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Bill Bryant, former entrepreneur and now one of our US venture partners, recently described the maths of venture investing at a conference in Seattle. This write up is from the Xconomy blog, and in it Bill it explains why VCs need to price in 10x returns:
Our model here at DFJ Esprit is more a third make good money, a third return the investment (plus maybe a little bit) and a third return pennies on the pound than the half-quarter-quarter model that Bill describes, but the story is still the same. The difference comes because in the US DFJ makes more very early stage investments than we do in Europe. Bill also talked about the relationship between VCs and the investors who put money into our funds:
Having been closely involved with a successful VC fundraising process for the first time recently I can tell you that a) fundraising is a really important part of our business, and b) the parallels between the startup fundraising process and the VC fundraising process are legion. ![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=593d43b1-e622-422a-ad46-c992e4a23d1b)
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That is all good news, but it doesn’t change the fact that getting approval remains an unpredictable business and developers play second fiddle to Apple’s own strategic imperatives. In an ideal world there would be a staged process with criteria against each stage. I’m writing about this today following the news this week that Apple is asking developers not to use location information ‘primarily’ to enable local advertising. From Apple’s iPhone Dev Centre:
This request hits right at the heart of an application’s ability to monetise. It seems crazy that Apple would undermine the economics of its application ecosystem like this. I think the explanation lies in the fact that deep within its culture Apple is an end-to-end customer solution business, and hence their ecosystem partners will always play second fiddle. Specifically around mobile advertising, I can understand that they recently made an acquisition that they want to leverage, but this is the wrong way to go about it. The right way would be to build features into the iPhone SDK that make it easy for developers to build Quattro ads into their apps. The bad news is that the competition from Android App Stores remains weak with just 25,000 apps to Apple’s 140,000. Silicon Alley Insider sums up its problems thus:
and:
To these meaty problems I would add that they have nothing to match Apple’s range of monetisation options, including in-app purchases. Outside iTunes payment options remain fragmented. It will only be when the competition gets stronger that we will discover whether Apple has the capability to change its mindset. The Hitwise chart below gives a shot in the arm to the credibility to the social network business model. It shows that social networks and forums are driving a lot of traffic to retailers websites and that the volume of traffic is increasing very fast.
Another Hitwise post shows that Facebook is driving far more traffic to news sites than Google News (3.5% of news sites’ traffic compared with a flat 1.4%) and much much more than Google Reader (which accounts for only 0.01% of upstream visits to news and media sites). Contrary to the expectations of many, including myself, feedreaders have never gotten popular out of the early adopter group. A quick look at the referring sites for this blog in January shows that only 2.2% of traffic which came from third party sites came from Netvibes, the leading feedreader. That figure excludes search engines. With these sorts of referral figures it is unsurprising that social media budgets are rising fast. @markgyles linked me to the presentation below after reading my post this morning about measuring social media. As the first slide makes clear the point of the presentation is to say that it is all about the money. It has to be. All other objectives (website traffic, blog comments, Facebook fans etc.) are unimportant if the P&L isn’t showing the impact. Making the linkage can of course be tough, but that doesn’t mean it shouldn’t be done. Think of the lengths the television industry has gone to apply econometric models to TV ad spend so they can calculate RoI. Fortunately there are some simpler ideas in the presentation below. ![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=3965df9a-d360-4bde-be5a-2b99b058709e)
The second of the two panels took place last night and is part of the Social Media Week which is going on this week in London and around the world. It was organised by Sam Michel‘s Chinwag. The panelists were founders of social media startups selling services to brands and companies that want to engage with the social web. They were mostly agency businesses. Their common message? That budgets for social media are rising fast but lack of accepted measurement techniques and RoI methodologies is hampering market growth. Stories of big brands engaging more with social media are legion, but perhaps the best soundbite is Pepsi’s decision to drop their TV Super Bowl ad spot for the first time in 23 years and instead spending $20m on a social media campaign. Starbucks and Majestic are other brands who are being innovative and spending big in social media (for more details on Starbucks see here and for Majestic see here). Unsurprisingly given the spend on social media the tracking and measurement opportunity has been obvious for a while now, but despite that, solutions haven’t been forthcoming. Entrepreneurs I’ve spoken to, including some who are active in this area, say that is because it is a very hard nut to crack. The biggest challenge stems from the diffuse and fast moving nature of the social media landscape. Investing in software development to track something which may not be (as) important to your intended customers by the time your product is ready is a dangerous game. The second issue arises from the varied ways in which social media gets used and the newness of the medium. Social media campaigns can be about customer relationship management, marketing, sales, and/or customer research, and a lack of clarity on the part of customers as to why they are engaging in social media contributes to the tracking and measurement problem. All the panelists last night described how the first thing they do with prospective clients is help them develop a set of objectives for their campaigns, a common feature of immature markets. It seems to me that both these issues are surmountable. I think the social media landscape is stabilising – my guess is that Facebook won’t go the way of Myspace and Friendster, and as brands get more experience with social media through 2010 best practice will start to emerge. Social media campaigns across the four areas listed above might start to be regarded as distinct areas with different providers. The companies which seize the tracking and measurement opportunity will most likely also play a roll in defining what those best practices are. ![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=4ae83005-e83f-49ef-bff8-5ef21421af8f) There is a lot of talk about the potential of mobile at the moment. Mary Meeker has perhaps been leading the charge with predictions that mobile will drive the next big computing cycle and will be 10x the size of the desktop internet wave of the 1990s. She is far from alone though, as many others have been chipping in with similar thoughts – e.g. Fred Wilson lists mobile (specifically Android) as one of his six areas of interest for 2010. So I buy into all that. The confluence of better devices, improved bandwidth and the opening up of the mobile value chain will make whole rafts of new things possible – e.g. the increased media consumption I wrote about yesterday. But I am bothered by one thing, and that is the notion that the opportunity unfolding in ‘mobile’ is somehow different and separate from the broader web. I posted some early thoughts on this subject when the slew of tablet releases at CES led me to conclude that the Full range of screen sizes renders web-mobile distinction obsolete. My points there were that you can by a device with any screen size from 2” up, netbooks and tablets are almost as portable as mobiles, and touchscreens and voice recognition are levelling up the playing field from a data input point of view. I then tried to make this point on a panel at the Mobile Games Forum conference a couple of weeks back and got back a couple of angry and incredulous comments from the audience that prompted this post. The first questioner cited the excellent work of Tomi Ahonen, who talks about how different mobile is from the internet. To that I say different yes, but distinct, no. There is really nothing you can do with a mobile that you can’t do with a small netbook with a spare battery to keep it on the whole time – so the differences are of degree rather than type. The only exception to this is the notion that the mobile is a uniquely personal device, but I’m not sure I really buy into that. I now carry two devices, an iPhone and a Blackberry and as we all head to a multi-device future I can’t see any one of those having a kind of magical primacy. The second questioner was of the belief that app stores are a unique part of the mobile landscape and make it different from the wired web. Nicholas Lovell, also on the panel, replied by making an analogy between the iPhone app store and AOL – which points out that in the early days of a new medium consumers need the comfort and ease of use of a walled garden, but that as trust and proficiency grow a wider range of services and content become more appealing. So I expect app stores to be slowly displaced by an open web interface to mobile content over the next few years rendering this distinction obsolete. Other differences between mobile and the fixed web are also on the decline:
All of this is important to me as I wrestle with the question of where the opportunity lies in mobile. I’m starting to think that at the level of apps and services pure play mobile opportunities are going to be the exception rather than the norm. Most services will be accessed across a range of devices and platforms and the interesting question is where the locus of activity or critical enablement lies. One example is services built on data capture which only becomes easy enough when you can use a mobile device, but which are then accessed via a richer web interface. As part of my health obsession (which has been slowly growing for years and received a big boost recently when I read Transcend) I’ve recently begun using DailyBurn and Fitbit to capture the exercise I do and the food I eat and then calculate the energy I burn and consume. I access both these services primarily via the web, but they each have a mobile component (iPhone app and wi-fi enabled accelerometer respectively) without which data capture is too much hassle. In effect these are mobile enabled services. ![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=36d51a9f-8c89-4a2e-8d4f-ef9a15511bfb) One of the very few email newsletters I subscribe to and read is published by Ray Kurzweil (you can find it on his site KurzweilAI.net). I take the weekly digest which comes on a Sunday which is a longish read, but packed full of interesting links to articles about developments in medicine, man machine interface development, cybernetics and media – areas which I think may well spawn a whole raft of great companies over the next ten to twenty years. Most of it is too far out to be relevant for venture investment in the short term which is why I haven’t mentioned it much here. That was different yesterday when via the email I was linked to an amazing statistic in an International Business Times article about the growing amount of media consumed by America’s children. They reported on a Kaiser Family Foundation Study which found that on average America’s 8-18 year olds devote 7hr 38mins a day to media use, up 20% over five years. That is a whopping amount of time, and increasing fast. The growth is being driven by the proliferation of mobile and connected devices. It is getting easier and easier to consume media in different places, so people are consuming more media. You have to wonder where this ends up. The study also found that for black and Hispanic children the average was nearer 13 hours. I’m guessing this is largely an income driven disparity – which is a bit worrying. The big picture story here is that if demand for media is growing and growing on new devices there will continue to be money to be made in creating services to satisfy that demand. That means more Googles, Facebooks and Twitters.
Powered by Twitter Tools Bill Warner, founder of Avid Technology (NASDAQ: AVID) is a Boston based entrepreneur and I guess angel. He is passionate about building the Boston startup ecosystem back to its old status as a rival to Silicon Valley. To that end he posted the following ‘Company Playbook’ which applies just as well over here. It is a brilliantly succinct set of guidelines for success that every company would do well to follow. I particularly like items 1. and 2.
I also buy into Bill’s assertion that to have a strong ecosystem you need strong local companies. As he says, being an outsource development shop for distant corporations is much less exciting than being in the headquarters. More European champions would help us all. ![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=46fa32b4-0022-435b-aa5a-802b0d51a7b4) |
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