Fred Destin

A cry for Europe

2010-03-17T16:04:01+00:00

As the reality of my move to the US in July comes into focus, I have started to look at the "old continent" with an increased sense of poignancy. Like most Belgians I am a natural cultural chameleon, and I truly think of myself foremost as a "European". And I am deeply, deeply concerned.

I am hugely thankful for the benefits of the "European project", which many people forget. Freedom to move to Barcelona tomorrow and start a business the next day: how amazing! And of course, I have seen serious improvements at the micro level in the innovation ecosystem that I live in. The emergence of smarter angel money such as the recently announced Niel / Berrebi fund, great initiatives like Seedcamp, ambitious entrepreneurs like Daniel Ek and Martin Lorenzton or Christian Segestrale, and so on. I continue to believe for example the European Venture offers some great return opportunities for the better funds out there.

But at a macro level, I think we are merely continuing a long, drawn-out fall.

Ingredients of the Decline

[please forgive me for the generalisations]

A Youth with No Ambition. In a striking poll of striking French students (yes, students strike too, in France), young people were being asked what they wanted to do in life. The answer was overwhelmingly "devenir fonctionnaire" i.e. to become a civil servant. When asked what their core concern was, the answer was "whether they would have a pension". How depressing. I had no clue what a pension really was at that age, I just worried about financing my rock concerts addiction.

A People Living in the reflected glory of Its Past. From a surreal conversation with one of the senior people in charge of innovation at the European Commission: "the only reason why you are negative on European innovation is because you are taking a narrow historical perspective. If you look at the last few centuries, it is undeniable that Europe is the epicenter of ideas and innovation". He was dead serious, not a hint of irony. I replied that Gutenberg Inc. printing presses did not, as far as I knew, create that many jobs in the last few years. He was not amused. Tourism, now there is a growth industry...

Absence of Political Leadership. It's impossible not to feel disenchanted by the travesty of leadership that the European Union presents to the world and its citizens. From refusing the outcome of referendums (Ireland) to timorous and hypocritical foreign policy, Europe is being killed by a culture of weak consensus. A technocracy that has taken on a life quite independent of the wishes of the citizens it's supposed to serve.

Culture of Denial. Somehow there is no real problem and really we are the only ones who are green and have a sustainable social system. Far from me to decry the benefits of a more balanced system that has a strong social net and keeps people more than one paycheck from poverty, but I find very little courage in either our political class or our thinkers when it comes to taking responsibility for our our decline.

Continuous Talent Loss. For one Daniel Borel who comes back and creates Logitech, how many Philippe Kahn's ? I know of a number of brilliant guys who say "I would love to come back, but I just can't face, I just can't do it here in the same way". Just ask Loic Le Meur why he moved to San Francisco. Sheer exhaustion at the unseen "weight" that the old continent was putting on his shoulders. The attraction is all about better food than the UK, better health than China, better culture than the US, whatever your passion. It's never "it's a great place to do business". Lifestyle attraction (OK, Barcelona does have some winning arguments :-)) can only take us so far.

Major macro challenges to boot

Age and Pensions. Talk of delaying the pensionable age only has so much to do with the current financial crisis or the offshoring of jobs or other simplistic crap I read in the press. When I started at JP Morgan in 1996, the fixed income strategist told me something like this: "the overriding macro theme of financial markets over the next 30 years will be the unescapable impossibility of funding the pension gap".

Again, the current state of denial means no politician is able to state a simple fact, that a system designed to fund pensions at 60 when life expectancy was less than 70 and we were having babies is an impossible burden when life expectancy exceeds 80. Here again, Europeans are in denial.

EURO cannot defy gravity. Politics drove Euro adoption well beyond its natural habitat. The EURO was a fabulous idea that was marred by a desire to make it the political symbol of the success of Europe. Instead of stopping at a single market and building from there, it somehow became necessary and desirable for less mature economies to be part of this construct. So now, poor Greek entrepreneurs are supposed to stay competitive against Germany on merit alone. Good luck. I personally think that countries should be allowed to fall out of the EURO and that this is highly preferable to unsustainable bailouts.

We're fucked if we don't wake up soon

The rest of the world works harder, smarter, produces more engineers, is hungry, is globally mobile, has inherent competitive advantages we often don't have. I really don't want Europe to suffer the same fate as Japan or to keep kidding itself that it's holding its own on the global scene because it's somehow more diverse or some other B/S.

The mantra of the Lisbon objectives sounds increasingly thin and stretched when compared with our reality. The multiplication of innovation programmes and annoucement of grand technopole initiatives rings incredibly hollow to my ears.

I spend time a few weeks back with the head of innovation at one of Europe's very best Universities (the local MIT). He was upbeat but realistic: "sure I keep finding good entrepreneurs and funding them. They're smart. But most of them don't have a clue what's going on out there, they are just an order of magnitude away in terms of intensity, speed or passion. And they really don't get it, they don't know what it's like in Palo Alto or Shanghai".

It's going to be a long path if we want to get our mojo again. We need to embrace change, to take risks, to fail. Not to hang on to our past in denial of our current failings. We need to get our future back.

Venture Capital 2.1 = Venture Capital 1.0 Redux, with a Twitter Account

2010-02-25T14:40:39+00:00

VC in crisis for a decade: a reality that has been widely commented on and embraced, including recently and eloquently by James Surowiecki. I read elements of the equation all over the place and will try to bring it all together into a framework that I can relate to. I want to argue, without a hint of complacent for the change required, that venture capital is not dead and that the reinvention required constitutes primarily a return to our roots: it's back to VC 1.0 ... with a better dress sense and a Twitter account. Please read on.

ROOTS: Ingredients of a long crisis

The sixth Paradigm (go Sean!) or how "Connection Technology" changes the world: at the heart of the mess we are in, a fundamental long-term trend that has been going strong for 50 years and keeps accelerating. Call it the technology enabled globalisation, the world at the speed of light. As with all mega-trends, you overestimate the impact in the short-term (1999, year of the eyeballs) and underestimate the impact in the long-term. Why am I making this obvious point: the world needed a new, high-speed method of funding the type of innovation that provided the foundation for this change, and venture capital provided that. Look to clean tech for a similar mega cycle of boom/bust/massive impact (say: solar/smartgrid/non-fossil energy). If you want to think about it differently, for a while no one thought they could afford not to be in venture (read this for a recent take on this Pascal Wager).

First wave of mega successes and resulting poor diet: what better to create a major overflow of capital than some funds returning monstrously well. Benchmark's 1995 fund had a TVPI of over 40, Matrix had two vintages in the 90's at c. 20 TVPI, Accel '96 had a similar performance !! From $11bn in 1995 US venture investment grew to $153bn in 2000, whilst fundraising grew from $14bn to $158bn in 2000. 10X returns drove 10X cash. No prizes for guessing what happened next.

Mega funds, Series A thru E, nano exits: it seems like many people feel it's normal to do $6M Series A, $10M Series B, $15M Series C and so on (except if you are in semi, you have to). It may come to be seen as the habit of a lost decade of venture capital, a bit like the era of conveyor belt blockbuster movies in Hollywood (the blockbuster era started with Jaws and lasted 25 years). $35M is not the right amount of capital to raise for a software business that may one day sell for $500M but will most likely sell for $100M or go bust trying.

Nice management fees ! VC's can sometimes be rational human beings too. So guess what happens: optimisation of a non-sustainable kind. The early, highly entrepreneurial VC crew retires or grows tired, and a new generation realises that making money is really hard but that since no one will find out for 10-15 years whether you are any good, might as well optimise the management fees in the meantime. Hence the glazed office, golf-playing, fund-raising venture capitalist that seems to inhabit public conscience these days.

If you assume venture folks are smart enough to spot good markets, you make it "the" aspirational thing to do for young bucks and you throw enough money at the wall by convincing yourself you cannot afford not to be in it, you will logically destroy the industry's average return durably. QED.

CONFUSION: Venture 2.0 and its partial answers

1. VC is dead & long live the super angel

I am all in favour of super smart angel guys like Maples and Robin Klein and others building high optionality porfolio's and using ecosystem (I was almost going to say ... keiretsu, CMGI is back :-)) dynamics to source and support these business and I think this has an important role to play. It's nice also because it puts the classic VCs on the defensive and helps with evolving the VC-Entrepreneur social contract. Hence I think it's an important part of the solution. But don't confuse Ultra Lean Startup with Ultra Cheap startup (via Steve Blank): having a financial partner that has follow on muscle does matter, and being a fund with no follow-on money makes it really hard to defend your portfolio and performance in a downturn.

2. Barbell BS

Barbell as a strategy is credible for the very few, and it's overused and overexposed. In a tough market, focus on super-early or super-proven, and don't touch a Series B. OK, so now late-stage deals get priced perfectly efficiently to allow you to make a (say) 8% return and you are supposed to make a great fund on that ? Or your early stage company has to enter a market where Series B is so disliked it gets priced down to zero, and somehow that will work ? I think it works well for the absolute best firms because they can either access the deals at discounted prices or have fab founder attraction in early stages, and their brand carries these companies through the middle rounds. But clearly, this is not a strategy for everyone and by construct it does not apply to "the industry".

3. Late stage, late stage, late stage

Run for the hills, early stage is doomed, let's focus on safe companies and don't default. Gimme cash flow. Ability to create truly unfair differentiation in a late stage business is low. If you are disciplined and do this well it's not a bad segment to be in, but returns should not be that amazing. If enough firms do that, perfect pricing will ensue.

Conclusion: if there is confusion, it's because there SHOULD BE confusion. Venture is no longer a "pure" asset. I invite you to read the fantastic Peter Rip on this topic.

TODAY

There is still a ton of money sloshing around. Read Fred Wilson's "VC Math Problem". Entrepreneurs may be distraught to hear this, but shrink further we will or at least should. New money being invested is still higher than money being returned, even though fundraising last year was "only" $17bn (US venture). Paul Kedrosky is probably the best advocate of further shrink, and I agree with him. And before you accuse me of trying to close the door behind us (after all we raised in 2008) let me tell you that I would continue to advocate very strongly for this even if I was on the firing line: the logic is inescapable.

The fundamentals of the business have changed. Technology is a quasi-commodity, the spread of ideas is instantaneous, competition is global, in other words the market is more efficient.

VC's have damaged their brand and confused their customers. Read this great post from SagePoint Software or my writeup on the VC-Entrepreneur relationship and the Arrogant VC. Whilst I really don't buy all the talk about VC's not taking risk or not investing before product/market fit, we clearly have an image problem.

Finally exits are still M&A driven, and buyers know their stuff now. We live in an era of business-line sponsored acquisitions where the person championing the acquisition needs to define and hit some numbers for the acquired target. Sounds obvious, but there is a reason why median M&A nose-dived durably. Industrial buyers are cheapskates (again). Hard-nosed, tough and cheap. You're going to need a bigger boat...

BACK TO THE FUTURE: Venture According to Me (Hey, I sound like Guy Kawasaki :-))

I have always had a fantasy of a really strong crossover fund where your public equity guys get informed by what the private startups can tell you about the evolution of order books and where a pure vertical focus delivers lasting alpha across asset classes. Even within that framework, my fit is on the early-stage side which is really what I feel best at. Since you cannot escape the maths (capital return and time to exit) and the market dynamics (loss of differentiation and commoditization), what you need is a niche strategy that you can excel at.

1. Focus, focus, focus: like a good startup, define a simple, well-understood product (i.e. an investment strategy) that the markets (LPs and Entrepreneurs) want and deliver on it flawlessly. Corollary: Death of the generalist VC. Long Live the "Personal Brand Thesis Driven GP" ... like in the old days. Just keep evolving that brand !

2. Pick and shovel: show up and execute. Work the dealflow fanatically, meet, greet, think, argue, live and breathe your venture work. Pick and shovel also applies to startups: capital efficiency and ultra-leanness ethos.

3. Live in the real world: this applies to both entrepreneurs and VCs. Until you have a runaway business, be realistic about how much your business will sell for and how long it will take, and spend accordingly. If we live in a world of capital efficiency, let's stop complaining about capital availability and build our businesses in a lean manner. When you DO have a runaway business, scale hard (yes, when to make that decision is really tough, I need to write on this someday).

4. Be a real lead investor: invest slowly and wisely in selected teams. Spend time, hone the product and team, execute carefully. Scale when you know what you're doing. I am not discounting seed programmes by venture firms (I will write on the challenges of that approach separately) to add a sub-portfolio of options, but I do think together with Robin Klein that having your name and reputation on the line matters and is a core determinant of performance.

5. Embrace venture innovation: the fail-fast fail-early brigade is right. The crossover brigade is right. The super-optionality portfolio builders are right. Whilst clearly some will fail abjectly just like VC's, all these innovations are fantastic tools to help surface investable businesses and to help entrepreneurs get a leg up. They fit the new market reality that we live in.

By the way that is not to say that I do not believe in late-stage (if that's what you're good at) or super-optionality portfolios (if that's what you're good at). I just think this will work for me/Atlas Venture provided LP's are disciplined about investment amounts and we can kick ass within our area of focus.

VC MASHUP

In other words, let's pick the best ingredients from around us for VC 2.0 Redux "a la Fred":

- From super angels: a better social contract with the entrepreneur, global connectivity, speed, approachability

- From startups: simplicity, clarity, transparency, focus, leanness

- From the great venture capitalists of old: patience, discipline, consistency, true entrepreneurship applied to both venture and business building

- From our gut: passion, exuberance, irrationality, belief, conviction, and ultimately the money making intuition

I suspect venture capital was never meant to be an industry. I will leave you with a recommendation to read the Twilight of Venture Capital. Take it with a pinch of salt, because I think Bill is overly focused on tools and possibly not recognising where innovation is migrating, but I like the back-to-fundamentals approach.

So...

I don't think there is anything new or magical about what will make venture work for me. And I think we have a great future ahead of us. Old Skool is the New New Skool: it's back to VC 1.0 ... with a Twitter account.

In search of Stillness, or why personal high availability is a (generally) a bug

2010-02-05T07:55:58+00:00

These days, 2.3 seconds seems to be the average time between sending out an email and getting a response. We live in a world of immediate interaction and a general information immersion and real-time availability.

Generationally I am pre digital native but I embraced the new communication and media consumptions paradigms early on, and though I have never had the patience or passion to be a bleeding edge adopter, I am a fast follower. End result is a blog and an active Twitter presence and all the trappings of the world weary tech world participant (the multiple filtered gmail accounts, the Dropbox, a fully digitised personal life that I keep carefully away from the public eye).

Real time is best left to Twitter

I have had a number of debates over the last few years with Max Niederhofer about whether high availability (the notion that one responds to emails within seconds) is "a feature or a bug". Max thinks it's a feature; I am more batch oriented. I thin it may be a feature in him but a bug in most.

For every person that manages "efficient high availability" well, I find 10 who respond too fast and with insufficient information and hence create more overhead and interaction than the problem at hand would warrant. The result is a deluge of IM like conversation between pushed over email, SMS or twitter and leading to a feeling of busy-ness but a clear loss of control. Dealing too fast with emails that were written too fast is a good recipe for absolute entropy and a fatal divergence that could I assume lead the world into an abyss of information chaos. Thank god you can scroll down 300 emails, hit "Del" and see what comes back (the important stuff). Entropy reduction at the touch of a key, heaven, it's like an emergency exit door. A guilty pleasure :-)

Multitasking efficiency is a myth

There is a fair amount of research coming out that is highlighting what common sense would tell you is true: the human brain cannot deal sustainably with "continuous partial attention" and the perception that one achieves more is wrong: general efficiency on the tasks individually is decreased and overall output is of a lower quality (see this fantastic Frontline broadcast on the topic including a humbling moment for Stanford grad students and great insights from Douglas Rushkoff).

In other words, cognitive ability goes down the drain and so does actual output, whilst the feeling of busy-ness creates an addictive misperception of hyper performance. Hooked on fast tasks but achieving nothing much. As Linda Stone puts it: "over-stimulation and lack of fulfillment". [For a more structured and intellectual look at the issue, head over to Edge Annual Question 2010 and see contributions from Carr, O'Reilly, Shirky and others].

Slow can be (very) good

I was reminded of the negotiation we undertook when Stefan Dolezalek of VantagePoint Venture Partners invested in Inxight Software (since acquired by BOBJ). Stefan would take his time answering emails even in the heart of the deal discussions. It used to infuriate our CEO John Laing who was a high octane sales guy and could not get his arms around this particular close. But Stefan would always come back with a thoughtful, studied response that would meaningfully move the negotiation forward with a good eye for win-win outcomes. He would also get some benefit from letting us stew for a few days:-) Net-net, he was an incredibly efficient communicator and once you understood that delay did not equate with dropping the ball, it was a great way to work.

Don't get we wrong, there are many aspects of real-time goodness I love. But the web used to be something we do and now it's part of who we are. So isn't it time to reassess how we interact with it ?

Get back in control and write your own rules

We need to reclaim real downtime: Kids need downtime for their imagination to develop; they thrive on boredom. In the same way we need downtime and we need disconnected time to let the synapses reset and refresh. Shoot email on holiday, it's an addiction and a disease. The world can survive without you for a week, you're not that important. "Don't try to reach me on holiday, you will figure it out without me".
Stop confusing speed and efficiency: momentum matters but it has little to do with your average response time to email. Be precise, thoughtful, deep and action oriented. if you want something done (such as setting up a meeting) spend the time to determine timeframe / urgency / participants / objectives / timeslots instead of exchanging 255 coordination emails and clogging everyone's inbox.
Prioritise and focus on outcomes: VC's are masters at creating entropy. VC's only function on information (we don't actually "do" anything besides manage information and money flows) and hence information is perceived to be power. So we spend an awful lof of time staying on top of said information, and hence asking other people (typically our overworked management teams) to produce this for us. The right way to go is to to ruthlessly determine which are the priorities of the company (a certain milestone, a change of culture, a new release) and what specific action you are going to take within a measurable timeframe (a recruitment, a strategy session, a bus dev deal). I try to determine 1-2 things a month or even a quarter that I want to get done with a company, communicate this to the CEO and get it done. The rest is noise in the system.
Allow yourself to reach the zone: I am still struggling with the illusion that I can efficient and multi-task. In recent months I have gone back to a more disciplined approach when taking phone calls -- I take notes. It forces me to stay absolutely focused on the task at hand. It takes me about 10-15 minutes to really reach a point of "flow" and any interruption can break that.
Automate information production: Information production should be systematized and automated. Board meetings should be run without powerpoint slides and take a few hours to prepare. Anything that can be mediated by tech should be.
Segregate (and mostly ignore) breaking news: one of the biggest drain on my neuronal ability has been "breaking news". An unending daily stream of non-critical information that has social value ("did you hear...") but creates way too many open loops in my brain and ultimately serves no lasting purpose whatsoever. I have now bifurcated my news consumption between real-time for anything that concerns the companies I look after (e.g. DMGT buys Globrix is relevant to Zoopla with immediate impact) and weekly or monthly consumption of everything else. At the risk of shocking you, I did not not follow the Haiti developments day-by-day as the crisis unfolded. I find the body counting and dramatic pictures are a way of making you feel better (you are driving your own awareness of the people; feeling "concerned" makes most people feel better about themselves), whereas the reality is you are better served getting a complete overview of the crisis ten days into and deciding where you may want to send charity money based on the actual needs as they are emerging.
Have a Continuous Partial Attention slot: it's fun and game-like to immerse yourself in the flow of twitter and facebook updates and to dip into the real time river. A time to reconnect and socialise and waste time browsing around. Just accept that your brain can only do so much of it and that you are not, actually, being productive. You're hanging out.

I don't care about the latest acquisition by X or investment by Y. I will let you know when I am on holidays and you will do without me for a week. I don't care about answering comments on my blog as they get posted. I decide where and when and how I interact. I decide when I am online and not the other way around.

[Voila. Written in one go with web shut off, 30 minutes, 15 minutes to find links and edit. 45 minutes round trip, but fun and interesting. And now back to work :-)]

Moving to Boston !

2010-01-19T17:39:29+00:00

Over the summer I will be moving over to Boston to join my partners there. I found a house in Brookline which I am hoping will be a great place to raise all three of my kiddo's and for my wife to find her next gig. The garden is big enough to do nice dinosaur hunts (a favourite with my son),which was their main concern, so they've OK-ed the move. Only downside: I will now have to live in the shadow of Fred and just be ... the Other Fred ? EuroFred ? :-)

The Rationale

As a team, we made a decision that it was time for us to be all in one location. The logic behind is quite simple; we operate at our best as a unit when we can take decisions fast, sit around the table together and act as unit of one. We are an early stage firm; for us, small is beautiful. We will also look at adding a Partner on the tech side.

Euro Blues ?

I have been asked a few times whether this reflected a negative view on the Euro venture market. The answer is quite simply no. We will continue to invest in Europe. In our current portfolio, we have some great gems developing. Companies I am involved with on the digital media / e-commerce side include Seatwave, Zoopla, PriceMinister or DailyMotion. On the SaaS front, NTR and KDS. These are all strong opportunities that I believe will drive good returns.

We also sold Novexel for over $500M in December, a nice Christmas present from our Life Sciences team.

Our house view (and my personal view) is that Europe continues to be relatively under-banked market with increasingly strong opportunities to make real returns happen. I am sure the next two years will present their shares of large and compelling exits. Building an ecosystem takes time, ours is improving daily.

The Investing Tech Team

Onward !

Covered elsewhere:

Communist China, the misbehaving superpower

2010-01-14T15:10:32+00:00

On the back of the Google - China standoff, I am taking the liberty of recycling content from the oft brilliant Mark Anderson at SNS. This is a short digest of the excellent article that you can find at: www.abrightfire.com. Whilst I think we have to watch the Western tendency to take advantage of the rule of law when it suits our purpose but neglect it at other times (recent wars come to mind...), I do think this article raises the stakes on the China debate in a smart way. Whilst China is trying to gain moral kudos and intellectual leadership on issues like global emissions (whilst sabotaging part of Copenhagen), it is healthy to take a slightly cynical view of who we are dealing with here.

Over to Mr Anderson:

It is time to look at China, not for what it says, but for what it does, and to judge it accordingly. China, [which] Nobelist Paul Krugman calls “a misbehaving superpower", is not what we hope it could be. China is what it is.

Sloppy Western optimists assume that China is just a Big America, or a Big Vietnam, or a Fast India – or their Next Big Business Partner. In fact, China has designed an economic model designed to gut its trading partners.

Although the politics of China remains communist, the economics might be called Advanced Mercantilist. China has taken the lessons of Japan and South Korea in dealing with the West and modified them with “Chinese characteristics.”

Basic tenets of the Chinese Model

Steal Intellectual Property.
Use Slave Labor Rates to Become the Low-Cost Producer of All Goods and Services
Sell Stolen IP Back As Global Exports
Industrial Policy: Subsidize Key Industries
Prevent (or Restrict) Unwanted Imports
Use Currency Manipulation
Price for Export, Suppress Domestic Consumption
Create the Appearance of Free and Fair Trade, Without the Fact. The global community somehow allowed China to join the World Trade Organization, although, in fact, China has not signed off on all of the WTO requirements
Encourage Foreign Direct Investment – But Don’t Allow Controlling Ownership.

Does this combined policy set sound anything like free markets, or free trade? Not at all. Is there any part of this that is legal in international terms, or that should be applauded by the world community? Not that I can determine.

When will the world catch up to this kind of charade? The answer just might be: now.

The danger of a command economy in the modern world.

The global outcome of a fast-growing command economy has been the government-determined explosion of asset bubbles all over the world – not because China is growing, the cause assumed by most economists, but because the government is buying resources (and their future options) on the global market, forward for 5-20 years. The result: instant commodity asset bubbles, worldwide, and further destabilization for non-Chinese consumers of these commodities. Of course, if the Chinese play the bubbles wrong, they will lose even more as prices collapse.

Could the Chinese create a global catastrophe by commanding all of this leverage into the wrong assets at the wrong time, by deflating the value of high-IP goods, by forcing global competition against unsustainable cost bases, and destroying non-Chinese business infrastructure? Sure. In fact, this is almost a “when,” and not an “if,” question. What could possibly be more dangerous to the world than a command economic system run on a global scale?

Investment and innovation themes from the Defrag conference

2009-12-23T10:57:11+00:00

I am lucky enough to work with a guy who, on top of (or in spite of) his aristocratic good looks, is also a very smart cookie and former entrepreneur called Max Niederhofer (aka Graf Max). As he likes to spend our hard earned management fees on long distance flights, it was natural for him to check out Defrag 2009. My recent rant on Twitter reminded me of this interesting writeup he sent. So with some delay, I thought I would share with you the insights he gleaned from the conference.

Here are some the themes:

Making email better. Email still the center of our work communication/collaboration and social interaction. Invest in tools that make email more collaborative, reduce overload, embrace using email as to-do lists, integrate email into the social graph. Microsoft has a large internal effort devoted to this. Xobni is the most high-profile start-up in the area. Incremental efforts seem to do better than full-on innovation (Gmail vs Wave).
Making lifestreams relevant. Activity streams are changing our lives. Constant sense of presence of one’s social and professional network. Twitter works because it appeals to some base social needs (knowing what’s going on, being able to have a self-assert) without the constraint of having to “friend” both ways. Right now, Twitter is mostly “just microbursts of dopamine.” Key question is again how to filter and prioritize the firehose. Situational relevancy, e.g. through geo-location or by changing streams depending on activity, may be key. Foursquare is the hottest startup there. Twitter inside the enterprise (Yammer) seems to be working well for creative/services SME's.
Measuring and monetizing influence. You can measure friends and followers but it’s harder to measure influence or effect. Brands want to court influencers. Hottest startup here is Klout.
Extranets. Rather than yet another startup targeting internal collaboration, address industry verticals that are either naturally fragmented or fragmenting because of internet’s lower transaction costs.
Selling data. Collecting, interpreting and packaging data becomes a lower barrier to entry business given how much data is freely available online/through API's. Several startups targeting e.g. Gnip. Sometimes just archiving and making available can be a good entry-level business.
Meaning is the new search. Search was based on scarcity: hard-to-find documents. Now information is ubiquitous and hence finely grained relevancy becomes much more important. The next Google will not look like Google - it will be something that delivers information based on some trigger - behavior, location, etc.
Breaking the corporate IT environment. Many people feel happier and more productive when choosing their own tools of work. How do we enable corporate IT departments to do away with “one” infrastructure. Let groups choose their own computers, phones and apps. Key questions on provisioning accounts, managing data silos, data security, compliance.
Education. We’re stuck in the university lecture and exam paradigm. Online learning and degrees will happen. Question about investing in enablers versus replacements.
Application Marketplaces. Based on the iPhone App Store, many ideas around application marketplaces that combine SSO, data sharing and social graph within one framework on the web.
Identity Metasystem. Facebook Connect, OpenID, Twitter/OAuth - something will emerge as dominant over the next few years. Verified identity is still a problem and could be used for some interesting applications. Best talk here was from Kim Cameron at Microsoft (http://www.identityblog.com/).

This is the last one for the road for 2009. See you next year.

Take guidance, not orders

2009-12-18T16:14:21+00:00

Repost of my post at Nivi and Naval's great VentureHacks. Every entrepreneur should get VentureHacks for Christmas.

There is a behaviour I witness in some first-time CEO's that I meet, not necessarily the younger and more mavericky generation, that I do not think is necessary nor helpful. It's an insidious but frequent tendency to let the board decide rather than advise or approve. It goes like this:

Because VC's have blocking rights on some important decisions (approving the budget, your comp, raising money), they are often able to wield way more power than their 20% ownership would suggest they should have. As a result, entrepreneurs often talk of coming to the board with their slides in hand asking "what does the board want me to do ?", which is code-speak for "I am here to ask for permission from my investors to do what I need to do".

They will present the strategy they believe in but essentially allow the board (read: the investors) to walk straight through the carefully thought out action plan and redesign the entire strategy in one swell meeting. The investor probably walks away feeling like he provided value and the entrepreneur now goes back to his team to explain that his investors puked over the team's strategy and that the priorities have changed.

That may be the product of investor behaviour, but I would argue this is the CEO's fault. Nature hates a leadership vacuum, and VC's will fill that gap if you don't.

If you really believe in what you are doing, you come to the board telling board members what you are planning to do, taking considered advice on whether this is the right strategy, considering that advice and executing on what is, in your best judgement, the right path for the business. That's what you are there to do. Take decisions fast, don't fall for analysis-paralysis, trust your gut, execute and iterate. As Tim Ferriss would say, ask for forgiveness, not permission.

Guy Kawasaki does lists all the time and it seems to work for him so I thought I would try one too: Here are the top five lighthearted reasons why VC's should not drive your strategy:

We forget 50% of what we said at the last board
We don't know the people inside the company and hence have no clue what the team can really execute
We meet many smart people and hence we have way too many ideas that you cannot possibly implement
We are focused on the 5 year vision, yet we are focused on the quarter too, even we are confused
We don't need to deliver on it, you do. We come and collect when the job is done.

You want to leverae your board, and you don't want to get fired for being a solo player either. Personally I really like what my partner Jeff refers to as a culture of "champion and challenge". I guess you have to be born in the USA to say phrases like that but it's spot on. If I really disagree with a strategy decision, trust me, we will have a serious discussion about it. But come and champion what you believe in, take ownership, step into the role. Ultimately, I backed you because I believe in you, and you know better.