Sarah Tavel / Adventurista

What Twitter has meant for FourSquare, and what I think Twitter should learn from Four$quare

2009-09-28T09:09:00.006-04:00

That FourSquare has benefited tremendously from Twitter is obvious. I can’t sign into my twitter account without finding out so-and-so got some badge or became the mayor of some place. In fact, I first learned of FourSquare thanks to Twitter and to seeing these announcements, and I would be willing to bet that a huge majority of FourSquare’s current users also found out about FourSquare thanks to Twitter.

Sites like Twitter and Facebook are fantastic word of mouth conduits. Whereas FourSquare once would have had to grow by asking users to email their friends and sign up, Twitter provides a means of having friends do the equivalent of passively inviting their friends over and over again. Repeatedly. Consistently. FourSquare's effective leveraging of Twitter is part of its brilliance.

It reminds me of a famous Mary Meeker chart which I can’t find on Google so I’m recreating here:

Thanks to the Twitter and Facebooks of the world, web apps will be able to grow even faster than they once were. The growth of web apps in general will become increasingly dynamic – both in terms of picking up early momentum and growing much faster than previously, but also fizzling out (like oh so many facebook applications). While I don’t think there will be a higher frequency of 50m-user applications, I believe there will be a higher frequency of 1m-user apps than ever before.

But the natural evolution of this is that Twitter will be increasingly abused by new web apps hoping to leverage Twitter’s effortless word-of-mouth. There is no mechanism in Twitter that I know of to limit what I’ll call web app Twitter “spitter”, and so there is no reason for web app companies not to push their app-specific messages to Twitter. And while conceivably there should be a natural mechanism of Tweeters not wanting to annoy their followers by allowing too much “spitter”, that mechanism is just not that efficient. I’m willing to put up with my friends’ spitter in much the same way that you put up with a friend’s occasional bad jokes or body sounds. But that’s not to say that spitter doesn’t degrade my experience on Twitter. As more applications look to FourSquare as an example of how to leverage Twitter, Twitter is going to increasingly become a jungle of 3rd party tweets.

That’s why I wonder how Twitter, with all its open API principles, will manage this inevitability. The one idea I have is for Twitter to actually charge applications a small amount for each “push” to Twitter, much like an email marketing company charges per email delivery. This will force developers to limit their use of Twitter, and therefore create a better Twitter user experience.

What do you think?

"Installed applications are going away in five years"?

2009-09-17T17:52:00.004-04:00

Recently, I got into a heated argument with someone at a cloud computing-related meeting where a person I was speaking to swore up and down that within five years people would no longer install applications besides their browser.

I swore up and down that that’s not happening any time soon in mainstream USA.

I may feel like a dummy in five years, but I have to say, I recently received a new PC and I’m amazed by how many applications I’ve installed so far (not including what was pre-installed on my computer -- thank you HP bloatware!).

My list so far (day #2 of computer):

Adobe Reader
Bunch of browser plug ins (Java, etc)
Canon Utilities (actually five installs for this)
Citrix Metaframe
Dropbox
Evernote
Firefox
Google Chrome
IE (not by choice)
iTunes
Microsoft Office
Mozy
Norton Antivirus (came for free w/ my PC, otherwise I would have installed AVG)
Picasa
Skype
TweetDeck

So what do you think? Are installed apps going away within five years?

My "ista" take on Larry Cheng's VC Blog Ranking

2009-09-09T21:01:00.006-04:00

Larry Cheng updated his popular VC Blog Ranking and included some fun analysis, particularly on how Fred Wilson continues to lead the VC blogging show. If you haven't already, take a look.

Because I initially started my blog with the intention of blogging from the perspective of a female, junior professional (hence the “ista” in Adventurista), I’ve created two sub-sets of Larry’s: 1) Junior (i.e. non-dealmaker) professionals and 2) females.

#dos is pretty straight forward, but I might need some user generated editing for #uno. My rule of thumb was that if a person didn’t have the words “Partner” or “Managing” in their LinkedIn or website bio, I included them in my junior professional list. I'll admit some are on this list by a hair, but they make the rest of us look good!

Junior Professionals (woot woot!)
1. Christine Herron, First Round Capital, Christine.net (354)
2. Philippe Botteri, Bessemer Venture Partners, Cracking the Code (263)
3. Andrew Parker, Union Square Ventures, The Gong Show (257)
4. Mark Peter Davis, DFJ Gotham Ventures, Venture Made Transparent (237)
5. Rob Finn, Edison Venture, Ventureblogalist (236)
6. Sagi Rubin, Virgin Green Fund, The Grass is Greener (182)
7. Sarah Tavel, Bessemer Venture Partners, Adventurista (156)
8. Rob Go, Spark Capital, Rob Go Blog (148)
9. Matt Winn, Chrysalis Ventures, Punctuative! (148)
10. Kent Goldman, First Round Capital, The Cornice (144)
11. Rachel Strate, EPIC Ventures, Wasatch Girl (129)
12. Mo Koyfman, Spark Capital, Mo Koyfman (127)
13. Lee Hower, Point Judith Capital, Venturesome (118)
14. David Dufresne, Desjardins Venture Capital, Dav-Generated Content (101)
15. Jon Seeber, Updata Partners, Jon’s Ventures (96)
16. Josh Sookman, RBC Ventures, Ubiquitous Startups and the VC (6)
17. Vishy Venugopalan, Longworth Venture Partners, Longworth Venture Partners Blog (2)

The Ladies (oh yeah!)
1. Christine Herron, First Round Capital, Christine.net (354) (again!)
2. Sarah Tavel, Bessemer Venture Partners, Adventurista (156)
3. Rachel Strate, EPIC Ventures, Wasatch Girl (129)

I have to say I've had the pleasure of meeting quite a few of the people on this list and it's a great one (and a shout out to my BVP colleague, Philippe Botteri. I’ve had the pleasure of working with Philippe for almost three years and let me tell you: if you work in a SaaS company, if your business has any recurring revenue, heck, if the letter “a” or “s” appears in your name or the name of your company, you should be following his blog). Hope to meet the rest of you soon!

Anyone I'm missing?

Is the OS the new QWERTY keyboard?

2009-07-06T19:30:00.002-04:00

It never ceases to amuse me that the layout of the QWERTY keyboard was first designed to slow down typists. Although we no longer type on typewriters and a more efficient keyboard layout has since been designed, we are still (and probably always will be) stuck with good ole, inefficient QWERTY. The QWERTY is reinforced by hardware (keyboards), software (the default setting in Windows and other OSs), but mostly, it is reinforced by habit: people around the world have grown up typing on a QWERTY keyboard, and we continue to train people today on the layout of the QWERTY. Habits (and cultural norms) are hard to break.

I wonder whether the same analogy holds true for the OS in cloud computing. As I wrote about in an earlier post, in my mind, cloud computing is all about eliminating the low-level tasks that do nothing to differentiate a company’s product – managing physical hardware, testing software patches, deploying new security patches, testing for security vulnerabilities, mounting file systems, etc. Something like 60% of developer time is spent tweaking these things. In a perfect cloud computing world, developers can move up the stack and focus 100% of their energies on differentiating their product at the application level.

That’s what platform as a service offerings like Microsoft Azure, Google App Engine, Salesfore.com Force, and others are all about. Even so, I would guess that a huge percentage of developers adopting EC2 and other infrastructure as a service offerings are dragging their QWERTY with them and choosing to build their web apps on a particular OS.

Fast forward a few years, has the OS become increasingly irrelevant or will old habits die hard? Theoretically, the former should be true, but habits (and cultural norms) sure are hard to break. Even so, the early traction of startups like Heroku, Joyent, Engine Yard and others looks promising.

Bessemer is the bloggiest VC

2009-05-28T09:54:00.004-04:00

Larry Cheng of Fidelity Ventures has started curating a list of the best VC blog posts on a bi-weekly basis on his great blog, Thinking About Thinking. This week's list features another blog post from Adam Fisher - Clouds with Silver Linings.

Larry also included a little tidbit I was surprised to see: By his count, Bessemer is the bloggiest (I bet you didn't know that was a word) VC with six BVP-ers blogging:

Bessemer Venture Partners (6)
First Round Capital (5)
Spark Capital (4)
Foundry Group (4)
Flybridge Capital Partners (3)
Ignition Partners (3)

Of course, I can't help but mention that Larry is a former BVP Associate. Must be in our DNA!

I have clever friends

2009-05-20T22:04:00.004-04:00

Why specialty clouds will need to hustle to stay competitive with AWS

2009-04-19T22:02:00.000-04:00

Last week, I blogged about the advantages of specialty clouds over Amazon’s generic AWS. Now, I'll tell the other side of the story: why specialty clouds will need to hustle to stay competitive with Amazon.

I think Amazon’s competitive advantage breaks down into four buckets that are all work together to reinforce Amazon’s competitive advantage:

Customer Acquisition: No matter what search queries I try, I can’t find a single keyword Amazon has bid on to promote EC2. Meanwhile, GoGrid, Rackspace, Joyent and others are forced to bid on cloud computing keywords, even on Amazon’s trademarks (e.g. check out who is bidding on “EC2”), in order to try to establish their brands. Amazon’s clear market leadership drives down their customer acquisition costs, while Amazon’s competitors must invest in online marketing to try to chip away at Amazon’s dominating market share.

The new “You won’t get fired for hiring IBM”: While cloud computing is the hot topic on everyone’s mind, it is still perceived as risky, and there is a lot of fear, uncertainty and doubt when it comes to deploying applications in the cloud. This FUD and risk is compounded when you consider placing your bet on a private company startup that might have to shutter its doors in twelve months. Coghead’s unfortunate recent closing illustrates this risk. But Amazon is a $33B market cap, publicly listed company. It ain’t going anywhere anytime soon. This makes Amazon’s EC2 the safe bet, even if it’s not necessarily the best choice for a particular use case.

The growing Amazon Web Service 3rd party tools ecosystem: There is a growing and vibrant list of startups emerging in the cloud computing ecosystem. Many of these aim to alleviate the management and plumbing overhead necessary to maintain an infrastructure deployed in Amazon’s EC2 cloud. These companies aren’t going to focus on integrating their technologies with other cloud computing providers for a while, much like startups that emerged in the virtualization management space haven’t focused on integrating their technologies with any hypervisor other than VMWare’s ESX. RightScale is a great example of this phenomenon. The same is true for more traditional network management companies that have historically focused on on-premise infrastructures but are now integrating with Amazon’s API to enable seamless monitoring between Amazon AMIs and captive applications hosted in internal data centers. As Amazon’s ecosystem gets richer, competitive cloud computing offerings will have a steeper wall to climb to compete.

Amazon’s benefits from two network effects: Amazon benefits from what I’ll call an internal and an external network effect:
- Internal: Once you’ve launched one application in EC2, even if you have a Ruby on Rails website that probably would be a much better fit for Engine Yard’s specialty cloud, it’s just a lot easier to have all of your applications in one place. So Amazon benefits from a sort of network effect within a customer’s application portfolio. Until companies like RightScale integrate with other cloud computing providers, Engine Yard has a slightly higher bar to meet in order to justify the additional overhead involved in logging in to another console when a company already has all of their other applications hosted in EC2.
- External: As more and more customers move their applications and therefore their data to Amazon, other applications that use the same data source can benefit from having the data stored in S3. For example, Nasdaq now stores terabytes of Nasdaq, NYSE and Amex data in Amazon's S3, and is adding 30 to 80GB of data to S3 every workday. If I am a SF-based company that has built an application that pulls in this data, I can minimize latency by hosting my application in EC2 in the same region as Nasdaq's data. As more data piles into S3, Amazon benefits from an increasing network effect. It's worth noting that specialty clouds can benefit from the same network effect, but Amazon has the head start.

In the end, despite Amazon's strong home field advantage, I expect that a few specialty clouds will effectively carve out their own niche. What do you think? Is Amazon going to become the dominant force?

This video made me miss my rugby days

2009-04-16T22:39:00.002-04:00

(The "try" starts at second 40.)

I can't believe I played for four years...

Why Amazon’s AWS Won’t Be the Only Game in Town

2009-04-15T17:58:00.003-04:00

The shift that is clearly taking place, however gradually, from on premise data centers to centrally-run cloud computing utilities, is enough to capture any IT geek's imagination. The trend is so massive and at the same time so logical, analogies are drawn between the shift to cloud computing and the shift to the electrical grid.

At a high level, the analogy makes sense: Before the advent of the electrical grid, most companies had to generate their own electricity onsite. This meant having employees on staff to manage the electrical generators, and because most onsite generators only produced a small amount of electricity, the cost per megawatt was very high. When the electrical grid matured, companies were suddenly able to turn off their onsite generators, fire their electrical engineers, plug into the electrical grid and benefit from vast economies of scale and skill. This drove down the effective cost of electricity, and freed companies up to focus on their core competencies (which definitely was not generating electricity).

At first glance, Amazon’s EC2 and S3 web services seem to perform the same function. Now a company can tap into the Amazon Web Services (AWS) API and launch an Amazon Machine Image (AMI) instead of having to run their own servers in house. In much the same way that companies in the late 1800’s could benefit from the economies of scale and skill thanks to ConEdison, companies can now benefit from those same economies thanks to Amazon. If this were true, then Amazon’s clear market leadership would seem to indicate that if you’re going to go to the cloud, Amazon is the only game in town worth considering. Moreover, as Amazon continues to grow, its own economies of scale and skill will grow, and the competition just won’t be able to keep up.

But computing resources, unlike electricity, are not fungible. As companies experiment with Amazon and other hosting providers, I think this will increasingly come into focus. Even with the low level building blocks Amazon provides, AWS is not a one-size-fits-all cloud. For example, some hardware intensive applications will slow down and become inefficient because of the generic algorithm EC2 uses to assign AMI processes to its underlying hardware. Just as importantly (if not more so), unlike with electricity, you can’t just “plug” your application into Amazon and have it work automagically. Instead, Amazon AWS is more analogous to renting out a piece of a ConEdison power plant, but having to constantly monitor your slice of the power plant, call into the plant to ask the operator to turn certain knobs dials, clean the pipes, adjust the gauges, etc..

When it comes to the IT plumbing (deploying new software releases, configuring your web server’s IP address, testing software patches, deploying new security patches, testing for security vulnerabilities, mounting a file system, etc), you don’t actually benefit from any of Amazon’s economies of scale or skill: you still need to do these things yourself. And that's a lot of work!

That’s why non-proprietary specialty clouds like Engine Yard, Cloudera, AppNexus and Joyent, and hosting providers like RackSpace, can still thrive despite Amazon’s massive size. Taking Engine Yard as an example, their stack is customized from the ground up for Ruby on Rails web applications, and they’ve built proprietary tools to automate any plumbing. The same goes for using Cloudera over Amazon’s Elastic MapReduce. There are many other areas that could benefit from custom-built clouds. For example, PCI or HIPAA compliant clouds, I/O intensive clouds, high-end clouds that allow for scaling up databases and servers, etc..

What do you think? Do you agree?

(P.S. fingers crossed Disqus will work on this post...)

Who do you Tweet to?

2009-04-03T18:46:00.009-04:00

Twitter is a blunt communication tool, not just because you are limited to the number of characters you can type. It’s blunt because, unless you want to manage multiple Twitter handles (which of course is possible and I’m sure tons of people do it), you have one voice to communicate to a random assortment of people subscribed to your feed.

So when you tweet, who do you tweet to? Who is your Twitter muse?

For me, I would like to think it's a personification of something close to the average of how I subconsciously conceptualize my followers. In an ideal world, that would look something like this distribution:

In actuality (as we all know), it ends up looking more like this:

But at least when I tweet, I don’t think about the spammers who have subscribed to my Twitter feed. They never had any intention of reading my tweets when they subscribed, so good night and good luck to them.

And as far as I’m concerned, the few random-os I have probably aren’t much different. Maybe they subscribed to me on a whim, or saw something I said that they liked, and now, those lucky devils, they get my tweets in their feed. Problem is, I don’t actually know whether they are reading my tweets; there is no feedback loop in Twitter. So as far as I’m concerned, those people aren’t, and for the minority of the random people who do: thank you and have fun.

Then there is the other side of the curve: the people who I [would like to] think are reading my tweets. I don’t know about you, but that’s who I think I’m writing to… to some imaginary person in the middle of that subsection of the curve.

But this means that for everyone to the left of that point, my tweets skew towards being more intimate than they should be. In a way, a majority of Twitter followers are free-riding off the intimacy I have with a small group of my Twitter followers. This must be one of the things that’s so enticing about Twitter. At the same time, I can’t help but feel a little uncomfortable every once in a while when I see someone else's tweet that’s clearly intended for people a standard deviation or so away from me!

What do you think? Who do you Tweet to?

Software taking another page out of consumer internet's playbook: FREE

2009-02-22T21:17:00.005-05:00

A couple of years ago, after attending SaaSCon 2007, I blogged about how many of the speakers at the conference, from Marc Benioff of Salesforce to Steve Lucas of Business Objects, tipped their hats to the consumer internet world for inspiring the usability and design of their SaaS applications.

Now, it seems like software companies aren't far behind in taking another page out of consumer internet's playbook: Free.

Everywhere I look, software companies are giving away free products. Just last week, Bessemer portfolio company Tripwire released a free utility to help companies manage VMware vMotion. Solarwinds has an entire page on their website dedicated to free utilities and recently acquired a company to expand it's free tool offerings. Veeam made a name for itself with its FastSCP product (hence the nomenclature "Veeaming VMs"). And today I came across Xenocode's free virtualized browsers (I'm writing this blog post on a virtualized instance of Chrome thanks to Xenocode despite having a locked-down laptop).

For anyone familiar with the software business model (i.e., charging), this trend might sound like a crazy idea. But free isn't a trend du jour for software. It's actually a fantastic lead gen mechanism.

If you put yourself in the shoes of an inside sales rep, it's not hard to imagine why this trend has taken off. If I were an inside sales rep, I would much rather call someone who has downloaded one of my company's free tools and has been using it for a couple of weeks, than someone who I pulled off of a list, or even someone who downloaded a white paper from my company's site.

If they've downloaded the app, they'll recognize my company's name, they'll have a sense of whether they like the app's design / usability / ease of installation, and frankly, somewhere deep down inside, they might even feel like they owe me five minutes because my company gave them something for free. Moreover, in some cases, they've already gone through the trouble of installing the product; giving them access to the full paid version of the product could just be a credit card number and a software license key away (think Mozy's online backup).

The wide availability of free utility apps now flooding the market (not to mention existing and new open source projects) is going to put even more pressure on software vendors to differentiate the core products they are delivering. Many vendors won't survive: one company's Free will be another company's bread and butter. But for customers willing to pick and choose from multiple free point solutions in order to cut costs, this is just what the doctor ordered to help assuage 2009 budget blues.

Addendum:
I love blogging. Xenocode is my new bff: http://www.xenocode.com/start?a=TweetDeck

True Cost of Venture Debt Part II

2009-01-23T12:53:00.001-05:00

First of all, I’ve gotten a lot of great feedback on the venture debt post I posted a couple of weeks ago and have had a lot of great conversations, so thank you to everyone who commented (either on my blog or via email) and keep them coming!

From these conversations and conversations I’ve had with my Bessemer colleagues, I’ve put together a presentation that discusses the venture debt analysis I described before in more detail. I’ve also included a copy of the venture debt model to this blog post so everyone can play around with the model, plug in their own numbers, and reach their own conclusions.

Venture Debt Presentation BLOG v2

Publish at Scribd or explore others: Presentations & Slid venture debt

If you have any troubles with the embedded powerpoint, you can also reference the pdf below:

The True Cost of Venture Debt

2009-01-10T17:10:00.001-05:00

Given the current financing environment, it’s not surprising that many startups are thinking about raising venture debt for working capital. With venture dollars so few, interest rates so low, and venture debt providers so many, venture debt seems like a no-brainer decision to extend a company’s runway. Why not raise $10m now at a 14% interest rate, rather than raise $10m in equity at today’s valuations and dilute existing shareholders by 25+%? 14% sure does seem like a low cost of capital.

But it’s not always correct to equate the cost of capital for venture debt with the debt’s interest rate. In fact, sometimes the true cost of capital for venture debt can be a multiple of the interest rate. I’ll try to explain why here, and will also try to illustrate which terms you should push hardest for in your negotiation to get the best venture debt deal. (Disclosure: I work in VC, so ostensibly I’m incented to criticize venture debt and elevate equity.)

Most venture debt loans have only a handful of terms:

The loan amount
The interest rate (and occasionally, an interest only period)
The drawdown period (how long you have before you need to drawdown the loan)
The repayment period (how long the company has to pay back the principal)
Warrant coverageAny transaction costs (i.e. lawyer fees for the company and the bank)
[For later stage companies, a bank might mandate that the company maintain a “quick ratio” of (cash + short term AR) / loan amount, or a minimum cash balance, but let’s put these terms aside for now.]

Now let’s take an example company: let’s say Company XYZ has $6.5m in cash on their balance sheet and is burning $500k per month right now (13 months of runway). XYZ wants to keep spending money on marketing, head count, etc, so they expect their burn over the next 18 months to average around that $500k mark, after which they expect to quickly turn cash flow positive (CFP) in 6 months. Given these assumptions, XYZ will need $10.25m to turn CFP. Because their existing cash will only last for another 13 months, they start looking into their financing options.

The company talks to a few investors and venture debt providers and decides that venture debt is the cheapest cost of capital and chooses the following debt deal:

Ceteris paribus, this looks like a great deal. Eager to have the cash in their bank account, XYZ draws down the $5m, bringing XYZ’s cash balance to $11.5m. The $5m should give XYZ more than a $1m buffer to reach the CFP Promised Land with only a little dilution to shareholders and a low, 14% cost of capital.

But in this conclusion, XYZ makes a critical mistake: you can’t evaluate the cost of capital of venture debt without an eye to your company’s cash balance and burn.

XYZ has an ample cash balance to begin with, so although they drew down the debt in the first month, they won't actually need the cash from the debt until the 14th month. But by the 14th month, XYZ would have already paid back $1.8m of the debt in monthly principal payments! So when they get to the 14th month, they actually only have about $3.2m available from the $5m they borrowed. Because seeing is believing, we put together a model to show this:

You may have noticed that the “Cash Available with Debt EoM” row shows that the company’s cash is actually lower than the debt balance. This is because by January 2010, XYZ has already paid the bank more than $600k in interest! With the next month’s principal payment, interest payment, and the original transaction fees, XYZ really only gets the benefit of $2.35m in cash flow from the debt, not $5m. To make matters worse, because the company has been paying down the debt all along, the debt extends XYZ’s runway only four months. When you do the math of the cost of capital (XIRR equation in Excel), the cost of capital for the loan is a surprising 57%, not 14%, and this doesn’t even take into account the dilution from the warrants. Moreover, XYZ will run out of cash when they still have $2m of venture debt to pay off. They’ll either have to go out of business, or raise a new equity round to pay off the debt.

You may believe I did a bit of voodoo with the numbers I presented here in order to make the cost of capital so high, and you would be right if you suspected it had to do with when the company draws down the debt. If XYZ drew down the money in the 6th month instead of right away, their cost of capital would have gone down to 32% and they would have gotten an extra month of runway from the debt. This is because the XYZ would have paid back less of the debt (in this case $700k less) before they actually needed the money. XYZ could have made the debt deal even sweeter by negotiating a later drawdown period, or by negotiating an interest-only bubble. For example, if XYZ had negotiated a 6 month interest-only bubble (in addition to drawing down the debt in the 6th month), they would have extended their runway 8 months, and lowered their cost of capital to 24%. Quite the improvement from 57%.

I’ll admit all I’ve done in this post is pour a lot of cold water on venture debt, and a reader could probably still argue that even a 57% cost of capital is still cheap compared to the dilution from equity. But for what it's worth, here are two cases in which venture debt earns its reputation of having a low cost of capital:

Your company is already cash flow positive, or you have a high degree of certainty that your company will turn CFP with your current cash, and thus you will be able to service and repay your debt from your own cash flow.
The additional runway from the venture debt, even if only a few months, enables your company to reach a major new milestone that will in turn allow your company to raise equity to repay the debt on much more attractive terms.

Good luck!

[Hat tip to Jeremy for originally explaining this math to me!]

Addendum:
You can find a copy of the Excel model I put together, and an accompanying powerpoint that explains the model at my blog post here.

The Staples 2.0 Effect

2008-11-30T21:15:00.006-05:00

Lately, comScore has been the bearer of a lot of bad eCommerce news. On November 18^th, comScore issued a press release stating: “U.S. Retail E-Commerce Growth Slows to 1 Percent in October as Concerns about Inflation, Jobs and the Financial Markets Cause Consumers to Curb Spending.” On November 25^th, they followed up with another press release that had more bad news, “comScore Forecasts Flat Growth for 2008 Holiday E-Commerce Spending.” And today, comScore’s most recent press release, “Black Friday Sees $534 Million in E-Commerce Spending, Up 1 Percent Versus Year Ago.”

After comScore’s first press release, the NYTimes followed with an article bemoaning the difficulties facing online retailers. “Internet retailers, trying to navigate what is shaping up to be the first truly dreary holiday shopping season ever on the Web, are engaging in price-cutting and discounting so aggressive that it threatens their profit margins and, in some cases, their very survival.”

The insinuation, from the NYTimes in particular, seems to be that consumer spending is so bad this season, it is putting not just brick and mortar retailers but the once unstoppable e-retailers out of business. Even Henry Blodget of Alley Insider described the comScore and NYTimes news as “frightening” and “shocking” in his post, “Depression 2.0 Comes To eCommerce”. He goes on to summarize, “The bottom line: Lots of [eCommerce] companies are toast.”

But this isn’t the full picture. Yes, many eCommerce companies will buy their last keyword this season thanks to the shopping “Depression 2.0”, but the slowdown in consumer spending is not the only market trend at work. Instead, eCommerce is going through a fundamental shift in its makeup – call it a Staples 2.0 effect.

When superstores like Walmart and “category killers” like Staples and Home Depot moved into our neighborhoods, their lean supply chains, operational efficiencies of scale, and national marketing budgets, put many mom and pop stores out of business. Now that eCommerce sites like Zappos, BlueNile, NewEgg, and others are reaching category killer scale, we’re seeing a similar thinning of mom and pop e-tailers.

So when the NYTimes highlights the experiences of e-tailers ranging from Lori Andre of Lori’s Designer Shoes, to Tony Hsieh, CEO of Zappos, they conflate two very different companies. Despite Lori’s claim, “We’ve been in business for 25 years, and never seen the bottom drop out like this,” the eCommerce sky isn’t falling. It’s no surprise that a website like Lori’s Designer Shoes, which sells designer shoes and other designer items, is struggling right now. Lori’s Shoes (11.5k uniques in October) is competing against one of the new goliaths in eCommerce, Zappos (4.5m uniques in October). That’s an uphill battle. Just take a look at their traffic:

Even on the internet, size does matter. Putting aside the traditional efficiencies that come with scale (e.g., Zappos can probably get better prices on its inventory than Lori’s can, has a more efficient warehouse, etc), there are several benefits of scale unique to e-retail:

First, because Zappos can offer such an extensive catalog of SKUs on its site, it is able to cross sell more products to each customer and drive a much higher average basket size than Lori’s Shoes. A higher basket size for each customer visit means more profit from each customer given an average marketing acquisition cost, and it also means Zappos can afford to do things like throw in free shipping (or in Zappos’ case, hassle-free returns), which subscale Lori would have more trouble doing. Moreover, because Zappos can drive better profit margins than Lori’s, it can afford to spend more money on online advertising than Lori’s.

Second, when it comes to building a successful and profitable eCommerce company, it’s all about building a brand. Once an e-retailer has the brand recognition, I don’t know how a mom and pop can compete. If someone is searching for designer shoes and sees a Zappos sponsored link or a Lori’s Shoes sponsored link, even if Lori’s was willing and able to bid more for its keywords, a consumer is more likely to click on the Zappos link than the Lori’s Shoes link because the consumer recognizes Zappos’ brand, they may have even had a friend tell them what a great experience they had ordering from Zappos. Because of the way way Google's algorithm determines sponsored link placement, Zappos' higher likelihood to convert would drive Zappos' placement up the list. Consequently, Zappos and other online retail “category killers” can acquire traffic more cheaply than Lori’s ever could.

And there's the rub. Once an e-retailer like Zappos has attained this brand recognition, price competition is the only way an e-retailer like Lori’s Shoes can hope to compete, and we all know that’s a losing proposition. Meanwhile, Zappos and other category killers continue to pick up market share of online and offline shopping dollars. This will only be helped by brick and mortar retailers like Foot Locker, Circuit City, Home Depot and others that are trying to reduce their fixed costs by shuttering retail store locations.

Sure, it's not pretty now, but I think the eCommerce category is only going to emerge stronger from this recession. Just don't expect it to look like it does now.

What's TechCrunch's Future?

2008-09-22T14:02:00.003-04:00

Since joining Bessemer almost 2.5 years ago, TechCrunch has been a staple part of my morning blog diet. But lately, I've found myself breezing through the headlines, and rarely rarely reading the actual content. That said, I'm hesitant to unsubscribe.... what if I miss a juicy tidbit? But is TechCrunch's original role as a way to discover new web 2.0 startups relevant today? I suppose it must be. According to compete, their traffic hasn't dipped recently. Who are the die-hard Techcrunch readers?

VMware: Biting off more than they can chew?

2008-09-17T23:25:00.000-04:00

Watching the VMware keynote presentations at VMworld feels like watching the business plan of startup after startup copied onto a slide. But it's hard to know what's actually just a slide, what's just an API, and what's a real product close to being released. As I type, the CTO is announcing vCenter Chargeback, vCenter CapacityIQ, vCenter Orchestrator, and vCenter ConfigControl – all areas packed with startups. (And I’m told not many of VMware’s “Technology Partners” had any clue of what VMware was planning on announcing.)

But this doesn’t mean that startups don’t have a chance now that the mammoth VMware has announced its intention to move into these areas. After all, no one playing in the space should be surprised that VMware is trying to move the locus of it's future revenue away from the hypervisor and to the management layer. But listening to VMware's long list of "future" products, you can't help but feel like it is trying to bite off more than it can chew. If you scratch just below the surface of many of these roadmap ideas, a lot of "what if's..." pop up. Even taking the cool "bursting to the public cloud" idea I mentioned yesterday, how does the storage part work? Are you constantly mirroring storage to the cloud? That gets mighty expensive (and complicated) very quickly.

It will be interesting to see what happens in the virtualization landscape in the next couple of years. All in all, thanks in part to the startups springing up in the virtualization ecosystem, I’ll be leaving VMworld a little more bullish on Microsoft’s prospects of getting penetration in the virtualization landscape.

VMworld topic du jour: Cloud Computing

2008-09-16T18:25:00.001-04:00

I have the pleasure of spending today and tomorrow at VMworld in Las Vegas. These conference are always an experience. I should have known VMworld wouldn't disappoint when, on my way into the conference, I got handed a card with a $1 poker chip on it from none other than Microsoft. The card reads: “Looking for your best bet? You won’t find it with VMware. www.vmwarecostswaytoomuch.com” Gotta love it.

The morning started off with a keynote speech from VMware’s new CEO, Paul Maritz. Apparently, VCs aren’t the only ones excited by the concept of cloud computing. In Maritz’s keynote speech this morning, he divided his presentation into three areas: cloud computing (for internal data center), cloud computing (federated external cloud), and more cloud computing (virtual desktops – okay, that’s a little bit of a stretch).

As much as I joke, Paul’s aspiration to build the next Windows looks like it will be based in part on riding the coat tails of the much-discussed cloud computing paradigm shift. VMware hopes to do this with its newly announced Virtual Datacenter OS. With VDC-OS, instead of having a legacy Windows/Linux/Unix OS in the data center, IT administrators can instead deploy VDC-OS. VDC-OS aggregates all the physical resources in the data center to create an internal, private cloud. An administrator can assign business policies to applications (e.g., Serve Level Agreements), and the data center will automatically provision new resources in order to maintain these SLAs.

Taking it one step further, one cool concept Paul demoed is the idea of leveraging a federated public cloud for peak loads. So if an application has a SLA that it is in danger of breaking, the VDC-OS will allow the infrastructure to “burst” to a paused vApp in the public cloud. I thought that was pretty nifty. A long way off, but a girl can dream.

Anyways, back to the conference. So many company booths, so little time.

McCain's VP Pick

2008-08-30T11:37:00.002-04:00

In Costa Rica on vacation, so a little late on the pickup (and pardon the political content here), but doesn't McCain's VP pick feel a bit like Harriet Miers Part II?

back to the beach!

VC Pre-MBA Hiring...

2008-04-10T10:27:00.002-04:00

A couple of months ago, I posted on my blog that Bessemer was looking to hire a new pre-MBA Analyst. More than 650 resumes later, we are thrilled to announce that Brian Feinstein has accepted our offer to join us as a full time Analyst. Welcome, Brian!

Having finished what feels like an epic recruiting process, it is interesting to look back at the process. Notably, of the more than 650 resumes we received, we conducted 42 first-round interviews (~6%), seven second-round interviews (17% of the 42), and eventually extended one offer (14% of the seven, but 0.15% of resumes submitted!).

To anybody reading this post who is applying for a pre-MBA role at a VC firm, this funnel may seem intimidating. So how can you get an edge? In particular, how does one get a first-round interview? So here is my "one-woman's take" on some tips I can think of post-recruiting to give you a slight edge:

Your interest in entrepreneurship and technology shouldn’t start at the interview

This one may be a bit of a personal bias; some VC/PE firms looking to hire a pre-MBA likely wouldn’t prioritize this. But I can’t help but notice that Bessemer has had six full time Analysts, and five have been involved in entrepreneurship in one way or another. I'm not saying you need to start an internet company, but I do think involving yourself in the entrepreneurial or tech community will give you an edge. People who do tend to rise to the top during the application process, and I think it is because of their passion not just for venture capital, but for the entire ecosystem.

Before you apply: Understand the role (and know yourself)

Pre-MBA VC jobs are heavy on the sourcing and researching, light on the tie-breaking votes and corporate jets. Expect to spend a majority of your time reaching out to CEOs of private companies in order to source deals for your firm. If this is not something that you think you can get excited about, that’s okay. Don’t let the allure of VC blind you into taking a pre-MBA role. Instead, pursue another job that makes you more passionate (or your MBA)… venture capital will always be there. If sourcing is something that you can get excited about, emphasize this in you cover letter or work in relevant experience in your resume. We are more likely to interview someone who we think is applying eyes-wide open.

Be persistent

Sourcing requires a great deal of persistence. If sourcing is something you think you could be passionate about, show your persistence during the interview process (and however you can in your resume). For example, if you read a job posting for a VC firm, Google all the Partners in the firm and find which ones have blogs. Then email one or two of them. Make a smart comment about one of their blog posts, mention you saw the job posting and are extremely interested in the role, and oh heck… a little well-placed flattery never hurt anyone.

Do your homework

It always impressed me to speak to a candidate who had clearly done their homework. I don’t mean they had a long list of exciting private companies they are familiar with. Instead, they knew some Bessemer portfolio companies, they read some of the Partners’ blogs, and they had a basic understanding of what the VC process is like. So do your homework – it shows initiative, curiosity, and your interest in the role. (And it doesn’t hurt to show that you did your homework in your cover letter.)

Be Googleable

Charlie makes a similar point when he says “make a digital home for yourself.” Blogging is a great way to show who you are and demonstrate that startups and technology are something you are passionate about (tip #1). For some firms, this tip is the application process.

Last but not least: Know what we’re looking for and customize your resume to that

Tips #1-5 all feed into this tip which is: Don’t use the same resume for every job you apply to. For example, applying to a pre-MBA VC role is very different than applying to a pre-MBA buyout firm role. While the LBO recruiter might drool over a candidate’s investment banking background, we tend to get more excited by leadership experience such as starting a new successful club at your school or being the captain of your sports team. Customize your resume to highlight certain strengths specific to the job to which you are applying. Keeping this is mind should give you an edge in snagging that first round interview.

More on BVP's Top 10 Rules for Being SaaS-y

2008-02-28T21:36:00.005-05:00

If any of the "Bessemer's Top 10 Rules for Being SaaS-y" from my previous post resonated with you but left you wishing you had more background, you should check out my colleague Byron Deeter's recent guest post on Sandhill.com: Bessemer’s Top 10 Laws for Being “SaaS-y.” Definitely great reading.

Also worth checking out is my colleague Philippe Botteri's blog post "Launch of the SaaS 13 Index" in which Philippe tracks how a selection of the public SaaS comps are doing. Great idea.

Bessemer Venture Partners: SaaSy!

2008-02-11T11:44:00.000-05:00

Bessemer may have a reputation in some circles of being an old fashioned firm, but really, we're quite SaaSy.

Over the past decade, BVP has quietly been investing in a once low-profile area of software now known as Software as a Service (SaaS). Early BVP SaaS investment include companies such as Verisign (VRSN), Keynote (KEYN), Cyota (Acq. by RSA) and more recently, Postini (Acq. by Google) and Endeca, and this investment focus shows no sign of fading away anytime soon.

Last year alone, BVP made new investments in five pure SaaS companies including Perimeter eSecurity, Eloqua, Cornerstone OnDemand, SelectMinds, and LinkedIn. Bessemer’s combined software and SaaS portfolio is now projected to reach an impressive $1.2B in aggregate revenues in 2008.
With 2007 marking a clear inflection point for the wider acceptance of SaaS (including in the public markets with the successful IPOs of NetSuite, SuccessFactors, DemandTec, Salary.com, Aprimo and Constant Contact), we decided it was high time to bring together SaaS thought leaders, SaaSy BVP portfolio company executives, and a few close friends for a discussion of SaaS best practices and the changing SaaS landscape.

The invite-only event attracted 40+ companies and 80+ attendees, and as my colleague Philippe Botteri pointed out in his blog post on the ev ent, represented around 80% of the revenues of the SaaS industry in 2007.

Speakers included Quentin Gallivan (former CEO of Postini), Keith Krach (former CEO & Chairman of Ariba), Joe Payne (CEO of Eloqua), Parker Harris (Co-founder and EVP Technology of Salesforce.com), Jim McGeever (CFO of NetSuite) and several other luminaries in the space.

In addition, BVP shared some of the best practices we've learned over the years and more than a dozen SaaS investments. You can checked out some of the resources we've put together on SaaS in a special section of our website. But for a taste, below is a slide show of our 10 Rules for SaaS. Happy to discuss any of the points....:

| View | Upload your own

Also check out my colleague Philippe's blog post for a better summary of the event!

Facebook: Please don't ban me!

2008-02-04T21:56:00.000-05:00

First, a facebook confession: I am, or at least was, a facebook page squatter (see A VC's post about the subject). Curious about facebook's new (but poorly executed) offering, I decided to experiment and squat on numerous facebook pages that were close to my heart.

A little viral growth later (and with the help of some press), my Starbucks page (my then pride and joy) had amassed several hundred Facebook "fans". But before my pages reached compelling scale, I received warning after warning (three warnings, all told) and was stripped of my Starbucks, Amazon and eBay pages. I then quickly closed down my Coca-Cola, Stoli, Diet Dr. Pepper, Dell, JetBlue, Ikea and a bunch of other pages for fear of losing my Facebook profile.

Unfortunately, today, a close friend of mine who was also experimenting suffered exactly that fate.

Now, I really don't want to lose my facebook profile, but I'm left with one page: The Economist. With 1,761 fans, I'm adding about 60 per day. If you're curious, here's what my Insights page looks like:

So now, do I close it down? Strangely, Facebook just wipes these pages out of existence, leaving the fans in a lurch. Wish there was a way to transfer the ownership, but no one from the Economist has posted on the discussion board...

[Okay - last facebook post for a while. Promise!]

Forbes Midas List - 2008 Demographics

2008-01-26T17:38:00.000-05:00

Forbes released their annual Forbes Midas List this past week. As I did last year, I made a very quick run through the list to get a sense of the demographics. Here is a three year view:

Although women, Hispanics and African Americans didn't make any progress on the list, investors of Indian descent (the majority of whom have made at least one investment in an India-based company) continued their Midas land grab.

Congratulations are in order, by the way, to five of my Bessemer colleagues who made the Midas list. Felda Hardymon, Rob Stavis, Bob Goodman, David Cowan, Rob Chandra. Congrats! (Makes you wonder if Roberts have an innate venture capital ability....)

Interested in a VC Pre-MBA Analyst Role?

2008-01-14T16:50:00.000-05:00

Bessemer is looking to add a new Analyst to our team. If you are a pre-MBA interested in VC, this is a really great way to get a taste of what venture capital is all about with some of the best in the business.

Check out the teaser below. If you think you might be a good fit, drop me a line or a comment and I can send you the full job description / requirements, or apply directly (w/ cover letter & resume) to FullTimeAnalystResumes at BVP dot com.

..............

Bessemer Venture Partners (BVP) is the oldest venture capital practice in the United States. With offices in Silicon Valley, Boston, New York, Shanghai, Mumbai, Bangalore, and Herzliya, the firm manages more than a billion dollars of venture funds, carrying on a tradition of hands-on, active venture investing that has continued since 1911.

BVP is seeking an investment analyst to join the firm. The analyst role is ideal for an entrepreneurial, competitive self-starter who is outgoing, charismatic, and analytical. The position is located in the firm’s Larchmont, New York office, which is 35 minutes by train from Manhattan. Several of the firm’s professionals live in Manhattan.

Position Description
Analysts interact with roughly 1,000 entrepreneurs each year in an effort to source 2-3 new investments for the firm in their primary role. In addition to reviewing industry publications to identify promising companies, responsibilities include investment analysis and due diligence while working closely with the firm’s senior professionals.

My Facebook Friends:"Friends" Ratio: 9.67%

2007-12-20T10:33:00.000-05:00

Facebook finally released a feature that lets you group your facebook "friends" into lists. God bless America.

I created a list of "Real Friends."

My "Real Friends" list is 50 people right now, and I'm going to try to keep it at a 50 person cap.

After my facebook purge of about 100 "friends", I have 517 total facebook "friends". This means my ratio of Friends:"Friends" is 9.67%. Not bad.

What's yours?