Monthly Archives

July 2013

Growth in the internet of things

By | Startup general interest | One Comment
Internet of things - 50bn connected devices

Internet of things – 50bn connected devices

Back in 2011 Cisco predicted that there would be 50bn connected devices by the end of this decade. That’s just 2.7% of the 1.8 devices that they estimate exist on the planet today. They arrived at the 50bn by assuming a 25% growth rate per year.

The interesting question for me is what these new connected devices are going to be, because there will be a lot of them (40 billion). I read this morning about $120 connected socks that are packed with sensors and track fitness (now available on Indiegogo), and whilst the price seems too high too build a big business around this is a good example of what will happen – entrepreneurs coming up with clever ideas for products which may not be obvious at first sight.

One of our more successful investments at DFJ was Graze who sell punnets of healthy snacks. In their early days there was considerable scepticism over the size of the market and I think many novel connected products will face similar issues. The entrepreneurs and investors who have success in this space will be the ones who have worked out how to tell the wacky-but-good ideas from the plain crazy.

I’m writing about this today because Singularity Hub has a post up which questions whether Cisco’s assumption of a 25% annual growth rate in the number of connected devices is too low. Cisco’s model is primarily based on the declining cost of connecting and doesn’t take into account the declining cost and increasing power of embedded chips and the increasing value we are able to wring out of the data which connected devices generate. They suggest that because of these additional factors the growth rate might double to 50% per year or more. At 50% pa growth we would have 223bn connected devices by 2020. That’s still only 12% of the devices in use, but would mean that use cases for an additional 200bn+ devices needed to be invented. That spells opportunity.

The disruption of venture capital

By | Forward Partners | One Comment

One of the reasons I moved to Forward was to be in the vanguard of change for early stage company finance. Union Square Ventures partner Albert Wenger wrote a post yesterday about the disruption of venture capital which lists the changes afoot:

  1. Information about VCs on the internet. In the mid-1990s VCs began to have websites, but there were no good resources for entrepreneurs to find out about the venture capital process and learn about individual firms or partners. Today there is much more transparency. Many funds publish their investment theses (ours will come soon) and we have endless VC and entrepreneur blogs as well as resources like TheFunded.
  2. Online access to VCs – over the last 5 years or so it has become possible to build relationships with VCs over the internet. Before that offline networking was the only way.
  3. Angel investing has grown – wealth creation in the internet bubble massively increased the number of angel investors, particularly outside Silicon Valley.
  4. Startup costs have fallen – open source software and cloud computing have driven startup costs down by a factor of 10
  5. Crowdfunding is now realAngel List is the big player here, but other platforms including Seedrs in the UK are also getting traction (my old firm DFJ has an investment in Seedrs)
  6. Data driven investing – there is an emerging trend for investors to make heavy use of data. VCs are developing in-house tracking solutions and we now have third party services like Mattermark.

At Forward we can benefit from all of these trends. Most obviously we are an early stage investor and love working with low cost startups at their early stages, but we are also very visible online and transparent, and work a lot with angels. Going forward one of the interesting opportunities in front of us is finding a way for our startups to systematically leverage crowdfunding.

 

Product pickers

By | Forward Partners, Startup general interest | 6 Comments

I just read a great post on Quora which contends that every startup needs a great product picker – i.e. a person with a Steve Jobs like ability to know what customers want and what is going to make a product successful.

I couldn’t agree more.

Here at Forward we look for great products with a compelling customer value proposition (a compelling value proposition is one where the customer benefits are significantly greater than the cost). If the product is great and the value proposition strong distribution problems can be solved. The reverse is rarely true.

The Quora post has some tactical advice too:

1. Think about what constitutes a great product:

  • A clearly defined user who has a problem you can solve.
  • An innovative, beautifully designed solution that solves that problem.
  • A clear way to monetize.
  • Enough customers who will pay enough to make this a large market.

2. Have a product picker as a co-founder. It could be a technical founder, business founder, a product manager, or a designer, but someone on the founding team better have great product picking skills. All of my companies had product pickers on the founding team, usually the CEO, which is the ideal case.

3. Discuss how product picking decisions are made. Decide who on the team will make the final call on product picking decisions and how everyone else will have input into that decision. You want lots of discussion and debate, but avoid an expectation that you will always reach consensus. Somebody (the product picker) needs to make the final call.

4. Have a methodology for product picking – the power of Steve Blank’s customer development methodology (The Four Steps to the Epiphany: Successful Strategies for Products that Win: Steven Gary Blank: 9780976470700: Amazon.com: Books) and Eric Ries’ Lean Startup (The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses: Eric Ries: 9780307887894: Amazon.com: Books) is precisely that it create a methodology for product picking that anyone can follow instead of simply relying on luck or “visionary” founders. It orients your entire company around product picking instead of beating your head against the wall building or selling something no one wants.

We have our own version of the lean methodology in operation in Forward Labs, our startup Foundry. It’s a critical part of our process for validating businesses. Great product pickers help you get the assumptions right in the first place.

Bill Gurley on why Benchmark hasn’t started seed investing

By | Venture Capital | One Comment

Benhmark Partner Bill Gurley, for my money one of the smartest VCs around, and and author of the amazing Above The Crowd blog did an interview with Sarah Lacy last night which is partially written up here.

Amongst other things he was talking about why Benchmark hasn’t copied many other VCs and started making seed investments. As the cost of starting a business falls and falls the pressure on VCs to identify wining companies earlier in their life is getting stronger and the fear of missing out on the next Google means it takes courage to stay out of seed investing whilst other investors pile in. These are the reasons Benchmark has resisted the temptation:

The problem … is that if you don’t back your seed stage investments when they raise a Series A or B round, there is a “signaling problem” that makes other VCs wary to invest. That can hurt a company, but it’s just as damaging to a VC firm’s reputation. And reputation and branding is as fragile as ever with the hyper-transparency of blogs and Twitter.

Benchmark hasn’t crept into seed stage investing because of that problem. And because the firm is worried about attaching its brand to so many passive seed investments. “Having passive investments is having your brand walk around without the work that you want to be known for,” he said. “It’s unscalable and we can only sit on so many boards. We don’t want to be involved and not involved.”

In summary, Gurley thinks large funds investing at the seed stage creates problems for some of the companies they invest in, and in the long run will create problems for the fund too. I think that’s true if the large fund doesn’t do full due diligence on the seed investments, which is true for most, but not all, large funds which play at the earliest stages.

Facebook turns in a great set of results

By | Facebook | 5 Comments

Facebook reported strong Q2 results yesterday, bucking the trend in what has generally been a disappointing earnings season for large companies. For many people, Facebook is the company they love to hate, I suspect because of privacy concerns. That dislike often manifests itself in criticism of the company’s business model and long term prospects. Whilst the company is still falling short of the heights it set for itself in last year’s IPO these results show that the business is in rude health.

Screen Shot 2013-07-25 at 10.12.51This slide from their investor presentation is perhaps the most telling. DAUs continue to grow fast. Note also the table at the bottom which shows that DAUs are growing faster than MAUs, telling us that engagement is increasing (see Nir Eyal’s post for more on why this metric is important).

Other highlights are:

  • Mobile revenues are now growing very fast  (up 75% from last quarter, incredible at this scale) and are projected to overtake desktop revenues this year
  • News feed ads are working well on desktop and mobile leading to increased ARPU – now $1.60 on average, $4.37 in the US and $1.87 in Europe
  • Engagement is increasing with younger cohorts as well as on average
  • At 31% GAAP operating margins are remain strong (GAAP margins are after share based compensation)

The only big weaknesss I see is the need to open their platform on mobile.

Science Inc – ecommerce focused startup foundry

By | Forward Partners, Startup general interest | 2 Comments

I just watched this Techcrunch TV interview with Mike Jones, CEO of Science Inc, an LA based startup foundry focused on ecommerce (apologies for not embedding it, but I couldn’t make it work – any ideas welcome). As I see it, along with Betaworks, Science is one of the top two startup foundries in the US and it is interesting to note the things that Mike thinks are important to say when he describes what he was up to.

  1. Science is theme/sector oriented. Mike made this point several times during the six minute interview. Currently they are focused on “marketing technologies, market places, and developing commerce brands”, which was also described as creating “great products and brands” and “great experiences for consumers”. Stepping up a level, Mike also said they have a method for identifying interesting market segments. Betaworks has a similar approach. They were initially focused on the real-time social web and more recently they have shifted to focus on the distribution, consumption and maybe creation of media.
  2. Science seeks to work with the best entrepreneurs they can find with interest and ideas in their chosen sectors, offering a package of technology, expert resources, company building tactics and office space. Again, this is similar to Betaworks.

Science has been going for two years now and Betaworks for five years. I’m thinking there is a lot in this model that we might like to emulate here at Forward Labs.

 

Early stage startups don’t need a perfect idea, they need a great thesis

By | Startup general interest | 7 Comments

Investors are frequently asked what they look for in a good startup and most good ones answer “Great team, great product and great market”. With early stage companies team is paramount because that’s just about all there is in the company. The product and market can be changed (with pain) but if you take the team out the business is unlikely to survive. Later stage companies have the reverse situation. They have released products to a market and have built a brand. In these businesses changing market or product destroys a lot of value but it is possible to bring in new managers (with pain).

Josh Miller, co-founder of Branch has a good post up on Medium today which examines what we should look for in early stage companies in a bit more detail. He notes that most early stage investors look for a great team and a strong idea about a product and a market. However, as we know, many successful companies happen across their killer product somewhat by accident. Twitter was a side project for Odeo. Instagram was a pivot from Burbn. Fab started as social network.

Josh’s idea is that early stage investors should look a great team with a great thesis about how the world is changing and back them to experiment with different products that leverage the change.

I buy into that. As I explained in the first paragraph the team is paramount at the early stages, but it’s obviously important that they have some ideas, not least because discussing their ideas is one of the best ways to understand whether they are indeed a great team. However, whilst too much work on a product idea early can make it difficult to change tack if/when reality turns out to be different to expectations, a well thought through thesis will be more durable.

Bringing design thinking to early stage investment

By | Forward Partners, Venture Capital | 8 Comments

Screen Shot 2013-07-19 at 09.33.05This graphic comes from a post on Venture Village about design thinking for startups but it should apply equally to investment companies.

Here at Forward Labs we are continuing to iterate and develop our investment product to make it more attractive to entrepreneurs. We offer a bundle of strategic advice, development services, marketing support, design advice, product management, office space and cash that are designed to dramatically increase the chances of an entrepreneur succeeding and we ask for an equity stake in his or her company in return.

I think we are doing well on a number of these design principles already, but there are a couple we could do much better on, mot notably making the product easy to understand. Exactly what is in the bundle?

Beyond highlighting areas that need fixing this framework is useful tool to make sure we are doing as well as we can across all aspects of our product design.

 

A hack to read faster

By | Startup general interest | 4 Comments

Three or four years ago I adopted two techniques to speed up my reading. Firstly I guide my eyes with a finger or mouse and secondly I skip and skim if with abandon. For a while I tried the trick of stopping the eyes from going all the way to the edge of the page, but whilst that does make reading faster it takes too much concentration for me.

I just read about a simple third trick – to follow the finger of the left hand (or use the left hand to control the mouse). The left hand is controlled by the right side of the brain which is more creative than the left side. So, by using the left hand we get the more creative side of the brain to be active and engage the imagination in what we are reading which improves recall. When I first tried it a few minutes ago I could feel the difference (or at least I thought I could…).

The article also explains why following your finger improves reading speed – our minds evolved to spot movement as an indication of danger in the wild. Because our eyes are attracted to movement following our finger makes it easier to concentrate on the right spot.

If you are like me then you will read for at least 3-4 hours a day, including email. Most of us read at 200-250 words per minute, but with proper training we can apparently get to 400-500 words per minute, which would save us 1.5-2 hours per day. I haven’t timed myself reading or given myself ‘proper’ training, but I’m thinking I will now.