Category Archives: Startup & Venture Capital

Two Types of Investing: Important for Entrepreneurs

While I haven’t quite been in the early stage entrepreneurial scene lately from an entrepreneurs point of view, I’ve been working with many early stage startups on both their marketing/go-to-market strategy and corporate strategies (fundraising, biz strategy).

On the way into the city this morning, I was listening to Squawk Box on XM Radio and they had on air Elizabeth Warren who is the chairman of the congressional oversight panel on TARP. You can watch the interview here.

Elizabeth broke down investing into two main categories:  relationship & numbers.  Very simple:  relationship as a category and numbers based as another category.

I’m not an economist and I certainly lack knowledge of the US Government (or any government for that matter) but let me try to explain something that she illustrated.  The government has cut back on relationship lending, or lending to early stage businesses:  loans, credit facilities, etc.  The cut back on early stage lending is DOUBLE the cut to overall lending.  Meaning, if you are a medium or large corporation, you have double better chance of getting money from the government than a early stage company right now.  This hurts us in the long term:  while many of these early stage companies may die, many will go on to be the big corporations tomorrow, and if we’re not funding them today, what will happen tomorrow?

The point of my post is not that of above but rather this:

Relationship lending is pretty much early stage investing.  While I’m taking liberties and equating this to venture capital:  early stage investors really have no numbers to look at… it’s all based on an idea and your relationship (either new or old) with a particular venture investor or angel.  Relationship lending in the public markets is drying up as illustrated above (for now) but it seems that the angel scene and venture capital scene is hot right now.  The most important thing for entrepreneurs to do right now is get out and meet/mingle with as many angels/connectors/venture folks as possible.  Without a relationship, folks like Chris Dixon, Josh Stylman, Ron Conway, and Chris Sacca are not going to take a peek at you.  Relationships are key.

Numbers based investing is where balance sheets are key.  Strong numbers mean great leverage for the company when raising money.  Because of the early stage nature of most venture capital/angel deals, numbers based investing is pretty much rare until you get on to Series B, C, D, and Mezzanine rounds.   The public markets is all about numbers based investing.

So, if you are early stage and your raising money based on relationship lending my word of advice is to get out as MUCH as possible and meet/talk/mingle/get to know people and build a relationship.  It’s not enough to be a “friend” on Facebook.  Earn people’s respect.

The Marketplace Appreciates Obfuscation in Pricing

OpenPricingPricing is defined as the property of having material worth. Pricing though does not dictate individual value, but rather the value of a good for the average.  Let me illustrate by an example:

Sherri walks into CVS to purchase some shampoo for the Herman household.  She sees Pantene for $6.45/bottle or Sunsilk for $9.99/bottle (totally made up numbers).  Sherri has a specific price in mind she wants to pay for Shampoo based on her proprietary valuation system (special needs, bottle shape, accessibility, etc) and based on this specific value, she is able to decide between Pantene and Sunsilk.

Pantene and Sunsilk are offering (pricing) their products at these price levels because they have done a comprehensive supply/demand curve and have optimized where they should price their product for the optimal (not always most) amount of buyers.  This is done through market and competitive research as well, as, historical sales scenario planning data.

In this scenario, the marketplace appreciates pricing obfuscation:  it’s simple for the consumer and it’s simple for the business.  The consumer never sees the profit margins (unless they are purchasing from a public company and even then, how many consumers read financial reports) and the business never knows how much the consumer was really willing to pay (potentially more).  There is not really a tension here – if a product’s price is not adequate for a consumer, they will move onto the next product on their list.

It’s simple.

For the media/advertising world, things are changing.  A once very opaque industry is changing.  Agencies and brands are becoming much more quantitative and are understanding how to value inventory for the first time (I took liberty for “first time”).  Most publishers do not appreciate this – and the obfuscation/opaqueness that once existed that provided healthy margins is dissipating.

Let me reprhase the last sentence:

Most publishers do not appreciate this in the short-term.  Historical obfuscation of pricing/valuation has lead to healthy margins that have existed for years (why do we have 3 Martini lunches? Why are media teams making custom nike sneakers with reps?) for the sell side.  The long-term opportunity is tremendous, if the sell side could get over the initial short-term shock.

Some say that the bigger they are, the harder they fall.  The problem with this is that the major media companies such as Conde Nast (Advance Publications), Hearst Corp, and Tribune are all very large private companies and are potentially going to fall very, very hard.  Note:  I’m not saying that they cannot get back up again… They can.  But they are going to have to fall first.

If/when major media buyers (marketers, agencies grouped together) have the ability to buy on value, not price en mass, this will be a major market shift.  Some of us are here today but when even more of us are here tomorrow, the sell side will become much more comfortable as more dollars move into the industry to satiate cash flow statements.

Since however the market appreciates obfuscation in pricing (it’s just plain simple!) we may never get to this efficient place, but it would help the actual buyers and sellers reap much longer term benefit that short-term margins.

Please comment below to continue the conversation or tweet @dherman76 with replies

New White Paper: Getting Real

Some of my friends over at DeSilva+Phillips a boutique investment bank (also known as MediaBankers) have just released a white paper (links to the PDF) entitled Getting Real.  I am always skeptical about investment bank led white papers (unless they are presentations by Mary Meeker which I love) but these guys pulled off a pretty solid document.

The goal of the paper was to talk about the marketplace of ad exchanges, RTB (real time bidding), and the future of online advertising.  I would say that the paper does a good job of setting up the history and current ecosystem that surrounds ad exchanges but lacks anything tangible about the future of online advertising other than saying that many media channels will become digital so a digital infrastructure today is required to service them, which I’m a big proponent of.

There is about $430MM invested in this ecosystem over the past 3 years which has attracted lots of attention from the press, marketing services companies, and of course, investors.  Figuring a venture capital fund wants to see some sort of liquidity within a funds lifespan (~10 years), the next 5-7 years are going to potentially be very “acquisitive.”  Thus probably the impetus for DeSilva+Phillips to release this document to establish themselves as leaders in this space.

Some of the main highlights of the paper:

  • A nice breakdown of what “ad exchanges” actually are including the great Online Advertising Ecosystem graphic from Matthew S. Goldstein that has been circling around some inner circles.
  • Discussions around Right Media’s decision to focus only on premium inventory
  • A solid definition around DSPs without over-hyping them
  • Accenture, which is not normally considered a player in this space is potentially moving in and could open up a new business within the space (has AdChemy partnership, owns a search bid management platform)
  • “Real-Time Bidding is the glue for melding display-ad marketing and search marketing”
  • Talk about SSP (supply-side platforms)
  • Yahoo vs. Google and the ultimate threat of Google (it is scary)
  • Neutrality around ad exchanges and how it’s not a long or even mid-term option (though I’d argue that is what this industry needs)
  • Adding two more acronyms to the vocabulary:  DBO (Dynamic Media Buying Optimization) and ARM (Audience Relationship Management)

You can download the paper here.

SXSW Opening Morning Thoughts

I’m writing this post about 2.5 hours before the first panel/session kicks off for SXSW 2010.  For those who are not familiar with SXSW, it’s a conference split into three areas: Interactive, Film, and Music.  I’m only down for the first few days of Interactive but in previous years, I’ve participated in the music portion as both the youngest speaker ever (at the time, 2002) for SXSW and was an exhibitor.

The energy was high even before leaving Newark Airport.  @sparkle201 (wife) and I were on a direct flight down to Austin and I’d say of the 144 people on the plane, 50% were heading to the conference.  I ran into Foursquare’s @naveen in the airport who is celebrating their First Birthday at the conference- Foursquare was born a year ago and is now over 500k strong loyal fans.  Happy Birthday guys.

Four hours later, I ran into friend and colleague @jstylman while checking in to the conference and picking up my credentials.  For the first time in a LONG time, I’m not speaking on a panel or keynoting, so I’m flying totally under the radar screen as a listener.  I’ve been longing for this day to just sit back, relax, and soak everything in.

After getting back to the hotel, I digested all that was in the schwag bag and there was a consistent theme:  stickers, QR codes, and most important and utilitarian to me:  cellphone/computer/ipad/kindle screen fiber wipes.  Genius- thank you AOL and Newegg.

bibleThe SXSWi bible is thick.  It lists all the panels/sessions and speakers as well as everything else that is going on.  What stands out immediately is the use of QR codes on every single page.  The company providing the codes is QMCodes and they are exhibiting – I’ll stop by their booth to further my education around them.  I’ve used QR codes in previous ad campaigns but the adoption in the US was rather weak a few years ago.  Can the use of QR codes in the US break out this year?   My immediate thought is that print publishers need to push these hard and how many print publishers are down here at SXSW?

There is even a twitter account setup to help people with QR codes here at SXSW:  @sxswqr

An instant favorite of mine are the products of stickybits.  For those unfamiliar (I was previously) with stickybits, it’s a simple barcode sticker that you can append any type of information to (pics, text, video, etc).  You stick them wherever you want and if people find them, they use their iPod or Android stickybits app to see what’s been virtually appended to it.  A nice way to augment reality.  Downside:  you need the stickybits app – and this may be a serious downside for the company.  I’d love to see a Verizon or AT&T snap up this company and instantly build this reader into the phone’s capabilities.

Looking forward to what starts unfolding over the next week or so – come and follow me on the adventure @dherman76

In The Data Decade, There Should Be Data-Driven Acquisitions

I’ve been immersing myself into the world of data for the past few years at work, reading lots of books, and speaking to many gurus.  What interests me both personally and professionally is the application of large data sets and how to use them to gain a competitive advantage over the competition.  Call it data arbitrage, if you will.

During my commute this morning while driving down the West Side Highway, I was think that if I was a big corporation, which companies would I acquire and why – purely for their data assets.  Here are a few, I’ve obviously not thought of everything, so please chime in- in the comments section.

Also, please note that solid business strategy does not mean that these need to be acquisitions, but potential strategic relationships, tactical biz dev, and partnerships.  I have them listed as acquisitions but understand that not all of them should be.

Record Labels (Warner, EMI, Sony, Universal) acquire Pandora, MOG, and Spotify

I do not think that the labels need to acquire all of the above, but at least one.  The reason?  Why not own the data that shows what listeners are listening to around the world? (Audioscrobbling)  By having these, you can do a few things for the label:  cut down on A&R spend as you can find artists easier, view music consumption trends as you can see the types of music and their intricacies that are popular, and also, help with distribution of music/tours as you can see what artists/genres of music are popular in different market and make sure that the artist visits that region or sells their merch.

Professional Sports teams acquire fantasy sports research companies (The Huddle, FF Today) and/or leagues themselves (i.e. CBS Sports Fantasy Football)

If we believe that the wisdom of the crowd is smarter than a few humans, then why wouldn’t NFL Scouts want access to college football fantasy sports data – i.e. how many “fantasy GM’s” owned certain players, their value, etc.  I’m sure there is some value in all of the data that fantasy sports generate and the professional teams can really benefit as they are paying outrageous salaries to these particular players.

A Hedge Fund Acquires Wikipedia

Wikipedia has tons of research but what is probably most interesting to me (of which I do not have access to) is which articles/topics on Wikipedia are trending.  If someone knew which were the highest read articles and which articles were trending in near-real-time, then investors can make big decisions about where they should place their bets.  If articles about South African soccer balls are trending, then maybe an acquisition/investment can be made within the country of which these queries are being made from.

How about some others?  I know I had a few others in my head but forgot them by the time I sat down to write this.

2010 Predictions & Trends: Technology, Media & Marketing

I created an uber prediction list back in 2007 and it was a hit.  Here are some of the predictions already posted across the net re: technology, media, and marketing – three things I’m very interested in.  If I missed your post and you’d like to be listed, just leave a comment and I’ll add you.

Social Media & Optimized Display in the Same Post? Recapping 2009

Unless you live under a rock, the economic environment impacted brands and agencies this year and the whole publisher ecosystem that goes with it (media cos, ad networks, etc).  Full-year 2009 will mark only the fifth spending drop since Ad Age began ranking the 100 Leading National Advertisers in 1956.

Holding Co. Stock Chart As you can see from this chart, holding company stocks (MDCA, IPG, OMC, HAVSF, PUBGY, WPPGY) all tanked along with everyone else during late 2008 but have started to bounce back in 2009.

In the digital trenches, I witnessed an interesting divide really start to occur:  this “social media” phenomenon and hyper targeted and optimized display advertising.  If you put a social media “guru” in a room with a data and targeting company, the conversation would probably be as bad as one of my dates when I first moved to Manhattan.

Social Media
I put “social media” in quotes as I fundamentally do not believe that this exists in itself.  I believe that all media can be social and it’s not new.  Anyway – this year saw a continuation of thousands (over 15,700) of social media experts pop up on Twitter and even carve out little businesses for themselves as consultants/agencies to a few brands.  The common question in 2009 that came across my desk was “what should be my social media strategy?”    Twitter’s constant presence in the news in early 2009 and Facebook’s dominance in the social networking/graphing space has contributed to this “social media” trend.

Recently, Pepsi announced it was going to forgo its advertisement in the Super Bowl which we’ve grown accustomed to each year and put those dollars to work in a rather large social media campaign.  I applaud their efforts to generate PR, but is this sustainable for them?  Meaning, they are essentially putting the money to work in a cause marketing campaign… will this have impact?

2009 saw Dell racked up over $6.5 worth of sales directly attributable to Twitter and the almost-too-hyper/passionate Gary Vaynerchuk climb to 848k followers.

Hyper Targeting & Optimized Display
There has been a trend in the display space towards audience driven media.  If you can identify an audience based on different characteristics stored in computer cookies, why not advertise to a handful of extremely targeted users? Data facilitators/providers like BlueKai, Exelate, Domdex, TargusInfo, Media6, Lookery, Rapleaf, Peer39, LucidMedia, Quantcast, and many others became front and center this year.  Demand Side Platforms (DSP), or technologies that allow the dollar holders (typically agencies) get closer to the media (through exchanges and other sources) also became popular and a few closed significant funding rounds.  AdExchanger popped onto the scene and started covering this entire space rather comprehensively.  If you have not read their 2009 year end report, download it now.

2010 should be interesting for this industry as the government is looking into online privacy.   Because much of the targeting is done through accessing anonymous cookies, this whole industry could be hampered or shut-down depending on legislation that is passed around ad targeting.  There are a few startups, particularly the Better Advertising Project focusing on helping congress solve these issues.  Personally, this would be a big bummer as I believe that if we can offer a much more targeted advertisement to users, then their overall experience could be much better.

Any media planner or buyer on Madison Ave has put a few social elements and optimized display on a media plan in 2009.  I’m sure that this will still occur in 2010 but I’m going to hypothesize that the gap between optimized display and social media may widen and you might start to see shops specialize in one or the other (i.e. CPMAdvisors vs. Crayon).

The one thing that’s consistent is that the audience is in the center of all planning AND buying both in social and optimized display – the more we can learn about our audiences and serve highly relevant messaging to each audience segment will allow us to create better relationships.  Better relationships between users and brands, means a mutually beneficial relationship for the agency and advertiser.

If you are interested in the Optimized Display & Hyper Targeting area, I’ve put together a Twitter list of thought-leaders in this space.  You can subscribe to it here.

RIA – Rich Internet Applications

Imagine if the web didn’t have to live in the browser.  In many ways, we are experiencing that today (i.e. Foursquare or Tweetdeck) but what if we put it onto the desktop?

For those unfamiliar with RIA or “Rich Internet Applications,” they can be defined here:

Rich Internet applications (RIAs) are web applications that have most of the characteristics of desktop applications, typically delivered either by way of a standards based web browser, via a browser plug-in, or independently via sandboxes or virtual machines.[1] Examples of RIA frameworks include Ajax, Curl, GWT, Adobe Flash/Adobe Flex/AIR, Java/JavaFX,[2] Mozilla’s XUL and Microsoft Silverlight.[3]

I think there is an opportunity to take much of what is happening on the web and put it into it’s own desktop application which can have many different uses based on what the user wants.  Companies and projects like Stocktwits, Tweetdeck, Snackr, and others are building ontop of this philosophy and it seems to be working.

Check out Adobe’s gallery of AIR apps.

To be open and candid, I am seriously contemplating an investment in this area.  If you go back to many of the blog posts here, you can probably figure out what the investment will be.  What I’m looking for right now are talented RIA (Flex, AIR, and ActionScript) developers who have some open bandwidth to work on a project (paid of course) as well, as, anyone (investors, entrepreneurs, consultants) who have some war stories building a RIA based consumer and B2B product.

If you know anyone or are interested in conversation, please reach out.

Open Letter to Ms. Internet

Dear Ms. Internet,

As someone who has spent 8+ hours a day with you over the past 10 years, both for professional and personal needs, I have to say that having a long term relationship with you is challenging at best and you are starting to get a reputation for your celebrity-length relationships.

You are young and in your prime and are the hottest girl at the dance.  Your reputation precedes you wherever you go, from Sand Hill Road, CA to Varick Street, NY, and even then, we all want a piece of you.

The problem with this is that you are breaking hearts everywhere you go and businesses built on-top of you fail before they ever have the chance to breathe.  If you are here for one night stands, then let us know as many of us expect you to be marriage material.

Let me explain.

Marriage material is when ecosystems (family) can bloom and everyone expects them to last so that society can adopt them into the fabric of life.  Ms. Internet, you are making this impossible.

Consequences of your actions:
The rapid pace of innovation (which I love and made my name in) within the digital media space (including you, Ms. Internet) is going to contribute to its very demise.  How can we build sustainable businesses when the life expectancy of an online business is virtually one capital raise and the entire industry is onto the next-biggest thing?

Why this whore-ish attitude does not work:
· Advertising:  have you ever written a check for $100MM to one digital media partner?  No.  Let me explain why:  Digital media partners (i.e. Hulu,, AdMob) deliver a structured product (sometimes service) to meet the needs of a particular client. Generally, there is never enough inventory to spend significant dollars (scale issue) or by the time we have tested the particular product, the industry is onto the next best and greatest product (innovation issue).

· Venture Capital:  I’m speaking from an outsider but there is a real movement from within the industry to change up the deal mechanics as within the digital media space, it’s just not sustainable.   The speed of innovation is important here because if a company spends it’s venture money building a product for the market tomorrow, in two weeks, it may be out of fashion. I wrote a blog post about this a few years back about how social communities are like clubs – you do not want to be the hot one or you are the un-cool one next Fall.

We do not need more Friday or Saturday night flings.  We need companies and services that have the time to breathe and blossom into something sustainable.  My frustration comes from within the advertising world – we (you) are making it very hard to shift large amounts of money online with this type of attitude. Scale issues are solved when the market has time to mature and so far, we’ve had very little time because of the pace of innovation.  I’d like to write a check for hundreds of millions of dollars, similar to how my television brethren do so, and with that, think about how much value that would be created within the digital media ecosystem.

Having said all of this, I love innovation.  Innovation is important to any ecosystem and allows the ecosystem to keep evolving.  As a person, I tend to be just ahead of the innovation curve but as a marketer, I can see that we’re moving a little too fast for the online advertising community to evolve.

All the best,

Darren Herman
(t):  @dherman76

Fashion 2.0 & the consuMEr in the MEconomy

As many readers of this blog know, I’m a big fan of the fashion world.  I enjoy many different types of fashion (everything from conservative prep to sporty) and especially enjoy how the fashion world is being infused with different technologies.  I’ve been meeting with companies that provide custom shirts all the way down to crowd sourced outfit selection and have seen some great innovation.

Just this past weekend, I stumbled into and ordered a custom suit from the online/offline company, MySuit.  These guys have 2 presences in NY – one in Herald Square (Manhattan) and one in the Westchester Mall in White Plains.  While I haven’t gotten my suit yet (takes 2 weeks), I am extremely fascinated with the experience overall experience and will judge the quality after I’ve worn it a few times.  What is particularly interesting to me about MySuit is the consuMEr element of it.

Increased adoption of technology in the fashion world (as well as the innovation and evolution of technology) allows for a once mass industry to become “me” centric – or custom.  Ideally (somewhat theoretical now), once you are measured, then every article of clothing can be custom.  Today, this opportunity would cost significant dollars, but tomorrow, it could be attainable.


Tomorrow evening is the Fashion 2.0 event hosted by my friend and colleague Yuliz from MyItThings.  There are a few companies presenting but I’m interested in hearing the presentation by ProperCloth.  These guys have created a simple but effective website for ordering custom shirts online.  They aren’t the first nor do I know if they are the best, but hearing them present tomorrow is going to be interesting.

Are any other readers of this blog going?  Would love to hook up.  I’m actually taking my father who is a fashion industry executive and introducing him around to these new companies.  Should be fun.

BTW:  I don’t think I touched enough on consuMEr or MEconomy enough, but I ran out of time and that’s for future posts.