Tuesday, October 6, 2015

Times have changed — going after dollars vs minutes

Just finished the first month back in the VC saddle at Greylock. After three and a half years away from the VC scene, I feel like I finally understand the description of “drinking from the firehose”. It’s amazing how much has changed in this short time.

To help get my footing, one of the first things I did when I got started was go through the top 100 US rankings in AppAnnie to see what I’d “missed” while I’d been heads down at Pinterest. I defined “missed” as independent companies that had their Series A from Jan 2012 to the present.

I counted seven companies that have managed to break through the top 100: Snapchat, Seriously, Ibotta, Draftkings, Dubsmash, Wish, and OfferUp.
To compare, I did the same analysis for when I joined Pinterest 3.5 years ago, and looked at companies that had raised a Series A since July 2008.

This turned out to be a longer list: Viddy, Instagram, Pinterest, Spotify, PopCap Games, Pocket (Readitlater), Shazam, Kik, TangoMe, Tumblr, Dropbox, and I think Voxer (the date of their Series A isn’t 100% clear).

Seven companies now vs 12 in 2012. Small sample size, so perhaps what’s more useful is the difference in the make-up. To do this, I broke the list into two groups: those going after minutes (often by converting offline minutes into online minutes), and those going after dollars:

No wonder things feel so different. Back in 2012, there were a lot more winners amongst the companies going after minutes. Now, there have been more recent successes focused on going after consumer dollars than minutes. Indeed, I’d be remiss if I didn’t mention that the two biggest winners of the past five years have both gone after consumer dollars: Uber and Airbnb.

A few hypotheses on why —
  1. FB/Google/Twitter/Apple are much stronger and more in control of their platforms. It’s not surprising that Viddy, Instagram, Pinterest, and Spotify were all beneficiaries of early FB Open Graph implementations.
  2. Because of #1, it’s useful if your unit economics means you can afford to pay for downloads.
  3. Hunter Walk reminded me that in a zero-sum world of only so many minutes in a day, blank spaces to absorb those minutes must come from cannibalizing other minutes, either from online or offline. When the smartphone was new, it was a lot easier to steal offline minutes and bring them online. Now, these opportunities are harder to find. Of course, there is a constant flow minutes from one app to the next, but FBs/YouTubes continue to increase their share of the ever expanding pool of smartphone minutes.
It’s exciting to see how this evolves — what experiences will break through to capture a large share of consumer minutes, and what new companies will figure out how to capture a large share of consumer dollars? Obviously, I’ll be keeping my eye out for both (and please contact me if you’re making it happen!).

Sunday, November 24, 2013

"Did you learn anything useful in VC?"

It's been more than a year and a half since I left Bessemer to join Pinterest (not to mention blogged!). Since then, I've taken quite a few meetings and phone calls from junior VCs or MBAs asking about my transition from VC to operating. By far, the most common question I get from this bunch is something along the lines of "Did you learn anything actually useful in VC?"


1. You learn how to ask the right questions. Anyone can ask questions. But learning how to ask the right questions -- to use questions as a mechanism to uncover the hidden truth in a company's business model, or the trade-off's in an engineer's architecture, that comes with training. VCs spend a huge amount of their time asking questions, and thus learn the craft of asking the right questions. This skill has been enormously valuable to me as I transitioned to Pinterest.

2. You learn how to read people. In my first performance review at Bessemer, people judgment was one of my weaknesses. I'd now say it's one of my strengths. As a VC, you're constantly meeting founders and building your pattern recognition for reading people. This skillset is particularly useful when you're in a business or corporate development role, but as with asking the right questions, it's one of those horizontal skills that will serve you anywhere.

3. You learn how to learn. In VC, you're constantly ramping up in a new area. Each company you evaluate brings with it its own ecosystem that you need to understand. Similarly, trends in the tech ecosystem turnover so quickly, that if you ever stop adapting and learning, you'll quickly become a dinosaur and won't know a Snapchat when you meet one. That drive to constantly learn will help you adapt to new environments and challenges.

There's a flipside to these three though:

1. In startups, you've got to answer the questions. One thing I learned early on at Pinterest is that my muscle for asking questions was a lot stronger than my muscle for answering them. As with asking questions, there's an art to answering questions well. It's been good to exercise this skill.

2. You don't learn how to read an organization. VC firms tend to be smaller partnerships. Although Bessemer was about 45 people when I left, I was never in an office with more than ten people. As Pinterest has grown from 30-odd people when I joined to more than 200, I've had to learn how to navigate a company. People who have come from larger companies definitely have a leg up in this regard.

3. You're not specialized. VCs rarely specialize. Sure - I knew the e-commerce ecosystem cold, met with countless consumer companies, and quite a few adtech companies, but that doesn't compare to spending several years working at Google. But you've got to start somewhere...

Good luck!

Monday, March 12, 2012

Hiring an Associate at Bessemer

We are looking to hire an Associate to join me and my colleague Jeremy Levine at Bessemer.  This is a Silicon Valley-based opportunity, though we anticipate that it will involve frequent and extended travel to New York, at least initially.

As an Associate you will actively participate in all stages of identifying and evaluating investment opportunities while supporting Jeremy and me in our ongoing involvement with portfolio companies. We spend most of our time looking at opportunities in the cloud computing, internet, e-commerce and consumer web space.

Here’s what we’re looking for:
  • Smart and Curious: You must have superior intellectual horsepower with a track record of good judgment and curiosity. As an Associate, you’ll be prosecuting all stages of due diligence from financial analysis to customer references. You’ll be writing investment recommendations for the partnership. You’ll be gathering and synthesizing data and analysis. You will be developing deep industry knowledge and contacts while creatively constructing new investment strategies. You’ll be doing all these things without a formal training program and limited supervision. 
  • Hungry and Driven: You must be hungry and driven but also a pleasure to be around. Most often, people who have always been hungry and driven attend elite colleges or accomplish unique and extraordinary things. But graduate degrees are purely optional; neither of us have an MBA, so you certainly don’t need one. In fact, our target is someone with as few as two years of experience after college or as much as six years (including a graduate degree).
  • Passionate, Humble, and Helpful: A lot of people want to work in VC for the wrong reasons. I regret to inform you that Bessemer does not have a corporate jet. Instead, a big part of this job is about getting out there in the community and networking to develop relationships with entrepreneurs and talented individuals. You must be passionate about start-ups to do this authentically. If you are excited about this opportunity because you love working with and helping entrepreneurs, analyzing businesses, or experimenting with the newest gadget, then let’s talk. 

Think this describes you? Here’s how to apply:

We’ve noticed that people who are successful in VC have already formed relationships with people in technology and are incredibly resourceful. Therefore, if you can manage a personal introduction to Jeremy or me from someone we know, we would strongly encourage it. Please include a resume with the introduction.

Wednesday, January 4, 2012

The Developer Renaissance

What an exciting time to be in this business.  The “post PC era” and cloud computing are colliding to create a perfect storm. First, thanks to the post PC era, demand for software is exploding. Second, thanks to cloud computing, software development is becoming increasingly accessible.

There's an interesting positive externality to these trends: The developer "citizenship" is exploding.  Consequently, developers are finally a large enough community with enough purchasing power that you can actually build a company just by selling to developers.  I'd love to invest in companies doing just that.

In this post, I'll provide a little color on the two trends, and then, in the interest of feedback or thoughts, I'll outline three areas in which I’m particularly interested.  This is an investment road map in progress, so would  truly welcome any feedback.

Exploding Demand

In the late Mainframe Era, developing an application was a real team effort, access to mainframes was restricted, and given the expense to purchase a mainframe, not to mention maintain it, the number of computers for every person was exceedingly low. Then the PC era came upon us -- computers got cheap enough that suddenly households could purchase them and the number of computers per person, while probably less than 1 computer:3 people, started to rise. With that increase in the number of computers, demand for applications started to tick up. People needed a word processing application, a browser, some games… you get the picture. But because there was a very small number of application platforms (Windows, Apple), and a small number of computers relative to the number of people, demand was capped.

Now we’ve entered a new, fascinating era in software development: the alleged “post-pc” era. Computers are now a fraction of the cost for a multiple of the power. Even the computers we hold in our hands (smartphones) are more powerful than the computers we once had on our desks ten years ago. Consequently, the ratio of computers to people is inversing. Whereas multiple people used to share a single computer, now it’s not uncommon for a single person to have multiple computers. Compounding this trend, applications are no longer limited to just Windows or Apple’s OS. Everywhere you look there is a new application platform. iOS. Android. Blackberry. Facebook. Force.com. Wordpress. Twitter. Drupal. Box. Shopify. Samsung. Heck – even automobiles like BMW are trying to get in the game!

Each platform requires its own suite of applications.  Consequently, the demand for applications has exploded.

“Democratization” of Software Development

Increasing demand by itself will always create an increase in supply. But there is another trend that is making this process happen even faster: software development is getting democratized. It used to take a team of developers to build an application, and software development was a highly specialized skill. Now, self-taught programmers abound, and developers can launch new applications after just a weekend’s worth of work. As my colleague David Cowan outlined back in 2008 his Internet Law:
“The time and money required to produce (design, develop, secure, test, launch, scale) a typical data-oriented form application on the web drops in half every 2 years.”
Because software development has become more accessible, the number of developers worldwide has exploded. As my friend Art Chang pointed out - it’s a fascinating reversal of the industrial revolution – the means of production is being handed back to the masses.  We are experiencing a Developer Renaissance.  This population of developers is only going to grow from here.

Why I’m interested in these trends
Developers are finally a large enough community with enough purchasing power that you can build a company just by selling to developers, and this community will only continue to grow.   This means opportunity for companies to support this burgeoning community.

In particular, there are three types of companies that most interest me:
·         Further Democratizing Software Development:  To me, this means riding the trend of cloud disruption, but higher up on the stack.  The first wave was on an infrastructure level such as Rackspace and Amazon Web Services.   Then the second wave went slightly higher – platform as a service offerings like Heroku, Force.com, and Engine Yard.  But the wave I’m most interested is the next – companies like Pantheon which make it stupid simple to deploy Drupal, or Bessemer portfolio company Wix, which makes it stupid simple to build Flash websites without any coding ability.
·         “Developer Components”:  I love Christina Cacioppo’s description of this opportunity as software developing a “component industry” in her post “What comes next,” though I suppose I slice the market a little differently.  We’ve already invested in a couple companies in this space including Twilio and a soon-to-be-announced company SendGrid, and hope to do more. 
·         Developer “Picks and Shovels”:  Developers need a new breed of web-based tools to help them build.  This ranges from collaboration-centric tools like Pivotal Tracker and Flowdock, to code hosting or developer environments like Koding, to application monitoring like Nodeable.

The space is still early, but the trends are very clear.  It will be exciting to see how this renaissance plays out in 2012.

Wednesday, November 23, 2011

Holding your hand to the fire

Several months ago, I wrote a post about the four stages of learning.  Implicit in the transition out of stage 1, the "enthusiastic beginner", is the fact that to really learn something, you need to try to do it, and inevitably, do it wrong.  

Given the wealth of fantastic content out there in the blogosphere, especially when it comes to starting a company, raising capital, building a product, etc., it can be tempting to try to read blogs and hope that they'll help you navigate potential road mines. But if you are brand new to any one of these domains, most of what you read won't really "catch" in your brain. Instead, I find the best time to learn something is after I just messed up on that thing.

So if you're starting something for the first time, and find yourself making rookie mistakes like building too many features into the first version of your product, or not having your "elevator pitch" ready when you pitch a VC, don't worry.  To really learn, you need to hold your hand to the fire.

As Rob May of Backupify once tweeted, "Everything I learned about doing a startup came from doing a startup... not reading blogs about it."

Sunday, October 16, 2011

Can product "disruption" become a new paradigm?

Facebook is an incredible company, and it’s incredible for many, many reasons. But one of the things that most impresses and amazes me is Facebook’s relentless reinvention. The company has disrupted its product, and therefore its users, on multiple occasions. I’m sure everyone remembers the backlash Facebook weathered when it launched its newsfeed. And of course, we’re still less than a month into Facebook’s newest disruption, this time to its profile page.

Facebook is in rare company. Microsoft, to its credit, disrupted its Office product suite by introducing the ribbon (which was probably a great change for my mom, but drives me a bit crazy), and more recently disrupted its Windows suite. But I’m having trouble thinking of other companies that have taken their core product and fundamentally changed it in a way that is both disruptive to its end users and unavoidable.

Recently, I’ve started to use Salesforce.com’s CRM. Although Salesforce is a huge step up from the other CRM I was using, it’s clear that the application was designed several years ago and has since evolved but hasn’t fundamentally gone through any disruptions. While the UI/UX must have been a dramatic, disruptive improvement upon other legacy CRMs when it launched, as it continues to evolve, it might one day find itself surprised by a new, shiny startup that takes advantage of the last five years of technology innovation (both technically and UI/UX-wise).

Obviously, there’s a reason why you don’t see a lot of disruption. It’s incredibly difficult to execute, and unbelievably risky. Large companies aren't known for pursuing risky strategies.  But could a Marc Benioff look to Mark Zuckerberg as a disruptive role model?  Crazier things have happened. Facebook is leading the way not only by example, but by lowering the riskiness of disruption by forcing its 800m+ users to better embrace change.

We’ve gotten used to hearing about struggling startups “pivoting”. It would be pretty incredible if we soon found ourselves getting used to hearing about companies with market dominance “disrupt” their products and leap from the past to the future.  

Wednesday, July 20, 2011

Are you a vitamin, a painkiller… or a drug?

It’s become commonplace to describe products as either painkillers (“need to have”) or vitamins (“nice to have”). Painkillers are products that address existing needs/pain points. Companies selling painkillers harvest customer demand; the prospects are already searching for someone to fix their problem and take their money. Vitamins on the other hand don’t really address an immediately apparent need. Instead, the vitamin company must sell a prospect on how their solution will make the prospect’s life better. The problem with vitamins is that it’s hard to get people to pay for them and once you have them as customers, hard to keep them paying. Painkillers on the other hand are sticky. Once you start using it, you’re hooked. For this reason, investors have preferred investing in painkillers over vitamins.  While the vitamin vs. painkiller dichotomy is helpful, I don’t think it properly describes an important small-but-growing group of products: the drug.

While painkillers kill existing pain, drugs kill pain consumers never knew they had.  Like vitamins, drugs must sell a prospect on how their solution will make the prospect’s life better. However, unlike vitamins, drugs become as addictive as painkillers.

I think there are three qualities that distinguish drugs from vitamins:
  • Accruing benefit. The more you use the product, the better it gets. I think this is largely because a consumer adds data to the product, either passively or actively. 
  • Mounting loss. The flipside of the accruing benefit is that the longer you stay with the product, the more you rely on the product and therefore have to lose by leaving the product. Going cold turkey is hard. 
  • Product-market fit. At the core, drugs are vitamins with product-market fit. Drugs pass Sean Ellis’s product-market fit question, “how disappointed would you feel if you could no longer use this product?” with flying colors. 
For example, for me, Evernote is a drug. Sure, it’s a productivity tool (the quintessential definition of a “vitamin”) but I’ve become an addict. Essentially, Evernote’s freemium model was like a drug dealer offering a little “taste”. Now it’s become such an ingrained part of my life; my lifetime value for Evernote is going to be very, very high. Products like Dropbox, Pivotal Tracker, and Sanebox also resemble drugs to me, and I think Bessemer portfolio company BillGuard might have the potential to become one.

Because drugs can't harvest demand in the same way painkillers can, but also because it becomes harder and harder to let go of a drug the longer you use it, drug-like products are perfect for a usage-based freemium model. The barrier to getting a customer hooked on the drug goes down significantly (though not completely) when the initial "taste" is free.  Vitamin-like products, meanwhile, need to extract as much value as possible while the customer is active because their churn rate will be much higher.

(hat tip to greg duffy at dropcam for inspiring this post.)