Deal Horizon

Official Google Blog: A different kind of company name

2010-04-01T09:00:00.000-07:00

Google, Topeka, Fred Wilson and Playful Web Apps

This Blog is now at DealHorizon.com

2008-09-16T21:15:00.000-07:00

Hi Everyone,

I'm now blogging over at the main site - the new Deal Horizon supports multiple blogs, authors, comments, and integrated messaging - along with the database, so I thought it would make sense to have everything there.

Thanks for being here - and come on over to www.dealhorizon.com and check out my latest blog posts, and the posts of other authors as well.

John

Einstein's Father

2008-09-04T18:53:00.000-07:00

I'm listening right now to an audio version Walter Isaacson's book on Albert Einstein. What is most interesting is his description of Hermann Einstein, Albert Einstein's father - an entrepreneur who was among the first to bring electricity to towns and cities in Europe.

Back in the late nineteenth century, Einstein's father used to turn up to city council meetings with his brother Jakob, and try and sell the cities on the concept of "electric lighting" - in much the same way as entrepreneurs today try to do with "wimax".

Like the entrepreneurs of today, Einstein's father went broke a couple of times, before finally moving to Italy, where he landed a modest contract that enabled him to pull the family finances back together prior to dying in 1900, five years before Einstein's famous four-paper Annus Mirabilis.

The image of Einstein watching his electrical engineer father is a fascinating one. Given this proximity to his father's electrical equipment, it now comes as no surprise that Einstein's first scientific paper, written at the age of fifteen, was entitled "The Investigation of the State of Aether in Magnetic Fields".

Isaacson's description of the kind of technologies that were being adopted in and around Berne during the time that Einstein famously worked in the city as a patent clerk, also provide a feel for why Einstein was inspired to think about certain subjects, such as "instantaneous events".

As Isaacson tells it, when he arrived in Berne, Einstein was immediately surrounded by systems created for the purpose of synchronizing events, such as a city-wide system of electrically-linked clocks that enabled people to turn up to work at the same time, or reliably catch a train to Geneva.

It was of course Einstein's realization that no event is ever really "simultaneous" - an event will always appear to occur at different times relative to the standpoint of two observers in motion - that started him on his theory of relativity.

One wonders what alternate theories might have been produced had Switzerland not adopted "synchronized" clocks at the time Einstein took up his post.

One also wonders what Einstein might have become - and what alternate scientific theories we would currently be using - had Einstein' s father, Hermann Einstein, chosen a career other than that of an entrepreneur, and not bet the family's existence on a new-fangled technology ripe for mass-adoption called "electricity".

Deal Horizon Listings: Main Page

Facebook's Mind-Bloggling Numbers

2008-09-02T16:49:00.001-07:00

I watched a video today in which Jonathan Heiliger, the VP of Technical Operations for Facebook, talked about creating tens of billions of dollars of value on top of open-source systems, such as Apache, PHP and mySQL.

Heiliger is using these open-source technologies to serve an enormous user population - Facebook has 90 million active users (it adds 250,000 every day). These users talk in 21 languages and upload 500,000,000 photos every month to Facebook's 10,000 servers.

As a result of this activity, these server farms - which include 2,000 mySQL databases - are supporting a staggering number of asynchronous transactions: 50,000 per second.

That's just a few of the statistics that have come out recently. According to PC World, who interviewed Heiliger recently, Facebook's storage needs (25 terrabytes of user-available cached data), and developer base, are both growing astronomically as well:

At last count, Facebook stored 6.6 billion photos total, more than any other photo site. Roughly 400,000 developers and entrepreneurs have built 25,000 applications for the platform and about 140 new applications are added per day.

That 400,000 developer population needs a denominator (this hobbiest has more than one developer key) makes the success of application-makers like Slide (FunWall, SuperPoke - sheep-throwing, anyone?) seem incredible - until you look at Slide's team and their backers - who happen to include Facebook's first investor, Peter Thiel, founder of PayPal and lately of the Founders Fund.

These are smart people. God knows what Thiel's original $500k is worth today.

I'm in awe of these numbers. I doubt it will be too long before the income statement starts to look equally as impressive.

Company: Facebook
Founded: 2004
Capital Raised: $346,700,000
Deal Horizon Listings: Greylock Partners, Meritech, Accel Partners, Peter Thiel's Founders Fund, Microsoft, Li Ka-Shing

Google Announces New Browser

2008-09-01T12:15:00.000-07:00

The cartoon that forms the centerpiece of Google's announcement today about their upcoming open browser, Google Chrome, is really cool. I'd place this "product announcement" innovation alongside their Dutch Auction IPO.

The complete announcement can be found here on Google Blogoscoped.

Note: One of the things that will delight many developers (and end users) is the decision to make the browser multi-threaded.

Current web-browsers must handle processes one at a time, which means if your page hands something off like a form validation process to, say, a javascript function, you can easily end up stuck waiting for a response if the code is poorly-formed, or there is an issue with your connection.

If the announcement is true regarding the "bottom up" approach that Google is taking, this will potentially be good news from a security standpoint as well.

Many of the current exploits that take advantage of browsers occur because of a long history of holes in the code and duct-taping by developers.

No word yet on what this will mean for developers of Firefox and IE add-ons and BHOs - or web designers in general, although I have to say the initial presentation says this could be a promising development in both areas.

What We Look For: Charles River Ventures

2008-08-31T15:31:00.001-07:00

I was on the site of Charles River Ventures today, and I really like what they say on their "What We Look For" page.

While many companies provide a high level list - high growth, unique technology and competitive advantage, great team, etc, few provide any kind of differentiate way of thinking about it from the entrepreneur's perspective.

The thing I like about what Charles River Ventures has on their site is that they talk about the actual, not theoretical, process, and some detail on exactly what kind of thinking they do, what they talk about, and what they really think is important.

I like, for example, the part about how 50% of their investments have been made in companies with 9 employees or less. Here's a VC with a great reputation telling you, you don't need to be big to come see us.

Here's the rest of their Investment Criteria:

We're often asked about the "ideal" business plan -- which is a good question, given that every day we get an abundance of them coming over the transom - via FedEx, fax, email, telephone.

The answer quite simply is that what we're looking for isn't usually reflected in the most carefully crafted, fully detailed business plan. Our approach to choosing an investment is different.

What we do look for is outstanding people, with a vision of how their company can play a role in the evolving technology and business landscape. It's really that simple. The best way to get our attention is not with a 100-page business plan, but rather to network through someone in our portfolio.

Because the lay of the land changes so quickly in our key industries, a detailed business plan is often a futile exercise. Instead, a concise executive summary, an expense budget for the first two years, the revenue model, and a PowerPoint presentation are generally the materials we're interested in seeing.

After meeting with a company, we ask ourselves, "How can this become a significant company?" We also assess the capabilities and charisma of the founding team. Can they attract the best employees? Do they have the capability to shift the direction of an industry? If we can visualize greatness, and are convinced that the founders share the same vision to create an industry giant, we're excited.

Our most important due diligence comes in whiteboard sessions with the venture's founding team, brainstorming about business potential. A small team from CRV engages with the company on this; the same team generally stays with the venture post-financing. Additionally, we use our network of contacts to gain perspective on the company's key executives and strategy.

Historically, more than half of our investments have been to companies with 0-9 employees; no venture is too early for us. We don't require a complete management team, since we can often help in building one. And unlike many venture firms, we don't lurk on the sidelines waiting for a strong lead investor to step up. When we commit to a project, we take a strong leadership role.

Deal Horizon Listings: Charles River Ventures

Impatience + Patience = Success

2008-08-31T06:26:00.000-07:00

When venture-backed companies are acquired, the valuation is usually stated as a multiple of revenue, rather than P/E. My non-venture-backed friends often ask me why.

As many entrepreneurs know, there's a very simple reason.

Though gross margins can sometimes be extremely high at technology companies (in many cases, higher than 90%), most venture-backed entrepreneurs are extremely impatient about achieving success. These entrepreneurs will use every cent they can get their hands on to achieve it - reducing or eradicating net profit in the process.

This is exactly the right approach, but it needs to be viewed in context of the challenges that the entrepreneur faces.

Some folks who work at large dividend-producing companies with huge brands, long-established channels, mature products, and a reliable infrastructure, often fail to grasp the breadth of the problems the entrepreneur must face in bringing his product to market.

And they are not the only ones - many entrepreneurs sail into their first start-up business not fully realizing that they have (or are about to have):

1. No known brand
2. No market access
3. No reliable operations
4. No trained support
5. Buggy or incomplete technology
6. No legal, HR, corp governance
7. Rapidly depleting capital reserves
8. No life

In my experience, the maximum application of resources is necessary if these issues are to be overcome. Relative to friends working at mature companies, the entrepreneur will never get to take time off - he will need to use every cent and every available resource to the max if he is to push their company across the gap and up that "S" curve of product adoption.

When the company finally makes it to the top of the adoption curve, there will probably be little profit to speak of, but hopefully, fast-growing revenues.

At which point a mature company will hopefully call the entrepreneur, and say "Interesting company you got there. What multiple do you want for your revenue?"

So, ultimately, it is on this hill - the S curve of product adoption - that the battle is won, or lost, and the core factor comes down to patience.

Too much patience on behalf of the entrepreneur and the company will ramp too slow and the market will be lost to faster-paced competitors.

Too little patience on behalf of the investor, and the company will die before it reaches the top.

Impatience + patience = success.

Luckily, experienced venture investors, by nature, are among the most patient investors in the world*. Venture investors typically expect no returns until the company exits (often years), and typically will endure the occasional "oil slick" along the way and stick with their fast-peddling entrepreneur until he makes it to the top.

*Note: I had a meeting with Investor Growth Capital a few years ago in the Valley, at which one of the partners talked about the length of some of their investments. He said they had been an investor in one company - Ericsson - since its incorporation in 1918.

Now that's patience!

Deal Horizon Listings: Investor Growth Capital

The Importance of Slide One

2008-08-30T15:47:00.000-07:00

We were about an hour into a board meeting the other day when the management team laid an extremely impressive year over year growth figure on the table for the first two quarters of 2008. One of the investors present in the meeting reacted by saying:

"That's incredible. You guys should have put that on slide one!"

He's absolutely right. What you put in the starting and ending slides of a presentation - the initial impact and the lasting impression - is important when you're presenting your deck to investors.

What you put in the middle is there merely to explain and validate your business idea and approach to market, and cement your claim to eventual market dominance. If you want to read the best advice ever, check out Guy Kawasaki's classic 10/20/30 post about presenting to VCs - after you finish this, of course.

My personal view is that you need to lead with credibility, and close with opportunity. Because the investors need to believe not only in your idea, they need to believe in you. And the earlier you are able to establish evidence as to why you will take their money and create a success, the more interest they will have in your idea.

I've seen a number of presentations, in investor meetings and at conferences, where the presentation had clearly been discussed too many times prior to the pitch. The entrepreneur didn't grab me (or anyone else) at slide one, and then waded through a long presentation to an indecipherable appendix of tables filled with 8pt data.

My view is that when you're presenting to a VC, your first slide needs to good enough to force the investor to put down their BlackBerry/iPhone. Which means it needs to have these three things going for it:

1. An opportunity so good you're ready to mortgage your mother's house
2. Glowing reviews from several large alpha/beta reference customers
3. A team comprised of at least one person that has scaled a large business

I'm not kidding re the first point. Back in 1985, I was pitching a media company in LA on a joint venture, when, about fifteen minutes in, the guy held up his hand and said "how much money are you prepared to invest in this yourself?"

My hesitation was all he needed. He smiled and put out his hand and said, "Come back and see me when you're ready to stick your neck on the line."

The bottom line is, if you're not ready to risk your own money or time, you are not ready for venture investment.

Point two is something that engineer-types struggle with - and often the reason they get lousy initial pre-money valuations. But you're not going to get funding without some evidence that the market is ready for your idea, or better still, gagging for it.

Note: If you don't like going out and finding customers, you'd better find someone that enjoys this - I once hired a sales person who couldn't bear not to be on the phone selling. Find a person like that and bring them in as your co-founder.

The final point is important. When you're trying to get a return on an investment, execution is everything - and having someone on the team that has delivered an idea to market before and turned it into accounts receivable is critical.

I know what you're thinking: my idea isn't jaw-dropping yet, I don't have any customers trying it yet, and I have never executed a venture-backed business plan before.

None of that matters - all of these issues are solvable. The point of this blog is to simply say, please solve them first - before you pitch for investment.

So act on these tips - polish your idea, sell some customers, recruit some co-founders - and make sure your slide one is everything it can be when you go for the gold. We want to see you succeed!

Deal Horizon Listings: Main page

Raising Startup Capital Legally

2008-08-30T06:14:00.000-07:00

You may not be aware of this, but carrying out an unregistered public offering of securities via Twitter is illegal is just about every jurisdiction, and can land you in jail.

So when you send out an email to everyone in your network - or a Twitter, as Jason Goldberg of startup SocialMedian did last week - you can thank your lucky stars when an attorney stops you in your tracks prior to the collection of any checks from investors, as Michael Arrington of TechCrunch did when he saw Jason's text.

This kind of thing happens a lot more that you might imagine, and not many entrepreneurs are aware of the law, and what they need to do to stay compliant. When I first started out, I was one of them - and I still remember the sinking feeling in my gut as my attorney told me that I was on the verge of committing a felony.

15 years ago, while raising venture money for my TV station, I went down to the copy store and printed 100 copies of my business plan, intending to give them to potential investors. As luck would have it, I stopped by my attorney's office on the way home.

"What are you doing with those?" He asked.

"I made some copies of the plan to give to investors."

"Are you nuts? You hand them out and people are going to say you're running a public offering. That's illegal."

Now, the word "illegal" is the last thing an entrepreneur wants to hear. Being a struggling first-time entrepreneur is hard enough without the prospect of having to mount a defense against a felony.

In my case, I was lucky enough to have some investment banking friends. What I ended up doing was appointing an investment bank - a small one - and they put together a small, targeted distribution list and handled the raise for me, entirely on a success fee basis.

Don't have any investment banking buddies you can get to work for a finder's fee? It is possible to do it yourself and stay within the law, but spend an hour in an attorney's office and have them explain it.

Typically, if you ensure that you only give out a plan a bona fide venture capital partnerships, or accredited investors (called "sophisticated investors" in some parts of the world), and don't give out too many of them, you'll be okay. As Michael Arrington explains in his TechCrunch article:

"Most venture financings are excluded from Securities Act registration via a private offering exemption. But the key to these exemptions are that they aren’t disclosed publicly and the investors must all be high net worth individuals."

The only thing I would modify about this statement is the term "high net worth individual". The real definition under federal securities laws of the term accredited investor (found in Rule 501 of Regulation D) is a bit broader:

A bank, insurance company, registered investment company, business development company, or small business investment company;
An employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
A charitable organization, corporation, or partnership with assets exceeding $5 million;
A director, executive officer, or general partner of the company selling the securities;
A business in which all the equity owners are accredited investors;
A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
A trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

By the way, I hope Jason gets his money. I went over to SocialMedian out of curiosity and wasn't personally sold on its promise of "personalized news and information" - I get mine from Google News - but I can see why some people might prefer the layout over its competition.

Company: SocialMedian
Year Founded: 2008
Capital Raised: In process
Deal Horizon Listings: None

The CEO Rule: Customers, Employees, Owners

2008-08-29T17:06:00.000-07:00

Many years ago, after the closing of the first round of financing for my first venture-backed company, the investors and founders went out for dinner in a very nice restaurant to celebrate.

At dinner, one of the investors asked me a question. "Hey John, do you know what CEO stands for?"

Now I have to admit, I was a little surprised by the question, and a little miffed at the idea that he thought that I, the incoming CEO, might not know the answer.

"Yes," I replied. "CEO stands for Chief Executive Officer."

"You're wrong," he said, smiling. "It stands for Customers, Employees, Owners - in that order!"

As the punchline was delivered, everyone around the table laughed, perhaps understanding at a gut level the simplicity and wisdom of this advice - or, more likely, they were just bemused at the perplexed look on my face.

But I didn't laugh. Something about the advice resonated with me. I asked him to explain his thinking.

"It's very simple," my friend said. "Exit-driven companies rarely succeed, and companies that coddle their employees and allow the business to be run regardless of how people perform don't grow fast."

"Companies must focus primarily on satisfying consumers needs and desires. Customer-focused companies succeed."

Now, fans of Clay Christensen and The Innovator's Dilemma might raise a hand at this point, but let me clarify something - in talking here about Customers, we're discussing consumers as a total group, meaning all possible users of a product, not just the subgroup of legacy customers that Christensen believes want to box in your aspirations and stifle your innovations.

Let's explore the CEO Rule (Customers, Employees, Owners - in that order), using Google as an example.

With Google, you have a situation where two guys focused obsessively on the Customer - the Internet user - as a lead priority for the entire five year initial development cycle as they attempted to develop the world's most relevant search engine.

Then, at a time when the business needed revenue to monetize that incredibly popular utility, along came Eric Schmidt, who displayed his genius by focusing on a different kind of Customer - the advertiser, and a marriage of the two models.

These three executives couldn't have and didn't achieve these objectives alone. Employees clearly needed to be Google's secondary focus, and with the singular exception of the daycare spat a couple of months back, Google has understood this and provided employees with an exceptional place to work.

So where did this focus on customers and employees leave the Owners?

Do I need to ask? The Owners of Google - its founders and shareholders - have had an unbelievable ride, and it's not about to end anytime soon. Everyone who bet on this company while risk was still a factor in the equation has profited handsomely.

By not focusing on the Owners - by focusing instead on the Customer, then the Employee, in that order - Google has produced fabulous returns for its Owners.

And because Google remains focused on innovation on behalf of its customer, the consumer (you just have to hear Page and Brin speak to know that they remain passionate about solving these complex problems), I predict that Google's Owners will benefit for years to come.

Think Steve Jobs has his owners in mind when he is approving iPod designs? No. He's solving a problem (availability of coolness) - a problem that will create value for his shareholders. But shareholder value isn't what drives this CEO -value is created by Jobs' understanding of the customer, and his ability to attract great talent to Apple. Owners are last in the chain - but benefit mightily from this position, when the CEO obeys the CEO Rule.

So here's some advice. If you're an entrepreneur and you're in the business to make millions of dollars as a first priority, you might want to rethink your life choices. Start-ups focused on making millions as a first priority rarely achieve that aim.

I suggest you focus instead on the CEO Rule: Customers, Employees, Owners - in that order.

Innovative people focused on solving problems for Customers, and creating a great workplace for like-minded, mission-driven Employees, are far more likely to see success - and provide their Owners with a return on their investment.

Company: Google
Founded: September, 1998
Capital Raised: $5,310,000,000
Deal Horizon Listings: Kleiner Perkins, Sequoia Capital

Two Essential Elements of a Great Pitch

2008-08-27T07:36:00.000-07:00

Despite thousands of web pages listing advice on pitching to VCs, many world-be entrepreneurs (and some advice-givers) still fail to include two very important elements in their pitches:

1. Hands-on demo
2. Empirical evidence that the dogs are eating the dog food

Empirical research is simply research that involves human senses and observable events. If your venture involves consumer marketing, empirical research can be the difference between getting funding, and simply presenting a good idea.

As an entrepreneur meeting with a VC, you're in the business of *selling* your idea. Yet it amazes me how often entrepreneurs fail to understand the effectiveness of "on the fly" empirical evidence (hands-on demo) and evidence of buzz.

Here's a thought experiment: Imagine a used car salesman pitching a user car to a room full of venture capitalists.

How long would the guy stand there at the end of the table *talking* about the beautiful car he has outside in the lot, before taking the guys to see it? Do you think he'd even hesitate before handing the keys to the Managing Partner? Of course not.

If you've got a product that is potentially fun to use, hand the guys the keys/mouse. Want to get funded/invited back? Make it your goal that one of the partners in the meeting is going to go home and say to their spouse "you wouldn't believe what I did today."

Notice I used the word "did" - not "saw", "did". Experienced.

Your second goal should be ensuring that the partners are not alone when it comes to experiencing your product and feeling excited.

If the idea you're pitching involves targeting solar-powered iPod holster-chargers at teenagers for use on the ski slopes this winter, a slide displaying a picture of teenagers crowding your kiosk at an Aspen shopping mall may indeed provide some empirical evidence that "the dogs are eating the dog food".

Many (many) years ago, I spent a day hanging around with record producer Jimmy Iovine at A&M Studios in Los Angeles, as he was putting the final touches on U2's Rattle & Hum album in the mixing and mastering studios.

I remember stopping in one studio where one of the audio engineers turned to Jimmy and asked him whether he thought the audience mike was too overpowering? He demonstrated by pulling the fader down a little.

The negative effect on the "buzz" was immediately noticeable. Jimmy shook his head and motioned for the engineer to push the fader back up to the orginal level. He understood the need for listeners to "feel" the audience as much as hear the music.

Entrepreneurs should keep in mind the importance of demonstrating the "buzz" or potential buzz around their offerings. VC guys want to be jazzed - the reason they tolerate all the dumb ideas is so they can experience that (very) occassional intersection of genius, utility and excitement.

Be one of those great meetings. Take them for a test drive. Show them the buzz. Make their day.

Deal Horizon listings: Main Page

When Ideas Have No Market

2008-08-24T12:26:00.000-07:00

I have recently begun playing with the Facebook Developer Platform, and have now created several small applications out of pure curiosity.

However, the creation of one unfinished app - Antipode - resulted in a very interesting lesson regarding pre-project research.

The idea for Antipode (Greek for "opposed foot", but meaning "the opposite side of the planet to you") came to me as I was planning a trip from Miami to Singapore. It occurred to me that the two cities must be very close to being on opposite sides of the Earth.

A handful of calculations later, I had my answer: Miami was closer to Christmas Island than Singapore, and the nearest capital to the antipode of Singapore was Lima, Peru.

Then I thought, "what a fun idea for a Facebook app". Users can just type in their city and get presented a Google Map based on coordinates half a world away!

Given the ease of the calculations and the ready availability of any number of pre-formed javascript functions, I jumped in and started work, eager to see how many cities would match up.

There was just one tiny problem, which, luckily for me, showed itself quite early. As it turns out, the antipode for almost every major city on Earth is located in the middle of the ocean. There are almost zero true antipodes involving places where Facebook users are likely to live.

Whole continents - Africa, Australia and Europe (with the exception of parts of the UK), have no relation to land-based antipodes elsewhere in the world.

Check out the world map above - with the exception of South America's 180 degree intersection with China (and New Zealand's with England), there are virtually no interesting antipodes. Which all adds up to a not-very-exciting app ("oh look - the antipode for Oslo is... water!")

The lesson I took away from this is, sometimes ideas only sound neat. Which is why, before you go put them into practise, it pays to do a little market research.

Note: Antipode never did get published - after finding out most of the calcs would end up "wet", I decided to create something more interesting. More on that another time...

Company: Facebook
DealHorizon listings: None.

MoFuse = MoPublishing

2008-08-24T11:32:00.000-07:00

I was reading Venture Beat today and came across a press release that stated the RI-based Slater Technology Fund had put an undisclosed amount into MoFuse, a company that auto-publishes mobile web sites automatically. So I went over to the MoFuse site to check it out.

I was impressed. Within 10 seconds I was staring at the above screen shot, and in less than a minute later, my site had been "mobilized" (or is that MoFused?) and placed on their server, ready for publication.

With over 3 billion mobile phones on the market worldwide, and another billion coming online within a year, MoFuse is poised to do well. Many web sites provide a very poor experience and the idea of revamping them so they can be published to mobile is just the kind of project that will keep falling down the task list.

You can check out the MoFuse mobile version of the Deal Horison site by pointing your iPhone or Blackberry or Windows Mobile at http://dealhorizon.mofuse.mobi/

Note: David Berube, the founder, gets extra points for greeting me directly upon the creatoin of my account, and offering a "reply" capabilty - this is a most welcome alternative to the typical "do-not-reply" treatment most companies go with during signup.

Company: MoFuse
Year Founded: 2007
Capital Raised: Undisclosed
DealHorizon listings: Slater Technology Fund

Google Insights for VCs

2008-08-23T22:51:00.000-07:00

VCs get pitched a lot of data on markets and market trends, and sometimes some of that data can be hard to believe. That can elongate due diligence periods while analysts try and get their data to prove or disprove the right-heavy graphs in your PowerPoint.

Fortunately, several tools are emerging that help provide insight on market trends. One of the best was brought to us, predictably, by Google. It is called Google Insights for Search.

Google Insights for Search can show you three years worth of data on a search term, such as "phishing" or "Facebook". The graph on Facebook would have anyone reaching for their checkbook - click here to see an actual exponential growth curve.

Google Insights for Search can also give you excellent information on what consumers are looking for in various regions. Type in "McDonalds" and you'll find more interest in my home country of Australia, than the founder's home country of the US - with Singapore close behind.

This is a good tool for seasonality as well. Enter "Mother's Day" and check out the see-saw graph. Enter "Valentine's Day" and you'll get a sense of what it is to be a florist on that crazy day.

Note: Take a look at the graph above and you'll see that search traffic from US soldiers in Iraq leads the world on Mother's Day.

I use Google Insights for Search all the time to try and get a sense of what consumers are looking for, what the trend lines are, and whether or not the service being offered is seeing adopters in the "first world", or looking for laggards elsewhere.

Conceivably, this tool could be used in the middle of your pitch - providing of course that the data matches your objective.

Company: Google
DealHorizon listings: None

Thoughts on "The Strategy Paradox"

2008-08-23T13:13:00.000-07:00

I had dinner last night with my friend Andrew Craissati, who helped fund my first VC-backed business back in 1994, in Singapore.

I gave him a copy of Ron Suskind's latest book, "The Way of the World", and in return, he gave me "The Strategy Paradox", published in 2007, and authored by Michael Raynor, the co-author of Clayton Christensen's sequel to "The Innovator's Dilemma".

Given the excellence of Raynor and Christensen's previous book, I was surpised not to have come across it before.

I am really enjoying it. There is more good advice in here for entrepreneurs and venture-backed companies than in your average shelf full of business books. But one of the early themes really hit home for me.

For a long time, one of my mantras has been Jean Giraudoux's observation that "Only mediocrity is always at its best". Or, as paraphrased by Woody Allen:

"If you're not failing every now and then, that's a sign you're not doing anything particularly innovative."

Michael Raynor has researched why it is that these aphorisms ring true. His view is that business successes and business failures are not true opposites: the real opposites are success/failure and mediocrity.

Raynor's research shows that the difference between success and failure in many ventures is not correlated to effort or strategy (hence the title "The Strategy Paradox"). In both the examples I just cited, the more likely cause of success - and readers of Nassem Taleb's excellent "The Black Swan" will already know where I'm going - is pure dumb luck.

Three years early? Sorry, no market for you. A year late? Market already saturated with entrants.

Timing (luck) is a very critical factor. As Raynor argues, "Right place, right time" is rarely caused by one "right strategy". In his book, he argues that boards and CEO's should

A closing thought: nothing bugs me more than bone-headed criticism of an entrepreneur for trying a strategy that failed. No company ever makes a series of fabulous calls when it comes to strategy.

Read the Google story. Entrepreneurs don't come smarter than Page and Brin - but they made many misteps along the way. You could argue that Bill Gross, who came up with the strategy eventually adopted by Google, and Yahoo, who adopted it first, made only one misstep - not buying Google when they had the chance.

As every mountain climber knows, not all the overhangs are visible from the bottom. Most of the more difficult first-time cliffs require several attempts, failures and re-attempts.

When in conversation with the mountain climber at the bottom, just prior to his fifth attempt, the failure of his fourth attempt should be seen in the light of what it has shown him regarding his fifth try at the mountain. And, if he is lucky, it is this fifth attempt that will lead to success.

Raynor's phrase - "Success is not the opposite of failure" - works just as well backwards: the opposite of failure is not success: success will involve many of the exact same tools used during the previous four tries at the summit.

The real deadly force is indifference - not trying at all.

DealHorizon Listings: None.
Links: iInnovation Interview with Raynor

Ciul Needs to Find Itself

2008-08-23T11:47:00.000-07:00

The first thing I noticed when using the new Cuil search engine is that when you type "cuil" into the search field, you get lots of references to things starting with the word "cuil" but *zero* page one results on "cuil" the search engine.

Before I go on, let me catch you up. Cuil (pronounced "cool") is the uber-search engine build by ex-Googlers with $33 million in venture capital (from Greylock Partners, Madrone Capital Partners and Tugboat Ventures) that supposedly has "three times" the number of sites Google has in its index.

But Cuel is apparently also, more importantly, one of several "Towns and Villages in Sligo" (see above screenshot).

"Three times better than Google" makes for a great sound bite. However, the second thing I noticed his morning is that despite having more than 120,000,000 sites listed on its home page, Cuil was not only missing its own site, but missing our web site as well - a site that generates a pretty decent amount of monthly traffic. Cuil returned exactly zero results for our company name.

So I scratched my head and typed in "antivirus". Now, there are 45 antivirus companies out there, including some pretty big ones. How many did Cuil find?

Not many. Eight on the first try, in fact.

Cuil appears to learn rather quickly. This afernoon, when I went back there, not only was our site listed, but there were 83,000 references to Authentium on Cuil versus 233,000 on Google. Antivirus references were also up. However, key references - to Authentium wiki references and this blog (which Google displays on page one of its results) - were still not displayed in Cuil's first page results.

Maybe their database is playing up, given the interest level of this first day? Maybe the request wasn't translated properly? (It seems that case-sensitivity is currently a problem of sorts - I got different numbers depending on whether I captialized antivirus or didn't.)

On the design side, the black screen definitely looks more "2008" than Google, but there are issues. For example: just about every laptop sold these days is wide-screen format, yet inexplicably to get to the next page, you need to scroll down to the bottom of the page.

And then there is the name... Cuil. I don't care that it's "ancient Celtic for knowledge"... it is never going to work as a verb, as in "I just Googled you".

"I Cuiled you" sounds like something someone from the Bronx might say... after missing a late night phone call to their girlfriend.

I called you, I Cuiled you.

You have to applaud these guys for at least trying to create some choice. But the issues encountered with my first use - and the fact that my company's name (and Cuil's references) didn't show up on the first try - are going to nag me.

Google made it big because everyone that tried them noticed on the very first time that they were better than anything else going - and swapped. I made Google my home page the first day I tried it a decade ago, and have never looked back.

If my first experience with Cuil is that they are *not* better than Google, I'm not going to swap, and I'm going to doubt the next experience will return better data.

That is a problem Cuil are going to need to solve very very quickly - before the buzz fades and new users become as hard to find... information on their own engine.

Note: I repeated the experiment using "Cuil" (i.e. with the "c" in uppercase) and achieved exactly the same results.

Company: Cuil
Founded: 2006
Capital Raised: $33,000,000
DealHorizon listings: Greylock Partners, Madrone Capital Partners, Tugboat Ventures.

Union Square's Fred Wilson on ROI

2008-08-23T11:33:00.000-07:00

I'm a fan of New York City, and a big fan of New York-based Union Square Ventures. Not only are these guys good at spotting the cool stuff first (Del.icio.us, Twitter, Wesabe...), they seem to be very good at articulating their business.

Founder Fred Wilson's post on the mathematics behind the Union Square Ventures return on investment target is typical of the clear thinking they offer up at their site:

When we raised our first Union Square Ventures fund, I told prospective investors to expect 1/3 of our investments to fail.

I always like the 1/3 rule, which is that 1/3 of the investments will fail, 1/3 will under-perform expectations, and 1/3 will meet expectations.

Meeting expectations means 5x to 10x on our money. If you are into math, you can look at it this way:

1/3 average 7.5x – 2.5x
1/3 average 2x – 0.667x
1/3 average 0x – 0x
Total result – 3.2x

The important part of that equation is that you have to have high expectations going into an investment. If your expectations going into a deal are 3x on an average investment, you will fail in the venture business.

In reality, I’ve been able to do better than this over the years. But when talking to investors, it helps to set achievable expectations.

I went back over the past 17 years during which I have been doing deals by myself. During that time period, I have originated, led, and managed 32 investments, about 2 deals per year. I find that is pretty standard in the early stage venture capital business, 2 new deals per year per partner.

Here are the stats:

5x or greater – 11 deals – average 10.2x
1x to 5x – 7 deals – average 2.6x
Failures – 5 deals
Unrealized – 9 deals

Three of the unrealized deals are 1999 vintage Flatiron investments which will almost certainly end up in the 1x to 5x category so if I add them to that category and leave out the six unrealized Union Square investments that I manage, the distribution looks like this:

5x or greater – 11 deals
1x to 5x – 10 deals
Failures – 5 deals

That is decidedly not 1/3, 1/3, 1/3.

It is more like 40%, 40%, 20%.

I doubt that is sustainable going forward. If I take out the six investments I made in the “golden years” of 1996 to 1998, then the numbers look like this.

5x or better – 7 deals – average 7.1x
1x to 5x – 9 deals – average 2.5x (on the 6 realized investments)
Failures – 4 deals

That is 35%, 45%, 20%, which is more like what I’d expect to see from a good early stage investor’s track record.

DealHorizon Listings: Union Square Ventures

EverNote Will Create Active Daily Users

2008-08-23T09:54:00.000-07:00

For me, the key test of whether a company should receive venture backing can be framed within a single question:

Will this company create a growing base of active daily users?

Like most people in the software industry, I hear about new applications constantly. Links and invitations roll in from friends and connections and news alerts promising something that will change my life, be fun to play, will make my employees $2.40 per hour more productive, etc, etc.

Few of these applications have what it takes to turn me into that most sought-after of customers: the active daily user.

So it was with some surprise that I recently stumbled upon EverNote, a productivity-based application that, according to its promoters, has been designed to act as a kind of external human memory device.

Like most executives, I download and try a lot of productivity tools. EverNote is one of the more useful new applications that I've seen in a long time. Here's why:

Currently, whenever I wish to note down that million dollar or billion dollar idea that just popped into my head, I have the following basic choices:

write it into my (paper) notebook
write it on a (paper) PostIt
write an email or text message and send it to myself
open NotePad on my PC and create a note there
open Notes on my BlackBerry and create a note

The problem with all of these options is that the ideas all end up sitting in separate locations, buried ever-deeper by the piles of incoming notes above them. Many are unlikely to ever be seen again.

EverNote changes that paradigm by replacing these "idea storage containers" with a single destination that supports multiple inputs and interfaces - PC, Mac, BlackBerry, iPhone, Windows Mobile.

EverNote allows you to sort these ideas into folders, and provides an incoming email address that allows you to email text or pictures to your EverNote canvas from your mobile.

It if stopped there, that would already be useful enough for me to remain an active user. But EverNote does something else that is really pretty amazing - it scans every image that you upload and searches for text that it can recognize inside the image - making every picture that you upload searchable.

How is this useful? Take a picture of someone at a conference and EverNote will scan the picture and pluck the name of the person from the sticker on their shirt.

Capture an image of a whiteboard using your cell phone camera, post it to EverNote, and EverNote will enable you to find that captured image entitled "Yahoo Three Year Strategic Plan" two weeks later, using text search. You don't even have to tag it.

Business cards? Just hold them up to your web cam, then drag the image into EverNote. You can then use Anagram (a separate program) to create a vcard in Outlook.

It's only taken a few days, but I'm a fan of EverNote. If new application fatigue hasn't yet taken over, I suggest you give EverNote a try. I think you'll like it.

Company: EverNote
Year Founded: 2006
Capital Raised: $6,000,000
DealHorizon Listings: J.F. Mackie