"You can't build a web system that will never break"

From a post on Fred Wilson's AVC blog:

Once you have a successful product in the market, you need to turn your attention to scaling it. The system you and your team built will break if you don't keep tweaking it as demand grows. Greg Pass, who was VP Engineering at Twitter during the period where Twitter really scaled, talks about instrumenting your service so you can see when its reaching a breaking point, and then fixing the bottleneck before the system breaks. He taught me that you can't build something that will never break. You have to constantly be rebuilding parts of the system and you need to have the data and processes to know which parts to focus on at what time.

Fred Wilson apologizes for insulting corporate venture capital funds

In his AVC blog, Fred Wilson took the opportunity to clarify remarks he made in a video interview (below).



What's fascinating is that his remarks about the corporate VCs come in the context of a mistake story. Fred is so passionate about what he learned from his mistakes working with corporate VC partners that he goes a bit over the top when Sarah Lacy, the interviewer, probes:

Fred: I have made, since then, a few mistakes, for example investing with corporate venture capital firms, corporate investors. Never, ever, ever, ever gonna to do that again. Never, ever. Ever. Never!

Sarah: What happened?

Fred: They SUCK! Because they're not interested in the company's success or the entrepreneur's success. Corporations exist to maximize their interests. They could never be mensch-y or magnanimous. It's not in their DNA. And so they SUCK as investors....

He goes on to exempt Intel and Google from this critique, and ends with this: "That's how you should think about a corporation. They're your exit, not your partner."

But the initial emphasis must have caused some blowback, because today's post contains this apology:

I apologize to all of the corporate venture firms that I insulted on Thursday night. I've got a lot of scars, deep and painful, on this topic and I let that come out in a way that was not right. I'm sorry about that.

I say, thanks, Fred, for sharing. I think he's speaking from the heart, honestly and candidly. To me, that doesn't require an apology.

Story from Fred Wilson: "You Can Do Too Much Due Diligence"

This story is from Fred Wilson, partner in Union Square Ventures and someone who's frequently referenced on this site. For more on due diligence, see this article I wrote for 99u last year, and of course check out the book.

May 132013

You Can Do Too Much Due Diligence

It's Monday, time for another lesson I've learned in the venture capital business. Today I will tell a story that I love telling. It has some of my favorite people in it.

Back in 2004, early in my blogging career, I heard about a service that had just launched called Feedburner. It provided a number of useful services for a blog's RSS feed. So I went and signed up and AVC became one of the first users of the service. I immediately liked the service and the idea. So I contacted the founder/CEO Dick Costolo, who has gone onto bigger and better things. I told Dick that I was interested in making an investment in Feedburner. My friend Brad Feld was also talking to Dick about the same thing so we decided to do the investment together.

As part of our investment process, we do a bunch of fact gathering/checking work that is called Due Diligence in the vernacular of the VC business. So my partner Brad Burnham and I put together a list of leading blogs and online publishers who had popular RSS feeds at the time. I think there were a dozen or so publications on that list. It included Weblogs (Engadget), Gawker (Gawker), NY Times, and a bunch more. We know most everyone who ran those operations so we called them.

What we heard was surprising. Not one of them was willing to hand over their RSS feed to a third party for analytics and monetization. We were very surprised to hear that and thought a bit about it. But, we decided, we could not invest in something that the big publishers would not support. So regrettably, I called Dick and told him we had to pass and why. Brad Feld went ahead with the investment and Feedburner closed their round without USV.

About six months later I ran into Dick at an industry conference. We decided to grab lunch together and during lunch he said to me "you know those dozen publishers you called?" I said "yes, what about them?" He said "every single one of them is on Feedburner now."

I was pissed. How could that be? So I said to Dick, "Would you consider letting us into that last round we walked away from." He said "No, but I will let you invest at a 50% increase in price". We did that and became an investor in Feedburner. And that worked out well when Feedburner was sold to Google a few years later.

So what did I learn from this lesson? First, trust your gut. I was using Feedburner and knew it was a very useful service. I felt that others would see that too. They did, but it took some time. Second, I learned that a service can get traction with the little guys and in time, the big guys will come along. I have seen that happen quite a bit since then. And finally, I learned that you can do too much due diligence. It's important to talk to the market and hear what it is saying. But you have to balance that with other things; the quality of the team, the product, the user experience, etc. You cannot rely alone on due diligence, particularly early on in the development of a company and a market.

I posted the following as a comment to Fred's post:

"Don't overdo due diligence" applies to entrepreneurs as much as investors. If you investigate any idea enough you will find ample reasons it won't work. If you are a strong believer in your idea (or the people behind the idea), better to try some small, cheap steps rather than continue to think about it or back away. The direct evidence you get from those early steps is far more illuminating than any arms-length due diligence you can do.

I liken working with early stage businesses (as investor or founder) to driving at night on an unfamiliar road. There will be curves up ahead which are beyond the reach of your headlights. All you can do is drive under control till what is up ahead becomes visible. But better to drive than wait. If you wait till daytime, you will be late.

Fred Wilson reflects on what TheStreet.com could've been

In his blog A VC, venture capitalist Fred Wilson regularly shares interesting stories as a way of teaching his audience through his experiences and, I believe, learning and embedding the lessons in his own mind. Recently, Fred posted on a dinner he had with Jim Cramer, now a crazed CNBC television host, but at the time a crazed blogging hedge fund manager:

I sat next to Jim Cramer last night at a dinner put on by some mutual friends. I hadn't seen Jim in a while so it was a great opportunity to take a trip down memory lane. In 1996 or early 1997, my prior firm Flatiron Partners led the first round of outside financing for TheStreet.com. I joined the board and eventually became Chairman before stepping down a decade ago. 

When I first met Jim, he was running a hedge fund and blasting posts from his trading desk. This was 1996 and what he was doing was unprecedented. He was publishing in real time his thoughts on what was going on in the markets. On some days, Jim would post three or four dozen times. 

As Jim and I reminisced about those days last night, I said to him "you were tweeting and blogging a decade before anyone else was doing that." He nodded, "yeah, that is what I was doing". 

But we didn't know that. The money our firm invested went to hiring a team of journalists and we saw ourselves as the Wall Street Journal of the web. That was a mistake. The Wall Street Journal is the Wall Street Journal of the web. What Jim was doing was something way more native, way more powerful, and way more important. But we missed it. 

TheStreet.com has gone on to build a niche financial publishing business that is a solid and profitable company. But it could have been the Twitter and Blogger of Wall Street. That's what it was at the start. But we didn't know what we had.

Creatives thrust into management must learn hard, valuable lessons

Fred Wilson's stories are frequent visitors to this site. Fred, a principal of Union Square Ventures, shares his experiences in tech investing on the very popular blog AVC.com. Today Fred took up the shock a creative "maker" encounters when she suddenly has to manage and lead. (The inspiration for Fred's post was a quote from Lena Dunham, the creative force behind the HBO series "Girls.) The following paragraph resonated big time with me:

When we had our USV CEO summit last fall, we kicked it off by asking each founder/CEO to open with the one thing they had learned the hard way during the year. The recurring theme was that they had to let the people they hired do the work even though they wanted to jump in and do it themselves. And as they are all going around the room telling this story over and over, I am thinking "and I want you to jump in and do the work too". Because these are the people who made the thing that got us to invest, the thing that we fell in love with, the thing we believe is big enough to build a business around.

In his book "Better Under Pressure: How Great Leaders Bring Out the Best in Themselves and Others," Justin Menkes asserts that anyone who rises through an organization (or, to Fred's point, starts something that grows bigger than themselves), will encounter a time where their prior talents and experience are not at all useful in the new role. Then they will have to buckle down, and work their way through the hard lessons to learn this new competence. That, or fail.

Fred Wilson on "Coming of Age" as an investor

This post is from Fred Wilson's AVC blog. We've reposted many stories from Fred (you can find a selection of them here). It's not a mistake story per se, but a recollection of mistakes of inexperience he made, and which he is seeing from young venture capital investors today. I especially like the generous and optimistic tone of the post.

Mar 312012

Coming Of Age 

I’m out here slingin bringin the drama,
tryin to come up in the game
and add a couple of dollar signs to my name
- Memphis Bleek Coming Of Age by Jay-Z

I'm not going all Ben Horowitz on you. But imitation is the finest form of flattery and I do like how Ben rolls on his blog and in the venture capital business.

I'd like to talk this morning about how hard it is the come up in the venture capital game. I work with a bunch of VCs who are in their early 30s and have less than five years in the business. They work hard, put in ridiculous hours, are on top of all the latest trends, companies, technologies, etc. They meet with tons of companies every week, work hard for their portfolio companies, and are on planes flying around to the important confereneces and demo days. I can assure you they are working harder than I am.

But when it comes to winning deals, they have a distinct disadvantage. They can be working on a deal for a year or more, and then when the entrepreneur decides to raise funds, a more experienced VC such as myself can swoop in, spend a week or two building a relationship with an entrepreneur, and take the deal away from them. I've seen it happen. I've done it myself.

They make rookie mistakes. They let a reporter hang out with them for a week thinking they can trust them. They talk when they should be listening. They overpay for deals thinking that will win the deal for them. They use their phones in board meetings. They fight with entrepreneurs over meaningless things.
When I see these things I cringe. Because I've been there and done that. I spent the first ten years (maybe 15) of my time in the venture business as a young VC trying to make it in the game and not really knowing how. I've made all of these rookie mistakes and more. I feel for them, I often mentor them, and I really enjoy working with young VCs.

When a young person asked me about getting in the venture capital business, I advise them not to. I think VC is an experienced person's game. Startups are not so much. Startups are a great place to be in your 20s and 30s. VC is a great place to be in your 40s and 50s.

I look at Ben and his partner Marc and think "they did it right." They got into the venture capital business when they had all the experience one could ever want working with startups. They don't lose deals to more experienced VCs. They win deals over more experienced VCs.

But of course many young VCs made the decision to get in the game at an early age and are committed to making it work. They are going to have to take their lumps. Make the mistakes. Learn from them. Continue to work harder for less results to show for it. And lose deals they should win.

One of the things I did not do very well that many of these young VCs are doing much better is building relationships with more experienced VCs. As I said, I work with a bunch of them. Teaming up with a more experienced VC can help you win a deal, you can learn from them in the board room, and you can ask them for advice when you screw up.

Going back to where we started this post to end it, I like how Jay-Z and Memphis Bleek partner up in Coming Of Age. That's the way to do it.

[JZ] Hahahh I like your style
[MB] Nah, I like YO’ style
[JZ] Let’s drive around awhile

VC Fred Wilson: "Wear failures as a badge of honor"

Fred Wilson's A VC blog is a great source of information on investing and venture capital. And it's one of the few blogs where the comments are consistently a source of great insight. In 2009 Fred posted a story and thoughts on the topic of failure:

Barack Obama said this in his "back to school speech":

you can’t let your failures define you – you have to let them teach you. You have to let them show you what to do differently next time

That's so true. It took me a while to learn that lesson.

When I first started out in the venture capital business, I was afraid to make a mistake. Once I started investing and taking board seats myself, I worked super hard to avoid losing money. I went for almost a decade without making a losing investment.

But then in the aftermath of the internet bubble, the wheels came off of the bus. We wrote off close to twenty investments in the span of two years from late 2000 to late 2002. It was devastating on many levels.

But when I look back on my career, it is not the successes that I think back on most. It is the failures, and particularly those two years when everything that could go wrong did go wrong.

When Brad and I started Union Square Ventures in 2003, we laid out a roadmap for what kind of firm we wanted to create, what kind of investments we'd make, and how we thought the Internet was going to evolve. That work was largely a result of the lessons we both had learned in the aftermath of the bubble.

I think embracing failure is one of the things that makes this country such a great place to do business in. In many parts of the world, if you fail once, you are done. People won't touch you with a ten foot pole. But here in the US, it's almost a badge of honor. And our President explains why.

When we met with entrepreneurs, I'm always interested in their failures. And most people have them, you just have to dig a bit to find them. If someone has failed and taken the time to learn from it, I think that's a big positive. It makes us even more excited to back them the next time.

So don't hide your failures. Wear them as a badge of honor. And most of all, learn from them.

From Fred Wilson: a visible reminder of a past mistake

This was originally posted on Fred's AVC blog on May 24, 2011:

Longtime readers know that I'm a bit obsessed with worthless stock certificates. I like to keep them around and displayed so that I see them on a regular basis. They are a reminder that we make mistakes in the venture business. I think it's a good idea to remind yourself on a regular basis (particularly when markets are like they are now), that everything you touch doesn't turn to gold.

We are moving our offices upstairs to a new office and we've spent a fair bit of time this week cleaning out old files. I came across a big stack of worthless stock certificates from the Flatiron Partners portfolio and thought I'd share one of them with all of you.

 
Kozmo was a decent idea that actually worked in NYC. But in the mania that existed in 1999, the company raised hundreds of millions and went on a spree opening up something like 18-20 cities. That expansion was largely unsuccessful and the result was that the company went under. We lost our entire investment as did all the other investors.

On a week when we are celebrating lots of good news in the Internet world, I think its useful to also remember what didn't work and why so we don't repeat those mistakes.

Some of what Fred is referencing in "good news in the Internet world" would include LinkedIn's IPO, which rose 80% above the offering price on its first day of trading.

Here's some more info on Kozmo.com if you're interested.

Fred Wilson: passing up the opportunity to invest in super founders

This story is from Fred Wilson, partner at Union Square Ventures, a tech VC firm based in New York City. I'd encourage you to read the post on Fred's site as well, if only to have access to the hundreds of comments people have left there.

When you walk into our conference room at Union Square Ventures, you see the box of cereal on the right on our conference room credenza next to a wifi router and a jar of Jolly Ranchers. It is there because we are big Obama fans? Nope. The cereal box is a reminder to back great entrepreneurs whenever they walk into our office regardless of what they pitch us on (as long as it's in our investment universe).

Let me explain. Cliff Elam made a suggestion for a blog post in the "bloggers block" comment thread. He said:

Tell us about something you saw that was intensely interesting but was not something you'd invest in. And why.

So here's the story of how we missed Airbnb, one of the best startups to come our way in the past few years.

The Airbnb founders came out of the winter 2009 Y Combinator class. They came to see us during their time at YC. They told us about a great stunt they pulled at the Democratic Convention in Denver (in which Obama was nominated). They bought a bulk supply of generic cheerios and made up these cereal boxes to generate seed capital for their startup. Here's how one of the founders Joe Gebbia describes it:

We made 500 of each (Obama O's and Cap'n McCains). They were a numbered edition on the top of each box, and sold for $40 each. The Obama O's sold out, netting the funds we needed to keep Airbnb alive. The Cap'n McCains... they didn't sell quite as well, and we ended up eating them to save money on food.

I asked them if they'd leave a box of the cereal for us and it has been sitting in our conference room ever since. Whenever someone tells me that they can't figure out how to raise the first $25,000 they need to get their company started I stand up, walk over to the cereal box, and tell this story. It is a story of pure unadulterated hustle. And I love it.

At that time, Airbnb was a marketplace for air mattresses on the floors of people's apartments. Thus the name. They had ideas for taking on other listings but they had not yet made much progress on them.

We couldn't wrap our heads around air mattresses on the living room floors as the next hotel room and did not chase the deal. Others saw the amazing team that we saw, funded them, and the rest is history. Airbnb is well on its way to building the "eBay of spaces." I'm pretty sure it will be a billion dollar business in time.

We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do. I am proud that our portfolio is full of companies where we saw the vision before other investors did and backed a great team. But we don't always get it right. We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.

[Fred's story is licensed under Creative Commons 3.0 - Attribution]

[Photo by Charmaine Cooper via Flickr]