A VC

GMail Deja Vu

Back in 1999, we thought we should try incubating a company. It was all the rage at the time. I've since sworn it off and will rely on entrepreneurs to do what they do best and i'll stick to the funding/mentoring part of the VC equation.

But it was a heady time. A guy named David Kent came to see me with an idea that he wanted to start a business around. He couldn't be the entrepreneur because he was a practicing surgeon. David had a neat idea. He wanted to provide a free-email service for consumers that ran ads in the emails based on the content of the message. We bought into it. And incubated a company called FaveMail.

Needless to say, nobody has heard of FaveMail. Our execution stunk. The idea was years ahead of its time. And so we took the failed investment, used what was left of the business to buy a troubled email service provider called Bigfoot Interactive, brought in an experienced management team, and built a very nice company that is one of the leading email service providers. So there's a happy ending to this story.

The lesson i take away from the whole thing is great ideas don't make great investments - great entrepreneurs do.

My Uncle Tom

You might think this post has to do with issues relating to racism. But you'd be wrong. Because my Uncle Tom has nothing to do with race relations.

But my Uncle Tom Engeman is probably one of the most recognized artists in the US. His work doesn't hang in the MOMA or Met, but maybe it should. Tom's art is ubiquitous and is known to all of us. Why? Because he designs stamps for the US Postal Service and has been doing it for years.

Here are some of his stamps. And this is but a very small sample that I got from Googling Tom. Try it yourself. I'd bet you've all seen at least one and probably more of these.

Bob Dylan Hawking Lingerie

Apparently people are up in arms that Bob Dylan is hawking lingerie from Victoria's Secret.

I love Bob Dylan and i find nothing wrong with this ad. In fact, i'd prefer to see ads like this on TV all the time.

Iraq

Jeff Jarvis talks about John McCain's comments on The Today Show. McCain, whom I like and admire, says we can't leave Iraq.

Maybe he's right.

But what I want to know is can we admit we were wrong to thumb our nose at our friends and allies? Can we do what it takes to get some help in Iraq? Can we let others have some say in what goes on there? Can we share the bloodshed? Can we do what it takes to let the Iraqis know that they are fighting the world instead of the jerks who run our country?

That's what I want to know.

What to make of VOIP?

Babak Nivi, the primary blogger on Weekly Read, wrote recently that the next "killer app" will be written on OSX and one of his reasons was the excellent integration of VOIP and Video-OIP into the Apple OS.

While I don't disagree with Babak's assertion, I am not sure that the platform that the next killer app is built on is particularly relevant anymore.

And I think VOIP is a great example. Sure OSX has a great VOIP implementation, but as one of Babak's readers points out, so does Windows CE. And there's got to be some great open source libraries for VOIP that make it pretty simple to implement VOIP on any other platform that a developer might want to build on.

The reality is that core technologies like VOIP are getting commoditized more and more every day and the primary drivers of value in the technology marketplace are now applications of technology that solve real problems.

So I would not look at VOIP as an investment opportunity per se. But I would look hard for entrepreneurs who are using VOIP technologies to solve problems for businesses and consumers. If it costs almost nothing to allow two or more people who are connected via IP (wired, wireless, whatever) to talk to each other or even videoconference with each other, then what business problems does this solve? Are there problems in the healthcare system that can be solved with an elegant VOIP solution, are there problems in the financial services business that can be solved with VOIP, does my brother-in-law have a problem that VOIP will solve?

That's how I am going to think about VOIP oppportunities. If they are built on OSX, great. But it won't take much to port them to any other platform that matters. Look at iTunes.

Behavioral Targeting

John Battelle and Rafat Ali have deemed newsworthy the launch today of Revenue Sciences' Audience Search product.

I am pleased at the increase in interest around behavioral targeting because i believe its the next big thing in online advertising.

I am somewhat biased because i am an investor in and on the board of Tacoda Systems, the market leader in behavioral targeting.

I think this is going to be a big year for behavioral and i am looking for lots of news from both Tacoda and Revenue Sciences over the next nine months.

Digital Radio (Continued)

I just bought a Panasonic HD Radio.

I was driving around Washington, DC this weekend and listening to a radio station that was promoting the fact that it was broadcasting in HD radio format. But I couldn't listen to it. HD Radio provides CD quality audio in the FM band, FM quality in the AM band, song, artist, title information, and traffic and weather data on the display.

I've been an investor in iBiquity Digital, the developer of HD Radio for the past five year.

I figure its time the dogs eat the dog food.

Tune Circle

John Battelle points to a new social networking service called Tune Circle.

This service uses the FOAF protocol to connect people of similar music tastes.

I have joined Tune Circle and if any of you want to connect to my music libary, join Tune Circle and connect to me.

Life and Death

Blogs can be powerful stuff.

My friend Tom Watson made me cry last night over the death of a woman i never met.

And then my friend Gordon Gould made my day over the birth of a baby boy - Oliver Jay Gould.

The Flaming Lips

The Gotham Gal's current ring tone (courtesy of Jessica) is "Do You Realize" by the Flaming Lips.

Every time her phone rings, it reminds me how badly I want these guys to put out a new album.

Yoshimi came out almost two years ago. I am running out of patience.

More Feedback

The second most commented post was also back in the early days of my blog. This shows that even though these posts are long gone from my front page, they are still read and still generating comments.

That day, Sept 26th, i had lunch with my friend Steve Greenberg who owns a record label called S-Curve. He gave me a CD that he was about to put out called The Soul Sessions by Joss Stone.

That night i went home, put the CD on, and was blown away and i wrote this post.

The cool thing is that post was the first thing written on the web about Joss and so very soon after that i started getting a ton of traffic on that post from Google. My post was the first link on the search term "Joss Stone".

Well that's changed and my post is now the 129th link on that search term. And The Soul Sessions has gone gold and the album is now the 22nd most popular album on Amazon and has been much higher.

But i still can't get her cover of the White Stripes "Fell In Love With a Girl" out of my head.

Wireless Power (Continued)

I've posted 211 times since i started this blog. I've gotten 545 comments. That's pretty good, but i'd like to see even more comments. I blog mainly for the feedback. Keep it coming.

Of all the 211 posts, the one that has gotten more comments than any other is a throw-away musing on wireless power that i threw out in early October while i was sitting in a technology conference blogging away.

I honestly thought wireless power was in violation of some basic law of physics. But if you read all the comments and assume that a few of the commenters are legit, then you come away with another picture.

AdSense vs. BlogAds

Jeff Jarvis and Hugh Macleod think i should switch to Blogads. Maybe i will. I've learned all i am going to learn about AdSense. If i can continue to send the checks to The Grameen Foundation, you might start seeing BlogAds here soon.

Pining for Kinja (Continued)

The wait is over. Nick Denton has launched the much awaited Kinja. What is it? Well it's an RSS reader for people who don't know what an RSS reader is, according to Nick.

Thanks to Nick's generosity, i've been playing around with Kinja since Monday and i like its simplicity, design, and recommendations (called Editor's Digests). I am using it more than NewsGator right now even though i prefer to get my RSS feeds in my email client than on the web.

If you want to see my chosen feeds in Kinja (called My Digest), here they are.

The only thing i don't like about Kinja so far is that it seems to bunch all the posts from each feed i subscribe to together. I'd prefer to see the posts laid out in order of when they happened like Newsgator does it.

Kinja even got the NY Times to give them some ink today. Well done Kinja. The only thing that kills me is that i'll miss the launch party in NYC tonight. I am blogging on the road today.

AdSense (Continued)

One of my readers sent me an email asking if it bothered me that AdSense was running ads on my blog for companies that do back door IPOs and other somewhat shady operations.

To be honest it didn’t bother me until I started to think about it. I certainly don’t think back door IPOs are a particularly good way to finance startup businesses and I know that many of the people who operate in this market are not particularly ethical. That doesn’t mean the company that is running an ad on my blog should be avoided, but I also can assure you that I am not endorsing their services.

In my most recent post on this subject, I said that I would like to be able to have some say on what kinds of ads run on my blog. I don’t love the anti-spam ads and the blog ads are OK, but in my ideal world, the ads generated by the ‘venture capital’ keyword are the ones I most want to run on my blog.

And now I am thinking I want to exclude certain kinds of ads. This speaks to the need for tools for publishers who are participating in contextual networks like AdSense. Maybe these tools exist and I just don’t know about them. If they do, I want to try them out. If they don’t, then Google and its competitors (Overture, Kanoodle, and others) should develop them.

Apple

I don't use a Mac. But I love Apple way more than i love IBM or Microsoft, the two companies most responsible for my laptop experience.

Why do i love Apple? As Seth Godin explains, because they are cool.

In a sign of just how cool they are, they have an RSS page where you can subscribe to all kinds of RSS feeds about iTunes data. Want to subscribe to the top 5 new alternative singles? You can do it here.

You just gotta love Apple.

Search vs. Contextual Networks

I don't know if my experience is normal or not, but here are the statistics so far on my AdWords campaign using the keyword "venture capital".

Search - 8,416 impressions, 54 clickthroughs, CTR 0.6%, average CPC $1.11, total cost $59.71
Contextual - 66,960 impressions, 86 clickthroughs, CTR 0.1%, average CPC $1.11, total cost $95.33

that means the same keyword is 6 times more effective generating a clickthrough on a search than a contextually placed ad.

on the other hand, Google is able to run my ad 8 times more often on contextual placements than paid searches.

it seems to me that search is a lot more effective, but there's a lot more available inventory in the contextual networks.

Venture Fratricide

Paul Ferri, one of the legends in the venture business, is quoted in the most recent issue of Private Equity Analyst (not available online) as saying that the venture business is headed for some really tough times. He is recommending that his investors (called LPs in the industry vernacular) stop putting money into the business right now. That's a tough call but Paul has got the credibility to back it up.

His reasoning is two fold. First, he thinks there are too many inexperienced VCs in the business doing silly things with the LPs money. I think he's right about that, but I also think that's slowly changing as the business shakes out and the less experienced managers leave the business or get the required experience to become better investors.

His second reason is something I call venture fratricide. This is when a entrepreneur with good idea is funded by a small group of VCs and the idea is then "knocked off" by a bunch of other entrepreneurs backed by a bunch of other VCs. It's happened so many times in the venture business that it would be too hard to name them all. But everyone's heard of the 50 disk drive companies funded in the mid 80s, the 20 gigabit router companies funded in the late 90s, the 10 social networking companies that have been funded in the past three months, and the list goes on and on.

I've been on the recieving end of venture fratricide a number of times. It "sucks balls" as Jerry's son says. The first company often spends a lot of time, money, and energy developing and evangelizing an idea and the "fast followers" often benefit from "drafting" on them and then passing them at the first opportunity.

I don't think there is any way to truly end venture fratricide other than a major shakeout in the venture business. And it would have to be a very large shakeout, much larger than the one we just went through. I honestly don't think that's in the cards right now.

I think there are some things that can be done though. The first thing is that LPs (who write the checks to fund the VCs) should look hard at the portfolios and figure out which VCs are the ones who tend to fund the first and second companies in an emerging market and which ones are the ones who fund the fifth through tenth companies. They shouldn't give money to the VCs who are funding the fratricide. That takes a lot of work, but the best LPs are smart enough to do it and they should.

Second, VCs should recognize that too much "me too" investing is harmful to the business and stop doing it. VCs can self police the business to some extent by "blackballing" VC firms that do too much "me too" investing. There are a number of ways VCs can put the "me too" firms in the penalty box and I think its going to start happening.

But until all of this policing of the venture business happens, if it ever does, i think the only thing a VC firm can do to protect itself from venture fratricide is stay small, avoid overly competitive markets, build your best companies quietly, and avoid "me too" investing at all costs. This may mean passing on some deals you'd really like to do, but that's an important part of the venture discipline.

So that's a long way of saying that I agree with Paul's analysis of what's wrong with the venture business. But its not complete. In fact, I believe the VC's tendency to overfund companies is a much larger issue than inexperienced VCs and venture fratricide.

I also don't agree with Paul's conclusion that these problems will make it impossible for VCs to deliver good returns to investors. We've been dealing with these issues in the venture business for a long time now and they haven't ruined the business yet. I think innovation and entrepreneurship are the best things about our capitalist system and the venture business is the engine that monetizes them. That's a recipe for solid returns for a long time to come.

AdSense

I've been running AdSense on my blog for almost a month now and I've learned some interesting things.

1 - though i've got four ads running at the same time on my blog, they are almost always targeted off the same keyword. for some reason, AdSense doesn't mix it up in the same ad block.

2 - my blog seems to generate three keywords; blog, venture capital, and spam filter

3 - venture capital is by far the most valuable keyword. blog is less valuable and spam filter generates almost no value. as an example, yesterday my blog was generating a lot of spam filter ads. I got six click throughs and a very high CTR of 3%, but made almost no money. That's because these spam filter ads pay so little. I make the most money when AdSense decides to run venture capital ads on my blog. The CTRs are good and so is the rate.

So I think there is an opportunity in these contextual networks to give the publisher (me) a bit more control over the ads that run on my site. I'd like to be able to mix the keywords in the ad block and even more importantly, i'd like to state a preference for which keywords run on my blog to maximize the dollars coming in and the relevancy to my audience.

Perhaps Google should build some tools to allow the publishers to do this stuff.

Clash Clones

One of my top ten all-time bands is The Clash. They won't be making any more music because Joe Strummer died in late 2002. But there's a great new band that sounds a lot like them.

They are called The Libertines and their most recent album, Up The Bracket, was produced by The Clash's Mick Jones. Just listen to the second song, called Death On The Stairs, and you'll think you are back in 1979 listening to London Calling.

I found out about this band from a discussion between Jason Chervokas and Tom Watson about Tom's post on Johnny Thunder.