Category Archives: Startup & Venture Capital

TechStars Demo Day NYC

I just came back to the office after a great morning with David Tisch, the NYC entrepreneurial investment community and the whole techstars group (currrent & past classes).  I was very impressed with today’s presentations and there are certainly a few I will follow up directly with.

For me, I was most impressed with: Contently, Spontaneously, Ordr.in and Want Worthy.  The latter three are not candidates for kbs+p Ventures as they are outside our investment scope but I found personal interest there.

Contently:  We’ve been a customer of Contently for a few months now and I was a mentor of theirs thru the TechStars program.  They are going after the content creation and curation space which I believe is a very ripe area for innovation.  The creation of content in a socially driven world is immensely important and from a brand perspective, very daunting in the short term.  Contently solves a lot of the issues.  Big fan.

Ordr.in:  Since I’m a huge fan of saber metrics, this company was interesting to me as they are trying to build the saber of the restaurant space.  David, their CEO captured me at moment one when he mentioned this.

Spontaneously:  I’m generally not a fan of consumer web plays as I’ve not focused a ton in that space, but the need for sharing social plans is certainly around and Spontaneously built a pretty sweet looking app that does just this.  I can imagine that this is a very crowded space in the next 6-12 months and curious to see how Spontaneously differentiates.

Want Worthy:  I’m a huge fan of the fashion space and have been looking for innovation.  Lauren had a great presentation about a meta-layer she’s building and I instantly saw the need for it.  I work with a handful of fashion brands on a daily basis and understand the issues they face from a marketing perspective.  As a consumer, I spend a considerable amount of money on my wardrobe and have been looking for something like this.  I like it a lot.

These are the few I’d like to highlight.  Of course the other presentations were great too.  It was nice to see the growth of the Techstars companies in the past 100 days – lots of changes and pivots, but I think all worked out for the better.

We’ve currently not invested in any of this classes’ TechStars companies but that might change over the coming weeks.  I’m proud to say that we’ve invested in Crowdtwist from the last TechStars class and hope to add to that list.

The Integration Company

I was on the phone with a founder of a major data play within the digital ecosystem this afternoon.  We were discussing the next 12-24 mos of acquisitions and who the big players will be.  This post is not about who will be acquired or do the acquiring, or the bankers who will make some good dollars off the deals, but rather the single most important part:  Integration.

There is no doubt that there will be mergers and acquisitions.  The main reason why deals fail is because the integration between the two companies doesn’t happen.  There are a slew of reasons for this, but most of the time, culture and mismanaged expectations are what drives companies not to integrate well.

If I were going out on my own and wanted to start a services organization, I’d build up a company specifically geared toward making integrations work and take a % of the deal for compensation.  I’d have a team of ad tech and business professionals who have been through it before and make sure that all the boxes are checked around a solid integration.

There will be no shortage of M&A in the ad tech space in the next 12-24 mos so this should be a nice opportunity

Cash Crunch, Herd Mentality, The Big Picture, and We're Hiring!

I spent Tuesday of this week out of the office and at the NY Athletic Club for the Big Picture Conference, a conference that focused on financial markets, global economy and trading.  It was my first year in attendance but have been a regular blog reader of Barry Ritholtz (Big Picture).  Of the many topics we covered on Tuesday, I’d like to highlight two in this post as they are timely to the conversation circulating around Web Startups Hitting Cash Crunch and Fred’s perspective from Union Square Ventures.  Note, we didn’t really speak about Venture Capital or angel investing at the conference but there are similarities.

In one of the talks, Barry came on stage and discussed investing behavior.  It was less of a conversation around around the act of investing, but more about the behavior and perception around how investors think.  Of the many topics that Barry discussed, one of them in particular stood out:  Herd Behavior. He used a cartoon that I’d not seen before, but it quickly made me understand what he was saying:

As you can see from this cartoon, things can become misinterpreted quickly and then irrational behavior stems.  I don’t think our current entrepreneurial/funding environment is misunderstood, but I do think there is a strong sense of herd mentality at the macro-level.

Angel investing is the cool thing to do.  For many, it’s actually the right thing to do.  If you’re an entrepreneur who has raised money from angel investors and then got lucky with a liquidity event, many of us, myself included, pay it forward by investing in other early stage startups.  We don’t do it purely for the “karma” it brings, but we also do it for the potential of the financial returns (early risk, high rewards).

It seems these days that everyone and their uncle are investing in startups.  This has pushed the seed stage funding rounds much higher which has changed the venture financing world, maybe temporarily, or maybe structurally.  Time will play this out.

Around Advertising Technology, there is certainly a funky behavior going on.  We see too many investors without any marketing or advertising knowledge chasing Ad Tech deals.  I spoke about this at a conference a few months back and my friend Will has a great post about this that appeared on DigiDayDaily yesterday.  The infamous Lumascapes which have made the rounds of every ad tech company and put Luma Partners on the map (beyond Mr. Kawaja’s smarts) have actually created a sense of transparency in which allows non-ad tech investors to suddenly become ad tech investors.  Think about that.

***

One of the talks during the BPC referenced a gentleman by the name of Bob Farrell.  Many people in the audience knew exactly who he was, but I had no clue.  I quickly Google-d him and it turns out he was the Chief Stock Market analyst at Merrill Lynch & Co from the late 60s thru the early 90s.  Apparently, he was highly well regarded.  Over his career, he came up with 10 Rules for Investing, which is highly regarded.

As you read through the 10 Rules For Investing, think about them in the context of the recent meme around startups/fundraising/angel investing.  His wisdom lives on and makes a lot of sense.

1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one direction will lead to an excess in the opposite direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.

3. There are no new eras – excesses are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. Look at how far the emerging markets and BRIC nations ran over the past six years, only to get cut in half.

As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it – human nature – is never different.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.

5. The public buys the most at the top and the least at the bottom
That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.

6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.

8. Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend
I would suggest that as of August 2008, we are on our third reflexive rebound – the January rate cuts, the Bear Stearns low in March, and now the Fannie/Freddie rescue lows of July.

We have yet to see the long-drawn-out fundamental portion of the bear market.

9. When all the experts and forecasts agree – something else is going to happen
As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.

10. Bull markets are more fun than bear markets
Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.

Sources: The Big Picture, 17 August, 2008 and MarketWatch, June 11, 2008.

***

Lastly, if you made it this far, we’re hiring.  kbs+p Ventures is looking for an Intern to come and join us at our offices.  The job description is here.  We’re looking for someone who is knowledgeable in advertising/marketing and it’s technological applications.  Someone who will roll up their sleeves with administrative work around our financing and portfolio companies but also help us with diligence and strategy.  Don’t hesitate to reach out.

Enhanced by Zemanta

Building a Data Empire On Your Back

This post was inspired by an email conversation between Taylor Davidson, Adam Liebsohn, and myself early this morning.  Taylor works at kbs+p Ventures and Adam is the founder/ceo of a startup called VoyURL.

“The best way for a startup to get a dataset like that is to create some sort of self-expression platform, a way to express what you’re into …,” says Lavingia, who also designed the Turntable.fm iPhone app. “You can’t directly ask users, ‘Hey we’d love all of your data! List the songs you like and the albums you’ve bought and the places you’ve visited and the food you’ve eaten.’ But you need these answers to ultimately make money.”

The above quote comes from a post on TechCrunch titled Pinterest Joins Twitter and Facebook As The Newest Self-Expression Engine.  It’s hot on the heels of a few other posts (BloombergBetabeatUncrunchedTechCrunch) that talk about how Facebook and the like are building massive data assets on the backs of consumers and reselling them to advertisers.  Consumers for the most part, are not fiscally compensated, but some of the technology services can argue that they are getting value in exchange for their data.

Bloomberg’s latest headline, “Getting Rich From Others Has Never Been Easier,” pretty much sums it all up.

I think there’s an expression, “there’s no free lunch in life.”  When was the last time you signed up for a service and wondered how it was making money?

For the next 24 hours, look at all the sites you visit.  Are they collecting your data and reselling it?  Are you making any money off of your data?

I think we are going to see some sort of reform in this area.  Imagine going to a website and seeing a “ratings” of some kind which shows what they are doing with your data, similar to how the movie world uses different types of ratings (G, PG, PG-13, R, MA).  A little icon or graphic which shows if your data is being sold, transferred, stored, etc.  I think I’d like this – and folks like Apple who take leadership positions with App Stores would have to roll this out next to each app I download.  I’d like to know what’s happening with my data.

Just some food for thought on this Tuesday morning.

Investing in Startup Index Funds

This is one of the first guest posts I’ve had in a long time, potentially years.  It’s by Taylor Davidson, who is my colleague at kbs+p Ventures.  It originally appeared yesterday in his premium newsletter entitled, “From Me to You.”  I highly recommend that you subscribe to it, if you are interested in startups, finance, and digital media.

I got Taylor’s permission to take his post outside of his paywall ($4/mo) to put live here.  It is on a topic that we spend time thinking about:  Index Funds of Startups.  Enjoy the post and leave comments as always.

[From me to you] 74 – Investing in Startup Index Funds

“The thing people don’t realize about SecondMarket, it’s not about fucking Facebook and Twitter stock.” (link)

Every so often I get an email from SharesPost updating me on news and implied valuations of the most active companies on SharesPost’s secondary market for private company stock.  And every time I look at their venture-backed index

… I wish I could buy shares of the index without having to place individual bets on the companies composing the index. Why?

Darren and I talk often about our investment philosophy and why we focus on specific areas within that philosophy.  A topic that often comes up is the difficulty in picking winners in crowded spaces with undifferentiated companies, even if the area is growing and drawing significant spend and investment dollars. We often say “I love the space, and if I could invest in an index in the space, I would, but because it’s very difficult for us to pick a winner in the space, we don’t invest in that space.”

Accredited investors can directly invest in private companies and buy traded shares of private companies on secondary markets, but there are very few ways for accredited investors to make index investments in venture-backed companies. *

One way is to simply invest in a ton of deals with minimal oversight and a filtering system that focuses on a particular stage, area, or type of investment opportunity. In my mind, the closest we have to “venture index funds” today are:

- 500 Startups: perhaps the most intelligent “index fund” of startups, investing $25K to $50K (approximately) in companies that need design, data and distribution to make a breakthrough.  Dave McClure and Paul Singh invest early in a ton of companies, and then double-down (participate in follow-on funding) in the most promising companies.  In essence, their focus on stage and the company’s big need is what creates their “index”.

Start Fund: A joint venture between Yuri Milner and SV Angel (Ron Conway), the Start Fund gives $150K convertible notes to every company that makes it into Y Combinator. In essence, getting into Y Combinator is the filter and the base of the “index” that the Start Fund is investing into.

- TechStars: TechStars recently announced they will offer every accepted company a $100K convertible note, in addition to their standard $18K for 6% equity investment. Getting into TechStars is the filter and the base of the index that TechStar’s investors are betting on. Not quite the same as the first two, but close.

But few investors can create the structure and the access to deal flow to create their own index. That’s why SecondMarket and SharesPost have the opportunity to create indicies of the overall venture-backed market, and then build separate indicies of different areas of venture-backed companies: adtech, greentech, edtech, govtech, socialtech, ecommerce, phototech, entertainmenttech, B2B, B2C, European, Latin American, etc.  Accredited investors could then invest in indicies in certain areas of venture-backed private companies, supplementing their direct investments with their indirect index investments in areas where they may not be able to a) pick winners directly or b) get direct access to startup investment opportunities.

Granted, these secondary markets are still relatively immature and may not yet have the volume or liquidity to support any index funds, but it’s the type of evolvement that we are bound to see in the secondary markets as they mature and grow.

And there are some industries and hot areas of venture-backed startups where I would love to be able to place index bets.

* A topic first discussed in letter #27, I’ll buy shares in a SecondMarket index fund. Who will be the first to create one?

Announcing: Creating a Bu$iness You'll Love

Back in March, I was randomly contacted (thru this blog) by the executive editor of a book publishing company.  He wanted to use one of my blog posts from 2008 as a basis for a chapter in his upcoming book, Creating a Bu$iness You’ll Love.   I didn’t really see a downside to this so I agreed to participate.

Fast forward to today – I now have 5 copies here at home and am part of a curated lineup of great entrepreneurs such as Howard Schultz (Starbucks), Craig Newmark (Craigslist), Trip Hawkins (EA), Barbara Corcoran (The Corcoran Group), Tony Hsieh (Zappos), and Seth Goldman (Honest Tea) amongst a dozen others.  Each of us provided some insight to be part of the book, mostly around the founding days of starting a business, raising money, and creating culture.

I recommend you read this book, especially if you have the inspiration to start a business one day.  The stories told by my fellow entrepreneurial peers are too good to pass up and you can quickly go thru this 237 page book.  A great read.

Leave a comment on why you’d like a copy and I’ll gladly ship one out to the first 3 of you.  If you don’t want to leave a public comment, you can contact me directly thru this form.

Here’s the link to the Amazon profile for the book.

Enhanced by Zemanta

Looking for talent: new ad tech project, we want you!

3+ month assignment.  Could go much longer, depending on the fit.  Could go much shorter, depending on the fit.

I’m looking for a hybrid 30% visionary, 70% executor who has demonstrated entrepreneurial ability within the advertising technology or financial technology markets.  You should have a passion for media trading and at least a working knowledge of how the financial markets operate.  Experience with Bloomberg, Thompson Reuters, and/or Factset is a major plus.

Your task:  to help me put together the initial plan for an upcoming big idea.  The plan might go nowhere, or it might go very far.  If this post inspires you, then please contact me.  You must be available to work 20-40 hours per week and this is a paid gig.

Read this post on paidcontent to get more insight to the project.

Responsibilities:

  • Market research – both into the advertising markets and financial markets.  Not afraid to call people for primary research and use of secondary and tertiary research to make informed decisions.
  • Extensive writing – manage the writing of the initial concept after working with the team on strategy
  • Managing initial partners – be able to manage the initial partners who help in the ideation including but not limited to both decision making and administrative tasks
  • Initial business development conversations, less for revenue, more for market feedback

The ideal candidate:

A big thinker but someone who generally plays the role of #2 – the COO/GM/executor.  This is a role-up-the-sleeves role and need someone who loves doing that.  Personable, human, and a distinct eye for detail.  You understand technology but are not an engineer.  Ideally you would have been part of a startup of less than 10 people in your career, but I won’t hold it against you if you haven’t.  You must be entrepreneurial and work without a ton of structure.  There are no right answers.

If this is of interest, lets chat.  Please use the contact form.  In your inquiry, please list your credentials, online presence (if any), and availability.  I’ll be in touch.

Enhanced by Zemanta

YCombinator Ad Innovation Conference Keynote Breakdown

Today’s opening keynote was given by Paul Graham, at the YCombinator Ad Innovation Conference in Mountain View.  I attended along with @tdavidson and @barryl530 to see the early stage innovation that’s happening in the ad tech space.  We were certainly impressed not just with the innovation but with the amount of great agencies in attendance such as AKQA, Goodby, Sapient, Omnicom, Cadreon, VivaKi, and Jess3 amongst others.  We were in good company, to say the least.

Paul admitted he wasn’t an advertising guy, but knows technology enough to understand how tech will influence advertising in the next few years.  The data he used to back his claims were based on the thousands of applications YCombinator receives and is able to forecast and see trends in where innovation is happening.

Here is a summation of the 9 trends that’s pushing advertising, per Paul, but I tend to agree as well.

1. Tablets are important and might call for their own unique advertising platforms to take advantage of the user interface.  Apple and Android will dominate the market and Apple will dictate the ad formats.   Tablets are genuinely a big deal and we aint seen nothing yet.  My take:  Yes, he’s spot on.  Tablets penetrate and are both a content consumption device but increasingly, a content creation device, as long as we can innovate and create good input devices.

2.  All data lives in the cloud. All data about a consumer, transaction, records, etc will live in the cloud and ostensibly, be located in one database that can be used.  What will hold this back will not be technology, but will be government and policy.  My take:  Totally.  We’re seeing this today.  I’m all about data.

3.  More stuff happens peer 2 peer.  Paul used an analogy that I don’t know if I agree with, but he claims that hotels exist because consumers couldn’t find any other way of staying in a remote city or town, so hotels were built to meet this demand.  Now with services like airbnb, hotels could cease to exist as we know them.  My take:  I like what he’s trying to say, but don’t know if I buy the entire analogy.  Not everyone wants to stay in someone else’s home.

4.  There are going to be a lot more startups.   I liked where Paul went with this.  He basically said that engineers had 2 choices after college:  go to graduate school or join a big company.  Now, they have 3.  The third oppty is to create a startup.  Paul threw out the 1% number which was how many developers/engineers start companies… and if this increases 10%, then that’s 10x the amount of startups in the ecosystem.  Again, we aint seen nothing yet with the volume of startups out there… there are going to be many.

5.  Facebook is already a big deal.   Paul said that the $1.6bln from Facebook is quick and simple money and they haven’t really began monetizing yet.  They are focused on growth and even have a Facebook Growth Group, which is one of the most powerful groups in Facebook.  He thinks that when they start monetizing, they can seriously move into markets and kill competitors such as PayPal or Wepay.  My take:  I agree with Paul, but they have to be careful in how they approach this as to not alienate developers and users.  I don’t want Facebook to be 100% of the services I use as a consumer.

6.  Software eating the world.  Don’t be an advertising company that does software.  Be a software company that does ads.  Having this mentality is obviously valley-driven, but allows you to scale a business and think more product focused, which theoretically, should have better outcomes.

7. Target Ads Precisely.  Google could target their ads much more precise but they don’t have to yet, as the market isn’t necessarily requiring it or does it make economic sense for Google to do it until they must.  Paul said a great quote:  “Assume you can read someone’s mind, what ad would you give them.”  My take:  This is one of our investment thesis at kbs+p Ventures – application of data to drive advertising decisioning.

8.  More things will be done by numbers.  If an investor had to place a bet on quantitative measurement/analytics of creative, bets should be placed on measurement.  Numbers will/can/do drive decisioning and with ROI driven world, we need to quantify it.  My take:  Spot on, another investment thesis of kbs+p Ventures as well as what we apply at VMM and The Media Kitchen.  Couldn’t agree more.  I even treat my fantasy football teams this way.. and I want 2-1 this past weekend!

9.  Creative.  Creative will begin to become “generated.”  Paul essentially argued that the best creative in the “future” world will have to be generated because of all the varieties that are needed.  My take:  I think he’s onto something if we’re able to deliver the right creative to the right person at the right time.

I loved Paul’s opening.  This wasn’t 100% of everything, but was a lot of it.  My friend Roger of IA Venturesc also talks about similar trends on his blog, in a post titled, changing polarity in advertising, if you want to continue being inspired…

Enhanced by Zemanta

An Ad Tech Roll Up

I’ve been noodling the opportunity around an ad tech dream I had.  Yes, I really do dream about these things.

We all know the positions that Yahoo! and AOL are in.  I won’t go into that here, other than they will need to make some short term decisions rather quickly.

As a proactive entrepreneur, what if you could acquire the assets of Right Media (including client contracts) from Yahoo! and Platform-A (whatever is left of it) from AOL, roll them up, put on top of a 2.0 infrastructure such as AppNexus and scale the business?

Pros:

  • Client contracts lead to instant revenue
  • RMX has a name for itself in the industry
  • Could probably get it for fire-sale pricing

Cons:

  • Contacts/clients might not transfer
  • Yahoo! inventory is not guaranteed if moved away from Yahoo!, so that would need to be written into the agreements
  • Implementation of both platforms might be more hassle then they are worth
  • Much of Yahoo! RMX talent has already left, but not all

There is an opportunity here, at least at first glance.  It’s less about the technology and more about the contracts to advertisers.  The hypothesis that the acquisition of these both would lead to a faster time to market and revenue out of the gate.  There are probably quite a few other ad tech companies that you could bundle in here at the same time.  Might be worth investigating?  I’m sure a few people probably are…

Examples of Applied Data Visualizations

This past week, I tweeted the following:  “the data itself isn’t overly interesting.  the application of data is what is fascinating.”

Tweet about data

This wasn’t the first time I tweeted something along these lines and if you’ve heard me speak publicly (or inside the agency) over the past few years, I’ve probably touched upon the topic, if not spoken all about it.

A few people reached out and asked me to write about where I see this playing out – as to illustrate the point about the application of large data sets to make decisions.  I thought I’d use this post to do just that – give 3 sites that you can check out to see what I mean.  In no particular order, they are listed below.

#1:  Numberfire

Numberfire is a fantasy football GM’s mecca.  If you are managing a fantasy team and want to compliment (and/or replace) watching ESPN Fantasy Football Now, reading all the blogs, etc, why not apply large data sets worth of performance data to predict performance of players?  If you can aggregate plenty of data sets, normalize them, and run regressions/etc, then you can figure out which players have a higher probability of performing better each week.  I used Numberfire last year, which was their first year and they continuously outperformed the ESPN and Yahoo! rankings (7/10 times).  What’s nice too is that Nik, the founder, has an eye for design and made his site very usable and IMHO, probably the best site within this space.

Numberfire Chris Johnson visualization

#2: TRUEcar

I read last week that a site named TRUEcar raised $200MM for vehicle-data related purchases.  Anything that has a nine figure capital raise and data related to it immediately got my attention.  What TRUEcar does simply is help people decide what to pay for a used or new car, based on historical information.  Seems simple, right?  Have you ever tried buying a used car and all you had to rely on was the KBB value of the car (kelly blue book)?      See the image below, as it illustrates a search I did for the 2011 Range Rover Sport, a car I fancy.  Their visualization of large amounts of data is what is extremely important and will help separate them from forthcoming competitors.

TRUEcar Range Rover

#3:  NFL Decision Maker

I did not realize that Bloomberg launched Bloomberg Sports and it includes a decision making program for fantasy football rosters.  Essentially, Bloomberg is leveraging it’s data infrastructure and visualization tools to help make informed decisions of whom to sit/start each week for your fantasy or handicapping needs.  This product certainly competes with Numberfire (and vice versa) but it’s not as robust.  However, this is a great start for Bloomberg Sports.

Bloomberg Sports NFL Decision

PaidContent recently re-posted a vision I had regarding the Bloomberg Terminal for Advertising.  This is an area that is ripe and one I’m currently exploring.  Would be really interesting to bring advanced visuals and analytics to the world of real time bidding and media trading.

I believe that just having data or access to data will be table stakes in the next few decades.  The organizational winners will be ones who can apply the data to whatever they might be working on.  These are early days for this now, but I believe this will play out over a long term vision.  Data scientists + Data visualizers = data visioneers = people I’d like to meet.