School starts up again in ten days.
Despite the fact that this is more than likely my last “first day of school” EVER (scary thought) I am still dreading the “OMG how was your summer?!” bombarding that one gets at the beginning of the school year. Here’s my summary for your consumption. I’ll try to include more than the required sound byte: “I was in NYC working here, and it was great.” Cause I was, and it was.
So what did I get out of a summer working in VC?
Three main take-aways:
1. A summer is just long enough to figure out that you’ve got a lot to learn
Ten weeks go by, and right at the moment when you feel like you’re starting to “get it” it’s over. I am pumped for the class “Early Stage Capital” this fall where I’ll continue to chip away at the intricacies of term sheet math and excel models. For someone whose finance experience before school was exactly zero, this sort of thing excites me. Perhaps I should not admit to such things in a public forum.
2. New York Startup Forecast: Rosy
If the launch of the First Growth Venture Network wasn’t a huge give-away that there’s a lot of excitement around the NYC startup scene let me say it again: THERE IS.
After starting off the summer at Internet Week, I went to one packed-house event after another all summer until it was beat into my nay-saying little head that yes, people DO want to start companies in one of the most expensive cities in the whole world.
While New York lacks the informal advising/hacking culture of the Valley, it makes up for this through the fact that every other industry has solid representation in NYC. A clothing startup that wants to do deals with designers? You can just trot down to their studios. An art website that wants to feature gallery work? The subway to Chelsea will get you there.
Ultimately, startups need something that will provide momentum. I think - contrary to the popular Valley-centric belief that it’s “here or nowhere” - there are a lot of different ways to create momentum and one is having access to the best + biggest players in many, many different industries. No place better than NYC for that.
3. Early-Stage Investing is about People
What I found so heinously unattractive about finance jobs (for the 2.5 seconds that I was considering working at a bank) is that I saw it as high-class paper pushing. You don’t get to really know people. It’s about excel and ratios and presentations and deals, but not really about people. Early-stage investing is mostly people-focused. It’s about getting to know a team and assessing not only what they’re building but how they will build a successful company.
I believe this is what separates really good VCs from the rest - the ability to not only spot a market-crushing business model or technology but the ability to pick out a winning team.
This is not something one can learn in a summer.
So that was my summer. There were some other key moments, but I need to leave some items for the first-day-of-school excitement. I even got a new haircut.
Stephen Marcus had an interesting piece on the New Atlantic Ventures blog (disclosure: I am currently a summer intern at NAV) about seed financing. After drilling down into institutional seed financing between January 2006 and June 2009 by region (New England, NYC, San Francisco, and DC - the four regions with the most VC money floating around) his data showed that while seed financing - which he defines as less than $1m - is down an insane 80.2% in Silicon Valley in the first six months of 2009 versus the same period in 2008, it’s up in both DC and NYC. See the graph for a better picture - it seems that the Valley and New England have put more capital toward larger rounds and have cut back on seed-stage deals.
Why the shift toward larger rounds? Safety. If a company is getting a $5m+ round of VC financing, chances are they are fairly established and therefore less of a risk (or rather, a different *type* of risk) for the investor. I see it as a knee-jerk reaction to the economic crisis - VCs were more inclined to put money toward more “proven” investments.
As a new admirer of the NYC startup scene, I’m happy to see New York (and DC as well) embracing seed financing - it only adds to the argument that Silicon Alley is booming once again.
[Click it!]:
(Image Credit: Stephen Marcus)
I put together a piece for change.org this weekend on dealing with rejection. I’ve been meaning to write on the topic for a few months - I think you can tell a lot about someone based on how he/she handles rejection.
Remember: if everyone wanted to drink your kool-aid, it would be water.
Thanks to Flybridge Capital, I was able to attend the AlwaysOn Venture Summit East today at the Mandarin Oriental in Boston.
I am not exactly a veteran of VC get-togethers, so I am subtitling this post “confessions of a VC conference newbie.”
Highlights:
1. Widespread and unabashed optimism. I watched probably 5-6 panels and despite the pervasive and hard-charging recession going on for everyone else, many panelists said they believe it’s a “great time to start a company.” I’ve heard that phrase now so many times at so many different events and conferences that I wonder why my friends haven’t quit their steady jobs to become cloud experts (see next topic!).
2. Love of the cloud. I had not heard the phrase “pay-by-the-drink” before (shame on me) to describe cloud computing - though apparently Bezos has been throwing it around since at least 2006 and probably way before. It makes sense and is catchy, so I am excited to welcome the phrase into my lexicon of buzzwords. For those of you not hip to cloud computing catch-phrases, “pay-by-the-drink” refers to one of the most compelling parts of the cloud business model: dynamic/horizontal scalability and the customer’s ability to pay for only what they use.
Example - server space. You could buy an entire server for your startup and use some of it or all of it. When you get that spike in traffic that you were hoping for (viral social media marketing success!) your server might crash, negating any benefit that might have come as a result of the traffic spike. OR, you could sign up with a nifty “cloud” service like Amazon Web Services (AWS), Rackspace or Mosso. They charge based on how much server space you use. When you need a lot, the capacity is there and they just charge your credit card - see the “SmugMug” case study for more info.
There’s a lot of momentum surrounding cloud computing and “software as a service” and additionally, these businesses generally fit the capital-efficient + huge upside potential model that VCs look for, so it’s not surprising that talk of “the cloud” was so pervasive.
3. Quality of deal-flow is better. One quote I wrote down: “There are a lot of people who want to start companies, but they’re not necessarily entrepreneurs.” When VC money was more free-flowing (ahem, 2000) many of these wantrepreneurs got funded and the “noise” level became unmanageable. Now, the combination of tighter VC wallets, folding funds and newly unemployed former entrepreneurs has resulted in an increased number of serial entrepreneurs getting back in the game and putting together quality early-stage companies.
4. The importance of angel networks. My favorite panel of the conference was about the state of Angel and Early-Stage investing moderated by Michael Greely from Flybridge. The panelists were John Landry (Lead Dog Ventures), Elon Bloms (LaunchCapital), Bijan Sabet (Spark Capital) and Paul Maeder (Highland Capital). A surprising amount of VC deal-flow comes from Angel networks. This shouldn’t be too shocking - how many people are there in any one city with piles of cash (their own or others’) to invest in startups? My point: it seems like many startups seek VC funding too early - take advantage of the Angel groups in your city first and if you’ve got a winner that will likely lead to VC anyway.
5. Changing the VC model. There was also much chatter around the idea that huge mega-funds are on the decline and the VC model will move toward smaller funds and continue to favor capital-efficient business models (ie it doesn’t cost you $1m a month to stay in business). YouTube-type exits simply are not the norm; average VC exits are around $70 million. One of the panelists on an afternoon panel suggested reading a memo about the formation of Valhalla Partners. I found it on the Valhalla website and although it’s dated May 2002 it’s surprisingly relevant to the current pains in the venture industry and definitely worth a read.
Overall - good energy at AlwaysOn. Now if you’ll excuse me, I’m going to get back to writing my world-changing cloud-computing business plan.
I have been thinking a lot about bit.ly’s funding round that was announced a few weeks ago. There has been a lot of attention lately on URL shortening, especially with the explosion of Twitter (Twitter on Oprah!) and the introduction of the Digg bar.
Why did bit.ly get money? There are a ton of URL shorteners out there - and my initial thought was that if Twitter ever introduced the ability to hyperlink I would stop using services like bit.ly completely.
But bit.ly’s appeal to investors rests not in its URL shortening, but rather its tracking system and analytics. By using a bit.ly link one can tell how many clicks his/her links are getting and where the clicks are coming from - even inside of social networks like Twitter and Facebook. Bit.ly can get where Google Analytics cannot, which is great for bloggers/content creators.
If the original Google search algorithm was constructed based on a system of hyperlinks/pagerank, there is potential in the data collected by bit.ly to create a collection of “live hyperlinks” where you can track how a link is passed among people/websites. This would dovetail nicely with the [somewhat] burgeoning “semantic web” (ok, burgeoning since 2001, but still) in that it would provide more human, dynamic, and real-time input on hyperlinking.
That type of data, if presented right, has huge potential for online advertising.
OK, I’m convinced.
