Last year, First Round Capital made an announcement that I thought was pure genius: FRC was the first venture fund to offer an exchange fund for entrepreneurs. Portfolio company founders were given the option to trade a small piece of stock in their personal venture in exchange for a piece of the action of the larger pool of all FRC companies that choose to participate. This is a great way for founders to help hedge personal risk, and it probably encourages more support/camaraderie across the portfolio. If I was an entrepreneur actively seeking a venture round, you can be sure I would go talk to First Round.

I believe this same approach can and should be applied to incubator programs.

I like the model at the incubator level because it provides a small hedge on what is perhaps an even riskier endeavor that raising a VC round (working for peanuts for three months with no guarantee of even an angel round). In fact, the exchange fund model has been used successfully by founders at later stage companies for years.

If you were participating in TechStars, or Y Combinator would you take advantage of such an offering?

I wanted to share a quick hack I’m using this weekend.

My sister is in the process of moving from New York to Baltimore to start business school. I suggested that we get some movers to help us on each side of the trip, figuring we’d pay $40 an hour and provide some food and plenty of water. I used Craigslist to post a basic advertisement about 48 hours beforehand.

In the past I have used Craigslist to find handymen for a number of jobs such as moving furniture and brush. The response rate has always been high, but filtering to find the best/most trustworthy of the bunch is always a challenge.

However, this morning it occurred to me to run Rapportive and see if I could find Facebook or Linkedin profiles of some of the applicants (Rapportive is an awesome app for Gmail that surfaces that shows the social profiles for various email addresses). Sure enough, we had a total of about 40 responses and about 10 showed up in Rapportive. After scanning their profiles to eliminate anyone who looked like a serial killer I picked a jazz musician in New York (listened to his stuff on MySpace) and a student in Baltimore.

Filtering against public social network profiles is definitely not the be all end all, but it’s definitely better than nothing and provides me with a little bit more comfort when hiring strangers.

I am republishing this Letter to the Editor I wrote for my B-School magazine. In summary, I believe non-profits can learn a great deal from the lean startup movement by focusing on actionable, quantitative metrics.

Data-centricity

As an entrepreneur who has worked closely managing expectations from venture capital investors, I thought Rise of the Philanthropreneurs by Mat Edelson [Fall 2008] hit several hot-button topics that transcend any one industry.

Over the last 12 months I have watched a new movement take shape across the Internet startup world. Startups are moving away from speculative, “waterfall”-style development processes. Instead these early-stage companies are embracing a new “lean” mentality, focused on the insights gained from a rigorous approach to numbers and metrics. In particular, Eric Ries and Steve Blank have championed this lean approach, arguing that before a startup can be ready to accept venture investment, it must develop a “scalable and repeatable business model” made clear by establishing a “product-market fit.” Only when this scalable model is obvious (i.e., clear underlying metrics to evaluate success) does it make sense for a startup
to accept significant third-party financing.

I see significant parallels between this new attitude among startups and the approaches championed by Venture Philanthropy Partners. Ultimately, nonprofits do compete for significant philanthropic investment, and as the saying goes, “You can’t manage what you can’t measure.” Thus I firmly agree that a hands-on, data-centric approach is a great step forward and should make potential donors more comfortable putting their money to work with nonprofits.

I am anxious to see how the startup and entrepreneurial community can better partner with nonprofits—not only from the standpoint of monetary giving—but also in terms of best practices around management, growth, and fiduciary responsibility.

Sam Huleatt (MBA ’08)
Brooklyn, New York

Several years ago I worked on a project backed by a now prolific angel investor on the west coast. I found the idea extremely compelling, but the for a couple reasons the project failed to reach the next step. The most major reason was that our users were not totally comfortable with the new type of social interaction our model was predicated on: staying at someone else’s house (and thereby undermining the $120M+ lodging market). Fast forward a few years and it’s really exciting to see the concept validated by Airbnb.com (backed by Sequoia and gaining real momentum): the two concepts are almost identical. The difference is that Airbnb.com seems to be emerging just as people are becoming more comfortable opening up their lives – offline, as well as online*.

People tend to forget that it’s not only technology that evolves, but also users and their willingness to embrace new mediums at scale. Social dynamics often lag the models themselves (think Mercata). I recall a time not long ago when my parents would balk at the idea of paying for something online. Now they wouldn’t think twice about it. Times change. People change. Even announcing my location on Foursquare was not something I thought I’d be comfortable with. Now I am.

I have a feeling that our large friend counts on Facebook and willingness to publicly share our locations via Foursquare are also opening us up to new opportunities – and perhaps a new willingness – to connect offline.

I see a wave of offline engagement taking shape and it will be big; big because there is a void in many young people’s lives that screens alone cannot fill**. People are social creatures and they want connect with each other; if they can do so while also generating passive income and saving money, so much the better. I think Burning Man is a testament to this movement.

Offline + Marketplaces for Reallocating Resources

Aside from Airbnb.com’s “progressive” social dynamics, it also boasts an incredibly empowering marketplace model. Empowering in the sense that its community both saves and earns money via the reallocation of resources. Reallocating resources on a local marketplace level is a huge deal. Craigslist does it. eBay does it. New entrants such as Etsy, Homeaway, Kickstarter, and Meetup are the new offspring. But Airbnb.com takes it to an entirely new level. It takes a B2C model and reinvents it as C2C, similar to what Napster did with music.

Look for more of these types of platforms to emerge.

And Back to Offline…

As a final note, I currently have several friends looking for work. As they would attest, while Linkedin is great, sending an “in-message” is not the same as meeting someone in-person at a networking event. We would all do well to remember it.

*The poor economy probably helps, as does an ability to leverage the social graph to filter out those who might be perceived as overly creepy

**Perhaps Soctt Heiferman is right in taking a sledgehammer to his iPhone

I recently volunteered to help the NYCEDC with a forthcoming project called NYC Venture Connect. NYCEDC and Bloomberg are really doing some awesome stuff to promote entrepreneurship and startups in New York and I’m happy to be doing whatever I can to support the cause.

NYC Venture Connect needs a summer intern to gather great content and compile resources. The specifics of the PAID position are here and the job will run through August.

If you know anyone in college, etc, looking for a cool gig dealing with startups in NYC please have them apply or get in touch with me for more info.

Slate Magazine has a great interview with Victor Niederhoffer based on an upcoming book by Kathryn Schultz, titled, Being Wrong: Adventures in the Margin of Error. I have referenced Niederhoffer and his blog, Daily Speculations, once before.

While the entire interview is fascinating, I particularly liked this passage:

…I think a much better view is that the stock market never rises unless there’s a wall of fear it has to climb. When the public is most frightened, only the strong are left, and that’s when the market is in the best possible hands. I call it taking out the canes. Whenever disaster strikes, the very sagacious wealthy people take their canes, and they hobble down from their stately mansions on Fifth Avenue, and they buy stocks to the extent of their bank balances, and then a week or two later, the market rises, they deposit the overplus in their accounts, invest it in blue-chip real estate, and retire back to their stately mansions. That’s probably the best way of making money, to be a specialist in panics. Whenever there’s panic hanging in the air, that’s a great time to invest.

The above reminds me of what I have heard was one of JFK’s favorite sayings:

When written in Chinese, the word “crisis” is composed of two characters. One represents danger and one represents opportunity.

An interesting thought from Keith Rabois on Quora:

To be truly successful on the Internet, you need to build something that becomes one of seven sites that a large swath of users will regularly use

I think this is a great way to evaluate companies one is thinking of joining, building or investing in.

Initially I wasn’t sure on the significance of seven, so I did some googling. Turns out that seven (plus or minus two) is a “magical number” in psychology initially cited in a paper by George Miller of Princeton University. Sometimes known as Miller’s Law, it argues that the number of objects an average human can hold in working memory is 7 ± 2.

While I haven’t used Rescue Time in a while, I’d be curious to look at its data set to see how regularly individuals’ top seven sites change and what are the key prompts: changes in lifestyle? Fads? New technologies? Job related? I imagine for most people there are 2-3 websites that will rarely change (ex: your preferred search engine, likely Google), but as you move to sites 5-7 I’d be interested to know more about turnover.

Groupon.com now sports a lofty $1.5B valuation.

Techcrunch had a great analysis of Groupon last week, dissecting the site’s revenues, traffic and potential.

While there are several juicy nuggets in the post, what jumps out to me the most is:

“Groupon gets more of its traffic from Facebook than any other site, including Google”

Note that in the image above, Facebook referrals to Groupon blow everything else out of the water. Makes it difficult to be a naysayer about Facebook’s ability to drive commerce.

An obvious pattern that is emerging on the social web is the rise of the public social gesture.

For a bit of explanation, the social gesture is really “social sharing” in the context of a brand, business or person. It began with the comment, and then moved to the status update and the shared link. Public social gestures now encompass an increasingly wide range of thingys from the check-in (Foursquare), to the purchase (Blippy), to the Like (Facebook).

While the lowest common denominator of gesture has traditionally involved a hyperlink somewhere in the mix, Facebook has made a bold move to challenge this as I outlined the other day.

Paul Buchheit of Facebook had some really interesting insights into the rise of these gestures at today’s Web 2.0 Expo. I paraphrase below a few sentences worth pondering

Paul Buchheit: “[Facebook’s] real power is in the people. [Facebook is] an amazing product because it has all the users”

Sarah Milstein: How about privacy on Facebook?

PB: I changed my privacy settings to be more public. I like the idea to share things easily — except my phone number and email. This again goes back to FriendFeed. It’s about serendipity. but it’s hard to predict what those things will be. Things tend towards being better the more we share.

SM: So after Gmail and FriendFeed – what’s coming next on the web do you think?

PB: …quick and lightweight. That’s the future of a lot of what’s upcoming in the communication mediums. Making it easier to do lightweight conversations.

… It’s not too shallow. It creates the context for conversations later on.

A week ago I was in San Francisco for F8 and I’m glad I was.

Several months earlier I wrote about the impending “Facebook gold rush” and I believe it’s beginning to materialize. Facebook is a true force and I don’t think people realize the magnitude of what they have been accomplishing.

The move to create a universal Like button is fascinating because it highlights a key distinction between Facebook and Google strategies: the hyperlink vs. the Like. My guess is that when Facebook borrowed the Like concept from Friendfeed they never expected the volume of Liking that materialized. Likes are in many ways a lower friction form of link sharing. Thus as websites begin to implement Likes (50,000 have already), Facebook begins to challenge Google on many levels. The foundation of Google Search is page rank, and thus hyperlinks. By pushing web visitors away from sharing links in favor of clicking “Like”, Facebook begins to challenge Google in a way that may not be immediately obvious, but is most definitely ambitious and possibly game changing.

More:

• CopyBlogger on How Facebook is Killing SEO
• Wired on the Great Wall of Facebook