Wednesday
Aug072013

Something Ventured: The Trough of Conviction 

I was a big fan of Formula 1 racing when I was growing up. But my interest really peaked once I discovered the magic that was Ayrton Senna

Much has been written of him. And I won’t rehash it. But there are many quotes of his that I, like many others who were either fans of his driving, style, or both, have stashed over the years.

On May 1, 1994, at the San Marino Grand Prix, Ayrton Senna passed away doing what he loved and did best, driving to win.

The greatest honor that was paid to him was the eponymous documentary, “Senna” that is available online for purchase. Watch it.

Periodically, I take a look at some of my favorite quotes of his. In no particular order, here are some that have always seemed to resonate, particularly as I serve entrepreneurs.

"We are made of emotions." 

“On a given day, a given circumstance, you think you have a limit. And you then go for this limit and you touch this limit, and you think, 'Okay, this is the limit'. And so you touch this limit, something happens and you suddenly can go a little bit further.”

“There is a great desire in me for improving...getting better. That makes me happy. Every time I feel I am slowing down my learning process - my learning curve is getting flat or whatever - then it doesn't make me very happy.”

"...the last qualifying session. I was already on pole, then by half a second and then one second and I just kept going. Suddenly I was nearly two seconds faster than anybody else, including my team mate with the same car. And suddenly I realised that ...I was no longer driving the car consciously. I was driving it by a kind of instinct, only I was in a different dimension. I was just going and going, more and more and more and more. I was way over the limit but still able to find even more. Then suddenly something just kicked me. I kind of woke up and realised that I was in a different atmosphere than you normally are. It frightened me because I was well beyond my conscious understanding. It happens rarely but I keep these experiences very much alive inside me because it is something that is important for self-preservation."

Ayrton Senna personified many things but his desire to redefine and push the limits of his car and himself was probably his best known trait. Navigating the maze that was an F1 circuit, at high speeds, fused to the car he was driving, one with the machine, and focused on winning, while constantly in paddle-shifting self- and situational-awareness mode, was an incredible display F1 fans were fortunate to have enjoyed. I miss him.

I was reminded of the high-speed navigation of the maze courtesy of Chris Dixon’s thoughtful post on the 'Idea Maze' referring to Balaji Srinivasan’s material on same.

Chris notes that ‘it’s impossible to completely map out the 'idea maze' (quite different from the race circuit where you can in fact map it in advance but on race day there are all sorts of new, random and competitive variables affecting said map) but recommended starting points would include research and analysis of the history of the segment (and those who came before you), analogy, theories, and direct experience.

It’s a helpful way to think but I’d posit that it omits a key underpinning.

There is a power that lies in a founder’s ability to syndicate her cognitive distortion and recruit a team to pursue the vision and bravely go forth into the idea maze. The result of this is to weld involvement with commitment. Execution thereafter is fueled by conviction. So if execution is everything, ideas are a necessary firestarter and conviction is the fuel (and accelerant).

I see many entrepreneurs that exemplify this.

But there’s a problem.

While the entrepreneur and her team have shown the readiness, willingness and ability to go on the journey, the pursuit may usually require tiered financings.

The first level financing is supposedly plentiful at seed-stage and available to all good teams with good ideas and/or products. May the Lord continue to shower blessings on the AngelList team for all the good they do and continue to. The angel investors’ marching orders to the company are usually simple: in exchange for cash (and quality company building advice), build or reinforce a good product, for a willing market, that pays (or appears willing to pay) for it, either in cash, or some other form of currency, like attention.

For pure consumer facing applications or services or even enterprise SaaS plays, the marching orders seem simple enough. Execute to the said milestones, and you'll be in a good position to raise additional financing.

Well, theoretically that is.

As an entrepreneur, you may struggle to convey your idea map at the onset, particularly if you are addressing an undiscovered need versus an unmet need. And the routes on this 'map' will be more long-winded than any other. The paths will be longer and harder. Sometimes, your GPS will fail you, not unlike the first iteration of Apple Maps. Trust me, as I have lived, and continue to learn, this.

Our entrepreneur, as most of the ones I have run into, has gotten caught in no-woman’s land. Met or exceeded seed milestones, but slipped and fallen into the trough of conviction that is today's Series A VC environment.

What exactly is going on?

I have some theories. But I will focus on two that have consistently bothered me. One is the apparent over-reliance on pattern matching as a substitute for forming theses. Another is the seemingly moving target that is called ‘fundable traction.’

Conventional wisdom has always been incredibly seductive. Particularly as it requires little to no intellectual effort. I am slowly forming a hypothesis that pattern matching in VC is showing similar characteristics, oddly enough.

Today's VCs are falling prey to the minefield of so-called axioms masquerading as truisms. So sticking to the ‘x for y’ or ‘a for b’ pitches is simple, believable and thus fundable. I have no issues with this framework. It helps entrepreneurs to tell a story and VCs love to fund storytellers.

But it implodes when faced by disruptive innovation, which I have seen recurrently present itself as an undiscovered versus unmet need. VCs love the latter, relying on the oft-quoted cliché of investing in painkillers and not vitamins, ignoring the fact (not truism) that the market for vitamins is (not just a little bit) larger.

This leads to the second half of the problem, traction. Sometimes I wonder if Andreesen Horowitz's Jeff Jordan should have titled his superb 'The Series A Round is the New B Round' post, 'Series A is the new N(ot Now).' The expectations that early stage VCs have of companies looking for Series A funding are so high right now, (particularly when led by entrepreneurs they haven't previously funded) that I'm advising seed companies that thrice as many ‘milestones’ agreed upon at the time of seed financing need to be achieved in half the time. Over promise and over deliver. And frankly, that may STILL not be enough. Series A VCs want traction. Which translates into: ‘please be a successful business that doesn’t need venture capital’ or ‘display up and to the right ‘methmetrics’ [which may or may not be defensible or repeatable but that’s what excites us].’ It's the remixed 'Rome wasn't built in a day, yeah but Rome didn't have OpenGraph either' cliche.

So is traction now the metaphor for a box hedge? And is the traditional Series A mostly lost forever? Knowing how entrepreneurs adapt, will this foreshadow the beginning of $8-10m seed rounds with uncapped notes? When does it stop? If risk is absorbed by increasingly larger seed rounds syndicated across many angels, do early stage VCs become redundant? As LPs concentrate funding allocations into a handful of firms that aren't increasing GP headcount, leading the fund GPs to have to deploy larger amounts per investment, don't the fund returns maths begin to stumble? The widespread belief that only 10-15 companies per year drive most of the industry's returns has forced VCs to exclusively focus on companies that 'look' like they will be in that group. And large funds require extra large returns so exits need to be supersized. There are only so many of those that can/will happen. In his usual prescient way, Union Square Ventures' Fred Wilson has called for more sub-$100M funds to be supported by LPs as they are best suited to fill the widening risk capital gap. I agree.

I understand that the VC industry will evolve as all industries do (some much slower than others) but early stage VC was and is risk capital. And it seems my fellow travelers have all but forgotten. Now everyone is chasing (increasingly gamed) traction data as the underlying risk-mitigated basis for making early-stage investments. How does this end well?

Mr. Dixon suggests studying the history before you set out to navigate the idea maze. In doing so, I am reminded of one of my favorite documentaries, ‘Something Ventured.’ Maybe Series A VC firm partners would do well to watch it, repeatedly. It’s like going back to the golden age of hip-hop. You don’t have to replicate what you hear but you can learn from it. The story of Tandem Computers and Kleiner Perkins is particularly instructive as it was the last investment made out of the fund and if it failed, so went the fund. KP didn’t flinch.

So all this boils down to the apparent calcification of pattern recognition (formulaic VC?), and the departure from the two-sided risk-taking marketplace (entrepreneur AND venture capitalist) that was always a key part of early stage venture. A fulltime dependency on pattern-matching when unaccompanied by thesis formation means that you will miss the big winners. As the venerable Tom Perkins declared, 'If there's no risk, you've already missed the boat.'

Not sure I could say it better than Elon Musk who, loosely paraphrasing my good friend Semil Shah, is girding up to be a first ballot nominee for the Mount Rushmore Tech Faces of Fame. I am going to quote most of the piece (hat tip to KetanJ for capturing this key insight) because it’s that good, and he echoes my sentiments so perfectly, it would likely amount to a tautological error to opine.

“I think it’s important to reason from first principles rather than by analogy…The normal way we conduct our lives is we reason by analogy…

We are doing this because it’s like something else that was done..or it is like what other people are doing…slight iterations on a theme…

“First principles” is a physics way of looking at the world…what that really means is that you boil things down to the most fundamental truths…and then reason up from there…that takes a lot more mental energy…

Someone could –and people do — say battery packs are really expensive and that’s just the way they will always be because that’s the way they have been in the past…”

The key takeaway for me here is that when one doesn’t put in the intellectual curiosity and effort to reason from first principles, and build theses therefrom (with the acceptance of risk that that requires), then one is relegated to incremental advances and key product advances are dismissed as science projects because the entrepreneur can't answer the question of the day, viz, 'so what's the killer app?' Sure, if early stage venture is all about playing defense and taking no risks, then it absolutely makes sense to be reactive, sit in your office, sagely listen to pitches all day and simply hop along for the ride as decaled by the presence of ‘traction’, like any quality growth-stage investor would, and trade in the upside for a potential 2-3x cash-on-cash return. Of course, one slight impediment to that reasoning is that the growth-stage investor’s fund return and risk profile is incredibly different. Which leads to the perverse situation where growth-stage investors are paying growth valuations for early-stage risk, and early-stage investors are doing the same, but for different reasons. Why have early stage investors then?

Is pattern matching a spur for intellectual laziness and does calcification of curiosity result therefrom? Research from Michael Mauboussin and Nassim Taleb would suggest that luck tends to override skill (and thus is repeatedly underestimated) but that one can improve one’s luck by putting skin in the game, taking risks, winning AND losing, and constantly operating with a convex heuristic.

The other point that Elon alludes to, but doesn’t address in the excerpt, is that it’s not just mental energy that this intellectual curiosity-shaped view of the world requires. It needs and demands all kinds of energy. The execution of disruption-related vision is energy-sapping. So is embracing risk. But there’s only one type of high-octane fuel you need to keep you going. And that’s conviction.

So was/is the Series A Crunch a crunch in dollars? Or conviction? 

I left Intel Capital to start my own fund, partially frustrated by my seeming inability to communicate my conviction about paradigm-shifting companies like Facebook and LinkedIn sufficiently hard enough to be authorized to make large VC investments in them, and partially fueled by my desire to create a new type of venture fund, and a conviction that I would create a platform with the decision-making power to to do both. I was reminded by an ex-colleague a couple days ago about the upside of conviction when LinkedIn hit a $26B market cap, which achievement would have generated a 25x cash on cash return, in 5 years, on my initial $125M investment recommendation. It's almost impossible not to curl up in the corner and weep when i think of the cost of conviction associated with my investment recommendations for Facebook I (9/07) or Facebook II (1/09).

It’s been 3 years and having seen the cost and benefit of conviction first hand as an entrepreneur and investor, I can’t tell you enough how great and not-so-great it has been in cycles. The recurrent episodes of crises of self-confidence. The financial lows (and zeros in places). The need to be the life of the party for the entrepreneurs I served, even when it was the last thing I wanted to do, because they needed me more than I did. The resentment one felt as I saw industry folks whom I didn’t think had paid their dues or gotten the long-term benefits of apprenticeship (but who didn’t seem to care). The upset created by those who didn’t seem to work as hard or TRULY care as much about VC, entrepreneurs and the opportunity to change the world, again and again and again. The sparkle in the eyes of a founder when announcing a technical or customer breakthrough. The frustration I endured as I was ignored repeatedly by potential LPs because I wasn’t a ‘celebrity’ investor. The inappropriate questions I received therefrom. The Yes's that became No's, for no clear reason. The grind. Helping reassemble broken pieces of a dream and cheerleading the entrepreneur through the process. The giddiness when the market finally recognizes that the entrepreneur's vision is reality. Convincing parents of entrepreneurs that what (s)he was doing actually was a real job (or at least was going to be at some point, hopefully). Convincing my parents of same. The physical distance I endured having to be away from my children to relieve some of my support obligations so I could fund my dream. The support I received from my ex-wife even when she didn’t have to. The financial obligations to family that trumped obligations to self (and which I met every month, without fail). Learning that conviction requires a long runway and you shouldn't try to land a jumbo jet on an airstrip because the physics won't let it happen. The amazing entrepreneurs and their progressive little wins that aggregated over time into awesomeness. The believers who stood by me. The skeptics who did the same, but reminded me every day that they couldn’t understand why I took the road less travelled and seemingly suffered for no reason. The unbelievable stress that came with all of it. How oddly opaque it was to folks from the outside looking in. The givers, takers and matchers. And the partner who stood with me through the echo.

I understand conviction. I have lived it. Hard. I know where it lives and what it looks like. I have ridden its roller-coaster. Shoot, I exchanged vows with it and it sleeps next to me every night. And I am not unique, for the founders I have been blessed to work with and support know/do the exact same thing. So when I stand with the entrepreneurs I serve, it’s with purpose, honor, dignity, focus and an absolute belief that I truly understand what skin-in-the-game means for them. So we go all in, together.

The amazing thing I learned about conviction is that it’s not a bottomless reservoir. It comes from within AND without. Yes, apprenticeship will help you process or navigate the maze a little easier. But the long winding path uses up fuel. You will hit RESERVE and sometimes may actually get thisclose to EMPTY. But refilling stations are along the way. Sometimes, they are people. Other times, they are markets, suddenly unveiled opportunities, abandoned then resuscitated ideas, competition, rejection, fear, etc. Although it may seem so at times, you never navigate the maze alone. But you will lead. The key is to stay in the game, with eyes on the prize.

While not all-inclusive, there are several well known folks in tech that have consistently exemplified conviction: Bill Gates, Steve Jobs, Jeff Bezos, Peter Thiel, Elon Musk, Mark Zuckerberg, Reid Hoffman, Jim Breyer, Fred Wilson & Brad Burnham, Vinod Khosla, John Doerr, Ev Williams, David Sze, etc. It's worth correlating their returns.

I will end with my absolute favorite Ayrton Senna quote:

"Champions are made from something they have deep inside them.  A desire, a dream, a vision. They have to have last-minute stamina.  They have to be faster. They have to have the skill and the will. But the will must be stronger than the skill."

The will must be greater and stronger than the skill.

Conviction fuels will. And will powers one through the flats, mountains and canyons. Champions are crowned at the end.

Great founders have conviction, and take risks. Their teams have conviction, and take risks. Early-stage VCs should have conviction, and take risks.

I named my first son Ayrton.

Something ventured. Something gained.

Monday
Jun242013

May Your Road Be Rough

Tai Solarin was a Nigerian educator, humanist, author and social critic. He was very well known in Nigeria (and I daresay Africa). Richard Carrier's essay on Tai's life and accomplishments is a good read. Tai wrote many 'controversial' and thought-inspiring pieces during his lifetime but one of my favorites is his 1964 piece titled 'May Your Road Be Rough.'

The title of the essay always reminds me of the oft-quoted ancient Chinese proverb and 'curse,' viz, 'may you live in interesting times.  Every now and then, as I run into the piece, one addressed to an-only-just-post-colonial-Nigeria, I am reminded of how much it should be a startup's creed.

Tai Solarin talks about the key foundational constituencies of all great startups: people, passion, fear, dreams, drive, risk, self-sufficiency, courage, ambition, speed, execution, volatility, integrity, hope and luck.

We see successful (and less successful) entrepreneurs that have not taken the road less traveled. And we see those that have. We always seem to learn a lot more from the latter.

There are two states of character: at rest, and in motion. The latter shows the real entrepreneurial you. And the shock absorbers you install to conquer rough roads ahead will define the quality of the ride. But you'll have to travel the road first to know what shocks you'll need.

At EchoVC, we have done this every day for the last three years, as we set out to build what we feel will be the next generation of venture capital firm; diverse, hungry, foolish, learning, humble, self-aware, givers.

It hasn't been easy at all. Starting anything isn't for the faint-hearted, no matter how many 'get lifted' blog posts you read telling you it can be done. We are comforted by Alan Patricof's searingly honest portrayal of the fund-raising process, knowing that someone out there who is/was a much better known quantity, still had to go through his progressions (as it should be). There have been many rough days. And rougher nights. And doubts, questions, raised eyebrows, the unsaid expressed (woman VC? Black VC? In tech?), skeptics, believers. But there have also been some really great times. And the best part of the journey so far has been learning who and what we are, at rest and in motion, and being open to growth (by osmosis), for we are always apprentices in someone's eyes, even when we think we are experts, in ours.

If there's one thing we have learned in the last three years, there's only one way to discover what your shocks are made of.

Drive.

+++++++++++++++++++++++++++

MAY YOUR ROAD BE ROUGH

By Tai Solarin, Jan. 1, 1964  

I am not cursing you; I am wishing you what I wish myself every year. I therefore repeat, may you have a hard time this year, may there be plenty of troubles for you this year! If you are not so sure what you should say back, why not just say, ‘Same to you’? I ask for no more.

Our successes are conditioned by the amount of risk we are ready to take. Earlier on today I visited a local farmer about three miles from where I live. He could not have been more than fifty-five, but he said he was already too old to farm vigorously. He still suffered, he said, from the physical energy he displayed as a farmer in his younger days. Around his hut were two pepper bushes. There were kokoyams growing round him. There were snail shells which had given him meat. There must have been more around the banana trees I saw. He hardly ever went to town to buy things. He was self-sufficient. The car or the bus, the television or the telephone, the newspaper, Vietnam or Red China were nothing to him. He had no ambitions whatsoever, he told me. I am not sure if you are already envious of him, but were we all to revert to such a life, we would be practically driven back to cave dwelling. On the other hand, try to put yourself into the position of the Russian or the America astronaut. Any moment now the count, 3, 2, 1, is going to go, and you are going to be shot into the atmosphere and soon you will be whirling round our earth at the speed of six miles per second. If you get so fired into the atmosphere and you forget what to do to ensure return to earth, one of the things that might happen to you is that you could become forever satellite, going round the earth until you die of starvation and even then your body would continue the gyration!

When, therefore, you are being dressed up and padded to be shot into the sky, you know only too well that you are going on the roughest road man had ever trodden. The Americans and Russians who have gone were armed with the great belief that they would come back. But I cannot believe that they did not have some slight foreboding on the contingency of their non-return. It is their courage for going in spite of these apprehensions that makes the world hail them so loudly today.

The big fish is never caught in shallow waters. You have to go into the open sea for it. The biggest businessmen make decisions with lighting speed and carry them out with equal celerity. They do not dare delay or dally. Time would pass them by if they did. The biggest successes are preceded by the greatest of heart-burnings. You should read the stories of the bomber pilots of World War II. The Russian pilot, the German pilot, the American or the British pilot suffered exactly the same physical and mental tension the night before a raid on enemy territory. There were no alternative routes for those who most genuinely believed in victory for their side.

You cannot make omelettes without breaking eggs, throughout the world, there is no paean without pain. Jawaharlal Nehru has put it so well. I am paraphrasing him. He wants to meet his troubles in a frontal attack. He wants to see himself tossed into the aperture between the two horns of the bull. Being there, he determines he is going to win and, therefore, such a fight requires all his faculties.

When my sisters and I were young and we slept on our small mats round our mother, she always woke up at 6a.m. for morning prayers. She always said prayers on our behalf but always ended with something like this: ‘May we not enter into any dangers or get into any difficulties this day.’ It took me almost thirty years to dislodge the canker-worm in our mother’s sentiments. I found, by hard experience, that all that is noble and laudable was to be achieved only through difficulties and trials and tears and dangers. There are no other roads.

If I was born into a royal family and should one day become a constitutional king, I am inclined to think I should go crazy. How could I, from day to day, go on smiling and nodding approval at somebody else’s successes for an entire lifetime? When Edward the Eighth (now Duke of Windsor) was a young, sprightly Prince of Wales, he went to Canada and shook so many hands that his right arm nearly got pulled out of its socket. It went into a sling and he shook hands thenceforth with his left hand. It would appear he was trying his utmost to make a serious job out of downright sinecurism.

Life, if it is going to be abundant, must have plenty of hills and vales. It must have plenty of sunshine and rough weather. It must be rich in obfuscation and perspicacity. It must be packed with days of danger and of apprehension.

When I walk into the dry but certainly cool morning air of every January 1st, I wish myself plenty of tears and of laughter, plenty of happiness and unhappiness, plenty of failures and successes. Plenty of abuse and praise. It is impossible to win ultimately without a rich measure of intermixture in such a menu. Life would be worthless without the lot. We do not achieve much in this country because we are all so scared of taking risks. We all want the smooth and well-paved roads. While the reason the Americans and others succeeded so well is that they took such great risks.

If, therefore, you are out in this New Year 1964, to win any target you have set for yourself, please accept my prayers and your elixir. May your road be rough!

Thursday
May092013

Ambient Awareness & The Promise of Native Experiences

In 2004, I started a group research project, as part of my MBA program, to evaluate the promise of an RFID-based information platform. My original premise was that sensor-based platforms would eventually become the next large-scale information utility, serving as a parallel information network to the traditional web.

While the pricing of active RFID sensors looked like it would inhibit the growth of that sub-segment, it seemed clear that passive sensors had an opportunity to achieve widespread deployment once large retailers like Wal-Mart got behind it.

As our research proceeded, it dawned on me that the largest active sensor network in the world wouldn’t be RFID-driven but more likely mobile device-driven, eventually cuminating in the internet of things. This spawned a whole series of thoughts that eventually coalesced into several investment theses.

The overarching theme was that sensor-rich mobile devices, coupled with high-order intelligent software, would be able to offer numerous obvious and non-obvious use cases to a wide variety of users.

The first thesis was that there would need to be an intelligent platform that captured all the ‘signals’ from sensors, assembled, parsed and routed instructions and information to the user to enable decision support and more.

The second was that data-fueled experiences underscored by spatio-temporal awareness would lead to a dramatic upheaval in our expectations for the utility and value of such sensor-rich devices. Redefining mobile experiences would be a massive shift and opportunity. Incorporating data and information generated by the internet of things could conceivably lead to a smarter planet.

It took a few years to find the right startup teams thinking along these lines.

In 2009, in support of the first thesis, I led an investment in Sense Networks. Sense Networks has developed technology to generate insights based on explicit and implicit sensor data generated in space and time.

In 2011, in support of the second, we led an investment in Dekko. The promise of Dekko was simple: the team believed the proliferation of intelligent mobile devices would require an intelligent interface between such devices and the real-world. In extending the online-to-offline-online construct, there would be a need for a real-world operating system, that could bring your digital world into the real world in a seamless and useful manner. This posed an incredibly difficult set of technical problems but offered an unbound set of opportunities in segments such as gaming, social networking, tourism, construction, e-health and security.

The Dekko team has worked quietly for several years in pursuit of this vision. It is an industry-leading all-world team made up of the best and brightest minds in 3D mapping, mobile UI/UX, augmented reality, cognition and awareness, optical tracking and micro-gestures, and HCI. We are super thrilled to have backed them.

In addition to being incredibly grateful to the team, we also owe a debt of gratitude to our co-investors, most of whom supported a game-changing vision pre-product, and have been stalwarts along the way as the team was grinding along in the shadows. Big thanks also go to Google for helping validate the vision with the launch of Google Glass. Dekko will offer the definitive OS for all mobile devices, including Google Glass.

Take a look.

Tuesday
Feb192013

Technology VC Investing in Underserved Emerging Markets: A Thesis on Risk Mitigation

On February 16, 2013, I spoke on a panel titled 'Venture Capital in Sub-Saharan Africa.' as part of the 15th anniversary celebration of the Harvard Business School's Africa Business Conference. The conference theme was 'Redefining Africa: The Emergence of a New African Story.' The conference was amazing and invigorating. I'll share more detailed thoughts on what I learned in a separate blog post.

During the panel, I shared a view that I have expressed in different fora, albeit casually. Here's a little more background on it. It is our view that the biggest source of risk in startups in emerging markets is operational. Execution (with high-quotient integrity) is everything. Adversity, achievement & accomplishment are also very important quotients and when conjoined with high EQ, likely increase the value of the first three.

We believe that the single most important mitigant of this risk is women in founding, senior management or key operational roles. The insights gained from our advisory and mentorship activity over the years in support of ASTIA and the Pipeline Fellowship buttress our belief.

Our seed and early-stage venture capital investments in technology startups addressing underserved emerging markets such as Africa will serve as role models for. this antifragile approach to risk mitigation.

We hope our fellow travelers consider adopting this approach. The ecosystem can only benefit from our joint leadership in fostering this.

Sunday
Dec162012

Bite-sized Content: The Socialization of Nutritional Value

Every now and then when I open up @twitter, I see a bunch of tweets about @ev's and @biz's new production from Obvious Corp, called Medium.

The name always brings back a ton of memories. Of Kimbal Musk and the team at Me.dium. And the several attempts I made to invest in the team and their vision of a truly social web experience. 

But I digress.

Back in 2004, I was thinking deeply about the concept of personal expression and the platforms then and in the future that would enable it.

I had been tracking Blogger and its course-mate, TypePad, since 2002 but only casually. The 2003 acquisition of Pyra Labs (parent of Blogger) by Google naturally had made me sit up to consider the long-term implications of crowd-created content. This was prior to Matt Mullenweg starting up the monster platform known as Wordpress. 

But it struck me that we were likely at the beginnings of a movement that would be global in reach and ramification. The socialization and democratization of content creation, syndication and consumption.

I had no idea how to get involved but I knew there would be hell to pay if I didn’t.  

And there began the random notes-to-self that became the framework for an investment mini-thesis on self-expression platforms. 

So between 2004 and 2005, my view distilled as follows:

(1) The desktop web would be the initial driver of this. The combination of powerful search (enabling research and visibility) would be a powerful enabler.

(2) But what would this behavior look like on small devices? I was at Intel Capital at this time and I can share that mobile devices were certainly considered to be an important future growth market. In 2005, I was part of a team that worked with Apple to frame a memory supply contract. This was the second leg of the groundbreaking partnership that Intel forged with Apple. [Remind me to blog some day about the experience of working with Apple, Tim Cook and interactions with Steve Jobs. What an amazing and disciplined group. An out-of-this-world combination of intellect, vision and execution]. Apple was clearly thinking about mobile devices at scale at this point.

(3) We (consumers) needed an outlet to express our thoughts (and alleged individuality) in small chunks. Mobile (and desktop) technologies would offer us the devices. But the services built on top of those devices would give us the tools. 

After literally chasing down Mena (of Mena & Ben fame) at a conference and convincing her that I had a similar vision, I was proud to be able to source SixApart for Intel Capital as a potential investment. Intel closed the Series C investment in March 2006 as part of a syndicate of investors led by Focus Ventures.

Many iterations later, fast-forward to today.

We have seen several generations of personal expression platforms (PEPs): Text (blogger/wordpress/typepad, twitter/jaiku, storify, medium, pandawhale, teethie, google+); Images (pinterest, instagram, flickr, 500px); sound (soundcloud, lastfm, grooveshark, spotify); and, Conjoined (tumblr, new twitter, new myspace, snipit).

The subscribe-to-follow and follow-to-subscribe models changed the dynamics of such PEPs. They became socio-fractal networks, wherein, in objectified chunks of interest, each displayed self-similarity at different scales.

But we are at a crossroads now.

We are getting hit by multiple demands for our attention and engagement. And it’s getting worse. Distractions are everywhere. http://on.wsj.com/WbMYfG 

"In the few minutes it takes to read this article, chances are you'll pause to check your phone, answer a text, switch to your desktop to read an email from the boss's assistant, or glance at the Facebook FB -5.06% or Twitter messages popping up in the corner of your screen. Off-screen, in your open-plan office, crosstalk about a colleague's preschooler might lure you away, or a co-worker may stop by your desk for a quick question…Distraction at the office is hardly new, but as screens multiply and managers push frazzled workers to do more with less, companies say the problem is worsening and is affecting business. Office workers are interrupted—or self-interrupt—roughly every three minutes, academic studies have found, with numerous distractions coming in both digital and human forms. Once thrown off track, it can take some 23 minutes for a worker to return to the original task, says Gloria Mark, a professor of informatics at the University of California, Irvine, who studies digital distraction.”

Paired with this 'epidemic' is Peter Thiel's interesting comment (in his PandoMonthly interview) re: people no longer wanting to think. I don’t disagree. I also feel folks seem to want to read less and less. That is, both in frequency and amount.

These two signals are scary in combination. What does minimum viable scholarship look like tomorrow?

I think therein lies the opportunity. And I have wrestled with this thesis for the last five years. It never fully crystallized until recently.

Many years ago, someone told me that there were mobile games (originally developed in Japan) that were timed to be played between train stops. From start to finish. From stop to stop. Attention, engagement, activity, conclusion, reward. I never forgot this.

Clearly, one can learn and be entertained in modules. Imagine if the modules can be re-composed and re-distributed?

The promise of the open web should offer socialization and democratization of content creation, syndication and consumption.

So I think the looming platform opportunity is one where content can be created, atomized, assembled, distributed, culled, re-combined and re-distributed. Sized and valued as appropriate.

Get in, where you fit in. For the network of one. Or more.

I call this the open web foundry...where creators generate bite-size content that can get consumed, distributed, re-constituted and redistributed. Original and recombinant content with its source DNA embedded (and destinations on file).

But this time, the bite-sized content, and not just people, must become social. Semantic technologies can add the intelligent layer that makes content social and dynamically connective. By extension, assembling content and relying on machine-learned prioritization and a people-like-me construct built by a hybrid of people and algorithms.

Nutritional value is based on an x-y axis of acceptance and interest/desire.

Distribution is now unbundled and bite-sized, with its impact in the general (many-to-one) as well as the particular (one-to-one with a viral coefficient of +1). And so will content, which must be reformatted to fit the new attention and consumption paradigms.

The interface and experience won’t just be re-imagined. Simply because we will have the opportunity to re-order and thus avoid the risk of prime error as Nassim Taleb so eloquently puts it. 

The web we regain (and its interconnected Banyan-like branches) is rooted in the web we lost (h/t @anildash). 

My friend @Semil describes this as the web of extraction.

This doesn’t exist. But it should.  And we want new easy-to-use tools that are widely distributed and built for such an open content creation platform.

There’s a related opportunity to create a marketplace of bite-sized content. And this platform will create a real economy. One that’s economic, karmic and emotional.

I am grateful for the entrepreneurs who have toiled in silence and in the dark building the future for a new consumptive era, enabling the creator in each of us.

2 billion people coming online in the next few years. On mobile.  And one thing’s certain, ‘the next web will grow faster.’

Little Things

Little drops of water, 
Little grains of sand, 
Make the mighty ocean 
And the pleasant land.
 
 

Dots before lines. 

It’s not obvious. Until it is.

EDO

[the twitter conversation below, with my buddy Andy Weissman of Union Square Venturesspurred the completion of this blog post].

.@aweissman disaggregation of content & experiences, when paired w/ ambient awareness & contextual mapping, means RAMPs will be next biggie

.@aweissman RAMPs = Routing And Matching Platforms. a necessary outcome where fragmentation meets social. everything goes bite-sized or less

Wednesday
Sep122012

[SiliconAfrica.com: Silicon Valley Firm To Invest $30M Into African Startups] - A Rejoinder

Silicon Africa ran an article on September 1, 2012, titled "Silicon Valley Firm To Invest $30M Into African Startups.'

We were never interviewed for this article and regrettably, it had a bunch of errors. It also spurred a very active comment thread. Deeming it necessary to correct the article, we submitted a comment which was never published. Our comment is published below to avert any further confusion.

It's important to note that while we have not officially disclosed our fund or publicly discussed its specific goals, what we can share at this time is that we are extremely passionate about (and focused on) helping to build out the technology entrepreneur ecosystems in select emerging markets such as sub-Saharan Africa and SE Asia.

+++++++++++++++++

*From: *Eghosa Omoigui

*Subject: *Silicon Africa comment

Many thanks for the kind article. Regrettably, I was misquoted and so would like to correct that and also add some more color.

My partners and i visited Lagos in late July. EchoVC sponsored/hosted a tech+drinks meetup and we all were absolutely thrilled to have over 50 ecosystem players attend. We also conducted office hours (kindly hosted by the cchub team and organized by the IVD team) for various startups as a service to them. Our office hours were simply designed to listen to startup pitches and offer VC feedback. It was a very insightful and educational all-day session and we are grateful to the folks who all contributed to make it happen.

We also conducted our first EchoPlex (3hr) interactive learning session titled 'How To Pitch: Telling Your Story As A Nigerian Tech Entrepreneur,' kindly hosted by the FATE Foundation. I had a blast and i think the entrepreneurs did too.

During our visit, we met some very dynamic entrepreneurs (male AND female) doing uber interesting things and continue to be excited by the opportunities in the Nigerian and larger pan-African tech markets.

The bottom line is that, as in all nascent markets, there are different tiers of entrepreneurs and opportunities. Our mission as a firm is to focus on seeding and syndicating entrepreneurial inspiration. A key underpinning of this is to embody the mantra of 'knowledge worth spreading.' This means helping to educate the ecosystem to increase the opportunities to seed and build tech startups that have a shot at becoming material successes and thus can spawn even more startups. e.g. we are running another EchoPlex learning session on Sept 5 focused on women tech entrepreneurs and how to increase their numbers while trading strategies on how to reduce the friction that is unique to them in the Nigerian society.

At the company lifecycle stage that we are very passionate about (seed and early-stage), there's a TON of heavy lifting required and we will need folks across the board (entrepreneurs, angel investors, service providers, corporates, educational and financial institutions, government, etc.) to help contribute meaningfully to the development of a vibrant and scalable tech entrepreneurial ecosystem. I will caution that it's easy to think you are a winner because you successfully raised venture or seed capital but that's just the beginning of the real effort that goes into building winners. Focus on execution is what primarily separates the winners from the also-rans, along with a healthy dose of luck, humility, the absence of hubris and finally, the constant reinforcement delivered by self/situational awareness.

My partners and I care very deeply about this and believe that knowledge+mentorship is the priority need in this market, followed somewhat closely by seed infusions of risk capital.

The one takeaway I shared was that local entrepreneurs need to defocus on me-tooism and/or slobbering over US tech blog chatter and spend more time looking around them to solve the various problems that exist for large tracts of the population. As I like to say, 'live in analog, but invest for digital.'

Less talk, more walk.

We are excited at the prospects. Please support us.

Eghosa Omoigui

EchoVC Partners

Sept 2, 2012

Wednesday
Sep122012

Working with a Corporate VC: An Insider's Perspective | VentureBeat

In part due to the dismissively titled "The Only Thing Lamer Than Corporate VCs? International, Non-Tech Corporate VCs" article by Sarah Lacy at PandoDaily regarding 'fair-weather' corporate VCs and their burgeoning activity, I decided to republish my article from February 2007, which was originally posted on VentureBeat.

Ms. Lacy and I had a bit of a discussion on Twitter regarding what I felt was her mischaracterization of Intel Capital's approach to venture capital. It's somewhat impossible to have an unconstrained discussion on Twitter so take what you will from our little back-and-forth.

Its been 2+ years since I left Intel Capital but the article below is probably still directionally on point.

My hope is that startups looking to engage with corporate VC units will find this helpful.

Eghosa

---------- Republished [courtesy of VentureBeat]----------

* Working with a Corporate VC: An Insider's Perspective* [http://bit.ly/yBiC0w]

February 22, 2007 6:39 PM Eghosa Omoigui

[*Editor's note: We asked Eghosa Omoigui, Intel Capital's Chief of Staff, to give us some insights about corporate venture capital investing. Intel has been the largest investor in technology companies for several years, and not in just chip companies. He's given us a primer on how Intel Capital thinks. Later, we expect to hear from Ned Hooper, of Cisco, a company with a very different, acquisitive style*.]

Someone once described corporate strategic investing as ‘misunderstood.’ I decided it would be helpful to talk about Corporate VCs (CVCs) and how best to maximize their impact and value to VCs and entrepreneurs alike.*

Intel Capital is Intel’s strategic investment arm. Typically, it focuses on making equity investments into technology companies, funding internal incubation activity, and leading acquisitions to grow the digital economy in support of Intel’s objectives. These objectives can be to create new business opportunities for Intel and expand global markets for our products, while achieving positive financial returns on our investments.

Since we started investing in 1991, Intel Capital Equity has invested more than US$6B in nearly 1,000 companies headquartered in more than 40 countries. In 2006, Intel Capital invested $1.07B (yes, that’s a ‘B,’) and includes a $600M investment in Clearwire (the largest VC round in US history) in 163 deals worldwide (in 26 countries) including 91 new deals, likely qualifying us as the most active technology CVC, and one of the busiest VCs overall. With on-the-ground investment managers in 20+ countries, and leading over 40 percent of our deals in the US and 60 percent+ overseas, we invest in all stages from seed (pre-Series A) through to PIPEs (Private Investments in Public Entities). In 2006, Intel Capital had a total of 37 exits; eight portfolio companies went public via IPO and a total of 29 were acquired.

But enough, for now, about Intel Capital. What about CVC’s in general? How and why do they invest? And how do they add value?

*Why do CVCs invest?*

Generally, and unlike VC firms that raise money from independent investors, the CVC’s lead-off hitter is strategic rationale. It is extremely unusual for a CVC to make an investment where there is no strategic reason for doing so. Strategic engagement, however, can span a wide spectrum of activity.

For example, the CVC’s investment may aim to support a thriving ecosystem around the parent’s core products, e.g. software stacks, display technologies and power innovations.

Other CVC investment ‘incentives’ include: (a) a proxy for inorganic growth; (b) a market development tool , e.g. ‘planting the VC flag’ in new regions and geographies; (c) an eyes-and-ears tool to identify and nurture emergent technologies or foster new trends or business models; (d) a ‘gap-filler’ which approximates to outsourced R&D but with an end customer-centric goal; and finally, (e) a conjoined source of positive returns (financial in addition to strategic)

For what it’s worth, my sense is that Cisco and Cadence generally invest as a potential stepping stone to acquisition. It’s also no news that IBM and Microsoft no longer invest directly (as a general rule), but do invest in some VC funds and funds of funds, and then do business development work with VC firms and their portfolio companies. I understand Samsung Ventures and Motorola Ventures typically require a business agreement with a product group.

Intel Capital is quite flexible and varied in how we work with VCs and start-ups to find an optimal financial and strategic relationship. Note that we’ve rarely acquired the companies we’ve invested in • last I checked we were at about one percent.

*How do CVCs add value?*

There are several ways for a corporate venture capital firm to add value to its portfolio companies.

First, there’s extended reach. As a global technology investor, our perspective expands the pool of insight and knowledge available to entrepreneurs and co-investors. Illustrating this, most people don’t realize we began actively VC investing in China and India back in 1998, long before most of the tech VC world recognized both countries as the next active growth frontiers. (Intel Corp. opened its first office in China in 1985). A corporation like Intel can also help a company access and tap global operational resources — sales, marketing, R&D, channel/customer access, etc.

There are programs such as our Intel Capital Technology Days (ITDs). These aim to introduce our portfolio companies to Intel customers and bring emerging technologies from those portfolio companies directly to the customer in a structured manner. The underlying goal, of course, is to drive revenue opportunities for the portfolio companies by fast tracking the traditional sales cycle, while presenting helpful products and solutions to Intel customers who may otherwise be unaware. In 2006, Intel Capital held 53 ITDs worldwide with ~200 portfolio companies.

The CVC may also be able to offer, within reason, consistent cash over time, as opposed to the structured funds of most “institutional” venture capital firms.

While we recognize that strategic alignment can change because business unit priorities and strategic direction can and do change, Intel Capital will continue to support financially attractive companies with subsequent rounds of investments where it makes sense.

We’re also experts on deal terms as well as players. Intel Capital has invested in nearly 1,000 companies and had ~350 acquisitions and IPOs worldwide. This means knowledge of IPO or M&A wrinkles, acquirer habits, pros and cons of one acquirer over the other, and standard and not-so-standard terms could lie with your favorite neighborhood CVC investor. In Intel’s case, we have an extensive database. This brings facts and composure to what generally is a relatively stressful and emotional deal process, whether it’s an investment or an acquisition.

*How to Navigate the Corporate VC (and Build Value)*

Some entrepreneurs have complained that corporate VCs are opaque. Here are some tips:

(a) *Learn the investment strategy*: Cisco, Siemens, Comcast, Motorola, Adobe, Intel Capital, Google, TransCosmos, Pfizer, etc. … they all do it differently. A clear understanding of this will help frame the decision of when to invite a CVC to lead a round or add to the investment syndicate. Intel Capital will invest in all stages, if it makes strategic and/or financial sense.

(b) *Value the process in the CVC and its parent*: For start-ups that often pride themselves on lightning-quick decision making and nimble changes, ‘process’ can be extremely frustrating. However, it can be a useful GPS device on cold dark nights. Trust me. I remember a ‘hot’ deal referred to Intel Capital that conceptually would have been very disruptive technology. The deal was coming together very quickly and I pulled in our investment managers post-haste. They collared the technical experts in the business unit in less than 24 hours and we huddled to do some preliminary super quick technical due diligence. The potential investee company had a bunch of customers, investors and a very solid management team • all elements that would have quickly generated a term sheet from a VC in the bubble days. But our process required that the subject matter experts in the business unit (and the research labs in this case) provide technical due diligence. As we poked around, our concern grew. Turned out there was more (snake) oil in this company than OPEC’s daily production output. We didn’t invest. Our ‘process’ helped us (and at least two other VCs who were looking at the deal) avoid a potential disaster.

(c) *Do your due diligence on the CVC*: Be clear upfront on what they can and cannot do • know why you need them • and say so! For example, Intel Capital brings advantages in three dimensions: breadth (we invest in processors, digital homes/health, mobility, software etc.), reach (global and customer access) and depth (technical expertise). Other CVCs will bring different types of value-add (Cisco, for example, may offer a quicker exit) and I strongly recommend you identify what is most important to help generate material company building value. Note that some CVCs will generally take a BOD seat, but Intel Capital won’t do it as a general rule, choosing instead to take an Observer ‘seat’ and potentially an option to convert that to a full BOD seat if the need arises.

(d) *Find the right investment professional*: Be an aggressive networker. Just keep asking “Are you the best person for me to work with on this deal?” and you’ll eventually get to her/him. CVC’s don’t get bent out of shape if you ask this, because their ‘partnership’ tends to be larger and more segmented than that of a financial VC

(e) *Solicit their input*: into strategy, major deals, IP filings, infrastructure scaling, etc. They should help find customers and contribute ideas to strategy, push product development, call down corp. resources as needed to problem solve and accelerate success You will be surprised at the sheer amount of data and resources that you can access.

(f) *Keep updated*: (through the Board Observer or Director) on related business unit and research lab activity. I suggest regular 1:1s with the Board Observer to keep the communication channels well primed

It has been said that corporate venture efforts are fair-weather friends, unreliable in tough times. I believe this is a gross exaggeration. A good number of CVCs disappeared from sight after the last bubble burst. But those CVCs who quit post-bubble jumped into the VC investing business for all the wrong reasons and without the careful deliberation and organizational framework that should accompany a viable long term investing strategy. There are still plenty of quality CVCs that are great at what they do, make fantastic partners and company builders, add meaningful value, and help create great companies that deliver solid impact, while cheerfully weathering the ups and downs of naturally occurring VC cycles.

© Eghosa Omoigui 2006, 2007. Opinions expressed here are solely mine and may not represent official positions of Intel Corporation or Intel Capital

Tuesday
Sep112012

High-Res Financing, High-Res Hangover: Low Resolution Thoughts on Convertible Notes and Priced Rounds

Mark Suster, a GP at GRP in SoCal and all-around good guy, wrote a very detailed post on the perils and unintended consequences of conventional convertible debt financing structures. His post struck a chord as he echoed (no pun intended) a lot of the views i have expressed to entrepreneurs over the years. His follow-on post, which was spawned by a vigorous discussion on twitter (twittercussion?) last Saturday among Fred Wilson, Dave McClure, Chris Dixon and Mark, was a great summary of the key elements that entrepreneurs and angel/seed investors both focus AND defocus on.

While I liked a lot of Mark's content, I was particularly tickled by the illustration on 'reconfigurable' liquidation preferences or, what I like to call the Jacobs Ladder* of Liquidation Preferences.

Unless I missed it, the one thing Mark didn't point out was the actual effect on the pre-money pricing of a post-convertible note round. He gave the example of a round that's priced at $12 pre, raising $3m and with a post of $15m. I will assume, for purposes of my adding color to this issue, that there was $1M of tiered conventional note financing in place (that is, multiple small infusions at different 'price points' with a cap + discount + interest). So the entrepreneur walking around the post-financing party circuit preening about his/her $12-pre/$15-post round that just closed completely misses the point that (s)he just got his/her engine block reworked. The new investor doesn't care (because (s)he got the targeted 20% ownership stake) but the entrepreneur+team got their ownership completely recast, probably to a point whereby the effective pre is closer to high single digits simply because of the high-res financing hangover.

High res financing, high res hangover. (my remix, Paul).

So here's our bottom line:

(1) Despite the oft-stated pros and cons, we are fine with convertible notes. It's important to understand that a lot of the c-note financings actually don't have a lead. Putting in the first $50K or $100K via a form of c-note doc that is just a copy and paste of what one found on the 'net (or blindly repeats your last deal) does not make you a lead. Lead-less (or party) rounds can be high-res value OR stress to entrepreneurs so we are sympathetic to the most optimal structures that can support the get-to-done objective.

We won't do the most recent variant (no cap, no interest, no discount) that we hear some excitable YCombinator companies may have floated (or gotten folks to invest off of). In addition, we have zero interest in investing in 'hot' deals and even lesser interest in acquiring startup logos for the sake of cocktail party chatter.

It's worth noting that in bankruptcy, secured debt always has greater priority than equity, whether common or preferred. Of course, most of these companies wont ever go through the process so that point is mostly moot.

If we do c-notes, we will have basic terms like a baseline multiplier on acquisitions prior to actual conversion, pro-rata floor rights in the next (priced) round, etc.

Occasionally, we hear of folks seeking MFI (most favored investor) rights whereby certain investors want the benefit of a full ratchet even in the absence of the priced round framework. We imagine that this is a function of the gamification of note financing and how 'celebrity' investors seek to leverage celebrity to get better pricing, often with no real exchange of value forthcoming.

We have used warrants (or a similar structure) to get a slightly discounted price in exchange for an early or 'anchor' commitment OR to lower the price but not impact the optics. Since we don’t really buy into social proof as a substitute for effective due diligence, once we decide we like the opportunity, we are good to go, subject to agreeing on terms.

It's worth noting that not all warrants are the same. A warrant convertible into preferred will enjoy a liquidation preference and thus is always 'worth' more than one convertible into common, particularly in a blah exit aka an acqui-hire. Note as well that if you do a priced round and you get a market price for the seed preferred with a common stock kicker (serving as the 'discount for optics'), depending on the exit, that discount may turn out to not amount to anything, meaning all the investor's returns were concentrated in the grossed up preferred price as a function of the exit multiplier.

(2) Priced seed rounds are great. They keep everyone on the same page and generally offer the same terms. Yes, issues like board seats, pro-rata thresholds, et al. will come up but nothing that can't be dealt with, particularly by an experienced lead investor who can set a price and terms and help syndicate aka corral/herd cats. The key dependency here is the need for an experienced lead. Yes, seed financings offer tons of opportunities for angels to help fund the next generation of high value companies but it's easy to take the process for granted, despite the fact that YC has made it 'easy' for their grads.

However, the priced round can become an issue if left open for too long and then existing investors become resentful because they accepted a different risk profile than later investors. This is a tough one to manage because it's the entrepreneur's responsibility to ensure his/her startup doesn’t run out of cash. In this case, I would suggest to the investors already on board to take up the rest of the round. If they choose not to, this creates a set of signaling issues that are outside of the scope of this post.

In closing, it's important to note that a lot of the current conversations around the topic of financing structures for seed-stage companies are almost exclusively US-focused. Our 'triangle offense' focus on leading/driving seed-stage tech investing activity in certain underserved markets (sub-Saharan Africa and SE Asia) will mean we will be doing a lot of entrepreneur and investor education in those ecosystems re: similar structures, albeit appropriately localized. If you are interested in this, look out for our EchoPlex™ learning sessions. We have run a few so far for entrepreneurs and women-in-tech in Lagos and looking forward to doing many more.

Life is a series of trades. Pause and think through your exchange framework. Then put on your big boy/girl pants and step into the arena.

Eghosa

 

*There’s a very interesting, albeit technical, paper by Chris Calabro on the 'Theory of Jacob's Ladder' @ http://bit.ly/QAjR4h