David Lee's Blog

What Should I Write About?

Fred Wilson wrote recently about “Finding Your Voice” using technology. It really struck a chord with me.

Like Fred, I started blogging at 42 (ie, this year). I’ve enjoyed writing journals at times (ok, that was about 20 years ago) and think there’s something powerful in getting your thoughts and feelings on paper. It’s clarifying and at times cathartic. But I never blogged because I was always self-conscious about what I wrote and what others would think. The mere process of proofreading a blog, for example, is like proofreading a journal. It feels contrived and meant to create an impression rather than express your thoughts.

But truthfully the main reason why I never blogged is because I thought it was kind of lame. I thought VCs and investors did it largely to promote and market themselves. A douchebag move, as my 20-something peers would say. I don’t really think that anymore. Yes, there are douchebags out there. But there are douchebags everywhere. But it ends up that there are some writers like Fred who end up giving back to the community by expressing themselves. (One of my favorites is Ben’s blog, where he gives practical advice but also is very candid about his emotions and psychology.) They share perspective, thoughts and knowledge that are really helpful for founders and others. And of course, there’s an element of marketing and ‘branding’ themselves. But that element is everywhere now. Beyond blogging, services like tumblr, pinterest, nationbuilder and kickstarter all in some way invoke and touch upon a sense of expression and branding in their own way. It’s an inexorable trend, and (arguably) essential today.

For me, this has been very hard to do without feeling self-conscious. Being at SV Angel, I feel like we have a unique view of the market and tech ecosystem. And I still want to write about topics that are personal to me. But it’s hard for me to come up with topics to share without feeling like a douchebag.

So, what should I write about?

Adding Value

C-Dixon has a great post talking about things to consider when raising a seed money. In his comments, he also says:

But the most important thing is probably to do diligence on the investors and figure out their reputation for supporting their companies through ups and downs.

I can’t agree more  – particularly the first part. The funding climate for startups seems to change daily. More investors. More startups. Better investors. Better founders, etc. One of the great things about things like AngelList is not that “every company can get funded” but that companies have a more diverse set of investors from whom to choose. Five years ago, it was a very limited set. Now, there’s more transparency and access.

With all these competing factors, it’s impossible to give the same advice to different founders as they go through this process. There’s no “one size fits all” approach. But there is one piece of advice that we give to founders. I’ve learned from Ron that this is the only golden rule: every investor has to add “value.”* How the founder defines value is up to them – there’s no standard definition.** But in this funding environment with so many choices, it is a shame for a company to take money from an investor who doesn’t add value.*** That’s the most expensive type of money to take.

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* This may sound like some banal fortune cookie message insight but it’s simple but not easy. Lots of implications if you parse the idea.

** It’s hard to make “general statements” about what is “value add” for each company. But thinking critically about who can help you address “known unknowns” and how they are going to help you is probably a good start. And asking other founders if the investor is an asshole is also a good second step. In other words, kick tires on prospective investors as hard as your tires are being kicked.

*** Obviously this applies to companies with choices. When you don’t have choices, then the “value add” is the color of the money.

Getting Older

Source: gevisacri.blogspot.com.br via David on Pinterest

I came across this great quote on Pinterest and it really struck a nerve with me.

When I was 25, I had Hodgkin’s Disease, a form of lymphoma (or the “Good Hodgkin’s”, as Larry David once said). It has an unusually high cure rate but I was an outlier. My case was particularly bad. The cancer was relentless. My lowest point was when a doctor bluntly told me that I had a 10% chance of survival.

That one statement put me in a funk for about 2 years even after I came through my bone marrow transplant and deemed “cancer-free.” Most cancer patients who come out “cancer-free” after their treatment still have a long road ahead. If you’re still cancer-free after 1 year then your chances of being ‘cured’ rise linearly; after 5 years, exponentially and so forth. The magic number is 10 years. If you’re cancer-free after 10 years, you’re effectively ‘cured.’ As many cancer patients know, you are never really cured but after 10 years, you’re effectively out of the woods.

When the caretaker told me that, I remember thinking that I would give anything to be 35 that very day. I wanted life to fast forward 10 years. i wanted to know that I’d be ok.  I went through treatment with some people who didn’t make it. I was scared shitless.  I knew I would have to live with this shadow for at least 10 years. It affected everything I did.

I’m 42 now. Out of the shadows. I have a wonderful wife and a great daughter. I am beyond lucky in many ways. There are days that I complain (mostly in jest) about my slower metabolism, taller hairline and marbled (with fat) physique. And like every joke, there’s a grain of truth. I’m approaching middle age and have many of the typical existential crises.

The downside of moving beyond my “10 year mark” is that it’s harder to remember ‘what’s really important’. I don’t just feel lucky just to be alive and happy. I want more. I think about what I don’t have. I treat everything in my work life with a seriousness and anxiety that’s not appropriate to the real stakes involved. And this quote really slows it down for me. It reminds me of how truly privileged I am.

SXSW Post-mortem

 

1. It’s my second time. I complained about going and being “that guy.” But for every time I complained, there was a a random chance to hang out with people on the east coast or people I rarely see on the West Coast. So I’ll be back (probably). Begrudgingly.

2. I heard that the W Hotel is *already* sold out for next year. Unbelievable.

3. Some tech companies were just arriving when I left on Tuesday. They wanted to avoid echo chamber and reach folks in other industries – music and film. Seemed smart.

4. Warby Parker had the best event by far IMHO. Very different. Great change of pace from fraternity-like atmosphere.

5. Foursquare had the best presence IMHO. They seemed to be everywhere. Great court where there was an actual foursquare court. Free coconut water. Free Doritos. Free sunscreen. Check. Check. Check.

6. There was some company called SquareWeb or WebSquare that had a great presence with invariably the longest line around the block to get their food. Unfortunately I don’t remember their name.

7. Lambert’s has the best BBQ but then again, I have a sample set of N=1. I went there twice. They ran out of ribs the second time. Inexcusable for a BBQ joint but I still enjoyed it. Great service. I should have had a sample set of N=2 at Salt Lick but I missed my chance.

8. Both irritated and relieved that I didn’t go to the Shawn Carter concert. But since I didn’t have tickets, I’m mostly irritated.

9. People in Austin were unbelievably friendly. Not like the surly folks in SF and NY.

10. Whoever runs the thing should get a Noble Prize in Logistics. Don’t know how they coordianted all the panels, speakers, etc.. I heard the best panel by far was this one. The moderator apparently was a mix of Johnny Carson, Charlie Rose and Howard Stern.

The Color of Money

I’m moderating a panel at SXSW next Monday called “The Future of Money.” It features Dave Boyce of Fundly, Dan Rosen of Highland Capital, Bill Clerico of WePay and Patrick Collison of Stripe.

I’m really excited about this panel. For the first time ever, software is ‘touching’ more dollars whether spent ‘online’ or offline. This is literally a trillion dollar opportunity. Companies like Square, WePay, Dwolla and Stripe are now “eating” the payments industry as Marc Andreessen would say. You only need to look at Square’s recent release of their register to visualize the potential for disruption.

If you’re at SXSW, I really encourage you to come and listen. The panelists are some of the brightest thinkers in this area and can make the complex simple by breaking down the often byzantine world of payments and finance.

Disclosure: We’re investors in WePay, Square and Stripe.

The Future of Money

Place: Hilton Garden Inn, Sabine

Time: March 12, Monday, 12:30

This panel will offer an in-depth look into the rise of financial tools available in the cloud and on mobile. It will discuss the idea of how these services have changed the way consumers deal with money and how it is affecting small businesses and merchants. With the social web, ecommerce and mobile offerings infiltrating our financial lives on a daily basis, consumers are more empowered than ever. With the click of a mouse or a swipe of a Smartphone, we can buy or sell items, make or lose money in an instant. Mobile tools make it easy to process purchases in real time, and on-the-go payments will soon be the default for shoppers around the world. Small businesses can flourish within minutes on the Web, and consumers can thoroughly analyze their personal flow of money with effortless online tools. So what do all of these developments mean for businesses, consumers and everyone in between? This panel will explore the future of payments, purchases and financial tools that will empower consumers and fuel small businesses throughout the digital age.

“Why are you starting a company?”

I sometimes ask founders this question (or some flavor of) when hearing their pitches. It is sometimes very revealing and one signal to help separate the pretenders from the contenders.

Last October, I heard Mark Zuckerberg talk at Startup School 2011 about why he started Facebook. He essentially said that he didn’t set out to “start a company” for the sake of doing so. He started a company because it created the most leverage (i.e. was the fastest way) for him to see the change he wanted to see in the world. He then talked about people starting a company before they know what they want to do and that the only way he was going to start a company was that “the momentum was so great that I had to start a company.” (Watch from about 25:48 of video here).

Literally three days later on November 1, 2011, I heard Jack Dorsey talk about the same topic at our summit for SV Angel founders. The theme of the summit was how to make the transition from being a founder to being a CEO, or the transition from “starting a company” to “building a company.”

Jack said effectively the same thing as Zuckerberg. He thinks about building a business as a way of “thinking about the idea that you want to see in the world.” And that the company is just the structure that lets the idea flourish: you need it to hire people to build the product, to get money from investors to hire the people and ultimately to generate the profits so you don’t need money from investors. The money is just the “oxygen” for the idea.

I thought about this when seeing Lauren Leto launch her new version of Banters today. She started one of my favorite things of all time, and when she was starting Bnter, I asked her the question above. She immediately and enthusiastically answered, “Because this thing should exist.” I thought that was an awesome answer, and we invested. Bnter doesn’t have the success of Facebook or Twitter (not yet!) but it’s an example of a company and founder who had similar motivations when first getting started.

Finally, I don’t mean to suggest that this is – or should be – the *only* motivation to start a company. In his talk, Zuckerberg used Jeff Bezos as a great counter-example to his point. There’s more than one way to skin a cat. But I think it can be helpful to think about why you want to start a company – in some ways, you can have just as much satisfaction and impact by joining one instead.

Fit and Finish

I wrote earlier about how we observed virtually unprecedented exponential growth from companies in the past few years and how some start-ups in the consumer world leveraged the concept of the ‘atomic unit’ or ‘trivial gesture‘ to achieve this growth. We also observed another common characteristic or trend in apps/services that got early, rapid traction. These apps got their ‘fit and finish’ right from the get-go – they were impressively polished and did one or two things cleanly and elegantly. As Jack Dorsey would say, they tried to get every detail perfect and limit the number of details. Some of the companies who fall into this bucket (IMHO) are Batch, Orchestra, and Oink.

Looking back, this seems to make sense. Social media or “word-of-mouth” channels like Twitter, Facebook, Tumblr and others get your app out to literally millions of people within months or even weeks. Viral marketing and mechanics have become standard best practices.  Notifications on phones have become the standard default. And for better or worse, these channels effectively act as amplifiers for the word-of-mouth zeitgeist. If your product doesn’t doesn’t have the right ‘fit and finish’ or is deficient in some other way from day one, then you will hear about it quickly and loudly.

When Google launched “Google Talk” back in 2004-2005, it seemed easier to field-test publicly. You didn’t have to get your ‘fit and finish’ down tight. There was a relatively small number of people online (compared to today) and the ‘word-of-mouth’ channels discussed above weren’t as robust and stable (or didn’t even exist, in most cases). You could launch a rough product; iterate; update + tweak; iterate; etc. without damaging lash back. You could stay in Beta forever. It’s not clear you can do that anymore, and some companies who experienced exponential growth in 2011 demonstrated the power of getting the important details right from day one.

Follow Up Post on “Trivial Gestures”

I wrote yesterday about the power of ‘atomic units’ – and how some companies used a seemingly trivial, simple gesture to get widespread distribution. In a comment to the post, Fred Wilson expands on this point – talking about the importance of boiling down your product to its essential features to deliver the simplest possible thing. Naveen from Foursquare articulates this concept better than I ever could in the context of mobile apps.

I thought I’d include some examples of this idea. These are some of my favorite apps, and they deliver ‘value’ to me quickly and easily. In some instances, they even make mundane tasks fun:

Simplenote – Fastest, easiest way to jot down notes
Batch – Easiest way to share real-time pictures, albums. First photo app I use for family and friends
Instapaper – New 3.0 version is completely awesome – very snappy; especially on iPad**
Postagram – Easily send pictures to my parents
Square – Easy way to accept credit cards (I do a lot of transacting on Craig’s List)
Snapjoy – Easiest way to organize sh*tload of pictures
Orchestra – Elegant ‘to-do’ list

Orchestra is one of my favorites. There are a lot of features that I wish it had – web/desktop app; iPad app; tagging – but it does one thing really well and has replaced the ‘Reminders’ icon on the first screen of my iPhone. Again, nailing this atomic unit or ‘initial use case’ isn’t necessary nor sufficient for long-term success, but it can be a useful tactic in getting distribution in increasingly crowded markets.

**Not an SV Angel portfolio company.

Trivial Gestures

Fred Wilson has a great post this morning about the power of being mocked and misunderstood (for a web service, of course). In a nutshell, he says that it’s usually a good sign when something is mocked and derided. I can’t agree more. If you’re being mocked, that means people are (at least) paying attention. The alternative is near fatal for a consumer app – silence or indifference.

One way that we have seen consumer internet or mobile apps experience early, exponential growth is by leveraging a simple, trivial gesture. The Foursquare founders call the trivial gesture (in their case, the check-in) an ‘atomic unit‘ – the single act that helps people discover the world around them. And while the companies are experiencing early traction via these trivial gestures, they’re usually mocked along the way:

“Why would anyone tweet/check-in?”
“What’s the business model? This is just a feature.”

Inevitably the early growth slows and that’s where the hard part begins. Twitter and Foursquare are the exception, and not the rule. The next step for the company is to transform that growth into value. Generally, mainstream or “Red State users” won’t want to do this initial gesture because of their triviality or silliness. These are the users who don’t tweet; who don’t check-in; who don’t pin; etc. And the challenge is to provide value to this cohort of users based on the atomic units you’ve amassed – to the users who don’t tweet or check-in. Pinterest did an amazing job of this in 2011. In a short time, they got people both pinning their likes and tons of users outside of California and New York browsing their service. The best example of this is the Internet – you don’t have to build a website to use the Web (I think Evan Williams said that). Dennis from Foursquare recently spoke about this:

“The most interesting thing is what we’re starting to see with people who open the app but don’t check in. At first we said, is something broken? What’s going on? And then you realize that they’re benefiting from the ecosystem. They use Explore to see what their friends are doing, they look at the tips at a restaurant. I went to a lunch meeting today — I didn’t check in, but I went and opened the app and looked at all the tips to see which pizza I should get. So I do it also. That’s going to end up being a big use case for us. So when people say, you’re all about the check-in — well, we are; check-ins give us a ton of data points. But it’s the same thing as Twitter: Not everyone on Twitter tweets. There are people who don’t even know how to send tweets that are getting a lot of value out of Twitter. We’re mimicking that pattern.” (link)

And if the Red State users start engaging in that initial gesture (eg, start to tweet, checkin), then you have something special. (You could argue that Facebook experienced this: initially people would look at posted pictures and question, ‘why would anyone post a picture of themselves?; that same person would spend hours looking at other pictures; and eventually those same people started posting pictures of themselves.)

Another characteristic of these gestures is that they’re either painfully easy to do and/or quickly and simply solve a very narrow pain point. The lesson for us is that when it comes to the consumer/mobile worlds,  it’s sometimes better to start very trivially and simple; do something almost painfully narrow to a relatively small set of users. This makes intuitive sense. These industries are so crowded now – its like the mustard shelf at the supermarket. So many choices. Very hard to differentiate. And being more than one thing to more people can be the fastest way to get lost in the shuffle.


Exponential Growth

In 2011, we saw a remarkable number of companies (both inside and outside of our portfolio) experience ‘exponential’ growth. Everyone in the startup world craves this type of growth – “traction”, “up-and-to-the-right”, “second derivative growth.” Founders strive for it. Investors covet it. For whatever reason, we witnessed a number of companies experience this faster than ever in 2011:**

/Fab.com signed up 1.2 million users, half of whom signed up in 2 months and generated multi-millions in revenue during that timeframe;
/Pinterest grew from 40 thousand users to 3.2 million users in 1 year, experiencing 50% month/month growth; and
/Twitter, already a global phenomenon, grew by 182% in mobile users in 2011.

And this growth didn’t occur only in (occasionally deceptive) top-line numbers like total number of users, total page-views, and gross revenue but in more durable metrics like return visitors, repeat buyers and active users. It was pretty impressive. Other folks like Josh Kopelman saw the same phenomenon.

Even more impressive was the time in which it took some startups to reach critical mass. Back around 2007, I remember someone telling me that Reid Hoffman thought that 10 MM users was a high-water mark – that a company had reached significant scale at that number. I have no idea if Reid actually said that but by any standard, 10 MM users is an important milestone. (This applies mainly to consumer internet and apps.)

According to one report, it took Facebook a little over 2 years to reach this milestone. Facebook is not only a once-in-a-lifetime company but as a social network, its network effects are more “direct” than other services – so you’d expect that their growth rate to be faster than other consumer services. Here’s the time it took some companies to reach the 10 MM mark:**

Twitter: 780 days
Bump: 1 year
Foursquare: Less than 2 years
Dropbox: Less than 2 years

Now there are a lot of reasons why this isn’t a pure ‘apples-to-apples.’ The first is that there are now at least 2 billion people online and back in 2004, there were about 700 million. There’s also the ubiquity of broadband, wireless and 3G access and the smartphone boom, all of which weren’t as prevalent or around when Facebook first took off. And some companies like Bump benefit from the same direct network effects as well. But the fact that these companies can be mentioned in the same breath as Facebook, which had a daily active usage rate well above 50% at one point, is pretty amazing. (The fact that Dropbox is in this category is the most amazing to me since it requires a user to download a desktop app, which was traditionally a huge point of friction for adoption).

Chris Dixon recently wrote about the “exogenous shocks” that can lead to exponential, “up and to the right” growth. He makes the great point that these events are essentially Black Swan events, but as a founder you can “1) understand what exogenous shocks you depend on, 2) try to guess when those shocks will hit, 3) manage your runway so you survive long enough for them to hit.” In some follow-up posts, I’ll try to elaborate on these 3 points with thoughts based on observations of portfolio companies and chats with founders on this topic. This early traction doesn’t guarantee long-term success for startups who strike it, but these anecdotal data points are one reason why we are excited about investing in 2012 and beyond.

*Disclosure: Other than Facebook, SV Angel is an investor in the companies mentioned here.
**From publicly available sources