WayTooEarly

DLD 2011

I have been hearing for several years that the DLD Conference in Munich, traditionally held just before the Davos World Economic Forum is a wonderful experience.  Not being as lucky as Henry Blodget, I’ve never been invited to Davos, and Munich in January is not quite the escape from NYC snow that would normally draw me in. But after some discussions with Steffi Czerny and Yossi Vardi (the cochairs) last summer, I agreed to go.  It was a terrific experience.  Hubert Burda Media, which hosts it in wonderful and gracious style, knows how to throw a party.  It’s an eclectic mix of technologists, media folks, and just plain interesting people from the US, Germany, Europe and Israel who want to hear about and learn about the future of media and the Digital Life Design at the heart of this.

The conference was live streamed, tweeted (hash tag #DLD11), and opened to the rest of the world, but the feeling of being there was special.  Seeing Groupon’s Andrew Mason and Foursquare’s Dennis Crowley being interviewed by Kara Swisher was a treat.  Andrew is such a genuine, aw shucks Midwesterner, one forgets that he turned down many billions for Groupon just a few weeks ago.  And he revealed his fantasy bachelor party (a complex game played in Vegas with zombies, paintball guns, and black helicopters) that made me admire his sense of whimsy, which shows up in Groupon’s great copy, even more. 

The opening discussion with Arthur Sulzberger and Hubert Burda showed some real contrast.  Is old media really dead, and/or how fast will it die?  With Times Digital generating real profits from the old about.com and it’s other efforts, the movement is there, but the audience wasn’t clear it could be fast enough. And Accel’s Jim Breyer was clear that he would not invest in any media that was predicated on a significant physical (paper) revenue stream.

There was a strong feeling from many speakers that the future is in apps – mobile, tablet, etc. And the major market will be in Asia, mainly China.  Accel will deploy several billion dollars in venture money there over the next few years.

Two of the most interesting talks were (@dptapscott) Don Tapscott’s new take on MacroWikiNomics (the title of his new book), and Dr. Hubert Burda’s thoughtful discussion of how images have shaped our thinking, from his book  The Digital WunderKammerer (the Digital Wonder Chamber).  The mixture of art and media was fascinating and thought provoking – and the book has a beautiful collection of images.

For a US based venture capitalist (and there were a number of us there), a key question is how to get innovation and entrepreneurship to happen in Europe.  Unfortunately, my discussions with German and UK based VCs showed that it’s very hard to get early stage companies funded and going. Part of it is how hard it is to make the pivot (As @Jason Calacanis discussed in his speech on Mahalo’s pivot), when you can’t fire anyone after 90 days – even though you might need quite different skills.

On the party side, the Burda folks had a blowout with Sting’s daughter Coco doing a great set  opening for Duffy. Of course the sound levels made any conversation a bit tough, but they do know how to celebrate, and even the snow falling in Munich did not dampen the spirits.  

Now I'm back in NYC, and it's still snowing, but I have lots of new ideas to think about. I'm living the DIgital Life, now I have to design it.

 

Five Decades of CES and the rule of 3s

This year marks the 5th decade in which I've attended the Consumer Electronics Show (CES), which started in the 60s. My first was back in 1979, and I've been loyal through the 80's, 90's, 00's and now the teens.  I go each year, at the personal cost of missing my now late 30's daughter's birthday (except her 21st), the wear and tear of shoe leather, flight delays, pushing through crowds and lack of sleep,  all in the hope of staying at the too early or wayy too early edge in this exciting field.

I've learned about the rule of 3s. Some changes are relatively constant - each year the TV screen size grows by 3", the cell phone volume drops by 3 cubic inches, and some dimension moves from 2 to 3. One year it's 2d to 3D TV, one year it's 2 screens to 3 screens, but the numbers stay the same.

This year is one of everything being connected to the cloud, and then back to everything else. Not just TV or content anywhere, but many more interesting sensor based applications.  There is a Digital Health area, as those of us aging boomers become concerned about how to extend our lives by modifying and measuring our lifestyle.  I've been a user of the WiThings scale, now they have a blood pressure cuff that ties in.  DailyBurn and Zeo have now integrated your sleep pattern and fitness.  And there's lots more to come of FitBit like devices.

Scanning was being done everywhere. CES had QR codes and a scanning application, similar to the ones that Scanbuy or StickyBits have created.  Both of these seem to have growing audiences, but neither has figured out how to achieve escape velocity a la Foursquare.  But I have no doubt scanning will play a bigger role in our future, as brands figure out how to do promotions that take advantage of codes and location.

A nice addition to CES for the last two years has been AllThingsDigital at CES. Walt Mossberg and Kara swisher do some interesting interviews. Twitter CEO  @DickC hit the nail on the head when he said "Some CES showcase incremental improvements, some make quantum leaps. This one is an incremental one." I couldn't agree more, even though another speaker,Jen-Hsun Huang CEO of Nvidia, felt that Microsoft's announcement of a Windows Next Generation for the ARM processor family was an announcment of seismic proportion.

And of course there are always the great parties and dinners in Las Vegas - which has outposts of the greatest restaurants in the world.  So I'll probably be back next year.

Stop playing with your food – understand it with Yummly.com

I'm pleased to announce First Round's investment in Yummly.com.  This is a great site for anyone who needs a recipe, knows anyone with any special food needs, wants to understand what they're eating, wants to know how to use what's in the cupboards or anyone who just loves food. Fortunately, we are lucky to be coinvesting with Harrison Metal and Intel Capital, as well as some of the savviest angel food cake eaters – I mean angel investors) I know.  I have been using this site for a few months and find it amazing.

David Feller and the team have taken the time to build algorithms that parse recipes for the actual content of the foods in them - both caloric and other. So there is a true semantics instead of just an ingredient list and this extends beyond nutrition to  taste,  price, allergens, diet etc. 

For my nephew who is allergic to tree nuts, I can check a box and ensure I see recipes that don't use them.  For my son-in-law with gluten allergies, I can check another box and get gluten free recipes.  And if I have some fresh rosemary left, i can search and find recipes that use it, even if they're titled  "herbs", since Yummly knows that rosemary is an herb. Yummly also makes great suggestions for recipes I might enjoy.   In other words, this is the first real advance in recipe processing since multiplication for understanding how to change quantities (unless, of course, you're baking, which Yummly understands as well.).

Of course, in 2010, there's a social element as well - you get to follow others favorites and share your own.  So get an account, start to share your favorites with others, and you'll see that Yummly.com will become your goto site for food.

 

AxialMarket - Making Private M&A Markets More Liquid

One of the great things the Internet can do is reduce friction in various marketplaces by bringing them online. Early examples in the history of the internet include transformative online marketplaces like eBay and Craig's List; others more recently include eHarmony (personality-based online dating) or Groupon (aggregating supply and demand for merchants and consumers).  The internet, however, has not penetrated B2B markets as easily or as swiftly, usually because the transactions that occur in B2B markets are often larger, more complex and sometimes confidential. First Round is proud to announce its funding of AxialMarket, the premier online M&A marketplace connecting qualified buyers and sellers of privately held companies. Business owners and their M&A Advisors use AxialMarket to research, identify and engage qualified potential buyers; M&A-focused public and and private companies, as well as lenders and private investment firms, join AxialMarket to increase company-wide deal flow and lower deal origination costs.  Launched in 2008, the company has helped over 2200 privately held companies, with revenues ranging from $5M to $275M, complete an M&A or financing transaction.   Peter Lehrman, the CEO, is a serial entrepreneur who understands that the value is created not by dis-intermediating the existing market, but attacking the points of friction and cost of discovery for qualified participants, leading to more success for both buyers and sellers. In the U.S. alone, where millions of established private companies exist, this friction and complexity creates tremendous noise for buyers, who receive deals that aren't relevant, and sellers, who find themselves spinning their wheels trying to identify the right buyer. AxialMarket solves these problems by overlaying its relationships with large datasets and algorithms to create success for both buyers and sellers. Of course, doing this is not so simple, both technically and from a market sense, but Peter's team has the ability, experience and expertise to do it, and First Round is excited to be part of their team.

SinglePlatform - A new First Round investment

I'm pleased to announce @FirstRound is investing in SinglePlatform, a real solution for helping restaurants join the 21st century marketing world of internet and social media.  For publishers it's a great way to enrich their local experience and monetize with restaurant content, and special.

The top item on First Round's criteria is people, and the SinglePlatform team is led by a terrific entrepreneur, Wiley Cerilli, who was a key player at Seamless Web.

In addition to the great management team, our co-investors include the founder of Seamless Web, the founder of restaurant.com, and some terrific venture capital partners, RRE and DFJ Gotham.

We're excited to be working with a strong team and great set of investors at SinglePlatform!

NYC is a great place for deals

As I wait (and wait) for the construction of our First Round Capital NYC office (overlooking Union Square)  to finish, it’s good to know that our decision to open the office is sound.  I went to last Thursday’s Open Angel Forum,  co-led in NY by First Round EIR Charlie O’Donnell, and started by @Jason (Calacanis) and Tyler Crowley out in LA.  We saw six excellent companies, any one of which would have gotten at least into our due diligence.  Being the grandfather of several NYC based children, Aristotle Circle, which noted that admissions rate to NYC kindergartens are at 7% - worse than all the Ivy League schools- is solving a true pain point for people, getting admitted from pre-K to graduate school.  Kodingen.com  has created a cloud development environment that seemed easy to use, and well designed for the types of virtual companies being created today.  Have already made two recipes from Food52.com, started by ex-NYTimes food editor Amanda Hesser, checked out the maps from UpNext, and pointed some of our other companies at HD Cloud – for video transcoding at high speed using the cloud.  Sample sale aggregation is coming, and MyNines.com already has it.

All in all, it’s clear that New York City is a vibrant place for startups, not only in the media and advertising technology areas, but also in the more technical side.  I’m hoping we get our final city permits today and can finish our construction in the next three weeks.  And if there’s an Open Angel Forum in your area, and you have a startup, by all means apply.

Thoughts for a new decade

I can remember talking with Idealab’s Bill Gross just before the Millenium about themes for the coming decade.  At Idealab we decided on more internet (Bill having created Citysearch and Overture among others in the prior decade), energy and robotics.  A number of excellent companies were spawned as a results of this, including eSolar which is now putting solar energy into the Southern California grid, Evolution Robotics, about to announce some exciting products at CES, and Snap, Perfect Market and Insider Pages (since sold to IAC).

In mid-decade,  I helped Josh Kopelman as we started First Round Capital.  Josh and I had similar thematic discussions, and decided that the space between angels and VCs could provide real opportunities to invest, and that the Web 2.0 and social media phenomena should be areas of extreme interest.  I am proud to be part of First Round’s growing success, and our recent sale of Mint to Intuit, and our growing portfolio  serves as evidence that we got at least something right.

Now, we’re about to start a new decade, and I’ve been pondering what themes will make sense as we move into the teens.  As readers of this blog know, I have a tendency to invest at the way too early stage. This tendency is fortunately tempered by the various wonderful people I’ve been able to partner with, so my current thoughts should not be seen as a blueprint for First Round, Idealab, or any specific investments.

It is clear to me that one of the great revolutions in the next decade will be the exploration and exploitation of the personal genome.  Further this will largely, but not exclusively, be done using the tools of information technology that will later drive various pharma and other technologies. There should be lots of opportunity to find and invest in companies that lead and ride this wave.  First Round already has a small toe in this water.

Second, I have always found it useful to think about what could happen when a constraint is removed from present day computing.  In the decade just ending, one of those constraints was storage, which cost an enormous amount at the start of the decade, when the concept of a terabyte was large, and moved towards free by the end of the decade, when I could buy terabyte drives at Costco for $150 or less.  Wireless bandwidth will move in this direction over the teens , whether via WiMax or other technologies.  This means that all sorts of applications that need to move large amounts of data to and from servers will be economical.  As a corollary, mobile apps will become the norm, as the iPhone has shown the way.  I’ve even been watching Stanford’s CS 193P (programming the iPhone) course during this vacation. It’s available on iTunes University.

Third, I’m beginning to see people start to deal with processing massive amounts of data and making new sense out of it. The tools developed for handling giant datasets are important (First Round’s AsterData provides an example), but so are the applications. In particular, companies such as Neurovigil, making sense out of brainwave patterns, FitBit, aWare Technolgies and others making sense of accelerometer data, and other using vital signs, can lead to a revolution in personal health.

Finally, having been a participant in the eBook world as Chairman of Franklin Electronic Publishers, which sold the early Rocketbook, the eBookman,  and then sold it’s ownership in Mobipocket to Amazon, as a key part of the Kindle’s software technology,  I would say this is the decade of the eBook. And as we’ve watched the various music discovery and other sites grow during the past decade, we’re likely to see many new companies created in the eBook space – both better and more interesting hardware, and in software.

In any case, I’m going to enjoy watching the decade unfold, and will keep looking to be just a little too early, though maybe not way too early in my investing. 

Happy New Year to all.  #FRC

First Round Comes To NYC

When Josh Kopelman and i started First Round Capital in late 2004, we viewed it as an extension of the investing we had been doing for a while. Nurturing great entrepreneurs and interesting ideas in the new environment, one of capital efficient startups.  Part of our shared style was being location agnostic - we wanted to work with the best entrepreneurs, whether they were in the Philadelphia area we called home, in the Bay area, or anywhere else in the US. It was not a great surprise to either of us that more than half our deals were California based  - necessitating more than 20 trips a year for each of us, and leading to Josh's widely read and aptly title blog RedEyeVC.  To help in evaluating all the Bay area deal flow, we opened a San Francisco office, ably led by our Partner Rob Hayes.

I have always spent a fair amount of time in my native city of New York, and helped David Rose when the New York Angels was founded early in this decade.  So it was only natural that we tried to see as many New York deals as we could. In fact, we've now got more than 10 companies that are based in the NY area.  We've finally decided to formalize that, and ease the Amtrak redeye equivalent (6:30am Ben Franklin from Philadelphia) by opening a New York office of First Round Capital.  I'll spend a lot of time there, but continue working from the Conshohocken office as well - and don't see cutting down on CA trips. My partner Chris Fralic, and Phin Barnes will also spend time in the NY office.

I'm excited to announce that we've added one of New York's best known entrepreneurial community members,  Charlie O'Donnell as our first full time Entrepreneur in Residence.  Charlie has been very influential in creating and nurturing the infrastructure for startups in NY. He's helped create events where budding entrepreneurs, startup talent, angels, venture capitalists and the other service providers that make for a vibrant startup community have gotten together to share ideas, tips and moral support.  And he is an entrepreneur in his own right.

New York is seeing a surge in new company creation, fed by this environment and a growing number of experienced high tech and digital media savvy people in this great city. First Round is proud to become a resident member of this community.

Gresham/Morgan Internet Law - Cheap Tweeting Drives Out Dear Blogging

In the 1500s Sir Thomas Gresham observed that Cheap money drives out dear.  This originally applied to two types of money, e.g. gold coins and cheaper metal coins. The reasoning is that people with two types of money will hand over the bad or cheap ones, and hold onto the dear ones. The law was actually named after him by another British economist in 1858, and has been applied to many areas where the true value is different than what people need to accept.

Twitter has triggered a similar tendency on the internet.  Cheap comments (140 character tweets) are driving out dear comments (multiple paragraph blog posts).  I'm a very guilty party. In the last few months I've done dozens of tweets and fewer than a post a month to this blog.

The danger is that people with serious thoughts about a subject, which would call for a several paragraph thoughtful post, properly cross linked to interesting web content, will now just tweet the essence.  And the dialogues that great blog posts engender will be lost.

I'm not sure there's anyway to stop this (after all, it is the law), but I'm going to try and add more blogging to my twittering.

UNI – Acquired tastes in food and investing

Between Idealab, First Round Capital, the New York Angels, and just plain email, I see about 50 new business plans a week.  Many of these are “instant pass” – they don’t fit my investment objectives, nor those of my three or four half time jobs with FRC, Idealab, etc.  While these may be heartbreaking for the entrepreneurs involved, I don’t lose that much sleep over them.

There is another category, which can potentially be big hits, and these are the ones that take most of the time – due diligence, meetings, thoughts about how to work them.  They lead to the 20 or so First Round investments each year, to Idealab’s new company startups, the NY Angels 5-10 investments, and several personal investments that I make. And over the long run, they’ve proven to be worth my investment of money and time, taken as a portfolio whole.

The heartbreaking deals are those I call UNI.  As a Japanese sushi, uni (or sea urchin) is somewhat of an acquired taste.  It is a bit slimy, but can have a wonderful sweetness to it.  I acquired a taste for it during my many trips to Japan in the 80s and 90s, and order it whenever it’s fresh.  I also see a lot of businesses that taste sweet, but have a somewhat slippery texture, I call these UNI -  User, not Investor.  These are deals where the product excites some of my sensibilities, and I can quickly see that I, and maybe many other early adopters I know, would easily become users.  But I either don’t see a business model, or see how it gets to be a very large company.  In many cases, I can see getting to a $10-20 million business throwing off  a few million a year. But there is either  market or no vision of how to get it to $50-100 million.  These are wonderful business for the entrepreneur, friends and family, and some angel investors.  They generate cash flow and great lifestyles.  They just don’t work for the venture business.

Many of the ideas we see that build on the social network or new communications platforms fall into the UNI category.  As a big user of Facebook, Twitter, et. al., tools that help me do it are most welcome, and I try many of them.  As businesses, most of them don’t have the ability to generate much revenue. The same seems true for the iPhone app business.  Lots of neat apps (see the humorous iPhone ad you’ll never see on TV), but not many generating enough revenue for long enough to build venture scale companies. 

So please don’t feel offended if I pass on your deal, after showing great excitement for your product. You may well have a winner – for small scale investors, but  cannot generate the scale that works with venture math.