76

Fred Wilson

• Immigration Reform 20 July, 2010, 4:03 am
  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.
• XX Combinator 15 July, 2010, 10:46 pm
  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.
• Stack Does Gaming 14 July, 2010, 11:25 pm
  Forums have been around for as long as I have been on the Internet. I've always found forums useful for finding out "how to" information. But its always been a hit or miss experience. And I've always used search (google mostly) to find the forum post with the info I need.Our portfolio company Stack Overflow is attempting to change that. As they have done with programming tips and techniques at StackOverflow.com, they are bring social networking and game mechanics and a number of other important changes to the forum model to create vertical communities that allow people to solve each other's problems for each other.One vertical that has literally hundreds of forums on the Internet is gaming. I'm not that much of a gamer but I watch my son. When he needs a cheat code or wants to find out how to conquer something in a game, he goes to Google and does a search, finds a forum, and finds his answer. There is a huge amount of traffic to gaming forums on the Internet for exactly this reason.So Stack has launched gaming.stackexchange.com to bring the magic that exists on StackOverflow to the gaming vertical. I'm optimistic that gaming will turn out to be a big vertical for Stack. Gamers love to earn points, badges, and status. You don't have to do anything more than spend a week with my son watching him accumulate foursquare points in europe to see what points do to a gamer. And now gamers will be able to earn status and reputation by sharing the knowledge they have with each other.If you are a gamer, check out gaming.stackexchange.com and let me know what you think. It is early, the service just launched in beta this week. So there won't be a lot of content up right now. But the mechanics are in place and you can get a feel for it.
• Some Thoughts On The Seed Fund Phenomenon 13 July, 2010, 11:03 pm
  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 more capital under management than we do. 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 ZemantaSeed 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)
• Phone Pitches 13 July, 2010, 8:53 am
  I exchanged some blog comments with Tereza yesterday. She's starting a web company and is raising angel money. She said she did some phone pitches against her better judgement and they didn't work out. I advised her not to do them anymore.Here's my thing about phone pitches. They aren't very effective. I hate taking them and almost never do. I don't think they allow the entrepreneur to show themselves very well which is the most important thing of all.And it is so easy to say no over the phone. There's no real human connection. It's easy to pay half attention or less on the phone. It's easy to fake that you are listening when you are not.I admit that I am really bad on the phone. I always have been. It's not a medium that I like very much. So I am probably worse than the average investor. But even so, I think doing phone pitches is a mistake and you should avoid doing them.I do think a short phone call introducing the opportunity at a very high level and making the case for an in person pitch is an important thing to do. You can accomplish that in a few minutes or less. It's basically an elevator pitch. But don't agree to do the whole pitch on the phone. Ask the investor make time for you in person to do that. That will determine if they have sufficient interest for you to invest your time with them.And what about a video chat on skype or another similar service? I do think a video chat is sufficiently better than a phone call to make it a semi-viable alternative. If a plane ride is required to see an investor, then a skype/video chat is a decent first step. But again, you should do it with the objective of getting an in person meeting. But if you can visit the investor in person without getting on a plane, I think you should always opt for that over a conversation over the phone or skype. There really is nothing like the in person, face to face meeting when it comes to fundraising or any kind of high level sales effort.Fundraising is such a hard thing to do, particularly for first time entrepreneurs without a track record and an investor following. Don't make it harder by putting a wire between you and the investor.
• Raising Money During The Summer Slowdown 3 July, 2010, 7:18 am
  The streets are empty in NYC this July 4th weekend and it seems like everyone is at the beach. The Gotham Gal and I are getting ready to head to Italy for a week on Sunday night. Summer is here and I can feel the pace of work life and city life slow down.Many of our companies experience a slow third quarter because people aren't working at quite the same pace in July and August and it is hard to get it all back in September. And many entrepreneurs and investors I work with assume for the same reasons that the summer months are a bad time to be raising money.I don't think the summer months are a bad time to be raising money. It's a different time to be sure, but not necessarily worse. We see a lot less incoming activity in the summer months so it may be the best time to get a VC's attention. If everyone else thinks it is a bad time, then the contrarian in me says it is a good time.I just did a quick query on our portfolio and we made our first investments in eight of our twenty-seven active portfolio companies during the third quarter. Three of our investments were closed in July. Three of our investments were closed in August. And two of our investments were closed in the first couple weeks of September.Eight out of twenty-seven is thirty percent of our portfolio, and that is north of the twenty-five percent of the year that the summer represents. So our firm has been more active on new investments during the summer than we are on average.I suspect that if you look at the VC industry as a whole, and there are plenty of services you can use to do that, you will find that there really isn't a summer slowdown in investing activity.But as I said a bit earlier in this post, the summer is different. And if you plan to be raising money this summer, you need to plan for some things. First and foremost, people will be on vacation, as I will be next week. So you it will not be as easy to get meetings in the summer. You will need to plan ahead a bit more. And when you do get meetings, there will not be as many partners in attendance. So you may need to visit the most engaged venture firms in your process a bit more than you would other times of the year. It may take longer to get a full partner meeting scheduled and when you show up, some of the partners may be on the phone from vacation spots around the world. It may be harder to get them engaged.Due diligence is also a bit harder to do in the summer months. The people the VCs need to talk to to understand the investment and the people are more likely to be away. So anything you can do to help schedule those calls and meetings will be much appreciated by the VCs.The bottom line is it takes a bit more work on your part to run a fundraising process in the summer months. But the benefit is you may well find that you are seeing a more relaxed set of investors, who are spending a bit more time on the golf course, and have clearer heads. If you extend your timeline by a month or so, dedicate a bit more effort to scheduling and quarterbacking the process, you will find a receptive audience with their checkbooks open.The thing to remember about VCs, and all sorts of professional investors, is that we get paid to invest capital. It is what we do. So just because it's a slower time of the year, doesn't mean we aren't still doing our job.If your company will be running out of money at or before year end, you should be raising money now. Do not let anyone convince you to wait until "everyone is back from the beach in September." That is too late. Do it now.
• Getting The Band Back Together 2 July, 2010, 3:31 am
  We've backed a lot of serial entrepreneurs over the years. It is one of our favorite things to do. About half of our current portfolio is led by serial entrepreneurs who are working on their second, third, or fourth startup.One hard choice an entrepreneur faces is whether to put the band back together.On one hand, you want to bring some new blood and new thinking into the mix.On the other hand, there is great value in reassembling a team that has worked together successfully before.Dave Morgan, founder of Real Media, TACODA, and now Simulmedia, tells me that each time he has started a new company, he has intended to go with an entirely new team and each time he has found himself bringing back the bandmates within a year of getting started.I saw Mark Pincus do that with Scott and Cadir, his co-founders of SupportSoft, about a year or two into the development of Zynga.And I recently saw Mike Yavonditte bring together the product team he worked with at Quiqo into his new startup Tracked.com.I don't think there is a right or wrong answer here. Assembling the team is such a critical part of startup success. But I do think it is worth noting that we have seen a tendency of entrepreneurs to go back to the well and put the band back together more often than not. And even when they don't do that initially, it seems that over time, it is impossible to resist that urge.
• Bilski and Patent Reform 1 July, 2010, 3:47 am
  Those us of who are ardent supporters of patent reform were hoping that the Supreme Court's opinion on the Bilski case would strike down the notion of business method patents, the worst kinds of patents out there and a huge tax on the innovation sector. Unfortunately we did not get that outcome, the Supreme Court basically punted on taking any stand on business method patents. Bilski did not get his desired patent on hedging energy risk but that decision was based on fairly narrow and technical grounds. Here is a thorough analysis of the Bilski decision. Regular readers of this blog know that I believe patents, particularly business method and software patents, are largely a negative for the startup sector. While patents are often thought of as protection for "the little guy", the truth is most patents are owned by large companies and increasingly by patent trolls. As my partner Brad talks about in this post on the USV blog, almost a third of our portfolio is under attack by patent trolls.  A startup that becomes successful in this day and age will most certainly face a number of patent infringement cases. A perfect case in point is this patent infringement suit against Twitter by TechRadium that makes messaging systems for public safety, the military, and utilities. Twitter will spend untold sums defending itself against that suit. What I am doing and many others are doing as well is educating our government about this issue. If the US intends to remain the best place in the world to do a tech startup, it needs to address patent reform. At least one Senator agrees. Pat Leahy put this statement up on the Internet yesterday. The money quote is: The courts, however, are constrained by the text of our outdated statutes, and it is time for Congress to act.So the Courts turned out to be a false hope for patent reform. It is time to turn our efforts to Congress. I hope you will all join me in reaching out to your representatives and explaining what is wrong and what has to change.Related articles by ZemantaBotching Bilski (opendotdotdot.blogspot.com) Supreme Court Rules Narrowly In Bilski; Business Method & Software Patents Survive (Mike Masnick/Techdirt) (techmeme.com) Supreme Court Throws Out Bilski Patent (yro.slashdot.org) Ongoing Commentary on Bilski v. Kappos (patentlyo.com) More Bilski Analysis/Links (and Microsoft Front Group Commends Florian Müller) (techrights.org)
• Some Thoughts On Foursquare 30 June, 2010, 3:56 am
  Our portfolio company Foursquare closed a second round of financing yesterday. This was a much covered financing process and also much criticized. I think it makes an excellent case to talk about some conventional notions and why they might not be right. Back in the early spring Foursquare decided that it needed to raise more money to support its growth, both service growth/scaling and team growth. Foursquare identified about a half dozen venture firms that it thought would be ideal investors and opened discussions with them. A few backed out of the process because they had investments in competing businesses. But all of the other firms were eager to make an investment. The Company could have closed a financing at a very attractive valuation in two or three weeks if they had chosen to. But as they kicked off the financing process, a fair bit of acquisition interest in the company materialized. So the founders made the decision to dig into what those transactions might look like. They spent the better part of the spring doing that and eventually determined that staying independent was the best thing for the service, the user base, the team, and the shareholders (pretty much in that order). All of this was conducted in the glare of the public eye as the tech blogs and tech focused media was quite interested in how this story would play out. Kara Swisher called it "a very long and decidedly strange funding journey" in a blog post yesterday. She also said "the wrapping-up of what has been a very convoluted funding process comes after a series of missteps and switchbacks over what’s next for Foursquare." I have great respect for Kara, who is one of the best journalists working in the tech sector, but I think she and many others who have voiced these sorts of criticisms are wrong. The Company started this process when they had sufficient funds in the bank to operate the business for six months. They were not in a hurry and there was no need for any kind of interim bridge financing as Kara's post suggests. So closing the financing quickly, which is often advised as the best approach, was not necessary and in hindsight, the founders were wise to take their time. The conversations with potential acquirers were very beneficial to the founders and the company in many ways. It helped them to understand what the risks of going it alone were versus the risks of selling. And both have risks if you are thinking about the service, the users, the team, and the shareholders (in that order). And it allowed the founders to develop close working relationships with some of the most important Internet companies who can not only be acquirers but also distribution partners and monetization partners. I am a big believer in making quick decisions on most things. But on some things a bit of deliberation is important. In this case, the founders walked away from what Ben Horowitz from Andreessen Horowitz calls "generations of your people being set financially." Ben is also quoted in that same TechCrunch post saying "It is a really cathartic and emotional decision to make." Those kinds of decisions are best left unforced by the founders and the people around them.In the end, the Company got a great financing with a great group of investors, including our firm, and now has the resources to invest in scaling the service, the team, and building out the feature set to make checking in an even better experience than it is today. So the moral of this story, if you will, is don't let conventional wisdom force you into making decisions you don't need to make and you aren't ready to make, particularly about very big decisions that you will be living with the rest of your life. Related articles by ZemantaFoursquare Raises New Funds (online.wsj.com) It's Official: Foursquare Raises $20 Million Series B From Andreessen Horowitz At $95 Million Valuation (businessinsider.com) Foursquare Finally Raises Funding (gigaom.com) Foursquare Raises an Additional $20 Million (nytimes.com) FourSquare Raises $20 Million In New Round (Finally) (paidcontent.org) Thoughts on the Foursquare and Its Funding (readwriteweb.com)
• Everyone Can Be A Radio Advertiser 26 June, 2010, 3:47 am
  Our portfolio company Targetspot launched a new simplified self serve interface to their radio advertising platform this week. If you have a local business and want to reach hundreds of thousands of radio listeners in your area for a few hundred dollars, you should check it out.It's one click to try a new form of radio advertising.And to make things easy on everyone, they are offering a free voice ad, spoken by real voice over talent, to anyone who tries out the service for the first time.I just tried it and made a voice ad for this blog. Yes, you may hear some on air advertising for AVC in the coming weeks. It's really simple. If you have a business you'd like to advertise on radio and internet audio sites like Yahoo Music, AOL Radio, Myspace Music, etc, you should check it out and let me know what you think.