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October 2009

Seed investments from big VCs

By | Startup general interest, Venture Capital | 13 Comments

image Chris Dixon has a post up on Silicon Alley Insider arguing that it is dangerous for startups to take seed investments from big venture funds (thanks to @robinklein for the pointer).  His argument has two parts:

  1. If the seed VC decides not to invest in the Series A it will scare other VCs off
  2. If the seed VC does decide to invest in the Series A their inside track will get them a better valuation than in a more open competition

I agree that taking seed investment from a VC brings these risks with it, but there are also some benefits.  Namely you get the public endorsement from that VC at an earlier stage, you get to work closely with them for longer, and you will have a better chance of securing them as Series A investors.

There is no right and wrong here, my point is just that there are pros and cons on both sides.

Where the cons start to outweigh the cons is if the VC has a large number of seed investments (and it is large seed investment programmes that Chris is mostly taking issue with).  In this scenario the large VC won’t have the bandwidth to give much love to all their seed companies and they will most likely be expecting to fund only a fraction of them at Series A.

On the other hand, if you are the only seed investment from a top name investor in a given year that will make you more attractive to other VCs.  If you go on to play the game well (and have negotiated your documents properly) you will then find it easier to generate competition amongst investors to lead your Series A.

That is twice in two days I’ve cited Chris, and I can’t remember the last time I did that for anyone.  He writes and thinks extremely well.

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Musing on value attribution across the purchase journey

By | Business models, Content, Google | 11 Comments

The notion that there is more value created in the process of delivering purchases than in the process of creating the content which makes people want to buy in the first place has been buzzing round my mind since I read Chris Dixon’s post Why content sites are getting ripped off.  He makes a distinction between ‘intent generation’ and ‘intent harvesting’, arguing that it is original content which generates the intent to purchase, but that intent is then harvested by Google, Craigslist, affiliates and other participants in the link economy who take all the value, hence ripping off the content sites.

I buy all of this except the ripping off bit.

Prior to the web intent generation and intent harvesting happened in the same place, to some extent at least – e.g. in newspapers.  But the web has torn that bundle apart and current evidence suggests that the value is in the harvesting (e.g. via classifieds) rather than the news and reviews that sat alongside them.

It was reading on the newsweek blog this morning about Rupert Murdoch complaining about Google stealing his content, but not doing anything about it which crystallised this thought for me.  He could stop Google from indexing his sites, but doesn’t because his traffic would plummet as all his readers went elsewhere.  They can do that because news, and hence intent generation, is an abundant commodity.  The site that delivers the consumer is different though – ecommerce companies will pay as much for that as they can afford, and they will do it over and over again.

Don’t take this as meaning that I think content sites don’t influence the purchase decision, of course they do.  There is a lot of talk and innovation currently aimed at understanding this better and at getting away from the last cookie pays paradigm, which I welcome.  I suspect though, that when these innovations see the light of day and the dust has settled, advertisers will continue to place the lions share of value on the site that actually delivers them the customer.

Taking an offline analogy I would argue that in a sense this has always been the case.  If I’m on Oxford Street I can choose whether to go to Selfridges or House of Fraser to buy many of the same items.  No-one has a problem with the one I choose taking all the retail margin regardless of how I got interested in the product in the first place.

The thing that has definitely changed though is the way we find information on what we want to buy.  In times gone past our only sources were the very limited number of TV channels and print publications at our disposal, and a lot of the information was in the ads.  These days nobody relies on ads for information, which reduces their value, shifting it to the intent harvesters.

These thoughts are a little more half-formed than usual, hence the ‘musing’ in the title.  I’d love to hear your views.

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Twitter Weekly Updates for 2009-10-11

By | Weekly Twitter digest | No Comments
  • Published a new post: Twitter Weekly Updates for 2009-10-04 #
  • Facebook cracking down on FB ad networks, hurting ad funded app developers. Another e.g. of the danger of dependency #
  • TV show piracy continues to grow quickly outside the US – we need our Hulu!! #
  • Published a new post: Wired and mobile webs take a step closer #
  • Some great data on Twitter from @rjmetrics – the headline – 12.5m active users #
  • Published a new post: Managing high impact/low probability opportunities #
  • Google's new local ad offering – fixed price units – #
  • Just bought my pass for the Ukraine v England live web stream on Sat. The future is now people! #
  • Published a new post: Fast, good, cheap, and something else #
  • @rhhfla has some words of wisdom to help spot when you are losing touch with reality – #
  • Interesting data on UK game consumption by age and gender – #
  • Google is making its own maps (US only so far), good luck TeleAtlas and Navteq! – #
  • Published a new post: The power of clarity #
  • @fredwilson on New York govt challenge to build apps on top of open data – It would be great to see that here. #
  • @azeem see congrats where? in reply to azeem #
  • playing with Foursquare #
  • RT @PaulMiller: Huh? Don't you have to DO stuff to qualify for Nobel Prize ? Obama MIGHT but hasn't YET. Very weird; devalues prize for all. #
  • Yahoo apparently provided names and emails of 200k users to the Iranian govt during the protests, VERY BAD if true #
  • @yawdogs lol, but she'll never understand.. I gave up long ago in reply to yawdogs #
  • Twitter news a) they are close to licensing the firehose to GOOG, and b) they might have to for the SEO juice – Gawker #
  • RT @tim: Interesting blog post by Spotify CEO "We are in this for the long haul" not just hyping company & flipping it #
  • Published a new post: Microsoft to adopt a freemium model for Office 2010 #
  • On Foursquare building a new social graph. Haven't done that in a while. #

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Microsoft to adopt a freemium model for Office 2010

By | Business models, Google, Microsoft | 2 Comments

image Betanews reported yesterday on the Microsoft announcement that a cut down ad-supported version of Office 2010 will be distributed for free on new Windows 7 PCs.  Users will be able to pay for access to the full version with no ads (the full version will be pre-installed and the user will purchase a license key which which gives access).

This could be a watershed moment in the general move towards ‘free’ for digital goods – depending on how Microsoft set this up.

It will be interesting to see how useful the free version is and then how many people upgrade.  Office has long been criticised for being bloated with features which aren’t used by many people, so it could be that most remain happy with the free version. 

The other interesting dynamic here is desktop versus cloud.  This move from Microsoft has the potential to breathe a new leaf of life into traditional software at the expense of hosted alternatives like Google Docs.

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The power of clarity

By | Startup general interest | 5 Comments

The quote below is from an interview Ray Ozzie did with Steve Gilmour, (full text on techcrunchit).  It is a comment on Google Wave:

I just know from the Groove experience most recently, from the Notes experience before that, when you create something that people don’t know what it is, when they can’t describe it exactly, and you have to teach them, it’s hard.

This point is, I expect, pretty obvious to most of you.  I post it because of what it implies – if it’s hard to teach people then you have to spend extra effort doing it.  Moreover, getting people to pay attention in the first place is difficult and you will only have them listening for a short time, so your messaging had better be both crystal clear and compelling.  Ambiguity will put people off.

It is amazing how often this point seems to get forgotten.  Part of the reason I picked up on it is because I received a reminder this morning in a session with a portfolio company.  Sometimes ambiguity in the messaging is symptomatic of a lack of clarity in the product definition, which is probably a bigger problem to have.  Taking the time to get the messaging right therefore has two benefits – to win+retain customers and to force clarity into the product.

This point is of critical importance for those of us in the startup ecosystem, where more often than not we are creating companies and products that take people into areas where they have never been before.  To do that you need a crystal clear explanation of why people should care.

I said above that this point ‘seems to get forgotten’.  I chose those words carefully, because I think it is actually pretty rare that entrepreneurs ‘forget’ to try and have clear messaging – rather I think they work at it for a bit, and then go with the best they can come up with, even if it isn’t perfect, so they can focus on the 1m other priorities.  I get that, and wordsmith-ing taglines can be a frustrating process that feels like it is adding very little value (I’ve been there many times), plus it should be an iterative process taking in data from seeing the copy in action. 

However, it is imperative to go back to it and get the messaging right pretty early in a product’s life.  Otherwise that product life might be pretty short.

Spotify have done this well.  The picture below is from their home page.


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Fast, good, cheap, and something else

By | Startup general interest | No Comments

Just about everything we buy these days is a premium product in the sense that we could either get by without it or go for a cheaper alternative.  We live in an age of abundance and to make a product stand out enough to get bought there has to be something special about it.  A lot has been written about this from the perspective of individual products and markets, often stressing the importance of great service, product quality, going the extra mile, and brand values like authenticity.  Tara Hunt’s The Whuffie Factor is a great example of such a book, with a particular emphasis on communities.

I am currently reading Peter Sheahan’s Flip which takes this thinking and makes it more general, arguing that that for a new consumer product to compete these days fast, good and cheap isn’t sufficient, you need something else on top, an X-Factor.  This is different to 20 years ago when the received wisdom was that a business needed only two of the faster, better, cheaper trio to win.

I buy into this, especially for startups whose products need to be much, much, better than those of their larger competitors.

Peter suggests six examples of this x-factor:

  • Fast, good, cheap + green
  • Fast, good, cheap + responsible
  • Fast, good, cheap + beautiful
  • Fast, good, cheap + easy
  • Fast, good, cheap + fun
  • Fast, good, cheap + healthy

I’m sure there are many more as well.  One that springs to mind is social.

A couple of examples from our portfolio are Lovefilm – DVD rentals made easy, and Graze whose food boxes are healthy and beautiful.

These x-factors are things people feel, rather than things that can be measured objectively, and successful products are the ones that evoke an emotional reaction.  Emotional reactions come from the details of a product and from how they fit into customers’ stories about themselves – both the stories they tell themselves and the stories for external consumption.  One of the reason’s people subscribe to Graze is because every time a box arrives it is a reminder to themselves and their colleagues that they are a) healthy, and b) the sort of person that enjoys high quality design.

For me the takeaways of this are reminders to focus on how products fit into customers’ stories and (in Peter Sheahan’s words) “to absolutely sweat the small stuff”.

Managing high impact/low probability opportunities

By | Startup general interest | 9 Comments

image High impact/low probability events can be both the making and the un-making of a startup.  I’m talking about the sort of killer deal that if it comes off will transform a company’s prospects, but is hard to predict with any certainty.  It might be a distribution or OEM deal with a much larger go-to-market partner, say Yahoo! on the web or Cisco in software/networking, or it might be a venture deal with a top fund, or a sale of the company at a great price.

These sorts of deals are the ones we all get excited about and love to discuss around the board table and over drinks, after all, if they come off the company will be made.  And a decent number do happen – our own recent acquisition of the 3i venture portfolio falls into this category, as does AOL’s acquisition of our portfolio company, and Imagine’s (also in our portfolio) distribution deal with the GAA in Ireland.

So pursuing high impact/low probability deals can most definitely be a good thing. 

But, and this is a big BUT, it can also be a huge distraction.  For every deal that comes off there are many more that don’t, and they all take a lot of work.  The quickest of the three I listed above was 10 months in the making and a lot longer in the planning.

I think the thing here is to be ruthlessly honest about the chances of a deal coming off and to dial down the resources committed to it if for any reason success starts to look unlikely, and/or to avoid committing resources to it in the first place.

I have seen more startups struggle with this than handle it well, I think for the following reasons:

  • Natural over-optimism
  • Under-estimation of the distraction: lots of companies assume they can just work harder to keep these deals burning, but I think more often than not an organisation works to its capacity and resource allocated to one project has to be taken from another
  • Displacement activity: chasing big deals can be much more exciting than grinding out a thousand small improvements in a company, particularly when your potential partner keeps having meeting after meeting with you with apparently senior people.  Beware the tire kickers in large organisations!  There are many, many, of them.
  • Individuals get committed to making a deal happen, both by virtue of time committed and public statements on the likelihood of it coming off.

In every startup focus is an asset, and keeping it simple is good.  Getting the right balance between preserving the chance to get lucky with a big deal and sticking to the knitting is tough.  My purpose here is to help get that balance right, and if a potential deal doesn’t have either a lot of momentum, or a crystal clear rationale from the counterparty then it may not be worth pursuing.

This is a different sort of post to my usual.  Please let me know if you found it useful (or patronising 🙂 ).

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Wired and mobile webs take a step closer

By | Mobile, Uncategorized | 6 Comments

Flash logo

According to paidContent Adobe will today announce that full Flash will shortly be available on just about every phone except the iPhone.

The underlying story here is that phones are now running more powerful processors and can now cope with full Flash, instead of the Flash Lite we have mostly been running to date.  The result is that more websites and apps will work well on mobile without having to be re-purposed.

Here is some detail from the paidContent announcement:

The new Adobe Flash Player 10.1 software will be one piece of software that work across PCs, smartphones, netbooks and other devices, which is the vision of the company’s Open Screen Project. As part of the announcements, RIM (NSDQ: RIMM) and Google has joined the initiative. Adrian Ludwig, Adobe’s group product marketing manager for the Flash Platform, told mocoNews: “This is bringing the full Flash capabilities to these devices, it hasn’t been available before.”Ludwig said: “There will be a lot of content that just works on the devices, and then some will have to be tailored. Fundamentally, right now if you are a web developer, or a mobile developer no one goes back and forth between the two. Now, if you have a great mobile idea, go ahead and build it and put it on a mobile device.”

This brings us a step closer to having one web where we run the same apps across the desktop and mobile platforms.  This is a clue to how I see the future panning out in general – i.e. I’m not sure there will be many pure play mobile apps (gaming aside).

If I’m right here app discovery on mobile will become more tightly coupled with wired web discovery, lessening the importance of app stores.

The fact that Flash runs in the browser has the same implication – i.e. it will make mobile more like the wired web oriented where discovery of apps and services comes from traditional search rather than app store environments.

I’m going to finish with a thought on what this means for the iPhone.  As we all know the iPhone is dominating the mobile app and mobile web worlds to an extent that parallels Google’s dominance of search (although the iPhone’s position is by far the more vulnerable of the two), and this announcement doesn’t change that.  What it does do is provide hope for those who would challenge Apple’s position in this market in two ways.  Firstly, as noted above, it threatens the native app and app store paradigms, and secondly until Flash is available on the iPhone it will make other platforms relatively more attractive to developers.

Twitter Weekly Updates for 2009-10-04

By | Weekly Twitter digest | No Comments

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