I first met Rashmi many years back at TagCamp while i was still working at Simply Hired in 2005, then again at Dana Street Coffee in early 2007 when i was consulting for Mint.com. I think Mike Arrington had written one of the very first TechCrunch posts on SlideShare in late 2006, and i was an immediate fan and user soon after. Upon seeing Rashmi again at Dana Street a few times we became fast friends, and i asked her and her co-founder Jon if i could become an investor/advisor to the company. To my surprise, they agreed and we've been hanging out ever since, both as partners and friends. I also finally got to meet their 3rd co-founder (& Rashmi's brother) Amit, when i was visiting India for our GeeksOnaPlane trip there last fall.
Over the past 5 years, i've had the pleasure of using SlideShare, telling everyone i know how awesome it is, and watching as the company grew and grew and grew to become the huge community it is today. I was just checking my own account on SlideShare, and some 2.7 million people have viewed my presentations and almost 50,000 downloads of my Startup Metric for Pirates and other talks.
Although not officially a 500 Startups company (SlideShare was one of my personal investments, long before we started the fund), i've always thought of SlideShare and particularly Rashmi, Jon, and Amit as some of the first members of our global #500STRONG family. They have been mentors to many of our other startups, and Rashmi in particular has been a role model for other female CEOs and founders in our portfolio (of which there are many, over 50 and growing currently).
But more importantly than me bragging about making a great investment, i'm very proud to be FRIENDS with them -- because they are first and foremost awesome people, and great entrepreneurs. They represent the best of what we all strive for in building a company, and i've seen them deal with both success and failure with grace, style, and tremendous warmth for their fellow employees and their customers and partners. I couldn't be more proud of them and what they've accomplished, and let me be among many to congratulate them as they join LinkedIn on the next phase of their journey.
Rashmi, Jon, Amit: you guys rock, and i <3 you very much :)
i'm not doing much blogging at the moment, as you can probably tell from this site. apologies however i've been kinda busy getting 500 Startups off the ground the past year or two. besides, the commenting system here is crap & i've been overdue on a redesign for about 2-3 years.
for some of my more insane / incendiary rants, check out Best of 500 Hats
for more recent perspectives from the 500 Startups network, visit our company blog at http://blog.500startups.com/
and if you really have nothing better to do, you can check out my incredibly tedious & profane tweets at http://twitter.com/davemcclure
sometime in the next 12 months if life slows down a bit, i may start writing again and/or finish a facelift on this or a new blog. until then, enjoy the break from my useless drivel.
in the meantime, here are a few presentations & videos from some of my recent talks:
(ok folks, i've gotta take the kids to basketball practice in a few hours, so will try to power through this -- that means limited crazy fonts, profanity, wild pix... sorry little monsters, next time ;)
3 major points i plan to cover in this post:
1) Angel List Fucking Rocks. Period. it's the single greatest innovation in our industry in the last 5 years (aside from LinkedIn, Facebook, Twitter, & Quora) and it's great for almost all participants. and while social proof can be abused / misused, so can gasoline... doesn't mean you shouldn't fill up your gas tank and go back to riding horses. if you want to effect change, either Engage Fully, or Compete. inaction/boycotts are rarely useful & should be largely be ignored.
2) on average, "Spray & Pray" investing -- aka a High-Volume, Diversified & Quantitative Investment Strategy -- is not just "ok", it's actually BETTER than "Focused" investing (at least w/o insider or hidden knowledge). in fact, it is incredibly hypocritical and patently FALSE for the VC industry -- which has NEGATIVE IRR over the past 10 years, and historically poor performance -- to criticize high-volume strategies as being somehow crazy. if anything, their inaction and lack of innovation in the face of poor performance is the Insanity, and most of them (& their LPs) should be ashamed for lack of stewardship.
3) in the future, "Value-Added" investing will come more & more from domain-specific knowledge (engineering, product, design, marketing, customers) and less & less from investors with large networks & rolodexes who make "introductions", as their value is disrupted & marginalized by social platforms like LinkedIn, Quora, and Angel List. specifically, regarding Consumer Internet & Web Infrastructure investing -- people who DO NOT have skills in programming, design (visual or other), scalability, SEO/SEM, design, social platforms, viral marketing, affiliate marketing, mobile devices, etc -- will begin to fail out of the investing industry, and will be of limited value other than writing checks quickly... perhaps at higher-than-market valuations in order to compete. which is much worse strategy than "spray & pray".
UPDATE: to clarify further for Fred Wilson & others -- i am NOT espousing a PURELY "spray & pray" philosophy... rather the full story on what i'm saying is that a quantitative, high-volume investment strategy filtered based on reasonable assessment of team, product, market, customer & revenue along with domain-specific expertise, and selective follow-on investment with incremental knowledge of company metrics and progress CAN result in good outcomes.
or at least i hope so, because that's what i'm doing.
alright, let's get started.
Scoble: wow, Angel List is a pretty amazing hype machine for startups, and a great way for entrepreneurs to raise capital. had no idea how much impact it has... pretty cool.
Bryce: i don't like the social proof aspect / herd mentality generated by Angel List, and i've got plenty of quality dealflow. taking my ball and going home.
Jason: gee Bryce, that's small-minded. Venture Capital is/has changed, and you risk becoming irrelevant w/o participation. [+typical Jason no-holds-barred criticism, perhaps unfair perhaps not]
Suster: i like Angel List mostly, altho some parts of it give me pause. mostly good for investors and startups, altho some n00b angels are gonna get fucked.. and in meantime their lack of financial discipline could also fuck up the rest of us. caution: keep using but tread carefully.
so arguably i'm the most active current user of Angel List -- i've done ~20 deals there, either that i've listed and/or invested in. maybe George Zachary is more active but we're 1 & 2 i think. (funny how the biggest users of Angel List are actually VCs, eh?). it's not a majority of my activity, but it's significant -- 500 Startups has invested in ~100 deals since we got started last year, mostly at seed stage (altho we recently started our incubator / accelerator program in the past few months). we plan to continue doing ~100 deals a year, and i'm sure Angel List will be a significant part of those (maybe 20+% ?)... altho even *i* can't possibly keep up with the deal pace that's currently happening on Angel List. but that's not a bad thing.
so here's my take:
1) i'm an unabashed fanboi, and i think Angel List is awesome -- for both startups and (most) investors. it is likely the single greatest innovation in the venture capital industry since Paul Graham started Y Combinator 5 years ago. period. Nivi & Naval deserve high praise, both for AL & for VentureHacks.
2) there is perhaps a little too much emphasis on Social Proof, however Naval is not creating the herd mentality, rather he is simply recognizing its value and attempting to harness it.
3) without question, Angel List provides greater visibility for a lot of startups raising capital who would otherwise not have as much access to investors. this is very good for entrepreneurs. and while Start Fund and Yuri/Ron investing in YC was a brilliant move w/ huge PR impact, BY FAR, Angel List is/will have 100x more impact on the industry than the Start Fund (which currently only focuses on YC companies).
4) for most investors, Angel List is helpful -- either to get access to dealflow they would not previously have seen, to supplement their existing dealflow, or to see what is happening at earlier stages and inform later stage decisions. it's also helpful to connect investors to other investors (ex: i follow several hundred other investors on AL & i'm learning about them as much as startups).
5) for a few (mostly new, mostly angel, investors -- but not only them), Angel List accelerates herd mentality, and the emphasis on social proof can perhaps crowd out / overwhelm other useful signals (product, market, customers, revenue, team, etc). for these investors, Angel List is kind of like Crack for Nerds... actually that's not it; it's more like Sex for Virgins. wait, here it is: Angel List is like Dangerous Sex with Super Models for Virgin Nerds.
yeah that's it -- imagine if you're Urkel and all of a sudden you get to find out who the newest Sports Illustrated hotties are, who they're screwing, and then SOMEHOW you discover an opportunity to SCREW THEM YOURSELF TOO! (omg, where do i sign?!?) ok, so you get the picture. this is probably why Bryce left the party. or maybe it's because he's a Mormon with 5 kids, and doesn't need to do any more screwing around... doh! (sorry i know that will offend some folks, but i couldn't resist... and Bryce is a friend even if i disagree with his stance. Bryce: sorry if your kids are reading this.)
Now before i get into any real criticism of Angel List, let me again restate -- it's the single greatest innovation in Venture Capital since PG started YC 5 years ago. it's awesome, and it has dramatic benefits for entrepreneurs... AND investors too. it is likely the FIRST online system to have a material impact on the startup investing world (aside from valuation databases like VentureOne / VentureXpert / etc). Nivi & Naval also created VentureHacks, which (before Quora anyway) is the single most valuable resource for entrepreneurs in understanding venture capital & angel investors.
So, what don't i like about Angel List? not much. i don't like the fact that the voting arrows have a crappy UX, and it's a little hard to scroll through all the deals & investors sometimes... in fact, i'd even like a little MORE social signal, by figuring out a way to rate influence / reputation on Angel List, so that some investors count more than others (because they DO, not because i don't like a level playing field). but really, that's about it right now... and it's getting better all the time.
but to the extent Social Proof is a "problem" -- and i don't think it is, just its perception in weighting on Angel List relative to other items -- i CERTAINLY don't think you fix it by leaving.
as with most issues, Change happens either through VIOLENT participation, or VIOLENT competition. in other words, most boycotts suck in terms of impact.
either you engage fully and attempt to make change happen from within, or else you should go create a competitive alternative and attempt to make change by offering a better solution. either of these are rational perspectives, but non-participation is simply lame, & largely why i take Bryce to task for doing so (or at least, once he blogged about it publicly). silent non-participation is anyone's right, but vocal non-participation is like Cursing Darkness rather than Lighting a Candle.
i'd also like to clarify my investment philosophy and pace, and criticisms of "spray and pray" investing, as well as differences between me & other high-volume investors like Ron Conway (whom i still respect tremendously even if he thinks i'm an ass), First Round Capital, Y-Combinator, Tech Stars, and others.
Mark Suster was surprised when i took mild offense to his left-handed compliment about me being a "higher-volume investor who did well in spite of that behavior". damned by faint praise, i will fully OWN the fact that i've called my fund 500 Startups and will probably always be known as a high-volume investor first, value-added investor second.
in time, perhaps our fund will also be known for Design, Data, & Distribution, but for now i'm happy to be labeled as your Canonical Clueless Carefree Spray & Pray Bitch. i will now EMBRACE and REINFORCE the "Spray & Pray" label until i ABSOLUTELY DESTROY its relevance thru repetition and ridicule -- and furthermore i think it's the rest of you "focused investors" who think you add so much goddamn value that are full of it. BRING IT, mofos. (for the record, it's almost always 95% entrepreneur, 5% investor. "focused investing" is perhaps more accurately "focused selection" -- it's rarely the case that the investor adds much value after the investment, other than check... and if they do, it's mostly just introductions... more on that below.)
"Spray & Pray" is usually a disparaging term used by those who don't about those who do. in almost every case where i hear it, it's biased commentary by large VCs who do later stage investing at a much lower volume. or else, it's by bloggers/press who can't think for themselves, and like to start interviews off with me in adversarial fashion... that is, before they realize i've gone toe-to-toe with Arrington for years, and 99% of them can't hold a candle to his masterful psychological warfare otherwise known as a "briefing". (once you've been through the trenches with Mike, everyone else seems like a walk in the park. there is a reason he's the best in the business, and most of you are no Mike Arrington).
so anyway, let's consider that most of the folks in the traditional venture business who are criticizing spray and pray HAVE HAD NEGATIVE IRRs OVER THE PAST TEN YEARS, and if you remove the top-performing 10-20 VCs from the #'s, the overall industry as a whole probably hasn't beaten the market for decades aside from a few years in the late 90's when the retail market would buy any bullshit that the investment bankers put on the market. and this from an illiquid asset class with high risk. you better be at least getting 15-20% returns on average, or you shouldn't be opening your piehole.
seriously now, i've been saying this for years -- it's sort of like someone who's had sequential disastrous monogamous marriages criticizing someone else who's single and dating the field. in other words -- you're just jealous because my job is more FUN than yours, and in general you SUCK at yours, whereas i actually have been both a programmer and a marketer for more than 10 years each, and sort of know what the hell i'm doing. or at the very least, i'm new enough to the investing field that we don't know for sure yet whether *I* suck, but we have PLENTY of evidence that *YOU* sure as hell do.
for the last time -- with VERY few exceptions, traditional VC investment practices have resulted in EXTREMELY POOR financial returns, and disparaging & biased remarks against high-volume investing are the height of hypocrisy. i will be happy to listen to criticism from folks like Benchmark, Sequoia, Greylock, Accel, Union Square, and others who have consistently out-performed on low-volume pace of investment for decades. they at least can speak from authority (and to be fair, Mark Suster's GRP has done quite well in the past decade). however, if you are ANYONE ELSE then please have a big cup of Shut The Eff Up because you don't have the 1st clue what the hell yer talking about.
to be more specific: if we look at the #'s, on average it's more likely that high-volume, spray & pray investing -- which i will going forward refer to as "a quantitative investment strategy" -- is likely to be successful than a "focused, low-volume" investing strategy. in fact, it's hilarious that people like to refer to what i do as playing roulette or gambling, when it's exactly the case that the fools playing a low-volume strategy are the ones who are gambling -- they're betting on exactly ONE roulette square, when they know the odds of getting billion-dollar wins are astromonically higher than 40-1.
whereas i'm basically trying to be the Billy Beane of Silicon Valley, betting on a bunch of short, fat first-basemen who consistently get on base. I'm going after all the Ichiros, and i'm willing to do an incredible amount of scouting and early investment to figure that out, when most investors are lazy, want to bet on Barry Bonds and souped-up #'s, hoping they can hit a homerun when the fence is actually more like a mile away than just 300 yards. good luck with that folks. i'll stick to technical hitting, thank you.
again, it is tantamount to conspiracy that people who are failing miserably at venture capital investment with ridiculously poor IRRs are disparaging anyone else with a quantitative invesment strategy. kettle, black.
now, let's talk about what VALUE-added investment is REALLY all about.
first: while value-added does include introductions & reputations, if this is all you are currently trading on, then prepare to get disrupted by things like LinkedIn, Quora, Facebook, Twitter, Angel List, etc. most big name VCs over the years have PRIMARILY been trading on reputation and connections which are now MUCH less necessary due to the advent of social networks and other high-visibility communication platforms which are dramatically more transparent than they were 10 years ago. this is likely to continue to accelerate rapidly, and in the future i will wager that investors with these backgrounds will be a hell of lot more valuable:
The list goes on, including many other specific skills in building & creating product, and in marketing & distributing to customers. these are the 2 key areas of expertise: building product & distributing to customers. making or selling. creating or hustling.
On the other hand, skills i bet won't be important as much in the future:
Both of these are still important, but will become commoditized and marginalized by the availability of such information from online systems for social networks & reputation, and by the relentless advance of access to capital from a variety of channels.
To the extent these areas ARE still relevant, they will be dominated by those who are most visible and most relevant on Facebook, Twitter, LinkedIn, Quora... and Angel List. most VCs barely blog, and have no idea what it means to engage on any of these systems, much less build them or market them. (most angels too, but they seem to be a little more savvy).
and while most people think of me & 500 Startups as Crazy Spray-and-Pray, what we are REALLY all about is value-added investing based on domain-specific knowledge from the first group.
our team includes engineers, marketers, designers who have worked at companies like PayPal & Google & Mint & YouTube, and our mentor network currently does many of the jobs in the first group at companies like Facebook, LinkedIn, Twitter, Groupon, LivingSocial, Zynga, Twilio, SlideShare, Zong, etc.
we also are quite unique in that we run domain-specific conferences on social platforms & marketing (Smash Summit), on design & user experience (Warm Gun), on startup metrics (Lean Startup w/ Eric Ries, another 500 advisor), on messaging & communications (Inbox Love), and we reach a global network of 100+ companies across 3 continents and over 10 countries (and visit them via trips like GeeksOnaPlane). we webcast our accelerator talks live to anyone in the world who wants to tune in. and yes, i am bragging, because i'm sick & tired of people thinking we are anything as simple as "spray & pray" investors.
i challenge ANYONE or ANY firm on the planet to show me the list of "value-added" resources they can bring to the table compared to us, even though we are barely one year old. we are NOT simply spray-and-pray investors -- we are The Next Generation. we are What's Coming. and we Got Next.
We Are Legion. Expect Us.
gotta take the kids to basketball, so i'm leaving it right here for now.
(drops mike on floor, walks off stage, raises 2 fingers to audience... in RubberBandits style).
Passion is what being a startup entrepreneur is all about.
Great entrepreneurs are passionate about customers and solving their problems -- so passionate sometimes, that they will take on ridiculous odds to have a shot at fighting Goliath.
This video by The Rubberbandits captures it perfectly:
(Hey Startups: "I Wanna Fight Your Father!")
Study this chart & map. It's a simple way to think about global economic growth & potential.
(excerpted from GigaOm article on the web getting bigger)
words cannot express:
I've held off writing this post for a long time, because I couldn't quite get my head around all the issues. It wouldn't be accurate to say there's something "wrong" with Facebook, and it's not like I don't spend a shitload of time ego-whoring around on Twitter too. Let's face it: I'm completely & utterly addicted to social networks & tha Interwebs.
but: Something is Still Missing. Something is Wrong on the Internet and it's keeping me awake at night. however, i think i finally figured out what "IT" is...
Assertion #1: Facebook doesn't get Intimacy.
Facebook is full of my "friends", but it's not a great place to hang with my BEST friends (aka "BFF").
Now before you lose your shit, i know many of you are saying:
a) Dave, you're full of crap -- intimacy doesn't come from a computer, or
b) Dave, you're full of crap -- Facebook has *plenty* of intimacy, or
c) Dave, you're full of crap -- the only thing that might kill Facebook is Twitter, which is the exact opposite of intimacy (true)
or last but not least:
d) Dave, hey WTF happened to all the crazy fonts & colors?
None of these are the right response. (altho I do promise my next blog post will once again be replete with wild-ass colors and funky fonts, just u wait).
Let me back up & explain a little bit.
Once upon a time back in 2005 when i first joined Facebook, it was a "small" social network of less than 10 millions users. But I was still rather late to the party (altho at 39 i was the oldest cool kid on my block). Since pre-2006 FB was only available to users with a college email address, I had to contact the alumni association at JHU to get a valid email address (ending in ".edu") to register on FB. This resulted in a very odd & lonely initial FB experience where I was ~10-15 years older than almost everyone in my college network (please no PedoBear jokes, kthxbai). Gradually I found a bunch of folks on Facebook that I knew -- mostly VCs or early employees at FB & PayPal it turns out -- and before I knew it I was hooked on poking like every other undergrad across the country. (wait: that's not what I meant... oh never mind, that's true too).
fast forward 2-3 years: Facebook cracks 100M users, then 200M, then in quick succession 300M, 400M, 500M users. And we're coming up on 600M users soon.
Holy. Fucking. Wow.
Half a BILLION users? Unbelievable. What the hell happened? Where did all these "friends" come from?!?
Well, they didn't come just from college. Facebook figured out how to open up the social graph and gather people from all walks of life -- every age, every sex, every color. FB has college kids. FB has college grads. FB has high school kids, FB has parents. FB has the white-collar workforce, the blue-collar workforce, and even stay-at-home moms. Hell, FB even has GRANDparents! FB has desktop users, and FB has mobile users. And FB has them in the US, in Europe, in South America, and in SE Asia. Except for a few places like Brazil & East Asia, FB pretty much has every Internet-connected user on the planet by the short-hairs.
With an always-shiny-and-new combination of pokes, wall posts, photos, videos, apps & social games, tagging, and newsfeed distribution, Facebook has firmly fixed itself into the fundamental fabric of our friends & families. Except for Twitter & Zynga, Faceboook appears to be an unassailable, unstoppable JUGGERNAUT that absolutely DOMINATES our online experience -- and will likely continue to do so for the next decade... right? Well I'm not one to bet against 500M+ fanatic users & The Unsinkable Mark Zuckerberg... but there's this one little problem:
I've got too many goddamn friends on Facebook.
yeah, that's right: i've got over 2,000 "friends" on FB, and it's fucking KILLING me. Now admittedly most normal folks don't have *that* many Facebook friends -- true: i'm tremendously insecure, an only child, & a pathetic people pleaser -- but regardless a lot of "normal" people have the same problem with only a few hundred friends. and i'm guessing neither they nor i want to share our most jealously-guarded deep dark secrets with *everyone* on Facebook. but they might just share it with a smaller subset.
ASSERTION #2: The stuff that's really valuable in my social graph tends to the extremes -- very public (ex: Twitter) or very private (ex: email).
look, it's either Gaga, Shaq, & Glee (extremely public, better on Twitter than Facebook) or else it's only my closest buddies (u know, the evil VCs I collude with at Bin38 to fuck over YC startups).
The stuff that's meaningful -- NOTE TO STARTUPS: MEANINGFUL=MONETIZABLE -- that stuff is either better on Twitter, or better with a much more private & select subset of my friends on Facebook.
the very public: well here it's pretty obvious Twitter has an advantage over Facebook. the asymmetric follow model and constrained, lightweight communication make it MUCH easier to engage aspirationally with celebrities & famous people on Twitter than on Facebook. Now FB does realize this and is fighting back with Like buttons and a revved Group structure, but they may be at a disadvantage if Twitter starts to catch up with them in users/usage. Currently Facebook is a more familiar experience for larger audiences, but that may change over time. while I don't think Facebook is threatened by Twitter that much, neither is Twitter at much risk of Facebook stealing away the famous people. so Twitter probably wins on celebrities & other beautiful / rich / famous people.
the very private: now, here you'd think Facebook has the upper hand -- and they do, but they're at risk of being upstaged by a more private & meaningful social network (or perhaps via some subset or abstraction layer on top of FB, if they can move quickly). this could come from Facebook modifying their existing environment to support closer subgroups, or algorithms that preference newsfeed items only to close, strong, specific connections. Or maybe it just works better with email groups & selective filtering. Or maybe it works better on an entirely different social graph that emphasizes family, close friends, and small workgroups (Yammer? LinkedIn? maybe, but i don't think so). but somewhere, there's going to be a smaller more Intimate conversation that enable a different type of sharing... lots of it.
let me explain.
maybe I only want to tell a few close buddies about that episode with the VERY BAD bean burrito. maybe your girlfriend only wants a FEW honest opinions from her CLOSE friends on whether that new dress makes her ass look fat. and maybe your frat brother only wants to tell a few buddies about the AWESOME house party he's throwing next weekend, when he's planning to invite the smoking hot new freshman sensation over with 3 of her equally sizzling BFFs. and finally, maybe I only want to share that airfare deal on a Final Four Vegas roadtrip (& the pictures!) with my set of close friends. what happens in Vegas stays in a very tight and private social graph... you hope, anyway.
now what's going on here? in each case above, there's a specific tight circle of connections I'd like to draw on, but they aren't always the same. some of them pull from long-time, frequent & familiar associations. others are based on a select, NEW set of acquaintances that meet a high bar of interest. still others are based on some shared trait or interest or activity, where I've spent time with someone before around a specific context or depth of experience... or perhaps also, a specific [social] commerce context. like something I bought, but would only share info with a small group.
which brings me to my 3rd and final point.
ASSERTION #3: Intimacy depends on Context, Connection, & Continuity... which determine Closeness... and ultimately, drive Commerce.
One might suggest that Intimacy is determined by:
For any possible social interaction, and for any potential subset of friends within your social graph, these factors determine a minimum critical level of Intimacy required to initiate & sustain the conversation around that interaction. Too little Intimacy, and the conversation stops. But with the right amount of Intimacy, the conversation literally explodes with information.
Our desire to share our experience is explicitly determined by the level of Intimacy available within (and perhaps constrained by) a social network. Ultimately, this level of available Intimacy may indeed determine the overall relevance of the social network to its participants... and perhaps, whether related commercial transactions might be relevant as well. which is something Facebook probably DOES want to make sure it gets right.
...and THAT is why Intimacy should matter so much to Facebook. it's the ONE place where they have a huge advantage over Twitter, but also the place where they are greatly at risk of someone else coming in and stealing their cheddar.
Because Facebook has chosen to emphasize growth over monetization these past few years, they have de-prioritized close, meaningful connections over broadly relevant ones with a larger group of friends. While this will help them get to a billion users faster, and increase their share of brand spend on advertising (where Facebook is really killing it these days), it may create vulnerability to another social network player who focuses on a more tightly-defined social graph with only a few, specific & meaningful Intimate relationships.
Intimate relationships that might just monetize more powerfully with 3 close friends, than they do with 300 acquaintances.
Better be careful, Zuck. maybe there's a reason Facebook should care more about Intimacy & Privacy that has absolutely nothing to do with government regulation, and everything to do with simply making more Meaning... not to mention more Money, as well.