Monday, January 28, 2008

OnMedia NYC

I will be in NYC this week for the OnMedia NYC conference.

The conference looks like an interesting intersection of technologists, advertisers, and media companies. I will be speaking Wednesday on the OnMedia Venture Capital and Seed Financing Workshop - 10 am at the Lotus Suite.

Venture Capital and Angel Financing Workshop
Moderator: Sam Angus, Partner, Fenwick & West
Will Price, Managing Director, Hummer Winblad Venture Partners
Dan Beldy, Managing Director, Steamboat Ventures
Jed Simmons , Chief Operating Officer, co-founder, Next New Networks
Mark Stevens, Partner, Fenwick & West

While in NYC and at the conference, I would love to meet with any founders looking for their A round. Please ping me at wprice at to set up a time to meet.

Thursday, January 24, 2008

HWVP Portfolio Job Site

Hummer Winblad just added a portfolio company jobs section to our web site.

The site currently lists 161 jobs. If you are looking to join a great start-up, please peruse at your leisure:)

Wednesday, January 23, 2008

Downturn - Now What?

My first year in venture was 2002. The great bull run of the 1990s was over, the dot com movement had come to a crashing halt, and Silicon Valley settled into a year of retrenchment and reckoning.

I remember long and painful board meetings where companies decided on reductions in force, recapitalizations and investor wash outs, and the slow, painful realization that the company's infrastructure, employee base, and positioning had gotten way too far in front of economic realities.

Friends who had accepted start-up offers thinking that they would go to HP or Oracle if things did not work out suddenly found their start-ups shutting down and HP and Oracle closed to new hires. Valuations seemed absurd in retrospect, companies with no sales were sitting on $50m-100m post-money valuations, $30m of paid-in-capital, and absolutely no chance of raising money; save a complete restart. A collective "what were we thinking" rolled through the valley.

The venture industry, like the tech industry at large, slowed down to not only digest "problem" portfolio companies, but also out of fear that large enterprises were no longer buying start-up products. The industry put $100bn to work in 2001 and only ~$20bn in 2002. It is fair to say that it was a bloodbath and billions of dollars were written-off and hundreds of companies quietly shut down. Venture investors largely sat on their hands and net new deals were very few and very far between.

As we all read the economic news this month, key questions are should an economic downturn impact venture investors behavior?, are there lessons one can learn from the dot com bust that can be applied in the current housing and credit bust?, will a recession hurt our companies, perhaps fatally?

If I take the last downturn as my guide, I can say with confidence that venture investors would be well suited to continue to invest right through the downturn - in 2002 and 2003 terrific companies were formed and funded at very reasonable valuations and with business models that reflected the demand for capital efficiency and economic viability.

Like Occam's Razor, recessions whittle away unnecessary and non-value-added businesses and the capital, purchase order, and resource scarcity inherent in downturns forges companies of real substance and durability.

I do believe, however, that certain classes of company will find fund raising very challenging in this environment. The last few years saw the rise and success of "field of dreams" web companies - ie companies where the business model and economics were secondary to utility, usage, and adoption. Perhaps most famously, Twitter is exploding with the principals publicly downplaying the need to define a business model. As consumers, the innovation possible via a "field of dreams" approach is wonderful, as investors, however, the market's patience to "uncover" the economic model over time and to, in the meantime, fund continued expansion and adoption is a major risk factor.

The last downturn saw the valley swing violently away from consumers to the enterprise - bastions of value, hard ROI, tangible value propositions, enterprise pain points and budgets, etc became the mainstay of investment decisions and the consumer, I kid you not, was literally a bad word.

Partner meetings where an investor said, "I have a great deal - it is a consumer play with great adoption metrics and a plan to work out the business model over the next 18 months," were a recipe for total and outright ridicule.

The valley became all enterprise, all the time.

Now, today's companies can leverage low-cost infrastructure and an ad-market in a way that their predecessors never could. However, I believe the following will occur: new deal investing will slow, perhaps radically, the enterprise segment will regain some of its former glory, consumer companies looking for capital in the absence of working business models will find raising money next to impossible, and employees will be much more scrutinizing of the companies they elect to join.

However, history suggests that capital efficient companies solving well-characterized pain points will continue to be great investments. Valuations, input costs (labor, rent, services) will fall, and future returns will show that 2008 and 2009 were great years to do start-ups. Similarly, in early 2009, as the consumer start-up market finds itself cut off from funding, it will be pay to make bold and brave investments in the consumer space.

None of us can predict the markets or future valuations, we all, however, can understand fundamentals. Businesses that solve real pain points with disruptive technology, a huge value/price advantage, and a scalable business model will work - the kiss of death, however, will be getting the capital structure ahead of those very same fundamentals. Failure is often a function of too much capital and too high prices suddenly running into economic expectations that are materially reduced with respect to market size, market growth, and trading multiples.

To survive, one may indeed need capital. The trick is to stay lean and not to overfund and overvalue companies where the investment only "works" if it eventually trades at 8x revenue and never needs another round of funding.

It way well be that Slide raising $55m from mutual fund companies at $500m+ pre-money will be the "what were we thinking" moment of the current cycle. I think, however, the investor who leads a $4 on $4m Series A in a company with a differentiated technology and a direct tie to hard ROI will feel calm in the storm.

The Wadget Revolution - How Brands Can Harness Widgets

Tomorrow night (1/24) I will be moderating a panel titled "The Wadget Revolution" sponsored by the Bay Area Interactive Group.

The title, a play on widget and gadget, will address the widget revolution and how marketers can best take advantage of this emerging channel.

I expect a lively discussion on how brands can use widgets to reach consumers and how publishers can use widgets to monetize their content.

Please find details on the panel below.

The Wadget Revolution:

The event is at the St. Francis Hotel on Powell Street just off Union Square in downtown San Francisco. The Stockton Sutter parking garage is close by.

The digital channels are engaging. It's that simple. Engagement remains elusive as a singular dynamic, but seems more a catch-all descriptor/metric for a variety of mechanisms that deliver utility, information and entertainment to audiences in new ways. One of the "channels" within the broader digital mix that saw tremendous growth in '07 and really begins its sophomore year in 2008 is the "Wadget" (ok, we couldn't decide between Widget and Gadget, so we compromised). They seemed to come out of nowhere, or to be coming suddenly from everywhere and we all nodded our heads in approval (though many of us grabbed a friend and remarked "what the heck are these things anyway?". It's time to shed some light on this.

What are Wadgets, what do they do, who makes them, who uses them and most importantly, how do marketers harness the power of them are the questions we're going after at our next event on Jan 24.

We'll have some masters of Wadgetry talking about the phenomenon from their perspective and showing all of us how they concept, build, deploy, engage and SELL their Wadget genius…and then they'll take your questions, so come prepared.

The panelists are:
· Will Price – Hummer Winblad

· Donna Stokes – HP

· Heidi Henson – Rock You

· Ken Barbieri – Washington Post Newseek Interactive

· Kevin Barenblatt – Context Optional

Monday, January 21, 2008

Martin Plaehn's Quick Hits: Do's and Don'ts of Entrepreneurship

I spent last Thursday and Friday in Utah attending the University Venture Fund's Annual Conference.

The conference brought undergraduate and graduate students from around the country interested in entrepreneurship and venture capital to SLC for a two-day event. The speakers included Bill Price (co-founder of TPG), Brad Feld, and other noted investors and entrepreneurs.

A side benefit - the Sundance Film Festival started the night we arrived and Brad and I got a chance to the see the world premier of In Bruges.

One of the panelists was Martin Plaehn, a former HWVP company CEO and current CEO of Utah-based Bungee Labs. Martin is a very sharp guy and he passed around his list of start-up do's and dont's. I thought they were terrific and include them below.

Martin Plaehn’s Quick Hits: Do’s and Don’ts of Entrepreneurship


1. Do ensure for yourself (as founder or chief) that you are addressing a real market and a sustainable one; where the exchange of value is transacted and measured in US currency
2. Do only hire for pre-identified expertise, operating need, and the energy to accomplish excellence; if you get more, great; don’t hire otherwise
3. Do always know your cash level, weekly cash spend and receipt rates, cash-runs-out date, and close-up liabilities amounts; start finding funding choices when you hit t-minus 6 months till operating cash runs out
4. Do money deals with money people (e.g. Angels, VC’s, banks, and credit unions); do product deals with product people (eg. Commercial companies); and do risk deals with risk people (e.g. Insurance companies). Don’t get these confused. If a product company wants to invest in your company, can they afford to take the whole thing? If not, then not.
5. Do ensure that at least one of your early formal investors has the financial wherewithal to keep investing in subsequent increasing rounds many years down the road; do make sure your different investors are really compatible
6. Do always accumulate choice; two by definition, three of four is better; then make decisions and have a back-up
7. Do let the stress of overload and/or capacity strain the triggers for expansion; demand flexing the edges of the system is usually the truest sign of real growth
8. Do track revenue and cost per employee; have trigger thresholds for when to add staff or subtract. Human efficiency and innovation is what creates value


1. Don’t hire of goodness of heart or friendship
2. Don’t hire anyone who you and your team are not genuinely excited about
3. Don’t tolerated mediocre engineers; for that matter, mediocre anyone. An early sign of mediocrity is when you downgrade tasks and expectations to align with an employee
4. Don’t count on your investors to take care of you when things get rough and/or protracted
5. Don’t over interpret or count on the stated operating “value-add” from investors during their solicitations during fundraising
6. Don’t build out your staff or infrastructure in expectation of rapid growth; be strong enough and tolerant of market back-pressure or order/service backlog
7. Don’t keep the same sales and marketing execs if the business isn’t growing or changing for growth; no sales and marketing VP was ever fired prematurely
8. Don’t over delegate to consultants, accountants, or lawyers; even the great ones are only as good as you are as an engaged client; read and understand everything; if left alone, you must have a point of view, right or wrong

Thanks to the students at BYU, Univ of Utah, and from around the country who worked hard to make the event a real success.

Tuesday, January 15, 2008

Subprime failure and Prediction markets

What do the subprime meltdown and Iraq have in common?

Massive failure due to forecast errors.

I have written in prior posts about my respect for Nassim Taleb's book Black Swan, which speaks to the enduring inability of humans to recognize the fallibility of forecasts and linear thinking.

With respect to the subprime mess, Merrill Lynch, Morgan Stanley, and Citibank, alone, have announced $36+bn in write-downs to date. The most technically advanced companies in the country failed to live up to their raison d'etre: to price and manage risk.

Their failure is a powerful reminder that sophisticated business processes, risk management models, and management teams are no panacea if the assumptions that architect their systems are wrong.

For example, risk management is based on the premise that events in financial markets exhibit normal/Gaussian distributions. Value-at-risk models calculate the maximum loss not exceeded with a given probability/confidence interval over a given period of time. For example, the risk manager will report that with a 95% confidence the maximum capital at risk is $x. The losses in the financial sector are a powerful reminder of how rare events blow up the models and with them the business processes, risk controls, and balance sheets of their creators.

In supply chains, forecast errors compound across the supply chain in a phenomena known as the bullwhip effect resulting in excess inventory and a costly failure to match supply with demand.

Examples of forecast errors are legion - product ship dates, sales forecasts, demand forecasts, value-at-risk models, elections, stock price predictions, etc. A common remedy to forecast errors is to increase the liquidity of guesses - the greater the number of independent predictions the more accurate, in aggregate, the final prediction.

We can see this phenomena in today's social web - the web is rewriting the rule book on how we program content- rather than a top-down, command economy approach, where programmers decide what we should read, watch, and discuss - users are leverage social media sites to "reprogram" content. Communities, like liquid markets, vote with their time, comments, and clicks and the best of the web gets pushed to the top. Innovative companies are leveraging the wisdom of the community to ensure a better match between supply and demand.

So, where am I going with this post? Prediction markets are nascent business tools that allow employees to buy or sell certain business events - probability of product shipping on time, unit volumes to ship in the quarter, annual bookings, prioritizing new business ideas - and thereby allow their employers to improve the quality of information factored into predictions. The formal chain of command is infamous for distorting and hiding information - it is no wonder that CEOs are flying blind...their business systems are based on flawed models and their teams are incapable of accurately reporting the true state of affairs. Chinese whispers corrupts information moving up the chain and smart people are stuck making decisions with bad, misleading data.

We will never be able to predict the future, however, all of us should consider how we can open up our decision making processes to allow for non-biased, comprehensive input that allows the wisdom of our organizations to weigh in on key decisions - better inputs enable better capital and resource allocation decisions and can help avoid disaster.

While prediction markets are much less complex than advanced prediction algorithms, in the spirit of less is more, the front line sales people, developers, mortgage loan officers, etc will always have better information than the central corporate staff. What seems to be failing corporate America is an open framework for capturing that knowledge in a non-biased, confidential manner.

For centuries soldiers have complained that the central staff had no idea what was happening on the ground - the science, tools, and applications, however, exist today that allows for the harvesting of the collective wisdom of the group.

I predict, yes am I aware of the irony, that in 2008 corporate American will come to adopt one of the mainstays of web 2.0 - ie applications that leverage the tacit or explicit wisdom of a community. Prediction markets are needed to help unlock the tacit knowledge of organizations and to lessen the colossal forecast errors now reverberating through our economy.

Content Community on Innovation, Start-ups, and Venture Capital

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The site is dedicated to sharing ideas, books, best practices, news, etc on entrepreneurship, venture capital, and new company formation.

To join Corank, click here. To add the RSS feed, click here. To add a Firefox bookmarklet to post articles to the community, click here.

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Thursday, January 03, 2008

New Deal Checklist

Pilots, no matter how many flying hours they have, never take off without checking their pre-flight checklist. The risks of oversight, missing a mechanical or procedural failure, etc are too severe not to ensure all systems are go.

I put together an analog to the pre-flight checklist - a new deal checklist - that I hope will similarly help avoid losses due to "pilot error."

In the spirit of transparency, please see my list below and let me know if you think I am missing any core issues.
  1. Can I understand the business?
    1. what is the product?
    2. what is the value?
    3. who is the buyer and why would they buy?
    4. can the buyer quantify the value? If so, what unit?
  2. Is the market attractive?
    1. Growth rates?
    2. Profitability?
  3. Is there a fundamental disruption that is the basis for the opportunity and limits the incubments' competitive repsonse?
    1. Market --> SaaS, Open Source
    2. Product --> core innovation
  4. Is the product delivered in a buyer appropriate way?
    1. open source for infrastructure
    2. SaaS for a business app buyer
    3. REST/SOAP/JavaScript for a web service
  5. Is the core value tied to a technical innovation?
    1. ex. HWVP's portfolio company examples = Baynote's collective intelligence algorithms and Move Networks' streaming protocols
  6. Are their frictions in....?
    1. time and resources required to test the value proposition?
    2. time and resources required to deploy?
    3. time and risk to realize value?
  7. Is there a good market comparable for both the business model and the exit multiple?
  8. What unit scales the revenue model?
    1. page views, sales heads, downloads, sessions?
  9. Is the architecture scalable and does it leverage the best available infrastructure - EC2, S3, Rackspace, etc?
  10. Are there exogenous dependencies?
    1. carrier or MSO deals?
    2. RFID deployments, etc?
  11. Is there a market master?
    1. WMT or MSFT or Dell....
    2. Who is the incumbent? How will they react?
  12. Who are the other new companies in the space?
  13. Is the team able and honest?
    1. Prior track record of working together?
  14. Is the CEO special?
    1. What is his/her motivation, passion, strength?
    2. Where do they need help and complement?
  15. Are the round size and pre-money reasonable?
  16. Is the model reasonable (profit margins, growth, burn)?
  17. Is the plan capital efficient?
    1. how much money for 18 months?
    2. margin of safety?
    3. are their clear milestones in the plan that will allow for an objective assessment of value creation - ie a new investor
  18. Can this be a homerun?
  19. What are the core risks?
    1. why will the company fail? is their a plan in place to mitigate such risks?
  20. What are the KPIs - ie leading indicators to measure and track the company's progress?
  21. Is the cap table clean and the paid-in capital reasonable?
    1. Is the progress to date commensurate with the money in?
    2. Has the money in to date been productive?
While I am sure there are risk and questions not raised above, the goal is to systematically measure a prospect against a consistent analytical framework that, hopefully, ensures smooth take-offs, flights, and landings.