StartupBoy

As some of you may know, I've been pretty busy since I raised a seed-stage investment fund called The Hit Forge, and have been investing in early-stage companies building social media on the web. For a few months there, it looked like that was going to mean Facebook Applications. Now, with the launch of the Open Social Platform, we are entering a new phase where many large sites are starting to open up. With Google / Orkut, Hi5, LinkedIn, Friendster, Ning, and others getting into the game, it's clear that there's a new generation of startups to be built.

As such, I'd like to announce that I am looking for and interested in investing in companies that are building applications for Open Social and for Facebook. I know that others have talked about it and announced their intentions, but most likely, I've been the most aggressive actual investor to date. At this point, I've invested in more than ten companies which are building Facebook applications as their main line of business, and represent an installed base of over 25 Million users.

I'm actively looking to invest at least $10 Million, in blocks of $50K - $500K at a time, into promising applications which live on the emerging Open Social and Facebook platforms.

Here's what I can offer:

• Capital as a service, not as an owner
• Seed investments of $50K-$500K, buying small minority stakes
• Help with viral marketing, application tuning, and distribution
• Shared resource base, including space and servers
• Simple and friendly terms that let you control your company; small exits / sales are ok
• Business / scaling help and access to a marquee list of investors and advisors
• Help with future fundraising and exits (see my other blog at Venture Hacks)

What I'm looking for:

• Small and lean developer-heavy teams
• Example applications that you've built
• Willingness to learn viral marketing / tuning / code-based marketing
• The ambition to build something larger
• Willingness to risk it all on the new platforms - it doesn't need to live outside of Open Social or Facebook

Thanks to Facebook for pioneering the space and to Google for pushing it to be more open. It's a great time to be a web developer.

Can older people be great entrepreneurs?

Marc Andreesen has a great post on this age-old question. In part I, he's digging through the data. Some of his observations are powerful and worth summarizing:

"Generally, productivity -- output -- rises rapidly from the start of a career to a peak and then declines gradually until retirement.

This peak in productivity varies by field, from the late 20s to the early 50s, for reasons that are field-specific.

Precocity, longevity, and output rate are linked. "Those who are precocious also tend to display longevity, and both precocity and longevity are positively associated with high output rates per age unit." High producers produce highly, systematically, over time.

The odds of a hit versus a miss do not increase over time. The periods of one's career with the most hits will also have the most misses. So maximizing quantity -- taking more swings at the bat -- is much higher payoff than trying to improve one's batting average.

Intelligence, at least as measured by metrics such as IQ, is largely irrelevant."

I went through an evolution of sorts on this topic.

I started with a variation of the Beard Hypothesis (enthusiasm decreases with age but experience increases, and there's an optimum cross-over point). This is the easiest viewpoint as you get older and look back at some of your earlier crazier ideas, but notice that that older crowd is very risk-averse. Douglas Adams had a great take on it:

1. "everything that’s already in the world when you’re born is just normal;
2. anything that gets invented between then and before you turn thirty is incredibly exciting and creative and with any luck you can make a career out of it;
3. anything that gets invented after you’re thirty is against the natural order of things and the beginning of the end of civilisation as we know it until it’s been around for about ten years when it gradually turns out to be alright really.
4. Apply this list to movies, rock music, word processors and mobile phones to work out how old you are."

 

I then moved on to Dean Simonton's observations, beautifully covered in Marc's article. My thinking was driven by books like "The Black Swan," "Fooled by Randomness," DeVany's analysis of Hollywood Economics and Home-Run Hitting, and a casual observation of how Evolution creates things (massive trial and error). Basically, the number of swings at bat, poems attempted, paintings painted, etc. determine the success rate. The more you try, the more you learn, the faster you iterate, the better you get, and the more chances that you have of being productive. Your outcome scales more with the number of bets than the size of the bets. As the violinist Pablo De Sarasate put it, "For 37 years I've practiced 14 hours a day, and now they call me a genius. "

Now I prefer a slightly different hypothesis. More of the creative instinct is driven by the sublimated sex drive and the desire to attract a mate than we give it credit for. And more of it is squelched by the demands of family than anything else. An extreme take on it is presented by Kanazawa:

"Scientists tend to 'desist' from scientific research upon marriage, just like criminals desist from crime upon marriage."

 

Marc asks:

"So here's my first challenge: to anyone who has an opinion on the role of age and entrepreneurship -- see if you can fit your opinion into this model!"

When you are young, hungry, and single, you have

• huge amounts of free time (more swings at the ball)
• less to lose (more swings)
• enthusiasm (more likely to swing)
• sublimated sex drive (more likely to swing to stand out from your peers).

As you age, you have

• less free time, more family demands, larger social networks (less swings)
• more to lose (public embarrassment in front of an established social circle means you don't want to start anything fresh) (less swings)
• experience (if you're probably going to miss, why bother swinging) (less swings)
• fulfilled sex drive (have sex rather than swing)

"And here's my second challenge: is entrepreneurship more like poetry, pure mathematics, and theoretical physics -- which exhibit a peak age in one's late 20s or early 30s -- or novel writing, history, philosophy, medicine, and general scholarship -- which exhibit a peak age in one's late 40s or early 50s? And how, and why?"

 

Unfortunately for an aging me, anecdotal evidence aside, entrepreneurship favors the young.

The difference between poetry, pure math, theoretical physics, and novel writing, history, philosophy, medicine, scholarship, is that the former set requires huge (multi-year) intense, focused, almost isolated blocks of free time, whereas the latter set can be picked up and put down and resumed later without too much cost. The first set comprises problems that are solved by an emotional state (poetry, painting), by loading a very difficult single framework into your head (math, physics, coding), and / or competition (driven by sex drive and time-sensitive). The latter set are more rational, are systems problems rather than point problems, and don't have time-sensitive competition.

Modern entrepreneurship, especially web entrepreneurship, is extremely competitive / time sensitive, requires enormous amounts of iteration even within a single product life-cycle, and often requires solving many challenging technical and business problems one after the other in a public view (with the opposite sex watching). So, it favors the young and single.

Which is not to say that one can't do it if one is older and settled down. Mathematician Paul Erdos was famous for his prioritizing his work above all else (he remained single, by the way). There are many older successful entrepreneurs who spend tremendous amounts of time away from their families.

...and the rest give up and just become VCs...

 

 

The option pool shuffle: beat the game and raise your valuation:

Summary: Don’t let your investors determine the size of the option pool for you. Use a hiring plan to justify a small option pool, increase your share price, and increase your effective valuation.

Focus on your share price, not your valuation

Summary: Focus on your share price and the number of shares you own — metrics like valuation and percent ownership can fool you.

Hope you guys are finding these useful. Nivi is also talking and posting about them, usually faster than me...

 

The Google / YouTube looks like a win-win all around. Well, almost.

Google:

• Acquire the future of video on the Internet for roughly 1% of your market cap.
• Get $500M in escrow to protect against copyright lawsuits
• These are lawsuits that Google would probably have to defend YouTube against anyway, even if Google didn't own YouTube. Huh? Let's see, YouTube stores and serves up copies of videos without copyright holders' advance permission and removes them when removal is requested, under DMCA Safe Harbor. Google copies books, and serves up copies of pages without copyright holders' advance permission...

Youtube and shareholders:

• 1 Billion plus reasons to be thrilled
• Uncle Google takes on monetization risk and legal risk

Major labels:

• $50 Million each
• A promise from YouTube that within 6 months, the copyrighted nasties will be gone

Losers:

• Small Labels: Don't have the money or the resources to mount a serious legal challenge to Google. Didn't get paid.
• Small video-sharing sites: The major labels are going to sue them out of existence to establish a precedent, doing the dirty work for Google et al.
• Artists: Royalties? What royalties? The $50M to each label is structured as an equity investment, and not subject to royalty splits.

So, Google gets the prize, the labels get the money, YouTube gets the payout, and Google extends its one-time massive copyright violation to build critical mass, while using the labels as enforcers to make sure that no one can repeat the YouTube story.

Yes, you can make money without being evil. But for YouTube's competitors, small labels, and the artists, evil is relative.

The Vast.com (developer) Preview is finally available! If you’ve been wondering what we’ve been up to, here it is, in a nutshell - we are building a search service that extracts classified ads from across the web, structures them, and then makes them available via an open REST API for commercial and non-commercial uses.

A little more detail:

- We are crawling the web and large parts of the blogosphere with a general crawler, similar to the ones operated by Yahoo!, Google, Ask, MSN, and Gigablast.

- The crawler activates forms, and digs deep to find even dynamic data (although it certainly doesn’t fill in any logins and passwords)

- We automatically recognize classifieds listings - currently cars for sale, job postings, and personals profiles, and extract and normalize the surrounding metadata (make, model, price, mileage, salary, location, title, age, gender, etc.).

Currently, we have some of the largest databases anywhere, of over 15 Million classified listings across these three categories, automatically extracted and structured with no human oversight, from nearly 50,000 web sites and blogs. (We actually crawled many, many times that number, but these are just the sites that have results to date).

If you are an end-user, you should be able to search for that hard-to-find listing without having to visit hundreds of sites, and compare cross-site results, with images, sorting, and statistics.

If you are a web-site owner or web developer, we’re offering a no-hassle API to show this data to your visitors, or to mash it up to your hearts content. You can use it build a huge destination site, an interesting application, or to supplement content and listings that you have today. You CAN use it for commercial purposes, and as long as it’s being shown to real end users, there’s NO LIMIT on the number of queries. Everything you see on the site is built on our API, so you should be able to replicate Vast.com on your own site or blog.

If you have a classifieds site or a blog and would like your ads to be included in our results, you shouldn’t have to do anything. Just post like you normally would, and we’ll find you. If we’re not getting your results or not getting them all, drop us a note at help - at - vast - dot - com and we’ll try and fix it.

We’re going to keep this site and the API as open as possible, and like a good net citizen, link directly back to the results. We don’t compete with the people that we crawl by taking direct listings. We don’t rely on explicit tagging. And we do an enormous amount of de-duplication and spam filtering to keep the results clean.

Of course, this is a search service, not a listing service, so you can expect some spam and mis-classified results will sneak through. Some links will break due to changes, expirations, and finicky databases that were not designed to be “deep crawled.” In those cases, the cache is your friend. There’re also rivers of pornographic content that had to be filtered out, and occasionally, we miss a few. Please help out by reporting bad results using the links next to each result.

We will be adding more sources, better crawling, improved classification, and many more categories over time - this is just a start. We want to support the web community that wants to take highly-structured content and build applications on top of these massive data flows. When we start making revenue through syndicating this data, we will share it with the developers and sites distributing it via the API.

What more would people like to see? How can we help or improve?

Update: Some coverage of the launch and reviews from TechCrunch, Paul Kedrosky, Peter Ripand CNet.

I like Venture Capital. I really do. And even in the current bubble, Vijay, the World's Most Desperate Venture Capitalist is a little exaggerated.

But what am I supposed to do when I put a job posting on Craigslist and get the following response?

"My name is XXXX XXXX, and I am a Principal with XXXXX, a venture capital firm based in XXXXXXXX. I learned about your startup on Craig’s List. My firm manages just north of XXX million in active funds. We invest in early-stage software and Internet companies, and I would be interested in learning more about your project."

You can't make this stuff up.

Actually, I have to hand it to the guy. One of the three things you need to succeed in Venture Capital is proprietary deal-flow (the other two are access to capital and good judgement). By hitting Craigslist early, these guys are doing legwork that others eschew - they're hunting for the next Skype actively rather then putting their feet up on Mahogany desks and waiting for the deals to come pouring in. Welcome!

At some point when you have a startup, probably when raising money, you'll HAVE to get a corporate lawyer. Most are hideously expensive and infuriating. A few tips:

• Don't just go with the lawyer that the VCs insist upon. These lawyers will work with the VC on a hundred financings and with you on only one. Where do you think their loyalties lie? Get your own lawyer, and don't budge.

• Watch out for the bait-and-switch - this is when you interview the gregarious, smart senior partner, who then swaps in the less popular, less experienced partner once you've signed them up. And the new person might be cheaper, but not much cheaper.

• Put them on fixed-fee per job, especially for closing a financing, and especially for lawyers for the other side (one of the old great VC tricks is that startups pay for the VC's attorneys in closings! A ridiculous practice justified as being "standard")

• If you have issues with the bill, resolve before paying. Possession is 9/10ths...

• Make your lawyers do the heavy lifting of drafting the financing docs. The drafting side wins all of the small points, by default

• Finally, good lawyers are advisors who weight pros and cons when giving advice that has a financial impact (which almost all of it does). Bad lawyers are whimpering insurance salesmen - and will encourage you to spend yourself to ruin by covering against every possible risk. Risks can and should be quantified whenever possible.

Let's get serious. Nobody works eighty hours a week. Not eighty real, productive hours. Look closely at workaholics (and I've been one, and worked with ones), and a lot of the time is spent idling, re-charging, cycling, switching gears, etc. In the old days this was water-cooler talk. In Silicon Valley, it's gaming, email, IM, lunches, and idle meetings. Let's drop the farce, ok? Even when you had to work eighty hours, you didn't, really. In economic terms, there is lower diminishing marginal productivity beyond some point. This point hits differently for different problems (some, like software engineering, require a lot of startup time to load a complex problem into your working memory).

In fact, your best work was probably done in tremendous, focused bursts, surrounded by long periods of dullness and inactivity. So, let's try to figure out how to maximize the probability and productivity of such a burst, rather than try and force it to be predictable and prolonged.

First, measure outputs, not inputs, in yourself and your organization. Otherwise, you will be fooled by the modern knowledge worker, who is highly adapted to spend time at the office and manage upwards.

Second, measure productivity over a longer time-scale, say weeks and months rather than days. Some of the most creative and productive people that I have ever met work in multi-week bursts and then have weeks where they just idle with little done. It's the nature of the human animal.

Third, introduce peer pressure into the mix. This is often done in software via "Extreme Programming" or in business by "Teamwork." Whatever. Get two productive people in the same room on the same problem, and as soon as one hits the upward oscillation and is ready to work, odds are that he / she will inspire the other one and move them along.

Fourth, create a physical environment conducive to oscillatory productivity - eschew offices for non-traditional settings, let people have space, and let them keep their own hours.

Lastly, be ruthless on accountability and output over the long term. Nothing damages a startup like a mediocre and reliable performer.

Now go work harder...

A lot of the Web 2.0 startups getting started these days are of the variety where their risk is completely unquantifiable a priori. Mostly, these are highly social applications which require a large group of people to change their behavior slightly or to adopt a new behavior to work. The list includes peer-to-peer lending, social networks for recommending things, new group communication systems, downloadable photo sharing clients, etc.. While some similar schemes have worked in the past (notably, MySpace, Flickr, EBay, Skype, Craigslist), the set that have failed are much much larger.

The problem with starting one of these businesses as an entrepreneur is that you basically have to get up the adoption curve before any rational VC will think about investing in you. Sure, if it works out, these businesses can have phenomenal network effects, but in advance of user adoption, it is nearly impossible to quantify the adoption risk in any way, and so it becomes a very very hard sell to VCs. Even if one partner believes that service will be adopted, he / she cannot convince the rest of the partnership with any data. As such, the few of these kinds of companies that get funded tend to either get funded because of a celebrity entrepreneur, or because of bubble-investing mania.

Basically, if you don't have a track record and are starting a Web 2.0 company which requires a critical mass of users to do something that there is little evidence of people on the web doing to date, then you're either going to have to bootstrap it for a while, give VCs some other proxy to go on (celebrity entrepreneur, core technology development), or find an individual angel who believes (easier said than done).

The flip side of this is that entrepreneurs who are doing hard-core technology development with relatively deterministic value tend to look at the successful businesses in social networks / P2P with tremendous envy. The latter seem to have unbreakable monopolies, organic growth, and no complex development requirements. However, this is just survivor bias at work. The odds of complete failure in the social / P2P businesses is much higher, which is not obvious just by looking at the winners.