Posts from VC & Technology

Entrepreneurs come in all shapes and sizes. There is no single formula for determining what type of entrepeneur will succeed. But one of my favorite stories about entrepreneurs comes from Don Valentine, the founder of Sequoia, which is one of the best venture capital firms in the business.

When one of the younger partners in the firm started, Don took him aside and drew a four square quadrant. Along one axis, he put "easy to get along with" on one end and "hard to get along with" on the other end. One the other axis, he put "normal" on one end and "brilliant" on the other end.

He then said, "sometimes we make money with brilliant people who are easy to get along with, most often we make money with brilliant people who are hard to get along with, but we rarely make money with normal people who are easy to get along with." 

That has been my experience as well. Getting along with difficult entrepreneurs is one of the secrets to success in the venture capital business. It is also true that finding management teams that can get along with difficult entrepreneurs is critical to succeeding in venture investing. 

The "brilliant entrepreneur" can do a lot for a company. They can come up with the initial idea. They can create the vision and market position. They can get the initial product built. They can set the values and mission. But they cannot do it all by themselves. So they will need a team of people around them to execute the mission, achieve the vision, and do the hard work of building the business. 

Venture capitalists often find themselves in the middle of this stuff. They sit on the boards and sometimes control the boards. They are often asked to choose between the difficult brilliant founder and the easier to get along with "operating management." In a perfect situation, the boards will not be forced to make this choice. There are tools and techniques that can be used to help everyone get along.

I've mentioned before on this blog that coaches are one way to address this issue. I have seen a number of difficult situations where coaches made a huge difference. 

Recruiting is also an important way to deal with this situation. There are some people who have an easier time getting along with difficult people. If you can find them and get them into key positions in startups, you will be better off.

The reality of startup investing is that the greatest entrepreneurs are almost always challenging in some way or another. It is never easy to work with them. But they can and do make great things happen and it is often worth every aggravation to be invited along for the ride, whether you are an investor or a management team member.

A couple fridays ago, I walked down Broadway to the AOL building and met up with Chris Dixon and we talked for about thirty minutes in a small TV studio they have there. The result was a couple episodes of Founder Stories on TechCrunch.tv.

You can watch both of them here. They are both good discussions. I particularly like this one about failure and investing when nobody else wants to. It's about 5 1/2 minutes.

 

There is a thread on programmers.stackexchange.com that asks the question "Why do programmers write applications and then make them free?" The top answer right now is:

Because I don't want to feel obligated to provide technical support or offer refunds.

I have always found the free software approach to be instructive. There are many forms of creative expression out there and most of them involve a paid model. But there is a very vibrant community of software developers that build things and then make them available to anyone who want to use them for free. The key is that they don't offer any ongoing support or maintenance.

If you dissect the model, you'll see that the one time effort of building something is something many software creators are willing to do for free. But the ongoing time and effort of supporting and maintaining the software is not something that can be done for free.

This is, of course, the insight that provided the open source business model. Build software, give it to the community to maintain, and charge for ongoing support. There have been a number of successful businesses built using this model including Red Hat, MySQL, and hopefully, our portfolio company 10gen.

Having worked with software driven startups for many years now, I recognize the cost model all too well. The initial founding team can often build the product in three months. That team is often two or three developers. But once the software becomes popular, it requires dozens of developers to maintain and enhance the code base. It takes a team of tech ops people to keep the software available if it is a web service. It requires a team of people doing support via email. The cost of building software pales in comparison to the cost of maintaining, enhancing, and supporting it.

This approach can be mimicked by anything that is made of bits not atoms. It can be applied to writing. It can be applied to music. It can be applied to film. It can be applied to photography, anime, cartoons, etc, etc.

This does not mean that the paid model of writing and selling software is a bad one. It works and will continue to work. This does not mean that the paid model of recording and selling music is a bad one. It will work for some. This does not mean that the paid model of writing is a bad one. It will work for some.

But it does mean that the free model is very powerful and should be considered by anyone who like to create things but does not like to deal with hard work of maintaining and supporting the work. It is the model behind this blog in fact. You get the content for free. Anything else, you have to pay for with equity in your company.

On Monday , the White House announced Startup America. The CTO of US, Aneesh Chopra, blogged about it on Techcrunch.  My friend Brad Feld was there and blogged about it.

I have no involvement with Startup America, at least yet. But I am a fan of it for one simple reason – they are paying attention. Let me explain.

For years, entrepreneurs in NYC, particularly tech entrepreneurs, labored largely in silence. The city government was focused on the big employers and real estate. Tech entrepreneurship was something that happened elsewhere. It was largely ignored.

Then a year or two ago, the city woke up. Our mayor, himself one of the best tech entrepreneurs of his generation, woke up. They started paying attention to the emerging tech sector. The Mayor started coming our our events. The city took our calls. And they are now working with the tech sector to make things easier and support good ideas. I tell them privately and publicly that I don't agree with all that they are doing and wish they would do other things. But at least they are doing and listening. That is a huge step in the right direction.

Now it appears the White House is paying attention too. They've got smart experienced people like Steve Case, Carl Schramm, and Brad Feld advising them. They've got programs in place and more on the way.

Do I agree with all that they are doing? No. Just like NYC, I wish they would do other things. Just like NYC, I will blog about them.

One thing that jumps out to me is the focus on what is working (tech entrepreneurship) and the lack of focus on what is not working (health care entrepreneurship, energy enetrepreneurship, community entrepreneurship). I'll make sure they hear that criticism, from me and from others.

But this effort gives us an opening. We can get things like visa reform on the White House's agenda through new channels. We can push back on nutty ideas like regulating VC firms so that my blog posts would have to be signed off on a compliance officer before they go public. We can shine a light on areas that need help and those that are doing "just fine, thank you."

I live and work in startup america and I am glad the White House is paying attention to us now.

I'm going to be spending today at the Women Entrepreneurs Festival at NYU's ITP school.

I'll be tweeting out the things that are most interesting to me, and will post all of them to the #wefestival hashtag where there are already some great conversations happening.

I love the idea of an event that celebrates women entrepreneurs. We need more role models, more success stories, and more doing.

Given the amount of startup activity we've been witnessing the past couple years in the web space, we are in for a bunch of strikeouts this year. We should not avoid talking about failure. Words like roadkill and deadpool should be avoided at all costs. But I sure hope that the lessons that were learned will be shared with respect and restraint.

My friend Roger Ehrenberg has a great post on this today. Please go give it a read.

I'll end with the comment I left on Roger's post:

in the VC business, if you hit .300, you are doing well. if you hit .400, you are going to the hall of fame. but it is how you behave when you strike out that defines your reputation. 

no throwing bats 🙂

This past week was a remarkable one in the technology business. At the start of the week, Steve Jobs passed the leadership of Apple to Tim Cook and at the end of the week, Eric Schmidt passed the leadership of Google to founder Larry Page. Apple and Google are two of the most important technology companies in the world and the leaders in the mobile business which is certainly the next frontier in tech. These two moves have me ruminating on the role that CEO transitions play in the development of great companies.

I have been involved in many CEO transitions in my time in the tech/startup/venture business. They are a time of great opportunity and great risk for companies. Getting the right person in the corner office at the right time is absolutely critical and not particularly easy.

In 2010, two of our most important portfolio companies went through similar transitions to what is going on now at Apple and Google. At the start of 2010, Etsy's founder Rob Kalin reassumed the leadership role at Etsy, replacing Maria Thomas who had replaced him 18 months earlier. And near the end of 2010, Dick Costolo took the leadership role at Twitter from founder Evan Williams (who had two years prior taken the leadership role from founder Jack Dorsey).

In all of these transitions you see one kind of leader, the founder, who represents the soul of the company and often also is the "moral authority on product" to use a term I take from my friend and colleague Peter Fenton. And you also see another kind of leader, the operating executive, who will bring order, focus, calm, and execution to a business.

There are periods in a company's life when the founder is the better leader and there are times when the operating executive is the better leader. And there are times, like what is certainly the case at Apple, where you have no choice. There are not many founders in a given company (at Twitter we are blessed with three, Google is blessed with two), but there are certainly plenty of talented operating executives in the world. When a founder cannot serve any more for whatever reason, then you must find someone who can ably replace them. Ideally that person, like Dick Costolo and Tim Cook, will come from within. An internal transition of leadership is much less intrusive than an external transition of leadership.

If you have an operating executive in the leadership role, you should try as hard as you can to keep the founder(s) close to the business and engaged and involved in the key strategic issues facing the company. There are some issues that the founders simply know best on and they must be consulted to and listened to when they come up.

Ken Auletta wrote what I think is the best piece on the Google transition yesterday for the New Yorker. Ken says:

According to close advisors, the Google C.E.O. was upset a year ago when co-founder Larry Page sided with his founding partner, Sergey Brin, to withdraw censored searches from China.

That issue, Google's role in China, is exactly the kind of strategic issue where the founders probably know best. I posted my thoughts on that at the time.

Another key strategic issue is whether to sell the business or keep going as an independent company. Just after Twitter's leadership passed from Jack Dorsey to Evan Williams, Twitter was faced with that issue. Evan Williams wrote an amazing memo to the board on the subject at that time that is among the strongest acts of founder leadership I have ever witnessed.

There is no right answer to the question of who should lead a company. It should not always be the founder, although founder led companies are often the best companies. And it should not always be operating executives, although talented operating executives will clearly be needed in every great company.

In a perfect world, you will have a team at the top of a company that includes the founder(s) and a group of top notch operating executives. They should operate as a team and like, respect, and engage each other in the key issues. The person who is making the final call may change from time to time. In times when you need great creativity and risk taking, you probably want a founder in that role. In times when you need focus, discipline, and execution, you probably want an operating executive in that role. And if you can't have a founder, like Apple right now, then you want the next best person, whomever that might be.

Too much change at the top can be bad for a company. A CEO for life can be bad too. Something in the middle is probably better. And if you are going to have change, evolutionary change where the company has time to get to know the new leader before he or she is elevated is ideal.

I suspect the changes at Apple and Google will be largely non issues for the companies in the near term. I am particularly inspired by the idea of Larry Page in the leadership role at Google. That company could use a period of "great creativity and risk taking." And I am sure that Tim Cook will prove to be a steady hand at Apple, building on top of the amazing work that Steve Jobs has done. Likewise, I am very pleased with the changes that transpired in our own portfolio companies in 2010 and am feeling very good about their prospects this year.

I'm looking forward to the discussion of this topic in the comments. It should be a good one.

I'm going to the gym in a few minutes. I'll bring my android and stream some music while I'm on the treadmill. Maybe I'll listen to my soundcloud dropbox, or maybe I'll check out the popular tracks on hypem, or maybe I'll listen to some fredwilson.fm. I stream music on my mobile phone all the time. I don't have a single mp3 on my android and I don't have any desire to put any on it.

This is the future. We won't be buying files, moving files, and listening to files. We'll be streaming audio from the cloud onto our connected devices in our homes and offices, and onto our mobile devices at the gym, on the bike, in the car, etc. And I think mobile streaming audio is going to be huge.

How will the mobile audio streaming services make money? Some will charge a subscription. But I believe, like the radio industry for the past 50 years, most will make money by running commercial messages in the stream once or twice an hour.

And yesterday, our portfolio company Targetspot, launched the first mobile audio ad network. Initial mobile streamers include AOL Radio, Yahoo Music, CBS Radio, and Radio.com.

Targetspot built and operates the largest streaming audio advertising network and has been the leader in this market for the past three years. This move into mobile is very exciting to me because it will allow advertisers to reach music and audio listeners when they are out and about. Imagine combining mobile audio advertising with geolocation and time of day targeting.  Imagine hearing a Starbucks audio ad on your morning run alerting you to a discount on expresso drinks at the store a block away?

But most importantly, this mobile audio ad network provides a much needed monetization system for mobile audio apps (and actually any mobile app that wants to run audio spots). I believe Targetspot's mobile audio ad network will allow developers to build and launch innovative new streaming audio apps and make money from them.

If you have a mobile app that streams audio or that you would like to run audio advertising in, please contact the Targetspot team and they will give you the tools to build audio advertising into your mobile app.

We believe the venture capital business is a services business and the entrepreneur is the client. Over the past few years we have come across a number of entrepreneurs who we would have loved to work with but who had specific capital needs we could not satisfy with our fund structure.

Over the past several months we fixed that and we now have an additional tool in our toolbox. We call it The Opportunity Fund and we've described it and how it will work on the USV blog this morning. 

I'm very excited to have this additional flexibility and I am also very excited to be able to call John Buttrick a partner. John has been hanging around USV from the very start, advising us, and supporting us in so many ways. He will make us even better investors and partners for entrepreneurs. Which is a great thing.