What Has Changed

As I read this post in the WSJ about the changing nature of VC funding of consumer web companies, I thought that we may be looking at the symptoms and not the disease. As the WSJ notes, VC funding of consumer web and mobile companies is down 42% in this first nine months of 2012 (vs the first nine months of 2011). And the big falloff is not in seed rounds, which are still getting done, but in follow-on rounds, which are not.

So what has changed in the past couple years? A lot, actually.

1) the consumer web has matured. we are almost 20 years into the consumer web and we have large platforms that are starting to suck up a lot of the oxygen. google, facebook/instagram, amazon, microsoft, apple, twitter, ebay, yahoo, AOL, craigslist, wordpress, linkedin together make up a huge amount of the time spent online, particularly in the english speaking world. there are still occasional new entrants into this list and departures too. tumblr and pinterest have risen a lot in the past couple years while myspace has declined. but consumer behaviors are starting to ossify on the web and it is harder than ever to build a large audience from a standing start.

2) the consumer is moving from desktop/web to mobile/app. we've talked about this transition ad nauseam on this blog. it is the single biggest megatrend in the consumer internet space right now. most new consumer internet startups need to build for iOS, Android, and web at the same time. it is making the startup more expensive and time consuming. distribution is much harder on mobile than web and we see a lot of mobile first startups getting stuck in the transition from successful product to large user base. strong product market fit is no longer enough to get to a large user base. you need to master the "download app, use app, keep using app, put it on your home screen" flow and that is a hard one to master.

3) the momentum/late stage investors have moved from consumer to enterprise. there is a large pool of money in the venture capital asset class that is opportunistic, momentum driven, and thesis agnostic. this pool is driven largely by the public markets. this pool of capital was "all in" on consumer web/social web in the 2009-2011 time frame. it drove a lot of activity throughout the venture capital markets because each layer of the VC stack (angel, seed, Srs A, Srs B, Srs C, etc) needs to be aware of what the next layer up wants to fund. when the momentum/late stage wanted web/social, the layers below gave them web/social. now that the momentum/late stage wants enterprise, we should expect the layers below to give them enterprise.

The combination of these three factors is making it harder for consumer internet companies (web and mobile) to get funding. But the first two factors are also making it harder for consumer internet companies (web and mobile) to breakout which is more and more a prerequisite for funding. As venture portfolios fill up with promising companies with solid products that are struggling to breakout, the VCs will naturally be drawn ever more to the companies that are in fact breaking out. It is a pernicious cycle and we see it playing out very clearly in the consumer internet space these days.

What does that mean for USV? Well not that much actually. We are thesis driven to the core. We believe in what we believe in, for good or bad. And that is large networks of engaged users that have the power to disrupt big markets. We are investing at the fastest rate right now in the history of our firm. We are doing a lot of Srs A and Srs B rounds right now because that is where we see the biggest vaccum in the market. We have not done a real seed or angel round in quite a while. But that doesn't mean we wouldn't and our next investment could well be a seed or angel round.

But we are a small firm. We put out maybe $40mm to $50mm per year across all of our core funds, across initial investments and follow-ons. That is a tiny fraction of the venture capital market. We are small on purpose. We don't want to be the market. We want to invest in a tiny slice of the early stage ecosystem where our thesis collides with great teams and unique and differentiated products.

All that said, these three trends are impacting our portfolio. We have fifty portfolio companies, with the vast majority in the consumer internet space. We encouraged our portfolio companies to raise a lot of capital in 2011 and many did. But even so, we are seeing fundraising challenges everywhere, even in our very best portfolio companies. We are also seeing many of the youngest companies in the portoflio, those started after the summer of 2010, struggling with the breakout challeneges I mentioned earlier in this post. We are patient investors and believe in our portfolio companies and the teams we have funded. We are seeing patience being rewarded, particularly in the mobile market. But it is a tougher time for early stage consumer internet companies than I have seen since the 2001-2004 time frame. And I think we are still in the early innings of this more challenging environment.

So things have changed. As they always do in tech. Those who adapt to the changing dynamics, who see the openings that were not there before and slice through them, will succeed. But the wind that has been at our back for 7-8 years in consumer internet is no longer there. It's tougher sledding and will likely continue so for some time to come.

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#mobile#VC & Technology#Web/Tech

Comments (Archived):

  1. kenberger

    Great- this was the question I was asking you in the sfo airport lounge.

    1. fredwilson

      I am better first thing in the morning than after a long week away just dying to get home 😉

      1. kenberger

        Fun seeing you nonetheless. You can imagine how out of it *I* was, gone twice as long with that little bag after #sandy.

  2. Dalka

    Each startup is a unique entity. If everyone actually looked over the startups business model instead of trends and broad categorizations like the ones above would then not matter because there would be less “me too” category investing.This would be healthy for all.

    1. fredwilson

      I agree

      1. Dalka

        That is good to see! If you get the chance, I’d love to see a second post on what you “think the investing focuses ideally should be”.

        1. fredwilson

          for us, it is large networks of engaged users that have the potential to disrupt big markets. i can’t imagine another one because i am not thinking any other way

          1. jason wright

            so you’re not ever considering the strategy of hedging with an opposing thesis?not even thinking of the possibility of another thesis?

          2. fredwilson


          3. Emily Merkle

            I am working on a plan for educational curriculum reform / tech. Market is every student.

    2. takingpitches

      Such a good point. Too rigid categorical thinking in all phases of life, including the world of startups is a problem.Often, there is interesting stuff going on where borders of categories blur or break down.To that point, the most interesting thing going on — other than mobile — is taking the learnings from consumer including in better communication and engagement and applying that to enterprise to break down old, consumer welfare-destroying, protected markets to achieve better results and to redistribute value to doers and entrepreneurs.Fred captured some of that in his Networks and the Enterprise post at the end of the summer:http://www.avc.com/a_vc/201

      1. William Mougayar

        Agreed on that point. The “consumerization of the enterprise” has not bloomed yet.

      2. fredwilson

        that is an interesting thing but maybe not the most interesting thing. i think the re-imagining of what money is in the digital world may be more interesting

        1. takingpitches

          I am biased, but that’s potentially also interesting :-)My problem is that other than Dwolla the other “re-imagining of money” going on is, in my opinion, shockingly unambitious.The business models out there do not appear to be focused on creating an alternate to credit cards and undercutting the fee structure on payments. That tax on all spending is the issue.Jack Dorsey’s Square’s business model seems to rely on spreading credit card terminals more widely to individuals and smaller businesses, and thus challenging those who offer credit card terminals like Verifone rather than disrupting the credit card companies themselves. In fact, Visa has invested in SquareGoogle, which can take its payment in data and mobile ads, is potentially most disruptive, since it could in theory reduce the huge fees that the credit card companies collect by bypassing them, but it seems to be working within the confines of the existing credit card fee system, at least by what is disclosed so far.And unsurprisingly, the credit card companies themselves are working on their own solutions, doing their part to prevent mobile payments from disrupting their lucrative business model.

          1. Drew Meyers

            “Jack Dorsey’s Square’s business model seems to rely on spreading credit card terminals more widely to individuals and smaller businesses, and thus challenging those who offer credit card terminals like Verifone rather than disrupting the credit card companies themselves. In fact, Visa has invested in Square”I think their strategy is the right one. They are going to root themselves in the terminal space, then use that leverage to put pressure on the credit card fee system.

          2. awaldstein

            Square is great; I’m a huge fan.But Square is an offline paradigm. It doesn’t connect to online POS systems and is great for the street vendor, useless to the street vendor who takes their orders online.If this is changing, I’m not aware of it.

          3. Drew Meyers

            I think it’s just a matter of time before that happens. Smart of them to focus on street vendors first.

          4. awaldstein

            Agree that it’s smart to start there.Once you handshake with POS systems the world becomes and tangled mess.I don’t know that that is their future honestly.

          5. Aaron Klein

            I don’t know that they will. A lot of their backers are invested in Stripe. That will be an interesting collision of interests if it happens.

          6. Drew Meyers

            so Stripe + Square = world domination 🙂

          7. Aaron Klein

            Maybe so. I agree with @awaldstein that a lot of businesses want presence + online payments and having to use two systems is annoying.Dwolla could change that but I have no incentive to use it as a consumer. I love using and paying off my Delta AmEx and Hilton HHonors Visa every month. I’ll spend a week in Rome and Milan next year for free as a result.

          8. Drew Meyers

            There is enough business owner pain that someone will figure out a solution that does both online and offline. It just may take awhile, as it’s obviously a massive undertaking.

          9. ShanaC


          10. ShanaC

            Square is worth it in a hurricane. I saw tons of vendors using square in blacked out areas.

          11. awaldstein

            I’m a believer for the street side vendor. Just nothing there online.

          12. raycote

            I think your right.It is not just about the “re-imagining of what money is”but re-imagining a new substrate of distributive cyclicality to underpin the mechanics of the financial industry.

          13. Teemu Kurppa

            I’ve been following a few Bitcoin companies here in Finland, and as an earlier Bitcoin sceptic, I was surprised how much activity and money there is already in Bitcoin economy. I think a lot of investors are underestimating what’s going on in Bitcoin world, because it’s still so far away from the mainstream.But many truly disruptive things were viewed as toys or pure idiocy in the early days. I’m speaking from the experience here. When we started Jaiku, a microblogging service similar to Twitter, in 2006, before Twitter and before Facebook’s activity stream. At that time, a lot of people said that broadcasting and reading short mundane thoughts was the stupidest idea they had ever heard of. Fast-forward a few years and hundred of millions of people are doing it everyday.Based on what I’ve seen, I’m starting to think that Bitcoin might be a similar phenomenon.

          14. awaldstein

            Interesting…I have a good friend in Finland in the wine world and the more we talked in some recent travels, the more unique in every way Finland was from just about every other place and economy I have any familiarity with.

          15. takingpitches

            I need to know more about bitcoin, but definitely love/agree with the Clay Christensen toys thesis!

          16. fredwilson


          17. Lola Adesioye

            Timing is always key, and there are some ideas that are too far ahead of the curve to gain traction, but may be prototypes or preludes to what’s to come. There are themes that I have been talking about for several years (e.g. that Africa is going to be the next big thing, the growth of the African youth market and the massive potentials in terms of mobile/internet etc) that are now only starting to become seen as viable in a mainstream way. Sometimes early adopters have to be careful not to be too early (although it’s all learning and all, in my view, of benefit in the end) 🙂

          18. Yaniv Tal

            that may be a mischaracterization of the credit card companies. a lot of players that move to disrupt them have realized that the interchange rates are actually quite low for what the networks provide.i’m interested to see if somebody can come along and provide a better alternative to connecting merchant and consumer bank accounts but i honestly think that’s a luxury problem. we’re talking about shaving tenths of a percent off the transaction cost. i think that allowing consumers to find products and services, making it easy for them to pay from mobile (inside and outside the store), maximizing loyalty, making purchases easy to share, and using that data effectively for marketing – all those things are much more value additive than making transactions a few pennies cheaper for the merchant.

          19. takingpitches

            I’ve never spoken to a merchant who things interchange rates are too low.Don’t take my personal anecdote as truth; just read any of the numerous ongoing lawsuits by the retailers against the credit card networks on that point

          20. Yaniv Tal

            are you referring to the interchange rate or the rate they’re charged by their payment processor?

          21. takingpitches

            the entire merchant discount, and in particular the interchange

        2. takingpitches

          (following on from my last comment) Dwolla states the problem well:”Unfortunately, businesses and services must pay the card company fees and monthly costs to accept your payment and is why a lot of small businesses refuse to take cards. These “swipe fees” cost between 2% and 7% of the purchase, plus an additional $.30 cents per transaction processing fee (along with a host of other charges). To offset the annual $48 billion in fees, merchants raise the price of goods and services to compensate. Naturally, Dwolla is the solution to this problem, which means we must avoid these “plastic” networks.”

        3. kidmercury

          definitely! IMO that will require re-imagining of law and banking, and will lead to re-imagining of financial markets

        4. awaldstein

          I agree but closer to earth I think for big numbers of niche markets is simply how to handle transactions online.Transactional infrastructures for small businesses is still a frontier.Built a Shopify store recently and the restrictions in checkout, the impossibility of adapting their structures to local delivery were daunting. And they are one of the best and most helpful.

          1. fredwilson

            That too. Its part of what I meant with that comment

          2. awaldstein

            Smartest thing I ever did to make myself a better advisor to my clients and sharper thinker is to start two companies/projects, on a shoestring budget, do most everything myself.Learnings happen where thoughts and beliefs hit the street.And with some luck…maybe more than learning will happen!

          3. Chris McCoy

            Up the hill Arnold!

          4. takingpitches

            Absolutely amazing still an issue…based on what you have seen, who else other than shopify is among the best (but sounds like not nearly good enough) today?

          5. awaldstein

            Shopify and WP Ecommerce were the final ones for my needs.Depends on your needs of course. Big issue is that all commerce systems as aggregated platforms default to shipping as the delivery system.Thousands, no tens of thousands of stores have hybrid systems which include delivery. Adding simple things like Instructions to the Doorman, PickUp locations at gyms are all issues as these instructions happen during checkout. And checkout is tied to the gateways and variability with the gateways is a nightmare.Want to build something and ship it. You are golden. Want to build something like a food biz that has delivery and zones and drop offs, you learn to deal with what you have.All good though.

          6. takingpitches

            Thank you — very helpful!

          7. FAKE GRIMLOCK


          8. awaldstein

            Agree…I will live with it.The platform will not make the biz though.Store is up: http://www.lulitonix.com.Product kicks. We are selling now. Delivering in lower Manhattan now and cutting deals for distribution with gyms and yoga studios.We shall see…

          9. takingpitches

            Very cool – you had me at Kale!Will look for it at Exhale Spa…

          10. awaldstein

            Delivering now basically from Wall Street to Madison Park.Blended greens have a similar profile to juices but much broader. What I like is the customers don’t just like them, they either don’t bother or truly love them, drinking 1-2 a day making the profile usually $50-200 a week avg.Look to more products. LIanna developed a nut chia drink this weekend for power workouts with more protein and calories. Pre gym drink. Really cool.Thanks for the enthusiasm. Food biz is tough but customer connections are really powerful.

          11. takingpitches

            I start every morning off with some chia and flaxseed mixed into my Greek yogurt, so will look for the second drink as well at Exhale!Best of luck. Know very little about the food biz but perceive, which we were discussing on Gotham Girl and Albert’s blog, that people yearning change in food and where you make that customer connection, the big food companies look at big acquisitions as they diversify away from the old processed stuff!

          12. awaldstein

            I’m a big believer in the power of greens.I start every day with one of these: http://lulitonix.com/produc… and usually have 2 a day.Greens and a partial non allergenic approach to food make amazing differences to your health, point of view and weight.

          13. takingpitches

            I feel recharged just looking at it!

          14. ShanaC

            what if I just want to try one?

          15. awaldstein

            You happen to know an equity owner;)

        5. FAKE GRIMLOCK


          1. fredwilson

            I have always thought of barter as money. But now we are debating semantics

          2. Dave Pinsen

            You could think of money as a derivative of barter.

          3. FAKE GRIMLOCK


          4. JLM

            .There are some very sophisticated barter exchanges out there.Almost 20 years ago, I bartered excess inventory — empty office space — for some lots on a golf course.It was a 3-way exchange.I had something that expired “worthless” — empty office space. It not only had no value in the short term, I had to pay utilities, taxes and insurance on it. It cost money to own it.Another party had office supplies. A hard good.Another party had several lots on The Dominion in San Antonio.The lights went out, the music stopped and I the lots when the lights came back on again. The party occupying the office space had to pay the utilities, taxes and insurance.Point of order — barter is taxed exactly like cash and the rules are complete and clear.I like barter if it can result in real estate..

          5. fredwilson

            i have a friend who lives off of barter. and he lives well.

          6. Kevin H Entrepreneur

            What do you think about plays like Little Black Bag…part flash sale, community and it’s own kind of market – gamification to boot. An interesting play on barter and a custom in japan. People apparently spending hours trading up etc. http://www.wired.com/busine

          7. fredwilson

            seems very smart. if the community is real, then they have something that is special and hard to replicate

          8. ShanaC

            who is that guy? how does he do it? how does he pay taxes?

          9. kidmercury

            what are you going to use to buy a house? to buy shares of google?

          10. FAKE GRIMLOCK


          11. ShanaC

            cash sort of is fluid in terms of value though (or so says the bond market)

          12. Dave Pinsen

            What you’ve described isn’t the future, but the past: barter.

          13. FAKE GRIMLOCK


          14. takingpitches

            this is going on the blog:On Sculpture: I saw the angel in the stone and carved until I set him free — MichelangeloOn Innovation: dismantle excess scaffolding of past to enable what it originally meant to do — Fake Grimlock

          15. FAKE GRIMLOCK

            SEND LINK WHEN DONE.

          16. takingpitches

            Yes, will do

          17. takingpitches

            As promised, further immortality :-)http://takingpitches.com/20…

          18. Dave Pinsen

            Perhaps, but money isn’t excess scaffolding. It’s necessary as a means of exchange (otherwise a barber couldn’t buy bread from a bald-headed baker) and (albeit less successfully, in modern times) as a store of value.

          19. Aaron Klein

            Agreed. And just wait until the government starts trying to tax barter “more effectively.”

          20. ShanaC

            how do we create a barter chain long enough?

        6. Peter

          The new payment alliance that Walmart, Home Depot etc are putting up shortly will cut out credit cards and exterminate college startups like Dwolla and Square (and probably a few of yours), because this alliance owns what everyone is only dreaming of: the customer transaction.That’s your “re-imagining” right there.

          1. fredwilson

            Dwolla is one of our own. Thanks for the heads up

        7. davidhclark

          Dwolla’s announcements today are huge. I’m really excited about their POS integration and tying into their API to enable payments from my app. I hope to give them a big push 🙂

    3. CJ

      Trends are not irrelevant, categorizations are noteworthy, outliers are rare. When you’re investing, every company is unique. When you’re researching, statistical analysis is a necessity. Further, a lack of that research is akin to professional malpractice.

    4. bul

      Not really if you believe in the power of data. Once you do hear pitches and fund a number of ideas you start to connect the dots….I think

  3. pointsnfigures

    I think it depends. All of a sudden there is a draw to companies that have revenue. A lot of the consumer internet companies create value outside of traditional revenue models. I think there are some fantastic companies out there, and like you say, the toughest round to raise is a later Series A or Series B. What’s interesting is I am seeing more and more convertible debt seed rounds that look like Seed+A+B! Convert debt no cap, no limit. (I won’t invest).In times like this I am reminded of my trading days when you have to enforce even more discipline on yourself. I am reminded of the heady days of 1999 when it was impossible to short the NASDAQ, yet you knew if you had enough capital to hold on you were going to be right.I heard a talk by Dick C. CEO of Twitter last week. Seems like a pretty amazing company with challenges like every company-but they have created so much value that I don’t think they go away.

    1. fredwilson

      Dick has done a very good job turning Twitter into a company and a business

      1. Pete Griffiths

        He is also one of the most skilled communicator CEOs I have ever seen. Very impressive.

    2. ShanaC

      Are you claiming that with consumer dabbing startups, we’re still discovering what value looks like? We’re missing something about what makes something valuable?

  4. William Mougayar

    This is one of those rare 3-4 posts per year where you analyze the market and give us a reality check based what you’re seeing. You may be a small firm and doing a small number of deals in the grand scheme of things, but you have a Big view because you probably see a LOT more deals than many other VCs see as a whole. And that gives you a unique perspective that’s very grounded, and it’s great that you can share it with us just like that.That said, don’t you think that the lines are blurring between enterprise and consumer from a revenue model? When you look at companies like Twitter, Facebook and Foursquare, they are consumer oriented companies, but their revenue model is really coming from enterprise companies.So, is the current appetite for pure enterprise B2B companies (SalesForce/SaaS types) or is it for ones that have enterprise driven “revenues”?

    1. fredwilson

      Right now the market wants saas revenues not ad revenues. I hope that will change

      1. JimHirshfield

        Hey, don’t be dissin’ the SaaS revenue, man. 😉

        1. pointsnfigures

          At a tech talk a couple of years ago, a guy proclaimed “SaaS is dead”. Maybe being a contrarian investor pays, and since the consumer web is now dead it’s good again!

      2. William Mougayar

        Your re-organized revenue models list from last Monday should be an eye opener. I think the “native” revenue model is still in its baby steps.

      3. Elie Seidman

        It always changes. Just have to wait a few years.

      4. Abdallah Al-Hakim

        That goes along to some extent with this article from the ReadWriteWEb http://readwrite.com/2012/1… – I don’t agree with everything in the article but it is pointing to a disruption of the enterprise market by many of the new startups

      5. Mike Lair

        Exactly – all else is folly.

      6. James Ferguson @kWIQly

        True for consumer but not so much for enterprise or B2B. Enterprise wants the stability of and metrics of SaaS.Enterprise SaaS generally needs to be focused to a workflow, where ad revenue is much more than a distraction, it constitutes a bias and may mislead. I’m glad that wont change !

      7. Laura Yecies

        Maybe because that seems less risky/cyclical to the investors? Or the fewer users as per Chris Dixon’s point. I was at Yahoo in 2003/2004 and at that time they were all about finding subscription revenue (but that’s a whole other issue)

  5. Tom Labus

    But isn’t this result an inevitable conclusion to any cycle. Some now see an overplayed area and others still the start.Jeff Bezos told Charlie Rose that he felt that consumer net was still in day one and that the alarm clock for that first day hadn’t even gone off.

    1. fredwilson

      I am not sure we are in the first inning anymore

      1. Pete Griffiths

        I suspect that your point about ‘sucking up the oxygen’ is the key here. As you observe, the most scarce resource is time and attention. Once habits are formed it is difficult to break them. A massive new consumer internet company with a novel product is nonetheless competing for time. All products are competing for time. Imho it is this ossification of habit that represents the seismic shift from 1st to 2nd innings.

        1. raycote

          All these social graph fads dancing around the mulberry bush in a desperate attempt to distill which social graph functions are sticky enough and practical enough to be sustainably absorbed into the stream of ubiquitous mass culture must-have daily utility.The situation seems ripe with the opportunity to clear out all the clutter for a integrated reduced-palette of core social tools with drop dead easy interface ergonomics.That kind of consolidation probably needs big-data-silos at the back-end?”Without any publicly owned network of Big-Data-Silos operating on an open/standardized set of APIs to facilitate accessing a universal public data-object inventory system, doesn’t that forfeit most of the consolidation opportunities to the usual suspects.Enter – Google – Facebook – Apple and maybe Amazon

          1. Pete Griffiths

            Agreed. But if the players who are large enough to support such big data silos don’t make open their silos to each other (e.g. Facebook and Google) then the kind of integration that big data could afford becomes impossible. What we end up with is fragmented islands, each of which is an increasingly rich seductive and sticky ecosystem.

          2. raycote

            I did a poor job of highlighting my main focus, which was:”Without any publicly owned network of Big-Data-Silos operating on an open/standardized set of APIs to facilitate accessing a universal public data-object inventory system, doesn’t that forfeit most of the consolidation opportunities” required for the network-effect to channel human behaviour into new, self-organizing, high-level systemic social structures.At some point in the development of other historically crucial social infrastructures like roads, schools, water, electricity and shared scientific knowledge there has always come a point at which the social/commercial need for ubiquitous utilization has forces those infrastructures into a universally interconnected and accessible mould of one kind or another.Open universal access to our shared noosphere(integrated collective knowledge/wisdom/consciousness) is an unstoppable teleological trajectory, a preordained evolutionary probability-well, a strange attractor driven by relentlessly adaptive social and commercial human needs.Unlocking that vast potential, that social-capital, that noospheric infrastructure of universal Big-Data access is preordained by the overwhelming gravitational pull of the monumental social and commercial opportunities(cognitive survival strategies) that await us.Unlocking that noospheric social-capital is also preordained by an historically recurrent, probability-enforced, trajectory-dynamic that is statistically inherent in all complex living(adaptive) systems. Complex adaptive systems inherently exhibit statistical-drift-based self-replication-probability feedback-loop-selection-steerage, mediated via the mutually-adaptive survival responses of their constituent component parts/processes. These feedback-loops produce a causal chain that pushed complex-adaptive-system component parts/processes towards increasing their systemic network-connectedness, which cascades into increased their systemic synchronicity, which further cascades into increased their systemic complexity and ultimately drives their systemic holistic integration towards that ultimately evolutionary terminus we humans like to anthropomorphize as consciousness.(pure probability-driven universal teleological trajectory without the need to summon up divine purpose as its tour-de-force – making divine-purpose metaphors optional)The long standing historical sentiment/intent expressed by Pink Floyd with their lyrics”Money. . keep your hands off my stack”is now playing out as the analogous tandem meme”Big-Data(information/knowledge). . keep your hands off my stack”.Sure when we look around at the likes of Google, Facebook, Apple, and Amazon we see commercial juggernaut that seem unassailable.My bet is that the transaction-costs associated with such a massively counterproductive, myopic, self-serving and in the long run commercially obstructionist approach will become global intolerable and/or unsustainable in very short order(my guess/hope = 10-20 years Max). Not because of our political wilfulness or cooperative social wisdom but simply because it will fall to the hidden hand of the marketplace as accelerated by modern network-effect dynamics.(i.e. young people won’t tolerate that inherent drag-coefficient on their lives)We have now reach that phase in the evolution of human social structure where that self-organizing dynamic, that fractal scaling behaviour exhibited by all complex living(adaptive) systems, which has previously channeled life-molecules into self-organizing systemic cell structures then levelled up to channel cells into self-organizing systemic organisms, is now levelling up to channel human behaviour into new, self-organizing, high-level systemic social structures.That fractal scaling behaviour exhibited by “the self-organizing dynamic” across progressive platform layers of the reality stack is driven by a set of key features common to multiple platform layers of the reality stack:1- component parts/processes are adaptively responsive to their surrounding environment2- A network of interconnected signalling(network-effects) with adequate flux-density, consistency and integrative network-reach to fuel that statistical-drift-based self-replication-probability feedback-loop-selection-steerage as mediated via the mutually-adaptive survival responses of their constituent component parts/processes. Where survival response = behaviours that increase the probability of self-replication within the context of the present environmentally networked circumstances(i.e. statistical evolutionary-drift dominance)3- Enough time for all those statistical-drift-based self-replication-probability feedback-loop-selection-steerages to work their evolutionary selection magic.Chance is a filter that time uses to surface highly improbable complexity out of chaos.orTime ultimately filters chance to surface highly improbable complexity out of chaos.Complexity arises out of networked synchronicity because synchronous fit with your surrounding environmental circumstances increases the probability of self-replication(survival selection). As complexity evolves it further amplifies its environmentally adaptive reach for fitness, thus further increasing the probability of its own self-replication(survival selection). At some threshold level complexity extends beyond just amplifying its environmentally adaptive reach for fitness, it starts self-referentially altering its own environmental substrate, reshaping its environment to fit and amplify its own self-replication(survival selection). Examples of this are the development of agriculture and genetic engineering by that ultimate complexity assemblage we call humans. Complexity is a self-selecting, self-extending and self-reenforcing process that tends to statistically drift in one direction and get locked in by pure probability driven teleology. When you take time out of the formula complexity is not so much improbable as it is inevitable.How do present social realities stack up against these prerequisites?1- Are we adaptively responsive to our surrounding environment. Indeed we are king of the reality-stack hill on this one!Pass – with flying colours2- The emergents of the internet now puts us in the game with plenty of network-effect flux-density to spare but we have one major fly in the ointment. We are coming up shot on the critical-mass of cross component/process interconnectedness. Houston we have a Big-Data-Silo problem. Our cross component/process interconnectedness in lacking integrative reach!Fail – due to the social dominance of vestigial pre-network-effect ownership memes3- The teleological-probability percolation-time constraint factor required for the network-effect to channel human behaviour into new, self-organizing, high-level systemic social structures is an unknown, probably even an unknowable unknown!Marshall McLuhan’s”The new electronic interdependence recreates the world in the image of a global village.”can arguable be updated for more context to”The new electronic interdependence recreates the world in the image of a global spaceship.”This wording brings into sharper focus the absolute resource constraints imposed on that global village.This imposes a serious time constraint on our efforts to level up and channel human behaviour into new, self-organizing, high-level systemic social structures.Fail or Pass = Unknown = Falls out of the formula – As H.G. Wells points out, when all seems hopeless, what do you do then? You carry on as if that were not true!IMHO it all boils down to this:Our collective opportunity to level up and channel human behaviour into new, self-organizing, high-level systemic social structures is contingent on solving the “integrative-reach constraint problem placed on our global network-effect opportunities by self-serving corporate Big-Data-Silo lock-down agents”THINKING IN NETWORK TERMSA Conversation with Albert-lászló Barabásihttp://edge.org/conversatio…P.S.Not trying to villainize corporations here. At the heart of the problem is our collective lack of the modern organic network-effect narratives, metaphors and lexicons required to adequately visualize the potential of our our new organic-network-effect building-block opportunities. Corporate leaders are just floundering through the same network-effect visualization-meme vacuum as the rest of us.

          3. Pete Griffiths

            Btw – that notion of ‘Peak attention’ that you address in another post is most relevant. A nice phrase.

      2. JLM

        .The ideas for the innovators — the first wave adopters — are well grounded. Inch deep, mile wide.The rest of the world is still learning and the subsequent waves of adoption are still fertile ground.I still routinely stumble on ideas and websites that have been around for years and say — where the hell did this come from?.

    2. JimHirshfield

      Bezos has always had a huge vision, and to best articulate that to his troops, I think it makes sense for him to describe this as first day. There’s so much more marketshare for them to go after, so much more to change in consumer purchasing behavior, so much more innovation in delivery, etc.That said, I think what Bezos envisions is different than investment strategies/appetites – it’s like the difference between investing in a company and operating a company.

  6. leigh

    I feel like we are seeing a lot of the same mistakes with the move from desktop to mobile that we saw with print to Web. I’ve always said, there is only one screen, what ever i happen to be looking at in any given moment – and the focus is and should always be people + the dynamics of the medium.Thesis driven much smarter bc it has exactly that focus. Mobile then just becomes part of the story.

    1. JimHirshfield

      I like that one screen thought. So true in that I don’t remember what size or kind of screen I read/watched something on.

    2. ShanaC

      I’m very concerned about those people who flick from screen to screen. You may only be looking at one screen at a time, but for how long?

      1. leigh

        lol i dunno — Shana you sound so old! Every generation gets used to new ways of interacting.

  7. Dave Pinsen

    I wonder if the tail wind going away will prompt more consumer Internet startups to aim for profit rather than for scale and a possible exit. One startup whose product I use has free users and users who volunteer to pay a monthly fee; I’m pretty sure they’d get enough users willing to pay if they ditched the free option that they could have a profitable business. Will be interesting to see if they go that route.

    1. William Mougayar

      Can you name them?

      1. Dave Pinsen

        Sure: Fitocracy. https://www.fitocracy.com/To amend my previous comment, I think they could ditch the free option for users beyond a certain level (maybe 15?), as it gets stickier the higher you go.

  8. JimHirshfield

    Oxygen sucking concept hit the nail on the head for me. Lots of cool apps appear but only so much attention to give.

    1. pointsnfigures

      Fragmentation, then consolidation. That’s what is happening. As Warren Buffett says, Everyone looks great with the tide in, it’s when it goes out where you see the real deal. The tide is going out right now.

    2. raycote

      Peak Attention and Alternative Attention SourcesI am not sure who first came up with the term Peak Attention, but the analogy to Peak Oil is surprisingly precise. It has its critics, but I think the model is basically correct.Peak Oil refers to a graph of oil production with a maximum called Hubbert’s peak, that represents peak oil production. The theory behind it is that new oil reserves become harder to find over time, are smaller in size, and harder to mine. You have to look harder and work harder for every new gallon, new wells run dry faster than old ones, and the frequency of discovery goes down. You have to drill more.There is certainly plenty of energy all around (the Sun and the wind, to name two sources), but oil represents a particularly high-value kind.Attention behaves the same way. Take an average housewife, the target of much time mining early in the 20th century. It was clear where her attention was directed. Laundry, cooking, walking to the well for water, cleaning, were all obvious attention sinks. Washing machines, kitchen appliances, plumbing and vacuum cleaners helped free up a lot of that attention, which was then immediately directed (as corporate-captive attention) to magazines and television.But as you find and capture most of the wild attention, new pockets of attention become harder to find. Worse, you now have to cannibalize your own previous uses of captive attention. Time for TV must be stolen from magazines and newspapers. Time for specialized entertainment must be stolen from time devoted to generalized entertainment. . . . .A very small snippet from a very long but interesting post titledA Brief History of the Corporation: 1600 to 2100- by VENKAT over @ http://www.ribbonfarm.com/2

  9. Reykjavik

    But the world needs more apps to help you name your dog.

  10. David Petersen

    Another change: It is easier to get to profitability on the web. A team of two technical founders can build a product in 6 months with virtually no expense.As funding gets harder to come by, entrepreneurs will just have to focus more on profits in the early business stages. They’ll probably be better off for it in the end.

    1. kidmercury


    2. fredwilson

      That has been true for a decade on the web (AdSense) and for five years on mobile (app store)

      1. David Petersen

        True, but it is so much easier now than it was 10 years ago.

        1. fredwilson

          i am not sure that it is the case. there are more pigs at that trough than there was 10 years ago

          1. David Petersen

            There are more pigs at the trough (but not that many more, the number of comp sci majors nationwide shrank from 2003 to 2009 and is now on the rise, but not growing wildly) but the trough is 100 times bigger. There must be 5-10 billion computers in the world at this point. There may be increased competition, but there are more opportunities than ever.I see billion dollar ideas* all over the place that no one in the startup world is seriously working on.For me, the big difference between now and 10 years ago is more the ‘advice infrastructure’ than all of the free/cheap software tools useful for building a business.10 years ago, I was running blind. People starting a business now have AVC, Paul Graham, This Week in Startups, This Week in Venture Capital — it’s all unbelievably helpful.*Slight chance I am delusional, still evaluating this.

          2. kidmercury

            siding with david in this beef, with the caveat that while it’s getting easier it is still very tough and most who try will succeed only in embarrassing themselves. IMO one major reason why it’s easier is because it’s easier to crowdsource. by this mean i mean its easier to get user-generated content, there are more APIs that are easier to plug in, and a more robust open source ecosystem to draw from. all of this conspires to make the micro startup more feasible (though still difficult).

          3. falicon

            I’m not sure if it’s easier or harder…it’s just different.I think it’s certainly easier to build stuff, but the side effect of that is that it makes it *much* harder to break through the clutter and gain proper traction.I think it’s certainly cheaper to start something, but I think this actually makes it a bit harder to properly budget a successful path (there used to be a pretty straight formula depending on the type of business you were building — most involved buying customers [and customer attention] in one fashion or another and this is path that has all but dried up from what I’ve seen)I think it’s harder to build a team of the top/best talent and drive towards a common purpose (because everyone has their own great idea they want to work towards; or has a comfy situation that gives them a nice lifestyle and has taken all their hunger away)

          4. Drew Meyers

            “I think it’s harder to build a team of the top/best talent and drive towards a common purpose (because everyone has their own great idea they want to work towards; or has a comfy situation that gives them a nice lifestyle and has taken all their hunger away)”I’m seeing this trend as well. Lots of great talent is sitting on money from prior startups, or as you mentioned, they want to work on their own idea. I get it, since I’ve been in the same shoes for the past year. But I found I missed the tech scene too much and sitting around (traveling) didn’t provide the mental stimulation I needed.I think we’ll start to see much of that talent get back in the game soon.

          5. JohnDoey

            CS majors are less important than they were. Designers and artists and writers are more important. Producers, directors.

          6. ShanaC

            i doubt you are delusional. I think largely it is that we still have divisions in what we see in the world. I don’t think someone in the US is largely going to make it big in a growing, underserved economy.

          7. Dave Pinsen

            As Spinoza wrote, “all things excellent are as difficult as they are rare”. And a recent NYT article illustrated that it’s relatively rare to make money developing iOS apps: http://www.nytimes.com/2012

  11. damiansen

    I like the analysis, except “it is harder than ever to build a large audience from a standing start.”One could say the same from the AOL times. That seems to point to innovation barriers but history proved it wrong, i think.My POV is that’s just a temp cycle. Investors and they hoarding mentality, themes, FOMO… end hyping those cycles a bit further.

    1. fredwilson

      i sure hope you are right

  12. kidmercury

    IMO bubble 2.0 is still in the process of unwinding. now that goldman has successfully run the pump and dump on internet stocks they seem to be moving on to the natural gas sector in the US. if you look at the US IPO pipeline — http://ipoboutique.com/cgi/… — there are fewer IPOs planned and the big investment banks that are BFF with the US govt (namely jpm, goldman, and citi) they are moving out of the internet sector and to the natural gas sector, where they are selling the story that the US has 100 years of shale gas. if only! 5-7 years is more like it IMO. but the hype, wrapped around a kernel of truth, should be enough to generate the next pump and dump.how does the remainder of the unwinding of bubble 2.0 play out? i think QEternity will cushion the blow (at the expense of the lower and middle classes), especially for those that have already crossed over to the publicly traded side. the secondary market’s ability to sustain valuations is something i’m a bit less confident in. but i would need to look at more data to develop a strong opinion on that.there are two thresholds i think are important and will, on a long enough timeline, ultimately serve as the upper bound to market capitalizations of internet companies. they are:1. how much does it cost to break it — i.e. how much will it cost an organization like anonymous or occupy wall st to take it down?2. what is the max NPV the company can obtain before it incurs significant infrastructure costs in scaling? this is in a way related to point #1, perhaps just a different way of looking at it.but, i think there may be a few more cycles before those upper bounds need to truly be recognized. something i’ve been thinking about lately is that linkedin raised about 110 million and doximity, which is linked in for doctors, has raised 20 million thus far. i think “niche version of big social network” is an important trend and these niche versions should require significantly less capital. i would think doximity can do it with even less than 20 million, but we’ll see.

    1. Dave Pinsen

      A few years ago, David Silver wrote about the potential of niche social networks in this book, which also included some interesting ideas for how they could generate revenue beyond ads: http://www.amazon.com/gp/aw

      1. kidmercury

        thank you for the tip — i just bought it. resented paying $13.72 which is a bit above my preferred kindle price but succumbed as it is one of my favorite topics. i will leave a negative review on amazon if i feel the book does not warrant the price.something @kirklove mentioned in our previous discussions on niche social networks is that they will ultimately be self-funded by users. i think there is a lot of truth to this. another strategy i’ve been dwelling on is to take the models that bubble 2.0 highlighted — i.e. daily deals, kickstarter, virtual currency/game play, sponsored content, digital downloads, subscription commerce — and incorporate them natively a single destination targeting a single niche.

        1. Dave Pinsen

          Interesting. We should connect soon via email.

          1. kidmercury

            for sure — feel free to ping me any time!

      2. falicon

        Thanks…buying a copy now too (see conversations can very easily become transactional!).Also – we should get @kidmercury:disqus out to NY and do an in-person thing instead of emails…more fun (and I also still owe you a few intros we talked about at Happy Hour the other night — will try to get them out today) 😉

        1. Dave Pinsen

          Conversations can certainly become transactional; Disqus should find a way to capture a slice of the transactions. Imagine if it then used some of its slice to build in incentives for the blog owner and commenters? Make it a win all around (a little commission for the blog owner and the commenter mentioning the product, plus discounts for the commenters buying), and transaction volume and revenue would grow nicely. Disqus has enough data on its commenters to build an algorithm to limit spamming too — they could make it so that only commenters who have left X number of comments on the blog and received Y number of net likes could profit from a transaction, and commenters could only recommend stuff every z comments.Happy hour with the Kid in NY would be great. Thanks re the recommendations. I owe you a follow up email as well.

        2. Aaron Klein

          Transactional conversations X2…this book is on my Kindle now as well. Looks fascinating.

    2. fredwilson

      behance, which is linkedin for creative professionals, bootstrapped itself for four years without any outside funding. they took money from us this year not because they needed it, but because they could raise it on good terms and thought they could use it as they scale

    3. James Ferguson @kWIQly

      I think that the cost of gaining traction in niche social is huge. In energy (my field) money and motivation exist as does the need for knowledge exchange. But it is such a big prize and the oligopolies want it (read big oil) so that an unbiased platform is impossible to find and very hard to nurture. I am rather hoping that something may consolidate out of the blog, discovery, discussion eco-systems – but I’m not seeing it yet.

  13. FinLit

    Yes, entrepreneurs can build a product in 6 months, but market potential–users– must be significant…and then they’ll be better off for it in the end.

  14. jeffyablon

    It seems to me that the VC industry itself has changed. That may sound like an obvious statement, but it’s actually pretty odd.Despite VC people belonging to an elite club of relatively nimble, certainly intelligent makeup, one might argue that the model long followed looked a lot more like big companies than small ones, operations-wise. VCs followed formulas, period.Those formulas are changing, and VC is (finally) catching up. And the biggest change is that seed rounds are often all you need to prove concept and either become profitable enough to forego further funding (on the company side) or enough to figure out that pumping more money in is a bad play (on the VC side).Whether investment is on the rise or decline, and regardless of how that’s measured, VC is changing.

    1. fredwilson

      the VC is changing at the edges. but at the center it looks more and more the same. the big company VC is leading the way right now

      1. jeffyablon

        Fred, I’d never deign to believe I know more about the VC world than you (duh). But the statement that “the big money is leading the way” flies in the face of so many seed investments and so few later-round jobs. Unless the big guys have started following a “throw a lot of crap against the wall” strategy—which is uncommon indeed for the big guys.OTOH: if you mean that big money is chasing things like big data, which by nature requires that big money, than … ok, sure.

        1. fredwilson

          i mean a specific firm and a specific model of VC firm they are creating

          1. jeffyablon

            ahhhhhh . . .

  15. takingpitches

    Fred, who are the late stage/momentum investors? Is an example insight venture partners.Seems like a very cart before horse process. It is not how Facebook gets funded when consumer was last in the toilet.Those are not the guys on the cutting edge.

    1. William Mougayar

      Yup. I had the same reaction below here, calling it Tail wagging the dog.

      1. takingpitches


    2. fredwilson

      i am not going to name names. just look at the folks writing the big checks at the big valuations, who were all in on web/social and are now getting all in on enterprise

      1. takingpitches


  16. William Mougayar

    “now that the momentum/late stage wants enterprise, we should expect the layers below to give them enterprise.”That sounds like the Tail Wagging the Dog.Are you implying that the angel/seed/A’ers are pandering to the late followers?I thought the angel/seed/A’s are the ones that see the trends before others do, and they invest with that in mind. Others follow when they see these early investments work.

    1. pointsnfigures

      because the second round is so tough, they look to the top levels of VC for some trends to ensure that there will be capital in the lifecycle. But agree, angels ought to be breaking trends, not playing to them.

    2. fredwilson

      not consciously. but certainly subsconsciously

  17. Ernest Mistiaen

    Interesting post, thanks! Especially this part struck me: “you need to master the “download app, use app, keep using app, put it on your home screen” flow and that is a hard one to master.” I’d love to read more about this distribution problem.

    1. Dale Allyn

      It’s not just a “distribution problem”, it’s an adoption and retention problem. Or more accurately, a discovery, adoption and retention problem.

  18. Guest

    Seems like a great time to be an investor whom understands how to value differentiating businesses that play to consumers. With less noise, it shoud be reflected in better investment opportunities. Didn’t the same cycle play out exactly 10 years ago? And that was when businesses like eBay, Google, Apple, Zappos, StubHub, etc began to flourish.

  19. Elie Seidman

    In our “category” (defined loosely) there is a certain expectation that things will happen really quickly. The Zynga’s, Facebook’s, Living Social’s, Groupon’s and Fab’s of the world are so talked about that when we don’t read selectively, they become a certain “reality”. Huge success and wealth in 2 or 3 years or bust. And there are certainly a lucky few for whom that happens. But the history of entrepreneurship and business building says that those situations are exceptionally rare. And as we’ve seen with some of the formerly hyped, not as sustainable as people imagined. Much more common are the 20 mile marches of the Jim Collins books. Overnight successes that take a decade or two; companies that grew “slowly” at 20% a year for 10, 20 and 30 years. Do that for 10 or 20 years and it adds up. You won’t get much hype along the way, of course.For our situation at Oyster – and it sounds like we share this with some of your less well known portfolio companies – I’ve found that reading less TechCrunch and more Jim Collins is in order.

    1. LE

      “For our situation at Oyster”Elie – To my thinking your job is (and this is obvious) to make Oyster as good a product as it can be. To be like the friend who tells you “when you go to Puerto Rico this is where you want to stay”.I don’t think you are there yet. While you do list, as the number one choice, the hotel that I stayed at the last time I was there (Intercontinental) and your review was accurate (as far as facility/room description) you missed two factors that to me were most important about that facility. One, there is a beach restaurant that sits right in back of your chair on the beach. Super convenient. It’s a big deal. We will go back to that hotel just because of that. Second, you can rent sailboats at the property next door. This actually was what took me 4 hours of research to find, at what hotels can I rent a sailboat? Or close by.The review says “There are some decent restaurants and bars within walking distance” but doesn’t list those “decent restaurants” (there was one for locals that we visited 3 times.) As well ask baskin robbins ice cream in a near by shopping center, a drug store all conviences. Someone who doesn’t know the lay of the land wouldn’t think of this. But it is nice to know. Answer the question on any hotel “what is close by”? I was in Ithaca recently “where is the Starbucks close to my hotel?”. “How fast is the wifi?”. Etc.Anyway I think oyster is a nice site. And I will use it. But to your point about “and more Jim Collins” I haven’t read Jim Collins. But I would spend every waking hour making Oyster the best site it can be by talking to people who use and more important don’t use Oyster to improve it.By the way by mentioning what you missed I’m not trying to hassle you. I understand you aren’t going to have 100% of the info on 100% of the inventory obviously. I’m just trying to make a point so I apologize for the way these comments sound. And hope you find them helpful.

      1. Elie Seidman

        Those are all very good points. The challenge we face is where to draw the line on the level of information we provide. Its a cost vs depth trade-off. It’s also a question of sequencing. For example, we can do more hotels now at a more limited depth per hotel and then in V2 circle back and add more depth. Or we can do fewer hotels now at more depth. We’ve continued to iterate on where the trade-off line should be drawn. I don’t take it negatively – every single piece of feedback is helpful even if we can’t immediately solve for it. The Jim Collins research is worth reading. One of the core ideas is actually what you’ve said here – get better constantly. Every single year. The data shows that the companies who improve 100% in some years and 0% in other years are massively outperformed by the companies who “just” improve N% year in and year out for a decade or more. Discipline and persistence matter a lot. Anyway – I appreciate the feedback.

        1. LE

          If you don’t do this already you should send a “suitable for framing” award to all the hotels listed that have won awards with you. That they will display prominently. Or sits on the concierge area. Etc. So people will see the oyster name. With the other awards they have won (or the Zagat stuff). You can probably come up with more awards in different categories for that matter. Also issue press releases when anyone gets an award. Oyster.com is a great name for display on awards. It’s short and memorable. And sounds classy. (Because you think of pearls.)

          1. Elie Seidman

            I agree. Good ideas and we’ve started to do some of this over the past year.

  20. John Revay

    Great Post Fred! -I especially like your comment – “We are thesis driven to the core”I recall reading a post from @cdixon – similar comment about consumer web apps.http://cdixon.org/2012/08/0…I am sad to hear that he is leaving NYC, I think he would have been great to work w/ in some way, although I am happy for him personally.

    1. fredwilson

      Seth Godin left NYC too back in the late 90s. he came back after two years.

    2. falicon

      Only his body is leaving…his mind and heart will remain in NYC…it’s too infectious of a city to not 😉

  21. Elie Seidman

    The quote below is, I think, a good thing for consumer internet companies that already have some traction. Over the next few years, there will be far less competition from new consumer internet entrants. The big guys have huge resources but the history shows that they tend to make mistakes. Reduced competition plus mistakes from the established guys will result in a lot of opportunity for the people who are already in the market today. But it will take a new cycle – say 3 to 5 years – for this new market stasis to be realized.”it drove a lot of activity throughout the venture capital markets because each layer of the VC stack (angel, seed, Srs A, Srs B, Srs C, etc) needs to be aware of what the next layer up wants to fund. when the momentum/late stage wanted web/social, the layers below gave them web/social. now that the momentum/late stage wants enterprise, we should expect the layers below to give them enterprise.”

    1. fredwilson

      fortune favors the patient?

      1. Elie Seidman

        I think a combination of persistence and patience are very critical. It’s by no means a guarantee, of course – the future is highly uncertain. That’s what makes being persistent hard. You might be right. You might be wrong. Time will tell. But I think a lot of ideas that actually will make very good businesses don’t get there because people give up. Aaron Levie wrote a good post that touches on the topic of persistence and staying the course: http://www.linkedin.com/tod

        1. JLM

          .Energy. Persistence. Patience.The Holy Trinity really?There is a big fat Rainbow Trout in the tailwaters of a dam in Steamboat Springs who taught me this lesson.I think I have caught that cagey son of a bitch three times. Always catch and release.I am just happy he released me..

          1. Elie Seidman

            Youre right. The holy trinity indeed. A lot we can learn from that fish.

  22. takingpitches

    A little bit of a contradiction in that #2, which clearly is the most important trend in consumer, suggests a lot of opportunity for entrepreneurs.The mobile experience for almost all these businesses (other than Twitter) is terrible.Someone who designed a better search for mobile and was satisfied with being a $100 million company would do great, I think.And don’t get me started on WordPress. Blogging on the move seems as obvious as Tweeting on the move, but the mobile experience for WordPress is impossible.So perhaps it’s a time of great opportunity for entrepreneurs who can scrape together funding. Perhaps it is not for venture capital or those who need serious venture capital, because perhaps these are not google/facebook/twitter-size businesses (although I think it is often impossible to know that prospectively).

      1. takingpitches

        downloading now. thanks

    1. Drew Meyers

      Would be great for someone to build WordPress plugin/app that enables people to run their entire site from their mobile device, including comment moderation and analytics. I’d pay a few dollars per month for that.

      1. takingpitches

        would easily pay that.i don’t understand why wordpress doesn’t do it though.

      2. falicon

        worpress, disqus, and google all have APIs that should make this fairly easy to hack together…if it doesn’t already exist, I bet you could get someone on elance, craigslist, or one of the other many ‘freelance’ marketplaces to build out a MVP pretty cheap for you…

        1. Drew Meyers

          Don’t want it bad enough to oversee the project myself. I’ve got enough on my plate as it is 🙂

  23. chris dixon

    Great post. One thing I’d add is I think the later stage & public markets are dividing companies based on business model. Consumer internet companies with transactional business models (e.g. e-commerce) or ads with super high purchasing intent (e.g. Google) have fared pretty well.

    1. takingpitches

      Congrats on your move to A16Z Chris.Don’t forget AVC and NYC!

      1. chris dixon

        Thanks! I won’t!

        1. kidmercury

          even if you forget nyc, it’s no big deal. do you think alex rodriguez longs to return to the minor leagues? does lebron james wish he turned down the contract with the miami heat and play in the CBA instead? congrats on heading to the big leagues of the technology world. here’s to never playing in the minors again!

          1. chris dixon

            Nah – NYC is the big leagues too. a16z has 3 big investments in NYC (Foursquare, Quirky and Fab) and a bunch of smaller ones.

          2. LE

            “NYC is the big leagues too.”Quantity of eligible young women in NYC completely crushes anything in SV.

          3. JohnDoey

            Pretending Hollywood is not the center of movies doesn’t make sense. Same for Silicon Valley and computers.

          4. LE

            When making any “buying” decision it’s important to consider all factors. That’s one of the problems of reading advice on the internet, or for that matter getting direction from people who don’t ask any questions so they talk in generalities (that is not directed at you). That advice is non specific and doesn’t take into account all items that might be important to a particular person.You can try to start your company in SV which is fine. There is certainly a big advantage to doing that there. No doubt. (I wouldn’t exactly say it topples everything else like Hollywood does though. )You might make it right away or it might take 7 years or never. You might be acqui-hired and end up working for someone. All along it will be slim pickings dating. Not to mention that the housing stock and schools (for your kids when you have a family) are probably even more difficult (from what I’ve heard) then it is in the NY Metro area.All this may or may not be important to a particular person. But it needs to be considered like any factor. I’m married so it wouldn’t be something that would matter to me. But I would certainly point it out to a person who is not.

          5. fredwilson

            Tell that to BollywoodForget about NYC vs SVThink more about the developing world vs SV

          6. Ron Williams

            Crowdfunding + Alibaba + Africa = Profits(no underpants required)

          7. fredwilson


          8. takingpitches

            haha. I’ve always thought that startups would be more fun if entrepreneurs burst into song and dance at significant moments!

          9. kidmercury

            lol i agree but they really gotta cut the length on bollywood movies, those things make suster and graham’s blog posts look short

          10. takingpitches

            haha – all of the above needs to take a lesson from the ipl which cut cricket down from days to hours!

          11. takingpitches

            also, on the Bollywood theme, a buddy has a company based in NYC called Saavn. They are the Spotify of India and blowing ish away! Check them out.

          12. Lola Adesioye

            Amen. So much happening in Africa right now.. It’s a massive open field for technological advancement and innovation in pretty much every arena – and for social good as well as making money. People like me are spending our time looking at what’s happening here and taking our findings back to the continent, and seeing how we can apply them/add to what’s going on there…

          13. ShanaC

            hey hey

          14. takingpitches

            boo 🙂

          15. falicon

            I would rather fail in NY than succeed anywhere else…

    2. William Mougayar

      Chris, Can you elaborate on this segmentation or is it just these 2 parts? Would be great to go under that hood a bit more.

      1. chris dixon

        Revenues per user (or pageview, mau – pick your favorite metric) tend to be pretty polarized in consumer (e.g. compare Amazon, Google, eBay to FB Twitter or anyone running banner ads). It basically comes down to the mindset of the user – are they buying something or doing something else. If you are on the purchasing intent side you can have orders of magnitude fewer users to reach the same revenue. This makes the issues Fred discusses (e.g. overcrowding) a lot less dramatic. It also opens up other ways to acquire users e.g. by buying ads.

        1. William Mougayar


        2. Abdallah Al-Hakim

          that goes nicely with your post from last week about the rise of ‘vertical solutions’

        3. Elie Seidman

          This is the framework I’ve used. What’s your take?- Purchasing intent vs none – Online vs offline transaction (online is much better)- transaction size in dollars and emotional risk: hotel (high risk) vs air (commodity like) vs restaurant (low risk)- fragmentation of category: too much fragmentation tends to make cost of sales go up- sophistication of merchant selling the product: offline Yoga studio buying ads on Yelp in small amounts vs hotelier buying leads from Google SEM or TripAdvisor. Largely self serve at Google. Expensive, high touch, salesforce needed – for now – at Yelp.

          1. chris dixon

            Agreed, although some of these are static and some will change. E.g. purchasing intent correlated to RPM probably won’t change – fundamental fact of human behavior. Whereas online to offline probably will and might be a trend worth betting on.

          2. Elie Seidman

            Would be very interesting to improve the offline to online. Zillow, Trulia, Cars.com, etc would be 10x larger businesses if there was a good solution there. Contrast Priceline (30B of cap) to the people who do decision support for the offline transactions.

          3. Nikhil Nirmel

            I really like this way of thinking. How do you think emotional risk factors in? More likely to want to transact through a third party service who can mediate or insure against bad outcomes?

          4. Elie Seidman

            Lower risk – financial or emotional – means less need for decision support tools. Whether those tools are just for research or for research + transaction. I think that where the transaction happens specifically is, particularly over the long term, less important than whether the decision itself is high or low risk. Google transacts nothing but sits at an important intersection of purchasing intent for a variety of high risk categories and so they make a mint. I think that the transactional layer itself is increasingly commoditizing.The category I know best is hotels. A decade ago, platforms like Expedia were unique places to buy hotel inventory online. You literally could not go to the hoteliers own website and buy the room there because the hotelier had no internet presence. Expedia offerred value at the transactional layer. They still do offer value there but that value has decreased because there are many more options. Simultaneously though, they’ve increased their brand differentiation. That’s in contrast to some other online hotel transactional players who were strong five or ten years ago but did not build their brand or their product differentiation and therefore are lagging the leaders. In hotels I believe we’re seeing the value gravitate towards brand and to decision support and away a bit from the transaction though in varying degrees in different geographies. Long answer is that capturing the transaction is not unimportant but the root value is in decision support more so than supporting the transaction. There are a bunch of ways to lower risk – being perceived as a safe brand with which to transact is definitely one of the values but I think that on the whole, it’s power is waning on a relative basis. In a category I know less well, I see Amazon’s differentiation in ecommerce as being more about fulfillment and customer service excellence than about being a good place to swipe your card. (though it is obviously that as well).

    3. fredwilson

      ah yes. that ties well into last week’s post and tomorrow’s post. have you seen this “wiki” we are peer producing as part of the current MBA Mondays series Chris?https://hackpad.com/Ch2paBp…it needs to get cleaned up. i think we are mixing two different things in one “wiki”; revenue models and business models. i need to fix that

    4. takingpitches

      Still blows my mind — from the context of the late 1990s — that there was and is so much purchasing intent in web searches.Perhaps obvious in retrospect; so far from obvious back then.

    5. ShanaC

      mazel tov on the new job. 🙂

  24. Irving Fain

    All three of your points are good ones, however, there are solid reasons that investors are focusing on the enterprise sector. The later stage investors aren’t looking towards enterprise simply due to a change in mood. These are companies that are generating some amount of revenue in a repeatable manner. They have predictability.Unfortunately, consumer has become unpredictable. We as an industry have yet to answer the question of what a “large audience” is really worth so while we know millions of engaged users have value, it’s hard to define what that value really is for consumer companies (and it’s not the same for each company as each model is unique).Of course the counter to this argument is that venture capital as an asset class was created to invest in the inherently risky and unpredictable opportunities. I wonder if the VC’s appetite for risk has changed and if so, what’s causing that?

    1. fredwilson

      enterprises can be fickle too. look at how quickly they have abandoned RIM. the same could happen to SAP, Salesforce, etc

      1. Dave W Baldwin

        …and that is what will be playing of out in the next 36 months.

      2. Irving Fain

        Absolutely – only thing certain in this life is death and taxes as they say. There’s definitely some near-term comfort in early-stage revenue generation, but as you’ve said, no guarantees that this sticks around…

      3. Dan Cornish

        Many of the current enterprise players are very vulnerable, with a lot of very unhappy customers, but because it is so difficult to build to a proper version 1.0, they do not feel much pressure. Once a SaaS company gets to a critical mass, can focus on pain points and can live under the pricing umbrella of the large players, the pickings are easy.

  25. Greg Bettineli

    It is about time! With that said, it seems like a great time to be an investor whom understands how to value a differentiating consumer business. As Fred mentioned, the same thing happened ten years ago and that was the time businesses like Apple, eBay, Google, StubHub, Zappos etc. started to become what they are today. This is totally healthy and the timing is perfect as it recalibrates us all on what it takes to build a consumer business built to last.

    1. JLM

      .Your harkening back to those companies is brilliant — the more things change, the more they stay the same.I have always thought that the “catalog” stores like LL Bean, Eddie Bauer and others were the first peak into the Internet. They built communities — almost cults — with their catalogs.Well played..

  26. DavesBlend

    I think there is another backlash that will come before this feedback loop plays out. That backlash is from a wave of consumer internet plays emerging from burgeoning “accelerator” programs, particularly in non-traditional venture geographies. From anecdotal observations of “flyover” state programs, I often see young entrepreneurs going deep on social and consumer vertical (solving their pain points as instructed). I love the enthusiasm and I absolutely applaud the growth in an entrepreneurial base. I am just concerned that the current venture ecosystem simply can’t absorb this overhang (both from a capital supply and raw number of deals), even if you made the optimistic assumption that a large number of these startups are venture scale opportunities. While there is learning value from non-funded outcomes, I don’t think a reduced set of startup “success” stories will aid local and state champions pushing for continued or expanded support of accelerator and incubator programs. At the other end of the spectrum, you can’t dictate what an entrepreneur should be passionate about or squelch what potentially is a valuable idea. The question I ask an entrepreneur to consider is: Is the startup concept a transformational experience or an incremental feature or app? I’d much rather bet on the transformational experience.

    1. fredwilson

      yup. that is going to play itself out in the next 12-24 months

  27. awaldstein

    ‘Ossify’ is a perfect word choice Fred.And yes, getting found and getting traction are getting harder for everyone.From my narrow point of view, these are more true than ever:1. Buzz matters almost not at all. The social buzz spike is faster down than up. Its junk food aerobics to no effect.2. Platforms don’t need to take part of the incumbent’s ‘oxygen’ to win, they need to fill the hole that none of them touch–local, small biz, niches, hybrid marketplaces.3. Niches really matter. Never before have the focused, the small, the niche, looked so comforting. Maybe not to the VC but as giveback to the market and to people like myself as an advisor. A pleasure to work with companies that are making a bit, spending to make a bit more and gaga over increases like 10%.4. The difference between products that get bought (the world of Amazon) and products get sold (hybrid retail web models) have never been more crisp.Great post Fred.

    1. fredwilson

      the gotham gal wrote about this “niche” thing the other day. she called them “mom and pop stores”http://www.gothamgal.com/go…

      1. Abdallah Al-Hakim

        That was a great post with an equally impressive discussion. I need to check her blog more often – it is always great.

      2. awaldstein

        Read and liked this one.We don’t know each other but what Gotham Gal invests in and what I sometimes sweat-equity advise to are very similar. We are inspired in this instance it appears in similar parts of the world.

    2. JLM

      .”…products that get bought…and product that get sold…”Genius comparison. Well played..

      1. awaldstein

        I find this a useful way to parse the world.Amazon and even Etsy are the monster platforms that have really understood how to catalog products that get bought.To me, Kickstarter’s genius, is that it’s a marketplace for products that get sold.The wine industry is all about products that get sold and why with some corner cases, all online venues have been unsuccessful to date.

    3. ShanaC

      Can you elaborate on the differences of bought versus sold?

      1. awaldstein

        Sorry…Disqus ate my comment.Go to Amazon and buy a book or a refrigerator.Go to Harry & David’s and buy a fruit basket to be delivered.Go to Kickstarter and let yourself get sold to fund a project.Go to your local wine shop and have them help you choose a bottle of wine for under $30 that will be special and pair with Thai food at home.Help?Can you give me an example of any web site that sells you a product not just lists ones to be bought?

        1. LE

          “Go to your local wine shop and have them help you choose a bottle of wine”In theory of course you could have “always on video” chat at the wine store. A screen that you walk up to and that you can have an actual conversation with someone located somewhere else (that services a bunch of wine stores) and that person is able to sell you (and knows the wine stores inventory) the bottle of wine and answers those questions. Not sure of the metrics or the napkin numbers but in theory (since times are predictable when people buy wine, days, hours) and people who know wine can be located in their house it would work. You could also do the same of course w/o the person, just the ipad and an app to the cloud of info/inventory etc.I’ve always wondered why legacy stores didn’t use video to concentrate the real answers in the hands of a central office instead of trying to get all the clerks trained across all products. While it might have seemed orwellian years ago, I think people would be more comfortable with the idea today.

          1. awaldstein

            Thanks for the input.. this is very ‘in theory.Wine won’t work IMO in this way.Take a 2000 SKU shop selling small producers so that they have a 30 % turn on inventory monthly. Video won’t work behaviorally or tactically.Take a look at BottleRocket in Flatiron who do what you suggest with info not videos and are making some headway.I’m not a believer though that this is the way. For me at least.Really do appreciate these nudges and jabs though!

          2. LE

            I just looked at Bottle Rocket. And read the reviews on Yelp which were quite complementary. Nice store. Nothing like that here obviously.In a competitive place like NYC, with everyone within walking distance of (I’m guessing) multiple competitive places to buy wines I can see how this works. I wonder about the numbers though. And the same bottle would work for multiple types of food so I wonder how they handle this space wise (duplication as you can’t do an “alias” like with computer files.. And by the approach they take (which must have highers costs that need to be offset vs. traditional shelves “you’re on your own”) I wonder how many people will walk further to shop there (if they already know what they want). So how much extra business do they get for the effort? For the effort that Whole Foods puts in I end up impulse buying more items. So I wonder if that is the case there (not with you but with the “average” buyer. In other words with the cost of rental property in NYC what the incremental sales you get over just satisfying the low hanging fruit of buyers (who will exit the store with something regardless of whether it’s the right thing or not)?The store is nice. Amazing at least though from what I can tell the only photos I can find of the store are on yelp. I’m seeing practically nothing on their (otherwise well done) website.Thanks for pointing this store out. Another reason why it’s great to be in NYC.

          3. awaldstein

            Almost no one walks into a wine shop and knows what they want. They know their palate maybe. They know their occasion. They need to be sold for every bottle.That’s the rub. Wine is wacky.

        2. LE

          “pair with Thai food at home”I was just fooling around with “siri” on a new ipad mini that I got this week (the one with 4lte).I asked it “wine suggestion when eating thai food”. It gave me a list of nearby thai restaurants with info provided by Yelp.If you can somehow pair your info with what Yelp provides (with the help of Yelp) that could extend the value that Yelp provides with siri.http://officialblog.yelp.co…I have no idea the arrangement that is between Siri and yelp (and don’t have the time to lmgtfy). Or how used this siri feature is (my first siri enabled device so I haven’t been tracking it.)

  28. pgollakota

    I think you hit it right on the head when you said – “Each layer of the VC stack needs to be aware of what the next layer up wants to fund.” At the end of the day the VC’s have fiduciary responsibilities too and they are going to keep an eye on the general trend of how likely the company is going to be able to raise future rounds.

  29. serkanunsal

    For the second one, the question is how will the affiliate model be affected in the app world. App to app lead generation is problematic.

  30. Emily Merkle

    Brian Solis just wrote a piece that complements this discussion: bit.ly/TcbRrv

    1. William Mougayar

      That’s a good one. thanks.

    2. fredwilson

      hadn’t seen that one. thanks for sharing it Emily

    3. raycote

      My shameless apology in advance but I couldn’t help myself ;-)Come gather ’round usersWherever you roamAnd admit that the networksAround you have grownAnd accept it that soonYou’ll be drenched by your phoneIf your time to youIs worth savin’Then you better get networkn’Or you’ll sink like a stoneFor the times they are a-changin’OK – Let the rotten tomatoes and eggs fly!Edit: On a more serious note.Nice take on the emergent power, the massive new social-capital, that arises from the collaborative amplification effect of connectedness.

  31. GlennKelman

    Another brilliant post Fred but I wonder if the trends you describe are most relevant to social websites; the recent success of Fab and Zulily suggest that new consumer commerce sites can grow extremely quickly, despite very well-established incumbents.

    1. fredwilson

      yup. but they are retailers. hostage to margin pressure, always finding the next trend, and the cost to acquire new customers.

      1. GlennKelman

        Absolutely, though social companies face challenges in their revenue models, too. I would value any business as an independent entity by its ability to generate cash. I also think retail businesses may struggle to find the next trend less than you think because of advantages associated with scale: better customer data and better distribution.

  32. Brandon Burns


  33. Pete Griffiths

    Sobering food for thought.

  34. James Ferguson @kWIQly

    Music to my ears! and I think I have a diagnosis for the symptoms Fred exposes. It is about the maturing of the eco-system or …VCaaS – VC as a Service.Startup support services become standardized as entry barriers are lowered when the tide turns against statistical bets – and quality falls.In addition the “value add” by VC becomes a race to the bottom on price.Big rounds – multiple participant follow participation, ensures the players are “hedge your bet” investors – “Win some lose some”.Big “back everyone” incubation eco-systems, mentor-ship farms and even pitch competitions that are easy to win can be considered as a “PR equity swap service”All these are about buying enough lottery tickets to ensure a win – a tax on stupidity for their backers.This eco-system is the opposite of Venture Capital who in an ideal world would “bet the farm – for something they believe in”. That’s what swinging for the fences Is ! – Eliminating all risk at seed stage is not only undesirable – it guarantees failure!In essence a VC or Angel with no “skin in the game” – is not worth the money!Skin in the game means – not living off management fees, delivering on networks, paying the price for signalling decisions, time to think – and most of all passion.With strategic mentor-ship and support seen as “nice-to-have” the rest could be crowd-sourced by a VC app brokerage system ! In any market, as opportunities become indistinguishable – a pattern forms, and a machinery emerges, that says invest , crank the promotional handle and produce wine.Soon the wine sours – through lack of investment input and discernment.It becomes ever harder to distinguish anodyne from disruptive, because all follow the same flow. In the extreme is “celebrity funded” – caveat emptor ! See this great post by @msuster http://www.bothsidesoftheta… If your VC and the latest air-head seem to offer the same opportunity for your startup – don’t quit the day-job – You had your minute in the sunshine meeting them – or was it brokered?So a need rises to differentiate – Welcome to enterprise – welcome to non-homogeneous markets, cherishing cultural distinction, welcome to languages and diverse distribution paths and difficult technical problems.Welcome to real value, added value, that breaks a pattern – it used to be called “disruption”, before that it was called “finding an edge” – It always meant that- The only paths to discovery are the ones you make yourselves.

    1. JLM

      .Lots of good stuff in there. Well played..

      1. James Ferguson @kWIQly

        JLM Thanks !Haven’t seen you around for a while – guess you are busy too. – BTW I mentioned wine as linkbait to @William Mougayar and @awaldstein who I have also seen less of recently -” Come out, come out wherever you are ” 🙂 Any chance you will be at paris.leweb.co ? – we made it to the startup competition and would love to see you (or any AVC’ers there ) – especially if there is a crowd vote of any sort 🙂

        1. JLM

          .No chance.I am in the process of going back to a business which I started some 17 years ago — institutional and pension fund real estate money management.it is back to blue pinstriped suits, French cuffs, Hermes ties, cuffs and alligator loafers..

          1. Aaron Klein

            Bravo, sir. Look forward to hearing about it. If it gets interesting enough, perhaps you can take over for Larry Hagman. 😉

          2. PhilipSugar

            Godspeed!.On a microlevel I have been trying to think where to put money that can earn a return. The market just feels like a rigged game right now. Of all the things Wall Street should be worried about its that. I think what you’re going to do on a macrolevel is great because you can get efficiencies of scale and also pool risk.I hope you stay active here. I know the last thing you ever need is anything from me, but if there is you know where to reach me.BTW: littlefieldcorporate.com expired Wednesday. You should drop them a note.

          3. fredwilson

            i agree about the public markets. it is a rigged game and that’s why i avoid it.

        2. William Mougayar

          Linkbait? Trickster! I was at LeWeb London in June & will email you. Congrats on making it there & good luck!

    2. Benjamin Linuse

      Well written. Brilliant insights

  35. ShanaC

    1) spot on about mobile. Right now consumer vendor on mobile isn’t set. I also think that over time the continual refinement of form factor plus the development of internet of things will continue to reshape consumer internet.2) one of the things that I think is very undeveloped for the consumer internet is Saas for consumers. There are tons off tasks that people do that aren’t appropriate for an advertising model. These are tasks that generally speaking are ones that require consumers to interface with providers directly (i.e. plumbers, insurance). I also think they have a very different user base problem than typical consumer facing startups since you’re dealing with at least a dual network problem.

    1. raycote

      Yes “Saas for consumers”That has a lot of unappreciated blue sky!Custom, purpose-driven, social structures assembled by the rest of us?

  36. falicon

    I think primarily because of my own mental mapping based on the deals I know the firm has done (ie. the big splashes), I tend to think of USV as a Series-A and beyond firm much more than a firm that would/does seed deals…what companies has USV done seed deals with in the past? Are any of them mature enough to have reasonable hindsight on yet? I would love to dig into this and understand that aspect of USV a bit more…

      1. falicon

        Thanks. Not sure how/why I had never seen this timeline view before…very cool!

        1. fredwilson

          because we launched it very quietlyi am hoping that Brian will post about it at usv.com this coming week

      2. obscurelyfamous

        This is awesome. I love the breakout by funds too.

        1. fredwilson

          brian led this. he was helped by zach (our hacker in residence), gary, and zander. i hope brian posts on this asap

          1. William Mougayar

            It’s an awesome chart. I think each VC should publish something like that.Is it missing the follow-ons? And it should include the Exits on one horizontal line.

          2. fredwilson

            yes, we took out follow-ons because it made the presentation too noisy we could put in exits, but the purpose of this is for entrepreneurs to be able to see how our investment activity has trended over time.

          3. falicon

            …and it’s perfect for that…in doing a quick summary, I see that USV has actually done 14 of 52 investments at the ‘seed’ level (about 26%) and 26 of 52 at Series A (exactly 50%)…this is a much higher number of early stage things than I realized prior (and I see many big hits coming in at that seed level as well, prior to them being obvious big hits).This def. changes, or at least helps shape, my thoughts on size/level of company that is ‘USV ready’.Thanks!

      3. takingpitches

        YouNow? What is this? No post 🙂

        1. fredwilson

          It came out of Oddcast. Sort of what happened with YieldMo and Hashable

          1. takingpitches

            Got it. Thanks!

          1. takingpitches

            Great memory and/or gawk.it 🙂

  37. Dmitri Cherniak

    This post really resonates with where I’m at right now. It feels like a lot of mobile-first consumer apps got funded without much to show, portfolios filled up their quotas, and now it’s hard to get funding unless you have tons of traction.

  38. jason wright

    retire to your golden years

  39. Elie Seidman

    I think one of the critical things that is happening is that the activation energy to become a big player in a category is getting to be a much higher hurdle than it was. If you want to be a big player in a well established category with established incumbents, you’re probably going to need a lot of money to do it. If that were not the case, then the incumbents would be getting disrupted all the time. This is very obvious if you look at the truly huge categories – say mobile phones. If you show up to the mobile phone market with $20M, you won’t make a dent. Maybe you need $200M or even $2B to have a chance. If that were not the case, Apple could not have a $500B cap. The analogy I like here is that if you spend $20M dollars building a $100M movie, you don’t really have 20% of a movie, you have nothing. And having spent the first $20M does not really materially decrease the risk on the next $80M still needed. But the flipside is you can’t be Titanic or a James Bond movie ($1B in revenue) without spending the $100M. Basically, it takes money to make money. The story of Pixar is illustrative in this regard. Before it became the Pixar we know, it struggled along doing really great stuff but it was not really much of a business. It took a long time for them to not only find their core idea but ALSO have the scale of dollars needed to be a player in their category. Even Steve Jobs could not make a $100M movie with $10M. And Steve Jobs did not make Apple into Apple (post 1997) with a small amount of money.I think that many large industries can actually be disrupted but the scale of dollars needed at the get go is too big to finance using the current paradigms of the VC industry in consumer internet. This contrasts with what I saw from 06-07 as a venture partner at an energy focused PE fund. In that world, the ante for an oil well bet tended to be a very large number. Anything short of that number, you could not get in the game. That activation energy hurdle dictated financing structures and approaches that we’re different from the nature of raising large amounts of capital in our categories.What’s interesting is that this idea of needing scale capital has actually played out in our category as well – just rather differently. A small set of break-out companies get success or growth momentum and then leverage that initial success to raise a large amount of capital. They then use that capital to build their success. For example, what drove Groupon’s growth? Was it social? Was it viral? It probably had a healthy dose of those things. It also helped that they were selling 20 dollar bills for 10 dollars. But they quickly had massive amounts of capital and they quickly were plastering the internet with their ads. How much of a factor was the scale of that capital in their growth? The challenge is that what made Groupon an initial fast rising success and therefore able to raise a lot of capital – which fueled a lot of additional growth – was not neccessarily what was needed to make it a long term great business.I think there is a lot of opportunity to disrupt the established players in the very large categories. But I’m not sure that the current model is perfectly suited to it. The Series A to Series B to Series C model would not work for building a bridge or making a big movie. The existing funding paradigms dictate certain realities and behaviors and also preclude other types of endeavors. Perhaps that’s just the way things are. Perhaps we need to evolve approaches to capital given the changing landscape. It’s not 2002 anymore.Anyway – my, very long, two cents.

    1. LE

      “It also helped that they were selling 20 dollar bills for 10 dollars. But they quickly had massive amounts of capital and they quickly were plastering the internet with their ads.”Not to mention money paying salaries to salespeople who put so many feet on the street. (Imagine what you could do with those dollars?) But it would actually work better in your business then in theirs since they are local and easy for someone to knock off.”The Series A to Series B to Series C model would not work for building a bridge or making a big movie.”Correct. I don’t believe that anyone in Hollywood gambles on unknowns certainly not with big budgets. Small projects, yes.As an interesting aside to your point (regarding money needed and scale) people are always pointing out how many opportunities large (“stupid”) companies miss that, in retrospect, were so obvious! At least one of the reasons they miss opportunities is that they are not in the business of taking gambles on ideas that, at the beginning, don’t appear to have a chance of hell in success. Because they don’t. It’s a total dartboard. That is what VC’s and angels do. And what happens is a certain percent of the time those ideas do work and payoff big. And then the big companies will buy a sure thing and overpay if they have to. It’s simply not a model that a corporation could duplicate very easily. The gamble and nurture. And it has nothing to do with quarterly earnings or the bottom line or anything else. In case anyone was wondering why HP passed on Woz’s great idea. No boating accident. Makes total sense actually. And they probably passed on 1000 other employee ideas that year as well. Add: Not just Woz’s idea. (We have no data on that and things like that never come up in the liberal business press who masterbates over celebrity winners.)The idea that I suggested earlier (awards) which you said you were doing a version of. You will take some of your money and test that out. (That’s at least a concrete idea and there is a basis for why it might work). But that money you will use didn’t grow on a tree. You might be wasting it. Or not. You won’t know until the future. A VC on the other hand is able to invest in multiple ideas and then some of those ideas end up working and making money. They get to be wrong plenty while the actual business owner has to stop the terrorist each and every time. While there is certainly lost opportunity (and this is not to claim that VC’s have it easy, don’t earn what they make, or anything else) it is not a model that others can easily follow unless that is their business.

    2. JLM

      .Two cents perhaps but millions of $$$ in wisdom.We will look back at Groupon as one of the great head fakes of all time. I do love a good Brazilian bikini wax as much as the next guy but really?Those guys should have sold when they had the chance. I wonder did they really have a chance?Well played indeed!.

      1. Elie Seidman

        Thank you. Completely agreed on Groupon though I guess the game is not over there, yet. What’s interesting is that the owners did, in a way, sell. The amount of secondary that they sold as a private company is staggering. I think I read that it was north of 500M of secondary sold before they went public. Even without actually having sold the business, they had a damn good (financial) outcome though what seems to be not much of a business. Not as pleasant for the late stage investors who were investing into a “sure thing”, of course.

      2. kidmercury

        no worries JLM, groupon founders took a lot off the table pre-IPO when the company was valued much, much higher. so it’s all good! 🙂

        1. JLM

          .I will be able to sleep tonight, kid..

          1. kidmercury

            lol 🙂

      3. ShanaC

        i’m still curious as the next step for groupon.

    3. Benjamin Linuse

      Long winded indeed..ever heard of less is more?. Saying more doesn’t make you any smarter.

  40. jason wright

    a form of market reflexivity?

  41. Wen Tian

    It’s more important than ever for startups (both consumer and enterprise) to have/find at least one “unfair advantage” (from the lean startup canvas). Otherwise it’s going to be an uphill battle.

  42. RudyC

    You raise some very interesting points. A while back you wrote a piece about television and the internet. How the internet had become like a ‘hit show’ only without the legs. This point hit home. It’s true, esp. w/mobile.Mark Cuban wrote an article about FaceBook what it actually is, a time filler. Most things are time fillers, not very entertaining but just enough to grab someone’s attention. I agree that the Amazon’s, google’s, Apples, Craiglist and so on, they are solid businesses, that aren’t going to lose much traction. It’s the time fillers that’s where the play is. Adapting your company to go from time filler to a viable product, that’s the million dollar question.As for the money, yes, I hear things have changed and honestly, I’m grateful for that. When we first started working on our project things on the internet were developing slowly, then wa la..there seemed to be a new website looking to do similar things to ours every other week. I was actually holding my breath many a times. Now things have slowed down so I’m not that worried any longer.The word startup has been glamorized for a while. Let’s just say what it is. With a country with unemployment at all time highs, bleak job propects and no future many have turned to the start up with hopes of ‘hitting a home run’. Tabloids now hold internet people as the ‘new celebrities’.Anyhow, I will end with this. In the end, it should and will come down to product. Is your product good enough. Walmart became the world leader selling retail goods, something that has always been saturated during the time Sears was king.Costco became a player during the 80’s at a time that no one would have imagined opening up a retail location and competing against anyone.Things are changing but I think it’s good…

    1. JLM

      .Your mention of Costco is interesting because I think it represents one of the great opportunities of our times in otherwise seemingly mature businesses or industries — perhaps even pedestrian and mundane businesses, the opportunity to repackage, resize and to reinvent themselves.In the case of Costco they also just improved the quality of the products, the breadth and depth of the selection and the guarantee of satisfaction while ensuring their own longevity..

      1. Hanna Rosenqvist

        The biggest irony w/Costco is that they were the secondary player. Price Club was the initial player. Costco ate them and the competition. One of the more interesting things as well is that when they opened they only used ‘select’ employee membership, dind of like Instagram would incorporate later…When I was a vendor I hated dealing w/this type of company though since perishables had a ‘credit back’ type policy, but as a member now it’s a different story..

      2. takingpitches

        One of my high school jobs was as a cashier/stocker/janitor at Price Club, shortly before it merged with Costco and they chose that name going forward.Loved that job, particularly explaining to folks we didn’t give them bags but passed those savings onto their bottom-line.

  43. kirklove

    Great post. I’m still not giving you a discount 😉

    1. fredwilson

      as it should be

  44. wtpayne

    A shift from consumer to b2b can only be a good thing. I want to live in a world with an economy that is diverse and varied:- filled with a swarming multitude of niche-filling small companies rather than a small number of monolithic monsters. I feel (although I may be wrong) that there are only so many niches to fill in the consumer marketplace, and that a far greater range exist in the b2b world.

  45. $99mm

    Hi, what does $40mm mean? $40 dollars’ worth of millimeters? Did he mean $40M – meaning 40 million dollars, and he just mis-typed? But he did make the same mistake twice, also writing $50mm. Weird! I thought this guy was smart? No wonder I won’t ever take money from a Viet Cong! I mean, Vulture Capitalist. I mean Rapacious jerk. Oops…. ;-). Just kidding…

    1. JohnDoey

      It is advertising shorthand. Not an ISO standard measurement.

    2. Aaron Klein

      MM = finance shorthand for million. It just is; there is no logic behind it that I’ve heard. 😉

  46. David Semeria

    Yes Fred, that’s the elephant in the room. What are the chances of a new app today getting and staying on the mobile home screen? Or for a website to be visited daily?The prize, if anything, is getting bigger – but the odds of taking the cup home are shrinking every day the web matures.Hence the attraction of B2B: a smaller prize with better odds.In the cold light of day, a more sensible bet.

    1. Carl Rahn Griffith


  47. Sadeq Ali

    The line between the enterprise and consumer is going to be quite blurry going forward, and so will seed stage capital allocation. Things will get a bit clearer in later rounds. GitHub started primarily as a consumer play, but its investment from A&H is clearly geared towards it making a run in the enterprise (beyond it current private repo offerings).

  48. EffectiveWebSolutions.info

    “A lot, actually.”.Yep, you’re getting boring Fred. You keep repeating mobile this and mobile that..It’s all become a commodity now and people are no longer wowed by connecting at will. Apps – shmapps, native software consuming data via the internet is old hat. It’s history repeating itself..Browsers are a bother and the internet integrated OS is here. I said it two years ago because that’s when software developers no longer needed to be concerned whether data was stored locally or not. It’s all the same access methods now..Anyway, where’s the new USV community?

    1. fredwilson

      Coming soon. We’ve got a decent prototype running now. We hope to showcase something this on our current USV.com that will signal where we are headed with it. It will be, coincidentally, about “mobile this, mobile that”. In apologize in advance for boring you with that.

      1. EffectiveWebSolutions.info

        “In apologize in advance for boring you with that.”.Well get your shit together Fred! Just kidding, lol..I’ve been getting bored lately. I talked last year to everyone about “Where are the VC’s that want to build a business?” Now you start talking “enterprise”. Oh well, I’ve always been two steps ahead in IT..Can’t wait to see the new OSV.

  49. carribeiro

    As for your assertion: “You need to master the ‘download app, use app, keep using app, put it on your home screen’ flow and that is a hard one to master.”, I have a few comments and one idea to share.One thing that did hit while reading me was that the very concept of “home screen” never caught up on the desktop Web world. People did try it all the time – portals, channels and live desktop were attempts in that direction. It seemed that it would work for some time but Google killed it, as it was way faster to search with a few keystrokes than to install a new app. On mobile it doesn’t work as well first, because some stuff is better suited to be implemented as an app (games, for instance); and also important, because even a few keystrokes are much more work than clicking on an icon on the home screen.Now, to install something, there’s a significant investment, not only financial (paying for the app), but approving the downloading, waiting for it to install, and fixing it on a valuable piece of real time screen state. That’s the difference.In this regard, it seems to me that as the connections get faster, it may make sense to do something in that direction… instead of downloading an app and fixing it in the home screen, Android (or any other competitor) could do something more dynamic, like delivering apps instantaneously whenever needed. If mobile apps could be broken up in binary modules and loaded like PC apps used to be loaded a few years ago, users could get some kind of instantaneous gratification without all the investment necessary to install the app. Frequently used apps could be cached, instead of installed. And all of this could be done transparently.It still leaves us with the home screen. Someone needs to come up with a more natural, faster way to either to find apps, and/or to rearrange apps on the screen. There’s still a significant barrier because the interaction is more visually oriented, not text oriented as in the PC where the keyboard was king. And that’s something worth investigating in terms of UX…

    1. fredwilson

      Excellent points/thoughts

    2. Carl Rahn Griffith

      Nicely put, Carlos. Take me back to my landing page on my browser for years being My Yahoo portal. How times change – I stopped using Flickr/My Yahoo quite a while ago and in fact finally moved from Yahoo email to Google last week.Anyway…I suspect a saturation level has also been reached/surpassed and there’s now a lot of consolidation going on – people simply don’t have the bandwidth (or need) to interact with dozens of apps. Most have a very limited time of novelty value and few truly add value to our lives. Maybe it’s also more of a trend akin to the smartphone/tablet somewhat going back to the core of what our PC/laptop used to look like – browser, email, productivity tools, some games. It doesn’t matter what the device is, our functional needs in business and leisure don’t really change that much. And our time available certainly doesn’t change. That’s pretty finite, and life really is way too short to waste too much time throwing a somewhat angry bird at a pig and a wall ;-)Best thing I did a few months back was change my iPhone home screen to be just the basic apps I use all the time – Twitter, Instagram, Email, SMS, Google, Phone, Camera. It’s remarkable how rarely I go to the other screens – they contain just peripheral apps/games; I could delete most of them and not miss them.There’s the rub. Not many apps/etc are essential/compelling. And in these times of austerity, well… It ‘focuses the mind’, shall we say…

  50. Thomas Grota

    Congrats on the post and good that this topic is getting more attention. I believe because it is so easy / affordable via Amazon EZ3 etc. to setup a business and using social platforms like facebook, Twitter, Google, Pinterest to generate reach too many companies will start with the same biz model in the same space. This will make it harder to identify the real champions in a space. Investors need to wait a bit longer to be sure to choose right – leading to later stage investments in B or C rounds. We will see a lot of those angel-only funded companies going out of business in mid 2013 because of this selection process. The changes were made in the past but the impacts are still to come – and it will be tough times for those involved. I shared my thoughts from a European perspective last week here: http://thomasgr.tumblr.com/

  51. Uday Subbarayan

    Fred,a)You are contracting yourself!”the consumer web has matured” & “the consumer is moving from desktop/web to mobile/app”.So there is a change. Change brings opportunity.b)Yes the consumer web is matured for inflated valuations. Old school/public market has taught a good lesson!c)Yes the surface level HTML innovation is also matured. But not deep computer science solving/repeating problems:http://www.usv.com/2011/10/…IMO, consumer web is entering an interesting space with touch computing and multiple devices. It’s not just about software alone but about combination of software, hardware and data engineered to work together to solve real problems.Example 1: Digital kiosk in the stores(Kohl’s) to buy items(paying real $) that are not in the store!Example 2:Cisco paid billion dollars for Meraki. Why? Meraki takes networking never imagined before in the consumer world:http://www.meraki.com/compa…”Peet’s Coffee and Tea Selects Meraki MX Cloud Managed Security Appliances for Nationwide Deployment across 193 Locations.”The physical world and online world is merging with “internet everywhere” with both ubiquitous internet and intelligent devices. This presents great opportunities for next generation consumer web companies.Cheers,-Uday.

  52. Emil Sotirov

    I think that, from the list of the big oxygen suckers, Facebook is very likely to be disrupted/displaced/replaced in the next 3-5 yrs (or at least a process to start to that effect). That would be a lot of newly freed oxygen to be re-distributed.That’s why I hope USV and other smart VCs will continue to make angel/seed and series A investments in the seemingly tired social expression/connectivity web. And I mean the basic variety – posting/sharing of text/pics/video/audio.

    1. Wavelengths

      I agree.When I was a kid in the D.C. area, the cool thing to do was to get on the phone and get a busy signal, and then listen to the chatter that happened in between the beeps. Teens from Maryland, Virginia and D.C. met each other “online” through that trick. Early Twitter, you might say.So you met someone that way. Then what? Interesting, maybe, but you might as well have met them at the mall. (The one in front of the Washington monument, or the shopping mall, either!)Facebook is a more refined version of the same thing, as I see it. An application in search of a real purpose.The noise on Facebook now seems like all the static we had to deal with as kids in order to “meet” someone through our telephone game. If I really wanted to find someone from the past, I might use Facebook, but the noise of ads and chatter keep me away from it as a regular place to visit.

      1. Carl Rahn Griffith

        Indeed.I recently blogged on such a theme. Facebook is a classic case of ‘form/function’ dysfunction.http://carl-rahn-griffith.t

        1. Wavelengths


          1. Carl Rahn Griffith

            Pretty much!

  53. Matt Straz

    What a difference a year makes.”Enterprise? In New York? Why would you do that?” seemed to be the prevailing response when I tried to get VCs interested in Namely earlier this year.Then the Workday IPO came along and changed everything.What has this meant for someone with an Enterprise startup? Well, we’re still held to a different standard. A SaaS business has metrics like MMR, CAC, churn, etc., but at least we get in the door. Recently, VCs have begun asking ME to take meetings. That’s a welcome change.I agree with William that the consumerization of the enterprise is not in full bloom yet, but it’s coming. Web 2.0 engineering talent is now moving over to enterprise. The contribution that many of the consumer web startups may ultimately have is teaching Enterprise how to build software that people actually want to use.As enterprise startups increase their number of users it will be possible to create a network effect, though it will be different than what we think of in consumer Web. Big network effects in enterprise will take place when some of the large platforms work more seamlessly together. That is the next step.Investing in Enterprise will take patience. Five years is the minimum amount of time these businesses take to build. Existing enterprise contracts have to be wound down for new solutions to be put in place.One great thing for New York (and everywhere else, for the matter) is that enterprise companies no longer need to be built in the Valley. We have the acceptance of the cloud by a growing number of IT departments to thank for that. As the NYETM points out, New York’s finance, advertising, media, retail and other sectors offer a huge backyard to play in where you can build a market for your enterprise product.In terms of exits, in consumer web there are only a few companies that can do billion dollar deals. In enterprise there are a dozen or more so. There’s at least 3X as many buyers for sizable enterprise startups vs consumer so we should see a lot of enterprise M&A in the coming years.Baring a series of disastrous enterprise IPOs or acquisitions (e.g. HP’s acquisition of Autonomy), I fully expect enterprise to be a major investing theme for at least the next 5 years.After nearly a decade the tide is finally turning and for those us who have been on the B2B/Enterprise side, fighting for table scraps to build serious businesses, this is a welcome development and one we will hopefully not waste.

    1. fredwilson

      I was making enterprise investments in NYC 20 years ago. NYC has always had good enterprise software opportunities

  54. Wavelengths

    Are later stage investors allowing the startups to demonstrate what they are trying to accomplish, and then, like in the Coliseum, doing a thumbs up or thumbs down based on how they read the likely longevity of the early concept?Sort of like letting people take the company to a mockup of the business plan (with more blood, sweat, and heart invested) before they put in the money that would let the concept REALLY take hold?

  55. John Revay

    “We have not done a real seed or angel round in quite a while. But that doesn’t mean we wouldn’t and our next investment could well be a seed or angel round.”My recollection was that you announced a seed round in Brewster Jul 2012http://www.avc.com/a_vc/201…

    1. fredwilson

      we did that investment in early 2011 and only announced it when the product was live

  56. Franca Condo

    Hey Freddy,I love the Idea of VoiceBunny but why does it sound so bad?It doesnt sound human.It doesnt sound like the computer either.It sounds inbetween I would say.Can it be better?Did you pay to have this done? Is this their top quality?And because I love you so much I am going to give you a feature to pass along to them.I read a hell of a lot. I know what I would like to have. Here it is….Make the VoiceBunny controls float on top of the article so I can start and stop it at will while following along with the article — get it?I want to bring the VoiceBunny controls next to the text so I can follow along and when I need to stop — which is very often — I want to be able to stop it and start it.A 5 second rewind button would be helpful too.Often when you read an article you want to go back to get the point. over and over.especially of material which has facts or teaches.do it voicebunny

    1. fredwilson

      i do not pay to have this done. it is a barter trade. the voice my posts. and i give them distribution/promotion on my blog.

  57. BarrySchuler

    Those of us who have been around the block have seen this cycle many times. One issue you did not mention is the valuation inflation that came along with the recent frenzy around Consumer Internet companies. There are many great companies with terrific potential that just got ahead of their skis on the valuation front. This will like lead to adjustments in some cases. It will not be carnage like the ugly post Dotcom years, and of course, the companies demonstrating real progress will command good valuations. Some will have to accept flat or down rounds, but in the long run, this will just be a little speed bump on the road to success. Some entrepreneurs will need support and guidance through the process.The online shopping results this weekend, almost 20 years after the introduction of e-commerce demonstrate that Consumer Internet is really hitting mass market scale. The best years lie ahead for many great young companies. But not for everyone. It will take hard work and patience from entrepreneurs and intelligent investors working together.

  58. dkural

    Great post. ” large networks of engaged users that have the power to disrupt big markets”. This applies equally well to non-consumer categories. Yammer is just a start. It will now go vertical – github is a great example. Non-consumer social objects are a lot more “sticky” & harder to move away from the core networks containing them due to sheer human momentum and longevity. In fact the USV portfolio contains best examples of network / platform companies to be found around 🙂 This is only the beginning.

    1. fredwilson

      yup. i wrote about that a few months agohttp://www.avc.com/a_vc/201…

  59. Carl Rahn Griffith

    The habits of the consumer are changing in many respects, along with the global economy.

  60. Anuj Agarwal

    Well, this post is discouraging. I don’t think consumer internet companies are hard to built as mentioned in #1 and #2. Fred, you may want to save this comment. I will reply to this thread in 6-8 months time and prove you wrong.

    1. fredwilson

      please do. i am rooting for you. it would please me to be wrong and i hope i am.

  61. aventoro

    The trend that follows will be a dramatic close in the gap in the power and capability of mobile web vs embedded mobile apps.Fred is right about “mobile (app) startups getting stuck in the transition from successful product to large user base … (because) the “download app, use app, keep using app, put it on your home screen” flow … is a hard one to master.”Mobile web eliminates two of these problems (download app as well as put it on your home screen). You might consider thinking of mobile web in terms of Formula One racing where the engineers have to maximize RPM’s in spite of restrictions.Consumers are burdened with maintaining and storing apps and mobile web does not have these similar issues.The gap will close

  62. Mediafoxguru

    Three things a VC brings to the tablea. Money on favorable termsb. Introductions to contacts either strategic or more moneyc. Knowledge of industry, new technologies and/or marketing

    1. fredwilson

      i believe we do all of that at USV although if you include price in your word “terms” then i think we might not do (a). we are almost always the low bidder in the deals we do. but our terms are the cleanest in the industry and we do (b) and (c)

  63. Paul Papadimitriou

    The below sentence struck a cord with me:“it is a tougher time for early stage consumer internet companies than I have seen since the 2001-2004 time frame. And I think we are still in the early innings of this more challenging environment.”I don’t have the depth of your analysis when it comes to the funding ecosystem, nor your expertise. I feel the same way though.Believing that the consumer internet started to see prophecies of an end of cycle, inducing a self-fulfilling effect of opportunity re-allocation towards enterprise services by VCs/angels, I had made a similar remark on a panel about startup accelerators in a conference in Poland a few months ago. Eyebrows were lifted.I assumed I was wrong, particularly on the timing —I had predicted a funding crunch within 6 months.The ripples coming from the US are hitting abroad in different speeds —the growth of accelerator program and angel investors networks is only truly beginning in some countries, I could witness it in Athens this past weekend for instance—, thus I’m wondering if that shift will reach other countries with a similar delay or much faster, undoubtedly creating disappointments if the latter proves to be the case.

  64. Replayzero

    VC companies are the new record labels and start ups are the new rock bands. Technology has replaced music our cultural centre and our children’s Bob dylan won’t be a poet, he won’t be a musician, he will probably be an entrepreneur. I think the Lennon/Jobs comparison shows that we have moved into a technology diven cultural paradigm.Tech at the moment can be compared to punk. Punk emerged from the ashes of an over saturated Beatles inspired music environment. At the time punk was new to the established order, you only needed to have a mohican hair and a leather jacket in order to get a record deal (funding). After the sex pistols broke up it was pretty much impossible to get a deal(funding) as a punk and music evolved again. Why? Over saturation reduced the value of a unique identity. It was no longer exciting, there were too many punk bands!I am trying to seek funding for my new venture at the moment, I honestly believe that a little hustle strengthens the muscle. A tougher funding environment means the best still get funded and the rest just go back to their job or whatever they were doing before.It’s always going to be tough and it’s not enough to have a good team, you need to have a vision bigger than the current environment. You have to want to make music that people don’t expect or haven’t heard before. You can’t be a risk averse entrepreneur.The current start up trend has resulted in a larger than usual amount of pretenders in the arena. Thus there is more noise which means the genuine people, with genuinely ground breaking ideas are getting swallowed up by the PR hype machine and sales tactics of start up companies advisors and accelerators. There are too many people trying for to many similar opportunities and they are all eating each others lunch, plus they are all identikit companies.Everything is temporary! The web isn’t going anywhere and I think at 20 years old it still has a long way to go. I don’t believe we have even scratched the surface of what is possible and I think the best is yet too come.

    1. fredwilson

      i love everything about this comment

  65. Michael Nus

    I’ve been a longtime reader, and never really commented until now. Fred, I’ve got to say that as an entrepreneur, reading your blog has been a beacon of value that has almost echoed my own thoughts about the startup game. More posts like this can be so instructive for those on the raising trail, like me. Don’t ever stop.Michael- Epilogger.com

    1. fredwilson

      i appreciate your encouragement. it is tough to think of what to say at times.

  66. tylernol

    what enterprise startup breakouts are the late-state VC’s perceiving as hot ?

    1. fredwilson

      our portfolio company 10gen raised a lot of money at a fantastic price recently

  67. Guest

    there will always be a market for consumer web, it’s just not the historical market that wsj mentions. There will be startups that displace twitter, facebook, zynga and others… because all of them are desktop based, legacy companies. The new consumer winners will be native mobile startups. game on.

  68. GM

    At 20 years old the market is still immature. There is a long way to go. Particularly if you compare other industries like architecture that have been about for centuries and are thus set in stone. The change you mention is minor evolution.

  69. Nal Sav

    Thanks for the awesome post.Keep up the great work.

  70. Tom Swartwood

    just got back from Uganda; I believe they are typical in one regard, developing economies have skipped, or are skipping over, the desktop and going directly to mobile

  71. Oren Levy

    Fred, you touch on the various development methods,and I believe that this time- and resource-sucking issue is even moreprominent in the payment industry. There is a distinct need to aggregate thefragmented payment methods. Despite disruptive companies like Dwolla, creditcards will continue to be the most used payment solution for many more years tocome (it is not a winner-takes-all kind of world) and there is a need forsomeone to standardize it all into one universal solution comprised ofdifferent solutions, thus removing the need to separately develop for iOS, Androidand other platforms.

  72. Donna Brewington White

    It will be very interesting to watch what happens in the market in response to these dynamics — what types of companies will rise up.There are still so many aspects of everyday life that have not been fully maximized by technology. I think of a client who is innovating around how people buy home air conditioning products using their smartphones — not very sexy but something really cool.BTW props for using the word “pernicious” in a blog post. Very Austen-esque.

  73. Jake

    Of the 15 VCs that have requested a phone call with me in the last 2 months, not one has mentioned their lack of interest in consumer web/apps or their appetite for enterprise. Which is too bad given our b2b biz model.

  74. AlexBangash

    Fred, this is an amazing post. I marvel at your candor and transparency. Your post may be a more true harbinger of the headwinds than the Sequoia Rest in Peace presentation in 2008.It is also ironic how some contrarian investors can turn this environment to their advantage. For instance, when investors were cowering in fear late 2008 / 2009, some brave souls invested in Facebook; and now when consumer is definitely out of favor, some others are investing in companies such as Airbnb.Fortune favors the brave.

  75. Rick Bullotta

    Fred, when we about 18 months ago, you gave us solid advice and guidance to pursue funding from VCs who were more enterprise focused. It was correct, and it worked out well for us and will likely bring solid results for our investors. My gut feel is that there are those investors who understand enterprise software and those who do not (of course the same for consumer software), and for startups who look to their VCs for more than money should consider this when seeking funding. There will also be a few intersections between the two worlds (the “internet of things” should prove to be one). There are plenty of other “niches” of venture investing we could discuss, but the main point is to have a focus of some kind, so as to be able to bring experience, expertise, a network, and related value to the party. Some of the larger firms can of course divide into “practices”, but in any case, startups should take the time to gauge the fit, and enterprise SW startups should be cautious before jumping in with a more consumer oriented investor. It might not work out for either.

    1. fredwilson


  76. Raj

    Excellent insights, Fred. I till see that web has its own opportunities Vs small screen mobile. It is just that the entrepreneurs have to find the gap and create a niche in that space. We too are a small BIG firm from Asia doing small investments but more mentoring to get our slice in the global web and mobile space. Thanks for the insights!

  77. awaldstein

    Getting found by the right people that care is getting harder.Squishy core values are the kiss of silence from the market.

  78. LE

    “Once we’re satisfied with a certain set of tools, shopping sites, social sites, mobile apps, we stop looking” —–equals—–> SatisficingYes and no.Take Amazon as one example. Try buying something on Amazon (which I use all the time, primarily because I get back 4 to 6% in advertising kickback (you can too! ask me how!)) for buying from them.In the past few weeks I looked at Amazon to buy a 2tb internal hard drive, a Sentry safe, office supplies, a rack server, a set of 30db sound reducing head muffs, an rc helicopter and some other items. In fact I operate an amazon store for rc helicopters (at a domain name I own) and I can’t even use that unless I know what I want. Most people who make purchases simply buy what is on the home page. What you want is “new to the hobby – here is what you should be considering”. You don’t get that at amazon. You can a thousand confusing choices.Anyway, any of those items that I didn’t specifically know what I was looking for was super difficult to find what I needed on Amazon. It’s good if you know the sku or exactly what you want. But not if you have to make a buying decision and are short on time. “TMI” would describe it perfectly. It shouldn’t be a project.So there is opportunity to me, especially now, in any site that takes a niche and develops and makes it easy for people to understand and buy what they have no clue about. And to me, that’s a desktop not a mobile product.

  79. awaldstein

    Hey Charlie…Knocking on doors is old school but sometimes it works. At a crossroads of sorts and spending a week or two deciding what’s the next move.A holiday drink sometime this season is a must!

  80. takingpitches

    Owwww 🙂

  81. LE

    “Knocking on doors is old school but sometimes it works.”Knocking on doors works. Period.I was helping a friend (who was on Shark Tank) with her cat toilet training seat. She wanted to go into retail. I told her she needed to go to NYC (she knew the city and had lived there) and walk into pet shops and do market research to see how much effort it would take to get her products into that channel. And what the issues were. She didn’t want to do that because she didn’t feel comfortable doing that but yet she gave a knockout presentation on Shark Tank and got funded. (She could have also paid a college student to do the research easily).One thing they don’t teach at Khan Academy (or Wharton) is how to cold call and gather information. They should. It’s super valuable.

  82. JLM

    .Things always move in cycles — the handwritten card to email/text and back again to the handwritten card.Face to face selling for certain things — fundraising as an example — is still the best way to do things if results are your objective..

  83. JLM

    .Amazon has devolved to “fulfillment” of all the things we bump into in other places. It is a fulfillment vendor of first resort.I will see something somewhere and become interested and check the pricing on Amazon because I trust their administration, payment, delivery and return policies and they usually have the lowest price to boot.I cannot even begin to mention the huge number of otherwise pedestrian things I buy from Amazon — nails for my nail guns as an example..

  84. kidmercury

    i use amazon for discovery all the time — in fact i might say most of the time i buy stuff on amazon, and i buy most of my stuff there, i do it via discovery. the reviews are great, listmania is great, and i’m usually interested in buying the cheapest or one of the cheapest models — and so i’m there to discovery how cheap i can get it. amazon does a great job IMHO of mixing social with commerce, no one thinks of it as social but the reviews and lists are very social. they also are rolling out their own version of pages for brands like what fb has….i expect more social services from amzn in the future.

  85. fredwilson

    great point

  86. JLM

    .Cold calling is purely a learned talent. I can teach anyone how to cold call.Will you love it? No, probably never.I remember young folks coming out of their shell and becoming wizards. I had a young woman leasing agent who made $500K in annual commissions before she was within spitting distance of 30 because she could cold call Mount Rushmore and get those stone heads to talk to her.Cold calling works even if is camouflaged as an elevator, taxi cab or board room pitch.It is an essential skill..

  87. LE

    “had a young woman leasing agent who made $500K in annual commissions”Ah, she got the “Glen Garry” leads, no?My first thing I did out of college involved sucking up to the admin assistant of the CEO of a hospital. She was the one who would ultimately decide who got and kept the contract. I found out she was the key person from the guy who worked in the mail room who I had shot the shit with earlier. I’ve always had the ability to speak at different levels having learned this early on. And I find it an enjoyable way to learn. Anyway, I heard she liked different color paper choices. So I walked into her office one day and walked up to her with a large selection of color paper and told her more or less “you are special, I am sucking up to you, I want your business, and look I’m not dressed like a salesman, and I’m not a tool, either” (I was in a down vest not a suit). At the decision meeting she was the one who stood up and blessed us. We go the contract over Xerox Repro Centers, owned by Xerox Corp. They had the “professionally trained salesman in suits” working for them. But those guys only knew what they were taught. And came across as slick salesman. (That does work obviously they were successful.)”I can teach anyone how to cold call.”It’s a matter of overcoming shyness and rejection of course. One thing that is helpful is to have a prop when you speak to someone. Then they focus on the prop (say a piece of paper) instead of you. My suggestion would be to simply have someone start by speaking to people that they already do business with to get at ease with the process. Then there is less pressure and less rejection to deal with.

  88. William Mougayar

    The act of opening doors is certainly a good art to master.I’ve known folks that could sell ice cubes to the Eskimos, or sand to the Saudis, but not ones that can make the stone heads talk. That’s a good one.

  89. LE

    All that reading takes time. There are many people that just want to be pointed in the obvious direction, especially with purchases that are at lower price points.That’s one of the reason brands are successful. Back in the day I could read consumer reports or just make life easy by buying Sony or Black and Decker knowing that I couldn’t fall very far. Or, back when @wmoug:disqus worked there, HP.

  90. awaldstein

    In marketplaces, at least on the merchant side, in the beginning this is the only way i know how to get it done.

  91. JLM

    .Actually cold calling training is even simpler than you suggest.You simply write out a script and then practice it and then you come cold call on me.I will give you the range of possible reactions and then help you with each and every objection.Two hours a day and about 7 days and you are ready to be unleashed on the world.Selling is just overcoming objections.It is as easily taught as hand to hand combat which is really just a set of programmed moves. As long as gravity and leverage are not repealed things turn out as they are supposed to.Anybody ever attacks me with a rubber knife and they are in big, big trouble. I learned how to disarm anyone with a rubber knife in Ranger school..

  92. takingpitches

    def not easy. it’ll be interesting to see whether merchants such as Walmart go forward — as contemplated under some of the settlement proposals — to offer differential cash/credit pricing. I am not sure they will, but it will be interesting to see if they do how customers react — cheaper prices and pay in cash or slightly higher prices and the convenience and rewards of credit

  93. Patrick

    Or more likely it’s a way to dodge the tax man.