another blog, paper, etc they listen to Jimi they can not hear Jimi.In war, I want Delta beside me- there is no cutting and running- it’s do or die. The same with business as in a foxhole if your celery eating founder or vc or angel gets nervous by a journalist then replace them and find someone who you want batting after you in the lineup.Negativity can not and will not effect me- but it does help separate the wheat from the chaff.

      1. Rohan

        I agree with you on most points Joshua. I don’t agree on a few though – – I sensed a slightly dismissive tone on journalism as a profession and journalists as such. Journalists are no less respectable. They are doing what they’re meant to do in many ways. If their talent is to report events, so be it. We need more people on this planet doing what they’re meant to do/are passionate about. They don’t all have to be entrepreneurs.- I sense you see and equate business with war. I respect your point of view.. but that’s not how I see the world. There are many things in life that are actually do or die but I don’t feel that’s the case with everything. It’s not always black or white. There are many shades of grey.- Negativity may not affect you but if it affects everyone else in your environment, you might have difficulty finding customers willing to spend on your services, you might have kids who grow up in an environment of negativity that may affect their young minds. I guess what I mean is that – it is not always about you and me.. there are 7 billion others. :)Just my $0.02

  19. William Mougayar

    Thank God this is happening. I’m seeing parallels to the year 2000 when the me-too’s or bad ideas were being funded in abundance and some even going IPO on a wing and a prayer. The difference between 2000 and now, is a) there aren’t a lot of IPOs, b) only 50% of the Angels/VCs/Startups are drunk, whereas it was 90% in 2000. The transitions from seed-to-A or A-to-B are so critical because you go from a promise/story to actual results. You can sell the story so many times. I like this new environment. It’s not going to make all VCs smarter, but it will surely clear the fog for those (like USV) that have been more level headed than others. 

    1. John Petersen

      You see very similar cycles in the equity markets. After a period of nice returns, main street feels they need to jump on board and participate. The problem is that often times, the train has already left the station.I think many of the weak to mediocre VCs and angels are in this chase mode because they missed out on FB, Twitter, etc. This is where you see some deals get funded at valuations that make absolutely no sense.This also scares me as well — http://j.mp/r3Amso — just another way of chasing and providing opportunity for people to invest in startups that have no business investing in startups.

      1. William Mougayar

        Agreed. Chase mode BAD. Ahead of the pack mode GOOD.

        1. FAKE GRIMLOCK


          1. fredwilson


          2. laurie kalmanson

            it’s so crowded there nobody goes there anymore

          3. Carl Rahn Griffith

            As Groucho put it: “I wouldn’t join a club that would have me as a member.”Or something life that…

      2. Donna Brewington White

        “weak to mediocre VCs and angels”In other words, those that lack vision?

        1. fredwilson

          That lack conviction

          1. John Petersen

            Exactly. The one’s that are not disciplined. The me too’s. The I want to have a daily deal clone in my portfolio because that is the “hot” deal right now

          2. fredwilson

            there are so many VCs like thatit disgusts me

          3. John Petersen

            Couldn’t reply to your comment below “there are so many VCs like that that it disgusts me”…I agree, but I try to look for a little positive. Maybe some of that money will give a good team the start they need and then they can pivot or completely change it up from there…

        2. Vasudev Ram

          Those that lack the courage of their convictions and the guts to act on them.

    2. Vasudev Ram

      They say “greed and fear drive stock markets”. Maybe for investing in startups too. Seen a lot in late 1990’s / early 2000’s.

  20. Nathan Guo

    The number of “me too” investments can’t even compare to the Chinese internet scene. Literally thousands of Groupon clones duking it out for tiny market share.How would a bursting of the Chinese internet bubble affect VC stateside?

    1. Tom Labus

      How about accounting 101 for them!

      1. Nathan Guo

        Don’t think that was included in The Little Red Book 😉

    2. fredwilson

      no impact

  21. Peter Sullivan

    I think your angel investors seeing some flops resinates the most. It seemed almost trendy the past 12 months to be making investments based on 1 page executive summaries. I think its just a return to making more rational decisions. 

  22. Bryan Batten

    Very insightful, thanks Fred. As you mention that social and mobile are trending towards a more difficult place to invest do you see any new trends or new areas of interest? As we get ready to start trying to raise money I hope that we find a firm as committed to their portfolio companies as USV seems to be.

  23. Ben Popper

    The WSJ seems to be trying a little too hard to make their case. At one point the story declares, “Between Jan. 1, 2009, and late last month, U.S. venture-capital firms raised $39.2 billion, down 76% from the $162.5 billion that was raised between Jan. 1, 1998, and Dec. 21, 2000, according to VentureSource.”The fact that venture funding is at much saner levels now than it was during the dot-com boom is a good thing. Nobody in the industry wants to see a repeat of the crash that followed those heady times. Saying we’re in a cash crunch now because the number don’t stack up to the late 90s is like bemoaning the lack of Bernie Madoffs among today’s money managers.New data from CB Insights shows a trend quite different from the tack taken by the WSJ. The number of tech venture deals and the dollars amounts invested has grown since they began recording in 2009. http://www.betabeat.com/201…What we are seeing now is the natural by-product of the mobile-local-social seed stage boom of the last two years. A lot of young companies are having flat to down rounds and many are going out of business. But a correction on the early stage is a healthy thing, and the number of deals, amount of cash invested and flood of young entrepreneurs looking to build a business are not slowing down, especially in NYC. And that’s a good thing

  24. Tom Labus

    At Brad Feld’s book signing last week someone asked him about cash crunch for start ups.He gave a long and great riff on this but key points were:* Mainstream VC guys who never did “seed round rounds” now have seed funds.* Companies having problems when that round is finishing and they’re not Twitter.* High valuations also contribute problems.His book is great.  Like a text for all aspects of funding.  

  25. ErikSchwartz

    I see a ton of lifestyle businesses that are raising money. Companies that can easily be successful, but will never be big. Also there are a ton of feature companies out there. But the founders are already thinking it’s a tech start up and it will have an exit.

    1. ShanaC

      why are they raising,and are they getting the money?

      1. ErikSchwartz

        They are raising money because they can.But it makes no sense to go raise $2M on $6M if the company is going to top out at $1M a year of revenue.Here are the questions I suggest you ask:1) Do you love doing this? Or are you doing it because you think it’s a “good space” or niche. I knew some guys who started a golf mobile app because they thought it was a good market opportunity. But none of them play golf.2) For consumer facing web stuff, would it be better for the end user if facebook or twitter did this? See the world of dead twitter apps out there.3) For mobile. Is this likely to end up part of the OS? iOS5 is going to hurt of lot of companies that made iOS band aid apps.It’s not overtly sexy, but I really like what @bradfeld:disqus calls glue companies these days. 

        1. ShanaC

          Actually, glue companies are fascinating.  They aren’t as much fun to talk about though, or write about.  Take 10gen and MongoDb.  They don’t have the name recognition of IBM yet.  It is a database company and database support company.  How do you explain it to the average person on the street “we sell support for a thing that stores data in a different format to make it more useful.”  And while it sounds really interesting, eventually you realize they are like a Nouveau Bethlehem Steel for the internet -a really important commodity product for the internet.*  But seriously, it is more fun to talk about what you got made out of steel than how steel is made for most people.  Same with interent companies.*Ain’t nothing wrong with commodity products.  You need them to build the consumer stuff of this world, and business stuff, including websites. 

          1. Alexander Close

            I remember watching Chris Dixon talk about this a few weeks ago.Lots of entrepreneurs (young especially) are running after building flashy companies: picture sharing, music liking, social linking kinda business.These glue companies, while less fun to tell your friends about, are possibly the bigger opportunities. 

          2. Carl Rahn Griffith

            To paraphrase FG’s guest post from a few days ago, life is nothing without an API.

          3. ErikSchwartz

            They are REALLY hard to pitch.

          4. ShanaC

            You’re telling me.

    2. PhilipSugar

      I agree completely.  Remember though I celebrate lifestyle businesses!!However if you take that level of VC getting a divorce is a bitch.This is not a dig on VC’s at all but its not a marriage its the relationship between a Sultan and a Harem, and you as the entrepreneur aren’t the Sultan.

      1. ErikSchwartz

        I love lifestyle businesses. If you can make a company with 2-3 people. In a  space you love working. Making enough money so that 2-3 people can be happy. And you keep 100% ownership.You would be INSANE to take investment.

  26. RadJaz

    I think Thursday’s should become “How to run a VC Firm Thursdays” … Thanks Fred.

    1. fredwilson

      if all my days get taken, when do i go random?

      1. RadJaz

        Very true, we’d hate for avc to become a lecture hall. Then again an online degree in venture capitalism from the university of USV does sound appealing. Jaz

      2. Carl Rahn Griffith

        Helen’s favourite song is The Beatles’ ‘8 Days a Week’ – problem solved 🙂

        1. fredwilson

          helen is a smart woman

  27. the build

    It seems like there are a lot of factors to why it is hard for some startups to raise money. I don’t know if that would have mattered to the story, but I know a lot of entrepreneurs who can’t raise money because they’re not the right fit for the model, their ideas aren’t scalable, etc.I don’t know if tight markets are necessarily bad. Low barrier markets have their own issues and problems. I’d rather be in competitive versus saturated. I’ve never seen anybody with a good idea and skill fail to take it to market or get what they need.Discipline and efficiency is always sexy.

  28. steve cheney

    This was simply an extraordinary post. 

    1. fredwilson


  29. Sean Weinstock

    Everyone’s talking about entrepreneurship being the biggest driver of economies, and the government hype machine is certainly doing its part to pump up activity.  It seems, however, that entrepreneurs are getting or are about to get squeezed at every level – whether it’s the web guy looking to get a round or the local grocer trying to get a loan and compete with the giant chain (which definitely provides value the local guys can’t compete with).  Anything we can do here, or just consolidate and hope the next up-cycle comes sooner rather than later?

  30. tacanderson

    I think journalists just like writing “it’s going to be a long, cold winter for X” stories. A friend once told me the only reason start-ups have a hard time raising money in Q4-Q1 has more to do with VC’s ski trips than lack of funds. 

    1. Dana Blankenhorn

      Journalism follows fads just like investing does.Right now the fad is pessimism. That’s why I’m an optimist.Back in 1999 the fad was optimism. That’s when I was a pessimist.Watching the herd from a hilltop may not lead to wealth, but it’s supposed to be the journalistic ideal. It’s mine anyway.

      1. fredwilson

        i try to be neither an optimist or a pessimist when it comes to investingi like to try to put out the same amount of money every year give or take a few millionsthat way i’m never trying to time the markets

  31. Josh Miller

    “It is likely that we will see more startups having trouble going from the seed round to the A round, or from the A round to the B round.”Brad Feld, Bijan Sabet, Eric Hippeau and Josh Kopelman are having a discussion about this on Roundtable. Anyone who is interested in this point should check it out: http://www.atroundtable.com…

  32. catarino

    Dimidium facti qui coepit habetCarry on.

    1. ShanaC

      for those who don’t read latin:“Once you’ve started, you’re halfway there.”(Horace, Epistles, Book I, Ep. 2

      1. fredwilson

        thanks shana

      2. Donna Brewington White

        you rock

      3. Donna Brewington White

        Now interpret  @RichardForster:disqus  ‘s new tag line.

        1. ShanaC

          I looked it up, I recognized it as latin, but I didn’t know what it meant.and @RichardForster:disqus ‘s tag line means Come on Wales, in Welsh.  http://uk.answers.yahoo.com…

          1. Donna Brewington White

            Thanks, SC. 

          2. RichardF

            it means “COME ON WALES” …..its a big day for the country tomorrow #RWC

          3. Carl Rahn Griffith

            My wife has just had her first (and last) tattoo, in memory of loved ones we have lost over recent years – it’s in Welsh (took me some distant memory recalls and swotting up to get it right) – is on her inner-arm so semi-visible. Welsh is a beautiful language (but a bugger to learn) and has the added benefit of ensuring her students/strangers can’t quickly assimilate its meaning.

  33. James Ferguson @kWIQly

    Fred>>. I’m waiting for the guy who sits at the front desk in our building to pass me a business plan on my way into the office.Anyone know the guy’s name – Fred – captive audience :)Are there no lengths ? What’s worse than cold calls on your cellphone – imagine  if they came from your neighbour you see every day  – aaarggghh

    1. fredwilson

      i don’t get upset at entrepreneurs who pull these stuntsi appreciate the effortdoesn’t mean it increases their chanceswe are looking for a certain set of things

  34. kirklove

    Great idea + smart team + kick ass execution will always attract money, no matter the market. If you’re a start up and you’re struggling to get cash, you’re not doing the aforementioned.PS: I love how simple you write (that’s a compliment). Straight forward and honest.

    1. fredwilson

      nobody taught me to writei’m a nerd/engineer/geeki studied math, science, and computersso i write like i talk

      1. alisha ramos

        you should use Siri to write your posts now

        1. fredwilson

          Android has had voice built into the OS for a long time.I used it to write this comment

  35. Michael Tarullo

    ^2 for honesty.  It’s nice when it’s broken down into pieces and shades of gray rather than “bubble or not?”#5 might be a core driver that underlies your points 1, 2, and 4 above.  Social, mobile, and analytics companies are really easy to build MVP’s for, attract some early users from the tech community, and get a lot of buzz.  By nature, they end up being too close to xyz because they’re not really breaking new ground or attracting new groups of users.Enterprise tech, two sided marketplaces, companies attacking big incumbent industries, etc. are typically less affordable for angels, less attractive for 20something entrepreneurs, and look a whole lot less sparkly at first.  You can’t always just take $20k from a seed fund if your target is automotive manufacturers or healthcare providers.  They’ve also got longer cycles to maturation in most cases. 

    1. fredwilson

      ^2 for using ^2!!

  36. Ben Sesser

    My top overheated market signs are corporate VC funds and mainstream news coverage for not at scale startups.

    1. fredwilson

      corporate VC funds are the bane of my existence

      1. Carl Rahn Griffith

        And an oxymoron 🙂

  37. Miljenko Hatlak

    First of all, reality is that any entrepreneurial activity is worth a prize, but when to much activity is concentrated around similar idea, almost all will fail to achieve some worthy result.I remember when many year ago local guy decided to grow blackberries and sell them on the Saturday market. At the beginning all was looking like an instant success, but year later he and all “copycats” got broken.Lately, in start-up ecosystem man could see a lots of similarities. How many photo-sharing apps and platform emerged in last year or two.Regarding Fred’s post,here are last few post from TechCrunch – some people love them, other don’t. These are all posts by same blogger? (R. Wauters) but significance is obvious:TwinStrata Raises…..Cloud Storage, Backup SolutionsCitrix Acquires …..Dropbox For EnterprisesBacked…… To Organize Your Receipts In The Cloud

  38. Tom Labus

    From Bloomberg:Rovio- Angry Birds considering an IPO 1B valuation.  Please. 

    1. Dave W Baldwin

      Good example related to yesterday’s vid.  We’re going to need to buck up and offer product with purpose.

      1. Tom Labus

        No question.How about health care?

        1. Dave W Baldwin

          Yes… I’ll send more detailed in the am.

        2. Dave W Baldwin

          The following is an attempt to encapsulate Bio, Nano, Robo and AGI toward result, cost and longevity.AI/AGI-  As we move thru this decade, the defining of intelligence related to AI will be important.  Thankfully, there are those pushing the bar toward autonomous ability, doing so with understanding there is no need to wait for Bio then Nano then Robo to fully evolve before attaining what can speed up important achievements ranging exploration, industrial, home and health.ROBOTIC-  robotic arms have been on the assembly line for a long time.  We are moving thru mobile robots handling inventory and raw material.  Leaps are happening/coming related to robots fetching and performing task specific chores.  The beginnings of fashioning a more biological architecture related to instinct/command of specific appendage and joints related is happening.BIO/NANO-  I place these together because they have intertwined.  IMO, our focus on feeling superior hurts our seeing forest thru trees… and for that matter, our current instruments to see smaller is not where it needs to be to help with what we’re working on in the smaller realm.It was quite a while after the Earth formed when bacteria came about, and quite a while after that, the more complicated combinations of working matter began to join together.  What we forget is these parts are programmed, sometimes crazy and thankfully, sometimes coherent.Currently, we are able to play with the programming to achieve purpose.  This will enable us to achieve a more Proactive vs. Reactive strategy in medicine.  Yes, bad cells can wreck havoc.  When we move over to Proactive, we’ll be able to prevent and/or raze those cells BEFORE they multiply and we try our best via Reactive.On that note, the further push into Nano/Femto enables our building of material with the cells duplicating, and with each duplication accerating the achieved quantity (2,4,8,16,32….) which offers a new world of raw material, technological vehicle, biological material and so on.Back to today, we have an electric motor one nanometer across.  We have the legitimate beginnings of growing organs.  We have the beginnings of training/programming of molecular/atomic structures.  The true folding of proteins and stacked atoms is something we’ll look forward to this decade…. AND I CHALLENGE YOU TO ASK ANY HIGH SCHOOL KID WHAT A NANO METER/SECOND IS…. unfortunately, most older folks would say NANO is a word Robin Williams used.LONGEVITY-  As people like Pat Buchanon will say the end is here due to white people not reproducing, we need to face the fact that longevity is increasing (more than one year annually).  So it isn’t a matter of the coming more white folks 65+ compared to less than 18, but more black, white, red, yellow and so forth living past 100, doing so with a more fullfilling older age.  The jump from 100 to 115-20 will be faster than you think. Progress in these disciplines are accelerating simultaneously, leading to their entwining which will push the acceleration overall.  Politicians want to keep the debate in yesterday’s terms.  The wiser strategy is to streamline costs related to medical.  The hospital room stay is so burdensome and many facilities are pressuring their teams to fill the beds. As we move thru this decade, procedures will become less intrusive increasing the number of out patient and at a lower cost per patient.  Robotic will transend from physical instruction to autonomous beginning with oral command into telepathy.  A big aid on this side will be a much better imaging process.Taking this full circle will get us back to the AI/AGI where the mental power accelerates.  @ShanaC:disqus is right regarding the difference in storing old knowledge and producing new knowledge.  In addition to speeding up the cure for ailments, we will begin to see new horizons related to consumer good and service.  Research will expand.Everyone have a good weekend.  On my way to West Virginia to gain thoughts in the mountains.  Will use someone else’s computer to keep up with AVC. 

          1. Tom Labus

            That was very impressive, Dave. And thanks.

          2. Dave W Baldwin


    2. William Mougayar

      It is hefty, but Rovio has 35 other games, not just Angry birds. They are probably going on a multiple of Zynga. Problem is- if there is hick-up, the domino effect is damaging to all. 

      1. ErikSchwartz

        Angry Birds was the 50th game they launched. No one cared about the first 49.Was Angry Birds the anomaly or a new trend? I don’t know, but they don’t either.

    3. Donna Brewington White

      I try not to judge, but… that’s scary.

  39. Carl Rahn Griffith

    It’s time to get more virtual money – money that solely primarily serves to make money via esoteric virtual financial products – into the real world and for us to prove one can deliver a healthy return in the physical world – and have fun whilst also doing good – and making a profit. None of us (should) expect altruism but we should expect money to at some point manifest itself from time to time and stop leading a transient and nomadic life in algorithms.Too many of those in finance are utterly detached from the physical world.Metaphysical poetry is one thing. Metaphysical money is another.Time to get real.



      1. Carl Rahn Griffith

        I suspect the concept of real money scares to death those hitherto accustomed to only being involved in playing games with imaginary money, FG.

  40. Aaron Klein

    I’ve told my team that our plan has to be insanely great product + good traction. We can’t expect an environment where people are throwing money at us for being smart or having great technology.Maybe that environment will still be there when it’s time for us to go out to the financing markets, but I’d rather be ready for the alternative.Worst case scenario, that gives us a better valuation.

    1. andyswan

      I’ve seen the product.  You guys are well on your way.Remember, it ALWAYS takes longer than you think.  Significantly.  

      1. Aaron Klein

        Thanks Andy. And how true that is.

        1. Donna Brewington White

          Well, if Andy says so, you can take that to the bank.  I’d say so just based on you.  Talk about investing in teams.  Unfortunately, though, I’m a @Riskalyze level investor for the foreseeable future, not an angel or VC. 😉

          1. Aaron Klein

            That’s too kind of you, Donna. 🙂  Thanks!

      2. ErikSchwartz

        Always. Much longer.

  41. Chris Hwang

    “It is likely that we will see more startups having trouble going from the seed round to the A round, or from the A round to the B round.”So how will startups get out of trouble from the two scenarios above?  What are unique ways to think outside the box from the startup’s perspective (e.g., go dual track with strategics and VCs, befriend a celebrity / free PR, focus a bit more on cash flow)?  Or maybe that’s just silly, which is typically the case for me.  =)

    1. fredwilson

      it all comes down to cash flowbring more cash inless cash outthose two things can be accomplished in many ways

  42. andyswan

    I turned off the angel spigot about one year ago, despite astounding “luck” in my first 8 investments.Two reasons:1)  Valuations are too high for me to take a role big enough where my expertise helps impact success. I’m the kind of angel that wants to come in for a SIGNIFICANT minority stake at seed and sells into the B-round.  That doesn’t work at big valuation numbers early.  Note I am NOT saying that big valuation numbers early aren’t warranted or won’t be successful….it just kills MY strategy.2)  I’ve got my own shit to build and fund.A lot of haters are going to be very disappointed to find out that most of these great teams being funded are funded for the right reason:  Because they can navigate storms and YES, they can “turn on” revenue rather quickly.

    1. kenberger

      to be clear: your strategy is to exit by the B round? If true, does that tag you in some people’s minds as a flipper?I ran a similar idea past a couple prominent VC friends of mine, and they basically said that if I’m known for doing that, they wouldn’t see dealflow from them.

      1. andyswan

        If there is a B round that’s usually where I want out. I don’t rely on that, so I try to join teams that have realistic revenue and profitability goals prior to a B. You never know no matter what so “exit strategies” are to be taken with a large grain of salt.I’m extremely clear up-front with the companies that I invest with…. from “go” to “B” I can be a HUGE help well beyond my monetary contribution.  I am not an idle guy and I’m poor enough to know that I need my sweat to drive my returns.After a company has success to a B, I’m justifiably more backseat where I don’t want to be and where they do not benefit from me anymore.I don’t rely on anyone for deal-flow, but all of the VC’s and other angels that I’ve been in deals with have shown a lot of respect for the way I invest.  Because I’m there before them anyway and they kind of consider me a part of the founding team, more-so than an “angel” or “venture” guy.  That’s how I want it because that’s the way I approach it too.

        1. kenberger

          very well said. true of me too, so thanks for helping hone the pitch 🙂

          1. Dave W Baldwin

            @andyswan:disqus I hope both of you get the respect due to being in before everyone else wants to jump on.

        2. Carl J. Mistlebauer

          As I have said numerous times, I don’t know much about raising funds, but the one thing that I do understand is that I want as much involvement as possible.; I want an active board.  I know my own strengths and weaknesses and I if I could build the perfect board of directors/investors, it would include someone with a finance background  (as I say, I live by the P&L but the Balance Sheet is a whole other thing), someone with advertising/marketing experience, and then someone who focuses on technology.That would be a dream team!  :)Anyone worth their salt, does want a group to argue with, to test their ideas against, I always tried to surround myself with people who would challenge me…Your first critic should be the guy with money and or sweat in the game.

          1. andyswan

            Totally agree from entrepreneur perspective.  Hell…from a life perspective.  I’ll take the other side of anything just to make it more vibrant, competitive and fun.And I am sure that Fred and others do that very well as well.What I strive to be is the best in the world from zero to B.  It’s my passion zone.  The best VC’s will put their sweat equity too.  Fred may want to be the best in the world from A-C and Goldman Sachs thrives from C-IPO.   I think it’s important to know where your maximum impact is and put your money in at those points where you can work for its growth.

          2. Donna Brewington White

            A lot of take-aways from this comment, Andy.  Knowing your passion zone and having the conviction (and courage?) to stick with it is a powerful place to live and work from.  (Not there yet. Working on it.)Life lessons with Andy Swan.

          3. Matt A. Myers

            Do you ever guarantee you’ll sell on B round? And are you investing at all right now? 🙂

    2. Derek

      Andy “B/Nig” Swan is my favorite instigator at the bar! His next drink on me!

  43. Dorian Benkoil

    Fred: What do you think the new markets and sectors are?

      1. Dorian Benkoil

        Thanks. I’d love to know examples you’ve seen where this type of cultural disruption is investable, as you say.

  44. Marcosardi

    Great post. This contraction is a good thing, as it doesn’t seem to affect the good VCs. The doesn’t need more VCs, it needs good VCs. Entrepreneurs are not well served by VCs investing in something that has very little chances to be successful.

  45. ShanaC

    Is VC in the tech world changing structurally because of LP behavior and angels acting this way?

    1. fredwilson

      it is changing because of a lot of things, those included

      1. ShanaC

        Could you go more into some of the changes?

        1. fredwilson

          not here in the comments. that is fodder for the blog.

  46. Aviah Laor

    sounds like a new investment theme is cooking

    1. fredwilson

      a few

  47. gomobile

    Nice of you to clarify, but I guess being in the know (or being 52, I’ve been through a few of these cycles on the happy and down side of it) I had already reached these conclusions. When it comes to mobile advertising, DigiDay had a piece yesterday how Premium content creators are avoiding putting their content with the networks to keep CPM prices from degrading. Going back to your point, the wad of seed cap towards mobile networks is driving down CPM pricing because they need to have an “all money is green” philosphy to keep their investors happy.  They don’t have to care what cpm they sell anything for. As a premium publisher, I’m goin solo too.  Content is king, and will always be. We lost the web for a while, and this time, we’re going about it the right way.

    1. fredwilson

      i’m 50. been through a few myself 🙂

    2. JamesHRH

      How do you describe premium?

      1. gomobile

        Hearst Magazines or ESPN website content is an example.  Original, quality, trusted content.  That is my example of premium pedigree. 

        1. JamesHRH

          Are you creating these pedigrees or leveraging these pedigrees?

          1. gomobile

            both.*I do not sell these properties, these are for an example.

          2. JamesHRH

            Ned – this is something I would be interested in chatting about. You don’t hear the word premium very much when it comes to online media.Ping me on Twitter (JamesHRH)?

    3. testtest

      Content is king, and will always beimo, context is king.

      1. JamesHRH

        @NedN -You are both right (and therefore, both wrong! ;-).It takes two wing to fly.They had the content v distribution fight in the ’90’s. It turns out that an awesome context with no content sucks……..and that content with no context sucks.

        1. testtest

          content is required or there can be no context. however context is now very powerful on the web, think about recommendations from friends or blogs you follow (with each post adding to the narrative).i respect history, and think it can be a good teacher, however i don’t much care what happened on the web pre 2000.and hopefully in another ten years i can have equal disregard for what happened on the web pre 2010.

          1. JamesHRH

            Not talking web. Cable.Media distribution is media distribution. I think you will benefit from a wider view.And your statements contain an internal conflict – you can’t think much of history’s ability to teach if you don’t care what happened on the web pre-2000.That’s illogical Captain.

          2. testtest

            Media distribution is media distribution. I think you will benefit from a wider view.i only work with the web medium. i’ll allows me to go deeper than if i spread across all media; i’ve got time/attention limitations.And your statements contain an internal conflict – you can’t think much of history’s ability to teach if you don’t care what happened on the web pre-2000.ha, maybe. but i think holding on to old paradigms inhibits seeing the new. and since that’s where opportunity is i’m happy to live with the seemingly opposite view points at the same time.

          3. JamesHRH

            @chrishuntis:disqus in the longer term, you will be more efficient with your time if you learn the applicable lessons of media history.For instance, you are in an online discussion about context over content…….that debate was held thoroughly and effectively when the world was enthralled with digital cable distribution and the possibility of ‘500 channels of content’.the answer is content and distribution are intertwined inextricably. that answer applies to the web – context and content have the same relationship.You provide some of the more compelling posts here, but the ‘ I only look forward to see what works ‘ philosophy will not speed your progress, it will slow it.

  48. Dave Morgan

    You are right about # 4) Fred, at least from my perspective. As a first time angel, I’ve done maybe 15 small investments over past three years and am very hopeful about them, but recently decided to step back and see how they play out for a while and focus on my follow-ons. It’s definitely a game best played by pros. Iv’e talked to several other angels doing exactly the same thing right now.

    1. fredwilson

      when the gotham gal started doing angel investing, i said “$15k to $25k investments please”she said “but we can afford to go a lot higher”i said “when we lose, it’s better to lose $15k to $25k” and when we win, we get to put in our pro-rata in the next roundit took her a while to get itshe gets it now

      1. William Mougayar

        Sticking to such financial discipline is admirable. It often takes having been burnt and learning from it before adhering to it. 

      2. PhilipSugar

        And that’s the key to what’s happening now.If you say $15-$20k and gotham gal says we can afford a ton more, think of how many people are there can can really afford more than that????   Sorry precious few.It was no different than me sitting there thinking, who are all these people buying these palaces four times bigger than mine?????  (I live in a big house)What you can spend and what you can afford are very different things. 

  49. David Miller

    From my perspective, there are so many startups forming for two reasons.  First, the opportunities seem bigger than ever.  Maybe they’re not in Social anymore and they’re tougher in Mobile.  That just means that there is an even bigger opportunity to figure out and become a leader in what comes next.Second, it takes much less capital than it used to to get going.  What used to take a few million dollars now takes a few hundred thousand, so you can raise less to make the same amount of progress.  The same amount of available capital gives 10 ideas a chance instead of just one.I don’t see either of these things changing anytime soon.  If anything, opportunities are getting bigger and costs are going down.  There may be a shake-out for the companies missing their milestones:  that’s always been true.  It’s going to continue to be true.  There’s just more companies now that are going to miss them.  The successful companies shouldn’t have any trouble raising money.

  50. Joe McMackin

    Is it safe to say there are more startups than ever currently launching and most don’t have revenue?  And for the ones launching with revenue they are having no problem getting funding?

  51. kidmercury

    the only macroeconomic story is the global sovereign debt crisis; that will dictate the availability of capital for startups or anything else. the availability of capital will decline in real terms, but for entrepreneurs who know how to reduce cost by an even greater margin than the reduction in availability of real (not nominal) capital, this should not be a problem. with 2013 just over a year away we are on the cusp of the golden age — many of you can surely sense it intuitively, even those with a passionate dislike of all things kook. the largest obstacle remains political will, and as the street actions around the world suggest, that is building up as well. though we still have a long, long, LONG way to go in that battle.9/11 was an inside job,kid mercury 

  52. HeartRate Games

    Grant writing is an under-appreciated entrepreneurial skill. SBIRs are hard to come by, but free money is awesome, and it’s nice to have the U.S. government as our first paying customer.

  53. Brad

    Your post today hit a chord with me. I have been very wary of the valuations and the expectations on so many products that have very little stock holder value. Let me clarify this, it may have a networking value but not a stockholder value.I do not understand the investments put in to products or systems that do not produce free cash flow that produces values to the investors. Dont get me wrong, I enjoy facebook and I look at twitter once in a while, but the valuation seems outlandish to me as we do not know if this is a fad or a long term trend.Free is great, but like a wise man once said, “a customer is not a customer until they pay for something”.

    1. fredwilson

      user pay every day on twitter and facebook because they are creating the service, the content, and the valueboth twitter and facebook will produce a ton of cash flow

      1. Brad

        I do not disagree with you, they are creating content, personalize the content and making both of them one of the best places to get personalized service on the web.I just question the valuation, and the ability to maintain that number. Hence why I think that you are seeing what appears to be a small condensing of the investment capital. Especially among less experienced investors.

      2. William Mougayar

        I like that. I can see a slide:SERVICE —> CONTENT –> VALUEThat’s your thesis on the increasing value of the network effect from engaged users. 

  54. Dana Blankenhorn

    The game of VC and angel funding is always moving. Solar panels were hot for a while, but they fell back, and now there are a bunch of other alternative energy plays out there. Same with this. Social was in, now they’re looking for the next thing.To interest a VC you have to make a reasonable case for a 10X return on investment within a fairly narrow time frame. So it’s always going to be something of a fashion game.

  55. Kaffenated

    Beauty truly is in the eye of the beholder. I suspect this bubble is ready to pop.

  56. Peter

    Hi Fred,Is there any truth to the rumor that money flows are moving out of IT/internet and into biotech?

    1. fredwilson

      i have no ideabut life sciences is important and needs funding

    2. Joel Stimson

      Hey Peter,Check out the PWC MoneyTree survey of VC activity (https://www.pwcmoneytree.com). The historical graphs are particularly interesting, but there doesn’t seem to be an obvious give and take between the two industries.

  57. Mrinal

    I have a question, Fred, regarding “investors are having to learn new markets and new sectors”So is innovation happening (and being sustained – with capital) in new sectors due to the hypercompetitiveness in another or due to real demand in this new sector/market? Or both?

    1. fredwilson


  58. Douglas Crets

    The future is Ushi. 

  59. EmilSt

    Raising money should be hard so the eco system doesn’t get polluted from me too’s and the real products get attention enough to survive and then thrive.

  60. Pete Griffiths

    This is a great overview.  I found this para particularly interesting.”There are a lot of “me too” investments out there. And the delineation between startups is getting narrower. Almost every investment that comes our way these days causes us to ask ourselves “is this too close to xyz?” with xyz being one of our exisiting portfolio companies.”IMHO this is intimately related Max Levchin’s assertion that we are not seeing enough true innovation, that too many companies have ‘me too’ offerings.  This in turn raises the point that true innovation is riskier being likely more capital intensive for product and market development.  This increased risk alters the profile of likely investors.  Despite the protestations about ‘me too’ offerings many are not prepared to underwrite the risks of more innovative offerings.  Hence it is important for entrepreneurs to try to get a handle not just on who will stand behind them in later rounds but who has an appetite for radical rather than incremental innovation.

  61. kidmercury

    also, no worries about the app store model. did you know the fredpad comes pre-installed with all the apps you need to play fredsquare? true story. #fredsquare

    1. fredwilson


    2. Donna Brewington White


    3. ShanaC


      1. kidmercury

        no worries shana you can still play fredsquare without the fredpad, which will likely come after the game is launched on christmas day this year anyway. but all the hardcore gamers will definitely want a fredpad when it comes out probably Q1 2012. you’ll find it useful in earning badges and boosting you fredscore — which in turn unlocks new opportunities in fredsquare, the ultimate social game for startups! 

  62. Bryan J Wilson

    The silver lining in all this is that the lack of $ will weed out all those in it mostly for the potential cash. Entrepreneurs who live to create, change, and disrupt won’t go anywhere. If anything, the weeding out will make that kind of entrepreneur more visible once again. Personally, I’m really looking forward to that. Much more enjoyable to do business with people who are in it for the “right” reasons.



  63. paramendra

    Hot year. 

  64. laurie kalmanson

    it sounds like when there was (apocryphally) a gap store on all four corners of every intersection, and then there weren’t so many

  65. James Lopez

    Thanks for the insight!

  66. James Barnes

    Who’s to say the guy on the Front Desk doesn’t have the next greatest idea? Plenty of creative people have fantastic ideas and poor networking skills.

    1. fredwilson

      i didn’t say i would dismiss ityou never know where your next deal is going to come from

  67. Lou Valdini

    Here at Simbiottik, we reverse the aproach to ‘angel’ funding. If we can identify early stage software businesses with an offering which is innovative AND addresses a known business issue (not a solution looking for a problem!), or need to expand into a territory where they have no presence today, we will consider putting in our time for ‘free’.We will look at what the business lacks from a skills perspective in order for it to be successful, and provide those skills at our cost, taking a hands-on role in driving the business. After all, if they had VC funding, they would only spend it on people like us. However, as you say, for each ‘investment’ that comes our way, we ask ourselves “is this too close to xyz?” with xyz being one of our key exisiting portfolio companies. We’ve turned down 3 really good ones this year because a key client is in a technology space (advanced case management) which everyone wants to be in.Read more: http://feedproxy.google.com…work with them on marketing, identifying channels to market, inroducing them toFor example,

  68. Conrad Ross Schulman

    Woot! Woot! Awesome post here!!! “I’m waiting for the guy who sits at the front desk in our building to pass me a business plan on my way into the office.”Isn’t this line all too similar to the famous quote by Bernard Baruch who said:”When beggars and shoeshine boys, barbers and beauticians can tell you how to get rich it is time to remind yourself that there is no more dangerous illusion than the belief that one can get something for nothing”

  69. Evan Schneyer

    Good post Fred. I just hope that if there is a shakeout that the right folks (the “wantrepreneurs” as I call them) are the ones to get shaken out, and not the startups who ARE building something of real value. I wrote a more complete perspective on that here http://blog.wanderfly.com/2… and would love to hear your thoughts.

    1. fredwilson

      i like the conviction you have and expressed in that post

  70. Pauldog11

    I could use some funding for my startup. Kiding. I see many hesitant ivestors and many who hand money out.Paul AzousBusinessplanq.com, CEO

  71. fredwilson

    seed investors and angels mostly