When my partner Brad and I started Union Square Ventures back in 2003, we constructed a model portfolio for a $100mm fund. We assumed we'd start with an average investment of $1.5mm to $3mm and that our average investment would be $6-8mm. We thought we would make 12-14 investments. We raised $125mm so the numbers are 25% larger, but we ended up making 21 investments. If we had raised $100mm, we'd have made 17 investments. So over the course of the four year investment period of our first fund, we increased the number of investments we decided was optimal by 30%.

When we planned for our second fund in 2007, we modeled a $150mm fund with 30 investments, an average of $5mm per company, reflecting a further 20% increase in the investments/fund ratio.

There's another factor at work here. All early stage VCs understand that there will be losses/churn in the portfolio. Longtime readers of this blog know that I like to talk about the 1/3, 1/3, 1/3 model in which 1/3 of the investments are wipeouts, 1/3 return capital but are underperformers, and 1/3 are winners that produce all of the returns. When you have an investment flow dynamic where the early rounds require very small amounts of capital but the later rounds in the winners can require a lot of capital (which is very much the case in the internet/web sector), then it behooves you to make lots of small investments, see which ones become the big winners, and then go "all in" on the winners.

There are quite a few experienced VCs making early stage investments in the internet/web sector now. And many of them have developed models that allow them to build and manage larger portfolios. Probably the best example of this is First Round Capital, which got started a year or two after Union Square Ventures but now has over 70 portfolio companies. But there are plenty of other venture capital firms, large and small, new and established, that have figured out that they need to make more smaller earlier investments in the internet/web sector.

The challenge all of this presents is how a VC should allocate his/her time. You can spend the majority of time hunting for deals (planting seeds) or you can spend the majority of your time working with the portfolio companies (tending the crop). Not all of the portfolio companies need a VC's help. Many entrepreneurs are highly self sufficient. That's a good thing. But every entrepreneur can use some help now and then and some need a lot. And the best VCs make it a point to be there when the entrepreneur needs you. And that is time consuming. It's very time consuming if you have ten or more portfolio companies and you make it a point to be a "valued added" VC.

I am "old school" in some things related to the venture business. It's probably because I got my apprenticeship in the mid 80s and have a hard time giving up old habits. One of them is "the portfolio comes first." I was talking to my partners the other day about the best use of our time. We have a great portfolio of companies that have created a lot of value and are poised to create a lot more. If we can spend time helping these great companies become more valuable, will that result in greater returns to us and our investors than doing more deals? Hard to say, but my initial instinct is yes. Again, that's my "old school" training coming into play.

So that's the never ending debate inside the head of a VC. And it is certainly the debate inside my head these days. This doesn't mean that USV is going to do less investing in 2010. And it doesn't mean I am going to do less investing. I spent a fair bit of time recently laying out exactly what I want to invest in this coming year. We generally make 6-8 new investments per year, roughly 2-3 per partner and I expect we'll do that again in 2010.

But it does mean that we will be working a lot with our existing investments this year and we may not be the most aggressive firm out there chasing new deals. That bugs me at times. But I think it's the right choice for us, our investors, and our portfolio companies.

This is not going to be a hard core review of the phone. Engadget has one of those up this morning. Thus is about how I use it and why I'll most likely stick with this phone for a while longer.

I'm at the gym on elliptical trainer typing this into the Android browser. I connected to the gym's wifi without hassle, something my security obsessed blackberry fails at regularly. Then I checked in with the awesome android Foursquare app. Then I put on last.fm "my library radio". Then I launched the killer android browser and went to typepad and started writing this.

I could have done all of that on the iPhone except the part about running multiple apps the same time. Which is a big deal by the way.

The Google phone isn't much different than the iPhone. Its basically an Android clone of the iPhone. I have to type on the screen on this phone and I'm struggling mightily to do that fast and well. If this post has errors in it I wont be surprised.

There are a few inferiorities vs the iPhone to note. The on screen keyboard is good but not as good as the iPhone. And the ability to pinch and flick (called multitouch?) is missing.

I miss these gestures the most in the browser. But having a real browser that can remember passwords and such is such a godsend. RIM must be blind to miss that.

I also like the way the Google apps run natively on Android. Gmail/Cal/Contacts work so well on this phone. Of you use the Google app suite, you should really be on Android.

I also love the openness of Android. If I decide I really need a keyboard (I think I do), I'm pretty confident that some handset manufacturer will build the ideal hardware configuration for me soon.

And I love that apps can auto update without having to go through the app store approval process. Android apps can get better quickly, like web apps can.

And I love that I can carry a second battery with me like I do with my blackberry.

All in all the Google phone is a mighty fine phone and I'm staying on it for now. Thanks Google.

UPDATE: After posting this, I realized I didn't mention the phone features. I don't really use a phone for voice very much. I've made a total of a dozen calls on this phone in the two plus weeks I've been using it, mostly to the Gotham Gal. But the phone seems to work great.

UPDATE #2: Something is not right with the disqus comments on this post. I'm looking into it. In the meantime, typepad's comment system is operating instead. Sorry about that.

The submittal part of the competition is over and 85 different apps have been submitted. They are all listed here. I am slowly working my way through them. It's quite an effort to look at 85 different apps. Some run on the web. Some run on iPhones. Some run on Android. Some run on SMS.

I thought I'd open this up a bit and let all of you have some say in my judging. If you want to weigh in on my voting, please take a look at the apps and highlight any of them you think merit serious consideration by me in the comments to this post.

However, it is critical that you disclose to me if you have any vested interest in this competition. I don't have any problem with someone leaving a comment that says "my app is called ....., and here's why I think you should vote for it". I do have a big problem with a comment promoting your app if you don't disclose that it is yours.

I am judging these apps on multiple criteria, including usefulness, inventiveness, the visual look and feel, how far it has been commercialized to date, and most importantly in my mind, how much government transparency it provides.

I'll end with a screenshot of one app that I spent time on this morning that I like called Playaround which maps playgrounds by neighborhood. Very nicely done.

Today I sent a friend in the VC business an email outlining some areas I wanted to focus on this year so we could find some things to work on together.

In thinking about those two events, I decided I should just post the answers right here. So here goes:

I should say that this is my view, it probably reflects the views of my partners but I haven't shared this with them so I can't be sure. This is not an attempt to guess what my colleagues in the venture business are looking at. I don't think very much about that anyway. Every partner and every firm has their own investment thesis and that's great. I don't think it makes much sense to think very much about what others are doing. Focus on what you are doing. This is what I'd like to be doing in 2010:

1) Mobile: I am very excited about Android. As much as the iPhone has been transformative, it is still a tightly controlled environment. Android opens up mobile in a way that it can begin to look and feel like the web. Android will be on many handsets and many carriers. Developers can work with the source code if they want to. Apps don't have to be cleared by Google to run on Android phones. I could go on and on. These might not seem like big things but they are huge. Mary Meeker said in her mobile internet report that the mobile internet will likely be at least twice as big as the desktop internet. I think that's a safe bet and I would venture that it could be well north of that.

2) Mobile What?: We believe that we should focus on things you can do with a mobile web service that you cannot do on a wired web service. My partner Albert wrote a post about this last year and the conversation/comments on it are very enlightening. Go read his post and the comments and you'll see what kinds of things we are thinking about/looking at in mobile.

3) Gaming: I believe gaming is the most powerful form of entertainment and education right now. I see it with my kids every day. Gaming is becoming social and our portfolio company Zynga is the leader in social gaming. Gaming is also becoming mobile and the most popular apps across all app stores and operating systems are games. One area of gaming I am particularly excited about is augmented reality games. Augmented reality according to wikipedia is "a term for a live direct or indirect view of a physical real-world environment whose elements are merged with (or augmented by) virtual computer-generated imagery - creating a mixed reality." When I explained augmented reality to my son Josh, he said "do you mean me and my friends could run around the park shooting each other with our iPhones?". Well I hope we can come up with better augmented reality games than Tag and real life Call Of Duty but that's the idea for sure.

4) New forms of commerce and currency: I wrote a post last week about Etsy and the San Telmo markets in Buenos Aires that explains how the current e-commerce model on the internet is limiting and outlining the work we have yet to do to realize the potential of commerce on the web. Etsy is doing its part to move the commerce model forward and I am proud of that company and our investment in it. But there is so much more commerce that needs to be brought natively onto the web. Some of that will be new forms of commerce and some of that will be new forms of currency. I am excited about both.

5) Cloud based platforms and APIs - Many web services have APIs today. A good example is the Twitter API. These APIs have become development platforms in their own right. On top of that, Amazon and others are offering very robust cloud based platforms for developers. The combination of these two trends means that modern web and mobile development is being done on top of cloud based services and APIs. Until recently, we had not been interested in services aimed at developers but the emergence of cloud based platforms and open APIs is changing that. We've made two investments in this sector to date, MongoDB, a cloud based open source datastore, and Twilio, an API that allows web developers to access telephony resources from the cloud. Developers are the new power users. If you cater to them, you can build a large user base with significant network effects. And that is one of the key things we look for in our investments.

6) Education and the Energy/Environment: We've been looking at these two verticals for the past year. We've only made one investment to date, AMEE, which is a cloud based API for recording and measuring energy and carbon consumption. But we have not lost any of our interest in these verticals, which we believe are being impacted by the global open internet. We don't believe in making investments until we have done our homework, analyzed the sectors, and developed a thesis about where we want to invest. We are well on our way to doing that and I hope we'll do more in these two verticals in 2010.

So these are the six areas I'll be looking closely at in 2010. The first two are really one and the same, so it's five areas; mobile, gaming, commerce/currency, cloud platforms/APIs, and eduction/energy/environment.

In the six years we've been actively investing under the Union Square Ventures brand/platform, I've led/managed thirteen investments. So that's about two per year and that's the pace I like to work on. So five sectors, two investments means I won't be making an investment in each sector this year. We have three partners in our firm and we generally make six to eight investments per year as a firm. We may be able to make at least one investment in each sector as a firm. That would be a nice goal.

This isn't entirely the fault of the school my kids go to. I've asked around and computer science classes in middle school are not very common.

That's wrong. 

We continue to teach our kids French but we don't teach them Ruby On Rails. Which do you think will help them more in the coming years?

The NY Times has a story this morning about this subject. Here's a quote from that article from Janice C. Cuny, a program director at the National Science Foundation:

Today, introductory courses in computer science are too often focused merely on teaching students to use software like word processing and spreadsheet programs. The Advanced Placement curriculum concentrates narrowly on programming. We’re not showing and teaching kids the magic of computing.

I remember the first time I wrote some code, hit compile, then run, and the computer did something I had instructed it to do. It was as Janice says "magic". I was smitten and have remained so almost forty years later.

If the Obama administration wants to really do something about jobs and retooling America for the 21st century, it would fund the development of great middle school programming curriculum. It would fund training teachers to teach that curriculum. It would get millions of kids writing code before they have their first date. That would change a lot of things.

So that's a success story in the world of VC deal sharing. But I think this practice is becoming a lost art. When I got started in the venture business in the mid 80s, this was a very big part of how the business worked. VCs would work in packs, called syndicates, and they'd trade deals back and forth all the time. When you had a deal to syndicate, you'd ask your partners "who do we owe one to right now?"

It still happens but there are bunch of reasons why it happens less. Let's start with the healthy reasons it isn't happening as much.

1) Entrepreneurs have all the cards now. They typically control who invests in their companies and they pick the VCs they want to work with. There is a lot more knowledge out there about VCs, which ones are good to work with and which ones are not. We cannot tell an entrepreneur to take money from Bijan and his partners at Spark. We can suggest it, and sometimes they choose to do that. But it is the entrepreneur's call these days, not ours. That's a good thing.

2) VCs are working harder than ever to figure out what are the most attractive investment opportunities. The best VCs go out into the market and figure it out. They don't sit back in their offices waiting for the calls from their friends in the business horse trading deals with each other. That is also a good thing.

But there are some not so good things at work here too.

1) There is too much money in the venture business. Many VC firms want to make large investments and obtain large ownerships. It is very hard to build syndicates these days. It used to be that the first round would be for 40% of the company, with two firms splitting it. We see most first round deals for 20-25% of the company these days. That is very good for the entrepreneur but not good for syndicates. It is more common to see a VC firm to do the entire first round by themselves or with angels, than to see two firms splitting a first round.

2) The markups between the first and second rounds in the best deals can be large. So if we turn to our friends in the VC business and say, "here's a good deal, but you have to pay three times what we paid less than a year ago", they are not always going to look at that as a favor.  They might think we are taking advantage of our friendship not facilitating it.

We are thinking about several follow on financings in our portfolio right now. And as we walk through the options with the entrepreneurs, I am often tempted to do the round ourselves (or with our syndicate partners if we have them). If we can make a deal with the entrepreneur that both parties are comfortable with, we keep the team focused on the business and off the road. We keep the company from educating other VCs about how good the opportunity is and less likely to fund a competitor. And we can build a larger position in the company for ourselves and our investors.

We are not the only VCs who are thinking this way. This "do it ourselves" approach has been prevalent in the VC business for over a decade and is gaining even more adoption as VCs figure out how to make money in the new environment we all face.

I don't want to give the wrong impression with this post. Our firm, Union Square Ventures, has and will continue to syndicate deals with other venture firms. If you go through our portfolio, you'll see that we have VCs as co-investors in 22 our 29 announced investments. In the others, we have angels as co-investors. We like to invest with others and continue to try to do that as much as we can. But I feel like we are doing it less than before and I feel like we'll do it less going forward unless something changes in our business or the venture business as a whole.

First WordPress allowed posting and reading wordpress blogs via the Twitter API.

Then yesterday our portfolio company Tumblr did the same.

John Borthwick has been advising companies for a while now to build APIs that mimic the Twitter API. His reasoning is that if your API look and feels similar to the Twitter API then third party developers will have an easier time adopting it and building to it. Makes sense to me.

But what Wordpress and Tumblr have done is a step farther than mimicing the API. They have effectively usurped it for their own blogging platforms. In the case of Tumblr, they are even replicating key pieces of their functionality in it, as Marco describes:

The really cool thing - because our following models follow a lot of the same principles, we’ve been able to take advantage of a ton of native features:

• Retweeting = Reblogging
• Replying = Reblogging w/ commentary
• Favoriting = Liking
• “@david” = ”http://david.tumblr.com/”
• Conversations = Reblogs

And as Dave Winer points out, this effectively creates a standard that third party clients can adopt. And Dave ends his post with this highly provocative thought:

If Facebook were to implement the Twitter API that would be it. We'd have another FTP or HTTP or RSS.

I'm still trying to wrap my head around all of this and the implications of it. And I'm not writing here in my capacity as an investor in Twitter and Tumblr or a board member of Twitter. I just think its fascinating and worthy of discussion in this community. So let's get on with it.

Tenacity is probably the most important attribute in an entrepreneur.  It’s the person who never gives up – who never accepts “no” for an answer.  The world is filled with doubters who say that things can’t be done and then pronounce after the fact that they “knew it all along."

I agree with Mark that tenacity is a key attribute in successful entrepreneurs. It's hard to see it in a person in the short "get to know you" period you have on many investment opportunities. But if you can get to know an entrepreneur over a longer period of time, you can see it.

Avner Ronen, co-founder and CEO of Boxee, showed a lot of tenacity to me a few years back. As I outlined in the post announcing our investment in Boxee, Avner originally pitched us in mid 2007. At that time, they were pitching a hardware play. I said no. Then he came back in early 2008 with an open source software play. I said, "better, but no users". Then he came back in the summer of 2008 with 10,000 users and a nice growth curve. And we closed an investment in November of 2008.

Reece Pacheco is a young entrepreneur just getting going. He's an active member of this community so many of you know him already. He and I emailed early this week about a pitch meeting he had with a friend of mine for an angel investment. I pointed him to that Boxee story and told him that:

raising money is about turning nos into yeses

He was all over that. I've met Reece and I suspect he's got the required tenacity to be a great entrepreneur too. He's showing it right now as he is building his company, Home Field, and hearing a lot of nos, a few maybes, and just enough yeses to keep him and the team going.

Tenacity comes in all shapes, sizes, and sexes. It's an equal opportunity employer. But it's not easy to see and reveals itself over time. If you want to be a successful venture investor, keep your eye out for it. It will lead you to a lot more wins than losses.

The thing that makes all of this possible is a group of top notch software engineers and they are looking to hire a bunch more. This job posting explains exactly what they are looking for. But for those who need some more data before clicking on that link, here's a quick summary:

Our stack includes Ruby, Scala, C++, Javascript, Rails, Sinatra, Solr/Lucene, message queueing, and Postgres/PostGIS. We build mobile apps (iPhone, Android), Web apps, and API's. We're agile where it makes sense, but mostly sensible, intelligent, clever and hard-working. We prefer generalists who have lots of successes committing at every layer of the stack.

We want you to have one or more of the following areas of interest and real-world experience:

• Geo: Geographic data, geometric containment and mapping API's
• NLP: Passion for text analysis and semantic extraction, with a particular eye towards balancing accuracy and throughput
• Ad Serving, Monetization, Optimization and Exchanges: OpenX, DFP, Google Ad Manager, RightMedia, etc... revenue performance metrics and A/B monetization strategies

It's cheating to start a blog post with a quote from Winston Churchill. He was that good. But sometimes you need to cheat and I'm doing it today.

People ask me all the time about the traits I look for in entrepreneurs and action orientation is at the top of the list. I'd much rather back someone who makes 100 decisions a day and gets 51 of them right than someone who makes one decision a day and gets it right.

I believe that in startups, like venture investing, the cost of making a bad decision is not nearly as great as the benefit of making a good one. So I like action oriented leaders.

When you make a bad decision, you can always realize it was bad and change it. By being action oriented, you put a lot of things in motion and can evaluate what is working and what is not.

I am not advocating a "throw it up on the wall and see what sticks" approach. I believe entrepreneurs need to me more insightful and strategic than that. You need to have a game plan for sure. But within that game plan, I believe it is better to try more things than less things. And I believe that perfect is the enemy of the good.

Dick Costolo, co-founder of FeedBurner and now COO of Twitter, describes a startup as the process of going down lots of dark alleys only to find that they are dead ends. Dick describes the art of a successful startup as figuring out they are dead ends quickly and trying another and another until you find the one paved with gold.

It's another form of the classic direct marketing technique of test, measure, test, measure, test, measure. You can think and debate about stuff all day long or you can try stuff out and see what works. From my experience, the latter approach is a much better one.

There is a cost to action orientation. You need to be able to hit the quit button. You need to be able to deal with the broken glass that results from doing that. It's a messier way of doing business and some people have a hard time with mess.

A good example of that is hiring. If you are "action oriented" in your hiring, you'll make more hires and more of them will not work out. Which means you'll be firing more people and dealing with the inevitable headache and heartache that results from showing someone the door.

But as I've asserted earlier about startups, the benefits of making a strong hire vastly outweigh the costs of making a bad hire. Strong hires can lift an entire organization almost single handedly, especially when you are a small company. Bad hires can be toxic, but not if you recognize them quickly and move them out.

Great entrepreneurs are hard to work for. They jerk you around, change things up, and are always pulling the rug out from under you. And often a company outgrows that leadership style and needs a calmer more organized leader.

But if you want to create something great and do it faster than the competition, you need to be action oriented. You need to be decisive. And you should not worry too much about making bad decisions as long as you are prepared to recognize them quickly and unwind them.

My unwavering belief is that we will cover ourselves when it comes to local news. We are at the PTA meetings, the little league games, and the rallies to save our local institutions, so who better to cover them than us? This is what hyperlocal blogging is all about and it is slowly but surely it is gaining steam.

Today, our portfolio company Outside.in, which aggregates up all this hyperlocal blogging and makes it available and discoverable, announced a partnership with CNN which, among other things, means that hyperlocal bloggers will start seeing their posts on CNN. That's a big deal. This is the mainstreaming of hyperlocal blogging and its about time.

Outside.in powered neighborhood, town, city, and place pages are already hosted on more than one hundred media partners around the country, including the New York Post, Dow Jones Local, Media General  and Chicago Tribune. Here's an Outside.in powered page on the New York Post about the Flatiron district in NYC, where our firm Union Square Ventures is located.

If you operate a local media business, big or small, and you want to add the voices of hyperlocal bloggers to your pages, then click here an learn more about Outside.in for Publishers and get started. If you are a blogger and want your stories on CNN and media partners like the New York Post and others, then make sure your feed is in Outside.in's index. You can do that here.

It's taken a long time for this vision to become a reality, but it's happening now. We are covering ourselves and big media is leveraging our voices to cover the local news that they can't get to. It is very gratifying to watch it happen.

Update: Outside.in's founder Steven Johnson's post on the news is here. And here are the engineering hires that Outside.in will make with the new cash. If you are an engineer looking for a new challenge, please take a look.

But it might surprise you to know that the HR acquisition is alive and well in startup land as well. I just counted and over a quarter of our active portfolio companies have done or are doing HR acquisitions.

Some well known ones in our portfolio are;

- the Twitter acquisition of Summize which brought the company a number of really solid engineers, a leader for the engineering team, and search engineering talent.

- the Zynga acquisition of MyMiniLife which brought the company key members of the Farmville team who created one of Zynga's blockbuster games.

Most of the time HR acquisitions are done for engineering and product talent, as these two were, but I've also seen HR acquisitions of sales talent. Last year our portfolio company Targetspot acquired Ronning Lipset Radio which brought it the leading sales team in the online radio industry. 

Building startups is hard and requires the very best talent. You can recruit that talent and that is certainly the way most of it comes into our companies. But in certain situations, you can also acquire the talent and for the most part our companies have had great success with HR acquisitions.

When you do a HR acquisition, you are going to pay a premium over what the team would cost if you hired them. And sometimes that premium can be significant. Here's how I like to think about it:

1) figure out how much equity in options it would cost you to hire the team

2) figure out how much of a premium over that number you will pay to get them in one fell swoop, a pre-built team that has shown it can work well together. I've seen premiums of 100% and I've even seen a few that are higher than that.

3) value that equity at what your company would be able to sell for right now

4) pay off the investors in the company in cash if you can

5) make the stock you are paying the team vest over the same period that your employees stock vests

6) no matter what you do, you must make sure the team is incented to stay for a three or four year period. if you can't do that, you shouldn't do the deal.

Here's an example. Let's say your company is worth $100mm. You've identified a team that can build or has built a technology that is on your roadmap and you don't have the skills on your team to build. Let's say that it would cost you 2.5% of your company to hire a team like that. Then you ought to be able to get comfortable with paying up to 5% of your company to buy the company and get the team. That acquisition is worth $5m on paper. Let's say the team you want owns 70% of their company and angels own the rest. Then here's the deal I would offer:

- a $5mm acquisition offer

- $1.5mm in cash for the angels

- 3.5% of the company in four year options for the team

Usually, you'll have to throw in some cash and accelerate some of the equity for the founders who are coming with the deal but keep that as low as possible. Make sure most of the value going to the team is in equity that they have to earn over time.

But most of all, make sure the team will be a strong cultural fit in your company. Make sure you'll enjoy working with them and they will enjoy working for you. And make sure that they are integrated into the company in a way that will allow them to succeed. The reasons most HR acquisitions fail is the team that is acquired leaves because they don't enjoy working in the company or are not well integrated and are frustrated.

I expect we'll see more and more of these deals in the coming years as some companies break out and become big successes and others struggle and decide to get "tucked into" the winners. It makes sense for everyone.

I said this about anti-trust efforts in technology:

I am not big fan of governmental intervention in technology markets. Technology moves very rapidly and one decade’s dominant monopoly is the next decade’s fading giant.

I would prefer our government focus on creating the right environment for innovation and new technology development so that the next Google can come along and change the game again. Things like immigration reform (the start-up visa movement), patent reform (elimination of software patents), net neutrality and open spectrum are all much more important than filing an antitrust case against Google.

No sooner than when I wrote those words I found out about another public policy issue that impacts the technology startup world.

William Carleton pointed out to me yesterday on this blog, in the comments, that Senator Dodd's financial system reform bill contains two provisions that will be very harmful to startups. If passed as currently drafted, the bill calls for:

(1) increasing the threshold for accredited investors

(2) ending the federal preemption of "all accredited" offerings, so that states would be permitted to regulate such offerings, even if they meet federal requirements under Rule 506 of Reg D.

I'm not a security lawyer and I hope we get some discussion of these two points from security lawyers in the comments, but both of these seem wrong headed to me.

The angel funding mechanism is potentially the single most important funding mechanism in startup land. Most entrepreneurs get their first real investments from angels, not VCs. If you lower the amount of angel capital in startup land, you'll end up lowering the number of entrepreneurs who can get their projects off the ground.

So now there's one more thing we all have to start calling Washington about. I'm going to call my representatives about this. You might want to do the same. And while you have them on the phone, tell them we also want their support on the startup visa movement, elimination of software patents, net neutrality, and open spectrum. That seems like a lot to ask, but this stuff is important and getting more so.

I can understand the hot money game in highly liquid markets if you can get out before the party ends. But in illiquid markets, this kind of momentum investing hardly ever works.

And VC is among the most illiquid markets out there. I don't believe you can deliver top tier returns playing the "hot money" game in the venture business. Moving in a herd will put you in the middle of the pack at best and could put you in the bottom of the pack.

I think there are two approaches that work in the venture business. One is the contrarian approach. When everyone wants to be a consumer web investor, do software as a service/enterprise. Go where the money isn't.

Or you can just be earlier than everyone and anticipate where the herd is going to be next. That is really hard, maybe too hard to do well over a sustained period of time.

But I do believe that both of those approaches will get you top tier returns if you execute them well.

Following the herd, however, is not a recipe for good investment performance. And yet so many do it. That's why they are called herds.

The post starts out with the old way of the media business. Kids would come to NYC out of school and work in marginal jobs in the hopes of getting a break and joining the "velvet rope" of mainstream media.

And the post ends describing what kids do today:

Somewhere down in the Flatiron, out in Brooklyn, over in Queens or up in Harlem, cabals of bright young things are watching all the disruption with more than an academic interest. Their tiny netbooks and iPhones, which serve as portals to the cloud, contain more informational firepower than entire newsrooms possessed just two decades ago. And they are ginning content from their audiences in the form of social media or finding ways of making ambient information more useful. They are jaded in the way youth requires, but have the confidence that is a gift of their age as well.

David has it about right. I've watched this transformation and helped to finance it (and his first job in NYC too at Inside.com but that's a different story). I believe the move from a velvet rope model to a meritocracy is a good thing and that the new media business we are building in the wake of the old one will be a better media business; leaner, faster, and controlled more by users than media moguls.

I realize that the change is gut wrenching and many have lost jobs and careers in the process. I don't celebrate that. In fact, I find it upsetting. But I have also watched many reinvent themselves and come out in a better place too. Change is inevitable and we are better off embracing it than fighting it.

As David says, "It’s a wan reminder that all reigns are temporary". This one will be as well. So let's get on with it.

My email routine, now that I am solidly on gmail and loving it, is to quickly check off and delete all spam in my inbox at least once and ideally twice or three times a day.

Then I scan my inbox for emails from my top priorities; wife, family, partners, colleagues, portfolio, etc. I try to get to all of those at least once a day and ideally twice or three times a day. Gmail knows who these people are and I can't for the life of me understand why they don't build a tool to source up all of those emails automatically. Please build that feature google.

I let the rest build up in my inbox and try to get to it on the weekends. That's how I get to 500 unread emails and that's why I spent my sunday mornings in my inbox.

So for those of you who email me from time to time, here are some suggestions:

1) Be patient. I do try to respond to all legitimate non-spam email and do a pretty good job at it.

2) I am not perfect. Sometimes in my haste to delete spam, I delete a few legit emails. If you have not heard back from me in over a week, please resend your email.

3) Short and sweet gets a faster response than long winded.

4) I like to have conversations via email. If you send me an email looking for a meeting, expect a few questions back from me first.

5) Just because my reply is short does not mean I have no interest. It simply means I've got 500 emails to get through.

6) I've largely given up on responding to anything other than urgent emails and disqus comments on my blackberry. I do scan a lot of email on my blackberry.

7) I still would like a send and delete button from gmail. Send and archive is so awesome but I do a lot of send and delete too.

8) Gmail is life changing. Thank you google.

That's it for now.

Things take longer in the short run but they happen faster in the long run

I am sure I've bastardized the quote but the point is important. Nothing happens as fast as you'd like but if you have a longer term horizon, it is amazing what you can accomplish.

I was reminded of this today when I saw the news of our portfolio company Indeed's five year anniversary.

Indeed.com launched five years ago. I have no idea how many job searches or visitors it had that day, but I can assure you it wasn't many. Five years later, they are the leader in the jobs industry online. Check out these stats:

• The #1 employment website in the US by job search unique visitors and page views (comScore Media Metrix, Oct 2009).

• Websites in 19 countries and 10 languages.

• 24 million unique visitors and one billion job searches per month worldwide.

• The leading pay-for-performance recruitment advertising network.

• The source of thousands of success stories from job seekers andrecruitment advertisers.

• A leading data provider, including Job Analytics, job trends, industry trends, job market competition, and salaries.

This is a fun job for the right person because it is an opportunity to run and grow a small business inside a bigger business. If you are an "entrepreneur" looking for a chance to show what you can do, this job is probably a good fit for you.

Targetspot's self service ad business is growing nicely and we want to invest and grow it using classic online direct marketing channels and measurement systems.

The right candidate will have significant experience in:

• Knowledge of Google Analytics and ability to test results on campaign landing pages.
• Experience in SEO, SEM or both (either as an affiliate, or as part of an e-commerce site).
• Internet media buying.
• Online direct marketing.
• Webmaster experience.

The job description is here and if you are interested, please email targetspotjobs@gmail.com with "Self Service" in the subject.

2) The FCC has submitted a proposal for rulemaking on net neutrality.

3) Android looks to be a winner and will give the iPhone a much needed competitor to keep Apple honest.

4) Bing is showing some signs of life and may give Google a much needed competitor to keep them honest (this one may be wishful thinking).

5) Venture Capital investing is bouncing back:

6) The NY Metro venture investing market is bouncing back even more sharply:

7) Programs like Y Combinator, Techstars, Seedcamp, etc are expanding all over the country and now the world, turning out newly minted entrepreneurs by the thousands.

8) A secondary market for founder stock, employee stock, and angel and early stage investor's shares is emerging, offering the possibility of a third way to get liquid on startup investments.

9) The NASDAQ's Internet Index is up 128% over the past year suggesting that wall street loves the internet sector again. Can a vibrant Internet IPO market be far away?

10) It's thanksgiving day, a day to forget all of this stuff and spend it cooking, eating, watching football, and hanging with good friends and family. That's what I plan to do and I hope all of you do too.

Note: The charts on venture investing in this post come from the PWC Money Tree survey for Q3 2009.

A presentation is like a TV show. It's a lean back experience. A discussion is like an online chat room. It is a lean forward experience. They are not the same thing and in many cases they work against each other.

This is particularly instructive when it comes to board meetings as I learned last week. We did our annual Return Path Board annual planning session last week. It is a grueling day. Roughly eight hours of review and planning discussions, both operational and strategic. In prior years, we'd work through a deck of well over 100 slides during the day.

Not last week. As Matt Blumberg, Return Path's CEO, explains in this post, we went without slides for the whole day. The Company did prepare a lengthy package that everyone reviewed prior to the meeting. But once we were in the room, the projector was off and the conversation was on. Matt managed the clock and made sure we got through the agenda. Everything else was impromptu.

It was a huge success as Matt explains:

We thought that the best way to foster two-way dialog in the meeting was to change the paradigm away from a presentation -- the whole concept of "management presenting to the Board" was what we were trying to change, not just what was on the wall.  The result was fantastic.  We had a very long meeting, but one where everyone -- management and Board alike -- was highly engaged.  No blackberries or iPhones.  Not too many yawns or walkabouts.  It was literally the best Board meeting we've had in almost 10 years of existence, out of probably 75 or 80 total.

"Changing the paradigm away from a presentation" is the point of this post. Presentations are important. I do a lot of them and post all of them on this blog in advance. I am not saying they don't have a role. But if you want to foster real engagement and real discussion, they are not helpful and in fact I think they are hurtful.

Our portfolio company Boxee will be unveiling the beta software that they have been working on for the past six months. They will be showing off new content, new features, and new platforms.

And they will have some help from various friends of Boxee.

The last time they did an event like this in NYC, this past March at Webster Hall, it was a great time and Avner Ronen, Boxee's CEO, has promised to do even better this time.

So I encourage all of you who want to see the future of television to get on the L train and head out to Williamsburg. 

Please RSVP using this link. There's a competition among the management team and board members to see who can drive the most RSVPs. I plan to win that competition and get a Boxee branded Burton Sleeper Hoodie for my cross country trips. I appreciate all the help I can get.

Covestor has created an entirely new form of investment product - people powered investing. With Covestor you don't buy stocks and you don't buy funds. You "follow investors" with your capital. I've been investing this way since the summer and it's a very interesting new way to manage your money.

These two job openings are opportunities to help define this new form of investing, from the product side and the messaging side. 

If you are looking for a new challenge and the opportunity to change the game in an important industry, then these positions might just be the thing for you. If you want to learn more, click on the links at the top of this post and if you want to send in your resume, email it to jobs1009 [at] covestor.com.

hey @fredwilson - whats the story behind ur avatar?

While longtime readers know it, I figure many of you don't. So here it goes.

Starting about four years ago, Howard Lindzon started commenting actively on this blog. He was funny, he was smart, and I enjoyed our banter in the comments.

One march vacation, our family made a short stop in Phoenix, where Howard used to live. He emailed me and offered my son and me two tickets to the Suns game. We took him up on that and that's how we met for the first time.

It turned out Howard was hatching an idea for a web show for investors. Think Rocketboom meets Jim Cramer. I told him it was a good idea and encouraged him to do it. Howard would fire ideas at me and I would give him feedback on them.

Out of that came Wallstrip. Here's a post I wrote a little over three years ago announcing the launch of Wallstrip.

One of the original ideas for the show that never really worked out was that there would be a dozen well known bloggers who would write short posts about each daily show. Howard asked me to do that and I agree to do it at least once a week.

So that's how the avatar came to be. Howard asked his friend Jenny Ignaszewski to draw up avatars for all dozen of the stock bloggers using photos of them that were available on the web. The first time I saw my avatar was when Wallstrip launched and there it was along with Howard's and a bunch of others.

From the minute I saw it, I liked it. It uses my favorite color (green) as the backdrop and the eye color (my eyes are sometimes blue and sometimes green and sometimes something else). It looks like me, but not too much.

So I began to use it a bit here and there around the web as I set up new profiles. But by no means was it the only profile picture I used. For corporate oriented services like LinkedIn, I'd use my Union Square Ventures headshot. For social nets like Facebook, I'd use a regular headshot. I used a photo of me taking a photo on Flickr for a long time.

But then I started to realize that the Wallstrip avatar was becoming my online identity. People would comment about it all the time. Around the time we sold Wallstrip, Howard asked Jenny to do a real painting of it which I now have in my office at Union Square Ventures. It's a real conversation starter.

Sometime in early 2008, I just decided to go with it everywhere. It's at the top of this blog and everywhere else I have an online identity. It's my online brand now.

Like this blog, this was not planned. It just happened. That's the way most of the important things in my life have come to be.

I write this blog. It's like a broadcast channel of "what is interesting to me." I market it every way I know how and I get somewhere between 70k to 100k unique readers of it every month between web, rss, and mobile.

As a result, I figure entrepreneurs and others have a pretty good idea of what I want to see and what I don't. And I believe they can self select. And for the most part, they do a great job of that.

Given that dynamic, I take meetings, as many as I can. I went back over my calendar for the past few weeks and it seems that on average I take ten meetings a day. I don't filter my calendar that much to be honest. I try to meet with as many people as I can.

I know that if I filtered my calendar more carefully, I'd get a better successful meeting ratio. But instead of spending time on vetting meetings, I spend time taking them.

So maybe I have a 70% success rate, seven good meetings per day, three bad ones.

If I spent a considerable part of my day reading business plans, referencing people on the way in, I might be able to take five or six meetings. But even if they were all successful, I'd still get less successful meetings that day.

So I don't bother too much about vetting meetings. I just take them as much as I can.

That's how I do it. Thought you should know.

Google Video required you to wait for days to see the video you uploaded. It was so annoying that I wrote this post exactly four years ago today (how's that for a coincidence?). This line sort of sums it up:

Posting stuff to the Internet has to be instantaneous.  What if wrote this post on Tyeppad and it took me 10 minutes to see the result?  What if I posted a photo to Flickr and it took a day to see it?

I was reminded of that post when I was reading Bijan's post on mobile apps this morning. Bijan makes the same point about developers and the iPhone app store:

Developers are getting extremely frustrated with the Apple App Store (understatement). I’m hearing it can take developers 4 weeks to get an update released. That’s dysfunctional.

The argument Apple makes about approving every app is similar to the argument Google made about approving every video. They want to make sure only quality stuff gets into their service. And I suppose it is even more important when we are talking about software running on your phone.

I'm not going to argue with the logic of those points of view, but I'll make this observation. Instant gratification is a very powerful force, for both consumers and developers. The web is full of success stories that have embraced the power of instant gratification and also full of failures that made people wait too long.

I spent this morning assembling them into a deck that I'll use in my talk tomorrow. Here's a final draft. Please let me know what you think and if you have any suggestions/critiques/copy edits, please leave them in the comments.

1) Since we started Union Square Ventures in 2003/2004, we have only been involved with one retained search. Our portfolio companies have certainly used search firms, but our use of them has been extremely rare. We prefer to source candidates ourselves using our networks, and increasingly our social networks.

2) We sourced both of our junior investment professionals, Andrew Parker and Eric Friedman, with blog posts at USV.com.

3) We have sourced countless senior hires for our portfolio companies off of this blog and USV.com. I would bet that we've done a couple dozen successful hires that way in the past couple years.

4) Many of our companies have internal recruiters and we work hand in hand with them, sourcing talent, vetting talent, and closing the sale.

5) LinkedIn is a terrific place to find talent and to find references. When I want to check someone out, I invite them to connect to me on LinkedIn, I find who we know in common, and that is my reference list. Charlie O'Donnell taught me these LinkedIn tricks about five years ago and I use them all the time. 

6) Tracked.com is also a terrific place to find talent and figure out who they know. Let's say you wanted to find the top execs at LinkedIn. You can find them all in one place here.

7) Hunting for talent is necessary but not always sufficient. You need to get the word out. Like all things on the internet, there are free ways and paid ways to do that.

8) The best free way is get your jobs indexed by Indeed so they can be found by the over 10 million people a month who go there looking for jobs. We feature all the jobs in our portfolio on the front page of USV.com by running an Indeed stored query of all the jobs in our portfolio companies.

9) Social networks like Twitter and Facebook are also great free ways to get the word out. Post the job on your website and tweet it out, get it retweeted, searched, and discovered and the resumes will start coming in.

10) You can also pay to get your jobs "sponsored" in Indeed. You can post job ads via Facebook's self serve ad system and target them at very specific locations and job types. And we'll see more social media/networks offer paid systems like this in the next year.

11) There are all sorts of niche communities on the web you should be hanging out in if you want to find talent. For tech/engineering talent, we like to look at Meetup groups on certain tech topics (there are eight Ruby On Rails meetups within 25 miles of NYC), open source projects, and niche communities like Hacker News and Stack Overflow. You can play the same game with communities for other kinds of job types. The key is you have to hang out there a bit, get to know the community and the people in it, and build trust and add value.

That last point is the big point. Social media is about showing up, hanging out, and earning trust. If you want to use social media to source talent, you can't fake it. You have to really participate in these systems. But if and when you do, they are incredibly powerful and are changing the face of recruiting.

I look forward to talking to the recruiting community about this topic more on Monday. And if you have ideas for other things I should be talking about, please leave them in the comments.

Tracked.com is social. Users have a profile in the service and can send messages to each other in the service (and via twitter and facebook very shortly). Objects in the service (news, quotes, charts, public filings, companies, people) can be sent around like links in twitter and facebook.

That "very shortly" is now. Tracked released a bunch of social features last night which are live on the website.

Here are the ones I think are important to talk about:

All news items have a share link on them now. Here's the comScore recent news list. Note the share icons on the far right.

When you share a story in the service, you have the option to share it only inside Tracked or with Twitter (and Facebook soon). Here's the UI for that. Send to Twitter is not checked by default and you need to connect to twitter via ouath in the Tracked settings to get this functionality.

I used this feature this morning to share a story about our portfolio company Zynga. Here's the tweet:

You'll note that there are two bit.ly links in that tweet. The first is to the Business Week story I tweeted out. The second is to the conversation page in Tracked about the share which looks like this:

And of course, all of this activity shows up in your Tracked news feed:

One additional neat feature is you can send a tweet to @tracked that will get posted to your Tracked profile messages. I did that just now and it works great.

So that's the gist of how this stuff works. I'd love everyone who is interested in this stuff to give it a spin and let me know what you think.

And to remind all of you about Tracked and what it is all about, I've put up a new widget on the upper right sidebar. This Tracked widget shows the companies and people I am tracking and if there are any new stories on them. You can click on the company or person's name and stay in the widget or you can click on the number of stories and be taken to Tracked.com in a new browser tab. I'd also like to know what you think of the widget.

But every once in a while I do attend one. Ideally it's a smallish gathering on a specific topic that I am interested in.

I'm doing that over the next couple days in Denver at Defrag.

Defrag is a conference about mining data for insight, with a focus on social data and semantic analysis. You need to look no further than our portfolio to see that is something I am quite interested in.

So I am flying out there this afternoon and will be in attendance for most of tomorrow's sessions. And I'll be doing a panel with my friends Brad Feld, Roger Ehrenberg, Howard Lindzon, and Jim Tybur on Social Leverage in the venture capital business. That should be fun.

While I am on the subject of conferences, I will also be at New Business Models For News at CUNY School of Journalism today. I am also doing two keynotes in one day next monday. I'll be opening the Social Recruiting Summit and closing the Business of APIs Conference.

All four of these events are the kind of thing I like to attend. They are small, not that well known, focused on a specific issue, and in the case of three of them, in NYC. I hope I'll see some of you at one or more of them.