I would say that most venture backed startups require additional capital after the seed or Series A round. That isn’t a bad thing and typically part of the plan. And everyone knows that going in from the founders, to the early employees as well as the earliest investors.
It is very common to seek out a new lead investor for the new round of capital. Why?
-sometimes the early investors don’t have the ability to “fully fund” the company to profitability on their own. Consider Facebook, their earliest investors didn’t have the ability to fully fund the company (company has raised hundreds of millions of dollars to date). That was part of the plan and obviously worked out for everyone.
-sometimes the early investors and the company want a new investor to price the stock. The theory goes that the market will set the price and the insiders shouldn’t do that to avoid any potential conflict of interest.
-sometimes founders and VCs seek out new investors based on the value add that the new firm/partner brings to the table.
The Inside Round: good or bad?
There are times where a follow on financing does not include a new VC firm. The new round is financed by the current investors. This is known as an “inside round”.
It used to be the case that an inside round often meant something was wrong. It meant the company was unable to raise money with a new outside lead investor due poor operating performance, team, market, whatever.
And sometimes that is a correct read on the situation.
But I believe that is no longer universally true.
In fact, an inside round could mean the company is stronger than ever. The company could be profitable, it could be capital efficient, or it could be crushing it. As a result the current investors may feel very comfortable offering the company a higher valuation for the stock which is compelling to the founders.
And that shouldn’t be a surprise if you think about it. After all, the early investors should know more about the company, team, performance and opportunites than most new investors. Further, if the offer is compelling to the founders, then the inside round will also save the company significant time and energy since fund raising is a big effort.
I’ve seen a number of inside rounds over the past few years in some great companies. And I’m thinking we are going to see this increase in the future - especially with startups that are capital efficient.
I’m sure a number of outsiders will see those inside rounds and see weakness. But it may very well be the other way around.
In case you aren’t familiar, Blippy is a way to publicly share things you buy with others. If Twitter asks the question, “what’s happening?” and foursquare asks you “where are you?”, then Blippy is asking “what did you buy”?
My biggest issue with current online reviews is they are often gamed. Or the reviews are all over the map and it’s hard to match content with context. I would rather see what my friends are actually buying (what hotels they stay at, what products they buy, what movies they see etc).
I’m sure lots of people feel their purchase history is a private matter. But I believe the upside is bigger than the downside as users (and you can always select items you want to hide). And, Blippy has the promise of the more you give the more you get. It’s easy and the data is extremely valuable.
The service is currently in private beta (screen shot below). If you are a fellow early Blippy user then you can check out my profile here. I’m interested to see how this one goes.
At my first job (which was a startup) they did this thing after you worked there for 90 days. They would get everyone together and make a big deal about the new person and their role in the company. Then, they would give you these set of cubes.
I also remember that everyone had kept these cubes on their desk at that company. It was a cool thing that was part of their culture.
I still have mine. They are a bit scratched up as you can tell from this photo I took the other day.
So much has changed in the world technology. I thought it would be fun to jot down the gadgets and other misc stuff I used in those days.
1. Computer. I used a Powerbook G3 (Pismo). I had a love/hate relationship with that computer. It had a 400mhz processor and it was my first laptop with wifi. The screen was amazing. And even though System 9.x was getting long in tooth I loved it. But it was big and heavy. A year later the Powerbook G4 titanium was introduced and I bought one that same day.
2. Phone. Nokia 8210 running on AT&T. I couldn’t get a signal on 280 near below 92. I guess somethings don’t change. But that phone was sweet. It was tiny and the battery lasted forever. Many nights I didn’t even charge it.
3. Blog/Personal website. In the late 90’s I bought the domain sabet.net. In those days, I used Microsoft FrontPage. I would add a new photo to the home page every week or so and then update the page with family news. Internet Achive still has some data from my site back in 2000.
4. Bandwidth. I was a PacBell subscriber. I paid $50/month for 1.5Mbps/downstream. I don’t remember how much upstream I had in those days.
5. PDA. That was the year, I dumped my Palm for a RIM 950.
6. My personal email was hosted on hotmail.
7. In the late 90’s, my browser default home page was set to news.com. I think by 2000 it still was but I’m not sure.
Item #7 reminds me how much the web has changed as well. So many of my favorite web services didn’t exist back then. And even some of my favorites from those days I use very differently today (e.g. Google). It’s interesting to think about what the next 10 years will be like.
“We are so tied up in AppStore mania (one of the great themes of 2009) that we’ve lost the real story: the twin forces of the move of computing happening in the cloud with really compelling mobile browsers that should, over the medium term, subsume all of the more important native platform capabilities”—I Am Tired Of AppStore Mania
, Ben Kweller. When I heard Ben was going to go country on this new record i wasn’t suprised. He moved back to Texas and you could always hear those roots in many of his older songs. I saw him play last year and a number of songs from Changing Horses made the set list. They were awesome. I bought the record on vinyl and mp3 and it’s been on heavy rotation ever since.
Anyway, that’s my list. Great year and I’m looking forward to a promising 2010.
(disclosure: the links above use my amazon affiliate code. all proceeds will be sent to Heifer International).
I was going to title this post “confessions of an email addict”
My good friend Tim wrote a fb update yesterday and asked how to disconnect during vacation.
That is a good thing to figure out.
It used to be simple. Create an “out of office message” on your mail server. Then just leave your laptop at home or in your bag. Presto.
But now many of us create and consume more on our always connected phones than our laptops.
The truth is I’m not ready to completely disconnect. I want my phone with me in case my wife needs me or other family members need me. Checking Twitter and FourSquare is fun. I love taking photos of interesting things. And I want to be able to deal with any critical matters that may arise from my partners or our portfolio.
So here’s my plan but I absolutely welcome others to contribute. We are all in this boat together :)
I did create an out of office messagae on my mail server. It says I’m away until jan 4th because I am.
I’m only checking email once a day. And in the morning before 7:30am.
I’m asking that folks send me a txt or Twitter dm for urgent matters. That will be a small number and I’ll deal with those during the day.
I’m going to be extremely mindful of the number of emails I create during my morning shift. The more emails you create, the more you get.
A lot of my friends catch up on all of their email on vacation. The theory is that your re-entry back to work will be less crushing. I used to be a member of this camp. I’m trying something new because that feels unhealthy to me. Vacation is time to relax, reflect and recharge and have fun!
I’m looking forward to this time off to be with my family and friends. Cheers!
As I look back on 2009, my calendar (and my body) serve as a reminder that I traveled a ton. And I don’t see that changing in 2010.
So I bought a new MacBook Air this weekend. It has a 128gig solid state drive. It’s super light, quiet and smooth. I’m going to use this strictly as my travel computer not as my main computer at the office. (I wouldn’t recommend using this as your primary computer).
Netbooks (sometimes also called mini notebooks or ultraportable) are a branch of subnotebooks, a rapidly evolving category of small, light and inexpensive laptop computers suited for general computing and accessing web-based applications; they are often marketed as “companion devices,” that is, to augment a user’s other computer access
The MacBook Air fits that description except for the inexpensive part. But Moore’s law will win that fight.
Since the local storage is relatively small, I decided to use this machine very differently than my other computers.
-the vast majority of my data stored in the cloud (email, documents, photos, music, etc)
-primarily using only two desktop apps: Chrome and Dropbox
-gmail for personal email and msft outlook web access to for my work stuff
-the web gives me my music fix so I don’t need local storage or apps for that
-photos all goto flickr for archive & backup. my favorite pix goto tumblr
-if i need to do anything creative with my digital work, I’ll take it to Aviary
-any thing that i happen to download goes to dropbox which automagically ends up on my heavy duty Macs. those items get backed up and/or syncd to the iphone.
-I’m not going to install MSFT Office on this computer. I think I’ll be more than fine with Google Docs and Apple iWork as a backup. This will be my first business machine without Office.
Let’s see how this experiment goes. I’m optimistic.
“If the Obama administration wants to really do something about jobs and retooling America for the 21st century, it would fund the development of great middle school programming curriculum. It would fund training teachers to teach that curriculum. It would get millions of kids writing code before they have their first date. That would change a lot of things.”—Getting Computer Science Into Middle School - Fred Wilson
Those six words are pretty common in the VC world. It’s typically said when one VC sees another VC at a conference, breakfast or whatever.
I often smile inside when i hear those words because unfortunately most people don’t mean it (sadly). I can see it coming almost every time. I’ve had too many VCs say that to me ever since I got into this business. Only a small subset of those folks have meant it.
Instead those six words are just a polite way of saying, “nice to see you”. Or the cynical interpretation is “please show me your best stuff early”. The latter is one sided and doesn’t feel very good.
Just this month a well known VC told me, “we should really do a deal together”. Yet later in the same conversation he said he only backs successful, serial entrepreneurs, won’t back first time founders and needs a solid business model. I’m not exactly sure why he wants to work with me because that’s not how I think about things.
The VCs I like best show it with actions instead of words. They brainstorm with me about our respective thesis, we talk about where the world is going, we talk about themes we like, we talk about entrepreneurs we love, we talk about ideas that are powerful and crazy. We don’t spend time pissing on other VC deals.
There are number of folks that I’ve been dying to work with as a venture capitalist. And luckily I’ve been able to do just that. There are also number of VCs that I still haven’t worked with formally yet but I know we will because we both have tried in earnest over the past year or two and it just hasn’t happened yet. I have high hopes and believe its only a matter of time.
But for all the others that meet me for the first time, my suggestion is simple. Instead of saying “We gotta do a deal together”, let’s skip that part and just get busy getting to know each other, find interesting stuff and see if there is a connection.
The thing is, the “give” has to be easy and the “get” has to be great.
Web applications that force the user to spend loads of time before the eventual (hopeful) payoff don’t work for me. That’s why I mentioned last.fm first in my post. It’s easy to give them my data. And they give back something great.
I’ve also become a big fan of gdgt and i check in a few times a week these days. It’s perfect for lovers of gadgets (like me). gdgt fits this give/get model very nicely. You can go to gdgt and have a compelling user experience without registering. But it becomes even more powerful when you signup, create and *update* your profile. And it’s so easy to give them my data. Find products and then add them to your own, had or want list. That’s it. (here’s mine).
That being said, there are a number of other services that get a lot of data from me in a smooth and easy way but haven’t returned the favor like last.fm & GDGT.
For example, Amazon gets a lot of transactional data from me but it hasn’t been able to connect me with good product recommendations or other users. Netflix gets a bunch of data from me but I think there recommendation service isn’t as good as it could be. My credit card gets a lot of data from me but hasn’t given me new services or a better experience yet. The company that brings me pay television services to our set top box has great data from me but the user experience hasn’t changed in years.
I encourage folks to make the give part really easy and if possible even fun. Then hopefully the service can return the favor.
When it comes to the web, the more you give, the more you get
There are a number of private torrent networks out there that keep track of your upload vs download ratios. Put simply, if you don’t give then you can’t take.
In those networks the rules are rigid and you either play by the rules or you don’t.
I like how a number of excellent web services offer a better experience as users contribute more to the service.
I’m going to mention a few that aren’t in the Spark portfolio just so it’s clear that I’m not trying to plug our investments (at least in this post :)
One of my favorites has to be Last.fm. I use the last.fm app to record or scrobble all of my music history from my iphone, hype machine, itunes and last.fm. I “give” them my data and I get great stuff in return. First, I can find other users that share my taste in music. That’s super helpful. Second, my neighborhood radio keeps getting better and better as I contribute my data and others do as well. My song of the day that I posted this morning came from my neighborhood radio on last.fm. I bought that track and now I shared it with you all. Classic example.
Another example is linkedin. I have to confess, I was late to the linkedin train. But now that i’m fully on board its fantastic. But it has only become great for me because I’m investing in making my profile complete and because I’m making an effort to make connections with folks on the service. I invest my time and data and linkedin gives me great data and contacts in return. Give more = get more.
Okay, I’m going to break my rule and mention a few Spark portfolio companies (sorry i can’t help it). First, Tumblr. Because I share tunes everyday that I care about, a number of you take the time to send me emails or tweets with links to your tumbr site and share music in return. I don’t think I would discover so many artists on tumblr if I didn’t make the effort on my side. And I am grateful that many do the same in return.
In my opinion, Twitter improves for me personally as I contribute more and engage more. It’s a two way street.
My last example for this post is Foursquare. I contribute a bunch of data to Foursquare. Sure I check in to places everyday but I do a lot more than that actually. I add new listings. I add tips. I add friends. All of those are things I give to foursquare. And the more I give the more I get in return. Simple, example, because I added my friend Tim in atlanta i get to see where he goes on friday night for dinner with his family. I get that data in return and I also get something more, a close feeling of connection to one of my dearest friends.
I love these services. They all improve the user experience as you give more.
“My biggest beef with blackberry apps is the popups they create around trust and security. Its confusing as hell to me to figure out what boxes to check and when to say yes and when to say no. It’s like the privacy hell Facebook is putting its users through right now. More options and checkboxes is not better.”—Fred Wilson - http://j.mp/76kHXP
“So let’s talk traffic. We’ve got people who love this goddamn phone so much that they’re living on it. Yes, that’s crushing your network. Yes, 3% of your users are taking up 40% of your bandwidth. You see this as a bad thing. It’s not. It’s a good thing. It’s a blessing. It’s an indication that people love what we’re doing, which means you now have a reason to go out and double or triple or quadruple your damn network capacity. Jesus! I can’t believe I’m explaining this to you. You’re in the business of selling bandwidth. That pipe is what you sell. Right now what the market is telling you is that you can sell even more! Lots more! Good Lord. The world is changing, and you’re right in the sweet spot.”—
I was at an event this month where a prominent, experienced investor was talking to the audience about small being beautiful. He was talking about fund size and investment size. His fund is smaller than $100MM. For this post, I’ll just call him “Joe”.
Joe went on to say that while starting companies has become more efficient, venture funds have been getting bigger. If companies need less money then why do VCs raise more money?
That’s a fair point except for a big thing in my experience. The cost to start a company in the “early days” is now inexpensive. But then the growth phase requires significant capital (infrastructure & staff). Look at todays great companies - facebook, twitter, yelp, gilt groupe, etc. They required modest capital to start and launch the product. Then they raised big big dollars to scale.
That’s a great model and works for investors and entrepreneurs alike. Venture isn’t dead - rather it’s being staged differently. The challenges for a small fund is to avoid significant dilution over time. The challenge for a big fund is the challenging IPO and M&A market. A firm needs big returns to make big funds work properly. Both fund sizes need to be aligned with the company and founder needs. I think everyone would agree on that.
But the big problem I had with Joe’s speech was when he said that because of the tough IPO market, they invest assuming the vast majority of his investments will be sold for $50-$200M.
I waited for the clarifier but it never came.
I think our job (entrepreneurs and investors) is to build & fund companies that can become important, viable and standalone companies. That’s why I don’t consider the question “who will buy this company” when I think about making an investment.
I want to believe that these companies can innovate, grow and choose to remain independent on their own.
And more standalone companies grows the entire market.