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Musings of a VC in NYC
103 posts from July 2005
links for 2005-07-22
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a great story on the lessons and challenges of being an entrepreneur
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The Gotham Gal highly recommends this book.
My 50 Favorite Albums (continued)
If I had to choose just one voice to listen to over all others, I'd choose Nina Simone.
Her smooth, smoky, soulful voice is sheer pleasure to listen to.
Nina put out well over a hundred records in her long career and you can get most of them on Amazon.
I have not heard very many of them, although I can say that Nina, Anthology, and Very Best are all must have records for Nina lovers.
But this is about my favorite records.
When I reach for Nina, it's most often for this record, called The Essential Nina Simone.
Jackson calls records like this "packages". And it is. But so what? It's a great record and everyone should go get it and put it on and listen to it. I can pretty much guarantee that nobody will send it back.
links for 2005-07-21
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should be a great show
Cyber Nostalgia
I read a great post couple months ago about Kozmo.com, titled, "Why The Web Still Weeps for Kozmo.com".
Apparently you can still buy old Kozmo paraphernalia on eBay, Craigslist, and elsewhere.
I have my own Kozmo memorbilia and this one - Lady Liberty with the Kozmo bag slung over her shoulder is my favorite.
Private Equity - The Job of Choice?
It used to be that the ultimate career goal was the CEO job at a Fortune 100 company.
And it's generally the best way to get invited to join Augusta National too.
And if you really made it, you might get invited to join the administration and go to the White House.
But these days, it seems that people are leaving those jobs aside and heading to private equity instead.
In the past week, I've read three stories that made this realization hit home
1 - Colin Powell, former Secretary of State and Chairman of the Joint Cheif of Staff of the US Military joins Kleiner Perkins as a special limited partner.
2 - Sandy Weill, former Chairman and CEO, of Citibank wants to leave Citi early to start a buyout firm.
3 - John Joyce, head of IBM's Services Group, which represents over half of IBM's revenues, gets off the CEO track to join Silver Lake Partners, a technology buyout firm.
It seems that private equity and venture capital is the career of choice these days.
So when are the invitations to join Augusta going to start coming our way? :)
VC Cliche of the Week
Venture Capital is supposed to be patient capital, willing to support an entrepreneur for a long period of time while he or she builds the business. In general, I have found this to be true of VCs, although there are clearly some in the business who can and should work on their capacity for patience.
But even the most patient investors can get tired of
supporting an investment. This is called
“deal fatigue”. I have seen deal
fatigue, I have experienced it myself, and I think it’s an important emotion
for VCs and entrepreneurs to recognize and understand.
The typical life cycle of a venture deal is five to seven years. I have seen deals that have taken longer than that. At Euclid Partners, we had portfolio companies that were double digits in terms of years held. That is patience!
But beyond the years held, there is another factor that I
believe is more important in the deal fatigue equation.
Everyone has heard of the J-curve. It is used to describe returns in
a venture fund. They are negative in the
early years, get positive in year 3 or 4, and then grow from there.
That J curve can also be drawn to show the typical annual
cash flows of a startup company. They
are negative for two to four years, turn positive, and grow from there, thereby
creating value for the entrepreneurs, operators, and investors. During the early years, the VCs support the
company with capital infusions, thereby acquiring their ownership stake.
But sometimes the J-curve flatlines. It doesn’t turn positive.
In the simplest case, the patient dies. That’s usually good for everyone
involved. The company didn’t get
customers, revenues, and build a business.
But it’s rarely that simple. Some companies get customers, revenues, create value, but don’t get cash flow positive. They end up on life support and nobody wants to pull the plug for good reason. This is by far the most common cause of deal fatigue.
It’s important to get inside the head of the investor for a
moment. Let’s take an investor who is
putting up his or her own cash. The
first time they write a check to invest in a startup they are excited about the
possibilities and are eager to make the investment. When the Company comes back for another
investment, the investor often continues to be excited by the possibilities and
eagerly opens the wallet. But a second
emotion starts to creep in and that is obligation. After that, every time the wallet opens, the
excitement dims and the obligation increases. It’s just human nature.
Now, let’s add to that simple investor emotion equation the notion of investing other people’s money in a partnership structure. The VC isn’t opening his or her wallet. They are asking their partners to authorize the investment of other people’s money in the company. That is called “going back to the well” and is another great VC cliché. Think about the emotions for everyone involved in this exercise if it’s done time after time.
So that’s deal fatigue. It’s driven more by money than time and it can be a very destructive emotion
in the board room if it is not managed properly.
So what can an entrepreneur do to protect him and his company from investor deal fatigue?
First, don’t let the J curve flatline. Get profitable in a reasonable period of time.
Two to three years is typical, five
years is too long.
Second, bring new investors into the syndicate every time you raise money. The investors who wrote the checks in the A round might be tired by the E round, but the D round investors will have fresh legs.
Third, start with a low valuation and slowly and carefully
build it in each investment. The
investors will be less tired if they see the value of their investment
increasing in each round. But if you
start at too high of a price and then get stuck there or worse, go down, then
you are in for trouble. There is nothing
worse than a tired investor with a paper loss on his or her hands.
In summary, VCs as a group are the most supportive and patient investors I have ever met, but they are investors and are subject to the same emotions that all investors experience. There is not an unlimited supply of capital and patience in a venture capital firm and entrepreneurs need to be acutely aware of that fact if they choose to finance their company with venture capital.
links for 2005-07-20
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incredible early Dylan song never released until the Bootleg series
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Gordon's musings on "discovery"
Adsense Update
I've posted my Adsense stats in the past and I like to do it fairly regularly, particularly if there is an observation that I can make from them.
Here is the chart of my Adsense ad views since the beginning of the year.
The sharp increase in early June resulted from the insertion of Adsense ads into my Feedburner feed. I have three feeds, only one of which runs through Feedburner, so the Adsense ad views represent my blog page views plus roughly one-third of my RSS feed views.
Adsense doesn’t load an ad into a page or a feed unless it has been opened in a browser or a reader so this is an accurate measure of the number of views I am getting on the places I have Adsense running.
I know that my blog averages about 2,500 page views per day, so the increase to about 8,000 ad views per days says that the Feedburner feed is driving about 5,500 ad views per day. And if I were to add Adsense to my other two TypePad feeds (atom and rdf), then I’d probably have about 20,000 Adsense ad views per day.
That’s an impressive number for a one guy/part time one hour/day operation. Assuming I could get a 1% click through on those 20,000 ad views, that would be 200 clicks per day. And if I could get $0.50 per click, I could make $100 per day. That’s $700 per week, and $36,500 per year. For one guy/part time one hour/day, that’s a huge number.
But alas, it doesn’t work that way. I suppose you all knew that it wouldn’t.
First, I don’t have Adsense running on my two TypePad feeds. If I could run them through Feedburner, I could run ads easily. But so far, neither TypePad nor Feedburner has figured out how to make that happen for me. I hope they will soon.
That cuts my earning potential by 60%.
Then there’s the nastly problem of little to no click through in the RSS feeds. I was getting a 0.5% click thru rate before I added RSS feeds (down from 1% for all of last year, a decline I still can’t figure out). With the addition of RSS, my click thru is now 0.2%.
Here is a chart of my click thru rates since the beginning of the year.
If I assume the web ads still have a 0.5% click thru rate, then I am getting 13 clicks on my blog on the web on an average day. That means the extra 5,500 RSS ad views are generating an average of 3 clicks per day.
If you buy that math, RSS is generating a 0.05% click thru rate (one tenth the rate the blog page generates).
So it’s hardly worth getting ads into my other two RSS feeds until the RSS click thru rates improve.
I don’t read my blog in RSS so I don’t closely monitor what kind of ads are running on my RSS feed. I’ll take a look and report back, but this is a concern for everyone who is betting on ads in RSS to make them lots of money.
So in conclusion, what happened to the $100 per day that I projected I could make with my current traffic? It’s a tiny fraction of that. Currently its running at around $4/day, and that’s still “labor of love” territory. Here is a chart showing my dollars per day since the beginning of the year.
I don’t keep the money I make on Adsense, I donate it to the Grameen Foundation, but nevertheless I am troubled by something.
In February, I was generating 2,000 Adsense ad views per day and was making north of $5/day on a good day.
Today, I am generating over 8,000 Adsense ad views per day and making less than $4/day on a good day.
Some of this is due to the RSS issue, but even without it, my traffic has gone up by at least 20% since February and I am making less.
Something is wrong and I think it’s the targeting and relevancy of the ads. There’s $96/day of opportunity for someone who can address this problem and that sounds like a big bucket of money to me.
Please let me know what you think.
Bob Dylan - Bootleg Series Vols 1-3
Jason Chervokas suggested this three disc set to me and so I went out and got it.
I am listening to it on the flight out to San Francisco today.
Wow.
There are some really great songs on here:
Talkin' John Birch Paranoid Blues - This is the song Dylan wasn't allowed to sing on Ed Sullivan
Who Killed Davey Moore? - This song was written and performed within three weeks of Davey's death in the ring in 1963. Powerful social commentary.
Moonshiner - I first heard this song when it was sung by Uncle Tupelo. It's an old southern mountain ballad and Dylan sings it wonderfully.
Farewell, Angelina - Written by Bob for Joan Baez who made it popular. This is a rare version of Bob singing it. I love songs that talk about playing cards. Dylan did it the best.
Like A Rolling Stone - Dylan plays the song solo to the assembled studio musicians. Later that day, they recorded what is possibly his greatest song in a single afternoon.
I Shall Be Released - The original demo from the Basement Tapes with Robbie Robertson, Levon Helm, Rick Danko, and Richard Manuel singing the harmonies. Brilliant.
If Not For You - George Harrison's guitar and Dylan's vocals from a recording session they did together in 1970.
Nobody 'Cept You - An outtake from one of my favorite Dylan records, Planet Waves, with excellent guitar by Robbie Robertson
Idiot Wind - The orignal recording of my favorite song on my favorite Dylan record, Blood On The Tracks. Apparently Dylan didn't like the way the record sounded so he went back and re-recorded a bunch of songs.
Every Grain of Sand - This is the orignal demo of another of my favorite Dylan songs. With a dog barking in the background no less.
Series Of Dreams - Great song from the Oh Mercy sessions in New Orleans that Daniel Lanois didn't want to put on the record. He should have.
Someone's Got A Hold of My Heart - Recorded in the Infidels sessions but not released. Ultimately became Tight Connection To My Heart on Empire Burlesque. I like this version better.
Tell Me
Lord Protect My Child
Foot of Pride
Blind Willie McTell - One of Dylan's best unreleased songs.
These last five tracks are the reason I got this record in the first place. They are all outtakes from the Infidels record.
I love Infidels. It's probably my second most played Dylan record after Blood On The Tracks.
Anyway, if you are a Bob Dylan fan and don't own this Bootleg Series, I'd strongly suggest getting it.