Insightful Interview with Tony Hsieh of Zappos

Tony Hsieh, who sold Zappos to Amazon for $1.2BB, was recently interviewed by Henry Blodget of Silicon Alley Insider. It is an excellent and revealing interview that delivers some useful insights into the importance of company culture, and how Zappos is working to ensure that what makes them special will persist even after the acquisition by Amazon ... well worth watching.

The 4 Key Assumptions Driving Canada's Newest Venture Fund

Congratulations to the team at Real Ventures on the launch of Canada's next great Venture Fund.

Here's an excerpt from JS Cournoyer's post this morning talking about the key assumptions driving the fund:

 

1- The cost of getting a company from idea to the validation of the business model is now 10X less than what it was 5-10 years ago and is no more than a few hundred thousands $ for consumer Internet companies and less than $1M for companies targeting the enterprise:

a) The evolution of opensource platforms and development frameworks means that software or web services that used to take a team of 6 people over a year to build now takes 2 people less than 3 months. In addition, software infrastructure costs are zero (operating systems, databases, etc.)

b) Because of the cloud, hardware costs (servers, storage, bandwidth) are now directly proportional to utilization, meaning that startups can get started for less than $100 per month;

c) There are now many platforms with more than 100 million active users that are seamlessly accessible to third party apps, software and web services providers including Facebook (500M +), Twitter (200M+), Iphone and ipod touch (more 250M+), Android (250K new activations per day), Google search and adwords, Google Apps, Gmail, Salesforce AppExchange, Amazon, etc. These platforms allow companies to transact with their customers with one click in many cases. Combined with a blog and media industry dedicated to technology, it now costs very little for a startup with a good product to get access to customers.

2- M&A is the new R&D and talent recruitment: The IT market is maturing. To maintain historical growth rates, midsize and large companies have to diversify their service offering. These companies have all been built under a different development and innovation model and cannot innovate at the speed that is required today. In addition, mobile and the web are now important parts of every consumer facing company’s business but they can’t recruit the young talent that would rather work in startups. They have to resort to M&A to acquire new product lines and talent through smaller acquisitions in the $5M-$100M range. Google alone has made more than 20 this year. Mark Zuckerberg, the CEO of Facebook, stated in an interview with GigaOM they have only made talent acquisitions so far in their short history.

3- The access/proximity to capital is not a competitive advantage anymore. Now that startup costs are getting close to zero, being in the valley and having access to capital is not a condition for success. What companies need is enough capital to get to market validation from people who can help connect them to funding, business development and corporate networks. This is what we do. Although most of the seed funding activity has come from the San Francisco-Silicon Valley area, other pockets such as New York, Boulder, Chicago, Seattle, Research Triangle, London, etc. have emerged. In Canada, Montreal, Vancouver and to a certain extent Toronto are booming.

4- The rise of the Super Angels is having the effect of increasing the size of the seed rounds in the US and driving Series A and B valuations to stratospheric heights. I believe this will have the effect of increasing the number of US VC funds that come to Canada for early stage investment opportunities.

 

One Journey Ends - Another Begins

Let me start with a brief digression, before circling back to the actual point of this post …
 
Winning startups are built from a combination of exceptional people, breakthrough technologies and/or disruptive business processes (preferably all three). However, there is also an element of being in the right place at the right time.
 
Every once in a while, a blend of forces comes together to create a unique set of conditions that enable the formation of exceptional startups … the sorts of startups that rise from the lab to global domination in less than a decade … you know the ones I mean … the Microsofts, the Googles and the Facebooks of the world. These are the truly magical moments in the history of startups.
 
I believe we are right in the middle of one such moment.
 
There are three interesting trends (among others) that have come together to create powerful building blocks for innovation:
  1. Fundamental changes in the economics of building a high technology based business (cloud computing, open source, a rich ecosystem of reusable components and services, etc.)
  2. The rise of the real-time web, social networks and massively concurrent global conversations.
  3. The unbelievable expansion of devices at the edge of the network (replete with new features and capabilities such as LBS). By the way, I am not only referring here to the explosion of smartphones & tablets, but also to the pending ramp of a myriad of other devices (what some people call the Internet of Things).
Information (or data in its raw form) is being generated, shared and exploited like never before in human history. It’s the “never before in human history” bit that is an important catalyst for the creation of entirely new business opportunities. It is an also an important catalyst for generating hugely disruptive threats and/or pressures to existing businesses.
 
It’s a volatile and powerful combination. Call it a primordial soup of innovation if you like.
 
We’ve already seen the first wave of “consumer” focused companies rise from this era, and we will no doubt see many more. What we have yet to see, I believe, is the commensurate rise of the next generation of “enterprise” focused companies. It is clear to me that enterprises are on the verge of aggressively exploiting (both opportunistically and out of necessity) this new wave of ideas/innovation.
 
I actually grew up in the Enterprise Software space … in what you might call its “golden age”.
 
INEA (my first startup) focused on helping financial institutions measure and manage the present (profitability by customer, product, line of business, etc.), while laying the foundation for the future (planning and forecasting). Doesn’t sound that sexy right? Well think about this … a wise banker once told me that “running a bank was like driving a supertanker … blindfolded”. Scary huh? Well, INEA was in the business of helping financial institutions deal with that big hairy problem.
 
By the time INEA was acquired by Cartesis in 2005 (which was subsequently acquired by Business Objects and SAP), our software was powering some of the worlds largest and most complex financial institutions, and had been deployed in over 40 countries.
 
As a small company, we kicked ass. We were the David to the Goliaths of the ERP world, and we won because we leveraged our most precious resources: our unique knowledge, a fanatically loyal customer base, our amazing team and an incredible ability to innovate quickly.
 
Following the sale, and after a fascinating stint as an EIR at Ventures West (one of INEA’s investors), I had the opportunity to become part of a very different type of business. In fact, one about as far away from enterprise applications as I thought I could get :-)
 
Viigo, which grew to be one of the most highly downloaded BlackBerry apps of all time, was a nimble, fast growing, mobile software company, powered, again, by an exceptional group of people. Unlike the 6 to 7 figure deals that were common at INEA, we gave Viigo away for free, leveraging a “late monetization” strategy to generate revenue. While the millions of downloads were our initial measure of success, by the time of the acquisition, we were starting to generate significant revenue.
 
What was interesting about this revenue was that it was becoming heavily dominated by enterprise purchases. It was clear that that enterprises were starting to wake up to the power of real-time information in the hands of front line workers. But it was only a start, and I sense that there is much more to come. 
 
So, to the point of this whole meandering conversation … 
 
When we closed the Viigo transaction in March of this year, as I had done with INEA in 2005, I agreed to remain with the buyer for 6 months in order to help ensure the rapid and successful integration of the company.
 
The integration with RIM worked well. Thanks to the experience of both teams and the hard work of both sides, we had integrated and/or cut over all core business processes within 90 days, and the Viigo teams were docked safely into their new homes. Note: the really exciting stuff, the result of the technical phase of the integration, will be evident shortly :-)
 
At RIM I had a chance to work with one of the most interesting and stimulating groups in the organization. The Strategic Alliances team, which is responsible for M&A and strategic business development, is filled with bright, dedicated and passionate people, and it was a pleasure to work with them on some fascinating projects, not to mention being able to witness the acquisition process from the other side.
 
So, why would one want to leave all this after 6 months?
 
It isn’t that I don’t believe in the future prospects of RIM, or that it wouldn’t be a fun place to work, it is just that the lure of startups is too strong. Nothing can compare to the thrill of building a startup, and/or working closely with a startup community.
 
Most importantly, nothing can compare to the opportunities that I believe are present for startups at this current point in time.
 
Just looking at Toronto and Montreal, and the wave of innovation that is happening in these cities alone, and I can’t help but feel that it is the most exciting we have seen in many generations.
 
And what better way to begin the next phase of my journey than by participating in the first StartupWeekend ever in Toronto. I’m looking forward to hanging out with the teams, this weekend, as they work hard to build real products within 54 hours. I’ll be speaking on Saturday evening about one critical element in the lifecycle of a startup ... namely pitching your first VC. Hope to see you there.
 
To the Viigo Team, it was a wonderful experience working with all of you ... you are what made the whole Viigo success possible ... I look forward to keeping in close touch ... and perhaps even working together again one day. (caveat caveat: subject to non-solicit, non-hire, no talky-talky clauses, etc.)
Mark

VC Perspectives: Excellent Interview With Fred Wilson of Union Square Ventures

Techcrunch has posted an excellent interview with Fred Wilson, one of the most important and influential consumer Web investors out there.

Topics covered:

 

  • Is Venture Capital still a home run business?
  • Why he won't do Convertible Debt
  • His views on whether crowd sourcing funding will disrupt the VC industry
  • Advice to foreign entrepreneurs looking for US VC funding
  • How much salary a founder should ask for?
  • Much, much more ...

 

It's well worth watching!

VC Perspectives: An Interview with Brad Feld of Foundry Group

Om Malik recently did an excellent interview with one of my favourite investors, Brad Feld of Foundry Group.

They cover a lot of interesting ground, including why Brad feels early stage investors don't need to be proximate to the early stage companies that they invest in. This is contrary to the typical perspective that many early stage VCs now have. 

Absolutely worth watching in my opinion ... 

VC Perspectives: Interview with Greycroft's Dana Settle

Mark Suster, who writes the VC blog Both Sides of the Table brought my attention to an excellent interview with Dana Settle of Greycroft on This Week in Venture Capital.

Greycroft is an early-stage VC.  Their first fund was a $75 million fund raised in 2006 and they very recently announced a brand new $130 million fund.  Closing a VC fund in 2009/10 is a major achievement in and of itself.

In the intro section of the show we talked a lot about why VC funds are becoming smaller again and where Greycroft fits.  We also discussed the fact that you have evolving stages of VC broadly defined as “super angel” funds of $20-40m (Founder Collective, Felicity Ventures, Dave McClure, Jeff Clavier with SoftTech, Mike Maples, Rincon Ventures & Crosscut in SoCal), early-stage VCs (Greycroft, First Round Capital, True Ventures), A Round investors (Foundry Group, Union Square Ventures, GRP Partners), B Round investors (DAG, Matrix, Polaris, Lightspeed, Battery) and growth equity players (General Atlantic, Insight Venture Partners, Summit, Francisco Partners).

 For more on Mark's summary, click here.

 

 

Email as an Enterprise Platform

Interesting post today on Google's Blog announcing their new Gmail APIs. These new services allow Gmail to be extended by means of content-aware Contextual Gadgets (such as the preview capability we have already seen demonstrated with embedded YouTube, Google Docs and Picasa content before).

Excerpted from the Google Blog.

Starting today, third party developers can build Gmail contextual gadgets and distribute them in the Google Apps Marketplace. These gadgets can display information from social networks, business services, web applications and other systems, and users can interact with that data right within Gmail. Contextual gadgets are yet another example how the power of the web can outpace traditional business technology.

Several new contextual gadget integrations for Gmail are available to Google Apps customers in the Apps Marketplace today:

  • AwayFind lets you mark certain contacts or message topics as ‘Urgent’ and then alerts you via phone, SMS or IM when relevant messages arrive.
  • Kwaga displays social network profiles and lists recent email exchanges with people you correspond with.
  • Gist brings together information from across the web about people you’re corresponding with, providing rich person and company profiles, news and updates.
  • Pixetell detects email links to video messages created with Pixetell’s video software and lets you preview, comment on, and share those videos without leaving your inbox.
  • Smartsheet lets you access and update entries in Smartsheet’s sales pipeline and project management tool.
  • Xobni, Rapportive, Manymoon, Newmind Group, and BillFLO have also launched their own contextual gadget integrations
Like any other applications in the Google Apps Marketplace, a Google Apps domain administrator can install a contextual gadget from the Marketplace with just a few clicks. Both before and during the install process, administrators can review the portions of an email the gadget will have access to, and can revoke that permission at any time from their control panel. For more information on the Google Apps marketplace, watch the overview video.

To learn more about the new contextual gadget applications available in Gmail, head to the Google Apps Marketplace and browse for apps that have ‘Mail Integration’.

Google is working hard to demonstrate the power of the open web, not only to provide compelling differentiation for its apps, but also to evangelize the concept in general. At its heart, this is really an example of the power of the App as a platform vs. the App as a closed ecosystem. It's also part of Google's relentless march towards demonstrating that the web is a credible (in fact preferred) vehicle for the delivery of application functionality.

It remains to be seen how quickly enterprises will Google's apps and the Open Cloud however, with security and other issues being a natural drag on early adoption. Google is betting however that the ingenuity of the developer ecosystem will eventually create such an array of value/ROI that it will be hard to resist.

 

The dynamics of the Mobile Internet and the forces influencing its explosive growth

In this article, Brian digests Morgan Stanley's latest series of reports on the Mobile Internet and pulls out some important conclusions.

Not surprisingly, some of the key forces driving the accelerated growth of the mobile internet include location based services, social networking (Facebook in particular) and the rapid rise of the iPhone/iPod Touch ecosystem.

He goes on to point out that "Morgan Stanley views Facebook and Apple driving independent yet overlapping platforms that are forcing innovation in social and mobile connectivity and communications. Essentially, they are driving growth and ingenuity for one another while setting the stage for a new era of social networking."

Not only will the velocity of this market expansion dwarf that of the Desktop Internet, it will open new opportunities for wealth creation. According to Solis, one of the other key takeaways from the Morgan Stanley report is that ...

"Material wealth creation / destruction should surpass earlier computing cycles. The mobile Internet cycle, the 5th cycle in 50 years, is just starting. Winners in each cycle often create more market capitalization than in the last. New winners emerge, some incumbents survive – or thrive – while many past winners falter."

Exciting times to be in mobile methinks.

First Round Capital Gives Entrepreneurs A Way To Get In On The Portfolio Action

 

I think this is a very interesting idea ...

First Round Capital is letting its entrepreneurs swap part of their equity for equity in the fund, thereby allowing them to diversify their risk a bit, and participate in the overall success of the fund.

Beyond the diversification strategy, this is potentially powerful stuff, especially for funds with synergistic investments ... i.e. where the entrepreneurs can benefit from supporting and/or cross-leveraging each others products.

Could this be the start of a trend? Dare I say, Venture 2.0?

Read the original TechCrunch article here

 

4 Sources of Sample VC Funding Docs

In the spirit of Open Source, a number of VC funding documents are popping up around the web. Here are four worth looking at (courtesy of @fredwilson):

I'm not sure that the concept of "open source" funding documents will ever take off, but I have seen some pretty convoluted and arcane docs in my time, so at a minimum, I do like the idea of a repository of "best practice" or even "sample" documents being readily available, transparent and subject to open debate.

I do hope that better visibility and open discourse lead to improvements in the clarity and simplicity of these types of documents. Sometimes I am stunned at how poorly written funding documents are, as the institutional memory of all things that have gone bump in the night before gets cobbled together into the text like some sort of Dr. Seuss contraption.

Seeding the Future

 

I love this image of new life, and can't help but be reminded of how fragile and yet full of promise early stage startups can be.

This Scots Pine seedling might be a huge tree one day ... or, then again, it might not survive ... nonetheless, it's still going for it.

Reminds me of that great line from Lord of the Rings "Almost certain death, small chance of success ... what are we waiting for"!

Carpe Diem