DISQUS

third endorsement for Steve Blank & 4 Steps to the Epiphany... tho to be honest i haven't read the book yet, only heard Steve in person and checked out his presentation on SlideShare:
http://www.slideshare.net/venturehacks/customer...

(& thanks for the kind words Tony)

... and, right on target:

http://voices.washingtonpost.com/the-trail/2008...

thank you Shri... great piece :)

as a non-desi i found it hard to have my typical brash take on this particular matter, so i'm glad to see you speaking out on her behalf. i did find it rather annoying that people were ripping on Sonal without any clue as to who she was and/or what her politics or philosophy were all about. she is one of the most wonderful, inclusive, level-headed people i have ever met and she is a terrific person to represent our country -- and others -- on the Obama administration's transition team. i've spent time with her discussing microfinance, philanthropy, women's rights, international relations, poverty, etc. and every time i come away impressed with her approach to helping make the world a better place for all of us to live together peacefully. i hope that other folks take the time to get to know her better before they make such quick judgment of her character.

thanks for speaking up & speaking out :)

>>"... an Ichiro Suzuki approach"

exactly. and there are smaller funds & investors who *do* have the smallball / moneyball approach to venture capital investing.

if you can establish better selection & filtering metrics, and can have a measurable impact on approach to product development & marketing, you can actually improve outcomes, and take a much more patient approach at the plate that results in higher on-base percentage, and arguably better BOP as well.

Fred, i agree this is old news... sort of. and i don't agree with all of adeo's conclusions.

but....

there are DIFFERENT reasons VC is broken this time around, primarily that larger funds (>$100-500M+) and larger investments ($5M-20M) are out of whack with market trends (towards more & smaller exits, roughly speaking $10-50M).

while there will always be a few large funds with great brands / track records who do well, i think most large funds are in trouble -- to a much greater extent than smaller funds. the simple fact of the matter is that most startups -- at least in the consumer internet / software industry -- need MUCH LESS CAPITAL to get their products developed, and can possibly get to break-even on less than $5M (and in some cases, a *lot* less than that).

given these very clear changes in the market, most of the current VC funds are not structured very well to take advantage of this, if only based on investment size.

i would also argue that very few funds have expertise in the things that matter to most sw / internet startups (and note for the record: tech marketing & design skills are likely just as important as coding & SEO skills), and are thus extremely undifferentiated in the "smart" they bring to their "money".

thus the "VC is broken" claim is true, but for new & different reasons this time around.

excellent piece matt.

(and good commentary by Elliot Dahan above, altho i disagree with some of his conclusions).

i think elliot is correct to segment & analyze performance of seed-stage investors separately.

the real problem / opportunity is that:
1) only big VC funds are broken; small ones can do very well
2) however, most small funds & angels have the same crappy filtering & selection as big funds
3) seed funds / small investments (<$2-5M, ideally $250K-$1M) with appropriate selection can have excellent returns

most VC funds have been raising larger & larger amounts fo capital, while the capex rqmts for startups have been getting ever smaller & smaller, and exits while more numerous have also been getting smaller & smaller (more smaller M&A, less big IPO). the VCs are *way* out of whack with market realities, and have not adjusted their fund size or investment size to match.

small seed funds that invest $250K-$2M, and who are quite happy with exits in the $10-50M range, will do very well in this new market environment (assuming their investment selection is good, and their niche expertise is helpful). these folks -- Mike Maples, Jeff Clavier, Ron Conway the incubators like Y-Combinator, TechStars, SeedCamp, and a few larger VC funds like First Round & Union Square Ventures -- are positioned to do very well in this new structure.

Brand-name Big firms like Sequoia, Benchmark, Accel & a few other will probably still do well also, but everyone inbetween is going to get creamed.

hard.

fully expect and hope that Obama will be blogging right away.

note: former Japanese Prime Minister maintained an email news letter / webzine that had over 1M subscribers, and was published regularly (weekly/monthly) for almost 5 years, see:
http://www.kantei.go.jp/foreign/m-magazine/back...
http://articles.latimes.com/2006/sep/17/world/f...

i appreciate your healthy dose of skepticism here eric.

mike's article is certainly revealing & relevant, but trying to piece together financial position from the level of detail in that article seems dubious at best. everyone else is simply re-reporting mike's analysis, not doing their own original reporting (even blodget is just parroting mike's piece).

i don't know if Facebook is "desperate" just because they're out raising capital, and a "down round" when you've already established the market position they're in isn't nearly as dire as it might sound (if that's even happening). Facebook should have no problem raising capital at SOME valuation north of $3-5B, whether or not they can meet the previous highly-motivated bar set by Microsoft.

surely SOME of the international growth is coming from the EU and other monetizable markets outside the US, so i'd say it's a bit over the top to suggest that 100+% growth in non-US markets is somehow a bad thing. maybe they haven't figured out the business model just yet, but i can't tell you the number of companies that would give their first-born child and right arm for 100% growth AFTER already having double-digit million users.

please followup on this article after you or others have been able to establish a little more detail on the financials. i'm sure we'd all like to see more broadly-researched analysis in addition to Mike's work. he's certainly done a good job diving into some meaty topics & real hard-nosed journalism; still it's a much healthier environment when you, Mike, & Kara are all out there digging instead of just 500 blogs syndicating one person's efforts.

in general, i still respect Colin Powell... just wish he had the courage of his convictions 5-6 years ago in addition to last week.

i might quibble about the #'s and the weighted average, but regardless for the FIRST-time entrepreneur, the weighted calculation doesn't make sense... the entrepreneur may take 1-4 years per at-bat, and they want to maximize on-base potential. in addition, GETTING on base the first time up DRAMATICALLY increases your chances next time (and all future times), since even after a minor win you are much more likely to get capital.

nice analysis of VC-entrepreneur [mis-]alignment. particularly like the observation that 50K high-value customers may be worth more than 1M low value ones. most folks tend to pay too much attention to uniques, and much less to that minor point (not to mention retention / conversion rates).

on the other hand, an operative assumption here is that VC picks are mostly random and can't be improved... i'd say with a little bit more rigor & metrics, they possibly could.

if you can improve your on-base percentage (weighted by bases / runs), it may make more sense to hit singles all day long than to keep swinging for the fences. i know i'm in the minority on this point, but hey i always was a little different (read: weird ;)

nice dose of reality, thanks :)

effin' brilliant. golf clap.

late to the party, but nice piece charlie... appreciate the TeachStreet hat tip :)

hell, yeah.

http://500hats.typepad.com/500blogs/2008/10/fea...

nice scoop eric ;)

(but i am getting a little tired of all the negative vibe everyone is reporting on... jesus)

seriously, who the fuck can predict 5 years ahead, much less 15?

while i won't second-guess Sequoia's take on the future, anyone who claims they have the inside track on the next "15-year downward cycle" has their head up their ass.

sorry, i don't buy it.

conserve cash? -- sure.
find a business model? -- you bet.
plan for negative outcomes over the next 15 years? -- write a friggin' Tom Clancy screenplay.

and by the way, that was a pretty damn good one-shot amateur video.

also, as noted by andrewbadera above joe green does appear to be somewhat excited. (good eye ;)

dude. seriously.

they're on vacation.

most of them work for facebook, which has several hundred mil in the bank, and is generating another hundred mil in revenue this year. most all of them have been busting their ass working 60-80+ hour weeks for several years, and now some of them have stock options that may be freeing up, options which are seriously in the money.

why SHOULDN'T they be partying?

again, a reminder for all you folks who love to wail on facebook because they're not the next google, most FB employees & all-but-last-round investors are laughing all the way to the bank / market.

deal with it.

Sequoia will be fine. Sequoia companies may be mixed, but hey that's venture capital: u win some, u lose some. the real issue is the OTHER vc firms and their portfolio co's... RIP Good Times indeed.

firms like Sequoia, Benchmark, a few others will always attract top talent & do well. but in general, the model for MOST vc funds with >$100m are fundamentally broken -- not due to the recent downturn, but due to the overall market trend of the last few years towards more acquisitions of smaller size.

funds that are engineered for median $25-75m exits are going to do very well over the next few years. but that isn't most of the market.

terrific presentation andrew... and excellent stuff today!

thanks for making our first Startonomics conference a smashing success :)

Chief Burn-Rate Officer is awesome. nice job.

what, no TechMeme?

or is it just assumed we're already addicted completely?

that's a pretty unique idea. got my vote ++

thanks fred!

guess now we're on the hook for NYC in 2009 eh?

I'll make sure Debbie Landa at DealMaker -- my partner in crime producing Startonomics -- knows we gotta bring the noise from the left coast next year.

in the meantime we'll be streaming the event online and tweeting updates real-time @ http://Twitter.com/STNX starting thursday.