Posts from April 2013

We Didn't Know What We Had

I sat next to Jim Cramer last night at a dinner put on by some mutual friends. I hadn't seen Jim in a while so it was a great opportunity to take a trip down memory lane. In 1996 or early 1997, my prior firm Flatiron Partners led the first round of outside financing for I joined the board and eventually became Chairman before stepping down a decade ago.

When I first met Jim, he was running a hedge fund and blasting posts from his trading desk. This was 1996 and what he was doing was unprecedented. He was publishing in real time his thoughts on what was going on in the markets. On some days, Jim would post three or four dozen times.

As Jim and I reminisced about those days last night, I said to him "you were tweeting and blogging a decade before anyone else was doing that." He nodded, "yeah, that is what I was doing".

But we didn't know that. The money our firm invested went to hiring a team of journalists and we saw ourselves as the Wall Street Journal of the web. That was a mistake. The Wall Street Journal is the Wall Street Journal of the web. What Jim was doing was something way more native, way more powerful, and way more important. But we missed it. has gone on to build a niche financial publishing business that is a solid and profitable company. But it could have been the Twitter and Blogger of Wall Street. That's what it was at the start. But we didn't know what we had.


Because It's Standard

Case studies are true stories that teach lessons. And one of the great lessons I got in my career was care of a lawyer named Morty. This is a reblog of a post I wrote in Feb 2007. I thought about it last week in an email discussion with a friend. And so I decided to share it with all of you as part of the MBA Mondays series.


I woke up thinking about Morty this morning. I haven't seen or heard from him in over ten years. But Morty taught me one of the most important lessons about negotiating that I've ever learned.

Morty was Isaak's partner in Multex early on. They put up the initial money to get it started. Morty wasn't a venture guy. He was a real estate lawyer and sometime real estate investor. He was as conservative as you can get and never liked the startup/venture business. But he was Isaak's partner. And Isaak asked Morty to negotiate the term sheet for the seed round with me.

This was late 1992 and I'd been in the venture business for five years and was on my second or third deal on my own. I'd negotiated a bunch of term sheets by that point, but I'd never had a negotiation like the one I was in for with Morty. Actually I don't think I've ever had one as rough as that since.

Morty wasn't familiar with venture terms. They didn't make sense to him. So standing in an airport pay phone (before cell phones) I went line by line, term by term with Morty.

We got to redemption and he started in. "Why do you need this provision Fred?". I was getting tired of his non stop push back and blurted out "Because it's standard. We always get this provision. Always have, and always will".

That got Morty pissed. He shouted over the phone:

I don't give a f>>>k that you always get this provision. Doesn't mean shit to me. This deal will be the first time you don't get it if you don't explain why you need it.

That set me back on my heels and I weakly explained that if the deal goes sideways for years, we need some way to get out of the deal and redemption provides that path. I don't even remember if he bought that argument. But I do know that we had redemption in the Series A at Multex and pretty much every deal I had done at that time.

But the point Morty made rang true to me and I've lived by his rule ever since. I never ever say that a specific provision is "standard". Nothing is standard. You either need it or you don't. Explain why you need it and most of the time you'll get it or something like it as long as both sides really want to make a deal.

#MBA Mondays

From DonorsChoose To Kickstarter

In the wake of my Return and Ridicule post, I was asked how one goes about finding these services that are ignored and/or ridiculed. And the answer I gave was "if you use them you might realize how powerful they are."

I woke up thinking about that in the context of Kickstarter today. It must be related to the fact that today is the fourth anniversary of Kickstarter's launch. How was it that I was so sure the Kickstarter project would work when it launched back in 2009? Well it was because of what happened on this blog a couple years before that.

The story starts in the fall of 2007. Charles Best, the founder of DonorsChoose emailed me and asked if I would enter AVC into the DonorsChoose Bloggers Challenge. He wanted this community to compete with other tech blogs to see who could raise the most money for teachers and their classrooms. I said yes and we entered, and won, the tech category in 2007. We entered again in 2008 and won again. In the final year of the social media challenge (renamed to encompass more than bloggers) we won the tech category again. This post, which I wrote in November 2009, after our threepeat, shows that the AVC community raised almost $60,000 for teachers and their classrooms in those three October showdowns.

So when Perry Chen came by to talk about Kickstarter in the summer of 2009, my mind was prepared to understand what he and his co-founders were up to. When he explained that artists and other project creators were going to post their projects and get them funded on the Internet, I thought "of course" instead of "that will never work."

And I have Charles and the DonorsChoose team and the AVC community to thank for that. Which I book in the category of "what goes around, comes around".

And I cannot resist reminding everyone that we have a DonorsChoose campaign running on AVC right now, called Good Things Come To Those Who Code. If you have not made a contribution and want to, now is the time. The campaign ends at midnight on Tuesday. Go here if you want to participate.

#VC & Technology

Video Of The Week: Parrot AR Drone

I bought one of these on amazon at the suggestion of Laurent Eschenauer in yesterday's comment thread. I can feel my 14 year old self re-emerging. I can't wait to play with it. It's also a good excuse to learn a bit of node.js so I can program the thing.

If you want to skip the unboxing and information and go right to the flying part, that starts about 5:40 in.

If you have three minutes more for additional drone entertainment, click here.

#VC & Technology

Fun Friday: What Would You Use A Drone For?

In my talk yesterday at Princeton, we got to discussing drones. A young woman asked me what I would use a drone for.

My answer was dry cleaning runs. I want to hand my drone the week's dry cleaning, have the drone fly over to sixth ave and 10th street where our dry cleaner is, drop off the clothes and then return home. When the dry cleaning is ready to pick up, the drone would fly back, get it, and bring it back home.

Of course, if everyone did this, the skies in NYC would be so filled with drones that we wouldn't be able to see the sun. That doesn't feel so great to be honest.

What would you use a drone for?

#Random Posts

Return and Ridicule

I am going down to Princeton today to talk to Ed Zschau’s class on entrepreneurship today. Ed asked me what I wanted to talk about. I told him “return and ridicule”.

I have found that return and ridicule are highly correlated over the years. We have made more money on things that were highly ridiculed than on any other cohort. When I see people laughing at ideas and companies we have backed, I smile. It means we are going to make a lot of money on that investment.

I saw Bill Gurley say that you can only make money by being right about something that most people think is wrong. His logic was that you can’t make money by being wrong. And you can’t make money by being right about something everyone else knows. So you have to be right about something that most people think is wrong. I really like that framework.

The same logic applies to starting companies. If you start a company in a market everyone knows is going to be big, then you will have a ton of competition. If, however, you start a company in a market everyone is laughing at, you won’t have too many competitors.

This notion also plays into Clayton Christensen‘s framework for disruptive innovation. Many of the most disruptive technologies started out as what Clay calls “toys”. The PC is a great example of that. PCs came out of the homebrew computer movement. Geeks were building computers in their garages. And everyone thought they were nuts. But from that came the Apple Computer and the IBM PC and we were off to the races with personal computers.

Chris Dixon has a great post about hobbyists. He likes to look at what the next homebrew computer club type activities are these days. When I saw Chris yesterday he was talking about drones and asteroids. I laughed. He grinned ear to ear. Chris knows that it’s good to be ridiculed.

So many folks in the venture capital business are sheep that just want to follow the herd. They are momentum investors purchasing highly illquid investments. That is a recipe for disaster. Momentum investing works in highly liquid markets (sometimes). From what I can tell, it almost never works in private markets.

Better to invest in laughing stocks. Becuase she who laughs last, laughs best.

#VC & Technology

TEALS Update

Regular readers will recall this great program called TEALS that I've blogged about a few times that brings software engineers into schools to teach CS classes before they go to work. We have hosted two information sessions that have attracted almost 200 software engineers interested in teaching next school year.

We now have ten schools in NYC that have signed on to have a TEALS program in their school. We need 40 software engineers to do the programs in all 10 schools. The last time I checked, there were 24 who had applied. So we need some more applications. The deadline to apply is May 1st. You can apply online here.

Here's a map of the 65 schools around the country that have TEALS programs in their schools. The NYC closeup looks like this:

Teals NYC

I realize this is just a drop in the bucket as we have thousands of schools in NYC. But seeing this map makes me very happy because we don't have a single TEALS school in NYC in the current school year.

If you are a software engineer working in NYC and want to teach computer science at one of these ten schools next year, please apply online. You can make a real difference and help bring opportunities to kids who want them badly.

#hacking education

Immigration Reform

For those who watched the talk I did with Paul Smalera, some of this will be redundant. Paul asked me why we haven't gotten all of these "no brainer" immigration reform proposals like the startup visa (funded entrepreneurs get to stay in the US and build their companies here), or the STEM visa (graduate degrees in STEM come stapled with a visa), or an end to kicking undergrads out after they graduate.

The answer is that there has been a long standing debate in the US about "comprehensive immigration reform" which involves putting many of the immigrants who are already here on some sort of path to citizenship in return for a committment to strengthening our borders so we get less illegal immigration.

And all of these really great ideas about piecemeal immigration reform that both sides support have been hostage to the big idea of comprehensive reform. If the elected officials give industry the things they want like more H1B visas, STEM visas, startup visas, etc, then they lose our collective pressure on the immigration issue. And they need our collective pressure (and money) to get this done.

Last week, the "gang of eight" introduced a comprehensive immigration reform bill. It is now making its way through hearings and such and will eventually face a vote in Congress. This bill includes all of these piecemeal proposals we have been advocating for in the startup and tech community for years:

  • startup visa
  • STEM Green Card
  • undergrads are allowed to intend to stay in the US after graduation
  • one line for green card applications
  • merit-based, points-system green card
  • merit-based green card will clear out backlogs
  • more H-1Bs

So if you want to see all of these good and important changes to the immigration laws in the US, you have to get behind comprehensive immigration reform. That's the way the deck is stacked in this debate. It took me a long time to understand that and although it is illogical, it is the way it is.

There are many opponents to the comprehensive immigration reform bill out there. And they will use anything, including things like what happened in Boston last week, to kill it. We need everyone in the tech industry and the world of startups to get behind this bill. Not only because it addresses pretty much every request we have made on immigration but also because the US is a land of opportunity and diversity and it is our greatest strength that we allow good people to come here and build a life, a career, a family, and a company.

I hope all of you will support comprehensive immigration refrom loudly and vigorously. We will need it. If you want to do something right now, go here or here and get involved.


You Are Working Too Hard And Not Getting Anywhere

Continuing the case method on MBA Mondays, I am going to tell a story about a business model pivot that was not a full business pivot.

In the lull between Flatiron and Union Square Ventures, I made a few angel investments and the best one was in a company called TACODA that went on to become a Union Square Ventures portfolio company and in many ways directly led to the creation of Union Square Ventures. My partner Brad who I founded Union Square Ventures with had left the venture capital business temporarily and was involved in the creation of TACODA, having provided the initial seed capital to Dave Morgan, the founder of TACODA.

Dave had previously founded Real Media, one of the early ad server companies, and he had seen the need for better targeting of display ads on the Internet. His idea was to build a companion to an ad server that could collect behavioral data and target dispay ads to the people who actually wanted to see them. This became known as behavioral targeting. The intital business model was to sell the behavioral targeting engine to publishers who would then sell the behavioral segments to their agency customers.

The software cost between $10k a month and $20k a month and was sold as a SAAS service to publishers. TACODA closed a few big deals early on and got validation of the product and the market from that. But it got harder and harder to close these deals as publishers were wary of coming out of pocket big dollars on a new technology that they weren't sure would help them make more money.

After six or nine months of disappointing numbers, I recall a meeting with Dave where Brad pointed out that the team was "working too hard and not getting anywhere." Brad suggested that the company try a new business model in which it would operate the targeting engine in the cloud and sell the advertising in an ad network model and then share the revenue with the publishers. In effect, Brad proposed that we send the publishers checks instead of asking them to send us checks.

Dave saw the logic of Brad's arguments and slowly but surely pivoted the company into an ad network. And once the business model pivot was completed, revenue took off. In less than three years after the business model pivot, the company was doing north of $50mm in revenues and was bought by AOL for $275mm.

The moral of this story is sometimes you have the right product but the wrong business model. Fixing the business model can fix the company. It certainly did in the case of TACODA.

#MBA Mondays

Online Learning and Higher Ed

Clayton Christensen's views on this topic were on display yesterday in the video of the week. For a different take on this topic, read AJ Jacobs' tale of a semester of online learning in todays' NY Times.

I laid out my thoughts on this topic a few months ago. There is no question that putting all of these lectures and knowledge online is going to change things. But I am also a big fan of what happens when a teacher and a small group of students get together in a classroom and real personal interaction happens.

When I wanted to understand how blogging tools were going to change things, I took up blogging. Last week I watched a University President talk about the Coursera class he is teaching and how he got his top faculty to do the same. That's the right idea.

It's hard to predict how impactful this stuff will be on higher ed, and we do know that real in person interaction is a huge part the learning equation. But these new tools will bring important changes. So if you are in the higher education business, you had better be getting your hands dirty with this stuff. The only way to really learn something is to do it yourself.

#hacking education