I talked to journalist extraordinaire Renay San Miguel this morning concerning the new Marc Andreessen fund.  They just announced that they closed a $300 million fund.  Renay did a great piece for the Ecommerce Times.

When I talked to Renay, I had just read an interview with Andreessen on PEHub.  Some things that I found interesting about the announcement were:

• No specific investment target - the article mentions that they will be doing investments from angel to as large as $50 million.  One would typically see specific investment targets from traditional venture capitalists.

• CTO as CEO - Marc mentioned that he likes investing in companies with a technical CTO which is not too unusual.  But, he goes on to mention that he likes to see these technical founders growing into a CEO role.  I don't think you'd here most traditional VCs say this.  They tend to put their own management team in once the company gets into later investment stages and becomes more mature as a business.

• Focus on consumer Internet - the interview mentions that the fund will focus on consumer Internet versus diversifying into other segments like Cleantech.

I mentioned to Renay that this fund announcement really felt like a breath of fresh air. It felt a little like a traditional venture capital approach combined with a strong entrepreneurial sentiment towards their investment thesis.  There has been a bunch of blog posts from local Seattle-based entrepreneurs around the benefits of bootstrapping.  Some good posts are here and here.  While there are businesses that can justify bootstrapping, many of the businesses that are going to be really big ideas do require
substantial upfront capital.  You may not need as much capital upfront as we all used to require to launch our ventures.  But, I argue that having quality investors with the right capital structure is a preferable way to go if you are trying to build a substantial enterprise.

Having a crisp and clear business objective is a great way to motivate your team.  Making the objective simple so that everyone can understand your revenue, market share, or profitability
goal is extremely transformative for your business if you can master an easy way to communicate your key goal.

In particular, making the goal tangible and personal is another way to tap into your company's competitive instincts.  Identifying a competitor is a way to make your goal real and more tangible. I remember being at Expedia when the company finally beat Travelocity as the market share leader in the online travel space.  The emotion and revelry were tangible.  Since I had not been at the company from inception, I could only draft off of the raw emotion that had been built up over the years as the company singularly focused on being #1.  That singular focus drove many forms of product and business innovation that built key competitive advantages for Expedia. 

Try it.  It is sometimes easier to motivate a company by competing with another entity that it is to explain how you need to grow at a 35% CAGR to beat your competitor with a gross margin structure of 73%.  I'll always remember what Coach Dale (played by Gene Hackman) said from the movie Hoosiers when giving advice to his player on how to guard his opponent, "Think of him as chewing gum. By the end of the game, I want you to know what flavor he is."  You can be a market leader if you focus on beating the current market leader.

So, who's tail lights can you see today...

By focusing on them you can beat them...

...and then quickly identify a larger competitor to beat after that.

One of the issues that bothers many consumer facing Internet companies is the reliance on third party distribution.  The issue of business model interdependence is an important one.  In fact, every big company or startup wrestles with this issue and is actively wrestling with it.  The issue usually boils down to a company that is relying too much on a distribution channel where one party is benefiting more than another party in terms of percentage of revenue.  To be blunt, often times we're talking about inorganic ad buys on Google (aka Adwords).

Sometimes the actors in this environment decide to test the waters by turning off this interdependence.  eBay famously did this over a year ago to publicly send a message to Google that their Google Checkout initiative was too core to PayPal to be ignored.  But, typically you see that the actors involved cannot turn off Google Adwords crack without a strategy.  Why?  Inorganic search guys are immediate and can be made to be cost effective.  If you are a public company trying to make a quarter, then why not accelerate some marketing spending (assuming that its efficient spend).  This is a situation that many companies find themselves in. 

In a world where your company only influences 1% of Google's revenue yet you rely on 10%+ of your revenue from Google (Adwords not organic/SEO traffic) then you could have a real problem.  The problem being what happens when you become strategically important to a Google initiative and you are then effectively turned off.  In fact, in the shopping space you see many of the comparison shopping engines who are largely SEM-driven dealing with this issue .  The issue being that at some point Google is better off by-passing the intermediary and going direct to the merchant.  I have seen this story before at Expedia.  Expedia spent a bunch of time thinking thru this issue and building different distribution so that the reliance was lower on Google

There is an argument that the more scale advantage that you have enables  you to price out the competitors in the space and effectively price out  the other potential bidders in the Google marketplace.  You have to be really big though in order to both spend large sums of money as well as to make less gross margin on this traffic over time.  Without having anyone's specific numbers, lets continue with the shopping category analogy and we think that only the largest players in the e-commerce space have balance sheet advantage over time to price other competitors out of the space. 

Using some guesstimates, lets assume that 25% of Amazon's traffic comes from Google Adwords.  According to Comscore, Amazon has 62.7M unique visitors/month.  25% of 62.7M is 15.675 monthly uniques from AdWords.  Again not knowing the click/unique ratio or the average CPC amounts lets use .5 for the click/unique ratio over each month at an average CPC of $.50 then Amazon is spending $3.92M per month on Adwords.  95% of Google's business is Adwords.  Looking at the business by vertical, the retail segment represents approximately 40% of their revenue with finance (20%), travel (15%), CPG (10%) Healthcare (5%), etc.  Of the $21.8 billion (2008) in revenue, almost $9 billion is in the retail space for Google.  In 2008 the US ecommerce space was around $150 billion with 40% of the market driven by search (with Google as the clear market leader).  Amazon is not a large enough Adwords customer to threaten Google from a revenue perspective.  Let’s call it $48M in revenue to Google.  My internal estimates are that Google most likely has a couple of percentage points of reliance on Amazon with Amazon at 10-15% reliance on Google. 

Without knowing the inside baseball on the marketing efficiency, there is most likely some level of efficiency (especially in this market) that Amazon can manage to where they can outspend the thousands of other retailers and in particular the larger big box retailers.  I still think the question remains that long-term what if the economics started to change where you were in a position to lose share from this channel.  Again, Google could most likely make up the 1% loss in revenue somewhere else.

There are all forms of distribution crack that you can addicted to.  I wrote a post awhile ago about not getting addicted to Facebook if you were  a company looking to solely leverage that platform for distribution.  There are many, many other examples of this.  Whether you are large or small, thinking about how you can build direct traffic relationships with sources of supply that you can control or own are typically the best way to go.

We were following 4 companies on the Startup Whisperer^TM through their fundraising process late Q4 of last year.   While I wont reveal who these companies are since I promised that they would be anonymous, I wanted to update the readership on what their respective progress has been over these many months.

Of the companies that we followed:

• Angel-backed company  - raised enough angel dollars to launch their service into beta.
• Series A company - one company merged with another in order to combine efforts in order to make a stronger business.  There is a previous post on Seattle 2.0 about the thinking behind this strategy.
• Series A company - did not close an additional round and there status is unknown but they are still alive and fighting hard.
• Series B company - raised a small inside round that will extend their runway another year.

Hard work, passion, and determination continue to be the elements that continue fuel startups and these companies.  The sentiment right now is that the worst is over (from a fundraising perspective and economy perspective) and these business leaders are optimistic about their chances.  Entrepreneurs are always optimistic but I am personally optimistic that no one has been voted off the proverbial island as we have traversed through one of the toughest economic climates of our time

I just got back from the WTIA's Fast Pitch Investment Forum.  I presented in the morning along with 20+ other Seattle companies including AdReady, LiquidPlanner, Whitepages, etc.  I took some of my own advice per this previous post from the Startup Whisperer^TM. 

I felt like I did an ok job but TechFlash's John Cook gave me a 5 out of ten.   In his post he mentioned that he was chanelling Americon Idol's Simon Cowell.  Damn, I hope it wasn't my song choice.

I just did a post on the AdXpose blog about some of the performance results on the technology.  Really interesting insights:
 
•    Between 20% to 40% of ad impressions are not “InView”, meaning although the ad network recorded an impression, the creative was below the fold and was never viewed by the site visitor
•    Between 30% to 65% of ad impressions are “passed down” to the respective ad network’s distribution partners versus direct distribution to the network’s direct publishers.
•    160x600, 300x600, and 300x250 creative sizes are yielding the highest creative engagement, in spite of lower-than-average above-the-fold placement.
•    728x90 placements with a higher than average above-the-fold placement rate have lower creative engagement that 300x250 and the 160/300x600 creative sizes

This is one of those rare products that customer really just love.  I have been talking about this launch and thus far it (AdXpose) has been one of the more exciting launches that I've done in awhile.

Greg Huang of Xconomy and I were talking recently about how baseball, coaching, etc.  Greg's blog post is really fun to read.

Marcelo Calbucci deserves a ton of credit for the Seattle 2.0 Awards that just commenced tonight.  I must say that it was one of the best awards ceremonies that I have seen in Seattle.  The event was sold out and the entrepreneurial spirit was in the air.  I left the event with so much energy that I was ready to go on a long run with all of my excess endorphins.

Marcelo's vision has been to make Seattle a viable alternative to Silicon Valley.  Right from the start you felt the energy.  Glenn Kelman of Redfin fame absolutely killed it.  His speech on entrepreneurship was stirring and inspiring. 

Picnik was clearly the "Academy's" favorite tonight earning 4 awards for best startup, best boot strapped startup, best startup CEO, and best startup product designer.  Congrats to all of the nominees and the winners

Check out my latest post on Seattle 2.0 titled, Is This Seattle Entrepreneur Edison or Don Quixote?