Posts from VC & Technology

Fifteen years ago, I indentified data businesses as good place for venture capital investing.  Being located in New York, I found investing in core technology to be hard.  Data businesses had similar return characteristics and there were a lot more of them in places I could get to easily.

And I identified three areas that I thought were particularly interesting; financial data, marketing data, and medical data.

In the past 15 years, I have personally invested in roughly 10 companies that were involved someway in financial data and about the same that were involved in marketing data.

But I have found relatively few interesting opportunities to invest in medical data businesses.

Financial data, both on companies and on people has become highly available.  The financial markets’ incessant drive for transparency has forced companies to deliver ever more data about their business and operations.  And this data has been sliced and diced by intermediaries and traders creating even more data. And the rapid expansion of consumer financial services has forced most consumers to provide ever more data on their own finances which is then used to determine their suitability for a vast array of financial products and services.  Take credit databases for example.  My credit history is available for anyone, including me, to look at it if they have my social security number.

Marketing data is even more available today.  The Internet has been an incredible driver in this regard.  We had the direct marketing business collecting postal and transactional data on consumers for many years.  But the Internet has made the availability of this kind of data explode and we have seen many businesses formed to capitalize on the massive consumer marketing data opportunities that the Internet has unleashed.

Medical data has not enjoyed this freedom.  Yet.

Yesterday I attended a really great event put on by Esther Dyson’s Release 1.0.  It was called the Personal Health Information Workshop and it featured a bunch of interesting people and companies working on the problem of unleashing medical data so that it can be used by consumers and physicians to improve our collective health and reduce the costs of providing health care.

I came away from the event convinced that we are on the cusp of a revolution in the way medical information is collected, shared, and used that will mirror the revolutions we have witnessed in fnancial and marketing data.

This is a picture of Esther moderating the first panel in the afternoon.  Next to Esther is George Church, professor of Genetics at Harvard Medical School and the person behind the Personal Genome Project.  The Personal Genome Project is to the Human Genome Project what Linux is to Windows.  Open source genomes.  Very cool stuff.  I am going to see if I can get involved.  If I get my genome sequenced, I’d like to post it on this blog for the world to see, assuming that is allowed.

I have always believed that information is like water.  The more it flows, the better.  And I believe that the more medical data is allowed to flow out of the silos of clinical (doctors and hospitals) and administrative (health care plans) databases, the better off we will all be.

Clearly, there are privacy issues.  But HIPAA has set the rules.  And my experience in the marketing data world suggests that once the rules are set, the data starts to flow.  The absence of rules is a bigger deterrent to data moving because nobody wants to do anything wrong.  Now with the rules set, data is going to flow.

According to HIPAA, if I request my medical records from Oxford (my health plan), they must provide it to me within 30 days.

I just took the Real Age test.  Over 14 million people have taken it.  For those of you who want to know, I have a Real Age of 40.3 years (3.8 years younger than my actual age).  If I gave up the 5 or 10 cigars a year I smoke, I bet I could get into the 30s.

What if I wanted Oxford to send my health care data to Real Age so they could continually monitor and update my Real Age for me?  Not possible today.  But that’s coming I bet.  It’s my data.  I should own it and be able to move it wherever I want.

Katrina was a real wakeup call for many in the health care business.  Millions of people displaced.  Many on medication and medical care.  Records lost or unavailable.  We need control of our data so we can secure it, put it in a place where it will be available in a crisis like Katrina, so that we can continue to get the care we need.  The public doesn’t understand this yet.  But some people do.  I met a bunch of them yesterday.

So my bet is that medical data is about to start moving out of the hospitals, doctors offices, and health care plans, into the hands of consumer and the intermediaries they authorize to handle their data for them.  This is a big opportunity.  I’ve seen the movie before and it’s a good one.

If you are working on interesting projects in this area, let me know.  I’d love to get involved in the right ones.

Back in April, I posted an exciting e-commerce job opportunity on this blog.  It was the first time I had used this blog to help fill a position in one of my portfolio companies.

It worked like a charm.

A bunch of people read the post and contacted me.

And then Indeed crawled my blog, picked up the job in their index, and a bunch of people clicked through from Indeed job searches and contacted me.

One of them was the perfect fit, he accepted the job, and has been doing a great job for our company.

So with that success in mind, I am giving it another try.

We have a very exciting product management opportunity in one of our portfolio companies.

The details are as follows:

Vice President, Product
Management

As a member of the Company’s senior management
team, the Vice President of Product Management will be responsible for managing
existing products and services as well as new product development.  Managing a
team of four product managers, will develop road maps for the improvement of
existing products based on input from clients and the sales/customer support
departments. 

Strong Product Management leadership experience in
web-based (ASP) products and services

· Ability to manage multiple projects
simultaneously

· Ability to work with multiple functional departments
within the organization as well as work directly with customers

· Excellent communication and presentations and
comfort in sales settings

· Act as senior sales/product management liaison with
the development team

· Establish strategic vision for product development
efforts related to all offerings

· Ability to recognize opportunities and create new
products/features

· Contribute product and functional thought
leadership

The opportunity is in NYC and the compensation is attractive with an equity upside.

If you are interested or know someone we should be talking to, send me an email to [email protected].

All correspondence regarding this opportunity will be held in complete and total confidence.

Tom Evslin has upped the pace of his episodes at Hackoff.com.

He’s releasing one a day now.

I got a couple days behind and had to catch up this morning.

Tuesday’s episode was the start of Chapter Two and introduced the Board of Hackoff.com.

Having served on Tom’s board at ITXC, I had to find myself somewhere on the Hackoff.com board.

I suspect there’s a bit of me in Franklin and a bit of Bill Collatos of Spectrum in Joseph.

Wednesday’s episode takes the reader through the IPO selection process.

It was fun to be taken back to that period when bankers were selling everything that moved on the public markets.

There’s a lot of truth in this Hackoff.com fable so far.

I’ve already professed my love of wikis on this blog.

So now I am going to go a bit deeper and start talking about some of the things I love about them.

One of the most useful features on our JotSpot wiki is the ability to forward emails to any page on the wiki.

I am planning a trip next week to the west coast.  I am working on setting up a bunch of meetings.  I wanted everyone in the office to be able to weigh in with suggestions.

So I created a new page, listed the people I want to see, and started using it to organize my trip. Everyone in the office can easily see the list and add or make changes to the list.

Like most people, I am using email to arrange the meetings.

Now with one easy move, I can get the emails into the wiki, and right to the page I want them to be on.

I know that this feature is available in Notes and probably even Outlook.

But we used Notes for years at Flatiron and I never was able to figure out how to make a page and do something like this in less than five minutes with Notes.

I think Wikis are something everyone who runs a small company or department of a larger company ought to look into.

In most comments to my posts of a political nature, there is usually a comment that includes the following:

"… because Fred is a liberal …."

I am a liberal and I am proud of it. It is not a stain on my shirt. It’s a badge of honor.  So please keep calling me that. It makes my day every time I read it.

According to Answers.com (wikipedia is down right now), being a liberal means:

1. Not limited to or by established, traditional, orthodox, or authoritarian attitudes, views, or dogmas; free from bigotry.
2. Favoring proposals for reform, open to new ideas for progress, and tolerant of the ideas and behavior of others; broad-minded.

Hell yeah, I am a liberal.

But what kind of liberal am I?

I’m not a limousine liberal because I hate limos and you’ll find me on the subway jamming on my iPod and Treo most of the time I want to get somewhere in NYC.

I’m not a gulfstream liberal becuase I prefer commercial to private planes.

I am a broadband liberal.

Because, according to the Center for Media Research:

• Eight states had broadband  penetration over 35% – all voted for John Kerry
  in 2004
  
• Eleven states had broadband penetration at or below 20% – all  voted for
  George Bush in 2004
  
• Cumulative broadband penetration in states that voted for Kerry was  33% –
  compared to 25% in states that voted for Bush

So the next time you attempt to insult me with the word liberal, please add the word broadband in front of it.

The single most important financial metric for any startup company isn’t revenues, margin, headcount, or profits. Those are all important, for sure. But the number that matters most is the cash balance.

Because cash is king.

I know that in some markets cash is trash, but in the venture capital business cash is always king.

Alan Shugart once said, "cash is more important than your mother."

That’s because you can’t pay your employees, your rent, or your suppliers with revenues or profits if there is no cash.  And that’s a very possible scenario.

I know a couple guys who have built a very nice business here in NYC. They bootstrapped the whole thing. A very impressive feat. They are making good money on paper. But they are constantly cash strapped because they are growing so fast that they can’t collect their revenues as fast as they are spending to grow.

I didn’t learn much in business school, but I did learn a bit about reading a financial statement.

And financial statement analysis, at least the way they taught it at Wharton, starts with the cash balance. If you want to know how much money a business is making, start with the current cash balance and subtract the cash balance from the start of whatever period you are analyzing.

That’s the cash flow, positive or negative, for that period. That is the crudest way to measure profits there is and in many ways it is all that really matters.  Particularly in a startup business.

Because allthough you have to back out changes in every other balance sheet item to tie that number back to net income (the accountant’s true measure of profitability), at the end of the day you gotta have cash to be in business.  So it may feel good to see profits on paper, but if they aren’t appearing in the cash balances, you’ve got a problem.

Sometimes that problem is bad or fraudulent accounting. The best way to find fraud is to look for companies that are reporting growing profits but have declining cash balances and are constantly in need of financing. That’s a house of cards ready to come tumbling down.

But back to the startup business. Cash is everything when you aren’t profitable. Most of our companies that produce monthly reporting packages report a "cash out date" which is the day they run out of cash absent another financing. It’s not a problem that they have a cash out day because most of them are doing very well meeting their milestones and will have no problem doing another round of financing.

But the startup game, when played with VC money, is all about making the business significantly more valuable from one financing to another. If you can’t do that, you (the entrepreneur) are going to get seriously diluted. And though many entrepreneurs believe that VCs secretly hope for that scenario, it’s not true, at least with high quality VCs.

All investors benefit from smart financial planning and sound fundraising strategies. The best companies have been built with strategies that have been equity efficient for both the entrpreneur and the VC.

And that means watching your cash carefully, knowing how long it is going to last, and making sure you build significant incremental value before you run out.

Because cash is king and always will be.

I know I am late to this controversy but I feel compelled to weigh in nonetheless.

A local New Yorker, whom I have never met, named William Bright started a web service called iPodSubwayMaps.com.

You can guess what the service does, but if your imagination is failing you today his service allows you to load subway maps onto your iPod Photo (not music only iPods).

I have never used the services as I don’t have an iPod Photo, but I love the idea of it.

But astoundingly, the transit departments of New York and San Fransciso don’t.  They have sent threatening letters to William asking him to take down the maps because they violate their copyrights.

I am with Jeff Jarvis on this one.  Governments shouldn’t be able to copyright something that belongs to the people.

But my outrage is really focused on the transit departments.  They should be all over anything that makes their customer’s life easier.  And clearly this service does that.

Shame on them.

The Stalwart blog takes me (at least I think its me) to task for using theories like Metcalfe’s law and Reed’s law to value companies.

The Stalwart ties this into the Skype deal, which he thinks was way overvalued by eBay.

That got me thinking a bit and I’d like to explain.

We believe the only way you can value companies is using a reasonable multiple of cash flow.

When we think about value creation, that’s how we think.

And generally we invest at a value that is a fraction (some would say a tiny fraction) of the exit values we think are obtainable in the next five to six years using a reasonable multiple of cash flow.

So why am I blogging about Skype and talking up these theories like Reed’s law?

Because its very instructive to learn from the moves that others are making and have made and understand how value is being created.

And theories like Reed’s law help bring clarity into debates about whether to keep systems closed or open them up.

There are a lot of people claiming Web 2.0 is a bunch of hype being fostered by the VC community in order to create another bubble which we can all profit from.

There is certainly plenty of hype going around and maybe this blog is adding to it in some ways.

But that is not my goal.

My goal is to have a conversation about the things I am seeing and the analysis I am reading and figure out what makes sense and what does not.

Once we do that, we can apply it to the investments we make.

And hopefully we’ll make some money the old fashioned way in the process.

As I wrote in my Bubble 2.0 post six months ago:

If you were at the first party, then you should never forget how it felt when it was over. 

Drink responsibly this time.

Tom Evslin says in his most recent post on eBay/Skype (which he said in an earlier post was a huge overpay) that Skype and all other "VOIP telcos" will not "make any money directly by being a phone company."

I think that is true.  VOIP feels like IM to me.  A great way to communicate, but impossible to charge for.

But my guess is that AOL, Yahoo, and MSN are making money on IM with targeted advertising today.

And pay per call promises to make that business (once VOIP is in the mix) much more lucrative.

The big question is when Skype opens up.

I want to be able to Skype anyone on AIM, Yahoo, or MSN.  But currently Skype doesn’t allow it.

Tom thinks eBay will make that happen much sooner than Skype would have as a standalone company.

If so, that will be an important result of this deal.

Once all the VOIP services interconnect, we’ll be Skyping each other all the time, the way our kids text each other all the time on their phones.

And that will be surely be a monetizable business.