The Richter Scales got a great response from the audience at the Crunchies, after making fun of just about every aspect of running a Web 2.0 company in these trying times. My contribution consisted mostly of showing up and not flubbing the couple lines they gave me – it’s great to be in a group with such talented people!
After a stint as a VC, some parts of being an entrepreneur seem easier. For example, it’s much easier to see things from the investor and the board perspective, because you’ve been in their seats. You know how to pitch to investors, and what information they need. You know what is relevant to the board and what is not, and generally how to handle a board meeting.
There are a few things you forget after being a VC for a while. Hiring and recruiting is harder than I remembered – not the sales part, but just finding people and interviewing them. Making tough decisions about how to spend your limited cash and other resources is harder than I remembered. There are a million and one details that you don’t have an executive assistant or a CFO to handle for you. Travel planning alone is a time sink.
I have to reach out a lot more proactively. I didn’t realize how easy it was to just answer the phone and email all day, but as a VC, a lot comes at you. When I was a VC, it took incredible discipline for me to put that aside and actually be proactive, and I wasn’t doing it very well. As a CEO, the phone doesn’t ring much, which means I reach out a lot more.
One other thing that is much easier as an entrepreneur is the focus. I find that my top few priorities are quite obvious, and I’m not really at loose ends about what is most important to be working on right now. Sometimes there are too many top priorities, and it’s almost paralyzing, but mostly I can just crank without too much reflection. As a VC, I found that much harder. While there were still a million things to do, deciding which ones were priorities was much harder for me. Of course, there were some obvious times when we were doing financings and such, but often I had many different potentially valuable things I could do, and no good way to decide between them. And the feedback cycle was so long that it was hard to even come up with good rules of thumb.
I travel a lot more now, visiting potential customers and partners, and my kids are having to adjust to having me gone more, which can be heartbreaking. I’ve been lucky to have dinner with my kids an awful lot the last few years, and that’s getting harder. But my family definitely senses my excitement and enthusiasm, which helps a lot.
By the way, I’m not the only one who has done this. Danial Faizullabhoy also did this relatively recently, you could ask him what it’s like. Other folks I know who made this transition are Darlene Mann and Perry Wu. There are also VCs who occasionally step into CEO roles for a while, like Alex Mendez at Storm Ventures.
When I went to the “dark side” and joined a VC firm, everyone asked me how it was different from being an entrepreneur. There were a couple of obvious things, of course: you suddenly become a lot better looking, for example, because everyone wants to talk to you. You trade pesky customers for pesky investors and entrepreneurs. You have no direct reports, but have to learn how to influence big egos on boards. You don’t actually do anything, but you talk on the phone a lot, and have lots of meetings. You get home for dinner with your kids a lot more often.
Mostly I loved the intellectual stimulation of having a really smart person or team come in and passionately pitch their best idea to me. I had to assimilate a lot of information, and learn to think at a pretty high level, just to ask decent questions. Getting to do this several times a week was a fabulous experience.
So why did I leave? What’s not to like?
I missed the feeling of taking real risk, the kind of risk that makes you feel alive. I wanted to build something of my own, and feel the energy first-hand again. Go to sleep at night thinking about something, and wake up energized to start working on it. So when the stars aligned to present a huge opportunity perfectly suited to my experience and abilities, I left my cushy job to jump on it.
[I started writing this at the Microsoft VC Summit a few weeks ago, but tax day spurred me to complete it.]
Other than hardcore libertarians, I think there are few who would debate that government funding of fundmental research is a good thing. Much of this research is done at top universities funded by government grantd, but there are also institutions like DARPA, NASA, and NIH that are directly funded. Most corporations, with their focus on quarterly earnings, have too short a timeline to spend significant amounts of money on research that doesn’t have an obvious return on investment in a relatively short time frame.
There have always been a few exceptions, and what is interesting is what they seem to have in common. For example, Bell Labs springs to mind as a great exception. They produced literally thousands of innovations, most of which were (at the time) commercially unusable. Another classic example is Xerox PARC. Once again, tremendous innovative and fundamental research, with little commercial application. What is interesting about both these companies is they were essentially monopolies, and highly profitable, such that their products were referred to as “taxes”. Today we see companies like Microsoft and Google engaged in similar research efforts (although Google’s is pretty young still).
I heard Steve Ballmer speak the other day, and he boasted several times about Microsoft earning $20 billion last year. Many who were with me groaned about the egregious “Microsoft tax” and expounded on how much better the industry would be if everyone used Linux and OpenOffice and the $20 billion were returned to the users.
This prompted a spirited discussion at lunch, which included some long-time Microsoft execs. The “Microsoft tax” is pretty small for each individual. Which creates the greater good: giving each computer user a small amount of money back to spend as they wish, or allowing Microsoft to engage in fundamental research that may improve the lives of everyone? Viewed this way, it looks much the same as increasing the income tax 0.01% to pay for NASA. Of course, this only applies to the $1 billion or so that Microsoft spends on research. The other $19 billion that is dividended back to shareholders is more like a reverse Robin Hood – take from computer users, give to MSFT stockholders.
Now, there are plenty of egregiously profitable companies – Exxon Mobil for example – that don’t spend nearly as much on blue-sky research as they could (despite their marketing that says they do). Perhaps instead of legislating lower profits for them, the federal government should consider legislating more pure research? Of course, this would be hard to verify, but it would be a start.
It’s really Onset’s fault. They put out this great holiday card every year, and for 2004 it was a holiday songbook. Randomly at the ESVCA event this summer I was talking with Tim Chang of Gabriel Ventures, and he mentioned that he sings, and since I sing too, we got chatting about it and somehow hatched the idea that we should sing the Onset songbook. I knew Randy Haykin of Outlook Ventures also sang, since we had both sung (at different times) in the Voices in Harmony chorus, so I got him involved too.
Since I have 4-part mens arrangements of most of these songs, we looked for another singing VC. The one we found, who shall remain nameless, backed out before our first rehearsal, saying he was “too busy”. I tried to argue that this activity would be good for deal flow development and foment strong relationships within the business, so it should count as “work”, but for some reason he just laughed at me.
In the end we brought in David Binetti, who is an entrepreneur considering becoming a VC, and (by the way) a great singer. We had a couple of (short) rehearsals on the roof of our building – we didn’t want anyone to hear us – and spent a little time reworking the lyrics – they were so 2004! We were a little surprised that we actually sounded pretty good. We also joked about picking a name, settling on Up-Round Sound. Other contenders were Top Quartile, Here’s the Pitch, and J-Curve. We decided we weren’t old enough to be the 4X Seniors.
With the songs ready to go, we talked to a number of VC firms (who shall also remain nameless) about singing at their holiday parties. Turns out most VCs are very particular about their holiday parties, and don’t want random groups of people breaking out into song in the middle of them. So, quite a lot of people were deprived of the enjoyment of laughing at themselves while listening to our close harmony renditions. We did end up performing at the Gabriel Ventures party, where we were very well received. I’m sure it had nothing to do with the fact that everyone was 3 drinks in and pretty much everything was funny. We will be singing for the Band of Angels party tonight and that’s probably it for this year.
We have no idea if this quartet will continue to sing together, but we are in the process of acquiring matching socks. Most likely we’ll be available for weddings, bar mitzvahs, and funerals any time all 4 of us are free at the same time, which is approximately as often as pigs fly.
Read on for the lyrics we wrote to Jingle Bells and Deck the Halls (once again, with thanks to Onset for the idea and some of the lyrics). Read the rest of this entry »
Charles River Ventures started quite a tempest in the VC blog teapot by announcing their QuickStart seed program. Matt Marshall wrote about it, Josh Kopelman had a very nice response, and Fred Wilson has an opinion too. Seems like it’s not very different from what VCs (including CRV) have been doing for quite a while. As they say:
“The formalization of this program is a natural evolution for us at Charles River Ventures,” said Bill Tai, general partner, Charles River Ventures. “Over the past year, roughly one-third of the projects we have committed to have been seed projects. It’s a sign of a fundamental change in the nature of company formation today, particularly in the Internet segment.”
Formalizing the program sounds like a good idea, and we are considering a similar program here at Woodside Fund. (Update: we figured out that 20% of our deals are already at less than $1m for the first investment.) But, I think there are three very important points that haven’t been explored very deeply in the discussion:
Josh Kopelman mentions both of the first two in his post about the program, and has also written a separate post about the problems of bridge loans. An even more detailed article on the first two was written this week by Jon Callaghan in PEHub, which I highly recommend.
The third point is one that I want to explore a bit, as it is barely touched on by Fred Wilson. Just because a company takes a small amount of money does not mean it takes less time. Most early stage VCs claim to add quite a bit of value to their entrepreneurs, helping with recruiting, strategy, resources, customers, etc. Seed stage companies usually require MORE of this than more mature Series A companies. And yet, this kind of program contemplates investing an increased number of companies given their small investment size. Where will the time come from?
The investment thesis most VCs have for this kind of investment is that it’s a small amount of money that is designed to both prove a business model or technology is possible, and preserve option value. In many cases, the business model or technology will not prove to be quite as fantastic as the entrepreneur predicted, and the option will be declined. In fact, the dictates of portfolio theory (and investor time) almost require that most of the options be declined. This comes back to point number two above, that many entrepreneurs will end up at a disadvantage going into Series A.
At Woodside Fund, the way we address the above issues is through complete transparency. We work with our entrepreneurs to clearly define the milestones, and what the expectations are around what happens if they are not met. Since we work closely with our entrepreneurs, we can change the milestones if necessary, but we are wary of plans that shift too much. We find that the transparency and proper expectation setting goes a long way to preserve our relationships with our founders, even when things go wrong.
As early-stage venture investors, we look at everything from seed through Series B, sometimes even Series C. We look for areas where we can add value, and make returns for our investors. But we also remember when we were entrepreneurs, and we work very hard to make every investment successful both for us and our company teams.
I did a recent podcast with Steve Bengston about blog marketing. I think it is a good introduction for entrepreneurs starting to think about inexpensive marketing for their startup companies. I talk about how to get started, how to promote your blog and get readership, and the importance of posting regularly and in your own voice. Most likely if you’re already an experienced blogger, there won’t be much new here.
I recently went to TiEcon, and I was invited to participate in the Entrepreneur-Bazaar. This is basically speed-dating with entrepreneurs. I have done this kind of thing before, with Right Hand Partners, among others, and I find it a relatively useful way to see a lot of opportunities in a short time. And, just like Malcolm Gladwell says in Blink, I usually make up my mind in the first few minutes anyway.
Of course, sometimes they are not very well qualified, and I often see many ideas that aren’t fully fleshed out, but I also have a short period of time to give feedback in person, which is much more satisfying than reading a business plan and tossing it out while muttering to myself. And, I’d like to think, helpful to the entrepreneurs too. It can be very hard, giving constructive feedback to an enthusiastic and earnest entrepreneur who thinks he will change the world – sort of like telling a mother her baby is ugly. And sometimes I chicken out, and give some platitude like “my partners just didn’t like it”. But usually I try to give honest feedback, both positive and negative, because I don’t want people to waste their lives working at something based on a false impression that I think it’s a good idea. Not that I would have that much influence, but I don’t even want to contribute to that.
One interesting thing I learned from Blink is that people often can’t explain why they came to an on-the-spot conclusion about something, and if pressed, will often make up reasons that aren’t really true. I try hard to be conscious about why I am passing up an investment opportunity, and to be genuine in my feedback. I am also always trying to refine my “filter” with actual feedback, so I try to research what happens to deals that I didn’t like (and even the ones I like), and take an honest look at if my opinions had any basis in reality. Of course, most deals don’t get funded, so I’ll never know.
For entrepreneurs, there is one piece of advice I suggest you take away from this post: ask for feedback, and try hard to listen to it. If you don’t ask, or even insist, you probably won’t get real feedback. And if you start objecting to the feedback you get, or trying to “answer” it, you won’t get much more. I always have much more respect for entrepreneurs who are willing to listen open-minded to constructive feedback.
Recently I sent Michael Arrington’s Don’t Blow Your Beta post to a CEO of mine. I think the basic ideas in there are very relevant to anyone trying to capture some buzz in this noisy and somewhat unforgiving environment.
A couple months later, the product was still in “internal testing” and had undergone several revisions without the benefit of real outside feedback. I was encouraging the CEO to just “get it out there” so we could learn what people wanted to do with it, and he reminded me of the post I had sent him, and that we didn’t want to blow our beta.
This struck me as a balance that many startups are struggling with right now. You can’t develop your product in a vacuum, and usually you and your engineers are a terrible focus group. However, you don’t want to get public exposure before you are ready, because first impressions are pretty important these days. What’s the solution? Good old fashioned betas, which now seem to be called either “alphas” or “closed betas”.
Back when I wrote code for a living (I’m starting to feel like a dinosaur) “alpha” used to mean feature complete, but not ready for external consumption. “Beta” then would mean ready for a small set of friendly customers to try, for early feedback and bug finding. But now, in the internet land of perpetual beta, the meaning seems to have changed.
I still encourage my companies to release early and often, because today’s tools allow rapid turnaround and product evolution, and the days of 6-12 month product cycles are gone. But because first impressions are so important, and basic functionality so critical, they should go more slowly on the public availability until they are really ready.
I recently attended the O’Reilly Emerging Technology conference, and there was a very interesting presentation on Second Life and some of the emergent behavior there. I was an intermittent gamer when I was in college, but have never gotten into these more immersive multi-user worlds. I keep thinking I need to take some time and see what is there, both for my own interest, and because professionally I need to keep on top of technology developments like these.
I keep putting this off, because I know that I can’t spend just a night or two there and get any real idea of what is going on, and I really don’t have time to be a regular visitor. I probably need a solid week with no distractions to get established, then I might be able to jump back in occasionally to keep up. So, what I really need is a vacation to Second Life. This originally seemed pretty silly to me, but increasingly it seems like a real idea – just like taking a vacation to a new city to explore it fairly thoroughly. I haven’t scheduled the week yet, but I’m definitely thinking about it.
I spent a couple days at the O’Reilly Emerging Technology Conference down in San Diego. I really enjoy this conference, because it is so geek-oriented. There’s nary a business model in sight. The most obvious example of this was the session on playsh, which was very cool, but completely useless – I love it!
The theme of the conference was The Attention Economy, and I think the idea there is particularly relevant. As Michael Goldhaber said, once people have enough money, the scarce resource that must be optimized is attention. Now, I’m not completely clear on the difference between attention and time, so I’ll have to read his book when it comes out. But, it is increasingly clear that demands on our attention are skyrocketing, and anything that helps manage that flood is a good thing.
There were a couple very cool demos, including Ray Ozzie’s demo of a cut and paste mechanism for the dynamic web, and a very cool light table with multiple touch inputs. I think this conference is another one that is great for me professionally, not because I see a lot of companies that I can invest in now, but because it keeps me in touch with things that people are working on, and introduces me to entrepreneurs that might be ready for me in a few months or years.
Rebekah Wu of Right Hand Partners provides a number of excellent services for budding entrepreneurs who want to be introduced to venture capitalists. I have attended a number of her events, and found the quality to be quite high. She also profiles various VCs she works with, and a while ago she interviewed me (direct mp3 link here). If you have 17 minutes to spare, this is a great way to get introduced to me and my entrepreneurial philosophy. Of course, the areas that I am interested in investing in change over time, but the basic advice for entrepreneurs does not.
Spent most of a day at the O’Reilly Emerging Telephony conference. I found several sessions very cool, and like the way the trends seem to be pointing. Generally these tech conferences result in more education and interesting ideas than actual investment opportunities, which is still a good longer term investment of my time. I thought the coolest hack was playing Zork by voice – I used to love Zork, and recently found a version for my Blackberry.
My main takeaway is that between VoIP infrastructure, and clever ways to do carrier-avoidance, the telephone as a platform is opening up in ways that the incumbents have long tried to prevent. This is producing lots of interesting experimentation. There are many similarities to the Internet in this process, and lots smarter people than me have researched this. I did draw a few conclusions though: like the Internet, identity and security are problems that still beg for solutions. Also interface richness, particularly with handheld devices, is a major problem.
It seems to me that to get to the next level of maturity as a platform, there are a few fundamental ecosystem players that still need to emerge. For example, there’s no good payment system like Paypal, nor is there a commerce platform like Ebay. I’m also looking for the AdSense equivalent, to power some of these experiments. Finally, I’d be interested to see more collaboration tools for remote workers.
We are actively looking at investment opportunities in this area, and have focused on building relationships at carriers, equipment providers, and startups to continue to learn more. We are also helping to create resources for our existing portfolio companies in this space, which include SS8, Azaire, and Borderware.
I think this is the canonical “first post” to a new blog. Many people have taken different shots at it, ranging from “why not?” to “who has time for this?” Now blogging has reached enough of the mainstream that starting one at this time seems almost like following the herd – everyone else is doing it. In particular, many VCs have started blogs recently, so it seems I’m just jumping on the bandwagon. In fairness, I have been blogging sporadically for about 3 years on topics of a more personal nature. It’s much more of a “hey, this seems cool” short post format, there’s no real writing there. The objective of this blog is to capture more of my professional thinking around interesting areas of technology to explore, as well as issues surrounding early stage VC and entrepreneurship. Let’s see what happens!
Peter Rip wrote a very good analysis about aligning risk profiles between investors. We have now had two experiences with this. I both cases, the entrepreneur had an offer for acquisition, and also had an offer from at least one investor for a buyout. In both cases, the entrepreneur opted for the acquisition. And, in both cases, it’s not at all clear to me that we (as investors) should have tried to balance their decision more by offering a bigger buyout – that changes our risk, too. There many not be a good solution to this, which then gets back to the question of the VC Squeeze.
Interestingly, I was quoted in the New York Times back on August 5, on this very topic. You can buy the article, but here’s my quote:
At least one venture capitalist, Thomas A. Shields, a partner at the Woodside Fund in Redwood Shores, Calif., sees merit in this argument. To Mr. Shields, a company founder who is “stock rich but cash poor” just might be overly conservative in his or her business decisions for fear of losing everything.
“If you can give these guys a little bit of liquidity so they’re comfortable taking more risk, but not so much that they’re not hungry anymore, then it can be a very good thing,” Mr. Shields said. “You let them take a little bit off the table so they’re playing with house money.”
I have been working with Munjal for a couple of years now, and have tremendous respect for him. I am excited about his new venture Riya, and an honored to be even peripherally associated with him and his company.
Munjal is also incredibly good at recognizing people for their contributions. Below he recognizes a few VCs he has worked with.
We recently put on a CEO summit for our portfolio company CEO’s, and invited Mark Leslie to speak. He gave his now-standard speech on the Sales Learning Curve, which I have now heard 3 times, but still learn something new each time. He asked that we not publish the slides outside of our portfolio, but I noticed that someone else’s blog has them…
Wow. I almost hope this guy comes to pitch to me, just so I can tell the story…
A column I wrote has been published on the AlwaysOn VC Deal Pitch column. Let me know what you think:
A great article with Guy Kawasaki on picking a VC, witty like only Guy can be.