Seedcamp 2010
I had the pleasure of spending all day yesterday, from 9am to 6pm, listening to pitches from the finalists selected out of the mini seedcamps from all over europe this year. Seedcamp is Europe's premier startup accelerator. It is like Y Combinator, Techstars, Seedstart, and many other programs of this sort. Like Techstars, Seedcamp heavily emphasizes mentors and mentoring. It is a big part of the value proposition of going through the Seedcamp process.
I am not going to talk about the companies/pitches I liked best right now. But I will say that I came away with three interesting opportunities (out of about 20 pitches I saw). That is a good percentage. In talking to the other judges (there were about a dozen judges), there were another handful of companies that others took an interest in. So almost half of the presenting companies interested at least one or more judges in taking a closer look. That is a great percentage.
The thing that is most interesting about Seedcamp is that it selects teams from all over Europe and Israel (and now South Africa). They do mini seedcamps in Zagreb, Prague, Barcelona, Paris, Tel Aviv, Copenhagen, Berlin, Lodon, and they just added one in Johannesburg South Africa in a couple weeks (Aug 11th). This allows Seedcamp to find teams that might not fly to London on a whim but will travel to a regional hub to see if their project is interesting to Seedcamp.
I was particularly impressed with the quality of the teams coming out of places like Zagreb and Prague. Eastern Europe, from Ljubljana to Tallinn and everywhere in between, contains a ton of smart entrepreneurial technologists looking to build businesses on the web and on mobile devices. I am not going to leave NYC and focus on this emerging market but someone should. It is ripe.
Kudos to Saul Klein and Reshma Sohoni for creating and building Seedcamp. It is building an ecosystem, slowly but surely, throughout Europe and other emerging technology markets that I believe will result in new vitality to startups in this part of the world.
The Seedcamp finalists for 2010 will assemble in London for Seedcamp Week this September. If you are in the VC business and want to see what is going on in Europe firsthand, Seedcamp Week is a great place to start.
Related articles by Zemanta- Seedcamp Goes Global, Announces Mini Seedcamp in South Africa (readwriteweb.com)
- European Accelerator Seedcamp Recruits African Startups (socialentrepreneurship.change.org)
- Seedcamp Johannesburg (seedcamp.com)
- Seedcamp Announces a Sizzling slate of Startups for Mini Seedcamp London (seedcamp.com)
- Mini Seedcamp: highlighting Europe's young digital entrepreneurs (guardian.co.uk)
Update on Game-Based High School
I wrote a while back on a high school that uses games as its primary pedagogical tool. NPR’s All Things Considered has a new report on the school. Excerpt:
“In math, we’re traveling around the world,” says sixth-grader Rocco Rose, a student at Quest to Learn and a citizen of Creepytown — an imaginary city where his class learns math and English. The students play travel agents, convert currencies, keep blogs about their travel experiences and budget trips.
Creepytown is structured like a video game that has jumped out of the computer. During their 10-week “missions,” students learn to adapt and improvise.
“The second trimester, Creepytown went broke,” Salen says. “They had … an economic crisis. So the kids worked to figure out … what had gone wrong. And then they proposed the design of a theme park to bring revenue in.”
Systems Thinking
Salen says playing with complex dynamic systems gives kids opportunities to learn.
Students “learn how to solve problems, how to communicate, how to use data, how to begin to predict things that might be coming down the line,” she says.
They also learn something called systems thinking, which Salen says is one of the cornerstones of 21st century literacy. It helps you understand how the behavior of a derivatives trader in Hong Kong affects housing prices in Florida. When a system becomes sufficiently complex, Salen says, you start to get outcomes that are hard to foresee.
“Suddenly you begin to get what’s called emergent behavior, and in emergent behavior, that system, the elements in it, begin to relate to one another in ways that can be unpredictable,” she says.
Hell yeah! If we can give the next generation early experience with complex systems and unintended consequences, there may be hope for the future yet.
Related posts:
Startup Showcase
I want to let everyone know about an opportunity to showcase your startup at Web 2.0 Expo in NYC in late September. On Sept 29th in the late afternoon/early evening, the Web 2.0 conference will have 30 startups demo their products/services to the attendees and a number of investors.
The way this will work is each startup will be given a demo table. And the Web 2.0 attendees and investors will move from table to table. Each demo will last about five minutes long. So if you are participating, you'll give about ten demos in less than an hour.
At the end of the hour, Tim O'Reilly and I will each pick our favorite startup. And the audience will pick one. And then those three startups will each be invited up to the stage for a conversation with Tim and me.
It sounds like a fun format and I am looking forward to it. Tim has one of my favorite minds in the web/tech space so I am particularly excited to be doing this with him. If you want to participate, you need to apply by August 2nd. The details are here.
This is aimed at young startups that are in need of attention, not startups that are well known and heavily funded already.
Comment Spam and False Positives
Every successful social media system I have ever been involved with has to tackle the problem of spam. It is one of signs that you are successful. When the spammers start targeting you, it is a sign you have arrived.
Over the years Disqus has had to fight comment spam and they've done a pretty good job of it. Their spam filters catch most of the comment spam. Occasionally one gets through and I manually delete it, most often via email with a reply with just the word "delete" in it (without the quotes).
In the past month, I've noticed a significant uptick in the amount of comment spam being targeted at the AVC comment threads. More is coming in and more is getting through. I asked the Disqus team about this a few weeks ago and they told me they are seeing a significant uptick in spam across all of their communities and they are dedicating additional development resources to fighting it.
One of the costs of tightening up the spam filters is you get false positives. And thanks to Harry Demott, I noticed this morning that a bunch of legit comments by AVC regulars had been marked as spam. I just went in and manually approved those comments and notified Disqus of this issue. I suspect they tightened something up in the past week a bit too much.
If you have been having trouble getting a comment to post in the past few days, this is likely the source of the issue. If it continues to happen, please let me know via email. I will make sure to visit the spam page in my Disqus moderation panel regularly for the next few days to make sure this isn't continuing to happen. And I am confident that Disqus will get this fixed in short order.
Sunk Costs
Today on MBA Mondays we are going to talk about another form of costs; Sunk Costs.
Sunk Costs are time and money (and other resources) you have already spent on a project, investment, or some other effort. They have been sunk into the effort and most likely you cannot get them back.
The important thing about sunk costs is when it comes time to make a decision about the project or investment, you should NOT factor in the sunk costs in that decision. You should treat them as gone already and make the decision based on what is in front of you in terms of costs and opportunities.
Let's make this a bit more tangible. Let's say you have been funding a new product effort at your company. To date, you've spent six months of effort, the full-time costs of three software developers, one product manager, and much of your time and your senior team's time. Let's say all-in, you've spent $300,000 on this new product. Those costs are sunk. You've spent them and there is no easy way to get that cash back in your bank account.
Now let's say this product effort is troubled. You aren't happy with the product in its current incarnation. You don't think it will work as currently constructed and envisioned. You think you can fix it, but that will take another six months with the same team and same effort of the senior team. In making the decision about going forward or killing this effort, you should not consider the $300,000 you have already sunk into the project. You should only consider the additional $300,000 you are thinking about spending going forward. The reason is that first $300,000 has been spent whether or not you kill the project. It is immaterial to the going forward decision.
This is a hard thing to do. It is human nature to want to recover the sunk costs. We face this all the time in our business. When we have invested $500,000 or $5mm into a company, it is really easy to get into the mindset that we need to stick with the investment so we can get our money back. If we stop funding, then we write off the investment almost all of the time. If we keep putting money in, there is a chance the investment will work out and we'll get our money back or even a return on it.
Even though I was taught about sunk costs in business school twenty-five years ago, I have had to learn this lesson the hard way. Most of the time that we make a follow-on investment defensively, to protect the capital we have already invested, that follow-on investment is marginal or outright bad. I have seen this again and again. And so we try really hard to look at every investment based on the return on the new money and not include the capital we have already invested in the decision.
This ties back to the discussion about seed investing and treating seed investments as "options." Every investor, if they are rational, will look at the follow-on round on its own merits and not based on the capital they already have invested. But the venture capital business is a relatively small world and reputation matters as well. Those investors who make one follow-on for every ten seeds they make will get a reputation and may not see many high quality seed opportunities going forward. Our firm has followed every single seed investment we have made with another round. In most cases, those investments have been good ones. But we have made a few marginal or outright bad follow-ons. We do that for reputation value as much as anything else. We measure that value and understand that is what we are doing and we keep those reputation driven follow-ons small on purpose.
When it is time to commit additional capital to an ongoing project or investment, you need to isolate the incremental investment and assess the return on that capital investment. You should not include the costs you have already sunk into the project in your math. When you do that, you make bad investment decisions.
The financial reforms will fail!
It seems that everything the government does to fix the economy only makes matters worse. Why? Because they are trying to sustain a moribund system of money, banking, and finance. The recent passage of a “financial reform” measure by Congress, while hailed as a measure to prevent a recurrence of the abuses of the recent past, will do nothing of the kind. In fact, it will enable them to continue and will further strengthen the huge financial institutions that have been robbing the American people.
Peter Schiff has a better understanding of the situation than most financial pundits. While even he does not seem to get quite to the root of what ails our economy and our society, his insights go deeper than most. He offers three reasons why the new law will fail do achieve its stated purpose:
1. The bill doesn’t get to the root causes of the crisis.
2. The law fails to end ‘Too Big to Fail.’
3. More regulation means higher costs for smaller financial services firms, reducing competition.
He explains this in this brief video.
I have pointed out in my books and writings that the very nature of the money creation process is at fault. The creation of money by banks on the basis of interest-bearing debt creates a “debt imperative,” which in turn creates an economic “growth imperative.” Since the physical limits to growth have been reached on planet Earth, this money system cannot be sustained, yet every action by the governments of the developed nations attempts to do just that.
The crisis will continue to deepen until people create parallel decentralized systems of exchange (money) and finance that enhance the vitality of their communities and local economies. –t.h.g.
Angel vs VC?
AVC regular Charlie Crystle asked me this question yesterday in the comments:
Fred, it might be helpful to some of your readers to explain when a startup should seek angel vs seed/early stage VC.
If I need $250,000 to get to 100 customers, or $1 million to get to X, and I can raise both amounts from either Angels or VCs, where do we turn?
And let's say both have significant interest, and the terms are the same, which is a better choice? (I no longer have an opinion on this, having gone both directions).
There are really two questions in here. The first is when you should SEEK angel vs VC and the second is if you have the option of taking money from both what you should do.
On the first, I believe entrepreneurs should seek angel money when their product is not yet complete, is not in the market and thus they cannot demonstrate real market traction to investors. There are multiple reasons for this and I'll try to articulate the most important of them.
A company without a product in the market is a very risky proposition. Some VC firms will invest at this stage but I am not sure its entirely appropriate for VCs to invest at this stage. Our firm will do it when we are backing a serial entrepreneur with a super strong track record that we are very familiar with. Otherwise, we stand on the sidelines and watch with interest but no capital at risk. A syndicate of angels, each with a small amount of capital at risk in the project, is a much more appropriate source of capital for a company at this stage because the risk has been well syndicated among the group.
Angels are also more hands off and I believe hands off investors are better for a company where defining, building, and tuning product is the primary exercise. VCs have a responsibility to their partners, both the partners in their firm and the partners who fund their firm, to be highly engaged in the business. So like it or not, they are going to be engaged in the business. I think it is best when that engagement is applied to a product that is in the market and gaining traction, and building the business is the primary exercise.
Finally, selling a VC on a concept on a whiteboard is a very hard sale. It is extremely time consuming with very little chance of success. Selling an angel on a concept is much easier. So simply in terms of where you should spend your time raising capital, angels are a better target in the "concept to product" stage.
The second question, what to do if you have the option of taking money from both sources on the same terms, is more interesting in many ways.
My answer is do both, if you can. When we participate in seed rounds, we most often do it by ourselves with a syndicate of high quality angels. We have done this at least a dozen times now and it works extremely well. We behave as if we are one of the angels and try to be relatively hands off. And we hope that the angels will add value just as they do in their other syndicates where there is not a VC firm involved.
But when the company needs another round of financing, we are there to provide more financing. Sometimes the angels follow in the successive rounds. But mostly they do not. It really doesn't matter, because we can fund the company on our own as long as the capital requirements are modest.
This is our preferred model and we have used it with great success. I think it benefits entrepreneurs the most as well. There are a number of VC firms that use this model. I first saw it practiced by Brad Feld about a decade ago in the seed deals he was doing in the Boulder area when he was at Mobius and I admired it immediately.
If for some reason, you must choose between VCs and angels, then I would choose a VC firm, as long as you have a very good relationship with the firm and the specific individual who will be leading the investment from the firm. In almost every situation, you are going to need more than one round and VCs can and will do multiple rounds and angels often cannot.
I will end this with a comment on the emerging seed and super seed fund models. They exist somewhere between angels and VCs and some are growing and turning into full blown VCs as I have mentioned recently in another blog post on this topic. Seed and super seed funds are "institutional angels" and as such I would mostly categorize them as angels. But many of them do have more capital at their disposal and can, at times, provide additional rounds of funding. So in some ways they are a hybrid. A syndicate of a seed fund or super seed fund and angels is a great way to go if you can put that together. A syndicate of a VC, a seed fund, and some angels might even be better.
To finish this post, I think entrepreneurs should target angels and seed funds when they are pre-launch but if they have the opportunity to pair a VC firm with angels and seed funds into a single syndicate they should do that because it will provide most stable funding platform for the business going forward.
The AngelList
There are a growing number of resources for entrepreneurs on the web, but certainly one of the very best is Venture Hacks. And their AngelList service is particularly useful for entrepreneurs trying to get angel rounds done. I found myself recommending it to at least a half dozen entrepreneurs this past week.
I particularly like this case study of the BlockChalk angel round on the Venture Hacks blog. For those who aren't going to click thru and read the whole thing, here's a quick summary.
Joshua Schachter had already committed to invest in the BlockChalk angel round and he suggested they use AngelList to fill out the round. That resulted in commitments from Mitch Kapor, Thomas McInerney, and Josh Stylman. But then Josh Stylman introduced BlockChalk to Chris Dixon and Eric Paley who joined the round. And then with the strength of that syndicate in place, AngelList added Satya Patel, Michael Dearing, and David Liu to finish off the round.
What this shows is that the old model of angel deals is alive and well. Angels love to share deals with each other. It is how angel rounds come together. But AngelList adds at least two things to the mix. First, it adds a place where the deals can come together online. And second it adds people to the mix that would not be part of the offline deal sharing networks that already exist.
I am on AngelList. I see all the deals come together. I don't personally invest in angel deals in the web/tech space because of potential conflict with USV down the road. But even so, I find it immensely useful to see what companies are getting traction in the angel market. It's part of my radar/early warning system. And it is entirely possible that we will decide that USV needs to participate in an angel round that is coming together on AngelList, although that has not yet happened.
So if you are putting together an angel round, particularly if you already have it partially raised but need to finish it off, I strongly suggest looking into AngelList. It's a great service.
Sony Dash
A couple months ago, my friends at Sony sent me a new device called the Sony Dash. I brought it home and gave it to the Gotham Gal. She is using it as a bedside clock radio and not taking advantage of very many of its features. But my son expressed an interest in having one on his bedside table and so I got another.
He set it up to do four things; tell him what time it is, tell him what the weather is, give him his ESPN fix, and give him his Facebook fix. The clock rotates through sports news from ESPN, and photos and status updates from his friends on Facebook.
Here's the clock showing sports news from ESPN:
And here is the clock showing status updates from Facebook (sorry about the blurry photo):
In light of all the buzz about Flipboard, which I still can't connect to Facebook and Twitter, I think we are seeing an important new development. Social media clients are moving beyond the desktop, laptop, and smartphone onto new kinds of devices like the iPad and the Dash.
I was skeptical about the Dash when I first used it. It is a bit clunky to set up. The UI could use some serious simplification. But once you set it up, it's largely a "set it and forget it" kind of thing. And every time I walk into my son's room, I learn something about sports and his friends. It is actually an excellent user experience for a bedside clock, at least it is for my son.
You can connect the Dash to much more than ESPN and Facebook. It does Twitter, of course, and YouTube, and a ton of other web services too. It's a bit pricey for a bedside clock, but I expect the cost will come down pretty quickly for devices like this and we should be looking at sub $100 price points in the next year. If you are into gadgets and the web, this could be for you.
- Sony Dash Billed as Personal Internet Viewer (shoppingblog.com)
- Sony Dash review (engadget.com)
- The Sony Dash is now available (for real this time) (crunchgear.com)
- Tech Review: Sony Dash Personal Internet Viewer (g4tv.com)
- Hands On With the Sony Dash (Widgety) (technologizer.com)
- How would you change Sony's Dash? (engadget.com)
Terms, Term Sheets, and Terminal Value
Mark Suster has a great post on calculating valuation and the things that VCs can throw at you to make the deal better for them (I guess I should say us) than it actually looks. Go read it. It's complicated stuff but you should try to wrap your head around it. I've written a bunch about this as has Brad Feld and other VC bloggers have too. The VC world is changing. We are talking about this stuff, explaining it, and discussing it. That's progress.
But here is the thing. Terms and term sheets are a necessary evil of the venture business but most venture returns don't come from terms. They come from terminal values. Meaning the size of the exit. One deal often returns the entire fund. The next three to four deals return it again. The rest of the portfolio might return it again and if you can do 3x gross, you'll raise another fund, and another, and another.
In my talk with John Battelle yesterday at Geo Loco, where I said some controversial and partly tongue in cheek things that were widely reported, I did talk about this. And I wish it was as widely reported as the sound bites. What I said was that there are only a few things that really matter in a venture investment. The first is the amount being raised, the second is the dilution to the entrepreneur and the ownership the investors are buying (largely the same thing), and the third is the relationship between the investor and the entrepreneur. Everything else is pretty much noise.
I do care about and want a plain vanilla one times liquidation preference because I think it is fair. If the company is sold for less than the valuation that we invest at, I think it is fair that the investors get their money back in that scenario. Any multiple of liquidation or participation should be avoided at all costs by both sides. VCs often use those tricks to bridge valuation gaps but I have come to believe you should resolve valuation gaps with compromise or just don't do the deal if the gap is unbridgeable.
I think the VC business is changing in many ways and one good way is that more and more VCs are thinking less about terms and more about terminal values. And that is best for everyone.
Bailout tab hits $3.7 trillion
Reuters reports:
Increased housing commitments swelled U.S. taxpayers’ total support for the financial system by $700 billion in the past year to around $3.7 trillion, a government watchdog said on Wednesday. The Special Inspector General for the Troubled Asset Relief Program said the increase was due largely to the government’s pledges to supply capital to Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) and to guarantee more mortgages to the support the housing market. Increased guarantees for loans backed by the Federal Housing Administration, the Government National Mortgage Association and the Veterans administration increased the government’s commitments by $512.4 billion alone in the year to June 30, according to the report. “Indeed, the current outstanding balance of overall Federal support for the nation’s financial system…has actually increased more than 23% over the past year, from approximately $3.0 trillion to $3.7 trillion — the equivalent of a fully deployed TARP program — largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases,” the TARP inspector general, Neil Barofsky, wrote in the report. The total includes Federal Reserve programs and a myriad of asset guarantees, including Federal Deposit Insurance Corp. protection for bank deposits. The increased government commitments more than offset about a $300 billion decline in the U.S. Treasury’s TARP commitments in the past year as programs have closed and banks have repaid taxpayer funds…. More…
Foursquare Google Maps Mashup
I'm doing a keynote presentation today at the Geo Loco Conference in San Francisco. In putting together the visuals for my talk, I wanted to show my Foursquare checkins from my recent trip to europe on google maps.
So a little googling around led me to this post which explains how to do it:
- Visit your foursquare feeds page. Right click the KML link and copy it to your clipboard (don’t download it).
- Visit Google Maps and paste the link you copied into the search box. Hit enter.
It is so simple and easy to do. Here is the visual that I wanted to create:
And you get a list of checkins that you can share via the google maps sharing features. Here's a list of all the checkins I did in Zurich, for example.
I would love to save these foursquare feeds in discrete chunks like this for future reference. Someone sends me an email saying "what did you do that was fun in Zurich?". I could simply send them this list of checkins. So simple, so easy, so useful. I love it.
Immigration Reform
Last night my partners and I hosted a fundraiser for NY's senior Senator Chuck Schumer. I've written about my fondness for Chuck on this blog before and I remain a fan and supporter.
Chuck told a story to a small group that had assembled before the larger event. He said that he was meeting with the CEO of Deutsche Bank and asked him "do you think the US will be the world's leading economy twenty-five years from now?" The Deutsche Bank CEO said "of course." Chuck said "not many americans feel that way right now." And the CEO said "America is the only place in the world where anyone, no matter what race, religion, background, can be accepted in business and society and realize their dreams and make it to the top. That doesn't happen anywhere else."
I might disagree with the CEO just a bit. I think Australia and Canada are very similar to the US in that regard. But his point is important and worth blogging about, which is what I am doing.
A welcoming society is our history and that is the special sauce that the US brings to the world economy. We welcome entrepreneurs large and small in the US and support them and celebrate their success and forgive their failures. And I am so very proud that I am a citizen of this great country.
But we have turned inward in the wake of 9/11 and the "war on terrorism." And that is hurting us. The terrorists have achieved their goals if they turn the US into a country that no longer welcomes the best and brightest from anywhere with open arms.
So I was thrilled to hear Senator Schumer's optimism last night that we will get "comprehensive immigration reform" in 2011, after the midterm elections. I hope and suspect that will include visas for science, technology, engineering, and medicine (STEM) grads. I hope and suspect that will include the startup visa. I hope and suspect that will include a lot more H1B visas.
Immigration reform is one of the most important issues in the startup political agenda which also includes net neutrality, patent reform, and a number of other important issues. I know that many of you share my passion for this issue. Let's keep up the pressure on our elected representative to do the right thing and give us comprehensive immigration reform as soon as possible.
Study: eParticipation and Web 2.0 in German state and local government - Still in beta phase
After years of writings on the potential of using the Internet to improve democratic governance, one must think that citizens have numerous offerings to choose from. Lately governments have introduced numerous policy papers and declarations that put a priority on citizen government interaction through information, consultation or collaborations. Unfortunately, the UN eGovernment benchmark and other writings draw a rather pressimistic picture of the current state of eParticipation in Western democracies.
Because of the increasing public discourse on Government 2.0 and Germany's astounding improvement by 46 ranks from 2008 to 14th place in the area of eParticipation in this year's UN eGovernment benchmark, we tried to take a closer look at the current state of eParticipation and Web 2.0 in German state and local government (follow the link to download the study).
Following a web-based data collection, eParticipation offerings and use of Web 2.0 applications on the web portals of Germany's 50 largest cities and 16 federal states in the areas of urban planning, budgetary planning, complaints/suggestions and citizen services within a four-step policy cycle were analyzed.
The results underline that informational integration of citizens in government outweighs consultative approaches.This study illustrates that while states and municipalities have eParticipation on their agenda, they lack the willingness or resources to fully engage in it. For the cases studied, German Government 2.0 activities seem to be in beta phase. It is, therefore, important to focus on three areas. First, improve knowledge on the potential, limits and implementation of eParticipation and Web 2.0 applications in politics and government. Second, convince government officials to just try out new things and sail into uncharted waters. Third, give citizens the opportunity to learn participation in various ways as early as possible. Most certainly, all of these recommendations hold true for other countries as well.
Opportunity Costs
We are going to turn our attention on MBA Mondays to some costs that are important to recognize in business. First up is Opportunity Cost.
Opportunity Cost is the cost of not being able to do something because you are doing something else. These costs don’t end up on your income statement but they are expensive, particularly in a small business where you have very few resources.
Let’s use an example. Assume you have three software engineers on your team and you commit to building a new product that ties all three of them up completely for six months. Not only do you commit to build that product, but you sell it in advance and take a deposit from your customer to fund the development. And then an even bigger opportunity comes your way. You have been invited to build a version of your product that will ship in a hot new device that a major computer company is making a big bet on. But you can’t take on that project because your team is tied up on the first project.
So the cost of the first project is not only the time and salaries of the three software engineers who are working on it. It is also the lost revenues and market share you might have gotten if you had been able to work on the partnership on the new device. That is your opportunity cost.
The problem with opportunity costs is that you can’t predict or measure them very well. They become painfully obvious in hindsight but not at the decision point when you need to know their magnitude.
So what do you do about opportunity costs that are out there but you can't see or measure? That's a tough one. I like what my friend Gretchen Rubin said on the subject:
I also try to ignore opportunity costs. I can become paralyzed if I think that way too much. Someone once told me, of my alma mater, “The curse of Yale Law School is to die with your options open” – meaning, if you try to preserve every opportunity, you can’t move forward.
So my advice is to understand the concept of opportunity costs, build them into you mental map, but don't focus too much on them. If you can, try to build some flexibility into your organization so you aren't completely resource constrained. That will reduce opportunity costs. But at the end of the day, you need to "move forward" in Gretchen's words and that is first and foremost what all great entrepreneurs do.
Related articles by Zemanta- Opportunity Cost (gregmankiw.blogspot.com)
- Opportunity cost (slideshare.net)
- What Is "Opportunity Cost"? Does It Matter For Happiness? --Yes. (psychologytoday.com)
Grumby
International Wireless Roaming
My family has been in europe for the past couple weeks. And we've been trying to keep our data roaming costs down. The Gotham Gal and I have a sweet blackberry plan on T-Mobile that provides a really excellent international data roaming deal.
My two kids who are in europe with us both use iPhones and they turned off data roaming while we were in Rome and Zurich, except for Josh who turned it on to checkin to places on foursquare and then turned it off. Turns out that Foursquare checkins don't use up a lot of mobile data. Looks like about 140kb based on ATT Wireless' user dashboard.
Even so, he is running up against his 20mb of data that comes with his current international roaming plan.
And now that we are in London, I decided to figure out a better way. It's pretty easy to get an iPhone unlocked over here. There are stores all over Oxford Street that will do it very inexpensively. Then you can get a "pay as you go" plan from one of the mobile carriers here. We chose O2 which is a Telefonica owned carrier. They have a plan for 30 pounds that gives you unlimited data here in the UK, 500 text messages, preferred rates for international calls and texts and that all comes with 30 pounds worth of charges. Once you spend the 30 pounds, you can "top off" the account.
We set this up for my daughter yesterday and I am seriously considering setting it up for my son as well. The only slight drag is they now have a new phone number. Not a big deal for The Gotham Gal and me. We can simply add that new number to our address books. But it is a bigger bummer for their friends and family who don't know they have a new number.
I am going to look into setting up forwarding their calls on their US numbers. I have no idea how to set up forwarding for text messages, if that is even possible.
You might wonder if it is worth all of this effort. Well I have had a number of europe trips that resulted in $1000+ phone bills when I got back. And that was for a couple weeks. There is no way we are going to let that happen, particularly with kids who live on their mobile phones.
I figure 30 pounds should buy my kids at least a week of full tilt mobile roaming. Maybe they can go two weeks on that amount. In any case, even if we end up spending 100 pounds on each of our two kids who are here for a month, that is a lot less than $1000 that we could end up spending if we stuck with their ATT Wireless numbers.
This whole international roaming thing sure feels like a racket to me. We have affordable plans in the US. We can buy affordable plans in the UK. Why do we have to change numbers to make that happen? Why can't we simply buy the affordable plan in the UK via our US carrier and have it work for as long as we are in the UK?
I suspect that people who live here in europe and travel a lot between countries are way more experienced with this problem. I'm curious what they do to deal with this problem.
Related articles by Zemanta- Tips for Using Your Cellphone Abroad (bucks.blogs.nytimes.com)
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Some Thoughts On The Seed Fund Phenomenon
There have been quite a few posts written about this meme in the past few weeks.
I think that Paul Kedrosky got the discussion started with this post. Chris Dixon wrote an interesting response. And yesterday John Boyd wrote a thoughtful post on the topic.
John makes a point in his post that I want to second and add to. He says:
While many businesses require a lot less capital to start, they don't require less capital to grow.
John's comment made me think about a blog post I wrote three and a half years ago called "Web 2.0 Is A Gift, Not A Threat, To VCs." If you haven't read that post, I would urge you to go read it. I blog because it helps me think through a lot of issues we face in our business and that post was really useful to us over the past several years of investing.Here's a chart from that post:
This is an entirely theoretical chart. There is absolutely no real data behind this chart. That said, it does reflect our experience investing in about thirty "web 2.0" companies over the past seven years.
What this chart says is that it still takes on average $20mm to get a web startup to sustainable positive cash flow. But the vast majority of that capital will be required after the business has "traction."
What has changed in technology venture capital is not so much the total capital requirements, but when they are required. This is very good news for everyone involved. It means entrepreneurs that don't have to take expensive dilution early on in the development of their business. And it means that entrepreneurs can raise the big money later on when their business is worth more. It means that entrepreneurs should be able to keep more of the companies they start. That is good for everyone.
It also means that VCs don't have to take big risks early on. They can write checks in $250k and $500k sizes. It means that when the businesses develop into winners or likely winners, they can write the bigger checks like $3mm or $5mm or even $10mm. This is good for the VC business. Less writeoffs, more capital deployed into the winners and less into the losers.
Where this all gets interesting is the point at which it is clear that the business is going to be a winner. Let's look at our portfolio company Foursquare as an example. We invested in a ~$1mm seed round last summer, investing $500k. By that time, Foursquare had already launched and was growing nicely. Dennis and Naveen had built the service all by themselves and had just lured Harry onto their team. They needed no capital to do that. In fact they did not even have a bank account when we went to close our seed investment. That seed round was highly competitive and Dennis and Naveen could have raised money from dozens of investors. A year later, Foursquare is scaling quickly, adding 1mm new users in the past three months. They need a lot of capital now. And they were able to raise it, $20mm on their terms, a few weeks ago. As competitive as the seed round was, the large round was even more so. The company added one new investor, Andreessen Horowitz. And our firm and OATV got to invest a bunch more into Foursquare.
Clearly Dennis and Naveen used the capital efficiency of web startups to their advantage. They did not need any money to get the service built and launched. They scaled the service to 2mm users and the employee base to close to fifteen people on just over $1mm of seed capital. And they got the capital they need to scale it to a much larger business on their terms. That's how it is done these days.
And the seed investors, USV and OATV, got to put a little money into the business early on and then got to write a big check when it was clear the business was going to work. At least it is clear to me that the business is going to work. I much prefer doing it this way than putting a ton of capital into the business early on before the outcome is reasonably clear.
But there are two places you don't want to be in this new world. You don't want to be the VCs who wanted to be in the "big round" and didn't get to be in it. The deals that work get very competitive when it is time to raise real money. That's a problem for VCs who don't invest at the seed stage and are betting they can get into the deal in the "first venture round."
You also don't want to be a seed fund that is invested in a company that hasn't scaled yet but is out of money. Then what do you do? You can write off the investment or you can put more money in. Or you can find a VC firm to invest. But what if the company isn't far enough along to attract VC money?
Very few entrepreneurs will execute as well as Dennis and Naveen did over the past year. Most will need a longer runway before their business scales. And that is an issue for the seed funds. They need to get bigger or find a "bridge" to VC for those companies that take a bit longer.
I think we will see both things happen. First Round Capital, the grandaddy of the web 2.0 super seed funds, has now evolved into a firm that is twice as big as our firm in terms of investors and they have about $200mm in total capital under management. And I've met a couple investors who are talking about creating "seed bridge funds." I think that's a great idea.
Will the seed market crash? I don't think so. Will it evolve and change and look differently in a few years? Absolutely. We are still figuring out to evolve the VC business to reflect the change in financing needs of entrepreneurs and we aren't done by a long shot.
Related articles by Zemanta- Seed Deals Account for 26% of Early-stage Web Investments (gigaom.com)
- How Micro-VCs Invest (And How They Compare To Traditional VCs) (businessinsider.com)
- Is There a Super-Angel Crash Looming? (gigaom.com)
XX Combinator
Tereza, an AVC regular and active community member, wrote a blog post yesterday proposing that someone start XX Combinator, a Y Combinator style startup accelerator focused on women in their 40s.
Here's the basic argument:
Y Combinator participants are for the most part very young — in their early 20’s. This is not when women would be most inclined. Women who start businesses like to know what they’re doing, and be trained and experienced in it. That takes up our 20’s. We have kids in our 30’s. Our entrepreneurial sweet spot is around age 40. Conventional tech investors are not really into this group and the metrics they look for are really hard for these people to hit. Most of the (few) women’s businesses that go big were funded by friends & family or strategics, not traditional angels and VCs.
She also points out that the Y Combinator program is purposefully focused on hackers and that is not a term often attributed to women. So Tereza proposes that XX Combinator come pre-populated with hackers, kind of like Betaworks is.XX Combinator is a cute name and makes the point well. But I suspect a different model is required if this were to work. First, it is not so easy for 40 something women to move to silicon valley for three months. Second, if you have a team of hackers in-house, then you are an incubator more than an accelerator program.
But Tereza is right about a bunch of things. First, there aren't enough women entrepreneurs. There aren't enough women VCs. There aren't enough women developers. The startup ecosystem is largely a man's world and as a result, we see a lot of certain kinds of businesses and not enough of others. People are drawn to scratch an itch. If it is a 20 something developer, then they are scratching a certain kind of itch.
I know what Tereza is working on. I'm not sure if it is cool to talk about it here so I won't. But it is the kind of idea a women in her 40s would be working on. And it is not an idea a 20 something man would likely work on all by himself.
Tereza is not alone in her evangelism. The Gotham Gal, who talks to and works with a lot of 40 something women entrepreneurs tells me that this group is "breaking out." She told me about a conference in NYC this fall that she is involved in that is targeted at this group. And she told me last night that TED is working on a conference for women. Brad Feld wrote a great post yesterday about this topic. And he links to an excellent Eric Reis post that also articulates the need for more diversity (especially women) in the startup sector.
So maybe the time is right for an effort to build one or more efforts focused on helping women get started. These startup accelerators need a leader. Y Combinator has Paul Graham and his partner Jessica. Tech Stars has David Cohen and his partner Brad Feld. Seedcamp has Reshma and Saul. Betaworks was started by John Borthwick and Andy Weissman. So we need entrepreneurs to create these efforts, not committees, governments, or companies.
And we need entrepreneurs with a plan to deal with the realities that Tereza lays out. If there are entrepreneurs out there with the idea, the plan, and the passion to do this, please contact me. I'd be happy to help get something like this rolling.
