venturecapital

Pinterest is an awe inspiring example of how much can be achieved with minimal investment in tech and people these days. As most of you will know, the enablers are cloud computing and open source software. What is interesting in this case is the power of those enablers.

I just read the following numbers on the High Scalability blog. Pinterest now supports 18m users with growth running at 50% per month with the following:

• Amazon costs are around $39k for S3 and $30k for EC2 (I assume per month)
• Traffic costs them $52 an hour during peak times, down to $15 during the night
• They have 31 employees, up from 12 in December.

The geeks amongst you will be interested in the following details:

• Pinterest has 80 million objects stored in S3 with 410 terabytes of data
• They have 275 EC2 instances
• 70 master databases
• Written in Python and Django

This is an amazing story, but it isn’t unique. Instagram had similar efficiencies, and we will see more and more startups aspire to and beat these benchmarks and try to emulate Instagram’s $1bn exit or Pinterest’s $1.5bn valuation.

Section 83(a) of the Internal Revenue Code states that if "property" is issued " in connection with the performance of services," the difference between the "fair value" of, and the amount paid by the recipient for, the property–usually stock– is taxable to the recipient (and deductible by the corporation) as additional compensation.

Google is currently rolling out a new feature called ‘Knowledge Graph’ which will enhance our search experience by intelligently guessing what information we are looking for and putting it at the top of the results page. In other words they will be serving information not links. The picture above was released by Google to show how this will look on multiple different devices.

Many of you will have seen vertically focused instantiations of this strategy in your search results already, and if you are like me you will think they are pretty cool. This weekend I was in Munich and when the discussion turned to the relative sizes of different German cities I was able to activate voice search on my Android phone and ask ‘what is the population of [insert city name here]?’ and get a number straight in the results page without having to do any more clicking. Similarly, I like being able to search on ‘weather xx’ and flight numbers and get the results straight on the page.

The Knowledge Graph initiative is an attempt to build publicity around this strategy and broaden it to more areas.

That’s great for the searcher, and it’s great for Google, but it isn’t so good for the owners of other internet sites. Wikipedia is the obvious sufferer from the population examples I mentioned and I bet weather sites are seeing a drop off in their natural search.

There are numerous examples of other initiatives by Google which arguably improve the experience for searchers but disadvantage other sites on the web, particularly if Google is biased in it’s search results. Google+, Google Places, and their acquisitions of Zagat and BeatThatQuote spring to mind.

I think what we are witnessing here is Google acting more and more like a media company rather than a search company. The distinction is important for anyone who wants to build a business that relies on natural search. In recent years many businesses have achieved success with this strategy, but going forward there is an increasing risk that Google will effectively decide to compete with your business. (Note that this risk is in addition to, although not entirely independent of, the way that Google is increasingly demoting the position of thin affiliate sites in search results pages.)

This is another example of the way the internet economy is moving away from an open collection of sites services with tools that allow us to find the best ones for our purposes at any given point to a world where partnerships and playing nice inside someone else’s empire is the best route to success. Today the most important empire owners are Google, Facebook, Apple, and Amazon, with companies like Twitter, Quora, and Pinterest as challengers.

I judged Lean Startup Machine Boulder yesterday afternoon. I had a blast and thought the program was really impressive. I didn’t really know what I was getting myself into and usually protect my weekends pretty aggressively from stuff like this so I can spend time with Amy and recover / catch up from the week but for some reason Trevor Owens (Lean Startup Machine CEO) and Ray Wu convinced me to come out and play.

I’m a huge Eric Ries / Lean Startup fan and believe that the methodology can be quickly taught. What I saw yesterday is further evidence of this – 13 teams spent from Friday afternoon to Sunday afternoon using the Lean Startup Methodology, the concept of customer development, and the lean startup canvas to go from idea through a series of validated learnings to get to a better idea. It’s not a coding / hacking weekend – it’s an applied process of the Lean Startup Methodology.

The event took place in the Scrib co-working space in downtown Boulder. I hadn’t been there yet so it was a good chance to meet the founders of Scrib, see the space in use, and get a sense of the energy. It was excellent and I expect Scrib will be a great contribution to the Boulder Startup Community for a long time to come.

After we saw 5 minute presentations from each team, the judges sequestered for a while and came up with first and second place. The winner of Lean Startup Machine Boulder was I Want My Bike Back and second place went to Dig Rentals. We came up with fun awards for all of the other teams and there was no doubt in my mind that it was a useful event for everyone.

Lean Startup Machine has a goal of doing 50 events in 2012 and 200 events in 2013. The next ones are in San Francisco (5/25), Toronto (6/8), Rotterdam (Netherlands – 6/8), Los Angeles (6/15), Boston (6/15), and Seattle (6/29). If you are in any of these cities, I encourage you to check it out.

If you are a developer, I encourage you to carve out an hour and watch TechStars CEO David Cohen’s presentation at RailsConf 2012 (30 minute presentation and outstanding 30 minutes of Q&A). He starts out with the assertion that “developers are the new investors”  - how could you not be interested in hearing more about that?

David and I wrote a book last year called Do More Faster: TechStars Lessons to Accelerate Your Startup and this is his riff to a room full of developers about some of his top tips. Special bonus – see a photo of me in my pajamas at minute 7.

Today’s post is a guest post from my friend Nicholas Napp. We first met five years ago and while I’ve never invested in anything he’s done, I’ve tried to be helpful along the way. Nick is currently running a company called MoveableCode and has a great Kickstarter campaign going for his latest product Incantor (Magic Made Real). Go check out the campaign and support him if you are interested. In the mean time, enjoy his story about Never Giving Up and Never Surrendering. And yes, I recently “invested” in Nick via Kickstarter at the $250 level – I now am excitedly waiting for my Incantor Nobilis for 2.

First – an overview on what I’m working on now

I founded MoveableCode back in 2009, initially to do some mobile Augmented Reality research on a National Science Foundation SBIR grant. We quickly learned that we could make cool things but no money and pivoted. Two years later, we are all about innovative mobile entertainment. We have a grand vision to build a kickass company and Incantor is a big part of that.

Post pivot, I’ve been lucky enough to lure in two good friends, Kevin Mowrer and Trivikram Prasad. Kevin used to run all of R&D for Hasbro and founded their entertainment division. He used to be a client of mine. Triv was an engineer at a company I worked for when I first came to the US as a product manager. He went on to lead teams for Intel and Intuit and is now based in Bangalore, India. I’ve known both of them for 15+ years and we immediately clicked as a team. We’ve raised a modest amount of money, just enough to get some proof points and are now getting in to high gear.

Incantor is our vision of what happens when addictive gameplay is combined with immersive, community-driven fantasy. It is built on a simple premise: Magic Made Real. The game unites people, places and things and is played with your smartphone, a magic wand and your friends. The magic wand is a sophisticated bluetooth device and the game is played as a fantasy LARP in the real world.

We made the decision to go the Kickstarter route because we wanted to connect with fans. Community is vitally important to the game and we want to embrace that from day one. There’s nothing quite like it out there… and there are some really cool parts we’re not talking about yet. This is going to be a fun ride… “Do or do not. There is no try.”

Rewind to five years ago

Brad was my first VC man-crush. About five years and a couple of startups ago, I mercilessly tracked him down and he was good enough to meet and hear the pitch for the startup I was with at the time.

To say we were excited was an understatement. This was the guy that we wanted to meet. If he heard our pitch, the infatuation would be instant and we would walk away with a nice big check. We were going to score!

Sadly, I can say with some confidence that it was the worst pitch I have ever given. Everything that could go wrong did. We crashed and burned as badly as possible and Brad and his colleagues were as gracious as they could be. I even made the “oh no you didn’t” mistake of mis-dialing after the meeting and accidentally calling Brad as he went to the airport.

But as an entrepreneur, you move forward by getting up after you fall down. That startup died, but I stayed in contact with Brad and we’ve chatted many times since then.

MoveableCode is my latest startup and it’s been getting some great early traction. He’s now a backer of our Kickstarter project and I couldn’t be more pleased.

As the saying goes… Never give up, never surrender

I’ve been writing about boards of directors some lately – both changing my behavior as well as thinking out loud as I explore reinventing how boards work for the book “Startup Boards” that I’m working on with Mahendra Ramsinghani. All fit in the context of continuous communications as I believe three things about early stage companies and their boards.

1. Board members should be actively engaged with the company on a continuous / real time basis.

2. Existing board meeting dynamics are often an artifact of how they’ve been done for the past 30 years.

3. The way most board meetings are currently conducted is a waste of time for management, significantly inefficient, and generally ineffective.

One of the very simple tactical things I’m shifting to is a totally different board rhythm. Historically, many of the companies I’m involved in have been on a board rhythm of meetings every four to six weeks. As they become more mature, these board meetings shift to quarterly, although many of them have mid-quarter update calls. The board meetings themselves are long affairs (even the monthly ones) – often lasting three or more hours.

At some point I’ll dissect one of these board meetings and explain all the things that are artifacts of the past. These artifacts are a result of the communication methods that existed 30+ years ago that required paper and face to face meetings and resulted in very structured communications. But for now, I’ll give you three specific things to change.

1. Separate the monthly financials from the board meeting. Send out monthly financials (Income Statement, Balance Sheet, Cash Flow) with a written analysis of them. This written analysis should be done by the CEO (or president / COO), not the CFO, and should be in English, not accounting-ese.

2. Have quarterly board meetings. These should be in person meetings with no laptops, smartphones, or iPads in the room. Give the people pads of paper to write on if they don’t bring their own (I don’t carry paper). 100% attention for the meeting. Arrange the meeting so you can have a dinner the night before or after the meeting. The meeting shouldn’t last more than four hours but should be fully engaged.

3. Provide regular weekly CEO updates, to all board members. The best entrepreneurs I know communicate regularly with everyone in the company and have a structured update process of some sort. The best CEOs send out short but focused weekly updates to their boards. These are not “templated updates” – they don’t necessarily fill in a set of things that they update each week. Often they are just a “sit in front of the computer and send out an email update” type of update full of substance, whatever is on the CEO’s mind, and requests for help. My favorites have typos and look like a blog post of mine (e.g. it looks like someone just wrote it rather than struggled over it for hours to get it just right.)

While my 2012 board meeting schedule is locked in, I plan to shift to quarterly meetings in 2013 for every board I’m on. I’m sure some of my co-investors will still want monthly meetings, but that’ll be up to the CEO to ultimately decide and I’ll commit to being in person for one a quarter, but fully engaged on a continuous basis (like I try to always be.)

Facebook is picking up a lot of criticism as it heads into its IPO. In particular there are questions over its continued growth and the effectiveness of its advertising formats, largely on the back of General Motors saying its Facebook ads haven’t been paying off. And to top that an increasing number of insiders are deciding to vote with their feet and cash in on the IPO.

I think all this criticism is a function of the valuation rather than a reflection of the quality of the company. As you may have seen Facebook just raised its IPO price and will be worth over $100bn if it goes out at the top of the range. Meanwhile the FT is warning that retail demand risks inflating the IPO.

I think that if I the valuation was considered to be low everyone would instead be focused on what a great business Zuckerberg and his team have built over the last eight years.

Venturebeat gave us a reminder what they have achieved this morning when they wrote that Facebook is breaking three records with its IPO:

• Facebook will be the largest venture backed IPO of all time (c4x what Google did in 2004)
• Facebook has raised $2.2bn in venture capital – more than any other VC backed company in the US and nearly 2x Clearwire, the second placed company (Twitter has raised $1.1bn)
• Facebook has acquired 13 companies, more than any other company in the run up to its IPO. Twitter is second with 11.

Most companies would be happy reaching a value of $2.2bn, let alone raising that much money.

I say hats off to Facebook.

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the "JOBS Act") into law. This legislation is dedicated, among other things, to making it easier for small companies to gain access to capital. In addition to changes to the offering restrictions in Regulation D offerings and the inclusion of an exemption for "crowdfunding," the JOBS Act also effected significant changes to Section 3(b) of the Securities Act of 1933 (the "Securities Act").

It’s funny how things have a way of working out. I wrote recently of our experience with SEOMoz – from initial meeting a few years ago to finally investing in them earlier this month. Today we announced our investment in Mocavo - a genealogy search platform that provides users with the best tools available to find information on their ancestors. More specifics on the business in a minute but the year long journey from TechStars to Foundry investment is worth noting.

I first met Mocavo at the start of last year’s TechStars Boulder. I liked founder Cliff Shaw a lot and appreciated (although at the time didn’t share) his passion for genealogy. When he asked me to mentor them through the program I thought it was a pretty safe bet. “Sure thing Cliff,” I said at the time, “there’s zero chance that I’d invest in a genealogy site, but it would be fun to work together!” Through the summer I held to that party line.  Cliff and I kept meeting regularly even after TechStars (Cliff knows my soft spot for sushi and would regularly invite me to the Mocavo offices for brainstorming sessions with the team over take-out). But over the winter the lightbulb went off on what a big idea Mocavo really is. I had known that genealogy is a huge (and growing) market but was beginning to realize just how novel the tools that Mocavo is bringing to the market are. And the pent up demand in genealogy circles for better access to content, better tools for sharing this content and better ways to bring offline content (the majority of historical content still resides offline). And how passionate genealogists are about their pursuit of family history and as a result how much time, effort and money they spend in their pursuit.

Launched in March of 2011 (although their paid features only launched a few months ago), Mocavo has seen great growth in visitors to its site, searches on its platform and information indexed in its search engine. The company isn’t out to replace existing genealogical tools – it’s here to augment those tools and provide an overlay social experience that is natural to genealogy. I couldn’t be more excited to be working with the Mocavo team (along with Cliff, I’ve gotten to know Richard, Andy, Ryan really well over the last year).

Welcome to the future of your past!

I have been in Orlando for the Sapphire event and while I missed day 1 I did take in the full experience yesterday. With no particular narrative here is a summary of thoughts I collected.

Sapphire is huge, the main pavilion is easily 3-4x the size of Dreamforce and the energy is studious and focused. Walking the show floor revealed a lot of SAP people in every area demo’ing and talking about SAP products and technologies, and as @pgreenbe noted there wasn’t a lot of chaos and noise. It’s actually very pleasant to be on the show floor.

The morning keynote featured co-CEO Jim Hagermann Snabe and Lars Dalgaard, formerly the CEO of Successfactors, which was acquired by SAP about 3-4 months ago. Snabe is engaging and confident, I can see how he compliments Bill McDermott nicely, being able to go deep on any product or technology topic while also engaging customers at a business level.

There was a nice retrospective of SAP’s 40 years, paralleled to that of the technology industry in general. It became a little bit much when Snabe attempted to insert SAP into the narrative by joining unrelated technology advances, like NASA’s technology program and how SAP used hardware in the early days. The history is important but trying to use the trajectory of history to predict the future is a strategy fraught with peril and SAP should be mindful of the fact that history reveals a continuing series of disruptive developments that upend incumbents with increasing speed and violence.

Snabe laid out the major tech themes for SAP, which I will sum up as Data (Hana), Mobile, and Cloud. There were others but they roll up into these larger themes and for the most part represent long running investments that SAP has been making. Overall, it was logical and confidence inspiring to hear him walk through this.

Ron Dennis from McLaren Group came on stage for a fantastic one-on-one talk with Snabe and I really enjoyed the video that opened this as well as the conversation. McLaren connects the physical world with the digital world in a very interesting way, combining technology innovations and high performance computing to deliver the cutting edge that sets the direction for entire industries. McLaren is an SAP customer (the relationship is a lot deeper) and something Dennis said resonated with me, which is that for the scale of McLaren the investment in SAP was hard to justify.

This is the pivotal issue for SAP, the scaling of price-to-value for businesses of all sizes. The fact that McLaren called this out while on stage with Snabe should cause pause for everyone in SAP who is plotting the future of how applications are packaged and priced.

The focus on cloud computing has been impressive and Snabe made a good point when he commented that in the not too distant future people won’t talk about the cloud vs. on premise because it will be all cloud. And all mobile. The challenging part of this is squaring it with Snabe’s emphasis on “consolidating the core” because customers don’t want disruption; it’s hard to imagine anyone successfully delivering leapfrog innovations while insisting on an incremental path for customers.

Migration paths are a reality for SAP, as would be the case for any company with a large customer base, and it’s not just about on-premise to cloud but also a major factor in moving from relational databases to integrated OLTP+OLAP in memory systems and user experiences that meet users in a desktop and on a mobile device. Everything that SAP delivers must have a migration strategy attached to it, which means they will take longer to deliver products and the cost to develop will be higher.

Lars Dalgaard came to SAP through the Successfactors acquisition and in a very short period of time he has established himself as a disrupter as well as consolidator of power. Lars is solely responsible for overseeing some of the most critical deliverables in SAP’s application strategy, primarily in cloud apps Business By Design and Business One. In fact I was shocked to see Business One getting as much attention as it is getting this week (Business One is the result of an acquisition in 2002 of a company called TopManage).

Dalgaard presented an organizational model of applications around Customers, People, Money, and Suppliers. This is a great way to approach applications, far more appealing than the old acronym heavy approach of ERP, CRM, FICO, HCRM, PLM, etc. While enthusiastic about this approach I was disappointed that Lars spent about half of the talk on People and gave just brief mentions to the rest.

SAP has been self-conscious about user experience from my earliest days with the company, and in all fairness it is appropriate to highlight that SAP applications are often complex because the problem sets they are delivering on are complex… try to do production planning or order-to-cash without having some complexity. Having said that, SAP has failed to deliver compelling user experiences for people who are casual users of their systems (e.g. submitting expense reports) and I think SAP deliberately conflates the notion of UI and UX with less than optimal results. A new HTML5 UI will not by itself deliver a better user experience… full stop.

For Lars to say that it’s about time SAP delivers great UX was an insult to all the people who have been laboring to deliver better user experiences since the late 1990s. This is not trivial stuff and SAP deserves credit for investing in this area consistently over a long period of time and Lars on stage demoing his dream app, which is little more Flipboard, doesn’t reflect the considerable experience in how business applications work in the real world (e.g. would you really just discover you don’t have enough people in Europe and then move people from the U.S. over to fill the gap?). It’s also worth pointing out that Successfactors didn’t have a great UX either… 15.6m users and only 29m reviews doesn’t suggest a high degree of interaction.

The segmentation of solution sets according to customer size is logical but also illustrative of a problem that SAP continues to struggle with, which is how to serve millions of businesses instead of 10s of thousands. Business by Design is enterprise and large mid-market focused, Business One is SMB; this is an extension of how SAP has gone to market but the challenge is how do you serve millions of businesses versus 10s of thousands with this model? It’s not just SAP, all business software providers are challenged by packaging/pricing within the context of a business model.

I was very surprised to hear little about social technologies, especially when covering CRM topics, or in the new parlance of Customers. Surprised but not disappointed because I think a lot of vendors are reflexively reaching for social because it is necessary for the news cycle not because they have a clear strategy for delivering customer value. I have seen SAP CRM apps that have social capabilities so I know this is not out focus for them. I suspect the omission of social as a theme reflects a prevailing view that this is just expected to be part of your offering so why focus on it at the risk of diluting the primary messages you are delivering.

The Hana technology is a legitimate game changer technology and while I doubt Oracle is overly concerned they probably should be. What SAP has developed, over a long period, is substantial and the innovations that will be possible as a result of a single image column store database will lead to leapfrog benefits for customers and technology vendors alike. It’s important to recognize that SAP is not an interloper in the database world, the core development teams at SAP are steeped in database expertise and in terms of core database engineering SAP has had a foot in this world for many years, from the MaxDB open source database to the acquisition of Sybase. SAP knows databases.

Hana has clear performance benefits but it is not yet a utility grade service and has capacity limitations (albeit 100TB is pretty frickin big) but the capacity issue is probably less constraining because column store databases are much more efficient (you pack much more stuff into the same sized box) and over time the upper limit will increase. Evolving Hana the extent that it goes to market like Amazon DynamoDB is not clear to me, nor when the question was asked was the answer clear…

Lastly, SAP continues with a high degree of self-consciousness about appealing to startups, but to their credit they are reaching out to developers with free licenses and talking about a pricing model that is not solely based on data volumes (small companies can generate a lot of data). Time will tell but it’s always reassuring when SAP doesn’t just focus on the largest companies in the world as the core customer segment they are targeting.