Category Archive

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. 

If you’re at Web 2.0 Expo, come to my talk tomorrow, Wednesday from 3:20 - 4:10 pm in room 2009, about “the Future of Online Gaming & Virtual Worlds.”   I’ve put together a wonderful group of panelists that includes:

• Gene Yoon, VP Business Affairs for LindenLab / SecondLife
• Craig Sherman, CEO of Gaia Online
• Lane Merrifield, CEO of Club Penguin
• Raph Koster, President of Areae
• Joi Ito, Chairman of Creative Commons, Board member of Mozilla, and my World of Warcraft guild leader

I’m psyched because Gaia Online and Club Penguin are both talking publicly for the first time ever about their businesses.  These are two of the most exciting web companies you’ve probably never heard of, unless you have kids between the ages of 6-15.  

I’m taking question suggestions!  Post your comments.

We’ll be talking about why “online gaming and virtual worlds” is incredibly important to the future of the Web as a whole.  And maybe delving into SecondLife’s furry monetization strategy.

This year’s holiday card from Blueprint Ventures totally made me crack up.  Like all things that are comic genius, there’s so much in it that resonates as true. 

Gary Snowman is a successful entrepreneur who fantasizes about the decadent and jetset lifestyle he imagines venture capitalists lead.  Ah, yes, Venture Capital is a ‘lifestyle’ job, but as he says towards the end of the video, “Life as a VC isn’t exactly as I expected.”

Disappointingly for Gary Snowman, it turns out that being a VC involves long hours, lots of hard work, and a lot of hustling.  His assistant interrupts his reverie with, ”I have your itinerary for your trip.  You have a 6:30am to Boston, an 8pm to Minneapolis, a 10am to Chicago, and a 2pm to New York. And business class was too pricey so you’re going all coach.”

This is funny because it’s so true.  It made me think of my typical week here, which basically involves running from meeting to meeting to meeting.  Here’s what my average week has looked like:

And lest you think it’s because I’m the newest person of our team, I would have to say that the partners here work even harder.  It reminds me of my days as a cofounder of a startup - you’re fighting for market share in a ruthlessly competitive environment and ultimately, the company is no more and no less than what YOU put into it. 

There is also this interesting dynamic - all of these meetings on my calendar are with other people - with entrepreneurs, potential portfolio company hires, potential partners of some kind - so I spend the bulk of my day socializing with other people, yet as Seth Levine has noted, it can still be somewhat of a lonely business.  Fortunately for me, it suits my personality type and interests well, but it is an interesting dynamic.   More on this later. 

Raph Koster announces his new company, Areae - and we at Charles River Ventures are very excited to be part of this journey.   I’ve known Raph since 1994 or so - back when we were MUD developers, and I’m excited to support him in finally realizing the dream he’s had since starting Legend MUD. 

Though Areae is still very stealthy, Areae sits at the intersection between Web 2.0 and MMOGs.  If you think about it, the Web 2.0 and the Massively Multiplayer Online Gaming communities have largely been pretty siloed - gamer developers go to game industry conferences and Web 2.0 folks go to Web 2.0 conferences, and there has not been enough intermingling between the two communities. 

But both industries have been inching closer and closer together.  I predict that the successful online communities in the future will continue to more strongly resemble MMOGs.  And MMOGs will continue to extend their reach and exposing their data to other Web applications - either formally, by the developers/publishers themselves, or informally by folks like Rupture. 

Here’s what the 2 communities can learn from each other: Game designers have been creating rich, fully immersive environments for years.   All of the design principles that I thought about when I was designing MUDs are identical to the issues facing Web designers today - how do I create more immersive environments? How do I give participants -equity- in this virtual world? How do I make users feel like real citizens in my social ecosystem? How do I create better scale around world and object creation? How can I expose building tools that were previously available only to Admins and Devs to the end users - and make them dead simple to use?   How much content should I pre-seed and what content containers do I think users are going to be more likely to want to customize and make their own? 

For Web 2.0 designers, there is a brilliant, must-read presentation that Amy Jo Kim put together about how to intelligently apply game design principles to Web 2.0 services to make them richer, more compelling, and more immersive (read: “sticky.”)

Yet, the Web 2.0 crowd knows a lot that the game devs don’t: how to create massively scalable, low barrier to entry, micro-chunked experiences.  How to create appealing, mass market products that are appealing to a diverse demographic.  How to iterate quickly and create production processes that give you tremendous economies of scale around innovation. 

I’m excited by the possibilities - Raph has brought on an excellent team and advisory board.  It’s time the Web 2.0 and Gaming communities begin collaborating for the betterment of all users, everywhere. 

Here’s some of the coverage on Areae thus far:

GameBiz Daily:

“I would describe what we’re trying to do as marrying together a lot of the philosophy of the web and web 2.0 with virtual worlds,” Koster told GameDaily BIZ. “We’ve been paying a lot of attention to how the Internet is going. If you remember my speech at the Austin Game Conference last year about whether or not the games business is full of giant dinosaurs… a lot of that ties into this.”

CNet:

Koster is not divulging much about Areae, but the company’s site alludes to its pure, massively-multiplayer online game DNA: “We’re working on some new tech that will literally change how virtual worlds are made. We’ve got a cool world or two incubating on the back burner.”

Gamasutra:

With what sounds like a firm emphasis on user participation, as well as user customization and content, all central tenants of the Web 2.0 ethos, we make an obvious leap toward the current open virtual world leader, Second Life, which Koster laughingly dismisses. “See, you’re already jumping to conclusions about what we’re making! Honestly, there are as many differences from Second Life as there are from Everquest.” He pauses, but concludes, “I’ll just have to leave you tantalized.”

Though I may write about ways entrepreneurs can improve in their efforts to woo and pitch VCs, make no mistake about it: Entrepreneurs are the Customer in this relationship and VCs are merely the service providers. 

I say this because even though a regular part of our job involves saying no to highly qualified entrepreneurs, the process of deciding what VC firm to work with is a mutual one.  It’s not enough that we might want to work with you. You, as the entrepreneur, have the decisive voice in this matter.  It’s a significant decision, much the same way a marriage is.  And you should only enter into this relationship if you think the VC you’re committing to is one you want to be partners with for the long haul. 

(Fred Wilson and Rick Segal have also written great posts about the topic of “Entrepreneur as Customer” on their respective blogs.)

I attend about 30+ pitch meetings a week.   The reason why I bring up this topic of entrepreneur-as-customer is that a pitch meeting is a good chance for you to ask YOUR questions of the VC as well - something many people don’t do. 

Here’s a list of the most common mistakes I’ve observed entrepreneurs make when presenting:

• Talk about the team and your backgrounds as early as you can in the presentation.  This helps us understand why you are particularly well suited to solve the problem you’re tackling.  Who you are can be more important than what you are building.  This is even more true for very early stage companies.   Also, it’s very helpful if you tell us where you think you need to add to your team to round it out.  Being able to realistically inventory your personal strengths and weaknesses as well as understanding how to fill in these gaps is attractive. 
• If you have a working product or prototype, please demo it!  Don’t just mention the fact that you have a working product on a slide.  If you do demo your product, try to do it earlier in the presentation rather than later, because this gives us valuable context for the rest of the meeting. 
• Don’t forget to mention what the financing opportunity is.  How much are you raising? What milestone will it get you to?  Why is this the right amount? Why is this milestone the right milestone?  The amount you’re raising shouldn’t be arbitrary - it should be driven by some well formed assumptions you have about why X milestone is the logical first step to winning in this market.  And by the way, the actual milestone is less important than the thought process you used to reach that conclusion. 
• Do research on the people you’re meeting with.  You should know the backgrounds of the people you’re meeting with so you can better tailor your presentation to their worldview.  Be familiar with the firm’s portfolio companies.  Read up on any interviews the person you’re meeting with might have given recently about their investing style.  If you’re coming in for our QuickStart program, read up on the terms that are published on our web site. 
• Don’t be afraid to ask for guidance.  If you’re uncertain in which direction to take your presentation midway through - don’t be afraid to ask your audience what they would like to hear more about.  (e.g. “I could take you through a few slides about the technology infrastructure or we could spend more time on the partnership strategy - which would you find more valuable?”)   
• Don’t be afraid to rein in your audience.  If your presentation gets sidetracked by too many questions that you don’t think are critically important to understanding your business, don’t be afraid to say, “I would be happy to answer those questions offline, but since we only have 15 more minutes, I want to make sure I get to the really important stuff about X and Y.”)
• Don’t spend too much time on generic market trend data.  This is especially true if you have done research on your audience.  For example, if you know that the person you’re meeting with has already invested in an advertising arbitrage play, you probably don’t need to spend a lot of time telling him/her that the online advertising market is growing at X% a year.
• Be careful of using too much extraneous material in your presentation.  Making heavy use of props such as press clippings or professionally produced videos deters from the primary goal of getting to know who you are.  Unless of course, these props convey something about you or your business that you can’t convey yourself.  We want to hear from you - dynamically and in real time - why your business is so exciting.  

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:

The Second Life business plan contest launch event was fun.  Here’s a snapshot from the event - we panelists are facing the audience: 

We were asked, “What are you looking for in a Second Life business plan?”

My answer is that I’m looking for the same things that matter in every other type of business.  None of this is novel - far wiser and more articulate folks have made the same points in the past. 

1. The team, and its authenticity and empathy for the user experience.  What I mean by this is that I’m looking for founders who come from the community that they aim to serve.  Do they speak the language of their customers? Do they empathize with their customers’ pain?  Do they feel passion for their users? Mitch Ratcliffe wrote in a great blog post today, “Social networks need some soul, not just a business school pedigree.”  For example, I would be a horrible Second Life entrepreneur.  I don’t use Second Life nearly enough to understand the relationship dynamics between its citizens and its service.  My starting a business in Second Life would be presumptuous and arrogant, because I’d be coming in as an outsider. 

That old Hairclub for Men line of “I’m not just the President, I’m a customer!” is comical but rings true.  We are looking for founders who deeply understand the customer problems they are trying to solve.  Don’t despair - even if you’ve never experienced hair loss, you could still build a believable Hairclub for Men business.  Do first hand research.  Go into the field.  Live amongst your subjects.  Take notes. Observe.  Listen.  If you observe and listen well, you’ll learn the local language and customs, internalize your tribe’s aspirations and fears, and your customers will soon begin to accept you as one of their own.

2. Unfair advantage.  This is the elusive secret sauce that sets you apart from all of your competition.  What about your business and your approach can’t be done by anybody else? Focus on that, and outsource/open source the rest.   That din you hear at your door? That’s [Google|guy in a garage] waiting to crush you.  Your unfair advantage is what keeps them at bay.  Unfair advantage can manifest itself as proprietary and differentiated technology, a superior business model, an incredible team iterating on past success solving similar customer pain, or a network of relationships that drives down customer acquisition costs. 

Furthermore, you need to demonstrate that this unfair advantage is sustainable.  Sustainable, unfair advantage is directly correlated to your ability to consistently receive better economic returns than your competitors.  Software as a service has a sustainable advantage over traditionally delivered enterprise software because it’s simply a far more efficient alignment of capital allocation and customer needs.  That being said, SaaS by itself is no longer a sustainable competitive advantage of its own - not in a market where every emerging software company employs a service strategy.  [I've written about the economic advantages of SaaS and open source on another blog.]

 3. Attractive market.  Let’s imagine that I’m the most cynical financier possible and the one and only thing that matters to me is delivering economic returns to my investors.  I’d be looking for businesses that served the entire world population and whose customers were completely price insensitive.   [Oil.] [Drinking water, in unregulated markets.]  Businesses with high customer switching costs.  [Cigarettes.] An attractive market doesn’t necessarily have to be sizeable - though size and [willingness to pay | average revenue per user] are on the same axis.  However, I’m happy to say I’m not a completely cynical financier.  Ideally, I’d love to back businesses that deliver sound economic returns and also do good for society.  [eBay. Google, maybe.]

That all being said, there are some tangible differences between building a Second Life startup and building a more traditional startup.  Though it may seem like the traditional startup business resembles the Wild West, the Second Life frontier is far hairier.  The risks inherent in Second Life startups reminds me a bit of investing in China - there’s a mostly benign dictator (Linden Labs, in this case) who wields enormous regulatory power over the landscape.   Audience members at our session had a lot of questions about currency and economic stability in Second Life.  Just as we trust the Federal Reserve of the United States to keep our dollar stable and valuable, so too must entrepreneurs have faith in Linden Labs to maintain the stability of the Second Life economy.   The Linden dollar has only as much value as you have faith in Linden Labs.

[sidebar:
friend (12:12:09 AM): What are you up to?
me (12:12:18 AM): I'm writing a blog post about unfair advantage and how it's critical to startups
friend (12:12:29 AM): What's your unfair advantage in writing about it?
....
me (12:15:23 AM): my sparkling personality?
]

I had a lot of fun last week cohosting the “How to pitch to VCs” session at StartupCamp with Nasser Manesh of Frucall.  This is a particularly salient topic for me as I’ve been going through many business plans recently as a result of our newly launched QuickStart program.   There’s been quite a bit written about the topic of presenting and pitching, including the wonderful “How to get a standing ovation” from the inimitable Guy Kawasaki.  Martin Tobias from Ignition also has some good suggestions for how to create a super crisp, logical pitch.

Though we covered a good many topics, as you can sort of tell from all of the scribbling on the whiteboards behind me, it can all be boiled down into a couple of takeaways:

1. Though the process may seem labyrinthine and intimidating, we VCs are just human beings. 
2. Your customers are all human beings.  Even if you are building super high tech widgets[1], your customers are still human beings.

Yes, I know, you’re wondering why this is insightful.  Let me try to explain.  This post just skims the surface of what will be many topics on this theme.

- Human beings are prone to making errors.  Entrepreneurs, I urge you to guide us and help us frame our thinking.  How I parse language is different than how you parse it, because each of us is anchoring meaning to our own localized, contextual data store (our memories and experiences.) Only through socialization and trial & error do we come to understand the filters that others use to translate what we say.  Unfortunately, the entrepreneur only gets anywhere from 1 to 60 minutes in front of a VC, which is not enough time to develop any of the appropriate filters.  Within your brains are wondrous visions of your business and product in 64 bpp color, though I can see none of this save for what you communicate to me. And believe me, I want to see it.

Use descriptive language and analogies.  What constitutes “community centric collaboration tools” may mean blogs to you, wikis to me, and email to someone else.  Reduce the probability of misinterpretation by using visuals, showing demos, and telling stories about customer use cases. 

- Help us empathize with the customer pain you are trying to solve.  We consume so much creative media in the form of novels, movies and video games because they do a good job of putting us in some protagonist’s shoes, transporting us momentarily into someone else’s existence.  Tell a story about how you make our lives easier, more efficient, more enjoyable, more fulfilling.  In order to do this, you need to understand what your business is really about.  Understanding how a customer relates to your product or service emotionally also helps illuminate how they might value it economically.  I like to ask people the question “how did you come up with this idea?”  This is your chance to transport me into your world and to help me feel the pain of the problem you’re solving. 

[1] A photo of a super high tech widget making process from Tim Burton’s Charlie and the Chocolate Factory:

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