Monthly Archives: May 2011

What is the biggest risks for a VC?

If you said, “Investing in bad deals” you would be dead wrong. Mike Arrington asked Sequoia partner Roelof Botha the same question and Botha explained that missing winners was the biggest risk. Botha explained that it is a MUCH bigger problem to miss winners versus investing in too many losers. Botha and his team passed on a number of hits including Twitter, Zynga and even our own ShopSavvy. He explained, “Because of the way the model works, returns are very asymmetric – a failed company will lose 1X, but a home run could get 50X or 100X upside.” As his partner Doug Leone explained, “When in doubt, lean forward.”

The Onsite Visit, Tips for Selling Your Startup

In late March we hired an investment banker to help us run a process to sell one of our startups. One of the last things a potential acquirer conducts (after the term sheet) is the on-site visit to meet the broader team. We have been through a few of these meetings – the last one wrapping up earlier this week. They usually last around three hours, but some buyers may want to hang out all day. After our first on-site visit I was pretty frustrated with the process. We didn’t take enough control of the meeting. By the second meeting I learned my lesson and took control of the meeting giving the acquirer what I thought he was looking for. Potential acquirers are interested in learning more about your business and your team. In my experience the fact that they don’t know your business or your team makes this process difficult for them and frustrating for you.

The on-site meeting that seems to work for our team is one that introduces each key engineer/developer and attempts to reveal how they think and work. I asked each member of our team to prepare a ‘proposal’ for a 5 minute presentation they would give to potential acquirers. I suggested that they describe a problem, their solution and the result. The idea was to help them “reveal” themselves through the process. I gave each engineer a couple of days to come up with a proposal for a pitch and most hit the nail on the head. I would provide a little nudge here or there to help them, but in general most people are pretty good at telling stories once they realize they are simply telling a story. Once their pitch was approved they refined it and presented it to the full team the day before each meeting. It was interesting how it helped us come together as a team.

Interestingly, the process not only helped the acquirers meet each engineer, it also helped them understand the business in a more detailed way. There are always VERY cool things your team is working on, but that you can’t describe in a 10 slide PowerPoint without looking like a scattered brain idiot. Each member of your team can present something that is unique, cool or potentially earth shattering without seeming scattered or unfocused. Your job is to help weave a thread through all of the presentations to help tell your company’s story. The process takes about an hour and a half for us and is a generally positive experience for everyone involved. I was impressed by our team and I am sure the acquirers were as well. The moral of the story – don’t depend on someone else to tell your story.

China just declared war on American investors!

Yahoo, which is considered by some a holding company for Chinese internet companies, learned in late March that Alibaba Group (they own 43% of the company) sold one of the company’s most valuable assets Alipay without notifying or seeking approval from Alibaba’s board of directors. The CEO, Jack Ma, of Alibaba owns the company that acquired Alipay. Alipay is much bigger than PayPal and for the CEO to transfer the company to himself would be illegal and potentially land him in jail here in the US. But in China, well it is China. This is a VERY bad signal for China to send to foreign investors, especially American investors.

Ever wonder how relatively small nations like Great Britain and the United States have prospered over the last few hundred years? I would argue that our respective legal systems have allowed individuals and corporations to accumulate wealth and provide a framework for reinvestment. Back in 2008 Daniel Kaufmann was able to show a casual link between GDP per person and the rule of law. He showed, “The better a government upholds the rule of law, the more likely its people are to be richer: every rich country, with the exception of Italy and Greece, scores well on rule-of-law measures.”

If China continues to ignore the rule of law; ignore intellectual property theft; ignore securities fraud; and generally thumb their noses at foreign investors they will not prosper.

 

Pitching a business idea? Check this list first:

I got this summary of business ideas/models that persistently fail from Quora. Got an idea that solves one of these ‘problems’? Don’t bother pitching me (or anyone else). Here is the answer summary:

Social recommendations and/or Recommendations based on what your friends like
Why?
1) too much noise/low priority, lack of personal relevance
2) Forced fit between “Friends” and what you buy.

Finding people/dates/deals nearby on your mobile device
Why?
1) Automation of this activity does not produce sufficient value to the end user.

Anything that makes programming “easy for non-programmers or businesspeople”
Why?
Make Car repair “easy for non-mechanics” … presumes people want to work on their own cars. They don’t.

Yet another T-shirt site.
Why?
The market is sufficiently served by Threadless, Busted Tees, and others

Yet another dating site
Why?
1) Insufficient distinction from all of the other dating sites
2) I lie about my weight/income/humor – you lie about your fitness/degree of bitterness/coolness and thus a high level of disappointment and frustration follow.

Trust – as a stand alone service, separate from context or other functionality
Why?
1) Trust and reputation are tightly bound to the context in which they’re given, and largely useless elsewhere.
2) Insufficient number of users
3) The majority of people don’t write reviews or tag meta data.

RSS readers, Kid-safe browsers,
Why?
1) The majority of people don’t care enough to learn to use the product.

Anything involving paying people to look at ads
Why?
1) Advertisers have better alternatives
2) It does not pay enough to make it worth the time for a consumer to set it up

Anything that promises to make email a thing of the past
Why?
1) Email is pervasive and works well enough
2) Alternatives require users to learn/change behavior.

Website micro-payment donation
Why?
Come on…

Tools that deliver personalized news
Why?
Come on…

Avatars in a 3D internet
Why?
Come on…

Recommendation engine / Collaborative filtering
Why?
1) Sites have better alternatives (adwords, SEO/SEM)
2) Garbage in / Garbage out. Without reliable meta data this is a non starter.
3) Hight cost of sales to get sites to sign up.

Craigslist killer through better UI
Why?
1) It violates Craigslist Terms of service, and you will get shut off
2) Craigslist is already dead … it just takes a while to be acknowledged; Indeed/simply Hired = Jobs category, Etsy = sell your crafts, Redfin = real estate, AirBnB = Vacations/rentals, subwaycrush = missed connections, …

Grocery Deilvery
Why?
1) High cost to provide service and customers who are unwilling to pay
2) People often prefer to shop (touch/taste/smell) their own groceries

Semantic Search
Why?
1) It might be that it is hard for mortals to formulate a semantic query
2) AI is hard

Just about everything in the music space
Why?
1) Music labels want to preserve their current business model
2) …

Consumer facing video conferencing
Why?
1) Too expensive/difficult/scarce
2) Lack of true interest/value

 

Don’t be a First-Person Founder

When I was raising money for my first startup in the late 90s and I caught myself explaining how “I” was doing this or doing that. That “I” had the best this or the best that. Finally someone pointed this out to me and I realized how arrogant I sounded. Not only did it make me seem more of a jerk than I actually was it made ‘our’ accomplishments seem that much less impressive. There are very few one-person startups – they are made up of teams and the best teams usually build the best startups. Today I recognize that almost nothing is possible without my team and I am careful to point out the ‘team’ by using works like we and our instead of I and my.

I was reminded of this after reading a post by Victor Hanson titled, “The First-Person Presidency”. He pulled out a few exceprts from Obama’s latest speech about the killing of Osama bin Laden:

“Tonight, I can report . . . And so shortly after taking office, I directed Leon Panetta . . . I was briefed on a possible lead to bin Laden . . . I met repeatedly with my national security team . . . I determined that we had enough intelligence to take action. . . . Today, at my direction . . . I’ve made clear . . . Over the years, I’ve repeatedly made clear . . . Tonight, I called President Zardari . . . and my team has also spoken. . .These efforts weigh on me every time I, as Commander-in-Chief . . . Finally, let me say to the families . . . I know that it has, at times, frayed. . . .”

This is a perfect example of how using the first-person can undermine your cause. Founders should replace first-person pronouns with our and we. Most founders (myself included) tend to identify with their startup. We personalize it to a point where we feel personally offended if someone doesn’t like what we are doing. It is important to realize that startups are a team effort.

ShopKick Comment Spam Update

Back on April 19th I wrote a ‘scathing’ post against ShopKick and their CEO Cyriac Roeding. I alleged that ShopKick was promoting their app by inserting comment spam in market reviews for ShopSavvy. I assumed they were paying a firm to insert this comment spam as it was VERY plentiful. Cyriac responded by explaining it wasn’t ShopKick, but overzealous users responding to incentives created by their app. I asked him nicely and not so nicely to STOP IT. Here is an example of the comment spam we were seeing (these sort of reviews were at the top of our reviews each day for months):

Shockingly the comment spam stopped completely a few days later. It has been more than two weeks and we haven’t seen any sort of comment spam in our results. Interestingly ShopKick’s ranking has also dropped like a rock. ShopKick was a Top 400 app but after stopping the comment spam they dropped out of the Top 400. Coincidence? Here is a snapshot of ShopKick’s rankings from April 19th (the date of the post) to now:

I wanted to take a minute to thank Cyriac for stopping the comment spam. We appreciate your swift response.