Venture realities : some big changes, some the same

TheFunded’s Founding Member, Adeo Ressi, posted an interesting perspective on recent venture capital financing today.  In his post, Ressi describes several of the key issues facing venture funds in the short-term, and he concludes with these predicctions:

new investments will start to surface towards the end of Q2 and in Q3 2009. Since new investments are smaller than later stage support, the amount invested in 2009 will be significantly smaller than any amount in the last 10 years, but the volume of deals will start to normalize by the end of the year.

I agree with Ressi’s key points and his conclusion.  His post also got me thinking more broadly what they likely mean longer term for venture capital, and I’ll share those thoughts below.

First, some perspective: venture capital has existed in some form since at least Christopher Columbus, funded by Queen Isabella of Spain.  (I’d have loved to have understood the term sheet those two negotiated!)  I believe the odds quite high that venture investing will remain a vibrant, real sector for investors.  This is based on a few basic rationales:

1. No one wants to sit aside and miss the next MSFT, Google, or Facebook for what in the scheme of a total institutional investment pie is a relatively smaller sliver;
2. While venture funds have suffered, so have many PE funds–one of their key competitors as a investment class–along with every other asset class.
3. When one looks at the opportunities for big-time innovation to solve big-time problems, it seems pretty obvious that the fields of healthcare, clean tech, and so on will continue to draw funding in for new venture invetment.

Thus my sense is that venture capital as an asset class will continue to exist and will very likely thrive over time.

That said, I think that venture capital as we know it is very likely to change dramatically, particularly with respect to asset allocation.  In addition to the oft stated pronouncements about the coming consolidation of venture funds, here are my key predictions to take place over the next 5 years or so.

1. Consumer Web / Web 2.0 / Social Media investing will decline in overall money invested, though # of deals may stay similar.  Consumer web sites take vastly less money than they did even 5 years ago, before the invention of AWS (Amazone Web Services).  With cloud computing services such as AWS (and competitors such as Microsoft Online/Azure and Google App Engine), the price per cloud computing unit will drop and continue dropping.  Robust, free rapid application development environments and tools such as LAMP, RoR and so on now have rock star developers all over the place who work economically.  As a result, new services can be conceived, prototyped, tested, and launched for vastly less capital.  This trend favors the seed stage venture investors, such as Baseline, Alsop Louie Partners, Jeff Clavier, etc.  Larger funds will find it more difficult to focus here, as it’ll be increasingly difficult for these services to have good use of the bigger checks that larger funds want/need to write in order to get the right leverage on their money.  Certainly, some companies will need more money, a la Twitter, but many a consumer app will be built in next 5-10 years that may never need to raise more than $5m in outside capital.
2. Enterprise 2.0 applications I expect to stay at near similar levels–roughly same number of deals, same amount of money.  Enterprise applications in a way have all the same kind of positive trends around lower cost development that Consumer web does–Ruby on Rails, AWS, etc.  Developing a product should become easier, lower cost.  The challenge is really around how will these companies really build salesforces and channels.  This is an unchanged challenge for Enterprise apps, and as a result, I expect investment stays on trendline similar to where it is now.
3. Sectors with strong alignment with government regulation–CleanTech, Health Care, infrastructure etc –likely have important opportunities.  Bigger investment numbers and more deals will get done over next 5-10 years in this space.  I believe that most big-time mainstream venture funds, in order to stay on the cutting edge of where they need to be in order to run multi-hundred million dollar funds, will need to evolve sectors and take on greater focus in cleantech and health care–two areas where there is a lot of capital required as well as strong government regulation.
   
4. My dark horse prediction is that globalization will become an increasingly important sector and focus for venture funds.  The world is flattening.  This flattening creates opportunities for venture funds that look to exapnd and extend their reach, networks, experience, and footprint to a global perspective as one of the big, largely untapped opportunities for venture funds.  Many larger funds have presence overseas.  Still, it is unclear whether this is really ‘globalization’ — i.e., where every portfolio company is pushing to become a global franchise–orjust putting a VC flag and office on the ground in a certain country.    I suspect its far more putting the VC flag and office in a foreign country like China and calling it a “global” fund.  That’s not really it.  The opportunity, long-term, is to accelerate and amplify earnings by getting companies earning revenues and traction in foreign lands.  Firms that can really get their arms aroudn this will find that they have upside in their returns, irrespective of sector.  This is a little fuzzier a concept, so I expect it to experience modest growth in investment and deals over the coming 5-10 years.

In conclusion, venture investing likely will survive the shakeout intact, with fewer firms and with over time, different focus.  But so long as there are markets to chase and New Worlds to discover, there will be Christopher Columbus’ and the Isabella’s who fund them.

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Filed under: bootstrapping, entrepreneurship, technology, venture capital

Thinking Big

“Fortune favors the bold.” — Cicero

Much is being written, presented, emailed, and blogged about the economic meltdown and the impacts it has on high tech startups and VC-based startup financing in particular.

As someone who speaks with a number of early stage and pre-funding founders, I get the question a lot of my impression of what this crisis will do to early stage financings, etc.  My answer is simple: The current financial turmoil really is the least of your problems. 

Instead, the big question to wrestle with is really the same for us as it was when markets were more favorable.  That big question to ask yourself is am I thinking big enough? 

My 3 step formula in these times are:

1. Look honestly at your business idea, asking if its a big enough idea.  Push yourself to expand your vision, mission and impact that your idea can take on.
2. Push forward boldly in your execution.  Follow Cicero’s advice.  It’s the best way to assure success.  Waivering or doubt will only kill you, partiuclarly in these more dangerous times.
3. Avoid worrying about “the market” or anything else you can’t control.  If you can’t control it, you shouldn’t spend time worrying about it.  Be super optimistic, think great big thoughts–there are plenty of pessimists now, they can carry the negativity water.  You stay away from that. 

Here’s some longer context…  Before I became an entrepreneur, I remember doing a thought experiment as I read through the Forbes 400, the richest 400 people in America.  Briefly, the thought experiment tried to identify patterns among all the entrepreneurs on the list.  There is a business (not a personality) pattern that I think emerges if you look at a tapestry of names like Gates, Buffett, Page/Brin, Jobs, Walton, Bloomberg, Schwab, etc.  That pattern is consistently *big* ideas, where those ideas have a massive sway in our lives and economy today:

• PC on every desk, in every home (MSFT)
• Universally findable information (Goog)
• Stock broker services for everyone (Schwab)
• Selling for less (WalMart)
• Financial services information platform (Bloomberg)
• etc.

Now if you listen to big thinking VCs like Vinod Khosla or John Doerr, you can see that again, they’re thinking big–in particular around cleantech. 

Many early stage entrepreneurs with whom I’ve met and spoken over the past two months have interesting ideas and they’re showing traction against them.  Users, awards, even in cases customers.  This is super to see.  The question that I commonly see though is one around ‘bigness’  — even if this thing was a hit, how many people would it impact? 

I argue that if you really think that venture funders are important for you to achieve the dream of your business, then you need your 1-sentence statement of your business to get you somewhere near the ballpark of those bullet points above.  It should be obvious why the opportunity — if achieved — is a big, big deal.  If you can’t make that clear, then that’s at least a yellow flag. 

My suggestion to early stage startup folks is not to worry about the current financial crisis.  Focus instead on thinking about how to ‘blast out’ your business in a manner that makes the impact to customers and the impact to the world bigger.  Stay focused on that, and if you can start executing efficiently and credibly towards that vision, then the financing piece will work itself out. 

Put this way, its exactly the same advice worth taking when markets are more favorable. 

Filed under: bootstrapping, entrepreneurship, tech, technology

Recommended Conference : STARTonomics — Oct 2 in SF

As a start-up guy, I tend to shy away from most conferences.  My personal perspective is that the time and in particular the money aren’t worth the fees.

That’s different with the upcoming STARTonomics,produced by Dave McClure.  For anyone interested in gaining useful insight and practical advice on what you need to do to start an internet company, I’d recommend this strongly.

I’ve known and admired Dave for a few years now, he’s given me straight, pragmatic advice every time we speak.  His blog is enjoyable and useful.  And his investor pitch deck that he’s posted to SlideShare is world-class.

Filed under: bootstrapping, entrepreneurship, internet, tech, technology

Free stuff for start-ups : insight from IDEO

Being an entrepreneur in Silicon Valley, you get a lot of different input on what is must do in order for your business to succeed. A lot gets written about this. Here’s my short list of the most critically important must do’s that I have experienced to date. It’s a pretty simple list:

1. you must not run out of cash
2. you must not give up
3. you must build something people want

The first two are obvious: running out of cash or giving up kill the company.

The third one is where the magic of creating a customer is. And by extention, while the other two are hard, this is the most difficult, most challenging. It also is where you hear the most divergent advice.

The most useful advice I’ve gotten on how to go about building something people want is from IDEO. I did a recent tour of their facilities and got an overview spiel. I’ll write that up in a separate post.

More useful, I bought The Art of Innovation, a book by IDEO’s co-founder on how they operate. It is to building products what Igor’s guide to effective naming — a deep, obvious and useful approach that any entrepreneur could use.

Filed under: bootstrapping, entrepreneurship, free stuff for startups

Randy Pausch’s Time Management Talk

Professor Pausch’s Last Lecture gained international fame last year.  In the course of watching this and reading about him, I stumbled upon a talk of which he is more proud.  It’s his tips on Time Management, a topic (weirdly) I’m really into.

Here’s the HTML link to his notes from this–keep it close.  I refer to it about once a week!

Time Management Talk

Filed under: bootstrapping, entrepreneurship, free stuff for startups

More Great Free Stuff: PBwiki.com

This week, I’ve put together several posts on the products that I’ve found and loved for their simplicity, speed, usefulness, and free-ness. These attributes are key, key, key when you are trying to start a company, and as a new first-time entrepreneur, I’ve had to find and filter fast. To save others time, I’m putting my greatest hits on the web.

Today, I’m doing a brief post on PBwiki.com. PBwiki solves the problem of making it easy for a group of people to collaborate and share information over the web. Wiki’s are an amazing set of technologies, and there’s really more in them than I can explain well, read something else if you want to understand what WIki’s are and why they are so powerful as productivity tools. Suffice to say that at Moonshoot, we use PBWiki extensively–people can keep track of key documents, find relevant market information, and post broad updates in the Wiki.

What PBWiki does is simplify and demystify teh whole thing. PB stands for peanut butter, and it reinforces their (true) claim that you can setup a wiki with them in less time than it takes to make a peanut butter sandwich.

It’s free and it’s almost literally instant. Kudos to them for a great and useful product.

Thanks PBWiki!

Filed under: bootstrapping, entrepreneurship, free stuff for startups

Awesome free stuff from Google that any entrepreneur can use

Yesterday, I talked in a post about Todoist, and what a great tool it is for entrepreneurs (or anyone else) who are looking for great tools that help them get their work done and are to be free, fast and simple. These three tenets more than any others are really the core attributes of what makes a compelling value proposition for entrepreneurs like me looking for a tools and software to help them get stuff done. I use these things everyday at Moonshoot.

Today, as much as it pains me given my strong and positive feelings towards Microsoft, my past employer, I’ve got to give up props to Google for a several things of theirs that’s free, fast, simple and very useful.

First, Google Apps deserves a shout-out. Here any start-up can get their hands on email, calendaring, and the equivalent to a front-end web portal (i use all this stuff) as well as a hosted home page (i don’t use this). This stuff is all easy to use, it’s free, and it looks great to customers and anyone else. My email comes through as jay@moonshoot.com, and we can send calendar requests / S+’s to anyone.

The mail not only looks professional, it’s snappy performance-wise, and you can access it from any PC. The calendaring feature is also well done. One of the very nice touches that I find very useful is how smart the Google apps are at taking context from my mail and pre-filling event details.

The screenshot below shows how this works. I write a mail saying “How about meeting at Starbucks tomorrow at 9am?” When the recipient looks at the mail, there’s the part on the right side, which suggests adding it to the calendar. I can merely click, and pow! it’s added to my calendar. Saves time, and very useful. Eerily accurate too!

All this being free is a no brainer, relative to Hosted Exchange. (Again, sorry Microsoft.)

Second, GrandCentral, now part of Google, is another great free tool for start-ups. It basically gives you one phone number that will ring on any phone you designate. It’s got a ton of other features (call screening, call blocking, call recording, etc.), but to me the thing I love is having one number that can ring anywhere. This simple feature gives me a big company PBX like presence, with a free, no money down cost. Very useful if you’re moving from the home office to the garage to a temporary office, or if you’re traveling. Awesome.

Third, Google Analytics for web site information. This free tool to track and analyze your web site traffic boggles my mind at its usefulness and simplicity. I’m not a technology guy, but I was able to get this integrated in my homespun web site in less than 3 minutes. The level of data and information it provides is outstanding.

So those are 3 free things that I recommend for any entrepreneur or start-up person from Goog.

Filed under: bootstrapping, entrepreneurship, free stuff for startups

Great task manager for start-ups : Todoist

One of the more interesting things about leaving a big company and striking out on your own is the opportunity to look around for software and tools that are free, useful, and low resources. There are a bunch of things I’ve found, and I’ll write about those from time to time, but Todoist is a worthy tool to start with. I love Todoist.

A quick caveat: I’m a hardcore task manager and I love having little To-Do-Lists that I can use to keep track of what I’m doing. Todoist wins in my book versus anything that I’ve used before, including Outlook’s Tasks (sorry Microsoft).

What it does that I love:

1. It’s fast and easy–you can add tasks very quickly
2. It’s accessible from any internet-based pc or mobile phone
3. It’s free

If you’re looking to keep your tasks managed and you want something that just works, try Todoist!

Onwards!

Simple todo list and task manager: Todoist

Filed under: bootstrapping, free stuff for startups

‘Where I’ve Been’ Facebook app acquired for $3 million | CNET News.com

No surprise at all that FB apps can get acquired–I’d love to understand the valuation model though.  I’ve used this Where I’ve Been App.  It’s a fine app, sure, but I’d be hard pressed to pay $3M for it. 

The real question around valuation for something like this is how does one think about the opportunity costs?  If 1-2 devs can build this app, post and deploy it via Facebook, why would a ‘big company’ buy it for $3M?  Why wouldn’t BigCo get 1-2 devs to build the same app (or one slightly better), post and deploy it via Facebook?  I can’t imagine ‘being first’ is all that important for an app like this… 

Ah well, fools and their money. 

 

Report: ‘Where I’ve Been’ Facebook app acquired for $3 million | Tech news blog – CNET News.com

Filed under: bootstrapping, consumer, entrepreneurship, internet, tech

Sucking less in economy class

Yesterday, I made the journey from Tokyo, Japan to Orlando, FL for Microsoft’s annual Microsoft Global Exchange (MGX) meeting.  This meeting is great, very well done.  With me leaving Microsoft next month, I’m looking forward to this meeting–a great chance to see friends, say goodbye, and so forth.

The big downside is that the travel from Tokyo to Orlando is a hike.  A real hike.  

Now, MSFT may have >$40B in the cash account, but we’re a frugal place.  Flying to MGX is a mass group flight affair–flying business on the Corporate dime is strongly frowned upon.  If you want to sit up front, you better be ready to pay up miles or dollars.  

Now full confession, I’d tried to pay up, but the Travel Agency (AMEX Travel, Japan) basically blew me off, said there was no way.  This led to the very uncomfortable situation of me arriving in coach and seeing most of my team sitting up front in business.  So Amex Travel Japan has a bit of answering to do to me, but I”ll get to them later.

 Anyway, I have to report that United’s Economy Plus is not so bad for a flight that long.  The leg room is fine.  The movies were decent. 

 When I start my company, we’ll be coach all the way for sure. 

Filed under: bootstrapping, entrepreneurship