Posts from VC & Technology

There are no shortage of conferences you can attend in the startup world. Everyone knows the big ones. But I find the little ones are often much better. One that I have my eye on is Startup Lessons Learned from Eric Ries and his Lean Startup gang.

The conference is in SF on May 23rd. It is a one day affair, which I also like. And they are simulcasting the conference in a bunch of cities around the world. This is a very cool concept and I wish more conferences would do this.

I am shocked that NYC does not have a simulcast location for Startup Lessons Learned yet. If our new USV event space was open, I'd fix that but it won't be open for a few more weeks. So if you have a space that can hold a bunch of people (my guess is up to 50??), then please apply to simulcast this event in NYC.

I think it's well understood that I am a big fan of the lean startup methodology and the program looks excellent. No panels!!! Just case studies, short talks, and keynotes. That's the way to do it.

It's on a Monday so I can't make the whole thing (our team meets on Mondays), but if a NYC simulcast location opens up, I'll certainly stop by to take in parts of the show.

My friend Jerry Rosenkranz passed away early wednesday morning. He was the best angel investor I have ever met. He was also the nicest person. He was an angel in every sense of the world. He will be missed by so many.

I met Jerry in the spring of 1997. Flatiron Partners had just committed to lead a $3mm "series A round" in Starmedia, which went on to become the leading Internet portal in Latin America. Fernando Espuelas, Starmedia's co-founder and CEO, brought Jerry in to meet me. We sat at the corner of the huge conference table in Chase Capital Partners' main conference room and Jerry drilled down on our firm, fund, and approach to investing. He was doing Starmedia's diligence on their new investor. He was thorough and insightful. He was also charming. I left that meeting thinking that Fernando had chosen his angel well. That was the beginning of a seventeen year business partnership and friendship that has blessed me and the firms and investments I've been involved with in so many ways.

Jerry, Susan Segal (Chase Capital's Latin American investment head) and I went on to build a portfolio of about a dozen leading latin american Internet companies in the late 90s. That portfolio included companies like MercadoLibre, Patagon.com. Americanas.com, Starmedia, Submarino, and a host of others. I don't write or talk much about that experience. It ended painfully and I've not ventured back to latin america (from an investing point of view) since 2001. But looking back on that period, it is clear to me that Jerry was hugely influential in bringing and funding technology and internet entrepreneurship into latin america. The companies we funded and he helped get started were the first seeds of an important emerging market for technology and entrepreneurship in the world.

Jerry was raised in Mexico and graduated from Stanford. He was a geek. He loved technology and entrepreneurship. He also loved Mexico. I remember being with Jerry at some fancy event and walking into the kitchen and watching him speak in his native tongue to the mexican workers. They loved it and he loved it. A part of Jerry was Silicon Valley, where he had tremendous relationships and connections. A part of Jerry was Mexico and latin people and culture. And a part of Jerry was NYC, it's power, money, and emerging technology community. His ability to work in all three worlds was unique and hugely impactful.

But the most important thing about Jerry and the thing I will miss the most is his character and his friendship. He was the nicest person. He had a way of walking into the room and making everyone feel better. He had an incredible smile. When he got behind something, as an angel or in any other way, he was 100% behind it. You never had to worry about Jerry being with you. He was a rock.

The last seven years of Jerry's life was a battle with an illness that eventually took his life. He fought that battle with courage and an attitude that was an inspiration to anyone who saw it. He used his body as a test tube for medical treatments that will certainly benefit many in the coming years. He approached it like everything else he did, with curiosity, intellect, ambition, and a positivity that was characteristically Jerry.

The things Jerry helped create will live on in testament to his greatness and his kindness. There are a few people who have made me what I am and Jerry is one of them. For that I thank him with all my heart.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I've been thinking a lot about the differences between first time and serial entrepreneurs. We invest in both and do not have a preference betweeen the two. But there are significant differences.

The best first time entrepreneurs have been stewing on their idea for quite a while. It is a personal passion of theirs and they bring to it a fresh take, a stubborn insistence on their approach, and they obsess about the idea 24/7. They often get the right product into the market at the right time and they capture the user's attention and usage with that product/market fit.

Where first time entrepreneurs often struggle is when the product works so well that they have to quickly build a company to support the product. Most of the time, the first time founder has not spent anytime thinking about what kind of company they want to build, what kind of people they want to surround themselves with, what kind of culture they want to create, etc. The first time founder often has no experience recruiting, managing teams, and building organizations.

Serial entrepreneurs, on the other hand, often struggle with the founding idea and getting to product/market fit. They start the second and third and fourth company because they love startups and they don't know any other way to work and be productive. But they often lack that passion around a singular idea that drives first time founders.

But when serial entrepreneurs do settle on the right idea and find product/market fit, they are usually terrific at building the company. They know when to step on the gas and where. They know how to recruit, manage, and structure organizations.

I was talking about this dichotomy with another venture capitalist the other day. I likened it to the first album/second album issue with rock bands. So many bands struggle with the second album and there are many reasons for it. The first album is something they have been working on for years. These are the songs they played night after night in the clubs working their way up. These are the songs that got them their fanbase and got them signed. The album hits, people love it, and then they spend the next year touring like crazy to build their fanbase. And then they have to go back into the studio and write and record a second record in a matter of months. It is no wonder that is is terribly hard to produce a second record as good as the first.

Likewise, it is often hard for the serial entrepreneur to produce a second startup that is good as their first. It takes a lot of patience and collaboration with others, two things they probably did not use much of in their first startup.

As I said at the start of this post, we work with both first time entrepreneurs and serial entrepreneurs with equal interest. We love the ability of great first time founders to nail the product and get significant user traction quickly. And we work closely with them to build the company once that happens. And we understand that is an area they are uncomfortable with and need our patience and support with. We also love the serial entrepreneur's gifts around building the company and taking control of a market once they have gotten product/market fit. We work closely with them in their efforts to find product market fit and we understand those challenges and are patient and supportive during that time.

These observations are generalizations and certainly do not speak to each and every situation we've been involved in. But they do reflect our experience broadly and we think it is important to understand what situation you are investing in, where the challenges will be, and how best to support the startup. Those things will most likely be very different when working with first time founders and serial entrepreneurs.

I believe that a good domain name is an important success factor in building and launching consumer web services. It's not in my top ten but it could be. It's certainly something we think about a lot when making investments and working with companies post investment.

A number of our portfolio companies have acquired their domain names in connection with or shortly after our investment. Del.icio.us purchased Delicious.com with some of the proceeds of our investment. Foursquare purchased Foursquare.com with some of the proceeds of our investment (they launched with playfoursquare.com). We've advised and assisted a number of our portfolio companies in this effort.

A good domain name is short and memorable. It doesn't need to mean anything. Etsy is a good example of this. The word etsy doesn't have any meaning in the english language. But it is short, memorable, and fits well for a handmade marketplace. As a marketing person once told me "find a name that means nothing and inject your meaning and brand into it." All you need to do is a google search on Etsy to see that is what they've done with that word.

I remember walking home one afternoon from the office on the phone with Mark Pincus. He had launched texas hold'em on Facebook operating under the name Presidio Media. We were talking about what he should call the company. He knew it needed to be a consumer brand. He said "Domains are so hard and expensive. I'd like to use a name I already own." And he preceded to list a bunch of names he owned. He stopped at zynga.com which was his dog's name. I said "you own the .com of your dog's name?" He said "of course I do." I told him I liked the idea of naming the company after his dog and it had the added benefit of being a short and catchy name. He agreed it was a good idea. A few weeks later, after thinking about it some more, running it by a bunch more people, that was the name Mark chose. It is a fantastic name and brand.

That conversation with Mark was in the summer/fall of 2007. Since then domains only gotten harder and more expensive. We've noticed the average price of a good domain has risen fairly dramatically in the past year. We used to advise companies to spend $10k or less on a domain, then we upped that recommendation to $25k. We recently upped it again to $50k. I suspect domain prices and pre-money valuations of newly launched startups are highly corrrelated.

Here are some suggestions on finding and buying a domain name:

– Don't obsess about getting a name that is descriptive. It's great to be Kickstarter if you are buidling a funding platform for creative ideas but it is not required. Do focus on a word that is short, catchy, and memorable.

– If you own a domain that can work, give it serious consideration. You'll save yourself a ton of pain and agony.

– Be prepared to pay up for a good domain. It is very unlikely that you'll find a great domain name these days for less than $10k. And it could cost a lot more.

– Think about rent to own. My friend Jamie Siminoff is a proponent of this approach and he clued me into it a few years ago. If you find a great domain that you can't afford but you absolutely love, you can often rent it for a few years with an option to buy it at any time. Let's say you are launching a website to buy boats online and the person who owns boats.com wants $100k for it. There's no way you can afford it right now. But the owner is willing to charge you $5k per year for it and will let you buy it anytime over the next three years for $100k. You do it because you figure that in three years, you'll be selling 10s of millions of dollars of boats and your business will be worth 10s of millions and $100k will be easy to raise for not a lot of dilution. And if you don't sell any boats online then you don't need the domain and it didn't cost you much.

– Think about offering equity instead of cash. Many owners of sought after domains have this idea that their domains are going to be worth millions some day. And who knows, they might be right. So it is hard to pry the domain out of their hands. The one thing you have that might be worth millions some day is the equity in your company. If you have a hot company (like foursquare was when it purchased foursquare.com), you might be able to trade some equity for the domain.

– Find an intermediary. We've used a few different intermediaries and played that role ourselves. Eric Friedman, who worked at USV and now works at Foursquare, was a very useful intermediary in a number of transactions. There are also a few lawyers we know who specialize in this kind of transaction and are very experienced and skilled at procuring domains. A neutral third party who can hide the identity of the buyer is often very helpful in domain transactions.

This whole exercise in finding and buying a domain is a huge pain in the rear. I've seen startups spend endless hours on it. It is an important issue, particularly for consumer web startups, and it is worth getting it right. But there is also a limit to how much time and money you want to spend on this effort. Remember that a name is what you inject into it over time. So don't let getting the perfect name be the enemy of getting a really good one.

Correction: The Zynga story in this post is not quite right. Here is the correct story straight from Mark: "I did not own zinga.com, her real name. I had tried and failed to buy that domain for 8 years. One of our engineers had the idea to spell it as zynga so we could get the domain."

Yesterday I did office hours for the second time. We started doing office hours in the fall of last year and try to do them once a quarter. Brad, Albert, Christina, and I all do them. Christina does office hours way more often than the rest of us. But we all do them.

We were inspired by Josh Kopelman and Brad Feld who have been doing their equivalent of office hours for some time now.

Here's how we do them. We use Nate Westheimer's Ohours platform. Here is USV's Ohours page. And we broadcast office hours openings on the USV Twitter feed. Signup is on a first come first serve basis.

I block out a three hour period and take meetings in 15 minute blocks. So I did twelve short meetings yesterday. About half of them were in person and about half were on skype video.

Because there is absolutely no screening and signup is drop dead simple, the lineup is completely random. And that is what I like most about office hours. I doubt any of the people I met yesterday would have gotten a meeting with me any other way.

The two most common uses of the fifteen minutes was a funding pitch (I got three of them) and advice on which of two or more ideas the entrepreneur should focus on (I got four of these). But I also got people looking to get an intro to a potential customer, people looking for advice on scaling an organization, and people looking for me to promote what they are doing to others.

Earlier yesterday morning I had breafast with a young VC. He talked about finding "outliers" and how important that is in our business. He is so right and although I've yet to meet an entrepreneur I immediately wanted to back during office hours, I am equally sure that it will happen and it will be a person we would not have met through our usual process.

In all the posts over the past year or so outlining my thoughts on the financing and valuation environment in the internet sector, I've avoided using the word Bubble. It is intentional. For me Bubble will always be inexorably linked to what went down in 1999 and 2000 in the internet sector. And I agree with Mike Arrington that what is going on now is different. I do not think we are in a Bubble per se. That is why I don't use the word.

But I am equally sure that we are in the glass is half full part of the cycle. Investors are focusing on the upside and ignoring the downside. That part of the investment cycle lasts for a while and then things change and investors focus on the downside and ignore the upside. Markets are defined by greed and fear. We are in the greed mode right now.

I don't view this as whining. There is nothing to whine about. Investors are making money hand over fist. Why would I whine about that? But I do think it is important to point out the inevitability of the market cycles. There will come a time when the environment we are in will be in the rear view mirror. And entrepreneurs should be crystal clear about that. This is a time to raise money and sock it away for a rainy day. Because it will rain.

And investors should recognize that the current valuation environment will not exist at some point in the future. The companies we invest in will need to grow into these valuations or we will face writedowns and writeoffs. We should not let the greed emotions cloud our judgement. Yes, that hot deal sure looks damn good right now. But deals are actually companies and most venture investments are held for five to seven years. I've likened them to marriages over the years. Don't let the lust for the deal lead to a bad marriage that you have to be in for the next decade.

I've made all of these mistakes. I know what happens. I am prepared for it. That doesn't mean we aren't investing in this cycle. We are as active as we've ever been. But we are investing at this stage of the cycle with our eyes wide open. And I'm writing about it in the hopes that others do the same.