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All of three of you seemed to notice that my new blog design is missing comments.  That's because it was rare that any more than three people ever commented on my blog in the first place.  

Don't get me wrong.  I wanted feedback.  I love feedback, but most of the feedback wasn't happening in the comments.  It was happening by e-mail and on Twitter.  So, I'd occasionally get a comment or two... and once in a blue moon I'd get like eight.  

In over a decade of blogging, I've never found a consistent writing schedule.  I write like I do now, finding twenty minutes here and there in between meetings, and then I rush off to something.  So, if I get comments, I can't seem to prioritize responding to them sooner than two days later.  

On Twitter, however, I'm very responsive.... so Twitter has always been a much better way to interact with me around my blog anyway.  It's probably where I get most of my traffic as well.  I still get a lot of e-mail subscribers as well, and they just hit reply.

So, I decided, in an effort to clean up all of the superfluous design elements from my blog, that I wasn't going to carry over my Disqus comments.  I never go back to them and they weren't much of a community.  I'm happy to engage around any aspect of my blog in public on Twitter or by e-mail, but I won't be doing it through a comments feature anymore.  It's a time and effort thing, and a quality bar.  

Also, you're welcome to disagree on your own blog.  :)


Why the New Seed Might Be a Bad Seed


About a year ago, I started hearing about the existence of a "pre-seed" round.  At first, it sounded ridiculous.  Actually, it still sounds ridiculous to me.  The term "seed" implies the very beginning to me.  If you can't go to "seed" investors for your very first investment because you're too early, that just seems weird to me.  

At Brooklyn Bridge Ventures, I want to be part of the first money to go into a company, no matter what you call it.  I do the same kind of rounds today that I was doing five years ago.  Two of the first deals I ever did at my previous fund were part of an $800k round of investment into Backupify, which recently sold to Datto, and an $850k round into GroupMe, just after they built a prototype at a Hackathon. They're at a similar stage to my investments now out of Brooklyn Bridge backing Tinybop pre-launch, Canary before their Indiegogo pre-sale, and VIXXENN with just an alpha site and a few stylists.

What's interesting is that those earlier rounds wouldn't be called seed rounds today--and many of the investors in those rounds wouldn't have necessarily participated in them now.  Fund size has a lot to do with it.  The larger your fund, the larger the checks you need to write and so putting $200k to work at a time doesn't make economic sense for many investors.  So whereas seed rounds five years ago may have been less than a million dollars on a pre-money valuation of three or four million, today's seed is up and over a million and usually closer to two million, with post money valuations nearing $10 million.

Josh Kopelman wrote recently that these rounds are much more entrepreneur friendly, especially in the wake of the "Series A Crunch".  In fact, he wrote a few things that I think there's another way to look at.  

"The problem is that the number of A rounds hasn't changed. That amount of Series A capital HAS NOT increased. So, if you have 4x the number of companies with seed funding, that's 4x the players competing for the same money… making it 4x harder to raise an A round than it was five years ago."

Does it make sense to think of the amount of Series A capital as static?  

New venture funds get raised all the time--and big ones, too.  If there were suddenly a flood of fantastic deals at Series A valuations--the cheapest valuation a big fund is likely to ever get in on, wouldn't VCs be doing them left and right?  So what if they put their fund to work earlier than expected?  Or maybe they just take some of that reserve capital for follow ons and put it to work now?  So what that they can't maintain their 20%?  If their entry valuation is that much lower because more dollars are in the Series A, they will still be able to make their return.  Do you think you make a better return by putting in a ton of money to buy expensive growth equity and maintain 20% or by being in a future IPO at a $15mm pre?  

I think the problem isn't the lack of Series A money--it's that there are 4 times the number of seed funded startups, but not four times the number of great ideas and great teams.  If there are four times the number of seed funds, the seed quality bar is much much lower--but what investor wants to say that to entrepreneurs?  It's so much easier to blame those stingy Series A guys as to why your startup isn't getting funded.  It's not our fault as seed investors and definitely not your fault as the entrepreneur that you didn't execute will on your idea which, honestly, was pretty mediocre to begin with.  

I believe that if you build great companies, someone will fund them.  The private market is pretty efficient that way--and to look at it otherwise is to reinforce the notion that everyone trying to start something, instead of joining the teams with the best ideas is a good thing for the market.  

Yay, participation trophies!

"Why not raise $2.5M in seed money instead of $1.5M to give yourself the best shot at perfecting this data? You should target 18 to 24 months of runway post Series Seed."

Sounds good, right?  It's a very compelling notion--only I think it glosses over some of the side effects.  First, we're not going from $1.5mm to $2.5mm.  We're going from the $500k-750k of yesteryear (four or five years ago) to $2.5mm today.  That's a huge jump, not only in terms of how much a founder will attempt to bite off and chew, but also in price.  You're ending up at a post-money valuation of $10mm versus $5mm.  

Is it the Series A funds that are moving the bar, requiring these bigger rounds, or are they just saying that if you've already spent a few million bucks and the post is $10mm, you should have accomplished more?  The more you raise and the higher the price, the more expectations people will have of you--so taking more money isn't without its downside.

Also, no founder who ever raised more money believes the limitation will distract their focus.  They're going to do the same thing, but just give it 24 months to take hold.  What $2.5mm seed round has lasted a company 24 months lately?  It's like cash in your wallet.  You just wind up spending it faster--and moving fast with lots of money, especially for a first time founder, is bound to be more mistake-prone and less focused.

If you're worried about the runway, try doing less things.  Focus on the one number or one goal that validates your model, instead of hiring a team of 12 to boost 15 key metrics.  

The other thing that worries me about this split between seed and pre-seed is that it institutionalizes the thinking that "seed" funds shouldn't be making half million dollar bets on two awesome people and half a barely-working prototype and that that mess is best left to the "pre-seed" folks.  We're all worried about the people who had a million or more to spend and didn't do anything amazing with it, but what about the bootstrappers and do a lot with a little types who haven't yet gotten any funding from anyone?  If you're too busy making sure everyone who gets funded at all has two million bucks at an $8 pre, are you missing out on the next big thing?

I think we are.  I don't think early stage investors are taking enough risk.  We need more crazy flyers where someone takes a shot on something unproven, and certainly gets paid for that with a low initial valuation, but rolls up their sleeves to help make it take off.

Otherwise, we should just call this new $2.5mm seed round what it really is: Series A circa 2006.  We'll ask for all the same metrics we used to in a Series A--some revenue, a full team, etc., and at least it will all make sense.  Then, I can go back to just being a Seed investor instead of figuring out whether it makes more sense to call it "Pre-Seed" or just "Soil".  



The Gift of the Ask

It's very easy to think of an ask as a negative--of a burden on someone.  

When it comes to startups, however, especially when you've built up a great reputation and done a lot of good work for others, people are not only eager to help you, but they take great pride in being asked.  Working with you is an opportunity.  Getting a chance to take a leap with you is an opportunity.  Earning equity in your endeavor, or having the opportunity to buy some of it on the ground floor, is an opportunity.  It's a gift and you have to start thinking of it as one.

So, not only does that mean not being afraid to ask, but it also means realizing that if you don't ask, people can feel left behind.  We join the startup world because we want to work with the best people.  We want to work with innovators and those on the services side of the business--the lawyers, recruiters, and even investors, because I do think investors should be servers, want to be that first call. 

When I raised my first fund, I send out a note to a bunch of people whoes input and experience I valued--people I would have been thrilled to work with.  I didn't know if they were fund investors or not and I didn't want to put them in an awkward position by making a direct ask--so I just bcc'd them all.  I said, "I assume you're not fund investors... but if you are and you want to be involved, I'd love to work with you.  The last thing I want is anyone who I admire wondering whether I didn't value them enough to make the ask."

I'll be doing that again for my upcoming second fund as well.  I don't expect many to respond, but if I truly think of my fund as an opportunity, it's important for me to know that I would have wanted to work with them.


Some thoughts on #Meerkat

Downloaded Meerkat yet?

It's the new new thing.

The app is five days old and getting in with all the right names in the Valley.  (The company has been around for a few years, but this is a new product for them.)

It's so new, we don't even know if people are using it a second time, yet already it's been in the Wall Street Journal.  (PS...   Yuliya is really becoming an asset to the WSJ's tech coversage.  Future star to watch.)

In 2007, I was at the SXSW where Twitter blew up. That's how I was able to get into the Hatching Twitter book, where, for some reason, Nick Bilton refers to me as short. I'm 5'11'', thank you. How tall is Nick, anyway?

In 2010, Foursquare hit it big in Austin not long after their funding, which I accidently kicked off with a blog post. If only I could have pulled that off with my own startup. [sad trombone]

In 2011, GroupMe seemed to be the winner. I had funded it out of a hackathon earlier that year.

So after being around all these apps, eight consecutive years of going down to Austin, speaking three times, judging a thing, hosting the first SXSW wiffle ball tourney, I'm feeling pretty darn qualified to weigh in on the ultimate future of a five day old app.  I've even used it a couple of times!

If you can't tell, I'm being sarcastic...

You know the only answer VC's should feel qualified to give on this one?


Here, however, are a few early thoughts:

1) It's obviously the best live streaming mobile app we've ever seen. It's stupidly easy and the quality is way better than technology could ever get Qik to be back in the day.

2) Yes, it is definitely going to be a huge thing at SXSW. Yes, those of us not at SXSW (which I won't be this year... that's another story... just too big), will find it completely insufferable. You think we didn't want to see the Tweets and Instagrams of the parties... just wait to see how much we'll hate the drunk livestream of the parties.

3) Yes, it will get funded with a lot of money, very soon. I might even say that the Meerkat funding is peak VC for this cycle... b/c there's a chance that their next round is so big and so ridiculous that all the VCs just put the wire transfers down and step away for a bit. (How big? I'm thinking $25mm seed for 10% of the company... If only I was kidding.)

4) I keep thinking that it's going to get very popular among a 30's and 40's crowd of people that don't quite get that this kind of production and consumption kind of already happens on Snapchat. Snapchat may not be "live" but neither really is Meerkat. There's a few second delay... so what's the real difference between a few seconds and the minute or two if you get the Snapchat notification of a story being posted. Is it the interaction? Well, I don't think the comment interaction is that compelling. If you've ever sat in on a livestream (ustream, istream, weallstream...) and watched someone answer the comments, it's about as exciting as watching someone peel the skin off their feet.

5) Meerkat's UX is all about getting popular. The focus is on getting an audience. We've seen all that play out before in several mediums... and it just didn't drive quality. In social, most people don't want to popular, they just want to connect with their friends. It's too much pressure, and most of us just aren't popular or interesting--so it becomes a less than interesting experience for most of the users. If that's the case, then it becomes a broadcast channel, but one where each broadcast must be watched right away. That's pretty much the opposite of where TV is going. We don't want to have to watch things right away. That's a simple feature fix... let the streams last for even a couple of minutes. It's just as relevant... and it will bring more people to the water cooler. Otherwise, it's Youtube where you've got to watch the video as soon as it gets posted otherwise it disappears. I don't see that gaining mass adoption.

6) This one will be a struggle to monetize. Who's going to want to watch a branded Meerkat--and that's where the big dollars are, in ads. Brands work better in places where agencies can produce great content. Agencies aren't going to be able to produce great livestreams quick enough or fast enough to make the ROI worth it. Instagram is a lot better brand medium. If it's all about premium ones, that's fine, but that's not a multi billion dollar revenue stream.

7) If you thought that the bandwidth issue was soon going to be solved, think again. Austin infrastructure is going to bust open at the seams at SXSW. Meerkat is going to create all sorts of issues, especially for venues. First, if it wasn't clear before, free wifi has become table stakes. You just need it, like air conditioning, because the guy down the street has it. As quickly as they invent 4G, 5G, some hacker is going to create a mobile thing that sucks up a ton of bandwidth again. This creates the need for friendly network management. Venues won't want Meerkat broadcasting the Fall Out Boy concert via their wifi--or will they? Some will, some won't. Some might let you do it in exchange for something else (A premium purchase? Tweeting out the venue? A check in?). This is why people are starting to talk to companies like SocialSignIn--because they know wifi can be used for good and not evil (i.e. just a big cost sinkhole), but they don't exactly know how. When everyone is Meerkatting, how can brands and venues leverage access to more bandwidth, a key component of livestreaming, to their advantage?

8) All this being said, I am finding the notifications pretty addictive.  I do want to see what people are up to... and some people are pretty cool, funny, etc.  If it gets critical mass, watching a series of streams live from news events could be amazing.  Clearly stream discovery will be key, but this could very much be the dream of see anywhere in the world, right now.... which a lot of people have been thinking about but no one has made easy. 

And that's everything I know and think about Meerkat five days into the life of the service.

I reserve the right to be completely and unequivocally wrong about this whole thing, which, as a VC I tend to be about 50% of the time.


Pitch me!

Working out of the Townhouse has been an interesting experience in that I'm working side by side with a lot of non-startup people.  It's a co-working space full of creatives and freelancers, most of whom who have never pitched an investor, and probably never seen a startup pitch either.  Their reaction to what I do day in and day out is very telling about how a lot of people, including VCs themselves, think of the job.

The first question I always get, which I find endlessly hilarious, is "Don't you get tired of people pitching you all the time?"

Umm...  No.  That's, well, a big chunk of the job.

I say that, but I'm not entirely sure all my peers understand that.  One time, I spoke at a meetup that was divided into my talk and demos--and the organizer assumed I wanted to go on before the demos.  I didn't understand why it would matter, but she told me that most of the investors like going before so they could skip out after the demos and not get bombarded at the end of the event.  


Well, I guess I'm not surprised.  I've had a debate with other investors before about the "warm intro" requirement.  For a seed fund, I find it a bit silly.  Most founders barely have anything that looks like anything at this point, and most of them haven't done this before.  

How good of a screen could someone else who doesn't do what I do be to make the intro?  

Great, so you went to coffee with someone I know or maybe even funded once.  The founders I backed aren't VCs (well, except Dave) so I don't know if that is such a great signal.  

I asked another VC why they do this and they answered, "So we don't have to go through all the random crap."

If you're an investor that has a magical dealflow stream that isn't mostly random crap, please tell me how you do this.  Also, if none of the investments you made first looked like random crap at the beginning, and you have a great track record, I'll buy you lunch.

Obviously, there's a wide spectrum of founders trying to raise money.  A lot of them have really really terrible, poorly thought out ideas.  In my life, I, too, have had a lot of really terrible, poorly thought out ideas.  It happens to the best of us.  But, they're trying--and I try to see where they're coming from.  That's why I don't mind hearing from them.  I'm just trying to be helpful.

That's the key--when you think you can help just about anyone, and you really do like helping people, each new pitch is an opportunity.  

That's also why I like hearing from people who really don't need to pitch.  There are some extremely well connected founders who have achieved lots of success that either self-fund or just get the band back together for their last deal.  No one is ever going to turn them down, and they know more money than they need.  The idea that they need to go pitch someone they might not know as well isn't on their radar, but it should be.  

First, their best buddies from their last startup are probably going to give them a free pass or two--and a good investor audits your thinking--challenging you where the story might not be as strong.  Just the other day I had a great conversation with someone who had already raised, had a good product and was making excellent progress--and I thought he was undercutting himself with some really conservative financing plans.  In my mind, he was going to need to be right back in the market again and was wasting a round, taking 20% dilution when he didn't need to be.  I may not have convinced him, but I think he found the conversation helpful and I was happy to help.  

So go ahead and pitch--but please keep in mind the following:

1) If you haven't done your homework on your idea, it's hard for me to be that helpful.  Talk to potential customers and others who know the space really well to learn what has come before you in this area--why it worked and why it didn't.  Don't make too many assumptions about why Instagram will never do this or why so and so failed.  I don't mind getting idea stage stuff, but at least do a little bit of work on it.

2) Pitching is not about getting me to say that something is a good idea or bad idea.  It's about working out a plan and finding out whether or not I want to be a part of that plan.  A lot of people ask for "feedback" but they don't have a specific question or some assumption they want me to agree or disagree with.  The more specific the answer that you're looking for from me the more helpful I can be.  

3) Grabbing me at an event for thirty seconds is just about the worst justice you could do your startup.  In person is a great chance to establish that you're not a nutball and that you're the kind of person I'd like to engage with going forward.  Telling me your name, your background and that you're going to follow up with me by e-mail about an idea to [insert thing worth doing] is so much better than a rushed pitch.  Let's just talk like humans who aren't in the middle of a potential transaction first.

4) It's my job to hear you out.  Please don't apologize or act like you're bothering me.  Don't say, "I'm sure you're really busy."  What do you think I'm really busy with?  Other pitches!  This is what I signed up to do.  You can't get the big fat carry check when your rocket ship investment goes public without talking to some new entrepreneurs really early.  

5) Don't get antagonistic if I say no.  If I thought it wasn't for me, I might be missing out on something, but if I understood your idea and just wasn't into it, you need to move on and find someone who is really psyched.  I'm not that person and now the clock is ticking on additional minutes wasted trying to convince me.

Best of luck.  I look forward to hearing from you... really!


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