Category Archive

We at CRV are producing a new program at GDC called Startup Launchpad.  Essentially, it’s a way for game developers - indie to amateur to professionals within studios - to learn how to become entrepreneurs and to become unshackled from the confines of the traditional game industry structure.

 As I’m sure many of you know, many game developers/designers toil long and hard for game studios, only to receive very little if any equity for their efforts.  It’s an inequitable system.  I was an indie game developer for many years (MUDs, Mods) but I never wanted to join the traditional studio system because of what I perceived to be very inefficient employee management practices.

 The gaming industry is at the cusp of major structural change.  Traditional retail channels have left industry power in the hands of the few who could create scale to distribute across retail efficiently.  Now with the advent of open platforms such as such as XBL/XNA and web platforms like Kongregate, MiniClip, Areae/Metaplace, Facebook, etc, there will soon be numerous channels for game devs/designers to leverage to help them build their own profitable businesses.  And also, as players become more accustomed to playing games online or purchasing via online channels, there will be more venues for building new platforms and experimenting with different business models.  More importantly, many of these new games that will emerge will be much more lightweight social games, and so entirely new genres of gameplay will emerge. 

Bottom line: the gaming industry is at the cusp of dramatic structural overhaul in the next several years.  Some of this innovation will be driven by the large game companies (XBL, EA Blueprint), but I expect a bulk of the exciting new developments to come from a crop of startups yet to emerge. 
Anyways, I am hoping that these series of events at GDC will foster innovation, creativity, and a sense of what’s possible in the gaming industry.  At the very least, I want to introduce game industry folks to the possibility of being an entrepreneur or working for a startup.
You can read more about these events at GDC Director Jamil Moledina’s blog:
http://www.gdconf.com/news/directors_cut/

or at Gamasutra:
http://www.gamasutra.com/php-bin/news_index.php?story=17370
 

The first series of events takes place tomorrow, Friday February 22 - you can read about the 3 Startup Launchpad sessions here.

• Raising Venture Financing for your Startup: Tips, Tricks, and Hacks - 9:00-10:00am Room 2004 West Hall
• The 1st Annual Startup Showcase - See the 5 most exciting and innovative startups of the year - 12:00-1:00pm, Room 132 North Hall
• Lessons from the Front Lines: Startup CEOs share their insider stories - 4:00-5:00pm Room 2007 West Hall

Thanks for reading! I hope to see you there. And keep a lookout for the business plan contest we will be launching for Austin GDC in the next couple of months.

We just announced our recent Series A investment in Conduit Labs, a Boston based company that’s focused on building a social networking / casual MMO hybrid.  Well, what does that exactly mean? And aren’t there a hundred companies now doing this exact same thing? 

This new space - the intersection of Web 2.0 and online gaming - is a very difficult one to define.  This categorization encompasses companies like Kongregate to Areae to Three Rings - each of whom is vastly different from the others.  To make it even more confusing, Conduit Labs is not really like any of the three companies I just mentioned.  They’re inventing an entirely different interpretation of what it means to sit at this intersection. 

Conduit Labs is building a gaming environment.  That is to say, the primary driver of user interaction is game mechanics.  This gaming environment lives in an immersive, graphically rich world.  But the gameplay Conduit Labs is building isn’t exactly like other online games we’ve all now become familiar with: there’s probably not going to be much kart racing or princess saving or dragon slaying.  We aren’t yet disclosing what the gameplay or graphical metaphor will consist of, because that’s part of the secret sauce. 

Leigh Alexander from Worlds In Motion wrote up a great interview with Nabeel that provides more insight into what Conduit Labs is up to.

Nabeel: “I think probably every other day now over the last couple months, I see a new casual MMO or virtual world startup; it’s been constant…and what I saw was the same kind of dichotomy — two types of startups. There’re hardcore MMO gaming guys trying to make that experience more accessible, sort of like World of Warcraft meets the web. And the other side of the coin is a bunch of web guys who want to build a web site with virtual gifting and more gaming.”

While Hyatt recognizes the value in both of those approaches, he adds, “I think they’re missing the larger point – which is that there is no interaction on the web that is like a social game. I don’t mean a single-player game, which is based on a legacy of, really, only video games; it doesn’t last hundreds of years. There’re actually thousands of years of games that are primarily social activities like dancing, or bowling. And those are about you bonding with your friends, and there’s nothing like that online right now. And I think the web and social networks provide a whole new medium to create something that’s never been seen before.”

Just like the Wii and Guitar Hero reinvented the social gaming metaphor for a broader audience, Conduit Labs is trying to do the same for your web gaming experience.  I’ve also seen innumerable business plans in the last year for startups in the online gaming and virtual world space.  But most of them have been rehashes of things we’ve already seen, building things like “making the MMO even more casual” or “putting casual games into Facebook” or “Club Penguin but with chimpanzees.”  (disclaimer: I actually like chimpanzees quite a bit, probably more than I like penguins.) 

We invested in Conduit Labs because I believe the team there really gets it: there’s an entirely new type of immersive experience waiting to be built.  It has less to do with technology (although we are building on the basic assumptions/principles of the zero-barrier MMO and all that entails), and more to do with social engineering.  This is a great team that has the right blend of experience that includes Web 2.0, hardcore MMOs and the scalability expertise that comes from supporting tens of thousands of concurrent users, and understanding how to design “fun” for a mass market audience that comes from building groundbreaking social games like Guitar Hero. 

We’ve made a couple of interesting investments recently in the social media space - Twitter and well, the aptly named Social Media.  Social Media, the company, is building a highly viral network of micro-applications that live across multiple social networks.  The announcement regarding the Social Media funding is here.  Social Media is a 1st cousin to companies like Slide and RockYou - both of which are essentially virtualized social operating systems, coordinating massive networks of widget-based microtransactions.

What I find compelling about Twitter and Social Media is that they are both creating standards around specific user behaviors and then syndicating this standard across multiple social operating systems.  This server side synchronization of user relationships and user behavior is the key asset to own.  We’re now moving into a client agnostic era, where clients - whether they be Flash, Ajax, Facebook-centric, or MySpace-centric - are marketing channels whose function it is to drive efficiency into the process of targeting and segmenting your users. 

A client should be an interpretation of a user group’s needs within a specific context (by ’context’, I mean the 14-18 year old females on Facebook have a different community ethos than the 14-18 year old females on MySpace and thus could be segmented into two different user groups).  Done well, this can lead to lower user acquisition costs and a broader distribution engine.    All in the pursuit of creating the zero barrier platform.

Seth Goldstein, Social Media’s CEO, put together a cool summit last week called AppDevCon.  It was a get together of 60-70 of the leading Facebook application developers.  I spoke on a panel about investing in Facebook apps.  Justin Smith, from the Inside Facebook blog, wrote up a good summary of the event’s sessions here.  My comments were truncated because Justin was liveblogging the event, but to sum up what I said:

• We are actively investing in Facebook apps.  However, I feel there are very few, if any, standalone apps today that would make outstanding venture investments.  There are interesting threads and patterns that are emerging that could become great venture investments. For example, MySpace and Facebook are the two most well known asynchronous social platforms. There is great market opportunity for an emergent synchronous social platform or application.  I’m also very interested in virtual gifting and virtual currency platforms that operate across myriad environments.
• I am most interested in investing in smart, creative folks who have an interesting hypothesis, a good process for experimenting in rapid iterations, and a methodology for collecting data that gives them insight into when and where to place the big product bet.  The pace of innovation on the Facebook platform is insane right now.  It’s enormously difficult to predict what the killer app might be. 
• Should app developers be building on other platforms other than Facebook? It depends on the ROI - Facebook is but one user acquisition vehicle with its own Customer Lifetime Value datapoint.  If you build a framework that lets you test aggressively and measure results quickly, there’s no reason you shouldn’t be deploying across multiple environments.

When I started writing this blog, very few people were talking about the melding of MMOs and Web 2.0.  My goal for the last year was to proliferate this concept widely and to help bring together what I observed to be two very segregated, but highly complementary communities.  This was my motivation behind putting together a Virtual Worlds/Casual MMO panel at the Web 2.0 Expo and for including the panel on “Virtual Items: Mainstream or Not” at the Virtual Goods Summit. 

 Yesterday, BusinessWeek published a special report called “Getting Serious about Gaming.”  Two of my investments are mentioned in this article, one of which is Areae:

“One of the most high-profile efforts in this area is the L.A.-based Areae, founded by industry veteran Raph Koster (former chief creative officer at Sony Online Entertainment (SNE)) in December, 2006. Still in stealth mode, the company is talking very broadly about its plan to reinvent virtual worlds. But the basic idea is to bring down the astronomical development costs of the popular MMOGs by borrowing from the equally popular and vastly more economical Web 2.0 technologies supporting sites such as MySpace and YouTube.”

Hrm, they don’t exactly get it right.  What they do get right is that Areae is still very stealthy. In all seriousness, I don’t like invoking a Web 2.0 metaphor where the sole conclusion is ”cost reduction.”  Web 2.0, while an accelerant of more cost efficient development models, is in my mind, primarily characterized by a collaborative and community-driven relationship with your users where “A+B” does not merely equal “A+B.”  This is the kind of alchemy all of us technologists strive for - how do we transform mundane, commodity database driven web pages into something that supports life?  ;>

And since when was MySpace Web 2.0?  

In any case, all my good natured snark aside, I’m very happy to see the transformation in the market that has taken place over the last year.  The conversation around next generation social media has moved far beyond Second Life and WoW.  Every day, I see new business plans and prototypes of entrepreneurs constantly innovating in this space. 

I am producing this awesome conference, the Virtual Goods Summit, with my friend Charles Hudson.   We wanted to put together a conference that moved the dialogue beyond “Virtual Worlds: Hype or Not” to discussions that can inform meaningful industry evolution and actual implementation.  With companies like Tencent ($500M+ yearly revenue) and Habbo Hotel ($65M yearly revenue) generating a significant portion of their revenue from virtual goods, it’s clear that virtual goods represent a real, viable business model and will likely have a huge impact across all of the consumer Internet.  [update: Note that this isn't just for people interested in gaming.  There's a reason we only have one session related explicitly to virtual goods in gaming & entertainment!]

What: Virtual Goods Summit 2007
When: June 22, 2007 from 10 AM - 5 PM
Where: Annenberg Auditorium Stanford University

Virtual goods and virtual currencies are growing beyond their traditional
roots in online gaming and beginning to exert growing influence on the
development of social networks, community sites, and casual games. This
growing influence is due in large part to the fact that consumers have shown
a willingness to embrace virtual goods as a way to express themselves
online. From pets to coins to avatars, virtual goods are becoming a real
opportunity for companies who are looking to build more engaging online
experiences:

First, thanks to:

Valerie Cunningham and Net Jacobsson for these photos.  John Furrier and Podtech for podcasting the event.  Stanford MBA2 John Anderson and CRV’s Kim Morioka for helping us coordinate the event. 

The premise:

60 pitches in 60 minutes. 4 judges - 3 from Charles River Ventures - me, Bill Tai and George Zachary and 1 celebrity guest judge - Matt Marshall from Venturebeat.   The first half of the contest took place in the Stanford MBA cafeteria - noisy, chaotic, and fun. 

Contestants wait their turn to pitch: 

The judges: me, Matt Marshall, George Zachary, and Bill Tai

The judging criteria: 

The judges scored each contestant from 1-100, with 400 being the highest possible score a contestant could earn.  The criteria? Because contestants only had 60 seconds, this wasn’t intended to be a business plan contest.  We were hoping this could be a fun, educational experience for the Stanford MBAs to learn how to communicate their ideas succinctly and persuasively in 60 seconds or less. 

There are some salient, real world reasons why being able to mount a convincing argument in 60 seconds or less can help you as an entrepreneur.  For example, we’ve received numerous business plan submissions in the first month since launching our CRV QuickStart seed financing program - it’s an imperative for the entrepreneur to make as strong of an impression as quickly as possible.  Or, you may find yourself on an elevator with Rupert Murdoch and want to convince him why he absolutely needs to acquire your startup if he has any hopes of properly monetizing all of the MySpace traffic.  Except, he’s getting off on the 6th floor, so you only have 40 seconds.  

In both cases, what the pitch represents is a means by which you can capture our imagination and make us want to learn more about your idea.  With the Entrepreneur Idol contest, we weren’t looking for fully baked or fundable ideas.  That’s incredibly difficult to convey in 60 seconds.  But the purpose of the 60 seconds is to get us salivating to hear more of what you have to say.  Were you authentic in your delivery? Did you come across as being credible?  Was your general target market attractive? Did you make a logical, persuasive argument?  Did you make us believe that you could be a great entrepreneur to back?

(Tip: Research your VCs before you pitch them.  People tend to fund things they are personally excited about.  It makes your job easier if you seek out people already immersed in your space.) 

 The results:

The judges chose 5 finalists based on the scores.  The top 3 got to present in front of an auditorium full of their peers.  In true American Idol style, each of the top 3 pitched, received feedback from each of the judges, and the audience chose the winner by clapping and making noise.  

The winners, Jeff, Rohin and Ned (left to right) - sorry the photo is blurry:

1st: Ned Tozun, MBA2 - Solid state LED for the developing world
2nd: Rohin Dhar, MBA2 - Online job recruitment services
3rd: Jeff Piper, MBA2 - Hedging instruments for residential real estate market
4th (tied): Vanessa Stanley-Miller, MBA2 - Kid-centric online video service
4th (tied): Ben Savage, MBA2 - Location based mobile game platform

Closing thoughts:

Based on student feedback, people had a lot of fun and it was very educational.  For them, it was illuminating to see the top 3 deliver their pitches in front of a big audience - they could learn from their peers and from the feedback we gave after each pitch.  Moving forward, I’d like to have all 5 finalists (and perhaps more) give their pitches in front of the larger audience.  The margin of difference between the top 9 scores was very small and most of the learning happens by watching other people pitch in real-time. 

We at CRV were very impressed by the quality of the pitches - by the delivery, the ideas themselves, and the enthusiasm of the contestants.

Statistics:

There’s been quite a bit of attention around our new QuickStart program - including this critical post from the O’Reilly Radar folks.   I posted the following comment to the thread because I thought that some of their  misinterpretation stems from the fact that O’Reilly & CRV haven’t had any personal, 1-on-1 discussions about the program - something I’m now trying to remedy. I can see why, from the vantage of an outsider reading the press that’s been written about the program, they might come to some of the conclusions they come to.

Also, check out the FAQ George Zachary posted to his blog.

Hi Tim & Bryce:

I read this post about our announcement with great interest and it struck me that you have certain impressions about us and our QuickStart program that may stem from the fact that the two of us (groups, firms) don’t know each other that well. So I wanted to take the opportunity to help clarify our position and try to illuminate where we’re coming from.

1. We aren’t abandoning our traditional early stage model.

-To characterize this as a ‘learning from Odeo’ is unfortunate and incomplete, because this program arose from genuine, organic interest from entrepreneurs we’ve been working with for awhile. People have been asking for seed stage convertible notes from us. 4 out of 5 of our most recent projects were seed stage convertible notes. 3 of these are in consumer services, the other is a semiconductor IP company. We formalized a program around activities we were already engaged in, so that these entrepreneurs would have a much more streamlined way to interact with us. Furthermore, we enjoy very early stage investing and want to spend time on these projects.

The thinking was, “Let’s not force all seed stage projects who fit a certain profile to go through a process that makes more sense for a traditional venture investment. Let’s put in a place a standard term sheet / deal structure so that we don’t have to reinvent the wheel every time we finance a project like this.”

-Ultimately, we are neutral as to whether or not we should do seed debt or equity. We feel that the final decision is up to the entrepreneur. We’ll gladly participate in a seed equity round if that’s what the entrepreneur deems best for his/her needs. We want to work with folks like OATV - I have a tremendous amount of respect for you guys. What we’re trying to do with this program is create some efficiency, transparency, and choices for the entrepreneur.

-Also, the fund we are currently investing out of is a $250 million fund. It’s a good size for doing both very early, seed stage projects as well as larger clean tech projects such as Celunol. It’s also a fund size that somewhat reduces our incentive to be solely focused on driving massive hits, although of course, we are happy to have hits. I don’t think being hits only focused is a good long term strategy in this business.

2. This doesn’t feel like a ’spray and pray’ approach to me - in terms of how I hear people internally speak about these seed projects. We’re doing these seed projects out of both coasts, averaging about 1-3 projects per year per investing professional. We’re still doing a decent amount of diligence and research into the seed projects we are investing in.

Btw, Bryce - yes, the west coast team is driving this program in terms of setting up the workflow, infrastructure, and processes, but our entire investing team is involved in making seed investments. Perhaps there was some confusion in messaging, but I assure you that nothing has changed internally. The last 4 seed investments we made were led by multiple people.

Having spent most of my life working hands on with developers in hardcore ‘alpha geek’ environments, I completely understand that most innovation doesn’t necessarily happen with ‘rockstar teams’ and ‘all-star angels’. In fact, most of my time is spent in the field, doing first hand research, hanging out with developers, going to user group meetings.

The reason why I’m excited about this new program is that I’m actively looking at virtual world, gaming, and next gen online socialization technologies. There’s some amount of title risk associated with these projects, because implicit in the design of the product are all of the creator’s assumptions about user behavior, emotional connection, and the sociological relationship between multiple users/groups. This investment size allows me to more palatably bear the risk of working with a couple of groups to develop a prototype and see how these assumptions manifest into the product/business. At the end of the day, I feel like I’ve personally failed if none of my seed investments flourish into viable Series A (B, etc) opportunities.

Thanks for reading my long post. I just wanted to share my perspective and try convince you that we are actually being a lot more thoughtful about this process than you seem to think we are.

Best,
Susan