Pitch Deck Study Hall

There has been a lot of chatter in the NYC VC ecosystem lately about Office Hours. The idea is a VC hosts a 1-2 hour time in which entrepreneurs can stop by and spend 15 minutes with the VC to get some feedback on their startup.

I love the idea of Office Hours, but my firm is based in leafy Larchmont, so I'm not sure anyone would make the trip. :)

Not to be deterred, here's my Manhattan-challenged twist: Pitch Deck Study Hall.

If you would like confidential feedback on the structure of your pitch deck, the content, a section, the idea itself, or anything else, send me your deck. I'll block off 2 hours on my calendar next Friday to go through as many decks as possible (first come first serve).

I'll send any notes I scribble on your deck your way, as well as any other quick thoughts I may have.

I promise to keep the deck (and my feedback) completely confidential.

And in case you're wondering what's in it for me, I will direct you to my blog post on VC's freemium model.

So if you're interested, please feel free to shoot me an email at sarah [at] bvp [dot] com.

Why aren’t there more women in startups? Some new data.

(Hat tip to Christine -@cklemke, COO of Sense Networks- for help on this post!)

It’s become a common question: Why aren’t there more women in venture funded startups? I speak to venture backed startups all the time. Unfortunately, more often than not, I don’t see a single female on the executive team roster. Over time, I’ve developed a hypothesis. For some reason, in the rare occurrence when I speak to a female CEO, it’s felt to me that I’m much more likely to find another female face on the company roster. It got me curious: Is this true? Are there actually more female executives in female-CEO led companies than male-led companies? If so, there are a number of implications.

To answer this question, Christine and I have done some good ole fashioned data collecting. Unfortunately, this has been a much more time consuming task than we had expected, so we’ve only gone through the US portfolio of three VCs: Accel, my firm Bessemer, and Sequoia (210 companies in total).

Given the small sample size, and the hot-button nature of the subject, let me first disclose what this data set is *not*:

• It is *not* statistically significant. There were only eight female CEOs in the sample set.
• It is *not* a complete data set. 210 companies out of several thousand.
• Christine and I originally pulled this data Sept-Oct 09, so some of it may already be out of date.
• Also note: I only counted VP and higher level executives and I excluded companies that didn’t list their executives team on their website *and* didn’t have a LinkedIn profile for the company (i.e. I couldn’t get accurate data). I also excluded companies that only had one executive (the CEO) for the obvious reason they haven’t hired any executives.

Given all those caveats, why publish the data? I can’t help but think this is an interesting dataset to understand, and the initial results are intriguing enough that I think it is worth trying to get more data. That said, Christine and I just can’t do it ourselves. So this blog post is actually a plea for help: I’m posting the data set in Google Docs here. It’s read-only for everyone, but if you’re interested in contributing to the document, please email me and I’ll invite you.

Okay, okay. It’s not complete. You get it. So what did I find in the intial sample?

• There were 1219 male executives (90% of sample) vs. 134 female executives (10% of sample).
• 3.8% of the CEOs were women (8 out of 210). (Which coincidentally, is around the percentage of women who are CEO of a Fortune 500 company – 3%.)
• 125 of the 210 companies (60%) did not have a single female on the executive team.

For the 134 female executives, the breakdown of the executive roles held by those women is (I thought this was interesting and not what I expected):

Now the money question: In male-led vs. female-led companies, if we exclude the CEOs in both cases, what percentage of the executive team is female on average?

If this turns out to be directionally correct, there are a number of repercussions. But in the absence of a more complete data set, I'm reserving judgment for now. If you're interested in helping flesh out the data set, please drop me a line!

Poking the bear: Twitter should eliminate its 140 character restriction

140 characters. This is the number that Twitter will both live by, and die by. Its simplicity is on the one hand, part of the reason why Twitter has exploded the way it has, but on the other hand, I believe it will ultimately limit Twitter’s potential US audience (and equity value). Sooner rather than later, I think Twitter should eliminate its 140 character restriction in the US.

First, let’s remember the reason why Twitter was restricted to 140 characters: SMS. Twitter was envisioned as a SMS service to communicate with small groups. Because SMS had a 160 character limit, Twitter took 20 for itself and the 140 character limit was born.

This turned out to be a genius move. In a world where efficiency and attention are in short supply, there was something immediately refreshing about Twitter and its character restriction. It created a culture in which people got to the point. You had to. So what started as a limitation necessitated by SMS, became an integral part of Twitter’s identity and culture even as people in the US increasingly consumed tweets via apps or the web. SMS or no SMS, 140 characters it was.

But has the 140 character restriction outlived its purpose, at least in the US? Increasingly less people use SMS to tweet. And 140 characters is, well, restrictive. Facebook, by comparison, is a free world. I don’t know about you, but I love the feeling of “tweeting” in Facebook. I don’t have to edit an update by changing “great” to “g8” or, I’ll admit, condensing two sentences into one. Add to that Twitter’s foreign language of @’s and #’s, and it’s just easier (and less intimidating for a newbie) to type a status update in Facebook than Twitter.

Consumer adoption is all about easy. How do you make a web or desktop as stupid simple to use so that it can jump the shark from techies to mainstream? Facebook wins that battle easily. Meanwhile, Twitter’s adoption has stagnated.

Don’t get me wrong (before I lose all my twitter followers!): Twitter and Facebook are fundamentally different platforms. For one, you can’t follow people asymmetrically in Facebook like you can in Twitter. Add to that the way Facebook threads comments versus the @ nomenclature of Twitter, and Facebook lacks the feeling of an open community that Twitter has in spades. But my premise here is that people either primarily Tweet or write Facebook Status Updates, not both. While it’s not a zero sum game, Twitter should want to get the Facebook users that are already posting status updates to make Twitter their primary base. Once you do, you get sucked in by Twitter’s community.

To this end, there are several things Twitter can do to improve Twitter’s ease of use. One of those things is to eliminate the 140 character restriction.

What would happen if Twitter eliminated its 140 character restriction?

First, let me admit that the Twitter community would throw a sh*t-show. Changing how RT’s were done was enough. Can you imagine eliminating the 140 character restriction?! Hah! But Facebook has gone through these types of backlashes several times (remember when they rolled out the newsfeed?) and look at where it is now. So let’s imagine for a second that Twitter decided to throw caution to the wind and eliminate the restriction. Would the characters hit the fan?

Facebook should be a good indicator. There is no character restriction (or even concept of characters) on Facebook. Even so, the longest status update I see in my newsfeed right now is exactly 200 characters. Could that message have been pared down to 140? Sure. But it’s not like people are writing novels in my news feed, making me wish I could enforce a 140 character restriction on them. I doubt I have a unique Facebook experience. Instead, I think a “status” culture has been established. Facebook status updates aren’t a diary or a blog entry. Neither is Twitter, with or without any character restriction.

Even if all of a sudden the floodgates opened and Twitter became overwhelmed with new members writing long tweets, you don’t have to follow those people. And anyway, if some of the people you do follow start breaking the 140-character rule, is that really more annoying than the automated spitter you see in your stream? I would take a 200 character tweet over a new badge update (~64 characters) any day.

What it comes down to is, would the elimination of the 140 character restriction (at least in the US) ruin the Twitter we know and love? I just don’t think so, and I’ve been wavering on publishing this post for a couple weeks now. In the end, what makes Twitter so enjoyable is not really its short-and-sweet, get-to-the-point feeling. It’s about the community, the conversations and interactions. That won’t change if people can tweet more than 140 characters, but the community should grow.

Facebook Taking Over the World

Google: $187B market cap.
Amazon: $55B market cap.
Yahoo: $22.5B market cap.
Facebook: $14B market cap in SecondMarket
Twitter: ~$1B post-money.

But this chart, which shows the worldwide search volume for facebook vs. yahoo vs. google vs. amazon vs. twitter boggles my mind.

And here you can see it for just the US:

Granted, each of these sites have extremely different business models (or in Twitter's case... no proven business model), and as @adrian_h rightly points out, this graph’s Google data is skewed because most people don’t use Google to search for Google. But if we look at traffic (in this case, Compete’s traffic data), it sheds a little more color on the impending Google vs Facebook cage match:

According to Compete, Facebook has grown its US traffic 77% in the past year (Dec 09 over Dec 08) while Google grew traffic 5%. In Q4 2009 alone, Facebook grew 6.1% whereas Google’s traffic declined (0.4%).

Looking at these graphs, I can't help but think that DST's $10b valuation was a steal. I know I would be a buyer, even at the alleged SecondMarket value (if only I was an accredited investor).

The question of course is how well Facebook will be able to monetize. Google invented one of the simplest and most effective moneymakers out there. They have one revenue stream with ridiculous operating margins that generates the vast majority of its revenues. As far as I know, Facebook doesn't have one truly dominant revenue stream yet. That said, I believe Facebook is becoming a more entrenched part of our online lives than Google. As Facebook Connect log-ins become increasingly ubiquitous, will Facebook displace Google as the most valuable internet property?

Google, Facebook Connect and the New Old Generation of Web Apps

Many web brands from Bessemer’s portfolio companies Yelp and LinkedIn, to up and coming companies like Milo and Fixya, have built their brands by acquiring a large percentage of traffic for free thanks to high and broad organic ranking in Google. Now, whereas the first generation of web 2.0 apps relied on Google for user traffic, a new generation of web apps is emerging that leverage Facebook Connect and Twitter’s “sign in with Twitter” to provide a large percentage of the initial user experience. Though this shift is in its early infancy, I believe increasingly we will come to expect our social graph to be embedded in our web apps. Those that resist this shift may risk being left behind.

To understand the implications of this shift, it helps to look at Google. There are two parallels worth making:

1. Many companies that existed pre-Google did not adjust to a Google world fast enough. The Yellow Pages has become a classic example of this. Web savvy startups like Bessemer's own Yelp and Yodle took advantage of the new Google paradigm and in doing so, have been able to eat Yellow Page's lunch.
2. In the beginning of most web company’s lifecycle, the company’s ranking in Google’s organic results is a key component of the company’s visitor acquisition strategy. For example, take Milo. For those who don’t know Milo, Milo “searches the shelves of your local stores in real-time to find the best price and availability for the products you want to have - right now.” According to Compete, it is growing like a weed and 71% of its traffic comes from Google (likely people entering a product+location search query). Eventually, if Milo is able to build a product that gets users coming back to the site, it will start to build a brand and get direct type-in traffic; with this, its reliance on Google for free traffic will decrease and a lot of the existential risk of the company will be behind it. In the meantime, Milo is largely reliant on Google and at the mercy of the algorithm gods.

Facebook has also been a platform on which applications rely for traffic. In the first generation of applications, it was the Slide’s and RockYou’s of the world. These companies were built to exist entirely within Facebook’s closed platform and they had even more existential risk than companies that rely on Google; when Facebook completed its redesign, many were all but wiped out. But some, like Zynga and Playfish, survived and thrived. Unlike Slide and RockYou which were largely Facebook profile add-ons, Zynga and Playfish were about games that leveraged the Facebook social graph. In a way, Zynga and Playfish are a hybrid between the first generation of Facebook apps, and what I'll call the second generation. These are the apps that are beginning to crop up outside of Facebook (not unlike Zynga's farmville.com) but leverage Facebook Connect to create a large part of the initial user experience.

Companies like Plancast and TheHotlist are thought provoking examples of this. But now, rather than risk having a majority of their traffic come from a single source (although that may still be the case), they risk having a majority of their user experience come from a single source. Is this as dangerous? It's unclear to me. Companies that effectively leverage Facebook Connect should end up going through the same process that I described Milo as going through. Eventually, I would think TheHotlists of this world will have only a small part of the user experience coming from Facebook's rich data.

This is obviously an exciting shift and I believe parallels the early stages of Google. Companies like the Yellow Pages did not adjust to a Google world fast enough, and were left behind by web savvy startups like Yelp and Yodle. Facebook Connect is going to create a new generation of apps, and by doing so, create a new old generation of apps that didn't jump onto the social graph bandwagon fast enough.

Random Thought: Venture Capital's Freemium Model

Recently, Bessemer published an update to our well known “Ten Rules to Being SaaSy” (this time entitled, “Bessemer’s Top 10 Laws of Cloud Computing and SaaS"). If you haven’t already read it, check it out. It's really a great read.

I sent the white paper to an early stage SaaS portfolio company of ours that I work with, and laughed when I got the following response: “This is great. Why are you giving away all the secrets?!”

My answer: It's our freemium model (or rather, venture capital's freemium model). The difference is, we’re trying to give you a taste of what we've got so you take some of our money.

Don't you think that fits? All our VC blogs and tweets are the 2.5GB equivalent of Dropbox. Fred Wilson is our Marc Benioff (disrupter of software, although if you know who pioneered the freemium model in software, that might be a more fitting comparison).

I suppose that means this blog (and my tweets) are my freemium product; I've been lucky to meet a lot of great entrepreneurs and members of the tech community through conversations that have jumped from my (poorly implemented) comments section to a phone call or meeting. (Though what might have started as a freemium product has become personally fulfilling; I'd do it regardless of whether or not it translated into "vc leadgen.")

Overall, a very positive evolution to an industry with a closed and clubby legacy. And of course, if you like what I'm offering, drop me a line! I'll gladly give you the 10GB upgrade for free. :)

Measuring churn for recurring revenue businesses

For any recurring revenue company, churn is almost always one of the key metrics the company (and their board) tracks. Why work hard to get new customers if you can’t keep the ones you’ve got? Moreover, low churn means you have a stronger recurring revenue base and therefore more money to spend acquiring new customers. Thus, having low churn creates a virtuous cycle for the company in more ways than one.

While churn may seem like a straight forward concept, I’ve found that recurring revenue companies often only measure monthly or annual churn in terms of customer count. While this is certainly an important measure, I’m not a fan of measuring churn just on a customer basis for the simple reason that not all customers are created equal. To take an extreme example, imagine an early stage company doing $200k in Monthly Recurring Revenue (MRR) with 200 customers ($1k MRR ASP). If the company had one flagship customer that was actually generating $5k in MRR and that customer churned, that does a lot more damage to the company than the .5% monthly customer churn would indicate.

Analyzing churn on a MRR basis lets you see other gradients as well. Notably, the recurring revenue base you have from one customer might grow or shrink over time, even if the customer never churns. If on average you lose more MRR on a monthly basis due to your existing customers downgrading their contract than you gain from your existing customer base upgrading their contract, your business would be bleeding recurring revenue and your customer churn number would be silent on the subject. It's difficult to fix what you don't track.

Measuring MRR churn can have some surprising insights too. What we’ve found is that while companies might target 10% customer number churn, those companies might have negative churn from a MRR basis. This means that on average, the company is adding MRR from their existing customer base above and beyond what they lose from customers churning or downgrading. For those companies, it’s worthwhile to try to look at which customers are churning early in their contracts and which customers are expanding their recurring revenue base; you may notice some patterns. For example, there might be some marketing activities that are picking up more of the former which you can eschew in favor of those that attract more of the latter.

You can read more about recurring revenue metrics on Bessemer's website at www.bvp.com/SaaS.