July 9-10, 2013
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This ain’t your typical summer school: New York City’s Lerer Ventures today announced Summer School VC, a new program that will show students what it’s like to be a venture capitalist.

Applications for Summer School VC are being accepted until May 24, after which the firm will choose 15 to 20 students to participate. It’s a month-long program — running from June 25 to July 23 — at Lerer’s New York City offices.

Max Stoller, the Lerer Ventures analyst heading up Summer School VC, describes it as an “intensive training program for venture capitalists.” Students will learn about the day-to-day operations of a VC firm and gain an insider’s perspective on the mysterious world of the people bankrolling startups.

“If you want to be a part of the next round of VC analysts or associates, it’s a great program for you,” Stoller said in an interview this morning. “[Similarly] if you’re a student thinking about starting a company and raising capital.”

The firm has been thinking about running a summer program for a while now, and the task fell to Stoller after joining Lerer Ventures in January. Upon completion of the program, he told me, students will also be able to take advantage of the firm’s contacts within the VC and startup community.

Once Summer School VC is over, Stoller says, Lerer Ventures may end up open sourcing some of the teaching materials. NYC’s ff Venture Capital also recently announced the ff Fellows Program, its own summer program for budding entrepreneurs.

Photo: Devindra Hardawar/VentureBeat

July 9-10, 2013
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Apparently mobile content is hot — $16 million hot — and travel to and within Russia needs a $25 million dollar improvement … all in March 27′s funding daily.

Ostrovok

Ostrovok pulled in $25 million from General Catalyst Partners, Frontier Ventures, Accel Partners, Expedia CEO Eric Blachford, and Shervin Pishevar to improve online travel booking within and from Russia.

Moovweb

77-employee Moovweb raised $16 million to improve its technology and grow its business from Jafco Ventures and Trinity ventures, with participation from Andy Bechtolsheim.

Moovweb optimizes websites’ content and pages for mobile devices, so it essentially competes with mobile apps. The company says it has already transformed nearly 12 billion mobile pages, apps, and services for clients from Macy’s to 1-800-Flowers.com.

DemandBase

B2B marketing startup DemandBase brought in $15 million in new investment to grow its real-time targeting and B2B marketing personalization technology from Scale Venture Partners, with participation by existing investors Sigma Partners, Altos Ventures, Costanoa Ventures, Sutter Hill Ventures, and Adobe Systems.

That takes DemandBase’s total investment to $44 million. The company plans to expand in both the U.S. and Europe.

Vantrix

Vantrix scored a $4.5 loan from NXT Capital today. It’s business is helping carriers prepare for the explosion of mobile traffic that is coming with the increase of mobile video. Previous investors include Summerhill Venture Partners, Tudor Growth Equity, BDC Capital and JK&B Capital.

photo credit: johanoomen via photopin cc

July 9-10, 2013
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Everyone wants to have a piece of the mobile pie, but which venture capitalists are actually succeeding?

Onavo Insights, the analysis arm of mobile data compression firm Onavo, has released a series of charts ranking VC firms by the actual outreach of their portfolios in the United States. Typically we see VCs ranked on the value of their exits, but if you’re looking to see who actually has influence in the mobile world, market share is likely a better indicator.

When it comes to early stage investors, Onavo Insights found that New York City’s Union Square Ventures is the mobile leader by a huge margin. Union Square’s portfolio, which includes Tumblr, Foursquare, Etsy, and Twitter, has a combined 43.8 market share in the United States. The No. 2 firm, Sequoia Capital, has almost half that figure, with a 23.4 percent share.

In terms of all funding rounds, Kleiner Perkins tops the list, with a 71.3 percent share. That’s not surprising, since it includes heavyweights like Twitter, Pinterest, Spotify, and Waze. Institutional Venture Partners ranked second, with a 63.5 share. Union Square Ventures still ranked fourth, even though it focuses entirely on early-stage investments.

To be fair, Onavo didn’t count exited companies from any portfolios (which some may see as a bigger sign of success). The data is based on January 2013 market share numbers from Onavo Insights.

Onavo calls Insights the “largest mobile intelligence service” — and for good reason. It relies on data from more than 1 million users of Onavo’s data compression app, giving it an inside view at what apps people actually use. That’s a unique slice of data when many other analysis firms are relying on extrapolation rather than hard figures.

Click on the charts below to find the full interactive charts on Onavo’s website.

July 9-10, 2013
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U.S. venture capitalists were busy in 2012, raising overall investment activity for the year by 10 percent compared to 2011. Venture firms invested a total of $20.6 billion last year, according to data from Thompson Reuters and the National Venture Capital Association.

Overall, there were 182 U.S. funds created throughout the year, which went down 3 percent in comparison to 2011′s funds. Thompson Reuters and the National Venture Capital Association attribute a fund’s location to its incorporation location, not to the venture capital firm’s headquarters. Funding was at its lowest in 2012 during the fourth fiscal quarter. Only 42 funds invested $3.2 million in the fourth quarter. This isn’t typical for venture capitalists, but funding is fluid and difficult to predict.

Investing dipped in 2009 to around $16 million invested for the year, compared with 2008, which hit more than $25 million. In July 2009, Down Jones Private Equity Analyst said investing was down 63 percent since 2003. But now it seems it has risen to the highest investing has been in four years.

In 2012, 55 new funds appeared. Thompson Reuters and NVCA consider a fund new only if the money is new. Investors involved are likely involved in previous funds. Overall, the top five venture capital funds led 55 percent of investing in 2012. These funds include Sequoia Capital Global Growth Fund, a $700 million fund, and Venture Lending and Leasing VII, a $373.1 million fund.

Charts created with data supplied in the report; Quarter image via Shutterstock

July 9-10, 2013
San Francisco, CA

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Is finding funding really all that different from finding love?

I recently had the opportunity to attend VC in the OC at the Hyatt Regency in Huntington Beach. This one-day event featured a mix of  panels and keynote speakers, culminating with an interesting concept that is gaining popularity in the startup community: VC Speed Dating.

The concept is pretty self-explanatory. A number of venture capitalists in attendance sit at tables lining the room, while the entrepreneurs line up behind the VC they’d like to speak with. At this particular event, each entrepreneur had less than three minutes to pitch the VC and answer any quick questions before moving on to the next person.

VC Speed Dating provides a great opportunity to receive some face time with multiple potential investors in a short period of time. It is fun, but can also be stressful, so here are some tips to help you maximize your experience:

Do your homework

The conference will most likely provide a list of the VCs attending the session. Before the session, take the time to research each firm and the VC representing it. Make sure you fit their investment criteria. If a firm only invests in healthcare and you’re a digital media company, don’t waste their time.

Review their portfolio for companies in your sector. If you find that they have invested in a company where there could be synergy with your starup, bring it up. You may even compare yourself to a company in which the firm had a great exit, but make sure you do not compare yourself to a company that crashed and burned — and DO NOT say you are the next Instagram for your industry (you would be surprised at how often this happens).

Finally, look for common ground between the VC and yourself that can help make you memorable. Review their LinkedIn and other online profiles to see where they went to college or graduate school, and see what other companies they have worked with. Read their tweets and their blog to find out their favorite sports team, a recent travel destination, or any other area where you may be able to relate.

Nail your elevator pitch

If you’re lucky enough to have two and a half minutes, like I was, be prepared to lay out all the most important parts of your venture in the first minute. VCs want to know the problem you’re solving for your customer, your competitive advantage, how you make money, any traction that you’ve gained in the marketplace and what you’re looking for (resources, capital, etc.), among other things. Be sure to give just enough information to make them want to hear more.

Be prepared for questions

The goal with your elevator pitch is to make the VC intrigued enough to want to learn more. They will most likely ask you questions during and after your pitch, so it’s imperative that you’re prepared. Before the pitch session, come up with a list of questions that you would expect a VC to ask and figure out your answers. If you present your pitch right, you will be able to lead the VC into asking questions about key points you touched upon.

Some popular topics that are likely to come up are barriers to entry, prototypes, burn rate and competition in the market.

Check out the competition

While waiting in line, listen to the pitches in front of you, gauge the facial reactions of the VC, and analyze the opportunity that the entrepreneur before you is presenting. Use your findings to strengthen your pitch, avoid mistakes, and appeal to the VC’s interests.

Always follow up

Once the session is over, politely ask for a business card and leave yours on the table as well. Write down any specific notes on the VC’s business card, which you will be able to touch upon in a later email or phone call. If there is a networking or cocktail reception following the session, stay for a bit, as there may be an opportunity to make a second contact.

Be sure to follow up with an email the next day, even if your venture wasn’t a fit — you never know what ventures you may have in the future. In your email, remind the VC who you are and what your startup is, thank them for their time and attach any information they may have requested. They are sure to be inundated with emails following the event, so don’t expect a prompt reply. If you have not received a reply after a few days, politely follow up with another email.

Never be rude or pushy, as the VC community is a small one — a single bad review from one VC may damage your chances of working with others.

Kevin Tighe II currently resides in Los Angeles where he serves as the Chief Marketing Officer at Verifico, the leading marketplace for consumers to securely connect and conduct transactions with verified independent financial professionals. He is also the co-founder of Inflite and is invested in a number of other tech/entertainment-related startups.

July 9-10, 2013
San Francisco, CA

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It’s safe to say that growing up I never thought I’d be a VC.

It’s not that there’s anything inherently wrong with venture capital. It’s just it’s not part of what I thought being a good geek was all about.

There’s a very well-defined model for becoming a successful Silicon Valley technologist. You study computer science, math, or engineering in college. Then you intern at one of the great software titans. Perhaps you routinely commit code to an open source project on Github, suffer from a crushing caffeine addiction and/or a nocturnal sleep schedule, and own a track jacket emblazoned with a tech company’s logo.

But few good geeks become VCs. It’s hard to stay a razor-sharp hacker when you spend more time in Excel than you do in Eclipse, and ditching sandals for a pair of loafers can be hard to stomach. In fact, much of what the tech community thinks VC’s are like is antithetical to the image of the model Silicon Valley geek – enough so that many of my friends from college lovingly refer to my decision to become an a VC as “joining the dark side.”

For most of my life it seemed like I fit well into the model of what a geek should be. I started playing with computers and programming early on (I could type before I could write cursive). By the end of high school, I knew I wanted to spend the rest of my life making technology that solved big problems, and in 2006 I entered San Jose State as a computer science and math major. I was a flip-flop clad fixture at our school’s computer science club, and I definitely spent more time on TopCoder than I did at frat parties.

But when I started doing summer internships in engineering, I realized that I didn’t fit as neatly into the model geek image as I previously thought. I had the pleasure of spending my freshman and sophomore summers at Electronic Arts and SAP, and at both places I learned that building great software wasn’t just about writing well-documented code and hitting the compile button.

Whether you’re building a CRM suite or a video game, making rockstar software is an interdisciplinary effort. Technology is really just a tool to solve problems, and understanding how to solve those problems and fully what those problems are, requires an interdisciplinary team. I learned engineering was only one part of the process of innovating and creating great technology.

More startlingly, I learned I liked navigating and managing the product process even more than I liked writing code. I wanted to make technology that made a difference, and I wanted to explore how I could use my passion for working with people and with code.

So, to use startup terminology, I pivoted. In my remaining time in college I explored the dark arts of economics and business. Exploration led to obsession, and I ended up graduating as an economics major and computer science minor.

My professional life mirrored my life back at school, and I explored other roles in tech that would allow me the opportunity to work with lots of different people – engineers, managers, customers, etc. Product management turned out to be a perfect fit..

After two summers interning, I joined NetApp full time in 2010 as the company’s first NCG (New College Grad) product manager. NetApp was an amazing place to be a young PM. Having responsibility over a product line can be difficult for someone fresh from college, but I was surrounded by amazing co-workers that mentored me as I learned the mechanics of product management and cultivated my leadership skills.

NetApp was an amazing experience, but after two years I decided I wanted to try something different. In my last year as a PM I started getting very interested in the startup community in San Francisco. Once a month, I drove into the city to attend a tech meetup and pitch session called SF New Tech.

I found myself fascinated with the people I met there. The “make it or die trying” attitude of founders, the willingness to sacrifice everything to make a difference –the ideological drive and passion necessary to succeed in a startup spoke to how I approached technology and the tech industry.

Startups also spoke to the entire reason why I was in tech in the first place. My parents ran a small dot-com in the late 90’s, and a lot of what I learned early on about the tech industry came from them and their experiences navigating the first tech boom.
I wanted to leverage my background to help people like my parents and the people I met at SF New Tech. After careful consideration and some research, I realized venture capital could be a great way to become bilingual in both “geek” and “suit”.

One of the first lessons I learned in venture was the value of serendipity. Serendipity is core to the success of being a VC. Finding the next Facebook or Google is firmly rooted in being at the right place at the right time, and a significant portion of being at that crucial place and time is governed by serendipity.

My way into VC was fittingly serendipitous. I met my friend Adam randomly at a mutual friend’s birthday dinner, where we bonded over a shared appreciation of good drinks and cryptography. As we got to know each other a bit more, I learned Adam was an associate at a fairly unique VC firm called GGV Capital. A year after we met, Adam tracked me down – once again at a party – to offer me the opportunity to replace him at GGV.

Passion is a critical resource at GGV Capital, and they’ve allowed me incredible flexibility to explore mine as an associate. We care a lot about what we invest in, and it’s critical we work with teams who are just as excited about technology and making a difference as we are – if not more. I’m very excited about big data, cloud computing, gaming, and information security, so I plan to drill deep on all of these topics and work with entrepreneurs changing the game in these fields.

It doesn’t really matter whether your business card lists you as an engineer, a product manager, an entrepreneur, or a venture capitalist. Whether you hack code or write term sheets, the only thing that really matters is how you uniquely contribute to the process of innovating and creating great technology.

Andrew Manoske is an associate at GGV Capital, an expansion-stage venture capital firm focused on the U.S. and China with $1 billion under management.

Every year, my family looks forward to Maker Faire, a family-friendly celebration of DIY mayhem, with eager anticipation. But when venture capitalists get involved in the maker movement, you know something new is afoot.

One such VC is Brad Feld, who showed up last week at a “Hardware Innovation Workshop” hosted by Maker Faire organizer O’Reilly Media at Xerox PARC, the storied home of many magical inventions.

The “maker” movement owes much to O’Reilly’s Make magazine, which is like Popular Mechanics for a new generation of Arduino-enabled, LED-lit, UAV-launching DIY types. It’s a monthly magazine packed with hobbyist projects: Everything from making your own homemade cigar box guitar to building a laser CNC router for fabricating stuff. With last week’s day-long workshop, O’Reilly was making the case (pardon the pun) that making can be a business, too.

It was a small but focused gathering of about 150 people, some of whom had come from thousands of miles away. Makers, product designers, artists, entrepreneurs, manufacturers, and venture capitalists talked about bridging the gap between home hardware hacking and building a real hardware business.

“We don’t give a shit about hardware, and we don’t do hardware investments,” said Feld, whose Foundry Group has invested in several hardware companies, including MakerBot Industries, Spheero, and Fitbit. “What we love is software wrapped in plastic.”

Later, Feld moderated his statement, acknowledging that he does care about hardware. But what matters to Foundry, in this case, is whether the company fits into one of its major themes: In this case, human-computer interaction, or the ways in which humans feed data to machines. For that to work, hardware depends on software to help it interface with its human users.

For instance, Fitbit is at first glance a pedometer, but it’s the software and web-based tracking tools that make it stand out as a tool for managing your life, improving your fitness, or even playing games.

Similarly, Sphero makes a rolling robotic sphere that you can control, remotely, with your smartphone, to make it go whatever direction you want. Inside, it’s got some fairly complex electronics, derived from military missile-guidance technology, Feld said. But it’s the intuitive smartphone control that makes it really engaging, he said. Plus: It’s a freaking ball you can control with your smartphone!

For hardware hackers, this is encouraging news, actually. If you can master the hardware and figure out the complexities of outsourcing your production to China, it’s your ability to develop software that will help you forge connections with customers and really stand out.

What’s more, you can make products that your customers can modify, by tweaking the code or writing their own code that works with your APIs.

“The maker movement … has really shifted this dynamic,” Feld said. “Users can create stuff that they care about.”

I suspect for many people, making stuff is mostly a hobby. But for a few über-makers, like MakerBot Industries founder Bre Pettis, making stuff turns into a fulltime obsession, a career, and a company.

Feld told the story of when his firm was first checking out MakerBot, with an eye towards possibly investing in it. Before he’d even met Pettis, Feld got so excited about the idea of 3D printing that he ordered a MakerBot of his own, had it shipped to the office, and spent a weekend setting it up and testing it out. By the time he met Pettis in person, he was already a customer and a fan.

That, Feld says, is a good test for entrepreneurs: “When you meet the VC, has that VC bought your product?”

If not — if the VC asks you to ship a free sample so they can check it out — Feld advises you to run the other direction as quickly as possible. You want investors who are excited about your product as more than just a chance to make money.

MakerBot went on to raise about $11 million in capital and now employs more than 125 people and will soon be moving to Brooklyn’s spacious MetroTech Center. Not bad for a project that started in a hackerspace.

So for a small number of increasingly dedicated entrepreneurs, the maker movement is turning into a platform for innovation and entrepreneurship — and VCs are taking note.

That, I think, is the key to revitalizing the industrial economy in the U.S. and elsewhere.

Related Dylan’s Desk columns:

• When craftsmanship meets tech, magic happens
• Saddle your horses and fire up the 3D printer

Photo credit: Jake Spurlock/Flickr

Google is trying really hard to get people interested in Google+’s group video-chat feature, Hangouts. The company has brought on celebrities, political figures, and is now trying to attract its own Silicon Valley neighbors to participate on the social network through “VC Office Hours.”

Silicon Valley entrepreneurs are constantly looking for access to venture capitalists. Even if a company doesn’t want funding, venture capitalists can offer advice on a business model, see broader market trends, and in general share a lot about successes and failures in the business. The new program, announced by Bradley Horowitz on the social network, will allow entrepreneurs to chat with selected VCs through Hangouts. Horowitz will invite six to eight “interesting entrepreneurs, students, of fans of tech investing to lob questions at the respective VC’s.” Others can only watch the conversation.

The first group of VCs to participate in the Hangout include John Lilly of Greylock, Chris Dixon of Founder Collective, Roger McNamee of Elevation Partners, and John Borthwick of Betaworks. John Lily will go first on Thursday, May 10, at 8:15 am pacific time.

“We’ll announce each VC session with an individual G+ post,” said Horowitz in the blog post. “If you’d like to be part of the interview panel, you can respond in the comments. I’ll select a group of panelists from those that self-nominate.”

Previously, Google+ has hosted President Barack Obama, the Dalai Lama, and a number of other impressive names. So far, Hangouts seem to be Google+’s biggest draw as the social network tries to make a stand against heavyweights Twitter and Facebook.

hat tip The Next Web; Google+ image via Shutterstock

July 9-10, 2013
San Francisco, CA

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Mobile photography application Instagram may be raising a $40 million round of funding, rocketing its valuation from $25 million to $500 million overnight.

The Wall Street Journal’s sources say that venture capitalists are definitely interested in the popular young company, but have some reservations about the high valuation.

Instagram is a photo-sharing application for iPhone. It allows you to take photos in-app, apply filters, and then post the photos to the Instagram photo-stream. It also posts images to a number of social networks including Twitter and Facebook. Indeed, Instagram sends a photo to Facebook six times every second, according to Instagram co-founder Kevin Systrom.

The app had already amassed 13 million users 13 months after its debut. It may now have as many 25 million members, but the company is still in the midst of defining its business model. The Journal points out that Instagram does have a celebrity following, however, with stars such as Snoop Dogg and Justin Bieber using the app. It may be able to figure out a monetization plan for their involvement, or streams associated with a particular brand. Until then, VCs may shy away from throwing money into the startup’s funding pool.

Instagram raised $7 million in funding in February 2011. The round was led by venture firm Benchmark Capital and included Baseline Ventures and Andreessen Horowitz.

Instagram did not immediately return a request for comment.

via The Wall Street Journal

VentureBeat is holding its second annual Mobile Summit this April 2-3 in Sausalito, Calif. The invitation-only event will debate the five key business and technology challenges facing the mobile industry today, and participants — 180 mobile executives, investors, and policymakers — will develop concrete, actionable solutions that will shape the future of the mobile industry. You can find out more at our Mobile Summit site.

Facebook’s IPO

Sadly, everyone is going to be disappointed.

We are not going to see the flood of IPOs that happened during the late 90s. The rules of the game have changed. The infrastructure to facilitate IPOs is no longer there, and the regulatory environment has changed. Joe Grundfest, a professor and a colleague at Stanford Law School, outlines four reasons why the path to the IPO has become so steep for aspiring companies.

First, regulatory costs for companies that aspire to go public have increased substantially. Lawyer and auditor fees have mushroomed in the wake of the Sarbanes-Oxley Act, and these professionals cannot be paid in stock. They require cold, hard cash that could otherwise be spent on engineers, sales staff, hardware acquisition, marketing, and other revenue generating functions. Then, once a company goes public, it has to scale up its board membership to comply with more extensive governance requirements as outlined by the NYSE and NASDAQ. And larger boards are more expensive in terms of both the cash and equity commitments required on the part of the company.

Second, the financial markets have changed. It is increasingly difficult for a new company to persuade investors that its investment thesis isn’t otherwise captured in a more efficient form by any of a number of industry-based indexes. Only larger companies with a unique story can pass this hurdle. This means that companies such as Facebook and Google can still go public, but an army of smaller, less-differentiated firms will have a hard time.

Third, the analyst sector, which does the intense, company-specific grunt work for IPOs, has been decimated. The Wall Street Analyst settlement, which tried to remedy the misleading reports that analysts were allegedly publishing, eliminated the incentive for financial firms to hire the armies of analysts necessary to cover smaller IPOs.

Fourth, many of the largest and most successful sectors display winner-take-all characteristics early in their evolution. Again, look at Facebook and Google, both of which have been buying up companies that are either in direct competition or are developing complementary technology. In the 1990’s, the smaller companies might have survived to be able to go public, but not today. Put another way, in the 1990’s we could run the race to find the dominant firm after the competitors went public. Today, however, the race is usually over early in the game.

So, the tidal wave of IPOs isn’t going to happen. But this isn’t a bad thing.

Yet another professor from Stanford Law School, Dan Siciliano, says that venture capitalists prefer companies with as clear a path as possible to an IPO. Why wouldn’t they? IPOs provide big returns, great liquidity, and positive publicity.

It used to be that VCs’ preference for the IPO determined the fate of most tech startups. Today, the VC’s IPO preference is becoming increasingly irrelevant because most technology startups, especially those in software and cloud computing, don’t need as much money to get off of the ground as they used to. Fledgling tech companies have a larger network of angels, incubators/accelerators and sometimes the relatively deep pockets of their own serial entrepreneur founders. This makes it possible for some companies to achieve break-even cash flows earlier than in the past.

Siciliano argues that an over-heated technology IPO environment can create a frenzy of VC funding like what we saw during the dot com bust — when startups made the all or nothing dash to the IPO. This leads to unhealthy boom and bust cycles. What is better is to have companies with a long-term focus — which grow and add jobs steadily. VCs and entrepreneurs looking for exits can always pursue acquisitions by long term players.

So we don’t need to be overly concerned if we don’t see a burst of IPOs. The innovation and job creation will still happen. These jobs just won’t be in investment banking. We just need the IPO market to remain robust enough to periodically mint future angel investors and provide the healthy returns for top-tier venture capital firms.

Washington Post columnist Vivek Wadhwa is a visiting scholar at the School of Information at UC-Berkeley, director of research for the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering at Duke University, and senior research associate for the Labor and Worklife Program at Harvard Law School.

Full disclosure: The Washington Post Co.’s chairman and chief executive, Donald E. Graham, is a member of Facebook’s board of directors.

Copyright 2011, WashingtonPost

July 9-10, 2013
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Editor’s note: Serial entrepreneur Steve Blank is the author of Four Steps to the Epiphany. This story originally appeared on his blog.

Venture capitalists who are serious about turning their firms into more than one-fund wonders may want to have their associates actually start and run a company for a year.

Running a company is distinctly different from simply having operating experience, such as working in business development, sales or marketing. None of that can compare with being the CEO of a startup facing challenges such as a rapidly diminishing bank account, your best engineer quitting, working until 10pm and rushing to the airport and catching a redeye for a “Hail Mary” close of a customer, with your board demanding you do it faster.

Today, you can start a web, mobile or cloud startup for $500,000 and have money left over. Every potential early-stage venture capitalist should take a year and do it before he or she makes partner. Here’s why.

Venture capital as a profession is less than half a century old. Over time, venture firms realized that the partners in the firms needed a variety of skills:

• People skills (ability to recognize patterns of success in individuals and teams)
• People skills
• People skills
• Market/technology acuity (patterns of success, domain expertise)
• Rolodex/deal flow (deal sourcing/ability to make connections for the portfolio)
• Board skills (Startup coaching, mentoring, strategy, operational/growth)
• Fund raising skills

Some of these skills are learned in school (finance), some are innate aptitudes (people skills), some are learned pattern recognition skills (shadowing experienced partners, hard won success and failures of their own), and some are learned by having operating experience. But none of them are substitutes for having started and run a company.

How to become a VC

Early-stage Venture Capital firms grow their partnerships in different ways, some hire the following people:

• Partners from other firms
• Associates and put them on a long career path
• Venture/operating partners to get them into new industries
• An executive who had startup “operating experience”
• Rarely a startup founder/CEO

In surveying my VC friends, I was surprised about their strong and diverse opinions. The feedback varied:

“.. because culture is such an important part of who we are, we will probably never hire a partner from another firm. The idea of bolting on someone from another firm is somewhat antithetical to who we are. We think that our venture partner role is the most likely path to general partner.”

..we have a partner-track associates program.  We want to find someone who has a lot of consumer internet product experience as either product manager, founder, VP Product, etc. with 3-7 years of experience.”

“…we do not even try to train new partners. We bring people into our firm who have learned how to be VCs at the partner level somewhere else and have demonstrated their talent in boardrooms alongside of us. We completely and totally punt on the idea of “training a VC.”  It’s an ugly and painful process and I don’t want to be part of it.”

“…if they don’t have operating experience  the odds of them knowing what they’re talking about in a board meeting for the first five years is low..”

Carrying the cat by the tail

When I finally became a CEO, it was after I had spent my career working my way up the ladder in marketing in startups. I did every low-level job there was, at times sleeping under my desk (engineering was doing the same.) By the time I was running a company, having some junior employee tell me why they couldn’t do something because of “how hard it was” didn’t get much sympathy from me. I knew how hard it was because I had done it myself. Startups are hard.

What running a company would do is give early-stage VCs a benchmark for reality, something most newly-minted partners sorely lack. They would learn how a founding CEO turns their money into a company which becomes a learning, execution and delivery engine. They would learn that a CEO does it through the people — the day-to-day of who is going to do what, how you hold people accountable, how teams communicate and more importantly, who you hire, how you motivate and get people to accomplish the seemingly impossible. Further, they’d experience first hand how, in a startup, the devil is in the details of execution and deliverables.

My hypotheses is simple:  What most VCs lack is not brains or rolodex or people skills, but hands-on experience as a startup CEO — knowing what it’s like trying to make a payroll while finding sufficient customers while you’re building the product.  Sure, a year as a CEO won’t make them an expert, but it will change them quicker than 10 years in the boardroom.

Does it matter?

There’s a school of thought that says the skill set of a great early-stage VC (awesome people skills, curiosity, likable) versus the attributes of a great entrepreneur (pattern recognition, tenacity) may not have much overlap. Early stage investing is not a spreadheet, quantitative driven exercise, nor is it about technology — it is a deal business and people drive the deals. And while having experience as a startup CEO may make you a better board member, it may not substantively contribute to your career as an early stage investor, which depends on many more important skills.

Steel in their eyes

Ten years ago starting a company required millions of dollars and first customer ship took years. Now it’s possible to build a company, ship product and get tens of thousands of customers in a year with less than $500K. For venture firms who want to groom and grow associates or operating execs into partners (rather than hiring proven partners), here are my suggestions:

1. Have them start as an analyst (search for deal flow and people, due diligence).
2. Then take a year as a product manager in a startup in the firm’s portfolio.
3. Then come back as an associate for a year – shadowing board and partner meetings.
4. Then take a year and $250-500K to start and run a mobile, web or cloud company. See what it’s really like on the other side of that boardroom table.
5. Then return as a partner.

This process will create a new generation of venture capital partners, ones who have been battle tested in the trenches of a startup, hardened by hiring and firing, tempered by making a payroll and losing orders, and will never forget it’s all about the people.

These VCs would return to their firms with steel in their eyes. They’d be relentless about accountability from board meeting to board meeting with laser like focus on the one or two issues that matter. They would understand the CEO-VC-board dynamic in a way that few who hadn’t lived it could. They’d be ruthless in their choice of people and teams, looking for those few who have natural curiosity, a passion to win and who won’t take no for answer.

[Folder image via Shutterstock]

Sept. 9 - 10, 2013 San Francisco, CA

Early Bird Tickets on Sale

Dan Scholnick is a general partner at Trinity Ventures. In this conversation with VentureBeat editor-in-chief and founder Matt Marshall, he discusses the future and potential of cloud technologies.

Scholnick will also be speaking at CloudBeat 2011, VentureBeat’s upcoming enterprise cloud conference, so you can catch him there for more perspective. He’ll be moderating a case study session with Thomas Kelly, Enterprise Architect for Cloud Services at Best Buy.

For Scholnick, “cloud” is a vague term, but is all about making IT more responsive to business needs. Cloud-based services are easier and faster to deploy than in-house services, which means an IT department can respond to business requests and add new applications literally overnight. That’s a remarkably new development in technology.

“The market opportunity is enormous,” says Scholnick in this video.

At the moment, cloud services are a miniscule part of overall IT spending, but Scholnick believes that it’s where the long-term future of technology lies.

In the video, Scholnick and Marshall discuss Salesforce.com, New Relic, NoSQL, SugarCRM and others. And, he says, he’d be willing to fund a CRM company. Even with all the competition, there is still a lot of potential in this market.

“That’s what we do at the end of the day, is fund disruptive companies,” says Scholnick.

CloudBeat 2011 takes place Nov 30 – Dec 1 at the Hotel Sofitel in Redwood City, CA. Unlike any other cloud event, we’ll be focusing on 12 case studies where we’ll dissect the most disruptive instances of enterprise adoption of the cloud. Speakers include Aaron Levie, Co-Founder & CEO of Box.net; Amit Singh, VP of Enterprise at Google; Adrian Cockcroft, Director of Cloud Architecture at Netflix; Byron Sebastian, Senior VP of Platforms at Salesforce; Lew Tucker, VP & CTO of Cloud Computing at Cisco, and many more. Join 500 executives for two days packed with actionable lessons and networking opportunities as we define the key processes and architectures that companies must put in place in order to survive and prosper. Register here. Spaces are very limited!

Not many startups get to such a positive outcome, even after years of work.  So how do you successfully navigate scaling up a company and interacting with potential acquirers?

The two of us were investors in Auditude, and we sat on its board for the past several years. We’re excited about this outcome, which reflects the hard work of the entire team at Auditude and a series of smart decisions the team made over the years.

We’ve been reflecting on a few insights from this experience, which are relevant for other startups.

Don’t be afraid to dive into big, choppy waters

One important choice you have to make as an entrepreneur is the market you decide to target. You have a better chance of building a substantial business if you engage in a big market that’s in serious flux.

For Auditude, traditional television was the market to transform. Traditional TV is an $80 billion annual advertising market, not to mention the many billions more spent on cable and satellite subscription fees. As viewers shift their video consumption from traditional to digital, supporting technology and revenue models are also changing. The stakes are high for content owners and publishers to get this multi-billion dollar transition right (just think about what’s happened in music and newspapers), and there will be several big new players in the digital video ad market as a result.

Gaming, health care and mobile are other examples of large sectors in the middle of profound change. That’s a very good thing if you’re a startup that enters early and competes aggressively.

Pivot with purpose

Iterating successfully requires the right balance of urgency and steadiness. We see some startups sticking too narrowly and literally to their original roadmaps, and others that pivot so quickly and so often that it’s almost impossible for them to prove out a path.

Auditude’s core team was focused on monetizing distributed premium video content for the past four years. But the specific products the company delivered have evolved based on the insights the Auditude team picked up from working directly with customers.

Auditude’s first application was focused on identifying and serving ads adjacent to TV clips that had been uploaded by users to the web (e.g. a John Stewart clip shared with friends on MySpace). The product had sex appeal and opened the door with publishers and content owners, but it was serving a niche versus a primary need.

Its second product was a broader ad platform for content owners and publishers to monetize their premium video content wherever it was distributed. This product addressed the more fundamental needs of customers, set the stage for Auditude to introduce additional video platform innovations, and helped the company scale customers and revenue.

A startup may choose to stay on the general path of its original mission, but it should pivot within that context to produce specific products that best address its customers’ needs.

Establish a large technology footprint, then turn the revenue crank

It’s conventional wisdom for today’s consumer-facing internet companies to focus on building a great product that will drive user engagement and growth first, and to only shift attention to scaling revenue after achieving meaningful consumer adoption. This sequencing actually applies to ad infrastructure companies as well.

There are some companies in the ad infrastructure space that start with an emphasis on sales, and then try to backfill with technology later. However, bigger success stories such as advertising startups Admob (acquired by Google) and Right Media (acquired by Yahoo!) focused first on building a large footprint of customers and ad impressions through their technology, and then scaled revenue through media sales and platform enhancements.

For the first few years of the company’s life, Auditude’s team was heavily weighted towards product and engineering. Once it had several billion monthly ad impressions flowing through the platform, the company turned its attention to also ramping media sales.

In sectors where scale helps determine the winners (for example in online marketplaces) entrepreneurs especially need to challenge themselves and their teams to focus on product excellence and broad market adoption, sometimes at the expense of gaining revenue early in the company’s life.

Know thy less obvious neighbors

We would not have predicted that Auditude would be acquired by Adobe. The more obvious acquirer for a video ad platform business would have been a major existing player in the online ad space. The Auditude executive team managed to maintain a positive relationship with other key players in the extended online video ecosystem.

Advertising is actually a logical extension for a range of major tech companies (for example Amazon, Apple and Akamai, Adobe, and those are just companies that start with the letter “A”). Acquirers with large existing customer bases can layer on advertising as a high margin enhancement.

Amazon, for instance, has built a significant advertising business because it has extremely valuable data on shopper intent and can target ads to the 90 percent plus of site visitors who don’t convert to an e-commerce transaction.

The right online advertising startup acquisition can inject valuable DNA into these “non-advertising” companies. Adobe’s video business will benefit from Auditude’s products, customers and revenue, and also the deep domain expertise of the team.

While it wasn’t obvious to all that Adobe was going to be a major player in premium video monetization, it actually makes a lot of sense given its video publishing and analytics franchises. There was mutual trust and respect between the teams, and this led both sides to become more interested over time in making the acquisition happen.

In short, establishing positive relationships with strategic neighbors helps a CEO enhance the reputation of his company within his industry and stay connected into the flow of emerging opportunities. Those relationships might even lead to an acquisition, as it did for Auditude.

James Slavet is a Partner at Greylock, a Silicon Valley-based venture capital firm. James’ investments include Coupons.com, Groupon, High Gear Media, One Kings Lane, Redfin, Revision3 and TellApart. He previously represented Greylock in its investments in Auditude (acquired by Adobe), Farecast (acquired by Microsoft) and Kongregate (acquired by Gamestop).

Chris Moore is a Partner with Redpoint Ventures, a Silicon Valley-based venture capital firm. He currently serves on the board of directors of 9Flats, BlueKai, eBureau, Efficient Frontier, Extole, Fanhattan, Hark and Inadco. Chris also led Redpoint’s investment in Right Media (acquired by Yahoo!), and was actively involved with Redpoint’s investment in MySpace.
[Photo via Pincasso, Radist, RTimages /Shutterstock]

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

In a shakeup for New York’s startup scene, Andy Weissman, co-founder of the NYC startup incubator Betaworks, is leaving to join VC firm Union Square Ventures.

Weissman’s move, first reported by Betabeat, is yet another interesting development for Union Square, which we learned yesterday was raising a fourth investment fund worth between $150 million and $200 million.

Weissman was previously in charge of Betaworks’ investment portfolio. Now the company plans to shift its focus, as co-founder John Borthwick wrote in his email to employees yesterday: “We are now ready to move into the next generation of betaworks, #betanext, which is betaworks as an operating company.  Though we will continue to do seed stage investments, our primary focus will be on building the core capabilities of the companies that we acquire and grow in-house.”

As All Things Digital points out, the news follows a plan by Weissman and Borthwick earlier this year to raise a “sidecar fund” that would essentially divide Betaworks into an operating company and seed VC outfit. But that plan fell through partially due to resistance from Betaworks investors, which include RRE Ventures, the New York Times and AOL.

In a comment at All Things Digital, Union Square partner Fred Wilson welcomed Weissman to the fold: “We have huge respect for Betaworks. It is one of the crown jewels of NYC’s tech community. John and Andy are thought leaders and business builders. Union Square Ventures is very fortunate to be able to add Andy Weissman to our partnership and we think he is a perfect fit for the entrepreneurs we want to work with and the sectors we want to participate in.”

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Bill Maris, managing partner at Google Ventures, sat down with VentureBeat yesterday to discuss what Google looks for in investment opportunities.

Google Ventures is the search giant’s venture capital arm, investing in technology companies such as HomeAway, EchoEcho, RelayRides, HubSpot, and WhaleShark Media.

According to Maris, who the founders are is more important than the business plan or the product. Google Ventures is drawn toward engineer types, people who are “earnest in their presentation and highly technical.” That’s because Google’s roots are in engineering: Founders Larry Page and Sergey Brin are steeped in engineering backgrounds, dating all the way to their college degrees.

Aside from engineering, Google Ventures looks for big ideas.

“Big ideas we tend to like are the ones that seem impossible or crazy,” Maris said during a panel at the 2011 DEMO fall conference. “We’re looking for people who are working on things that seem out of reach, uncomfortably difficult.”

Maris also mentioned at DEMO that his investors will stop a company’s pitch if it seems too rehearsed or scripted. It’s more important for the partners to get to know the entrepreneurs, since it’s all about the personalities and making they mesh.

As Maris put it, you’re going to war together, you have to get along.

See below for the video interview with Bill Maris and VentureBeat’s Meghan Kelly.

[Photo courtesy of The DEMO Conference]

That’s what storied investor Vinod Khosla said on stage at TechCrunch Disrupt 2011 on Tuesday. He is considered a venture capitalist by most as he has invested in companies like GroupMe and Jawbone, but he’ll deny that any day of the week, he said.

“I am a venture assistant. I want to help out entrepreneurs with what they actually need,” Khosla said. “It doesn’t matter what you call it, a great entrepreneur needs more than money, they need help.”

Khosla and his firm, Khosla Ventures, is particularly known for investing in clean technology. But clean technology investing has hit a few hiccups lately, with investments in cleantech companies slowing in the second quarter this year. PayPal co-founder Peter Thiel said clean technology was a “disaster” on stage at TechCrunch Disrupt 2011 on Monday.

“Cleantech is not a disaster, just in the last 12 months we’ve generated over a billion dollars in profits and three IPOs, and there are six IPOs ready to go if the markets hold up,” Khosla said. “I challenge anyone to claim that cleantech done right is a disaster, we’ve generated more profits than anyone has.”

When Khosla left storied venture capital firm Kleiner Perkins Caufield & Byers in 2004 to invest in clean technology startups, he swung for the fences. Khosla was known for taking a “portfolio” approach to cleantech investing by dropping money in just about every potential part of the budding sector, from biofuels to smart grid companies.

His firm has also invested in some information tech companies like group texting service GroupMe. Khosla himself is an investor in payments service Square, and Khosla Ventures has a partnership with the Designer Fund. But, again, those investments were focused on the team — not the product and not for the sake of making a deal, he said.

“We are clearly investing in (Square chief executive) Jack (Dorsey),” he said. “I’m a big, big fan of design, and I don’t think startups use them enough, and that starts with the entrepreneurs.”

Khosla also said he’s a fan of Foodspotting, a food discovery application, and some other off-beat interesting revenue models and ideas. One of those is a “high-tech burger company” he calls “Meat 2.0.”

And yes, he’s serious about it. That company saves money and saves greenhouse gases by increasing the efficiency at which plant protein is converted to animal protein in meat.

“We’re doing Meat 2.0 for god’s sakes, re-invent the hamburger,” he said. “This is real science. It’s a stealth hamburger company.”

[Photo credit: Matthew Lynley]

Khosla runs Khosla Ventures, which invested in Square in the past and recently sought to raise an additional $1 billion in funding.

Square is headed by Twitter co-founder Jack Dorsey and now has a reported valuation of $1 billion. Khosla will add his fundraising and business experience to Square’s already buzzing service.

“Square is thrilled to welcome Vinod to our board,” Dorsey said in a statement. “We have worked closely with Khosla Ventures since our inception and Vinod’s expertise, history and input will be a tremendous asset to our company as we continue to grow.”

Khosla established himself in the past as the co-founder of Sun Microsystems and as a major investor during the first Internet boom. Lately, he has become one of the most prolific investors in the clean energy sector and an investor in forward-thinking tech companies like Xobni and GroupMe.

Square was started in May 2010 and says it now processes more than $3 million in mobile transactions per day. The company’s total investment so far has been $37.5 million, which doesn’t include an undisclosed amount from Visa in April.

That’s the argument of venture capitalist Keith Benjamin, of San Francisco’s Levensohn Venture Partners, as posted on his blog a few days ago, and which has been picked up by several publications, including this morning’s New York Times (the Times runs a cute graphic of a detour road sign in its story.)

Coincidentally, we asked Benjamin to write a post about this for VentureBeat. He has done so, and pushes the argument forward in a second post that we’ve published, about how tech stocks are returning to favor.

His basic argument is as follows: Investors shied away from tech stocks for years, fearing the post-2000 bubble risks. Leveraged investing strategies were perceived as less risky. For the last five years, he watched the skyrocketing returns from hedge funds and buyout funds “with jealousy,” he says. However, now we’ve just witnessed a sharp shift in perception of the risk for those leveraged investing strategies. Investors will return to things like technology technology IPO market, which is what really drives venture returns, and a reinforcing lust to invest in start-ups. Investors have finally demonstrated a willingness to buy technology IPOs. There were some 36 technology IPOs in 2006. He expects to see that number double this year: “In the middle of the liquidity crisis, VMWare went public, traded up sharply and stayed there.”

Notably, venture capitalist Stu Phillips predicted something like this eight months ago, in a column at VentureBeat, focusing on the likely correction in the buyout/private equity world. In an extreme case of bad timing, perhaps, he gave up raising a venture capital fund two months ago, before the credit crunch hit. At the time, he blamed it on the fact that investors were too focused on private equity to care about investing in another venture firm. Wonder if that’s changed.