Continuations

Friday, November 20, 2009

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New York City Is Rocking For Startups!

Here is just a small sampling of all the awesome events that took place in NY City this week (I realize I should have posted this at the beginning of the week).  Just to name a few, there was Web 2.0 Expo, the net neutrality debate on Tuesday night and New York Entrepreneur Week.   There was also the UK digital mission to New York and I am sure many others that I am forgetting or did not know about.

Last week saw the announcement of Founders Collective, a great addition to the seed funding available in New York City.  Over the last two weeks I have had meetings with some awesome folks coming out of Google and either looking for startups to join or getting ready to start their own.  Also over the last month, several of our portfolio companies have had great success recruiting from the West Coast, including tech talent (something that seemed highly unlikely a few years ago).  These are both examples of what I refer to as Google’s gift to New York.

So when I recently heard from a friend in London that he was thinking about going to the West Coast to look for startups to join there, my first reaction was to point him to New York instead.  I am really excited about everything that’s happening in the city!

P.S. If you are still looking to catch an event, I will be on a panel at 10:30am this morning with Howard Morgan, Anthony Marino and Jim Robinson at Columbia University’s Havemeyer Hall, Room 309

Tags: new_york_city startups

Thursday, November 19, 2009

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The Open Web is Under Attack: What To Do (Part 2)

Following up to yesterday’s post, here is what I think folks should do about the threat of platform lock-in at the application/content layer.   First, recognize that this is directly related to net neutrality.  The ability of existing platforms and content owners to try to force the web back into walled gardens is limited by the ability of entrepreneurs to start open competitors and reach people directly and on a level playing field.   Second, start voting with your mouse.  At the moment we have enough variety on the web in most categories that if any one provider is over-reaching, you have alternatives available.  For instance, for political coverage you can head over to a site such as politico.com that has been built from the ground up for the web, including an extensive set of RSS feeds.  Third, support an independent web browser.  Much as I like Chrome and its speed, I believe that a strong and healthy Mozilla Foundation that pushes Firefox forward will keep everyone honest.  Other than that, we need to all watch out carefully for what is happening at the content and application layer, as eventually we may need to extend the net neutrality concept in that direction (for instance, by ensuring that endusers can change content inside the browser as they see fit, e.g. via plugins).

Tags: web open innovation browser net_neutrality

Wednesday, November 18, 2009

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The Open Web is Under Attack: What To Do (Part 1)

Yesterday, I wrote about why the open web is under attack.  Today, as promised, the follow up on what to do about it.  I believe the single most important thing is to let Congress know that people actually care about this.  Big companies are spending a lot of money lobbying, but good old fashioned calling and faxing (yes, faxing, at least so I am being told by folks from DC) can make a difference.

Now “net neutrality,” while somewhat descriptive, is not a great term from a marketing perspective.  It sounds a bit like one is supporting blandness.  So what might you say to your representative and senator instead?  I suggest going with an analogy, something along the lines of: “I don’t want my cable/phone company controlling what I can do or see on the Internet — just like I would never want to be behind China’s firewall.  Please help us maintain our freedom of access.  Please support the FCC’s net neutrality initiative.”  While this may sound a bit stark, that’s on purpose.  The core technologies of deep packet inspection are in fact the same in both cases and it is worth pointing that out in non-technical terms. In China you can’t get to many sites/services at all.  But imagine how your usage would change over time if some sites/services were a lot faster than others.

Now if you are wondering whom to call or fax, it is relatively easy.  You can look up phone and fax numbers based on your address.  If you read yesterday’s post, you might also wonder what to do about platform lock-in a the application/content layer.  More on that tomorrow.

Tags: fcc lobbying net_neutrality congress

Tuesday, November 17, 2009

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The Open Web is Under Attack

Yesterday, Tim O’Reilly published a provocatively titled post: “The War for the Web.“  In it he discusses the dangers to the web as an open platform from the attempts by the biggest players to own more and more of the user experience:

We’re heading into a war for control of the web. And in the end, it’s more than that, it’s a war against the web as an interoperable platform. Instead, we’re facing the prospect of Facebook as the platform, Apple as the platform, Google as the platform, Amazon as the platform, where big companies slug it out until one is king of the hill.

I share Tim’s concerns.  If you have not read Tim’s post, go read it now!  If you come back, here is some more food for thought.

Carriers are spending tons on lobbying against the FCC’s push for net neutrality.  The irony here is that first the Internet and later the Web were conceived as entirely neutral by design.  There was a clear separation between layers of the stack (web applications on top of Http on top of TCP/IP on top of whatever physical transport).  This separation has been essential for allowing rapid innovation at all layers of the stack.  Transport speeds have gone up hugely even at the local loop (FIOS anyone?) at the same time that we have gone from Geocities to Google Apps.  Despite this tremendous success, carriers and now also some content companies are fighting the design because the open design is so powerful that it is destroying their existing business models.

Google is building its entire web stack by themselves.  From custom hardware in their data centers all the way up to their own browser and most recently a proposal for a protocol to extend http (spdy).  A lot of people inside of google have the best of intentions, but as we all know those pave the way to hell.  It is a very small step from where google is today to a google that pushes everyone to use Chrome with spdy against google servers.  If will of course all be in the name of “the best experience” for endusers.  I wonder where I have heard that before.

For more examples of how small steps that all seem innocuous by themselves can lead us down the path towards a less open web, I suggest heading over to Chris Messina’s blog and reading “The death of the URL” (skip the obligatory Matrix reference at the top).

In a follow-up post I will share some thoughts on what to do about it.

Tags: web internet net_neutrality open innovation

Monday, November 16, 2009

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Content Capital

Had a great discussion at dinner last night about the future of publishing and the role of authors and agents.  My believe is that agents have to start providing content capital.  The idea behind content capital is pretty much the same as that behind venture capital.  Content capital puts up the money, the author creates the work(s) and all proceeds are shared.  These would be what the music world has started calling “360 deals,” where many different revenue streams are generated.  In publishing, this might well include fees from the author’s speaking engagements.  The mechanism for achieving revenue sharing could be as simple as setting up an entity that is owned in part by the author and in part by the content capital provider.  The use of proceeds of the content investment includes paying the author a small wage (much like an entrepreneur), but also the marketing of the book through creating a web site, digital and physical distribution, etc.  The incentives in this model are much better aligned than in the current model of advances and earn-outs (which are never earned out).   The best content capital firms would also come with a strong network of service providers to help build the web site, buy SEM, get speaking engagements, etc.  Would love to know if there is anyone out there who is working in that model today.  If not, it may be high time for someone to raise a content fund.

Tags: publishing content capital investing

Friday, November 13, 2009

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Hiring: Lack of Diversity Becomes Self-Reinforcing

The first startup I was involved with was a management consulting company in Germany.  I had been out of college for less than a year when I joined four much more experienced guys in forming Bossard Consultants Germany (some initial funding was provided by Bossard France, a well established consulting firm there).  We got off to a great start, landing some premier clients such as Lufthansa and Porsche.  The firm grew rapidly and we hired a lot of very smart guys to join the team.

Notice a pattern here?  Yup, one day we found ourselves reaching two dozen consultants and everyone was male.  At that point, we finally woke up to this not being healthy.  But correcting the mistake now turned out to be hard.  Several of the most qualified women simply didn’t want to join.  It is not that any one of us was scary, it’s just that “trust us, this isn’t a frat house” is not all that compelling.  The de facto lack of diversity spoke much louder than any words.

I am writing this because I see some startups these days going down a similar path.  Very rarely will this be a result of any malice, rather it is easy to just not pay any attention to what’s happening until you find yourself without diversity.  Changing the course then turns out to be genuinely hard.  You want to be able to hire the best people.  So make sure to build a team along the way that will be able to attract the best.

Tags: hiring diversity startups

Thursday, November 12, 2009

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Will Apple's History Repeat?

As a teenager, I was a die-hard Apple fanboy.  The boy part is obvious.  The fan part was the result of having and hacking an Apple II.  Naturally, I was hugely excited about the arrival of first the Lisa (remember those?) and then the Macintosh.   While I enjoyed programming the Macintosh — all the way through college — I was frustrated with its unfriendliness towards hackers.  My Apple II had been heavily modded with all sorts of extras.  This was easily possible because the lid of the computer was attached with velcro and the motherboard had not only card slots but also various jumpers that could easily be wired.  The rejection of hackers combined with the refusal to let others build compatible hardware eventually made the Macintosh more expensive and less functional than the PC.  For many years Apple was marginalized and I sadly used PCs and Windows.

Now a similar battle is brewing.  Apple has an early lead with the iPhone.  Once again, Apple is rejecting hackers and preventing others from building compatible hardware and/or running the iPhone version of OSX and iPhone apps.  The contender this time appears to be Google’s Android (definitely not Blackberry, which is also hacker unfriendly with a horrendous on-boarding process for developers and has not managed to get others to embrace its OS).  So the burning question is: will Apple’s history repeat?  Will Apple squander its lead by insisting on tight control and gradually becoming isolated with a more open platform succeeding instead?  With someone as high profile as Joe Hewitt calling it quits and specifically citing Apple’s policies for doing so, it seems a good time to ask this question.

Some things are clearly the same, such as Apple’s desire to tightly control the user experience.  But some things are very different and so the outcome is far from clear:

• Apple has its own history to learn from
• Apple has prepared for a full fight all the way down to the chip level by recruiting chip designers
• Apple is way bigger and way more powerful
• There are more and more efficient contract manufacturers
• User experience matters more for personal usage than for business usage (one is voluntary, the other often mandated)
• Phones are an expression of personal style, so looks matter and Apple has that nailed
• Android can’t reach consumers directly but has to contend with carriers who want to control their customers possibly more than Apple does
• Again because of carriers, Android faces an early risk of fracturing into incompatible devices (already many different screens to deal with)

For all of these reasons (there are probably more), this will be an epic battle.  Apple may succeed (possibly by opening up more) or Android may come up an open winner.  In either case, I am optimistic that the ultimate beneficiaries will be endusers and developers.  As with any battle though, there will be a lot of innocent casualties along the way.

Tags: apple iphone google android mobile

Wednesday, November 11, 2009

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Achieving Excess Returns

One of the persistent questions for anyone investing money (whether in the public or private markets) is how to achieve excess returns. I have been thinking about this quite a bit over the last weeks as we have prepared for our annual meeting with the Limited Partners in Union Square Ventures and as I have talked to a close friend who is managing a large trust. I believe that out-performance comes down to two key factors: perception and concentration. By perception I mean the ability to make sense of the heaps of available data. The foundation of perception is a deep understanding of what is going on in one’s target market. Without understanding, there is no way to extract a signal from the data Without a signal, investors are reduced to guessing, which generally results in becoming followers rather than leaders. Only leaders can deliver excess returns. Concentration is the willingness to remain focused and make sufficiently few investments to avoid regression to the mean. A large portfolio is much more likely to perform like the overall market than a small one. Now some might argue that you are just taking more risk. While that is correct, I believe that concentration risk is not efficiently priced so that even on a risk adjusted basis it allows for delivering excess returns. The reason is that mis-aligned incentives push the bulk of investors towards large diversified portfolios (e.g. growing the asset base to collect more management fees). Achieving perception and maintaining concentration are really hard, which explains why sustained excess returns are so rare. I certainly find myself struggling with both!

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Tuesday, November 10, 2009

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Welcoming Founders Collective

Yesterday, Chris Dixon announced on his blog (http://cdixon.org) the formation of Founders Collective, a $40 million seed stage fund. I have known about Founders Collective for some time and am excited about the launch. I have written on several previous occasions that there is never enough seed capital available, so it is great that they are targeting this need. Even better though is that the money comes with the advice of a really great group of founders who can provide tremendous value beyond their capital (in addition to Chris, the group includes Mark Gerson, Caterina Fake and several other impressive folks). While they will be active nation wide, their focus will be on the East Coast and especially New York. This is a great addition for the city. Welcome!

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Monday, November 9, 2009

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Launching a New Site for Union Square Ventures

This morning we have launched the new web site for Union Square Ventures at usv.com.

We are very excited about all the dynamic elements on the site.  For instance, if you visit the page for a portfolio company such as foursquare,  you will see recent blog posts, tweets, photos and videos about the company.  The same is true for the team pages.  Here is my page as an example.

The dynamic content is aggregated using Magnify.  We have also chosen to replace the thesis page with one that combines blog posts that together give a much better and evolving view compared to a one-off summary.

The new site is the work of the wonderfully talented Phoebe Espiritu and was project managed by our own Eric Friedman.  A huge thanks to both for a job well done.

Tags: union_square_ventures website