Friday Afternoon Is Bad News Time

If you've been paying attention, the Fed likes to release bad news after the markets close on friday afternoon. The past couple weeks, they've announced the failures of small regional banks.

Well today, they announced something just a little bit bigger - the government bailout/takeover of Fannie Mae and Freddie Mac, the two large mortgage finance guarantors. The markets have been expecting this for a while, but obviously not everyone was expecting it as their stock prices were $5.50 and $4 respectively when the market closed today. If everyone was expecting this, then those prices would have been a lot closer to zero.

This means the US taxpayers are now the guarantors of many of the mortgages that have been issued in recent years. Nobody really knows how much liability that the government/us taxpayers have taken on, but it's certainly a huge number, way more than the savings and loan bailout of the late 80s.

I've been reading The Black Swan which talks about the impact of highly improbable events and how often they actually happen. Two years ago, if you had asked wall street insiders what the probability was of a bankruptcy of Fannie Mae and Freddie Mac, they'd have most certainly said less than 1%. And yet that is basically what we've just witnessed. It's not technically a bankruptcy, but the equity has been wiped out and the company has been taken over by the only entity that can guaranty the debt - the US govt/taxpayers.

Some will argue that this is really good news, that this marks the bottom of the bear market in real estate and the final capitulation from which we can now start moving higher. I don't think so. The small regional banks that the Fed's been letting go under the past couple weeks will continue to go under and I think we've got at least another six months to a year of bad news in the real estate/mortgage business before it's all over.

However, I've also heard that the smart money that was short real estate and mortgages for the past couple years has mostly closed out those shorts and is starting to put together significant capital to buy mortgages (maybe from the us, the taxpayers, via Fannie Mae and Freddie Mac - just as smart money did after the S&L bailout).

So, we are closer to the bottom than the top and although we've got more pain to work through, the smart money is starting to shift their posture.

How does this impact startup land and venture capital? Well from my vantage point, we've been largely spared for the past year. And I think we'll muddle through this period better than many other sectors. But the capital markets are a mess and we should not expect a rosy exit environment any time soon. And we should expect to continue to get bad news on fridays after the market closes for a little while longer too.

September 5, 2008 stocks | Comments (View)

Open Systems, Open Data, Transparency

Hank Williams points out that the front page of the Angelsoft website is really great. For those that don't know Angelsoft is a free web service that many angel investors use to manage their deal flow. We've looked into using it to manage our deal flow and I wish we could use it, but we don't currently.

Hank and his commenters mostly focus on the twittervision style map on the front page that shows the real time deal sumbmissions geographically. I agree that's neat, but like twittervision, it's a novelty that I don't feel provides lasting value.

The underlying data, however, is really interesting. Angelsoft is showing the following data on their front page.

The Funnel of Submissions to Transactions

Funnel

The Industry Breakdown

Industry

Deal Submissions Over Time

Submissions

Now this is really useful data to both entrepreneurs and VCs and it's not readily available for free anywhere that I know of. Angelsoft has even more data on this page.

If every VC and every angel investor used Angelsoft, or even if a represntative sample used Angelsoft, then we'd be able to see exactly what is going on in the venture market in real time (or near real time). But right now, the user base is heavily weighted toward angel investors and the data is skewed in that direction as this chart shows.

Valuations

We don't use Angelsoft because we have specific workflow issues in our firm that make it hard for us to use it. Instead we use a wiki. We used to use Jot until it was bought by Google and rendered basically unusable over the past year. We recently switched to Zoho and are quite happy with that choice right now.

I've said before that I'd love to integrate our wiki deal log with Crunchbase via their api to pull company information when they have it and to push company information to them when they don't. I'd also love to push our deal information (with much of our firm specific info removed) into Angelsoft and other similar systems so that their data becomes better and richer and more meaningful.

The venture industry has been served over the years by a few proprietary databases of deal/transaction information. I've always refused to pay for that data because we basically know most of that information from being in our market every day. But the idea of collaborating with all the players in the market to build a completely open set of web services, built on open data, to provide full transparency would be a big step in the right direction.

I applaud David Rose and the Angelsoft team for being so open with their data and I applaud Crunchbase for their openness too. I hope others will follow in their footsteps.



September 4, 2008 Venture Capital and Technology | Comments (View)

Polisigh - Political Humor On Twitter

druce; from twitter and Fred Wilson (at my humble suggestion): @polisigh - the political humorbot - the future of the free world depends on us

Druce came up with the idea, a twitter follower picked the name, and whitney turned on the bot. If you enjoy good political humor, then start following polisigh on twitter.

And if you have good political jokes to share just follow polisigh and then post the jokes on twitter as follows:

@polisigh Juneau: a comedy about a Presidential election - and the bumps along the way

The joke will then be sent to all the people who follow polisigh

September 3, 2008 Politics , Venture Capital and Technology | Comments (View)

Streaming vs File-Based Media

Diagram of Streaming Multicast

Image via Wikipedia

I've been a huge fan of the streaming model vs the file based model for as long as I've been thinking about digital media. I wrote this about streaming vs files in the digital music business last summer:

File based music has to exist today because there is no good mobile broadband internet solution. When you are at the gym, in the car, on a run, you have to have files to listen to. You can't get your music via a stream when you are on the go. But that's going to change and I believe within five to ten years, we'll be listening to last.fm, the hype machine, and rhapsody in our cars and iPods and phones. And when that day comes, owning files isn't going to be necessary anymore. It's not necessary anymore in my home. I have several hundred gigabytes of mp3s (all acquired legally by the way) in a server in my basement. We barely ever listen to them. Streaming music is better because it's abundant. I don't own all the music in the world on my server. But almost every song ever recorded is on the Internet somewhere.

I think this is even more compelling in video where the file sizes are larger, take longer to download, and eat up more hard drive space. And clearly monetizing streaming media is a lot easier because ad insertion can be done in real time which means it can be targeted, tracked, and measured.

And it seems that the market is starting to move to streaming and away from file based media. Ars Technica reports that:

with the rise of Hulu, YouTube, Veoh, the BBC iPlayer, and many more, it's streaming traffic that now generates tremendous concern, even as P2P drops off in some cases. The shift, should it become a permanent trend, is good for everyone.

The part of that quote that really got my attention was the comment that P2P "drops off in some cases." Ars Technica quotes several sources in that post, including this one:

at PlusNet [a british ISP] P2P traffic has dropped from an average of 13.4TB a day last year to 12.2TB a day this year, and now makes up only 25.9 percent of total traffic

The Ars Technica post also has a lot of data about the rapid increases in streaming traffic, but I think we all can see that happening right in front of us. The real insight is that streaming takes away the need and the desire to pull files from the P2P networks.

This is a great thing for everyone. Streaming is easier for users and a mainstream activity where P2P is not. My daughter, who is 17 and totally technical and at ease on the Internet, had to ask me last weekend how to download a torrent. And streaming works much better as a business model for content owners and media companies.

We are finally getting to the point where content owners are embracing the Internet, putting their content up in streaming format, and getting the financial and promotional advantages of doing that. And in the process putting a dent in the file based media business. It's about time.

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September 3, 2008 Venture Capital and Technology | Comments (View)

Comment Of The Day: Chrome, Android, and the Cloud

The amazing thing is how people thought there needed to be an antitrust case against Microsoft for something as obviously necessary as integrating an html rendering engine into an operating system.  Happily Google came along and showed once again a new business model is far more effective than a bunch of lawyers.

Originally posted as a comment by Ranjit Mathoda on A VC using Disqus.

September 3, 2008 Venture Capital and Technology | Comments (View)

Chrome, Android, and The Cloud

Android_chrome A journalist friend of mine once said about Google "they are a freak of a company, the best advertising business ever built is funding the largest collection of mad scientists ever assembled". I love that description of Google and have used it many times. But it suggests that Google is chaos and I don't think that is true at all.

Google is building a collection of web apps, like gmail, gcal, and google docs, that businesses are increasingly relying on. My personal goal this year is to get our firm completely off of the office suite and into the google suite. As builders of web apps, Google understands that the infrastructure for the deployment and operation of web apps just isn't there yet.

And so they are doing something about it in three important places.

1) They are building a modern browser, Chrome, that resembles an operating system as much as a browser. If you haven't read the Chrome Comic Book, you should do that. It's not that Google wants to build a better version of Internet Explorer or Firefox. They want to build a better environment for running web apps.

2) They are building a mobile operating system, Android, that is also designed for running web apps in a mobile environment. I think in time, Google's Android will be to the iPhone what Windows was to the Mac. The iPhone laid out many of the killer mobile device innovations, but its a closed device, a closed carrier relationship, and even a closed application store. Android will take all of those good ideas and put them on every device, with every carrier, and in partnership with every app developer. You'd have thought that Apple would have learned the lesson that you can't control the entire ecosystem with the Mac, but they did not.

3) Google is all about the cloud. They have developed all of their apps in what goes for the cloud these days. They've build a great cloud computing platform in App Engine. And they will certainly support other cloud computing environments that emerge. Google's DNA (like Intel's DNA) is about supporting an entire ecosystem. The more web apps that are built, the better Google will do. So they will do anything and everything they can to support the development of a robust cloud computing environment for web apps.

It is on this three legged stool (browser, mobile, cloud) that Google's future will be built. And sitting here today, it seems like they are well organized and have a great strategy for doing just that.

Full Disclosure: I am long Google.

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September 2, 2008 stocks , Venture Capital and Technology | Comments (View)

Three Web 2.0 Questions

The producers of web 2.0 NYC asked me to answer these three questions for the Web 2.0 NYC blog:

1) What are the biggest differences between the east coast and west coast web communities? 

The biggest difference is that NYC is home to a number of industries that have much larger communities than web technology. In the bay area, technology is the dominant industry. What that means is people who work in web technology in NYC don't socialize outside of work with the same people they work with. If you work in web technology in NYC, you are unlikely to run into people in a similar line of work at your kid's school, youth sports on the weekend, or a dinner party. In the bay area that happens all the time. I think this is both good and bad. The bay area makes it so much easier to connect with others for hiring, business development, funding, etc. But NYC provides a more balanced lifestyle than can help people who work in web technology understand how to create services with mainstream potential. It's very easy to get sucked into an echo chamber in the bay area and that happens less in NYC.

2) What's the most important, cool, scary, or useful product or technology that's recently arrived or on the horizon?

Android powered phones, like T-Mobile's Dream, are really mind boggling to me. When you can put any software on them you want, when you can hack the phone, when you can connect it to any carrier, when you can connect to any other device, the potential for the mobile phone/computer is limitless. I think the iPhone pales in comparison to the disruptive potential of Android powered phones.

3) Aside from your own talk, what's the most interesting / entertaining speaker, talk or panel happening at Web 2.0 Expo?

Instead of picking just one, here are some things I wouldn't miss at web 2.0 NYC:

1) My friend Charlie and my partner Albert are kicking off the conference at 9am on Tuesday with a case study class on startup decision making. These are two guys who have spent their careers (so far) on both sides of the startup table and have spent time as both VCs and entrepreneurs. I think this is going to be great.

2) Wednesday morning at 10am is going to be a tough call. Jonah Peretti is doing a session on viral marketing and I've not met many people who understand how this stuff works better than Jonah. But my partner Albert is on again at that time with a session on cloud computing that should not be missed for those interested in this rapidly developing sector.

3) If you've never seen Joshua Schachter talk about designing and scaling social systems, you owe it to yourself to do that. He's on at 1:20pm on Wednesday.

4) 3pm to 4pm on wednesday on the main stage is going to be great with back to back presentations from Maria Thomas, CEO of Etsy on "How To Grow A Company" and Gary Vaynerchuk on "How To Build A Personal Brand".

5) Clay Shirky on Thursday at 9:30am. I would never miss seeing Clay talk about the web. He understands it so much better than most of us.

6) David Kidder and friends on web advertising automation. David's an amazing presenter and he and his colleagues will make a very complicated topic easy to understand and you'll leave with real actionable things you can do in your own company.

7) Kevin Ryan is doing two panels, one on doing a startup in NYC and one on exiting a deal profitably. Kevin's got great company on both panels and they should be lively and informative.

September 1, 2008 Venture Capital and Technology | Comments (View)

Comment Of The Day: Web Services That Cater To Both The Publisher And The Reader

"You have to build a service with the user/reader in mind or you won't get any uptake. But if you can't engage the content creator in your service, you'll lose something important"

what's most interesting about this thought - which clearly I agree with and in fact we look for and build services that support the notion - is that it implicitly acknowledges that the line between content consumption and creation (i.e, publisher and reader) is blurred, maybe to the point where the distinction no longer matters.  Instead, more interesting value is being created by services which take new ways of looking at content, from the perspective not of the originator (or owner) of the content, but by its velocity, its movement, its consumption patterns.

So tremendous value can be created by looking at and building applications that, as you say, serve both sides of the equation because that's where the action is occurring.

Originally posted as a comment by aweissman on A VC using Disqus.

August 31, 2008 Venture Capital and Technology | Comments (View)

Web Services That Cater To Both The Publisher And The Reader

I've been noticing a trend lately that certain web services are starting to cater to both the publisher and the reader. And I think this is an important direction for a host of reasons.

You have to build a service with the user/reader in mind or you won't get any uptake. But if you can't engage the content creator in your service, you'll lose something important. When publishers start paying attention to a service, they build hooks into their content that drive more users to the service. An early example of that were the "digg this" and "post to delicious" links that publishers put at the end of their stories.

Sponsored_posts And monetization opportunities can result from publishers engaging with the service. A good example of this is the sponsored posts section on techmeme. Publishers and bloggers come to techmeme every day to see what the tech world is talking about, but also to see if any of their stories got picked up. So it makes perfect sense that Gabe offers publishers the ability to feature their content for a price on the right side of the page. I've suggested to Gabe that he do more to service publishers. The leaderboard is one very smart thing he's done. But he could do more. There's no page on techmeme where I can go type in my blog url or feed and then see stats on my posts. I tried to use techmeme search for that, but it's not really suited for that application.

Outside.in (one of our portfolio companies) does a great job with this. The outside.in front page and the personalized radar page are totally designed for the every day reader, showing them what is happening in their neighborhood. But they have a page for publishers that allows me to give them my blog info and get stats on how many of my posts have been picked up for each location they service and who else is blogging about those stories, places, and neighborhoods. By engaging the publishers and local bloggers in their service, outside.in insures that all of their content is coming into outside.in and they engage these publishers in various monetization opportunities that outside.in offers publishers and local bloggers.

Bitly_clicks_2 A service I've started using a lot lately is bit.ly built by our friends at Betaworks (our firm does not have an interest in bit.ly). John Borthwick of Betaworks has a good post on bit.ly on his blog. There are dozens of url shortening options on the web these days, all taking from the good idea that tinyurl started. And they all do a pretty good job of shortening urls quickly and easily. But bit.ly is thinking a lot about publishers in their approach to building out their service. If you visit my political post from early this week and then click the bit.ly bookmarklet, you'll see this list of places that post has gone. You can see that 194 people on twitter clicked thru to that post with bit.ly, eight did it on facebook, four did it on netvibes, etc, etc. That's very useful information for a publisher and getting publishers interested in bit.ly will get them using it and possibly providing a way to monetize it, something that has eluded the url shortening category to date.

Kozmo_2 That click tracking picture reminds me of another of our portfolio companies, Tumblr. When David and Marco built Tumblr, they built it from day one with both the publisher/blogger and the reader in mind. You don't just blog/create content in Tumblr, you also consume it there. The Tumblr dashboard is a very simple and elegant "rss reader" but they don't call it that. But in keeping with "serve both the publisher and reader" mantra, the dashboard is also where you go to find out how people are consuming and engaging with your content. On the right is a screen shot of the way tumblr readers engaged with the kozmo photo I blogged at fredwilson.vc yesterday. Right from the dashboard that I use follow what other people I care about are saying and doing on tumblr, I can see how people have reacted to what I have done. It's a great example of the power of social media in action.

Any post on this topic by me would be remiss if it didn't at least mention friendfeed and twitter. Both have tabs that let me focus on how people are enaging with my content. The reply tab on twitter does that for me and the "me" tab on friendfeed (or the "my feed" page in the new beta version of friendfeed) also does that for me. That said, I think both services could do a much better job of surfacing what people are doing and saying with my content. Twitter can't tell me (at least I don't think they can) how many people favorited one of my tweets, how many retweeted, how many people clicked on a link in one of my tweets, etc, etc.  And I have not been able to figure out how to just see all the comments people have left for me on friendfeed. So both of those services could improve the way they service the publisher in my opinion.

We are at an interesting point in the world of media. Bloggers and every day people are creating more and more relevant content that mainstream people are consuming. But big media companies are seeing the power of social media and they are engaging with the very same services more and more every day. This is mashing up and mixing up the concept of the publisher and the reader. And so services that do the same by focusing on both of them at the same time are going to prosper.

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August 31, 2008 Venture Capital and Technology | Comments (View)

A Fun Job For A Strong Graphic Designer

In two and half weeks, I am going to deliver a web 2.0 keynote titled:

New York's Web Industry From 1995 to 2008: From Nascent to Ascendant

As many know, we created a wiki and I asked people to contribute ideas to it.

And they did.  NYC's web history has been outlined on this page. And we've got a bunch of great images on this page.

I've got a pretty good idea of what I want to talk about and all of this user generated content has been incredibly helpful. Thanks everyone.

Now I need to hire a graphic designer to help me tell this story with a visual presentation (possibly delivered right on the web). I'm also open to using keynote or powerpoint.

Here's what I want:

1) a person who can take my ideas and make them come to life on the screen. there will be little to no text in the visual part of this presentation

2) someone who has the time over the next two weeks to put this together. i have to submit the presentation to the web 2 conference on friday, sept 12th

3) a NY native who has watched the internet industry develop over the past 15 years.

This is a paid gig. But more than anything I want someone who is as into this topic as I am.

If you are interested, please send me an email. Click the contact link on the upper right of this blog to do that.

August 30, 2008 Venture Capital and Technology | Comments (View)

Comment Of The Day

Well....these are two VERY different types of numbers

I would argue that a three point lead in voter polling SHOULD lead to a 60-40 lead in wagering because with a three point polling lead you are statistically favored to win 60% of the time.

I'd assume that if the polling was coming in at 55-40, the wagering odds would be around 95-5.

Originally posted as a comment by andyswan on A VC using Disqus.

August 29, 2008 Venture Capital and Technology | Comments (View)

Black Swan Quote Of The Day

The payoff in a human venture is, in general, inversely proportional to what it is expected to be. —Fred Wilson Dot VC

Nassim Nicholas Taleb, The Black Swan

I am finally getting around to reading this important and fascinating book and as I've been doing lately, I'll try to reblog the best quotes I come across while I am reading it.

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August 29, 2008 Venture Capital and Technology | Comments (View)

Polls vs Markets

My friend Alan Warms sold his small company Buzztracker to Yahoo! last year and has been doing some great work inside Yahoo! since then. Yesterday, he sent me a link to their new election dashboard service which I have bookmarked and will now visit everyday until the election.

I like the fact that I can get everything I need to know in one page view with links to things I care about like the most blogged about political stories of the day. It's very well done although I sure wish they'd done it in ajax instead of flash.

The thing that pops out at me when I look at the election dashboard this morning is that the race is very tight in the polls (47% Obama, 44% McCain). And the polls will clearly tighten in the next week as McCain benefits from the limelight of the republican convention.

But the election markets are not tight at all. Intrade has it at 60% Obama, 40% McCain and it hasn't really moved in the past three months.

Chart1217595790701196357

Hub Dub has it at 70% Obama, 30% McCain and that also has not moved much in the past three months.

Hubdub

So why is it that the polls are tight and tightening and the markets are not? And are markets better predictors of news than polls? I suspect the answer to that is yes.

I've been placing a lot of bets lately on Hub Dub and I am having fun and engaging with the news in a way I've not done before. It's the same effect playing fantasy baseball or football has on your enjoyment of the real game. And in the process, it may become a new way for all of us to think about the news.

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August 29, 2008 Politics , Venture Capital and Technology | Comments (View)

Change I'd Like To See

Fred_obama I've got my Obama t-shirt on today and my song of the day is celebrating the change that is going to come. I am eager to watch Obama speak tonight. I've watched (mostly after the fact via web video) many of the speeches in Denver this week. Frankly, I've not been particularly inspired. Although Bill Clinton's speech last night reminded me why I was such a big supporter of him in his time.

I am hoping that Obama can inspire me and the nation tonight. He's talked so much about change, but I think he needs to be really clear about what tangible change he wants to bring and how he's going to do it. Change as a slogan doesn't inspire me. A short list of top priorities would. You can't do anything if you try to do everything. But if you focus on a few big things, you can change a lot.

Here's my list of the five things I'd want to change if I was in his shoes:

1) Rid politics of the stench of money and corruption. I used to think we should have public financing of campaigns but I've come around to the point of view that giving money is a form of free speech. We should allow our citizens to give money to fund campaigns but all gifts should be anonymous. If you can't and won't get "credit" for your contributions (as is the largely case with the $10 to $100 gifts given over the Internet), then we'll have a much cleaner political system.

2) Get us out of Iraq. Regardless of whether this was a good war to fight or a bad war to fight, we've achieved most, if not all, of what we can and will achieve there. It's cost us about $600 billion so far and the cost is going up by about $12 billion per month. And most of that money is not going to our troops and our military operations. It's going to pay for private companies and bribes to keep the Iraqis from killing each other. It's ridiculous. I heard this week from someone's speech in Denver that the Iraqis have built up a surplus of close to $100bn from oil profits. It's time for them to be financing their own security and it's time for us to go. Their own leadership agrees with this view. We should have a firm timetable to leave and we should have the Iraqis start paying us $12bn per month for as long as we stay.

3) Cut the deficit. We've got an annual budget deficit of roughly $600bn per year. After leaving Iraq, we'll still be in the red by $450bn. I'd just roll back the Bush tax cuts and go back to the tax rates in place under Clinton when the economy and the rich were doing just fine. That would raise at least $200bn per year and probably more. Those two moves alone would cut the deficit in half. I'd go further and get the budget back in the black but that would not be in my to top 5 list of priorities.

4) Invest in alternative energy. I've heard Vinod Khosla say that we could turn the upper plains states into the next middle east with significant federal commitment and private investment in biofuels. I don't know if that's true or not, but we need a John Kennedy "go to the moon style" national commitment to eliminate our country's reliance on carbon energy in the next 10 years. In the process, we can create millions of new jobs, and maybe we can turn Sioux Falls into the next Dubai as well.

5) Change the healthcare paradigm. We need a market based solution that covers every citizen's health care. I don't care whether it's Obama's plan, Hillary's plan, or some other plan. But it should be market based, create incentives to continue to invest in and find innovative new treatments, and it should cover everyone. Plenty of countries have done it. It's time for the US to do it too.

I know that several of these are on Obama's list and that's why I am supporting him. I don't want more tax cuts for the rich, bigger deficits, a continued reliance on oil energy, more wars, less diplomacy, and a continuation of the existing health care approach. I want change. I hope Obama can convince the rest of the country tonight.

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August 28, 2008 Politics | Comments (View)

Axes To Grind

Having and "axe to grind" is a phrase that means you've got a dispute to take up with someone or possibly an ulterior motive. I've seen and/or participated in several such axes in the past 24 hours and it's gotten me thinking that the Internet, email, blogging, etc is a particularly great way to grind such axes.

Alley Insider and Valleywag have posts up today addressing the WSJ story about Insight Venture's individual partner's making a $3mm investment in Photobucket that turned into $40mm for them personally instead of their LPs. This is a tricky part of the venture capital business, full of conflicts, and one that I have had to be very careful about myself. When I read the story, my first reaction was why this story and why now? Photobucket was sold almost two years ago. It turns out that both Peter kafka of Alley Insider and Owen Thomas of Valleywag were pitched this story and didn't bite. And Owen Thomas wonders outloud on Valleywag:

I was fascinated by the question of who wanted to get Insight, and why. I'm still at a loss. Insight has a low profile in the industry; as a late-stage investor, based in New York, it rarely dabbles in Silicon Valley's splashy younger startups. (Its sexiest investment is SkinnyCorp, the New York-based parent company of Threadless, a website which sells T-shirts.)

So: A spurned entrepreneur? A rival venture capitalist who lost a deal to Insight? It's useful to keep in mind that venture capitalists can make a lot of money on side deals — deals they heard about in the course of doing their day jobs. 'Twas ever thus. The person who thinks he ratted out Insight, though? He'd like you to believe that some venture capitalists are so venal and so foolish as to torpedo their entire careers over a tiny deal that happened to turn out well. Insight's opponent, whoever he is, underestimated the firm's intelligence — and some reporters' intelligence, too.

Yesterday I got an email from a person who is unhappy with TypePad's data portability offerings. He is "trying to get the word out that TypePad's users are truly locked in". He asked me to blog about it. Others have blogged about this issue, but I didn't feel sufficiently knowledgeable so I forwarded the email to a friend at Six Apart. My friend wrote back that:

Since day one TypePad's provided an easy way to get your content out of the tool, with the well-documented MT import/export format, and for years has supported domain mapping so that users can own their own URL and keep that with them if they choose to move their blog to another platform or service.

[He] rightly points out that the MT import/export format doesn't include the permalink of the entry. Our efforts now around data portability are focused on the IETF standard AtomPub, which is fully supported in TypePad.

I then passed that back to the guy who emailed me. I guess I am now weighing in on and highlighting this debate, but I still don't know where I come out on it. I am all for data portability within reason. But it's also clear to me that the people who are taking on Six Apart have some sort of axe to grind and I don't know what the motives are and that bothers me.

I've also had several email exchanges and one blog comment in the past day with people who have complained about one or more of our portfolio companies. This happens to me a lot, at least a few times a month, but it happened several times yesterday. I always refer these people to right people in our companies and take mental note of the complaint. Most of the time, these complaints are totally legit and I am well aware of the deficiency and trying to help our companies address it.  But sometimes the tone of the complaints, the level of anger and tone of the conversation, leads me to wonder what's up with the people who are making them. Do they have an axe to grind?

I guess journalists deal with this all day long and have developed tools, tricks, and techniques to deal with this issue. I could use some advice as an investor and blogger to help me deal with it. I think it's only going to grow as an issue for me.

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August 27, 2008 Venture Capital and Technology | Comments (View)

Goodbye Olympics, Hello Conventions

I followed two twitter bots during the Olympics, 08olympics and twittolympic. They were both great and I want to thank the people who put them together and operated them. I got more olympics news from these two bots than any other source. It helped me keep connected to the olympics while I was traveling and away from the TV. And it made the TV watching even better when I was able to do that.

I've stopped following these bots now that the Olympics is over and now I want to turn my attention to the two conventions, the Democrats this week and the Republicans next week.

Can anyone recommend good twitter bots to follow the convention news? I don't want individual twitters, I want bots that aggregate the best links and tweets. Please leave your suggestions in the comments and I'll reblog the best suggestions (gotta love reblogging comments!).

UPDATE: I am still searching for some good bots to follow, but this HuffPo twitter account seems like it's going to be good. I'm following it now.

2nd UPDATE: Added rss_democrats and rss_republicans. Two more twitter bots to follow. And I stopped following the HuffPo twitter account on my mobile. It was a firehose.

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August 26, 2008 Venture Capital and Technology | Comments (View)

Reblogging Comments

If you visited this blog over the weekend you saw this post which looks like this:

Comment_post

That post was a reblog of that comment left by Joe Lazarus. I was able to reblog it with one click using Disqus.  This is a feature I've been asking for since Disqus launched and it finally arrived today.

Here's how it works. If you have a disqus profile (you probably do if you leave comments here regularly), go to that profile and give disqus the login credentials to your blog. Then whenever you see a comment you want to reblog, hit the reblog link that is after the comment right next to the reply link. It's that simple.

As I explained to Alan at Centernetworks:

i regularly get great comments on my blog and want to be able to elevate them to the front page easily. this does that for me.

i also sometimes leave comments on other blogs that are full blown blog posts and i've wanted a way to showcase them on my blog while recognizing the blog they came from. this does that as well.

That was a comment I left on Alan's blog. If he was using Disqus, I could have posted it here with all of the relevant links with one click.

When stuff like this gets easier, more people will do it and commenting will become more popular because your comments will sometimes end up as blog posts where you get the credit.

Disqus is all about making commenting easier and better for everyone. And reblogging is a big step in the right direction.

I am going to try to reblog a comment at least 2 to 3 times a week. Hopefully I'll do it even more.



August 25, 2008 Venture Capital and Technology | Comments (View)

Venture Fund Economics: Allocating Follow-On Capital

It's time for another entry in my Venture Fund Economics series. This time I'd like to talk about the importance of allocating follow-on capital.

One of the great things about early stage venture capital, as compared to many other investment disciplines, is that you get to build your position in the company over time, sometimes over a very long (5-7 year) period.

So this allows the venture investor to allocate capital to the investments in his/her portfolio based on the performance of those investments. I've likened each investment to a hand of poker and it's certainly a lot like that.

Let's start with my 1/3, 1/3, 1/3 assumption that regular readers will be familiar with. This says that 1/3 of an early stage venture portfolio will be losers, 1/3 will get your money back or make a little money, and only 1/3 will deliver the kind of performance you expect when you make an investment (5-10x).

If each investment was allocated the exact same amount in a theoretical portfolio, this is how the 1/3, 1/3, 1/3 scenario would play out.

Scenario_1_2

You'd get 2.2x your total invested capital on a gross basis (before fees and carry) and as we discussed in prior posts on this topic, that's not good enough.

So let's say you did a $1mm round in your losers, two $1mm rounds in your break evens, and three $1mm rounds in your winners. That would look like this.

Scenario_2

You'd get 3x your total invested capital on a gross basis and that is not so great either although it gets closer to acceptable performance.

But fortunately, most companies need more capital as they grow. So let's assume the one, two, three rounds is right, but that the first round is $500k, the second round is $1.5mm, and the third round is $3mm. Then the numbers play out like this.

Scenario_3_2

This results in 3.7x on a gross basis which is about where you'd need to end up to generate a good return to your investors after fees and carry.

So it's pretty clear that allocating capital is a key aspect, possibly the most important aspect, of generating good returns in a venture fund.

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August 25, 2008 Venture Capital and Technology | Comments (View)

Sometimes You Just Have To Walk Away

The title of this post is a line in a Damon Gough (aka Badly Drawn Boy) song that I heard on my bike ride this morning. You can click on the black banner at the bottom of the screen and hear it play while you read this.

And it took me back to an email exchange that I've been having this week with some friends about "breakage" in a venture capital portfolio. Tim (Connors I assume) from USVP left this comment on my blog the other day:

i was at the ycombinator event yesterday and i think PG said they have had 102 companies through and 14 so far have been series A funded by VCs

I was surprised that the number of VC funded YC companies was so low and forwarded the comment via email to some friends in the VC business with the following comment:

I would have thought it would be much higher

To which I got back a bunch of comments about "breakage", meaning companies that don't make it. Early stage venture portfolios should have a decent rate of failure, and the earlier the portfolio, the higher the rate should be.

I've said a bunch of times on this blog that I think an early stage venture portfolio should have 1/3 failures, 1/3 money back situations, and 1/3 that deliver the returns the VC expected when the investment was made.

But that hasn't been the case in the USV 2004 portfolio so far. We are done putting new names in that portfolio and have made a total of 21 investments. We've sold three companies to date, leaving 18 active portfolio companies. And to date, we have not written off a single investment. That realization prompted me to make this turn in the email discussion:

No writeoffs yet after four years

But then, that was true for flatiron from 1996 to early 2000

And then we had breakage non-stop for two years

Flatiron had 59 portfolio companies and we eventually wrote off 20 of them without getting anything material out of them. That's one of the places I get the 1/3 failure rate from but not the only one.

But the thing of it is, we had made every single one of those 59 investments before we wrote off a single investment. From 1996 to early 2000, we had a run where we had 17 exits and no writeoffs. We went into the market meltdown with a portfolio of 42 companies (we'd exited 17) and over the next two years we wrote off 20 of them. The remaining 22 companies are almost all realized now and about half of them have been money back situations and about half have been big winners.

The 1996 to 2008 time period is not a totally normal period to be making any conclusions from, but it's interesting to go back and look at this data anyway.

One thing is clear to me and it was stated by my friend John Borthwick in his reply to my email from above:

From what i see the VC model doesn't offer a lot of visibility into failure until there is an external forcing event, the tendency to get someone else to invest and plug an existing investment w/ their dollars can blur what is in fact failure

That is true. The forcing function is usually a bad market when nobody wants to write a check. Then the existing investors are forced to look hard at each other and decide if they want to keep investing. And then, if the company is really not making good progress, the answer is usually no.

I don't know if we are getting to that point yet in this cycle, but my bet is we are getting closer. It will be interesting to revist this post in a year.

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August 24, 2008 Venture Capital and Technology | Comments (View)

Crunchbase SMS Interface

Fred, for the Crunchbase link via SMS, text "cbsms tumblr" OR "cbsms fred wilson" to 41411.  The SMS bot will send you a link to the most relevant page on Crunchbase for any search term that follows "cbsms" (Crunchbase SMS)... companies, people, financial institutions, whatever. 

Russell, very cool!  I'm not a developer, but it took just a few minutes to figure this out on Textmarks.  What a great tool.

Originally posted as a comment by Joe Lazarus on A VC using Disqus.

There were a bunch of comments to that post with suggestions on how to get an SMS interface to Crunchbase but Russ suggested textmarks and did a halfway solution and Joe picked it up and finished the job. This community even does open source projects! Thanks everyone for solving this one for me.

August 24, 2008 Venture Capital and Technology | Comments (View)