Posts from VC & Technology

Last week I blogged about mobile notifications which I think is a big game changer. There are a few other aspects of the mobile experience that I think present great opportunity. Another one is the always logged in experience.

On the web, you may or may not have a web app open in a tab in your browser and you may or may not be logged into it. But on your mobile, you are permanently logged into every app you have on your device. When you get a notification, you click on it and are taken right to the exact part of the mobile app you want to engage with. No log in is required. That in and of itself is a big deal.

But there is something more interesting. Think about OAuth and Facebook Connect and Sign In With Twitter and other similar techniques for signing into and connecting to apps. When you have lots of apps on your mobile device and you are permanently logged into them, there are a host of opportunities that open up which are harder to execute in the current web app paradigm.

Imagine you are building a mobile app that connects to the Facebook platform, the Twitter platform, the Foursquare platform, and the Google Maps platform. Assuming your users have all of those apps on their mobile, you can quickly and easily do the connections directly on the mobile device. And then you can pull data from those apps to create new experiences for the mobile users. You can create cross app notifications and other data driven experiences for users.

Like with mobile notifications, I have not done a deep dive on where we are with all of this stuff. Is there a mobile implementation of oauth that doesn't require a browser session to do the auth? Can one app deliver notifications that take the user to another app?

When I was at the music hackday a few weekends ago, I noticed that it was easy to build something interesting by simply snapping together a few web apps and then building some light glue between them. I suspect it will be even easier to do that on mobile and the era of "meta apps" that deliver functionality across multiple apps is upon us. And I think that has the potential to create some new startup opportunities.

The Goodwin Proctor "Founders Toolbox" blog posted an interview with the Gotham Gal yesterday. It's very good. So I'm cross posting it here.

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Name, Age, Current Occupation: Joanne Wilson, 49, Blogger, Angel Investor, Mentor and Philanthropist

My start-up path: I started out working as a buyer at Macy’s and then I ran a company in the garment district. While raising my kids as a stay-at-home mom, I started helping friends grow businesses, and I ended up working with Jason Calacanis at the Silicon Alley Reporter. We grew the business from a five-page stapled magazine into a beautiful magazine. I went on to chair MOUSE and then sat on a variety of for-profit and non-profit boards. Seven years ago, I started blogging. Then I became an investor in Lockhart Steele [the visionary behind Curbed], the blogosphere took off and by that point, my kids were older. So, I became an angel investor. I returned to this because I have always liked start-ups, growth and building a company. I enjoy helping entrepreneurs.

I start my day at 7 am and I end my day at all different times.

The biggest challenge of being an investor is: You can give advice, but the company doesn’t always have to take it. Entrepreneurs will ultimately make their own decisions. You have to trust that you put your money behind an entrepreneur that you believe in.

I find that new entrepreneurs struggle the most with understanding: Their valuation. You need to be realistic about your valuation and your potential growth in the company. You have to listen to the market. If you start a business and think it’s genius (as you should) and are totally into it but can’t get anyone to fund you, then maybe you should think about why. The market is telling you something.

My role as an investor in start-ups is: Sitting on the board of directors and acting as a mentor. There’s really no one for a CEO to talk to except for their investors and other CEOs. I like to help people think in the weeds and out of the weeds. It might be giving guidance on who to hire or feedback on whether to spend money on a new campaign.

Any thoughts on why there aren’t more female hackers? Is the gender disparity in start-ups environmental or is it more complicated than that? It’s environmental from the time you come out of the womb. Boys gravitate towards blocks. Girls gravitate to the dolls. That’s a generalization but in general, its true. I look at my own kids – my son, gamer extraordinaire. My daughters used to play those games but then they lost interest. I do think you’ll see more women in programming because of where we are going as a society over the next 10 years or so.

Is New York a better city to start a company for women compared to Silicon Valley and  Boston? Content companies in New York are exploding. And content is great for women. There’s a huge support community for women entrepreneurs. We just need to find each other and connect better. I went to a TechStars event and there were 10 women there! We need to not be focused on the fact that there’s not enough women. We just need to celebrate the women that are in the community already.

How will creating a stronger, deeper community of women entrepreneurs impact the overall tech and entrepreneur community? The impact is huge. Tech is a platform. It will seep into our economy, younger children and create better, longer lasting companies. We hope that from theWomen Entrepreneurs Festival there will be conversations and mentorships that come about and that women will see from the different panels all of the opportunities that are out there.

The differences between a female entrepreneur and a male entrepreneur are: An entrepreneur is an idea maker who executes on an idea. Every person, man or woman, has differences. But companies are better off when there’s a balance of genders. Women tend to provide more of a community, an understanding and a softer ear than men. But I know men who provide those same things.

One area where women could improve is: Women don’t stand on a table and say I rule.

The best piece of legal advice I ever received was: Read the document. Just because you have a lawyer, don’t assume that they are doing everything the way that you want.

The one legal concept I didn’t understand at the outset was: At the beginning, I didn’t fully understand post versus pre-valuation and convertible debt. You have to be in it to get it. It’s like anything else – someone can teach it to you, but when you get legal advice, until you actually have to use it, you don’t fully understand it.

Right now, the books I’m reading are: I am a huge reader. I just finished Mr. Peanut by Adam Ross. I just started reading about Keith Richards…what a life that guy had. I have a bunch sitting on my nightstand.

The blogs I’m reading are: I read the blogs of all of the companies I’m involved with.

It's friday so it's time for another suggested post from the amazing comment thread on the bloggers block post. Mark Suster suggested:

how about a post on your partners: who they are, how you guys work together & a bit more about how you guys reach decisions on deals?

I have two and half partners at Union Square Ventures.

Brad Burnham – Brad and I founded USV together in the summer/fall of 2003. We had both been in the venture business for more than a decade, had made a fair bit of money, but were still hungry to prove ourselves. Brad is the strategist and the most principled investor in our firm. It was Brad's idea to write a treatise on venture capital and the internet before we set off to raise our first fund and that exercise we did together continues to be our guding light. Brad is the person behind phrases like "the application layer of the technology stack" and "large networks of engaged users" that I use all the time. He gives me most of my good stuff which I often get credit for.

Albert Wenger – Albert was the President of Delicious until it was sold to Yahoo!. After that sale, he joined USV as a venture partner and as a general partner when we raised our second fund in 2008. I can't image operating USV wihtout Albert but we did for our first several years. Albert is hacker who still codes stuff up in his spare time. He's been a CTO, a VP Engineering, and has run businesses. And he is a great investor too. And he's the most underrated blogger in our firm. Albert has a very analytical mind, asks piercing questions, and thinks deeply about the web, its underlying technologies, and new business models.

John Buttrick – I can't link to John because he's managed to avoid any social media presence in his first fifty years on planet earth. We will get him on our website, but I'm not confident we will get him to do much more than that. John joined us officially in December when we raised our Opportunity Fund. You can read a bit about him in my post on the Opportunity Fund. John's been hanging around USV since formation advising us on legal, financial, and operational stuff. He's helping us evaluate the more established businesses we look at, but more than that he's helping us rethink the way we raise funds, structure funds, communicate with our investors, and run our firm. It's great having him around.

We run our busines in the model of the "sleepy little firm" that I spent my first ten years in the venture capital business with. We all work out of a single office. We have a total of six and half (John is half time) people at USV. It is quiet in the office on many days when we are out and about visiting companies. We value trust, respect, and consensus. We don't invest in companies that everyone is not 100% behind. We never vote. We don't exercise vetos. We don't yell. We don't blame each other for our failures, we blame our team, our process, and our collective decision making.

Many people think I am the "lead partner" at USV. That could not be further from the truth. Brad should get most of the credit for setting a strategy that we have executed very well. Albert should get the credit for steering us into new areas we would not have been in without him. I get to be the front man but that's really the easisest job in the partnership.

We are a true partnership where each person contributes deeply to our collective success. Trust and respect are the key operating words. And once a partner has worked one fund with us together, we are equal partners and share in the profits equally. We don't want to have too many partners and I don't think we will add many more. Maybe one more, maybe not. We will see. We are doing fine with the ones we have right now.

I love working in this partnership. It is easy, it works, and it has proven itself.

Last night I did my annual "fireside chat" with the InSITE Fellows followed by beers at a local bar. This has become a tradition and one that I enjoy very much. We ended up at Amity Hall where we drank beer, hung out, watched the Knicks do a late game fade against Orlando, and talked a bit of shop. Nishta asked me how to get to her email read. We had some fun with that and turned it into an experiment (yes, she automatically got into my priority inbox) and then a test. I'll let her tell the story:

I men­tioned some­thing and he said, “send me an email”. I instan­ta­neously and quite uncon­sciously replied, “oh come on, you don’t check your emails.” And he said, “I do”. After 2 mins of back and forth, he took out his [Android] and showed me his inbox — sorry, his pri­or­ity inbox. He said, “see that email, now thats a nice sub­ject, I will check it.” “But what if my email gets stuck in your reg­u­lar inbox?” was my imme­di­ate ques­tion? “Then, noth­ing can hap­pen. So you need to at least make it to my pri­or­ity inbox, can you?” “I will find a sub­ject inter­est­ing enough for you then” He smiled and said, “lets try”. I did and both of my emails even­tu­ally showed in his pri­oir­ity inbox few mins later!

She's right. First you need to get into my priority inbox. I am not entirely sure how you do that but Nishta and I have never exchanged emails before and she got into it on the first try.

But second and way more important, you need to get me to open your email. Subject line matters! Use a name I am familiar with in your subject line. Or something else that will get my attention. Here are six subject lines from yesterday, along wtih comments.

"Had lunch with Alexander Ljung" – that works. Alex is the founder of our portfolio company Soundcloud

"Two things" – that doesn't work. Two things is worse than one thing. And not descriptive.

"Pleasure speaking with you" – that doesn't work. I speak to so many people ever day. Not descriptive.

"Twitter board date change" – that double works. Portfolio company name plus very descriptive.

"I know you are a busy man" – that doesn't work. Not descriptive.

"ECB violation" – sadly that works. but please don't send me emails with that subject line.

The point is this. I scan all my mail many times a day and open and reply to all of it that I can. Senders matter. Subjects matter.

And there is mail that gets opened that doesn't get replied to. If the message is super long or the ask is not obvious, I will just sigh and move on. So be brief and specific with the message and the ask.

I like to reply to your emails. But I get so many of them. Make your emails distinctive and easy for me to reply to. Let's start a conversation and a relationship. Like I did with Nishta last night. She's getting her emails replied to now.

Rand Fishkin has a good post in response to my marketing posts over the past two days. In it he makes this assertion:

For the first few years that I was in the "web world," 1997-2001, there was a dangerous and obvious bias in startups toward sales and marketing – and branding in particular. But, in the past few years, that pendulum has swung to the equally dangerous paradigm that product is everything.

And then he shows this great graphic:

I totally agree with Rand that VCs and entrepreneurs learned the hard way in the last bubble that spending a ton of money on marketing didn't guarantee success. More likely it guaranteed failure. And I am certain that experience has caused me and my partners to view marketing oriented startups with a fair bit of caution.

It may also be true that the same VCs and entrepreneurs have gone too far in our collective disdain for marketing. That is essentially the argument Rand makes in his post and he makes it well, with some cameos by USV portfolio companies.

Another post written in response to my marketing post is this one by Alan Patrick. Alan paints a different picture. He doesn't see the pendulum swinging away from the behaviors of the last bubble. He sees it swinging back toward them:

One of the things that defines a bubble is that too much money chases too few assets (in this case decent startups) – but the market abhors a vacuum, so the next thing is a flurry of production of new (me-too startup) assets to fund – so more startup teams leaving MBA school, more First Tuesdays, more Incubators, the start of funding at silly values "off the slide deck" – and it means a vast increase in startups also scrabbling around in the darwinian mire that one has to kick off the slippery ladder to get one's own hands on the rungs – and that means more and more shouting.

More shouting certainly isn't the kind of marketing I want to fund, and it is exactly the kind of marketing we all funded in the last bubble.

I'm sitting here mulling over the irony of two very different reactions to the same post, both of which I'm in agreement with. We are in a challenging phase in the cycle for sure. And marketing is a weapon that startups will need to use to get noticed in a very crowded and competitive environment. I just hope they use it smartly and well.

Yesterday's marketing post had a few bugs in it. The AVC user base did a lot of bug reporting in the comments and if you have an hour or more, you should read through the entire comment thread, at the end of the post.

The first and most important bug is that I dissed the marketing profession at the start and again at the end of the post. Seth Godin says I conflated marketing and advertising. I don't totally agree. I simply disrepected marketing and then went on to talk about how to do marketing. Not a great way to have a rational conversation about marketing.

The second important bug is that my advice holds mostly for the kinds of companies we seek to invest in. I did a decent job of explaining that in the post but I could have done a better job of it. We seek to invest in large networks of engaged users on the wired and mobile web. This largely means big breakout companies in the free consumer web. It does not mean ecommerce, saas, enterprise, or plumbers (as one commenter pointed out).

The third important bug is I gave a bunch of advice in an area I don't have a lot of operational experience in. I've never been a marketer nor do I ever want to be a marketer. But I have seen what has worked well for our best performing companies. I should have been more clear that I was sharing what I've seen work for our portfolio instead of giving broad marketing advice.

There are a host of other smaller bugs and you'll see me reacting to them in the comment thread.

I'll end this bug report by saying that I still think the kinds of companies we want to invest in do not need to have marketing budgets at the startup phase. And I'll also say that I have seen "marketing professionals" do a lot of damage to our portfolio companies over the years. Most of the damage has come from outsourced marketing relationships with agencies who charge too much and help too little. But I will also say that marketing hires in our companies have had the lowest succcess rate of any hire and there are many so called experts who have turned out to be bad and expensive hires.

I'm angry at the marketing profession for these transgressions over the years and it spilled out into my post. I'm not proud of that but it is what it is. The post stands as written with all of its bugs and an awesome comment thread at the end.

UPDATE: There is one other thing I want to mention about the original post. I totally left out customer service. That is possibly the single best way to do marketing for startups. It allows you to connect to your early users, learn from them, and turn them into advocates for your product or service. Yet another bug in my original post.

I came upstairs to my office at 5:15am this morning with a simple plan. I was going to read through the comments to yesterdays post and select one and write a blog post.

5am to 7am is my writing/thinking time. At 7am, I head downstairs and wake the family.

It's 6:53 and I've just finished wading through the 344 comments/suggestions and doing my own liking/voting/replying to them.

Quora cannot hold a candle to this community when it comes to startups and technology and investing. You all are simply amazing. If anyone wants to know my secret sauce when it comes to investing, all they need to do is wade into those comments. It's a gold mine.

I promise I will get to blogging about the top five or ten liked comments. And I will aslo blog about another twenty or thirty topics in there that I particuarly liked. But my time for blogging is over today. Time to wake up the family.

I had breakfast with Alan Patricof last week. Alan is the dean of NYC VCs, he's been at this game longer than any of us. He was in the business when Intel and Apple went public.

The breakfast came about when Alan wrote this blog post in Business Insider about the problems with the IPO market. I read the post and emailed him with some feedback on the parts I agreed with and the parts I disagreed with.

We decided to have breakfast and chat about it.

My going into breakfast position was that the IPO market isn't all that it is cracked up to be. That the emerging secondary market is allowing companies to stay private longer (maybe forever) while allowing founders, angels, and early stage VCs to get liquidity. I believe that the IPO market should only be for the very best companies that can sustain value creation for long periods of time for their shareholders post the public offering. I think that is a very high threshold that most VC-backed companies cannot meet.

Alan's going into breakfast position is that we have lost our way (read his BI post for details). Back in the days of the IPOs of Apple and Intel, great tech companies would go public at low valuations, there were dozens of small market makers who would do research on the stocks, and most of the investors in these deals were individuals. Now we have markets that are largely closed to the individual investor. VC investing is largely instititional and limited to "qualified investors" (ie rich people). The secondary markets are also largely limited to qualified investors. And the IPOs these days are sold to a dozen or so large hedge funds who are also dominated by institutional investors and rich people.

Like all good discussions, we both came away with an appreciation for each other's point of view. I agree with Alan that we need a way to allow the individual investor to participate in the value creation that large tech companies can provide. And I recognize the the vast majority of people who have participated in the value creation from Facebook, Zynga, Twitter, and Groupon have been institutions and the very wealthy. That doesn't seem right or fair.

I think the SEC needs to rethink the capital market regulations and structure we have in our country. The secondary private market is a good thing and does allow great companies to stay private longer while providing liquidity for founders, angels, and early VCs. But there are issues with the secondary markets as they exist today. There are no disclosure requirements. There is little or no way for individual investors to participate. The 500 shareholder rule is creating all kinds of problems for companies. And we don't have a public market system that allows companies to be public at lower valuations with less capital raised. Alan believes we need a "new nasdaq" where companies can list for $250mm or less and have liquid markets in their stocks that individuals can participate in.

The US has a vibrant tech economy, a VC industry that is the envy of the world, and public markets that are highly liquid. We can and should stimulate the development of some additional layers of capital markets between the VC market and the current IPO market. A vibrant and fair secondary market that provides individuals some access and a new "low cap public market" are the natural additional layers to our current system. I'd also like to see more access for individuals into the VC market.

I hope the SEC is thinking about all of this. I hope they read Alan's post and this post. It is important stuff.

When the tech landscape changes; from web browsers to mobile browswers, from flash to HTML5, from laptops to tablets, from typing on keyboards to typing on screens, from local storage to cloud storage, there are always companies that are started to solve the pain points that crop up from that technology change.

I call these "bridge technologies" because they bridge from one technology to another. I don't like to invest in companies built upon these bridge technologies. Most of the time they do really well while the transition pain is high but once most individuals and enterprises have made the change, their business slowly disappears.

There is a chance that they can use that brief period of time to pivot into something with a lasting differentiation and value prop, or that they can build a large enough user base and figure out how to provide additional value to that user base before the initial bridge technology loses its luster.

But from my experience very few bridge technology compaies successfully make those kinds of moves that lead to lasting sustainable value. More often than not, these bridge businesses are not successful investments and very seldom are they the top performing investments in a venture fund.

Bridges are rarely good things in the venture business.