Musings of a VC in NYC

The IPA

No, I am not blogging about India Pale Ale, although I must say that I am a big fan of it.

I am writing about one of the best patent hacks I have seen in the decade that I have been working to find relief from the ridiculous patent system in our country.

Twitter came up with a concept last year called the Innovator's Patent Agreement (IPA) and put a draft IPA up on GitHub. They have gotten a ton of feedback and have iterated and improved the concept since then.

The basic idea of the IPA is that it is a contract between Twitter and the engineer(s) and designer(s) who developed the IP. The contract says that Twitter will not use the patent offensively nor will anyone who acquires the patent from Twitter. It goes on to say that Twitter or a subsquent owner could use the patent offensively with the engineers' and/or designers' approval.

Twitter announced yesterday that it had entered into an agreement with Loren Brichter, the author of the pull to refresh patent that will subject that patent to an IPA. They also announced that they will subject all of their patents to the IPA. They went on to say that Jelly, Lift, StackExchange, and Tell Apart have agreed to adopt the IPA for all of their patents.

USV has been talking to our portfolio companies about the IPA since Twitter posted it last year. They all know we are big fans of it and we hope they will choose to adopt it for all of their patents. We will not do more than that however. Our portfolio companies are independent of USV and can make up their own minds about their IP strategies.

That said, I would expect to see other USV portfolio companies join StackExchange on this IPA parade.

Twitter is an amazing company and I am very proud to be associated with it. The fact that they would take this extraordinary step and then show leadership in the industry to get others to join them is a testament to that. It's a proud day for Twitter and for me.

Native Advertising Event

This Thursday from 1pm to 6pm, our portfolio company Zemanta is co-hosting a summit on native advertising here in NYC. 

I've written and spoken a fair bit about native advertising so regular readers will likely be quite familiar with this topic. However, from what I am seeing out there, native advertising is really hitting its stride as social platforms and mobile consumption become the norm. If you are a marketer or an entrepreneur working in the advertising/marketing space, you should be paying attention to this trend.

I will be kicking off the event at 1pm with a brief talk and some Q&A.

If you want to go, here is a link to get a 50% discount on the event for readers of AVC.

This is Internet Week in NYC and I am making a number of public appearances in addition to this native advertising summit. Here's the whole shebang:

Last night - introducing the Gotham Gal at the MOUSE 15 Annivesary Event

This morning - Opening the CMSummit with John Battelle at 9:10am

Wednesday evening - March For Innovation (immigration) event at AppNexus with Brian O'Kelly

Thursday mid-day - The Native Advertising event

Thursday at 4:30pm - OpenCo Festival event with John Battelle and Dave Morgan at Simulmedia

It's a busy week but with a Vespa scooter and a mind full of things to say, it shouldn't be too hard. I hope to see you all around town this week.

Success Has A Thousand Fathers

Back in the early days of AVC, I did a thing called VC Cliche Of The Week. There was an RSS feed of all of them powered by Delicious, but it is broken and most likely can't be fixed. You can find some of them on gawk.it.

One of the cliches I posted about is "success has a thousand fathers." I thought I would re-run that post. Here it is.

------------------------------------------------------------------------------------------

You can count on it - when a deal works out spectacularly everyone involved will take credit for it.

This behavior is particularly annoying to the entrepreneurs who put the sweat, blood, and tears into the Company.

They watch the VCs take credit for the big success and it grates on them.

I have a couple rules that I try very hard to live by in this regard:
1- the management team always gets the credit.  VCs don't do the dirty work and should not get the accolades when things work out.
2 - don't gloat.  it's not becoming.  humility in times of great success is a very becoming characteristic.

But it's really hard to follow these rules when things work out well.  Because success doesn't come that often, and when it does, it has a thousand fathers.

You Can Do Too Much Due Diligence

It's Monday, time for another lesson I've learned in the venture capital business. Today I will tell a story that I love telling. It has some of my favorite people in it.

Back in 2004, early in my blogging career, I heard about a service that had just launched called Feedburner. It provided a number of useful services for a blog's RSS feed. So I went and signed up and AVC became one of the first users of the service. I immediately liked the service and the idea. So I contacted the founder/CEO Dick Costolo, who has gone onto bigger and better things. I told Dick that I was interested in making an investment in Feedburner. My friend Brad Feld was also talking to Dick about the same thing so we decided to do the investment together.

As part of our investment process, we do a bunch of fact gathering/checking work that is called Due Diligence in the vernacular of the VC business. So my partner Brad Burnham and I put together a list of leading blogs and online publishers who had popular RSS feeds at the time. I think there were a dozen or so publications on that list. It included Weblogs (Engadget), Gawker (Gawker), NY Times, and a bunch more. We know most everyone who ran those operations so we called them.

What we heard was surprising. Not one of them was willing to hand over their RSS feed to a third party for analytics and monetization. We were very surprised to hear that and thought a bit about it. But, we decided, we could not invest in something that the big publishers would not support. So regrettably, I called Dick and told him we had to pass and why. Brad Feld went ahead with the investment and Feedburner closed their round without USV.

About six months later I ran into Dick at an industry conference. We decided to grab lunch together and during lunch he said to me "you know those dozen publishers you called?" I said "yes, what about them?" He said "every single one of them is on Feedburner now."

I was pissed. How could that be? So I said to Dick, "Would you consider letting us into that last round we walked away from." He said "No, but I will let you invest at a 50% increase in price". We did that and became an investor in Feedburner. And that worked out well when Feedburner was sold to Google a few years later.

So what did I learn from this lesson? First, trust your gut. I was using Feedburner and knew it was a very useful service. I felt that others would see that too. They did, but it took some time. Second, I learned that a service can get traction with the little guys and in time, the big guys will come along. I have seen that happen quite a bit since then. And finally, I learned that you can do too much due diligence. It's important to talk to the market and hear what it is saying. But you have to balance that with other things; the quality of the team, the product, the user experience, etc. You cannot rely alone on due diligence, particularly early on in the development of a company and a market.

Off The Schneid

The almost two year long slump is over. I've led a new venture investment for USV, which closed a few weeks ago and was announced last night. The company is Coinbase and my blog post announcing the investment is on the USV blog. The WSJ also wrote about it here.

This hiatus, which I've blogged about a bit on and off, was mostly a result of being very full up with responsibilities for existing investments. I have made twenty investments since the founding of USV in the fall of 2004 (now 21) and have only exited six, so I have had fourteen investments that I am responsible for at USV. I take our responsibility to our portfolio companies higher than any other work related responsbility and these fourteen companies have required a lot of time and attention over the past two years.

Two things have happened to get me off the schneid (a hitless streak if you aren't familiar with that term). First, the fourteeen companies have all matured a lot in the past two years and the demands of that group of companies has waned a bit. And second, I have come to believe that a number of new fundamental technologies have hit the Internet and it is time to get busy putting out money.

One of these is Bitcoin. Here is a snippet of what I wrote today on the USV blog:

We believe that Bitcoin represents something fundamental and powerful, an open and distributed Internet peer to peer protocol for transferring purchasing power. It reminds us of SMTP, HTTP, RSS, and BitTorrent in its architecture and openness. Like what happened with those other low level protocols, entrepreneurs and developers are now building technology on top of Bitcoin to make it more useful, more accessible, and more secure.

It is possible that we may make more Bitcoin/digital currency investments but we will try to make sure they are not competitive with Coinbase. And there are other sectors out there that are emerging now that I am keeping my eye on as well. I hope to be more active in making new investments in the coming months. It's good to be back at it.

Related articles

Bitcoin: The Wild West Years

Coinbase Nabs $5M in Biggest Funding for Bitcoin Startup

Coinbase grew 15x in the past 3 months

What Is Bitcoin and What Can I Do With It?

From DonorsChoose To Kickstarter

In the wake of my Return and Ridicule post, I was asked how one goes about finding these services that are ignored and/or ridiculed. And the answer I gave was "if you use them you might realize how powerful they are."

I woke up thinking about that in the context of Kickstarter today. It must be related to the fact that today is the fourth anniversary of Kickstarter's launch. How was it that I was so sure the Kickstarter project would work when it launched back in 2009? Well it was because of what happened on this blog a couple years before that.

The story starts in the fall of 2007. Charles Best, the founder of DonorsChoose emailed me and asked if I would enter AVC into the DonorsChoose Bloggers Challenge. He wanted this community to compete with other tech blogs to see who could raise the most money for teachers and their classrooms. I said yes and we entered, and won, the tech category in 2007. We entered again in 2008 and won again. In the final year of the social media challenge (renamed to encompass more than bloggers) we won the tech category again. This post, which I wrote in November 2009, after our threepeat, shows that the AVC community raised almost $60,000 for teachers and their classrooms in those three October showdowns.

So when Perry Chen came by to talk about Kickstarter in the summer of 2009, my mind was prepared to understand what he and his co-founders were up to. When he explained that artists and other project creators were going to post their projects and get them funded on the Internet, I thought "of course" instead of "that will never work."

And I have Charles and the DonorsChoose team and the AVC community to thank for that. Which I book in the category of "what goes around, comes around".

And I cannot resist reminding everyone that we have a DonorsChoose campaign running on AVC right now, called Good Things Come To Those Who Code. If you have not made a contribution and want to, now is the time. The campaign ends at midnight on Tuesday. Go here if you want to participate.

Video Of The Week: Parrot AR Drone

I bought one of these on amazon at the suggestion of Laurent Eschenauer in yesterday's comment thread. I can feel my 14 year old self re-emerging. I can't wait to play with it. It's also a good excuse to learn a bit of node.js so I can program the thing.

If you want to skip the unboxing and information and go right to the flying part, that starts about 5:40 in.

If you have three minutes more for additional drone entertainment, click here.

Return and Ridicule

I am going down to Princeton today to talk to Ed Zschau's class on entrepreneurship today. Ed asked me what I wanted to talk about. I told him "return and ridicule".

I have found that return and ridicule are highly correlated over the years. We have made more money on things that were highly ridiculed than on any other cohort. When I see people laughing at ideas and companies we have backed, I smile. It means we are going to make a lot of money on that investment.

I saw Bill Gurley say that you can only make money by being right about something that most people think is wrong. His logic was that you can't make money by being wrong. And you can't make money by being right about something everyone else knows. So you have to be right about something that most people think is wrong. I really like that framework.

The same logic applies to starting companies. If you start a company in a market everyone knows is going to be big, then you will have a ton of competition. If, however, you start a company in a market everyone is laughing at, you won't have too many competitors.

This notion also plays into Clayton Christensen's framework for disruptive innovation. Many of the most disruptive technologies started out as what Clay calls "toys". The PC is a great example of that. PCs came out of the homebrew computer movement. Geeks were building computers in their garages. And everyone thought they were nuts. But from that came the Apple Computer and the IBM PC and we were off to the races with personal computers.

Chris Dixon has a great post about hobbyists. He likes to look at what the next homebrew computer club type activities are these days. When I saw Chris yesterday he was talking about drones and asteroids. I laughed. He grinned ear to ear. Chris knows that it's good to be ridiculed.

So many folks in the venture capital business are sheep that just want to follow the herd. They are momentum investors purchasing highly illquid investments. That is a recipe for disaster. Momentum investing works in highly liquid markets (sometimes). From what I can tell, it almost never works in private markets.

Better to invest in laughing stocks. Becuase she who laugh lasts, laughs best.

Video Of The Week: The Tech Tonic Discussion

Reuters Tech Tonic taping today

A while back, I posted a video of the week of Avner Ronen on Reuters Tech Tonic. In the comments to that post, the host Paul Smalera invited me to appear on the show and then invited the AVC community to sit in the audience.

Well the taping is today at the Reuters building in Times Square from 5pm to 6pm and the first 25 people to sign up can attend. The link to RSVP is here. Please don't RSVP unless you really plan to attend.

We are going to talk about immigration, regulation 2.0, bitcoin, and a few other things that will be common themes to the AVC community.