Category Archives: Venture Capital

No Conflict, No Interest

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Angel investor Naval Ravikant has a good post on the Venture Hacks blog, focusing on the potential conflicts of interest when an entrepreneur is engaged with an investor.  This is an issue that comes up frequently in my experience, so I think it would be useful to note here.

Naval's post lays out a good framework to think of the issue, and he sums it up by what I think is the key take-away:

Consequently, the best entrepreneurs display a lot of chutzpah.
They aren’t fazed by the competition, nor do they see shadows in
every corner. They are their own biggest competition.

I could not agree more. 

PS. The title of this post is a quote I hear attributed to John Doerr.  I always read it as "where there's no conflict, there's not interest".  I am not sure that it makes sense to me but I figured it makes a catchy post title.

Turkish Broadband Growth

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Broadband First, apologies for a quite period on this blog. I have been buried in some new initiatives, which I will share soon.

However, this piece of news that crossed my screen today (via webrazzi) tipped me over to break the silence: 

The Turkish broadband market has reached almost 7.5m subscribers in 1Q2010 and has grown at an amazing 21% rate YoY.  (Source: BTK)

Internet-Rakamları-2010-1

I don't have the time to look it up, but this must be the fastest growth in Europe.  It certainly is the most encouraging news relating to my investment thesis on Turkish internet, since the comScore online engagement news about a year ago.

How to Think About Your VC

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I am reading Jeff Bussgang's book and came across a great quote.  If you are an entrepreneur talking to a bunch of VCs and trying to make sense of the process, or trying to decide if you can be partners with that guy across the table from you, I don't think you can go wrong this line of thinking from Twitter's Jack Dorsey:

Is this guy fun to work with? Is he going to challenge us? Is he smart? This person was going to take a seat on the board. I viewed it as a hire that we could never fire.

Complexity

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Clay Shirky does not write very frequently, but when he does, it's often worth paying attention to.  His latest post is no exception.

Sriky is pointing out the changes in the media business and the inability of old media to comprehend them.  He summarizes his point in a fun way:

To pick a couple of examples more or less at random, last year Barry
Diller of IAC said, of content available on the web, “It is not free,
and is not going to be,” Steve Brill of Journalism Online said that
users “just need to get back into the habit of doing so [paying for
content] online”, and Rupert Murdoch of News Corp said “Web users will
have to pay for what they watch and use.”

Diller, Brill, and Murdoch seem be stating a simple fact—we will
have to pay them—but this fact is not in fact a fact. Instead, it is a
choice, one its proponents often decline to spell out in full, because,
spelled out in full, it would read something like this:

“Web users will have to pay for what they watch and use, or else we
will have to stop making content in the costly and complex way we have
grown accustomed to making it. And we don’t know how to do that.”

What Clay Shirky is identifying for the media industry, can be attributed to the Turkish business environment in the broadest sense.  It even includes businesses who were born to the connected economy.

My investments are built on one simple thesis:  That Turkey has lagged
comparable markets in the transition of economic activity to the
connected platforms.  I think there's enormous profit potential in this
situation, if the right exposure is attained.  And part of it comes
from the behavior of incumbents in the Turkish economy. I will be thinking more about specific examples and try to document them in this blog.

Angel vs VC

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Snow20angel-main_full I have made investments both as a VC and as an angel investor.  The distinction for me is whose money I am investing.  If it's my own, usually in smaller amounts, I view it as an angel investment, even if it is a part of a round with institutional investors.

It is quite frequent that I find myself in an investment conversation that does not fit the investment vehicle I am representing at that point.  This usually happens in early rounds where the amount of capital required is too small for a VC, or the terms offered are not strong enough.  In these cases, I can think about an angel investment, but in my scope of activities, this can sometimes pose problems.  The primary issue it brings up is whether it hurts the alignment with my investors.  I try to avoid situations where it can lead to a "front-running my investors" scenario.  So far, I have been successful at that.

So the ideal solution is forming a structure where a VC can participate in these types of angel rounds.  Ben Horowitz has a great post on the issue and I don't need to spell out the points he already makes.  I basically agree 100%.

I also think it's a great idea to utilize the Series Seed type documents in these types of deals.  My latest angel investment, CivicSolar, used this set of documents which made the process considerable faster, and I presume, less expensive for CivicSolar.

Killing Things at Startups

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My friend Auren has a good post on a very important responsibility for entrepreneurs:  the expedient killing of stuff that is not bringing value.  He summarizes the issue:

Being able to kill things early is essential to the long-term
growth and success of any company. But recognizing that you should be
searching for things to kill is the first step to building a better
company.
…
As your company grows, you’ll have more things – both big and small
– that either weigh down growth or are not core to long-term success.
The companies that work proactively to get rid of these issues and
devote resources to the areas that matter are the ones that will be
able to remain nimble, innovative, and win.

This is also interesting to me as a VC.  Usually, we are not in a position to make the killing decisions at our portfolio companies.  So, our job is to prod our entrepreneur partners in their constant pruning of their organizations, and provide the necessary encouragement for them to take action.

New Interface Wave

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I think we are at the beginning of a new wave of innovation in how we interact with various types of computers.  The fact that my laptop looks like a typewriter makes it less and less suitable for a lot of tasks for which I use it (actually, it's quite appropriate for typing this blog, until voice-to-text is perfected).  That's why there have been many diverse I/O devices for specific tasks, including mice, joysticks, gamepads, etc.

It feels like we're at an inflection point in the area of interfaces.  I am amazed and excited by the prospects offered by companies like Oblong, and innovation such as this.  As computers proliferate and enter many other types of devices, the scope of interface innovation will broaden.  I suspect there will be an enormous economic opportunity associated with this area.

Value of the Identity Layer – Payments Edition

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Social-brand-identity Dave McClure has a fun recent post/rant on business models.  In it, he makes a simplification:

Well because as we transition to a Startup Ecosystem driven by direct
payment & subscription business models, i want to make it clear how IMPORTANT it is to make sure users don't forget their passwords.  If they forget their password, and/or can't recover it, then guess what MoFo — YOU DON'T GET PAID.

While I agree with his point, he then goes on to assert that the frequent-use models don't have this problem and therefore should win the transactions/subscriptions business models, which is where I start to get question marks.  He provides examples from his tenure at PayPal and concludes that since Facebook and Google are the most frequently used properties, this is their game to use.

I also agree with the last point.  However, I think it's a gross simplification to tie the causality to frequent use.  It's the identity layer that counts.  Not the frequency.  I play some casual games daily.  but they don't know about me nearly as much as Google or Facebook does.  It's that intimate knowledge of who I am that counts!

TBI Research is pointing out the revenue potential demonstrated by some recent data at Facebook through payments.  It's not surprising that the results are positive.  Payments are directly tied to identity.  PayPal is under huge threat here.  In fact, once the payment structures start to slip, eBay will be under threat as well. 

The identity layer is enormously valuable. The biggest contenders for it are Google (because of Gmail) and Facebook.  The identity layer will allow these companies, as well as those who will be able to grab a piece of it, to challenge some very large internet commerce areas.  Payments are a great candidate.  Others will be classifieds & listings, and loyalty programs.

I think there still is an opportunity in the Turkish identity layer, despite Facebook's domination here.  Not sure how one should play it but I continue to think about it.

FRC’s Exchange Fund

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I'd been away skiing for a week and now I'm back, refreshed and excited about the year ahead of us.  I was gone in a pretty busy week that saw the announcement of Apple's iPad, which I think is getting underestimated. But on to the more interesting development of the week for me:  First Round Capital's Exchange Fund.

Josh Kopelman describes it as:

This exchange fund
was created to allow First Round Capital entrepreneurs to contribute a
small piece of the stock they own in their company  — and share in the
upside of all the other companies.  The fund is only available to
qualified First Round Capital portfolio companies and First Round
Capital does not receive any
economic upside from the fund.  The goal of the fund is to allow our
entrepreneurs to get the benefit of some tax efficient diversification
without giving up their upside prematurely. 

This is an issue I had thought about when we were busy growing SelectMinds.  I'd even talked to my fellow NY-based entrepreneurs Marc Cenedella and Mark Harris about it circa 2004.  We'd agred it would be tough because of valuation metrics.  However, when structured in the context of a VC fund, that problem is probably mitigated.  There are a few other issues raised in the comments under Josh's post.

All in all, I think it's a great way to try to diversify the risk.  I'll be watching excitedly.