VentureBlog

Rajeev Motwani, you are missed already!

David Hornik — 2009-06-05T23:59:24-08:00

I have spent the better part of this afternoon and evening trying to do anything other than think about the passing of my good friend Rajeev Motwani. But I have failed. The thought that Rajeev has left us is hard to fathom. Rajeev was part of the fabric of Silicon Valley. He was part of the fabric of Stanford. And he was part of the fabric of August Capital.

For a number of years now, Rajeev has attended our partners meetings every Monday afternoon. As a tenured professor, Rajeev could not join us as a partner of August Capital. But he enjoyed participating in the back and forth of the partnership discussions. He enjoyed debating the merits of every new innovation. And he was quick to share his point of view on each technology or company or entrepreneur. But he particularly enjoyed that when partner meeting talk turned to the mundane or administrative, he could give us a sly smile and quietly slip out the door.

Rajeev didn't have time for the mundane. He was too busy talking with everyone about everything. You would be hard pressed to find a more connected or more informed professor, technologist or investor than Rajeev Motwani. He worked tirelessly, meeting anyone and everyone who requested an audience with him. Students sought his advice on grad school. Entrepreneurs sought his advice on financing strategy. Investors sought his advice on technology trends. We all just wanted a little bit of Rajeev's time. And he always seemed to have that little more to give us.

For those of you who didn't know Rajeev, you might get the impression that he was your typical Silicon Valley insider -- loud, brash, full of bravado. He was anything but. Rajeev was soft spoken and gentle. He was self-confident but didn't feel the need to prove anything. He didn't speak to hear his own voice. And he didn't need to be the center of attention. Rajeev just wanted to be helpful. And he was. To so many of us.

Perhaps that is why so many of us thought of Rajeev as a friend. It is one thing to be friendly with someone in the business world. It is another thing altogether to consider them a friend. Rajeev genuinely liked people and people genuinely liked him. So it is no surprise to me that testimonials about people's friendships with Rajeev Motwani are popping up all over the Web (here are the words of friendship and admiration from Sergey Brin, Om Malik and Dave Morin, to point to just a few). I am sure that the testimonials will keep on coming in for days and weeks to come.

While I could certainly go on about Rajeev's intellect, his curiosity, his business acumen, let me just say one more thing about him and his character. Rajeev was a wonderful family man. I say that as the very highest form of praise. Rajeev loved his wife Asha (as do all of us who know her) and he adored his children. Rajeev's face lit up when he talked about his family. And he prioritized them above all else. No one will miss Rajeev more than his wife and kids and, while I can only feel some small piece of their pain, my love and support goes out to them during this tough time.

Rajeev Motwani, you are missed already. And you will be missed for years and years to come. You have left us far too soon.

So Many Media Channels, So Little Time

David Hornik — 2009-05-30T18:31:42-08:00

Today TechCrunch posted a list of the "Top VC Blogs (According to Google Reader)." I was very pleased to find out that I came in at number three, sandwiched between Fred Wilson and Brad Feld. But I have to admit, the ranking makes me feel a little guilty. Not because I don't think there's good content on VentureBlog (after six years of blogging, there must be some good stuff in there somewhere). But because I really don't blog enough. Every couple of weeks or so, something jumps out at me that demands a blog post. In stark contrast, Fred and Brad post all the time. I have huge respect for them for that. And not just because of the quantity, but because they post great quality stuff day in and day out. So my hat is off Fred and Brad, who are the rightful owners of the top two VC blog spots without any questions.

The challenges posed by trying to maintain an active blog are only further exacerbated by the incredible proliferation of "media channels" these days. I don't mean professional media channels. I mean user-controlled media channels. Blogs. Podcasts. Twitter updates. Facebook and LinkedIn status messages. YouTube channels. Etc. The list is daunting. Yet anyone who takes seriously the idea of communicating directly with his or her "customers" really can't ignore the opportunities posed by each and every one of these channels.

What's more, each of these media channels serves a different purpose. Podcasting can not replace blogging, which can not replace tweeting. A jogger isn't going to read my blog while taking a morning run, but may well listen to VentureCast. An entrepreneur trying to quickly get up to speed on the state of Venture Capital is not likely to listen through 30 hours of VentureCast, but could easily browse through VentureBlog for relevant content. And anyone foolish enough to care what I'm doing on a day to day basis will not likely find that out on VentureBlog or VentureCast, but could certainly subscribe to my Twitter feed and get the latest and "greatest."

The more I think about the relevance of each of these media channels, the more I realize that it is important for me to engage on each and every one of them. To that end, I have recently revived VentureCast -- now with my partner Howard Hartenbaum. We intend to record a new show about twice a month. The first two we've recorded are already available on iTunes, so check it out. It also means that I need to share more thoughts on entrepreneurship and Venture Capital on Twitter, which I will surely continue to do. And, of course, it means that I need to blog about the world of Venture Capital more frequently. If nothing else, this post is a good start.

Customer Service Matters

David Hornik — 2009-05-08T09:34:29-08:00

Just yesterday I had breakfast with Rene Lacerte, the founder of PayCycle, and we discussed the power of great customer service. When Rene first pitched me on the idea of PayCycle, the service was not yet built. Nonetheless, he was already discussing how he would integrate the customer support experience into the overall service offering. He rightfully pointed out that every change you make to an online service will have implications for the customer support team -- whether it is training, navigation, speed to resolution, etc. So from its inception, PayCycle's product management and customer support went hand in hand. Rene is now building his second customer-focused service called Bill.com and it too has been built from the bottom up with customer support in mind.

As we ate breakfast yesterday, Rene and I had a long discussion about the fact that despite being called Software as a Service, very few SaaS organizations put any emphasis on the "service" piece. Sure, you could argue that the "service" in SaaS is all about delivery and not about customer support. But that would be a mistake. Service businesses live and die based upon the satisfaction of their customers. While it is conceivable that your software could be sufficiently foolproof that customer support is limited to receiving "thank you"s from your happy customers, so far no one has quite found that Holy Grail. Customer support remains a significant piece of all SaaS organizations and the more a company recognizes that going into building their service, the more likely they will succeed.

So what does that have to do with the Rosewood Hotel? I was reminded of the importance of customer service this morning as I experienced the Rosewood Hotel's stunning disregard for their customers. For those of you who have not yet been to the Rosewood Hotel (and I would not recommend that you go), it is the new "high-end" hotel that was just built on Sand Hill Road in Menlo Park. For those of us parked in VC-land here on Sand Hill Road, it was a welcomed new place for breakfasts and lunches and, in fact, I have eaten breakfast there 12 times in the little over a month that it has been open. But never again. (Warning: herein begins a rant -- a well-deserved rant, but a rant nonetheless.)

Three weeks ago, when parking for breakfast, I was surprised to see broken glass in one of the parking spaces. As I left breakfast, I pointed the glass out to a maintenance person driving his golf cart by. I assumed it would be cleaned up. Two weeks later, the glass had still not been picked up, so when the manager of the Madera restaurant came by to say hello to me (after all, I was there every other day), I pointed out to him that there was broken glass in the parking lot that had not been picked up despite the fact that I had pointed it out two weeks earlier. The restaurant manager apologized and assured me that it would be picked up. To my shock, it was not. Undaunted, I figured I'd give it a third try. Two days ago, on my way to an event in a conference room in the hotel, I asked to speak to the hotel manager. A nice young man named Daniel came to talk with me and I recounted my tale of woes. I explained to him that while the glass hadn't particularly inconvenience me, that I thought it didn't reflect well on his hotel and that he might want to take care of it. He assured me that it would be cleaned up by the next time I visited, which I told him would be two days later.

I must say I was surprised to see the glass still there two hours later when I got out of my meeting, but I figured I'd give him the benefit of the doubt and assumed that it would be picked up by my breakfast on Friday (today). I was wrong. To my horror, as I drove up to breakfast this morning, the glass was still there. Was I cut by the glass? No. Did I get a flat tire from the glass? No. So why do I care? Because I think that customer service matters. I think that if you care about your customers, you should do more than pretend to listen to them. So rather than park, I drove up to the front of the hotel and explained to them (amidst a fair amount of swearing) why it was that I would not be eating breakfast there any more. The same manager, Daniel, was there and fell on his sword, taking full responsibility for the incident. But as far as I am concerned, it is too little too late. Such blatant disregard for your customers maybe deserves a second chance. And, if you are feeing extremely generous, a third change (particularly when the restaurant is so convenient). But not a fourth chance. So I guess I'm heading back to Il Fornaio for breakfast.

Customer service matters. And it matters more than ever in this age of blogs, and Facebook and Twitter. If you search for PayCycle, you'll find a whole lot of happy customers. And if you search for Rosewood Hotel, I'm guessing you'll see a whole lot of dissatisfied customers. You'll certainly find me there.

Update: Shortly after I posted this rant about the Rosewood Hotel, I got a call from Managing Director of the hotel. Through the power of blogging, twitter and facebook, the Rosewood's MD had read my complaint moments after I had posted it and promptly called a staff meeting to address the situation. He then came over to my office to offer up his apologies for what had happened and his commitment to make customer service a priority of the hotel. While I wish it had not escalated to the point of needing such attention, I certainly appreciate that the hotel's MD took it seriously enough to come to my office and have the discussion.

StumbleUpon Brings Serendipity Back to The Web

David Hornik — 2009-04-13T07:08:53-08:00

A short time ago I wrote about my investment in Aardvark. As I said in that post, I believe that in many ways search is broken and getting worse. Not only are there voracious efforts at Search Engine Optimization (SEO) throughout the Web, but the scale of the Internet is monumental today and getting larger by leaps and bounds virtually every minute.

The massive scale of the Web not only creates huge challenges for search, it also cripples discovery. Gone are the good old days in which fortuity would lead to the unearthing of interesting new Websites. Remember when Web directors would lead you to great sites on the topic of your choice (you may not recall but, in the early days, "Yahoo" stood for "Yet Another Hierarchical Officious Oracle" and Srinija Srinivasan, Yahoo's chief of ontology, was one of the most powerful people on the Web). Better yet, remember the good old days of browsing libraries -- the Dewey Decimal System created the propensity for discovering new and interesting books as a result of their being shelved next to related categories -- while looking at one book, other books in its general vicinity would likely pique your interest.

That sort of accidental discovery was driven out of the Web a long time ago. The only sorts of chance Internet encounters most of us have these days are a result of mistyped URLs -- not exactly a recipe for exciting new discoveries. Thankfully, one company has made it their mission to bring back discovery to the Web. StumbleUpon delivers nearly half a billion recommendations per month. Those recommendations can be across broad categories (e.g., photography, video, etc.) or in very focused niches (e.g., electric violins, VC blogs, Alice in Wonderland, etc.). The StumbleUpon experience brings the unforeseen and unexpected back to your browser. I like to think of StumbleUpon as a discovery engine bringing fortuity back to the Web.

Enthralled by what StumbleUpon was doing, a couple years ago I began chatting with the founders about their business. The more I learned, the more excited I got about the prospects for assisted discovery at StumbleUpon. But before I had an opportunity to propose financing the company, it was purchased by Ebay.

Nonetheless, I've stayed in touch with Garrett and Geoff and continued to talk with them about the power of StumbleUpon. So when they began discussing the possibility of spinning StumbleUpon out of Ebay, I was grateful to have the conversation. The need for discovery on the web has not gone away since Ebay bought StumbleUpon. To the contrary, the problem has continued to grow more acute. And StumbleUpon continues to be the best solution to the problem. Over 7.5 Million registered members discover, categorize and review Web pages, making StumbleUpon the Internet's most powerful recommendation engine.

I am thrilled to join the original StumbleUpon team in spinning the company out of Ebay. Along with Garrett and Geoff, Ram Shriram is reinvesting in the company and going back on the board. The primary financial backers of the spinout will be August Capital and Accel Partners and Sameer Gandhi and I will go on the board as well. I look forward to working with Garrett, Geoff, Ram and Sameer to continuing to build StumbleUpon into a large and important piece of the Web's infrastructure.

More Than Just Writing a Check

David Hornik — 2009-03-24T02:05:57-08:00

As one of the leading analysts and Web Strategists in the social computing space, Jeremiah Owyang meets with a lot of companies. He has the luxury of talking with big companies and small companies, public companies and private companies, venture-backed startups and bootstrapped companies. He is constantly looking at what makes one company successful and another one less so. Not only is Jeremiah a really smart guy, but he has a ton of data to support the conclusions he draws both in his day job with Forrester and in his role as confidant and advisor to numerous startups.

Given all that, I was thrilled to read Jeremiah's post "Beyond the Money: Some VCs Provide Startups With A Competitive Edge." In his post, Jeremiah asserts that VCs (at least the better VCs) are good for more than just money. What are we good for? Jeremiah lists a number of categories: Thought Leadership, Strategic Guidance, Being Part of the Family (e.g., Keiretsu), Ancillary Services (marketing, recruiting, etc.), Umbrella Branding (e.g., "an August Capital company"), and Networking. I would probably add to this high level list Recruiting and Capital Raising, both of which VCs can be very helpful with. Jeremiah concludes that "What [VCs] do beyond the investment makes a different - I can see it."

Thank you, Jeremiah! While I recognize that my job as a Venture Capitalist is to invest other people's money and, if all goes well, turn it into more money, I have a hard time thinking of Venture Capital as a "financial services" job. It is certainly the case that the financial services aspect of the job isn't what gets VCs up in the morning. What gets us up in the morning is the prospect of working with really smart people to build new and exciting businesses. And Jeremiah does a great job of listing the fun parts of our job -- advising, connecting, recruiting, etc.

All too often I fear that VCs are thought of as fungible -- one VC's as good as the next. It is certainly true that our money is fungible -- a dollar from any other VC will buy as much as a dollar from August Capital. But the aggregate value of taking money from another VC will be vastly different from taking money from an August Capital. My partners and I work hard to deliver value to our entrepreneurs on all the fronts Jeremiah describes. And those efforts can have a big impact for a company. VCs don't build companies, entrepreneurs do. But good VCs can do a whole lot more than simply write a check.

August Capital V: We Are Long on Human Innovation

David Hornik — 2009-03-19T11:02:02-08:00

It is a challenging fundraising environment out there for sure. And that is not just for startups. This economic crisis has far reaching-tentacles. As the public markets have declined, so too have the liquid portfolios of universities, endowments, foundations. And it is those institutions who are among the most significant investors in Venture Capital. As a result, VCs are finding it equally challenging to raise money of their own.

With that as a backdrop, we at August Capital went out to raise a new fund at the end of last year. And I believe that our experience mimicked that which startups are seeing in the market today. No matter how good your track record. No matter how good your progress to date. Fundraising is hard. Investors are swayed and distracted by external factors that may or may not have anything to do with your business or the likelihood of your success.

That said, just as the strongest startups today are managing to get funding (sometimes even in up rounds), so too are the strongest venture funds. The partners at August Capital have been in the venture business for as long as three decades and have consistently delivered positive returns to our investors in up markets and down. Just as we remain bullish about investing in great companies in these challenging times, our investors remain confident in our ability to make great investments in these challenging times.

As a result, my partners Dave Marquardt, John Johnston, Andy Rappaport, Vivek Mehra, Howard Hartenbaum and I have recently closed August Capital V, a $650 Million fund. We remain focused on early stage high tech startups throughout the technology landscape (software, hardware, chips, etc.). But we also believe that this economic environment will result in a number of larger opportunities -- spinouts, PIPEs, buyouts, etc. -- that will prove to be extremely attractive investments. Thus, we have the flexibility within our new fund to invest as much as several hundred million dollars in a single deal, should a sufficiently compelling opportunity become available. We look forward to investing on both ends of the company spectrum and now have significant resources to bet on the great companies we see, big and small alike.

We certainly consider ourselves very fortunate to have such steadfast support from our investors. And lucky to have the flexibility in our new fund to take full advantage of the opportunities that will arise out of these challenging times. As we said repeatedly during the fundraising process, we believe that an investment in August Capital is a bet on the future of human innovation, and we are very long on human innovation. We have already made four investments out of our new fund and look forward to continuing to invest in the great entrepreneurs we meet every day. We are certain that important new companies will be born during this economic downturn and we look forward to providing the funding they need to grow and prosper.

Aardvark: Answering the Tough Questions

David Hornik — 2009-03-12T01:48:33-08:00

When Google was out pitching their business to VCs, the reaction of many was "search? isn't that problem already solved?" And, in many ways, it was. Yahoo was well established. AltaVista and HotBot had all the geek cred. And there were plenty of other search options out there. So why in the world would you fund another search engine? (answer: to get really really rich.)

Today, more than a decade after Google got started, one once again could reasonably make the assumption that search is a solved problem. Why would a VC invest in search when Google has virtually cornered the market? The short answer is that many VCs are deeply afraid of missing the next Google (and who can blame them -- Google was the best venture investment EVER). But that's a crappy reason to invest in search. (In fact, it is a crappy reason to invest in anything.) There are plenty of other reasons to look for yet another paradigm shift in search.

I believe that the best reason to continue to invest in search is that search engines are getting worse by the day. Why is that? For one, the amount of content on the Web continues to grow at a staggering rate. While there may once have been a mere handful of definitive sources for any given search, there are now thousands of relevant results for virtually any topic. That problem is exacerbated by the explosion of user generated content.

Far more problematic for search, however, are the economic incentives around the whole search eco-system. There is huge money to be made in search and all savvy online businesses are acutely aware of that fact. Because so much money is at stake, herculean efforts are put into gaming the system. Search Engine Optimization (SEO) has become an economic imperative for all businesses. And the object of SEO is not to get people the most relevant search results to their queries. The object of SEO is to drive the greatest amount of traffic possible to the optimized websites. In other words, the economic incentives of the search business assure that huge efforts are put into making search results less relevant, not more so.

Given those realities, it has been clear to me for some time that important new search technologies would have to emerge to help solve the "decreasing quality of search results" problem. Enter Aardvark. The Aardvark founders -- a group of entrepreneurs hailing largely from none other than the Google mother ship -- pitched me on the power of injecting human knowledge and relationships into the search process. By drawing upon the knowledge of your friends and their friends, the Aardvark founders surmised that you would be able to get more accurate, more relevant, better tailored answers to a huge range of subjective questions (e.g., "Where's the best place to eat sushi in Palo Alto?" "How can I best convert my VHS tapes to a digital format?" "I love The Decemberists -- any other bands out there that I should be listening to?" etc. etc.) Thus, the Aardvark team went about building the necessary technology to solve that problem, and I had the good fortune to fund them in that quest.

This week the Aardvark team is launching the fruits of that labor at South By Southwest (SXSW). They have built a "social search engine" that lives inside your IM and email. It allows you to ask questions of Aardvark, which then goes about determining who among your friends and friends of friends is most qualified to answer those questions. As the Aardvark team point out in their blog, Social Search is particularly well suited to answer subjective questions where "context" is important. Aardvark allows you to gather that context, both implicitly through the relationships you have with the answerers, and explicitly through the conversations between questioners and answerers. The resulting answers prove stunningly well-tailored to the person asking the question. And they avoid the pitfalls of the current search engines -- they are not subject to the vagaries of the proliferating user generated content, nor of the economic manipulation of search results.

I'm certain that there will be ongoing innovation in and around search. Getting the best possible answer to any question -- objective or subjective -- that can be arbitrarily posed, is a monumentally challenging problem. Aardvark goes a long way to addressing the shortcomings of search today and I am excited to see it roll out to a larger group of people.

Fantastic Advice for Angel Investors

David Hornik — 2009-03-06T03:08:42-08:00

I had the good fortune of participating in the first (hopefully of many) AngelConf today. AngleConf was the brainchild of Paul Graham of YCombinator fame (although, you never know, it may well have been the brainchild of Jessica Livingston, so my apologies if that's the case Jessica). Not only is Paul a prolific angel investor, but he is also a thought leader and a mentor by nature. His AngelConf was an attempt to share the collective wisdom of the angel investor community with would-be angel investors.

The speakers at AngelConf were a veritable who's who of the angel world. Among those speaking were Ron Conway (Angel Investors, Baseline Ventures), Dave McClure (500Hats, Founders Fund), Paul Buchheit (Google, FriendFeed), Andrea Zurek (Google, XG Ventures), Naval Ravikant (The Hit Forge), Michael Dearing (Ebay, Stanford Design School), Mike Maples (Maples Investments), Ariel Poler (Textmarks, numerous startups), Aydin Senkut (Google, Felicis Ventures), Jeff Clavier (SoftechVC), and Jim Young (HotOrNot). Like YCombinator's rapid-fire demo days in which companies are given only a few minutes to present, each angel investor was given seven minutes to share his or her wisdom with the crowd. And this impressive group did not disappoint.

AngelConf was part training session, part confessional, part group therapy. Virtually all the speakers were in agreement that angel investing is not for the faint of heart. As one investor after the next stated, you have to be prepared to lose all your money. If losing your money is going to keep you up at night, perhaps angel investing isn't the thing for you to do. That said, there were plenty in the speakers lineup who have every intention of making money. Folks like Jeff Clavier and Mike Maples are investing other people's money. For them, the goal is assuredly to make money. For many of the others it was a fantastic mix of geeky pleasure at building great things, the need to stay engaged in the tech world, a desire to give back to the entrepreneurial community, etc. While for most of the speakers angel investing is essentially a full time job (even if they have another full time job), everyone in the room seemed to be there for the love of the game.

What was some of the most interesting advice imparted? Here are a few thoughts from the speakers:

* It's a small community -- if you screw one entrepreneur, you'll be out of the angel business because entrepreneurs talk (Conway)
* Angel investing is about learning on the job, which means that you can plan on screwing up your first 10 deals at least (McClure)

* If you assume that the money is gone once you've invested it -- that it is like a lottery ticket -- then you will have a better time angel investing (Buchheit)

* Work with other angel investors so that you can get the advantage of their expertise (Zurich)

* There is no rational way to arrive at valuation, so don't be overly concerned about getting it right (Graham)

* Don't worry if the idea seems crazy -- if it didn't seem crazy, it would be too late to invest as an angel (Graham)

* The lifeblood of angel investors is deal flow -- you need huge deal flow to find enough stuff that is worth investing in (Ravikant)

* The best deals come from other angels (Ravikant)

* Don't be afraid to throw a little dynamite into the status quo and see what comes out of it -- often times interesting stuff emerges (and sometimes nothing does) (Dearing)

* The Rule of 12 -- you need to invest in 12 companies to have statistical diversity -- invest in fewer than 12 deals and you run the risk of them all failing (Maples)

* Like in the movie "Oceans 11," you want to pull together the best team of angel specialists there are out there -- it increases the likelihood that the company will succeed (Maples)

* Help bring your entrepreneurs together so that they can learn from one another (Poler)

* By being a connector, you will see the most interesting stuff and work with the most interesting people (Senkut)

* Angel investing is all about the syndicate -- you can lead if you want to but it can be lonely until others join in the syndicate (Clavier)

* Angel investors need to distinguish themselves from others with money -- what do you bring to the table? Contacts. Experience. Advice. (Young)

* Only invest in stuff you actually know something about -- otherwise you're just buying a lottery ticket (Young)

All in all, a pretty jam packed few hours. The energy in the room was great. It felt very much like being in a room full of entrepreneurs. Because, in the end, like entrepreneurs, angel investors are company builders. They love technology. They love company creation. And, like me, they thrive on the fun and excitement of the startup world.

I hope that Paul will have another AngelConf some time in the future. It was a fantastic way to spend the afternoon.

DEMO will miss Chris Shipley

David Hornik — 2009-02-19T00:16:46-08:00

I was deeply saddened to read Erick Schonfeld's post on TechCrunch entitled "DEMO Gets Desperate: Shipley Out, Marshall In." The feud between Mike Arrington and Chris Shipley has been well documented. Arrington has gone so far as to hope for the demise of the DEMO conference. He and Jason Calacanis have taken great pains to question the ethics of DEMO's business model.[1] They have lashed out at Chris Shipley repeatedly. And now Erick Schonfeld has jumped on the DEMO-bashing bandwagon.

I have known Chris Shipley for many years. She is fair and honest. She is smart and thoughtful. And she has worked long and hard to build the DEMO conference into a premier outlet for startups. Chris Shipley is a believer in the power of technology and the value of emerging companies. She has helped launch many hundreds of great companies and products. And she is a powerful advocate for those companies that she has showcased on the DEMO stage.

Today it was announced that Chris is handing over DEMO to Matt Marshall of VentureBeat. My congratulations to Matt. I wish him the best of luck in his new role with DEMO. I have long been a fan of the DEMO conference and hope that it will continue to prosper. As Marshall Kirkpatrick writes in ReadWriteWeb, "We'd like to see a bunch of successful conferences thrive and bring great technology into the public eye." I couldn't agree with him more.

I look forward to attending this year's DEMO conference a little over two weeks from now. I am sure that I will see some compelling demos, meet many great entrepreneurs, and get a broad overview of the startup landscape. But, most of all, I look forward to seeing Chris Shipley on the DEMO stage one final time and to wishing her the best as she passes the torch to Matt Marshall. Chris has been a wonderful steward of the DEMO conference and her thoughtfulness will surely be missed.

[1] I personally believe that the suggestion that DEMO's business model is somehow less ethical because startups are charged to participate in the event is silly. It is, no doubt, a different model than Arrington and Calacanis's conference which makes its money through sponsorships and registration fees, rather than demonstration fees. But that does not make it less ethical. Is it unethical for Sprint to charge for 411 calls merely because 1-800-FREE411 will provide information for free? I don't think so. It's a shame that Chris Shipley has had such strong accusations leveled at her over these last couple years.

The Evolution of TED

David Hornik — 2009-02-09T00:36:48-08:00

For almost a decade I've been enjoying the TED conference. For those of you who haven't heard of it, the TED conference is a mind-blowing gathering of deep thinkers from the worlds of Technology, Entertainment and Design (plus any number of fields in and around Technology, Entertainment and Design). Over the years, the audience has become almost as star studded as the speaker lineup -- folks like Matt Groening, Paul Simon, Al Gore, who once graced the stage now show up to listen and be a part of the broader TED community. The result is 4+ days of mental over-stimulation, followed by exhaustion and then a countdown until next year's TED.

This year marked the 25th anniversary of TED. The conference started as a small gathering back in 1984 and has grown over the years in both scale and notoriety. Up until a few years ago, TED grew by virtue of word of mouth. Folks like myself who had the good fortune of finding our way to TED would inevitably return signing its praises and bring a few friends with us the next year and the next year and the next year. That all changed when the TED organization decided to release videos of the TED talks into the World Wide Web. Since that time, TED talks have been viewed over 100 Million times and awareness of the TED conference has skyrocketed, as has demand for the conference.

In response to rising demand and the logistical challenges associated with TED's old venue in Monterey, California, the TED organization moved the conference this year to the Long Beach Convention Center. In many ways, Long Beach could not be further from the quaint, upscale TED tradition in Monterey. For one thing, the old Monterey theater held a mere 500 people, whereas the new Long Beach venue accommodates 1,700 in the orchestra alone. Long Beach is a city. Monterey, a town. For those of us making the transition from the TED of old to the TED of new, the contrasts were great and comparisons near impossible to avoid.

Given all that, it is not surprising that many of the TED old guard expressed deep concern about TED in Long Beach. They felt that it was too large, too impersonal, too lacking in community. They objected to the new, bigger theater. They complained about the impersonal character of the city of Long Beach. And they weren't too fond of the food either.

So why am I not surprised by these complaints? And why do I think that the TED organization should not be too concerned? Those of us in the startup world have seen this play before. When companies succeed, prosper and grow, there inevitably comes a time when they need to move out of their quaint, nostalgic offices and into new, bigger, often less-personal digs. The employees who have been with the company since its inception bemoan the change, pointing to it as evidence that the company has lost its bearing. They are certain that the company will not survive the transition intact. And while some of those early employees may not make the transition themselves, the growing and prospering company usually does.

Those companies that manage to transition best from small, gutsy startups to large, established companies are the ones with the strongest corporate cultures. While growing companies inevitably have to make certain adjustments to their traditions to accommodate their increased scale and trajectory, the heart of their corporate cultures remains vibrant and continues to support the companies' expansion.

So too with TED. The TED culture is a powerful one. Indeed, the culture of TED has continued to grow over the two and a half decades it has been in existence. That powerful culture has been reinforced by the philanthropic bent of Chris Anderson, who has been TED's "curator" for almost a decade now. People attend TED, not only to have their minds expanded, but with high hopes for helping build a better planet. And with that overarching goal, the TED culture remains vibrant.

I suspect that some long-time TEDsters will drift away as a result of the move to Long Beach. But there will be plenty of eager participants ready to take their place. And those of us who remain will continue to be treated to a dizzying mental carnival, surrounded by an eclictic community of friends, old and new alike.

Enterprise Software is Not Dead Yet

David Hornik — 2009-01-26T22:40:00-08:00

My posts of late have reminded me of the scene in Monty Python's "Holy Grail" when, despite being left as rubbish on the side of the road, the old man insists "I'm not dead yet." That's my mantra -- not dead yet. It may be a stretch to say "I feel like dancing." But we are definitely not dead yet.

In the tech world, the sector that has perhaps been most left for dead is enterprise software. For some time now the pundits have been declaring enterprise software moribund -- they argue that everything worth building has been built. And what little room there may be for innovation, will best be served by the existing behemoths, SAP and Oracle. Bring on the recession and, the conventional wisdom goes, those of us who have invested in enterprise software might as well close down the companies and recover what little cash we can.

I'm here to tell you that the pundits are wrong. Enterprise software is alive and well. But like all other things in this recession, only the truly strong will survive. And strong is pretty easily defined in this economy -- the strongest enterprise software companies deliver their customers the biggest Return on Investment.

For most companies today, ROI will be measured in total cost savings. Can I cut fat out of my technology budget? In many instances, the heros of the cost savings battle will be SaaS companies. By now it has been well documented that Software as a Service delivers significant savings in Total Cost of Ownership, let alone cheaper annual licenses. The overall savings are so great that enterprises are increasingly looking to SaaS companies to replace enterprise solutions that they were previously hosting behind the fire wall. And, while it is no insignificant task to grow an enterprise SaaS customer base, once that customer base has reached critical mass, it is the gift that keeps on giving -- each month's revenue starts with the previous month's revenue and grows from there. [1] Look no further than Salesforce, Workday, and the likes -- Strong SaaS solutions are going to continue to prosper in this economy.

SaaS companies aren't the only enterprise software solutions out there delivering great cost savings. There are a number of next-gen enterprise applications that do more for less. The sales pitch is easy -- for fewer dollars than you are paying for maintenance on your existing enterprise stack, you can purchase a modern application designed to address your problems using up to date technology. Take my portfolio company Splunk, for example. Rather than continue to pay the likes of SAP, Oracle, HP huge amounts of money for enterprise management, debugging, compliance and search tools, Splunk will deliver greater functionality and flexibility for a fraction of the cost. So it is not surprising that, despite the economic challenges enterprises are facing, Splunk's user-base and revenues are growing significantly quarter over quarter. The same story applies to the open source stack as well (mySQL, XenSource, etc. etc.). Companies will pay to save money. Even in a recession, those enterprise solutions that can credibly argue that they will save you more than they cost will continue to grow.

There is one other class of enterprise software that will fare well through the recession. That software is also sold with an ROI story. But the ROI isn't delivered with cost savings. The ROI is delivered with increased productivity. It's a hard story to sell in a down economy, but the best companies will manage to do it nonetheless. There is no question that those companies that continue to invest in technology through the down cycles will disproportionately benefit when the pendulum swings back the other way. Perhaps the easiest version of the productivity story is Price Optimization. If you can credibly argue that a customer's increased profits will exceed the price it will pay for the software, purchasing the software should be a no brainer. Supply Chain and CRM software were sold on a similar efficiency story in the late 90's and early 2000's and, in many instances, continue to drive significant ROI for those customers who adopted them early.

I don't want to sound too Pollyanna-ish as I continue to bang the drum for technology in this economic downturn. But the best companies will assuredly survive and thrive. And that goes for enterprise software as much as anything. I have no doubt that there are still huge enterprise software companies to be built and I am as anxious as ever to fund them.

[1] It is possible for a SaaS company's revenue to go down month over month, but that would require that its attrition rate be greater than its acquisition rate. For the best SaaS solutions, that is quite unlikely (given TCO, ease of use, etc.) -- they have proven wonderfully sticky. The biggest challenge for SaaS solutions is unquestionably user growth. Once acquired, SaaS customers tend to be in for the long haul.

Will VCs Continue to Suspend Disbelief

David Hornik — 2009-01-22T20:29:21-08:00

A huge number of web startups were funded over the last five years. Anyone who reads TechCrunch has seen them chronicled; the Web 2.0 menagarie was dizzying. And, like in the late '90s before, the hopes (if not expectation) for each and every company were high. So why do I believe that we will see a big number of web businesses shuttered in 2009? Because the change in economic climate has made it more difficult for Venture Capitalists to suspend disbelief.

Early stage venture investors have relatively little information upon which to based our investments. We certainly have the most important clue as to the likely success of a company -- we know who the founders are. But otherwise we are necessarily making predictions about user growth, market expansion, monetization, etc. And in order to invest, we need to suspend disbelief about all of these metrics and assume growth, adoption, monetization....

At each stage of investment, VCs need to suspend disbelief about some criteria or other. Initially it may be the ability to build a product with universal appeal. The next investor may see a product with universal appeal but need to suspend disbelief about the company's ability to monetize that audience. The next investor may see a product with a big audience that is in the early stages of monetization but need to suspend disbelief about the ability to scale the scope of the business and the economics. Even expansion stage investors ultimately have to suspend disbelief that even with a working product and monetization that a company will be able to maintain growth and ultimately reach liquidity. So the investment lifecycle of a startup necessarily requires a fair amount of faith.

What happens in a down economy? Investors become less willing to suspend disbelief. Entrepreneurs need to make more progress between financing events before they are able to find investors willing to bet on their ultimate success. And while some startups will be able to manage that transition, others will not be able to reach this heightened bar. I suspect the end result will be a large number of web startups funded in the mid-2000's will run out of money and, unable to find investors who are willing to suspend disbelief, will have to close their doors.

I don't think that this is necessarily an indictment of those startups or the venture process. It is just a byproduct of a system that necessarily involves a huge amount of risk. In up economies, the system is more forgiving. In down economies, less so. But, in the end, the strongest startups survive and thrive.

So, will I continue to suspend disbelief? You bet. Early stage venture investors have no choice but to believe and build. Otherwise, we will invest in nothing. I realize it is a challenging environment out there for company building. But the best antidote to disbelief is real progress. The startup world is always a meritocracy but never more so than in a tough economy. Those companies that show results will continue to get funded. Those that don't, won't. My hope is to continue to invest in those that do. And then work hard to bridge the disbelief gap.

Innovation Doesn't Take a Vacation in an Economic Downturn

David Hornik — 2009-01-21T06:24:11-08:00

By the end of 2008, Venture Capital had been officially declared dead. Startups were laying people off so fast that even TechCrunch couldn't manage to keep up. University Endowments and Foundations, the source of the "capital" in Venture Capital, were hemorrhaging so badly from their public company investments that many long-time believers in "alternative assets" declared a moratorium on Venture Capital. And the IPO market was a distant memory. Good times!

Welcome 2009. The public markets remain closed. Venture investors and the investors in venture investors remain "challenged." Follow on financings have become increasingly difficult, in some instances impossible. And, while there may well be light at the end of the tunnel, it would appear that we haven't gotten far enough down the tunnel yet to see that light.

So why am I optimistic about investing in 2009? Because entrepreneurship is an addiction, it isn't a choice. Great entrepreneurs aren't driven to create companies because it is easy, or because capital is plentiful, or because the public markets are swallowing anything the venture community will throw at them. Great entrepreneurs start companies because they can't help themselves. They see a problem or a solution or white space or an opportunity and they have to do something about it.

Innovation doesn't take a vacation during an economic downturn. Innovation is a constant. While the resources an entrepreneur may be able to bring to bear on a problem may vary with the economic climate, the desire -- the need -- to innovate never goes away. And Venture Capital is the fuel of that innovation. [1]

So I remain excited about the companies that will be started in 2009. There will be great companies started during this economic crisis. Some of them will be born out of the crisis itself. Others will simply be born during the crisis. But, rest assured, there will be important tech companies hatched in the next year or two. And I am certainly hoping to fund them.

[1] Some of you reading this will say to yourselves "starting companies today is so inexpensive that we don't need no stinkin' VCs." More power to you. I don't mean to suggest that innovation will die without Venture Capital. There are many great ideas that can come to fruition without a meaningfully-large capital infusion. My hat is off to the 37 Signals and Smugmugs of this world. But for those ideas that require investment ahead of revenue to reach their full potential, Venture Capital remains an important resource for company building.

Great Entrepreneurs Build "Tribes"

David Hornik — 2009-01-15T17:23:54-08:00

I have just finished reading Seth Godin's latest book, "Tribes." The book tells many a tale of how out-of-the box thinkers, undaunted by conventional wisdom or fear of failing (or falling, for that matter), have changed the world in big ways and small alike. But it is not a tale of super heros who stand alone against the forces of evil. It is a tale of countless leaders who manufactured outcomes by inspiring others to lock arms with them in the quest for results -- fewer euthanized pets, a collective encyclopedia, deeper understanding of wine, etc. [1] The message is a simple one: you too can inspire a tribe to collective action, so get on it.

So what does it take to create a tribe? What does it take to inspire a team, or a club, or a movement? The question is certainly of interest to anyone building a startup. As Seth points out, there is a big difference between employees and followers. Employees do what they are told because it is their job. Followers do what they can because they believe. Great companies bear out this distinction. Look at the faithful at Apple or Google or Amazon. They are true believers. These companies don't recruit, they inspire. And the influence of great companies reaches far beyond the ranks of their employees. Bloggers become evangelists. End users become customer support agents. These companies become tribes, growing their influence and mindshare by leaps and bounds.

According to Seth, tribes are started by heretics of sorts. They are not blinded by the status quo. They are not afraid of failure. They are true believers in what they are doing. And they barrel forward without concern for the potential consequences of the decisions they are making. They lead by example. And they are unendingly generous to their communities -- giving of their time, their ideas, their selves. In short, these heretics are great entrepreneurs!

One need look no further than Seth's seven elements of leadership to appreciate that he is talking about entrepreneurs.

Leaders challenge the status quo.

Leaders create a culture around their goal and involve others in that culture.

Leaders have an extraordinary amount of curiosity about the world they're trying to change.

Leaders use charisma (in a variety of forms) to attract and motivate followers.

Leaders communicate their vision of the future.

Leaders commit to a vision and make decisions based on that commitment.

Leaders connect their followers to one another.

I am often asked what it is I look for in an entrepreneur and this list isn't a bad starting point. Great entrepreneurs care deeply about what they are doing and are able to convince others to join their cause (i.e. their tribe). Their followers include employees, customers, journalists, partners and, on occasion, VCs.

For those of you starting companies out there (or trying to strengthen your corporate culture), "Tribes" is worth a read. It is certainly not prescriptive. But it has many nuggets of wisdom that will help you inspire and lead.

[1] While I was in college I ran a speakers bureau that brought a eclectic group of brilliant individuals to campus. One of my speakers was Chuck Jones, the creator of the Road Runner, Pepe LePew and Wile E. Coyote. I remember vividly listening to Chuck Jones' rail against the cartoons of the time, which he said gave kids the wrongheaded message that no one could do anything on his own -- everything required a team or a group or a tribe (his favorite example were the Smurfs, which he viewed as a tiny blue scourge on the cartoon world). I wonder if Chuck Jones would have taken issue with "Tribes" and its call to collective action.

Why I am Voting NO on Prop 8

David Hornik — 2008-10-30T10:58:13-08:00

While I have never before used VentureBlog to discuss anything other than entrepreneurship and venture capital, I have decided to make an exception to discuss why it is I oppose Proposition 8 here in California. I have not made this decision lightly. I don't believe in mixing business and politics. But I believe that Proposition 8 runs sufficiently counter to the basic tenets of fairness and human decency that power our democracy that I can not sit idly by.

I was not yet born when Martin Luther King Jr. delivered his famous "I Have a Dream" speech at the March on Washington in 1963. Had I been alive, however, I like to think that I would have been there cheering him on. I like to think that I would have stood against segregation and done everything in my power to dismantle that unjust system. I like to think that I would have put my legal background to work defeating those laws that made interracial marriage illegal. I like to think that I would have joined the picket lines, sat at the lunch counters, sued the school systems . . . done whatever I could to fight the injustice of segregation.

Today I think that Californians are at a similar crossroads. Like the courts that invalidated Jim Crow laws and segregation a half century ago, the California Supreme Court has determined that the State may not discriminate between heterosexual couples and same sex couples -- accordingly, the State Constitution requires that same sex couples be given the right to marry. In response to that ruling, thousands of same sex couples -- many of whom had been in monogamous relationships for decades -- rushed to get married. And, yet, those marriages are now in danger of being invalidated. That is just wrong.

A little over a month ago I attended the wedding of my good friends Ali and Laura. I came to know Ali and Laura as the moms of one of my son's school friends. Ali and Laura are smart, successful, caring women who, above all else, are wonderful mothers. Their sons are growing up in a stable and loving home. Yet, until this year, Ali and Laura could not contemplate getting married. Their wedding ceremony was as much a celebration of their love for each other and their powerful committed relationship, as it was the validation of their family unit. At the wedding, my son's friends celebrated the fact that they could have married parents just like the other kids in their school. It was truly a joyous day.

Yet, Proposition 8 seeks to take away that right. Not only would Proposition 8 strip Ali and Laura, and thousands of other committed gay couples like them, of their right to marry, it would strip their sons of their right to have married parents. Should we amend the State Constitution to not only take away Ali and Laura's rights, but also the rights of their sons? And if Laura and Ali can be stripped of their right to wed, why not also my brother and sister in law, who are of different races? Should they fear that their rights are the next to be stripped away? Should my niece be concerned that the citizens of California may deem her unworthy of having married parents as well?

To my mind, voting NO on Proposition 8 is very simply an issue of fairness. Proposition 8 seeks to amend the Constitution to take away the rights of same sex couples -- the very same rights that heterosexual couples have always had. That is not equality. All of my children, gay or straight, should have the opportunity to marry the person they love. Anything shy of that simply does not reflect the ideals upon which this country has been built. So I urge you to vote NO on Proposition 8 this coming Tuesday. Ali and Laura's sons deserve to have happily married parents. Who are we to take that away from them?