VentureBlog

Ten Years of Venture Capital: Just Getting Started

David Hornik — 2010-06-07T02:31:22-08:00

Over this weekend I celebrated my tenth anniversary as a Venture Capitalist. When I joined August Capital 10 years ago, things weren't so different than they are today. There had been a period of real exuberance in venture investing but it had come to an unceremonious end. The momentum in momentum investing had run out of steam. And it was back to the basics in Venture Capital -- fund smart folks building interesting companies that didn't require a pile of cash. I felt grateful then, as I do today, that I had joined a firm that focused on the fundamentals of Venture Capital and company building.

August Capital has always been a big picture firm -- build great companies for the long run and everything else will work out in the wash. I don't think that ten years ago I quite understood just how long the "long run" really was. But Venture Capital is definitely a long term business. There are hundreds (if not thousands) of opportunities in any given year to be short sighted and to optimize for the near term, but those decisions will assuredly come back to bite you. Venture Capital is about thinking long term. Venture Capital is about paying it forward. Venture Capital is about being honest, and forthcoming, and helpful and hard working. And, in the long run, you may have the good fortune to fund a great company or two along the way.

I was chatting with one of my partners recently about the fact that I wanted to write a blog post looking back at my first ten years in the venture business but that I wasn't quite sure what wisdom I could impart. He said, "that's because you're just getting started." Just getting started? Ten years and I'm just getting started? It seemed hard to imagine. Yet he was certainly right. Ten years in Venture Capital is a drop in the bucket.

In my first ten years in the Venture business, I have funded 15 companies -- that's one and a half companies a year. And of those companies, the majority were funded in the latter half of the decade and are really just getting started. While there are a few anomalies out there, the vast majority of "meaningfully large" companies require 6, 8, even 10 years to get to scale. Which means that only my earliest investments have any hope of being "meaningfully large" at this point (I guess the good news is that a half dozen of my companies will likely do around $50M or more in revenue this year, which is certainly progress, but is in no way conclusive). It probably takes about two decades for enough companies to ripen on the vine before one can know with any degree of certainty if he's going to be a good wine maker or not.

One of my partners is fond of saying that success in the Venture business is largely a product of effective pattern matching -- observing the characteristics of successful businesses and then finding new businesses that match those characteristics in material ways. After a decade in the Venture business, it is abundantly clear that he's right; pattern matching is among the most powerful tools we VCs have. Yet without a playbook full of patterns, there's not much matching to be done. So, arguably, the first decade in Venture is all about pattern acquisition so that the second decade might be about successful pattern matching. [1] I'm looking forward to that second decade. I've got some great patterns at this point and can't wait to put them to good use.

I am certainly grateful for the incredible first decade I've had in the venture business. I owe my partners a huge debt of gratitude for betting on a punky young lawyer with no business experience and a penchant for running his mouth off. It has been my tireless effort to prove that gamble a wise one. I also owe the entrepreneurs with whom I work an equally large debt of gratitude. They have trusted me to join their teams and help steward their companies through the challenging gauntlets that each has and will face. I don't take that responsibility lightly. I value their friendships and their trust, which I hope I earn each and every day.

I may be just getting started, but I've got one hell of a running start. I look forward to my next decade with great partners like Dave Marquardt, John Johnston, Andy Rappaport, Vivek Mehra, and Howard Hartenbaum, and phenomenal entrepreneurs like Selina Tobacawalla, Al Lieb, Josh Silverman, Rene Lacerte, Martin Gates, Jim Heeger, James Currier, Rick Marini, Stan Chudnovsky, Travis Kalanick, Ben and Mena Trott, Barak Berkowitz, Chris Alden, Matt Sanchez, Dave Lerman, Kevin Sladek, Bob Philips, Bharath Kumar, Denis Stradford, Frank Rhode, Erik Swan, Michael Baum, Rob Das, Godfrey Sullivan, Paul Wasserman, Alessandro Isolani, Kevin Johnson, Touraj Parang, Philip Mobin, Konstantin Guericke, Bahman Koohestani, Bill Trenchard, Jim Everingham, Lloyd Tabb, Maynard Webb, Dave Sifry, Richard Jalichandra, Paul Ryan, Tom Lamb, Tom Furphy, Paul Hanson, Susan Wu, Don Neufeld, Rex Ishibashi, Max Ventilla, Damon Horowitz, Garrett Camp, Geoff Smith, Amit Kapur, Steve Pearman, Jim Benedetto, Bill Clerico, Rich Aberman, Ashvin Kumar, Chris Estreich, Philip Kaplan, and the thousands of other entrepreneurs in my portfolio who are working tirelessly to build amazing companies that matter. I consider myself incredibly lucky to be going into my second decade as a Venture Capitalist. I used to say "it's a great job if you can get it." Now I joke "it's a great job if you can keep it." I plan on keeping it for many years to come.

[1] Unfortunately, one of the most powerful patterns one can have in his playbook is the "Failed Company" pattern, but it's an expensive one to acquire. I suppose this is why partnerships are so helpful. I get to borrow the playbooks of my partners who have been in the business for three decades or more. It would be hard to overstate how helpful that really is.

What a Fucking Waste of Time

David Hornik — 2010-05-07T00:34:08-08:00

One of the lead tech stories this week concerned the wild and crazy early days of Facebook. According to David Kirkpatrick's soon to be released book, "The Facebook Effect," Mark Zuckerberg used to have business cards that read "I'm CEO ... Bitch!" What caught my attention most about the story wasn't the fact that Mr. Zuckerberg had this irreverent business card. Rather, it was the fact that when the vast majority of journalists reported this "important" tidbit (and there were many who did), it always read something like "I'm CEO...B**ch!" or "I'm CEO...b****!" After all, we wouldn't want decent folks like yourselves to have to read the word "bitch." That would be such a shock to the system.

The business community's jihad against swear words never ceases to amaze me. I was recently talking with an entrepreneur who had built a service that was populated by user generated content. In our discussion of his product, this entrepreneur went to great lengths to reassure me that he had built the necessary technology to protect against errant swear words finding their way into the content. And it struck me that I have had this exact conversation many dozens of times over the last decade. "Rest assured, no swear words will ever find their way onto our service!"

Rather than be comforted by this fact, I started doing the math in my head. How many hours have entrepreneurs over the years spent building systems to scan for swear words? What kind of deep technology has been brought to bear upon the problem of curse words being camouflaged by tricky content creators? How many hours have end users devoted to policing user-generated content sights by clicking on the omnipresent "mark as offensive" button? The reality is that hundreds of thousands of hours have been wasted addressing the swear word "problem" when they could have been put to better use in virtually every instance.

While I am no Dave McClure (he brings swearing to a whole new level), I have been known to say, and even write, a curse word or two from time to time. And so far neither I nor the folks around me have suffered any great harm from that behavior. I think it is time to stop worrying about swear words, stop wasting huge amounts of time and resources filtering them out, and focus on creating a great experience that may or may not occasionally be "tainted" by an errant "bitch" or "shit." Trust me. We'll all survive.

Why the Time for Mobile is Now

David Hornik — 2010-04-02T13:10:36-08:00

I was at a party the other night to celebrate the first anniversary of Nokia's "Ideas Project." The "Ideas Project" is an effort to bring together a diverse group of smart folks to share their thoughts on the evolution of media. The site has a bunch of interesting videos in which the likes of Esther Dyson, Robert Scoble, Loic Le Meur, Jerry Michalski, etc. share their big ideas. It is a really nicely curated site.

When Nokia started the Ideas Project just a year ago, it was not as blindingly obvious as it is today that the evolution of media is all about mobile (ok, maybe it was to Nokia). But, truth be told, venture capitalists have been predicting the domination of mobile and mobile applications for more than a decade now. And those of us who bet on the emergence of mobile in 2000 or 2003 or 2006 lost a lot of money.

So what has changed? A few short years ago, if you were pitching me on a mobile business, the most important slide was the one describing your startup's relationship with the carriers. If you weren't "on deck" -- meaning, your application wasn't pre-approved and pre-installed in the phone by the carrier -- you were nowhere. So carrier relationships were everything. And carrier relationships were hard. They took a long time to make happen. They cost a ton (carriers took the lion's share of the economics). And they were a huge dependency over which startups had very little control (and VCs hate that).

A second challenge for mobile startups of old was contending with the incredible variety of form factors and functionality. Startups trying to create location-based services couldn't count on a phone having GPS or Wifi or even a decent processor. Each phone had something different in it. Mobile gaming startups couldn't count on a phone having a big screen or high resolution. So mobile startups of old weren't developing a single version of an application. They were developing dozens of versions to suit dozens of screen sizes and processors and resolutions and chip sets and operating systems.

Enter the iPhone. As Apple did with music before it, Apple broke down the walls that existed in mobile. They opened up the "deck" and let application providers write straight to the device.[1] That changed everything. A huge dependency was lifted and innovation really started to flourish. Sure, the devices also got a whole lot more powerful. There's a lot more that you can do with a smart phone than you could do with your standard device circa 2005. But processing power was never the problem. The problem was access to consumers. And that door has been swung wide open.

The operating system problem has also gotten a lot better. Developers can write to a small number of mobile operating systems and reach the vast majority of the market. Mobile application developers were almost giddy with the simplicity of writing only for iPhone. But we all knew that couldn't last. Now it is iPhone and Android. Tomorrow Windows Phone 7 Series and Symbian as well. But that is a far cry from the OS challenges of old. (Unfortunately, despite the greater simplicity on the OS side, I fear a recurrence of the form factor problem -- Android may be a little too democratic and is bringing back a thousand variations on a theme).

Given the power of the devices, the simplicity of developing for them, and the proliferation of amazing applications, it is not surprising that the mobile revolution is finally upon us. Up next is "write once, publish everywhere." It's great that you can now write a mobile app and get it distributed quickly and easily to a plethora of mobile commuting devices. But why do developers still need to write a version for Flash and Silverlight and FBML (Facebook) and Android and . . . ? Solve that problem, and we're really off to the races.

I was one of the first people Nokia interviewed for their "Ideas Project" website a year ago. And I didn't talk about mobile. I talked about social. Which is still clearly a huge piece of the future of the consumer Web. But it is hard (dare I say impossible) to build a social application these days without also including mobility. If a digital experience doesn't extend to your pocket, it isn't long for this world. As an extension of the "Ideas Project," Nokia has just launched a section on the "Big Questions" and I got a second bite at the apple. This time I think I got it right. This time my question is all about mobile -- specifically, what is the future of location based services (LBS) in mobile computing? Go check it out here and let me know what you think. You may even win a Nokia phone and you can test out your theories.

[1] Yes, I know that some of you out there are thinking that Apple's approval process is onerous enough that they have simply replaced one deck for the other -- now you need to get past Apple, not the carrier. Whatever you may think of Apple's approval process, there is no comparison. Just ask anyone who tried to get an application on a phone in the early 2000's.

The Inbox Treasure Hunt: How Not to be a Jerk

David Hornik — 2010-03-15T01:05:29-08:00

I get lots of emails with business plans, PowerPoints, executive summaries each week. I try to give them all a fair read. After all, you never know where you're going to learn about the next Microsoft. But you'd be surprised how often I will get a mass email address to "Dear Sir" or, worse yet, addressed to the wrong person.

The other day I got just such an email. It was addressed "Dear Mr. Thorp" and then went on to pitch a new SaaS business. Rather than read through the plan, I emailed the sender back a curt reply:

"I will pass it on to Mr. Thorp."

Now I could pretend that I was trying to do the sender a favor. After all, it doesn't do him any good to get off on such a wrong foot. But I wasn't trying to be helpful. I was being snide and, frankly, rude. Sure, it is important to be careful and focused and detail oriented to be a successful entrepreneur. So I could fairly draw some conclusions about the plan from the mis-addressed email. But I would be hard pressed to make the case that such a mistake, in and of itself, is determinative of the future success of a company.

This weekend I received back an email from the entrepreneur who had referred to me as Mr. Thorp. He wrote "what can I say ... I messed up" and he apologized for what he called his "human terrible mistake." As I read his apology it struck me that I am a jerk. He had made a mistake. But it wasn't so terrible and it was certainly human. How often have I misdirected an email or forgot to copy my assistant when I said I would or misspelled someone's name or simply forgotten to reply? These things happen all the time. Is it any more indicative of my ultimate success as a VC, as it is indicative of this individual's likely success as an entrepreneur?

I owe this founder an apology for being a jerk (which I have sent). I can't say that I will necessarily fund his company -- I am certainly more likely to do so having seen his humble approach to making mistakes and fixing them -- but I can say that I will give his plan a careful read. Too often I treat the task of getting through my inbox as if it is a dreary chore through which I must suffer. But I would be better served to treat it more like a treasure hunt. You never know what great things await you and you never know where they'll be hiding. Who knows? Maybe I'll fund this business. It would certainly make for a great story at the IPO closing dinner.

"How to Create a Personal Brand as a Venture Capitalist"

David Hornik — 2010-03-12T01:36:16-08:00

I received an email today from ExecSense Webinars advertising a course on "How to Create a Personal Brand as a Venture Capitalist." That's right, for $250, I can learn "specific ways to use speaking engagements, published articles and social media web sites as a way to establish [myself] as a thought leader." Who knew it was so easy?

VCs don't often talk about brand. Brand is a dirty word in the venture business. Yet just today I had two different conversations about VC marketing. The first conversation was with Jennifer Jones. Jennifer has been working with VCs on marketing for two decades now. And she's really good at it. I suspect that in a VC marketing death match, Jennifer would pretty handily crush ExecSense Webinars. She wouldn't talk about generic speaking engagements and social media websites. She would talk about finding "your people" (my phrase) and how to reach them in genuine, engaging and unique ways. She would know that anything you can learn in a VC marketing webinar is insufficiently differentiated to have a real impact. She would know that Venture Capital is a people business and VC marketing is about connecting with people, not giving some soulless speech at an industry event.

The second conversation I had was at lunch with a couple of friends in the VC business. We were chatting about early stage investors and got to talking about Josh Kopelman. I made the assertion that Josh was the best marketer in all of venture capital, to which one of my lunch companions replied "he's a marketing savant." Trust me, it was pure admiration. If you want to appreciate what "people marketing" is all about, ask a few entrepreneurs what they think of Josh Kopelman and First Round Capital. Josh understands how to connect with "his people" and make a splash. Remember, this is the very same guy who convinced a little town in Oregon to change its name to "Half.com" and to feel good about it.

If you want to see what successful VC marketing looks like, take a few minutes and watch the First Round Capital holiday videos. You'll see a group of entrepreneurs who like their investors so much that they are willing to do embarrassing things on their behalf (including dancing and singing). In a three minute video, you see the slew of great companies that First Round has backed, as well as the powerful relationship that the First Round team has with their entrepreneurs.

None of this is to suggest that you VCs out there should go make a dance video with your portfolio companies. Nor will I be convincing a small town in the Pacific Northwest to change its name to "August Capital, Oregon" any time soon. But it is worth thinking about how we as VCs are perceived by the entrepreneurial community and how we might better connect with those folks. The Venture business is a people business and VC marketing is all about the people. So there is no more powerful way to build a brand than to garner a well-earned reputation as a supportive, thoughtful, helpful participant in the company-building ecosystem. No number of clever videos or slogans, or even speeches on the rubber chicken circuit, can replace the power of entrepreneurs singing your praises. So forget the webinar and focus on what matters -- bringing real value to the people around you. That's what Venture Capital brand building is all about.

In the Land of Twitter, Blogging is King

David Hornik — 2010-03-08T06:58:48-08:00

As Twitter has risen to prominence, many loud voices have declared it the future of media, the future of journalism, even the future of the free world. I am a fan of Twitter. It is a powerful service that is unbelievably flexible and versatile. But, as I contemplate Twitter, it strikes me that Blogging remains the king of new media.

Given the nature of Twitter, Tweets are necessarily abbreviated and ephemeral. I don't necessarily mean that as a criticism. There are certain real advantages to the brevity of Twitter. Anyone can Tweet. You can do it on the fly. You can do it quickly. And there are virtually no barriers to getting started. What's more, the fleeting nature of Twitter may be a feature as much as a flaw. Twitter put the "real time" in the "Real Time Web." Want to know about a fire or earthquake or service outage that's happening right now? Twitter is your best source of that info by orders of magnitude.

But there are also real limitations to 140 characters about the here and now. A tweet may be well suited to quips and status reports. But when it comes to debate or deeper commentary, a tweet is at best a teaser. Meaningful discussion remains the domain of blogging, not tweeting or status updates. In fact, this blog entry is about 3,100 characters -- the equivalent of 22 tweets. No one would read 22 successive tweets. Nor would anyone try to post them. It is well understood that Twitter is a pointer to the debate, not a home for the debate itself.

Blogs also gain huge advantage from search engines. Search for "VC" on Google and you'll get a bunch of VC Blogs, not VC tweets. Blogs are, in many ways, the institutional knowledge of the Web. If you want to learn about liquidation preference or due diligence or pitching a VC, blogs like this one have a huge amount of content that has been amassed over the last half dozen years; and search engines will unearth that content quickly and easily. While you may be able to find a pointer or two to VC-related content by searching Twitter, even those tweets will likely also point to content residing on VC blogs.

Perhaps the smartest thing that Twitter did was to enable easy linking from tweets (although that API thing was awfully smart too). In doing so, Twitter has become a channel for the most interesting content on the web, wherever it resides. Twitter does not compete with blogging for attention -- it has a symbiotic relationship with blogs. Blogs have become Twitter's payload. Twitter drives traffic to blogs. But blogs imbue those scant 140 characters with substance beyond their limited scope. The passed link has become the currency of Twitter and, more often than not, that link is to a blog.

I don't for a second mean to suggest that the rise of Twitter has been anything short of spectacular. Nor do I mean to imply that blogging trumps tweeting -- they are distinct media forms with distinct value. But it is clear to me that as Twitter grows, so too does the importance of blogging. Twitter may be media's golden child. But in the land of Twitter, blogging is king.

The Democratization of the TED Conference

David Hornik — 2010-02-21T14:39:43-08:00

Despite my best efforts, there was no way that I was going to actually manage to blog while I was still at the TED conference this year. I don't know how anyone can do it. I suppose that is why there was such an explosion of tweeting at TED -- you can do it on the fly. But if you want to sit down and write anything vaguely coherent, it takes time. And the TED conference isn't about free time. In fact, I managed to get about 10 hours of sleep over the last three nights of TED. But now that I am back and rested, I figured I'd tap out some thoughts.

As with every year, now that TED is over, the debate has begun -- is TED an elitist event that is nothing more than a party for the rich and self-involved? I am reluctant to jump into the fray on this one. Not because I don't have an opinion. Nor because I fear angering those who will see my defense of TED as ... well ... elitist. Mostly because I think this debate is pretty well trodden territory. In fact, Robert Scoble just wrote a great post on the issue called "The Elephants in the Room at TED." But before getting to the content of this year's excellent TED, let me share a few thoughts on the democratization of TED.

When I first started attending TED a decade ago, I was blown away by the people in the room. I was by far the smallest house on the block, metaphorically speaking (still am). In fact, I distinctly remember my friend Andrew Anker leaning over to me before the start of one TED session back in the early 2000's and saying:

Don't look now, but if this row blows up, the New York Times will report "7 people died today, five of whom were Herbie Hancock, Yo-Yo Ma, Frank Gehry, Rupert Murdoch and [someone amazing who I can't remember]."

The TED conference was a spectacular salon of interesting, thoughtful, brilliant people. I considered myself lucky to participate. And while the conference didn't go out of its way to be elitist, there was no question that TED was in fact a gathering of the elite (from Technology, Entertainment and Design). What's more, the only way that you could enjoy TED was to be a member of that elite (or, maybe, borrow the coveted DVDs made of the conference that were only distributed to the attendees).

But that all changed a few years ago. In 2002, Chris Anderson took over TED. He loved TED and wanted to nurture the fantastic stuff that had come before him. But he also wanted to add pieces of himself to the event. He cared about the discussion. And he cared about the community. But he also cared about the world. And about the ideas. So he brought in some amazing people to work with him on the event. And he did what great CEOs do (after all, he had been a wildly successful entrepreneur before becoming the curator of TED) -- he asked anyone and everyone how they would make TED a better experience. What's more, he listened.

As a result of those conversations, rather than tighten the elite nature of the TED conference, Chris sought to democratize it. The first, and most significant, thing he did was to opened up his archive of amazing talks to the world. At the urging of June Cohen, TED's digital media czar, Chris made TED.com the home of "Ideas Worth Spreading." And boy have those ideas spread. As of today, over 200M TED talks have been viewed around the world. What's more, the TED team has created a user-generated translation engine for the TED Talks which allows the talks to be translated into a vast array of languages. Today TED Talks can be viewed with subtitles in over 80 languages. And those numbers are growing in all dimensions.

The good-news/bad-news of the success of the TED talks was that, as the talks spread throughout the world, interest in the TED conference grew massively. Suddenly there was more intense pressure than ever on the TED team to accommodate a larger number of people at the conference itself. In response to that huge demand, Chris and team did several things. First, they moved the conference from its beloved home in Monterey to a venue that could accommodate a much larger number of attendees. Second, they created something called TED Active -- a separate venue in which hundreds more attendees could enjoy the conference in simulcast. Third, they created the TED Associate Membership which allowed people to watch the conference streamed live into their homes and offices. Anyone who wanted could be part of the TED "elite" and watch the talks in real time. While attending TED in Long Beach remains a tough ticket to get, thousands upon thousands of individuals now experience the TED conference in real time throughout the world.

The TED team was not content for their conference to involve only well-known thinkers and doers. They recognized that up and comers had a huge amount to contribute to the discussion. The result: the TED Fellows program. Some 40 young scientist, environmentalists, artists, musicians, magicians, designers... joined this year's TED conference on "scholarship." They presented their work in sessions before the conference and several joined the main stage during TED proper to describe topics ranging from the emerging tattoo culture to the future of scientific discovery. As the best of the TED Fellow talks make their way to the Web, the broader public will benefit greatly from what these emerging influencers have to say.

But perhaps their boldest and most democratizing move the TED team made was to lend the TED brand to independent gatherings. The TEDx program was launched about a year ago. Under the TEDx moniker, hundreds of TED-like programs have been hosted around the world -- from TEDxBuenosAires to TEDxBrisbane to TEDxBudapest. These independent gatherings bring the power of TED to a local level. While it was a huge risk for TED to allow these independent events to carry the TED brand, the impact has been nothing shy of spectacular. The TED conference experience is literally everywhere now. In fact, if there isn't a TEDx event being put on in your community, grab the bull by the horns and start one yourself. TED is yours for the making.

I know that it is easy to point to the $6,000 price tag of TED and cry elitism. And it is hard to deny that attending the TED conference in Long Beach is a lucky privilege that can only be lived by a small number of people. But Chris Anderson and the TED team have done everything in their power to democratize the TED experience. They coined the phrase "Ideas Worth Spreading" and are living by it. They have worked tirelessly to make the TED and these "Ideas Worth Spreading" accessible to the largest number of people possible. TED is not about elitism. TED is about the democratization of ideas -- a powerful goal which Chris and his team continue to pursue maniacally. For that I am grateful.

Sending Aardvark Off to Google U.

David Hornik — 2010-02-18T14:38:07-08:00

After a bunch of early speculation, it was announced last week that Google has acquired Aardvark. It didn't surprise me one bit that Google wanted to own Aardvark. Aardvark is completely awesome. And I am going to miss lending a hand in building this amazing company.

About a year and a half ago I first met with Max Ventilla, founder and CEO of Aardvark, to talk about his company. That meeting was on a Friday. And after the meeting I rushed to get Max and his co-founders (Rob Spiro, Nathan Stoll and Damon Horowitz) in to meet my partners the following Monday. My partners had the same reaction to Aardvark that I did -- love at first sight. And so we quickly gave the team a term sheet to fund their Series A. But we weren't alone. In the period of two weeks, Max and team managed to wrangle a handful of term sheets from fantastic firms.

Why was there so much excitement about what Aardvark was doing? As I've written before, Aardvark manages to solve a major problem with search today -- search quality is going down while the utility of social relationships in answering subjective questions is going up. By tapping your friends, Aardvark is able to get you better answers to the questions you are actually asking with less bias. That's awfully valuable, as Google well knew. And rather than let Aardvark chip away at their search dominance, Google decided to bring them into the fold.

But the brilliance of the Aardvark service wasn't the only reason Google bought the company. Aardvark had managed to amass one of the most impressive collections of talent around. As I've seen again and again, great teams attract great talent. The rich get richer. And Aardvark was a perfect example of that. The extraordinary talent in the company made it possible to bring on increasingly impressive entrepreneurs, technologists, Ph.D's, business people. By the time Google bought Aardvark, there were dozens of talented folks involved in the company. Now those dozens of talented people will add to the collective horsepower of Google.

Aardvark is a fantastic example of why the Venture business is so much fun. I have the great good fortune to work with some of the smartest folks on the planet building amazing technology that will literally change the world. As jobs go, it doesn't get much better than that. Watching Aardvark get acquired by Google at such a young age is a bit like sending your kids off to college -- you are excited for them and proud of all that they have accomplished, but you know that you'll miss the chance to play a bigger role in the amazing stuff that's yet to come.

Congratulations to the entire entire Aardvark team. I'll miss you. Good luck at Google U.

The Fathers of the Venture Capital Industry

David Hornik — 2010-02-09T14:06:39-08:00

What we think of as Venture Capital today is a pretty young profession. "Modern" VC firms first came into existence in the 1960s, started by the likes of Bill Draper, Pitch Johnson and Reid Dennis. These visionaries shaped the technology industry, and lay the groundwork for everything that we VCs do today.

My friend Paul Holland and the folks at Foundation Capital have produced a new documentary that tells the story of the early days of the venture business. The film is called "More than Money: The Untold Tale of Risk, Reward and the Original Venture Capitalists." Those original VCs chronicled in the documentary are Tom Perkins, Don Valentine, Arthur Rock, Bill Draper, Dick Kramlich, Reid Dennis, Pitch Johnson, Bill Edwards and Bill Bowes. They were the guys behind Apple, Intel, Cisco, Genetech, Atari, Tandem, and many others.

The film is a great history lesson -- not just on the venture business, but also on the tech industry and Silicon Valley. If anyone is interested in getting an early peek at the film, WAVC (the Western Association of Venture Capitalists) is holding an advanced screening of the documentary at 6pm on March 25th at the Computer History Museum. A number of the amazing men profiled in the movie will also be at the screening and reception. So if you'd like to learn more about the birth of the venture business, click here and buy tickets to this great event.

My 10th TED Conference

David Hornik — 2010-02-09T00:27:18-08:00

I've just arrived in Long Beach for the annual TED conference. When I first started going to TED, it was a relatively small, relatively unknown gathering in Monterey, California. But don't confuse relatively small and relatively unknown for relatively uninteresting. Since its inception, the TED conference has been an amazing gathering of people across a variety of disciplines (TED stands for Technology, Entertainment and Design). And with the advent of TED's fantastic video destination site and a growing number of enthusiastic boosters, the conference has become much larger and much more influential.

It has been a while since I blogged about TED, but I'm going to try to post some thoughts over the course of this week. There are always nuggets of wisdom I collect throughout the TED conference. And they often come from the most unlikely sources. Perhaps this year that wisdom will be dolled out by Sarah Silverman or Temple Grandin, David Byrne or Nathan Myrvold, James Cameron or Benoit Mandelbrot. Rest assured, whoever the source, there will be wisdom dolled out. And, with any luck, I can be the conduit for some of that TED wisdom.

I think this is my 10th TED. Why do I come back to TED year in and year out? Not only do I find it inspiring to learn about the trials and triumphs of some of the great thinkers of our day, but I find their diversity of background and opinion invaluable. Many of the most interesting innovations throughout time have been the result of cross-disciplinary collaboration. The same is true of the innovations of today -- they draw upon a diverse backdrop of technology and leadership. TED inspires me to think more broadly about the world in which we live (how art and science and philosophy come together) and helps to place the companies with which I interact every day into the larger technological and economic universe.

Like so many of you who watch the TED Talks in amazement, I attend the TED conference in amazement and am constantly inspired. I consider myself very lucky to have the opportunity to interact with such a transcendent group of people. I will do my best to share some of those moments of inspiration along the way.

Four Square Fatigue and the Evolution of Privacy

David Hornik — 2010-02-05T09:59:02-08:00

Over the last few weeks I've started to suffer from Four Square fatigue. After all, Four Square is a lot of work. To get the benefits of Four Square, you need to proactively check in wherever you go. And, while each checkin requires a relatively small amount of work, in the aggregate, it takes real effort to make the most of the Four Square experience. Would it be better if Four Square just checked you in automatically any time you lingered at a location for more than 15 or 20 minutes? Or does that cross the privacy line for most of us?

The challenges of Four Square have gotten me thinking more broadly about privacy on the web. On the one hand, the less proactive input a service requires, the less friction there is in maintaining its usefulness. Automatic Four Square naturally will produce more data, on average, than does a Four Square that requires proactive behavior. And, for many, the Four Square experience would be greatly enhanced. On the other hand, when data is being passively collected by a service, there are natural privacy concerns that come with that data collection. How many of us want our every daily stop published to the Web? So perhaps automatic Four Square would turn away more users than it would attract.

This privacy vs. utility debate is not a new conversation. You may recall the uproar in the early days of the Web around personalization. There were those (perhaps there still are) who were deeply concerned about the collection and retention of data for the purpose of personalizing the online experience. Yet few of us today find it concerning to receive Amazon's product recommendations or Ticketmaster's concert reminders. In fact, if you are like me, you are more than willing to provide scads of personal data to enhance your online experience.

Personalization has evolved over time. In the early days of the Web, you had to explicitly state a set of preferences. The Internet only thought you liked the things you said you liked. Now services like Amazon and Netflix quietly collect preference data from the things you buy and watch. And, of course, ad networks collect tons of data by watching where you go on the Web, what you click on, where you linger on a page. Using this data, advertisers are increasingly sophisticated about the advertisements they choose to present to you as you wander the Web.

While there are still those who find ad targeting intrusive, if you are like me, you are happy to have ads for things you actually care about (if only spammers were as sophisticated -- or do they know something I don't about my coming erectile disfunction). As with personalization, consumer acceptance of ad targeting has been an evolution. Targeting has grown more precise, more granular and, as a result, more valuable to consumers. [1] As consumers have seen the value of that targeting, they have grown increasingly accepting of the things they had previously feared.

We have all seen that consumers are willing -- often times happy -- to trade privacy for utility. I know that I am. And, while Mark Zuckerburg's statement that privacy is a generational concern was controversial, I think he is absolutely right about that. The coming generations of consumers may not abandon the idea of privacy in its entirety, but they will certainly have very different views of the appropriate balance between privacy and utility. That balance has already clearly shifted in the direction of utility and I believe the trend will continue.

To some this will be viewed as a warning -- a cry of the coming privacy apocalypse. I don't see it that way. As technologies and standards evolve, doors open to new products and services. We are on the verge of an explosion of new ideas.
Automatic Four Square and its progeny are coming. And I, for one, am excited about that.

[1] Obviously there are extremes of everything. It is perhaps too "granular" to start seeing ads for Prozac after buying a book on depression, or ads for funerary services after sending an email about the passing of a family member. But, to my mind, businesses are ill served by crossing those lines. The marketplace will vote loud and clear -- one need look no further than Facebook's beacon program -- and keep non-market behavior in check. The advantage of markets, of course, is that they correct for evolving standards. Perhaps there will come a time when consumers consider it perfectly appropriate to receive advertisements for funerary services upon the passing of a loved one. When that time comes, there will be real utility in the coffin banner ads and consumers will be happy to see them. Why should current standards of appropriateness impede such "progress."

Is "Value Added Investor" An Oxymoron?

David Hornik — 2010-01-29T09:29:46-08:00

I'm always amazed to hear VCs describe themselves as "value added investors." Not because I am skeptical about their ability to add value. More because I think all investors need to be "value added." If the only thing you do as an investor is hand out money, you are in big trouble. There's a lot of money out there. And it isn't that hard to hand it out. If all you are as a venture investor is a money dispensary, you are as fungible as the money that you are handing out.

I know that in some entrepreneurial circles there is a reasonable amount of skepticism about the idea that investors can add value. While that may be a fair criticism in some circumstances (there are investors out there who have been known to add a little bit too much value, if you know what I mean), after attending the tail end of First Round Capital's CEO Summit last night, I was reminded that Great investors can add significant value to their portfolio companies (Congratulations to the FRC team).

In light of that, I thought it would be worth sharing some thoughts on the sorts of things that venture investors can do to help their portfolio companies be successful. Few investors are able to provide value on all these fronts. But great VCs will help where they can be helpful and staying out of the way the rest of the time.

So, in no particular order, here are some ways in which VCs can be helpful? I'm hopeful that this is not a comprehensive list -- but it is a good starting point.

Recruiting
I think this is one of the most important ways in which VCs can be helpful to their portfolio companies. Companies are only as good as the collection of entrepreneurs that populate them. So it really matters who you're able to recruit. VCs should be able to help in that process. We can explain why it is that of the hundreds of companies we see every year, we funded this particular company. We should also be able to help put our portfolio companies in the context of the larger marketplace, which is helpful when trying to convince a fantastic engineer or sales person to join your company over some other opportunity.

Frankly, companies under-utilize their investors when it comes to recruiting. We are occasionally called in to have dinner with a hot prospect for VP of something-or-other. But we are rarely asked to put in a quick call to a young engineer or hotshot SEO magician. We should be. In an industry where nothing matters more than the people, helping bring in the very best people should be a top priority for all VCs. And we can often really be of help here.

Raising Equity

If an early stage VC can't be helpful to you in raising future rounds of capital, don't take his money. The vast majority of companies will need to raise more than one round of capital over their lifetime. So having a VC who can assist in the fundraising process will be of real value. I recently spent time with a very smart young guy who's done a ton of research over the last year looking into what makes a successful venture firm. He concluded that you could measure the likely success of VC firms by the folks with whom they co-invested. It is really not that surprising that good venture firms tend to invest along side other good venture firms. It is also not surprising that the best venture investors tend to have a broad set of relationships that make the fundraising process easier for their portfolio companies. In fact, the very best VCs tend to have later stage firms that are willing to follow them into practically any deal they've done. As you can imagine, that's pretty valuable to a startup (few things are as distracting and unpleasant for an entrepreneur as fundraising).

Raising Debt

After completing an equity financing, entrepreneurs often decide to raise debt to further support their company (be it equipment financing or venture debt). While debt providers certainly will assess a company on its own merits, the company's backers will play a big role in that assessment. A lender's capacity to get repaid will rest largely on that company's ability to raise future rounds of funding (debt is rarely paid off before a company needs to raise additional capital). Given that, the company will be assessed in the context of its backers and their ability to 1) assist in future fundraising and 2) continue to support the company. It is very rare that a debt financing gets done without the lender spending a chunk of time on the phone with the company's backers. So a VCs enthusiasm for his portfolio companies can translate into additional dollars in the bank. And like later stage financings, there are lenders who are willing to follow certain VCs into nearly any deal about which that VC is excited.

Introductions, Introductions, Introductions

If there is one thing that VCs should be good at, it is helping companies build relationships. VCs are connectors. It is what we do for a living. I don't know how many emails a year I send that go something like this: "X meet Y. Y is awesome. Y meet X. X is awesome. Talk amongst yourselves." While it is a relatively simple thing, don't underestimate its power. Great VCs can help facilitate partnerships. Great VCs can help you engage the best analysts. Great VCs can help sell your product. And, as I said above, Great VCs can help you recruiting. Those introductions can prove invaluable.

Strategic Advice

VCs sit in a very interesting position when it comes to technology and markets. All day, every day, we meet with a host of entrepreneurs pursuing new ideas, chasing new market segments, building new products or services. Those entrepreneurs are the experts on the markets they are pursuing and they work hard to educate even the densest of VCs on those markets. As a result, any VC who spends time with a sufficiently large number of emerging companies -- as a matter of simple osmosis -- will have a pretty well-informed view of the technology landscape. In light of that, great VCs are able to give well-informed strategic advice to their portfolio companies.

Save Time

This one is a little thing, but probably worth noting. Good VCs can help companies avoid reinventing the wheel. There are a ton of things that every startup goes through. They all have to figure out payroll and insurance and office leasing and hosting providers and salary levels and . . . . Now, there's no question that entrepreneurs can get help on these kinds of things from all sorts of people. But good VCs should be a resource to entrepreneurs when they are sifting through all these mundane issues.

Create a Keiretsu

A lot has been made of the idea of venture keiretsus. And in most instances I think that the value of the keirestsu is overstated. I don't think that good VCs will force one portfolio company to assist another in any way that isn't beneficial to both companies. But I do think that there are opportunities for portfolio companies to assist each other -- partnering, recruiting, introductions, etc. As Josh Kopelman describes in his post about the FRC CEO Summit, a bunch of value is generated by portfolio executives when they are in the same room "exchanging ideas and sharing experiences." We've had a similar experiences at August Capital when we've had events for our CEOs, CFOs, Heads of Marketing. Good things happen when you connect smart people to each other with a sense of shared purpose.

PR

To paraphrase Glengarry Glen Ross, great investors should always be selling (ok, it's "always be closing" but you get the point). But, unlike some VCs out there, I don't think that venture investors should always be selling themselves -- they should always be selling the greatness of their portfolio companies. VCs spend lots of time with journalists and have the opportunity to spread the gospel of their portfolio companies and they should. We're on panels and in classrooms and on TV, and we should always be selling our portfolio companies. It is amazing how valuable a well placed reference to a portfolio company in the New York Times can be.

Making Exits Happen

And, of course, the culmination of all these other activities is that Great VCs can help make exits happen. Sometimes that means selling the company -- venture investors can make intros to potential acquirers, help position the company, create competition. Sometimes that means helping taking a company public -- venture investors can get the right investment bankers involved, brief the right analyst, encourage the right coverage. While VCs can't manufacture exits out of thin air, good VCs can definitely help to create a climate that will maximize the possible outcomes.

I can already hear the outcry about this blog post -- "value added investor my ass! That's an oxymoron." None of this is intended to suggest that venture investors are company builders. We aren't. That isn't our job. Entrepreneurs build companies, hire great executives, raise money, make strategic decisions and ultimately effect exits. But I think that good VCs can help a huge amount along the way, even if sometimes that means getting out of the way and letting great entrepreneurs do their jobs.

Facebook, Twitter and P&G

David Hornik — 2010-01-22T02:07:24-08:00

This afternoon I attended an event sponsored by Proctor & Gamble called the "Innovation Outreach Venturing Day." The event was an effort by executives at P&G to connect with the investment community in the Bay Area to discuss how P&G might work more closely with the emerging technology companies we all touch every day. The pre-amble to the event was a run down of the scale of Proctor & Gamble's business and the massive amount of technology they already leverage. The scale of P&G is pretty stunning -- P&G has 32 separate brands that do more than half a billion in revenue annually (and more than half of those do more than a billion). The company has 135,000 full time employees and did nearly $80 billion in revenue last year. In other words, Proctor & Gamble is freakin' huge.

And because of their scale, P&G already leverages massive amounts of technology. When talking about social media platforms, they mentioned that they already have more than a dozen in trial within the enterprise at the moment, and they continue to assess more. They have looked at every knowledge management system you can imagine, and continue to assess more. They have worked with every digital agency on the planet, and continue to assess more. What is interesting, however, is that one thing they aren't trying are cloud services. It was made clear that P&G runs everything behind their own firewall. And they have no intention of moving any part of their infrastructure into the cloud. P&G's view of the enterprise is pretty old school.

But when it comes to advertising, they clearly understand that they need to be more forward thinking. They aren't discounting television by any stretch. The continue to spend hundreds of millions of dollars in television advertising. But, as they say, P&G needs to "bring the experience to where she already is" (the folks at P&G always talk about "she" and "her" when discussing their customer) and they know that these days that is online. So they are working hard to have a big presence in digital media.

That said, Proctor & Gamble's online bets tend to be around huge aggregations of traffic, like Yahoo and Google. It was particularly interesting to see how bullish they are on Facebook. In a small group discussion about social media, one of P&G's technology leaders talked about Facebook's growth trajectory and how they are on a path to serve 5 billion people. Accordingly, P&G feels that it needs to have a significant presence on Facebook. If you are wondering if Facebook is making any money, you need look no further than P&G. It is clear that Proctor & Gamble is working with Facebook in a big way -- as an advertising platform and a brand destination. P&G's explicit goal for 2010 is to assure that each of its brands has a meaningful presence on Facebook and they are willing to pay dearly for that. And while P&G's thought leaders expressed some skepticism about the efficacy of Facebook's "engagement ads," they certainly view Facebook as a must-have for digital advertising and brand building. They didn't quantify what they are paying for that exposure, but it is quite clear that the numbers are very big.

Perhaps as interesting as P&G's love of Facebook, was its skepticism about Twitter. They described Twitter as "much more like television than one might think." To P&G, Twitter is a great broadcast medium -- it is best for one to many communications that are short bursts of timely information -- but as good as it is for timely information, the P&G folks do not view it as particularly relevant to what they are doing on the brand building and advertising side. For those things that Proctor & Gamble thinks are most interesting and important, they do not believe that Twitter will ever approach the value they can get out of a Google or Facebook. But they are open to looking at other alternatives that will have more of the engagement and brand building attributes that they hope to exploit in Facebook.

It was fascinating to get a bit of a view inside such a huge and influential company as Proctor & Gamble. And it is encouraging to see them reaching out to the greater tech community. In fact, P&G is opening an innovation office in the Bay Area and they've committed to have their senior execs make more frequent trips out to what they view as the "most important innovation ecosystem globally." It will be great to continue the conversation. There's no question that it will benefit P&G and Bay Area startups alike.

UPDATE: As you can see in the comments below, a representative from Proctor & Gamble wants to clarify that P&G does not now claim that they project Facebook's growth to 5 billion users. Rather, they are projecting the reach of their own products to 5 billion users. Since the growth projection that I heard at the P&G event wasn't attached to any time frame, I took it simply as a statement of how huge Facebook could become over time. And I agree. Facebook will be increasingly huge, and increasingly important, over time. So it didn't strike me as such a controversial statement. That said, Proctor & Gamble would like me to correct the misunderstanding, so please let it be known that if Facebook, in fact, reaches 5 billion users some day in the future, P&G did not project that that would happen :)

VC Bloggers -- No Rest for the Wicked

David Hornik — 2010-01-19T01:29:07-08:00

When I first started blogging, I wrote a lot. Everything I saw in my day-to-day VC world called out for a blog entry. Great competitive landscape slide -- blog about it. Exciting presentation at the TED conference -- blog about it. Liquidation preference distribution -- blog about it. I viewed my world through blog-colored glasses. Part time VC. Part time journalist.

For years, my every thought became a VentureBlog post. But I have to admit, over time, my focus turned elsewhere. I spoke at events, podcast, taught, started The Lobby conference, and worked hard to help my portfolio companies thrive. And, along the way, my blog suffered. Fewer things in my daily life called out for commentary. And VentureBlog began to languish.

Well, last week the repercussions of that inactivity came home to roost. Larry Cheng has been tracking VC bloggers over the last couple years. Each year he pulls together a list of the "top" VC bloggers. His past lists have been based upon RSS subscribers. And by that measure I have always fared very well. Last year VentureBlog ranked as high as 3rd on the list. After all, as long as you occasionally write something of interest, there's little reason to unsubscribe from an RSS feed. So my relative inactivity had minimal impact on the number of people who followed me.

This year, however, Larry used a new methodology. This year he ranked VC blogs by unique visitors to their blogs (as measured by Compete.com). As you can imagine, the number of unique visitors to one's blog is much more driven by the frequency of your blogging. The more you blog, the more likely visitors will find their way to your blog. And so, in this year's rankings, I fell precipitously.

This year VentureBlog ranked 28th among VC blogs. Ouch. From 3rd to 28th. That's a free fall. But it serves me right. The last time I blogged was November 17th, 2009. That's a long time ago. What is interesting is that despite my temporary retirement from the blogging world, I still receive thousands of daily visitors to VentureBlog courtesy of search engines and historical links. Apparently the long tail of Venture Capital topics are my wheelhouse. Search for "VCitis" or "venture loans" or "David Hornik" and you are bound to come upon a link to VentureBlog. Same is true of "VC Bloggers" or "The Lobby" or "Howard Hartenbaum."

The set of search terms that lead to VentureBlog on a daily basis are wildly varied and surprisingly large. And VentureBlog is not unique in this respect. There's little question that a huge amount of Fred Wilson's and Brad Feld's traffic comes from the long tail of search terms. They've been at this as long as I have. And they've managed to maintain the intensity of their blogging over the years. It is quite clear that the longer you blog, the greater your blogging frequency, and the more that others point to your blog, the more likely that a plethora of search term will lead to traffic to your blog. So despite my recent lack of blogging, VentureBlog has been able to continue to be useful to thousands of visitors a month.

Don't get me wrong. I take little comfort in the fact that VentureBlog remains the 28th "best" VC blog without posting. If there is one lesson that I have learned over the years of blogging, it is that there are no shortcuts. I should have remembered that. If you want people to care what you have to say, you better write well, think clearly, and make a habit of posting a lot. Larry's list was an excellent reminder of that -- a wakeup call. Time to show VentureBlog a little love. And hopefully by the time Larry creates his next ranking, I will have reentered the panoply of VC Blog Heros. Because, frankly, being #28 sucks. So, as they say, no rest for the wicked -- get on with the writing, already. I guess this blog post is a step in the right direction.

Berkman Center Reception This Wednesday

David Hornik — 2009-11-17T07:36:41-08:00

In his book Outliers, Malcolm Gladwell talks about the power of circumstance. He explains that Bill Gates and Bill Joy had unprecedented access to the earliest computers and, as a result, they built a couple of the most important computer companies in the history of computation. A quick look at the folks who graduated from law school with me at the dawn of the Internet age (it sounds so long ago when you put it that way) and you can see the power of circumstance at work again. In my law school class were four of the most well-respected Internet scholars: Professors Jonathan Zittrain, Yochai Benkler, Kevin Werbach and the Obama administration's deputy CTO, Andrew McLaughlin. It is an impressive group of very thoughtful men and I consider myself lucky to have been in school with them and to continue to trade ideas with them from time to time.

For those of you who are interested in hearing what one of these experts is thinking about internet law, there is a great event taking place on Wednesday night (November 18th) at the Computer History Museum. Jonathan Zittrain will be giving a talk on "Minds for Sale," followed by a reception. The event is being put on by the Berkman Center -- Harvard's center for the study of the Internet. I am a huge fan of the Berkman Center and occassionally am lucky enough to spend some time back east in their hallowed halls. There will be a fantastic group of folks at the event and it is open to the public. So if you are interested in meeting up with the friends of Berkman and hearing a great talk by Professor Zittrain, please come on by.