Product Hunt

If you haven't checked out Product Hunt, I highly recommend you venture over to their corner of the internet. 

Product Hunt is a dead simple way to discover new products (mostly digital products). That's literally it...for now. 

As a VC, the value of Product Hunt is obvious. It's a window into new product and technologies, ideally before they scale. I don't even need them to keep building new stuff and I will use it for years to come. But the team over at PH is hungry. And they tweet a lot, which pretty much means they are up to no good. There is something brewing over there.

So what are they building and what comes next? 

Here are a couple things I would love as the product evolves:

1. A product feed - the idea of a 'feed' dominates the most popular consumer products. Facebook pioneered this with the news feed, and others such as Twitter, LinkedIn, and even newcomers like Secret have followed suit. It's used by literally thousands of products today. Although they would have to break away from the current model of a voted list everyday (which I do very much enjoy), I think a product feed would be freaking awesome. (the PH twitter feed gives you a taste for this and it's amazing)

2. Product store - much like Birchbox sends out samples in a box but then users come back to buy the full size item, I think PH is well positioned to be a great storefront for products that they have covered. Perhaps it will look like FindTheBest for products. The data they collect about the products and user feedback won't hurt either!

3. Organic product launches - Most of the products on PH are added by the community, but I see that shifting to more and more founders as it becomes more popular. Launching a product is painful. Talking to reporters, herding media outlets, blogs, blah, etc. PH is a great way to organically launch a product and get real users feedback almost immediately. I love trying stuff out far more than reading a journalists spoon fed story. Maybe PH will allow a founder to just: tell a authentic story and press submit. Then let others reporters write stories based on the communities feedback around that product. 

4. Beta platform - one of the most valuable assets PH has created is the community. No one has really cracked the nut on helping companies find really passionate users to try new features and products before they launch. Building a way to connect companies with users in the PH community for feedback would be awesome. 

I could go on and on, but what this boils down to is two things: community + data. 

PH's community is extremely valuable. They are early-adopters, eager, smart, passionate, real, authentic and respectful. Pointing this community at any new feature or product that PH creates will be amazing. 

PH's dataset (although small today) will become increasingly more valuable. They created a simple way for users to give them data about new products that are launching, what those products do, and how popular they are. As that dataset grows, the possibilities are limitless. 

I'm excited to watch PH grow and I'm glad there are some great guys behind it. 


What is a Special Purpose Vehicle (SPV) and how did SV Angel lead a $200M round in Pinterest?

News broke last week that SV Angel led a massive $200M growth round for Pinterest. For those of you that scratched your heads, you are not alone. 

How did a seed fund lead a growth round many times the size of their entire fund?

People who do early stage private investing do it because they love it, but not necessarily because it's the most lucrative stage or asset class. Given seed fund economics, there is only so much upside when you have a fund of $10M-$40M. This upside is not only capped for the General Partners, but also for the fund's investors, the Limited Partners. So seed VCs have found other ways to make economics better for themselves and their LPs. One of those ways is through Special Purpose Vehicles. (it's worth noting that SPVs are used by other investors at various stages). SPVs are used by seed VCs when the investment they are making falls outside the stage, size, or strategic focus of the core fund. 

Simply put, a SPV is an investment vehicle set up for single, special purpose. Picture a stand alone bank account set up just for a single investment. In this case, SV Angel would have gone to their Limited Partners (family offices, institutions, fund of funds, endowments, etc) and asked if they wanted to invest more money into Pinterest. If so, they would collect their money into a SPV and make the investment via that special entity with it's own governance and terms. 

Although other investor types use SPVs, it suits the seed VC asset class very well for three reasons. 

1. It allows a seed VC to put more $$ to work - in a single investment, SV Angel essentially doubled or even tripled the amount of capital invested this year, creating more upside for them and their LPs

2. Seed VCs often build very strong relationships with management teams because they are involved early. This is the only way and seed VC to pull off a late stage SPV like this. The management team at the company must really trust and value the investor.

3. Seed VC funds are typically much smaller than some of the other funds that their Limited Partners may be involved with (Series A/B VC funds, growth VC funds, PE funds). If the LPs really like what a seed fund manager is doing, they will want to put more money behind them but are often limited by the size of the fund. SPVs are a great way for an LP to put more money to work behind a great seed fund manager that they really believe in. 

I wasn't surprised by the investment, but rather I was surprised by the nature in which is was reported. Very rarely are these deals reported publicly. Twitter, for example, raised a ton of money from SPVs late in its life, but only a tiny bit of that was ever covered publicly, and even then it was only during the S-1 filing and IPO given the hood was lifted on its fundraising history. I suspect that we may see more public disclosure of SPVs, especially as companies are taking longer to IPO, since SPVs are a great way to raise capital from people you already know and trust. 

Kudos to the team at SV Angel. They really are a great firm with a 'founder first' mentality. It's nice to see that paying off. It's a great lesson for all seed VCs that if you work very hard for your founders and portfolio companies then special opportunities like this can pop up. This seems like a win-win-win for Pinterest, SV Angel, and SV Angel's Limited Partners. I hope we at Susa Ventures are lucky enough to be able to do this one day with a great portfolio company and our LPs. 


Feature Monday

Foursquare recently split their app in two. It has been covered a number of times. 

I am not here to talk about that, or app constellations, although both are indeed interesting topics. However there is a new little feature that popped up in the new Swarm app they launched that I think is pretty neat. It's called 'Nearby Plans' and I think it's awesome. 

I have always longed for a product to allow me to push my plans out and just let people indicate their interest in joining. Plancast tried this, but it never really took off. I suspect there will be other attempts at this problem too. 

'Pushing' out your plans to friends is a much more efficient model then individually 'pulling' people by emailing, texting or calling given most of the time people are busy. What can sometimes take an hour to plan is solved with a single post. In a way, this isn't too different than posting on facebook that you want to grab dinner, but that always feels out of place and foursquare has a simple advantage in that it easily limits the posts' reach to nearby friendly only. 

I am excited to see if this feature takes off, or maybe just like the 'lists' feature in the old foursquare app (that i used all the time), it will remain a very cool little feature that never really takes off. 

Frontback

Frontback is a new photo app that I love. 

There are a ton of photo apps - probably a thousand or more across the various mobile platforms - however very few ever get significant traction. 

Frontback is one of the few that people are flocking to. 

For those not familiar with Frontback, it is an app whereby a user takes one picture with the forward facing camera on a phone, and then one photo with the backward facing camera. It creates a simple, yet powerful image. Two photos can tell a story. 

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Either one of the photos above is an okay photo, but neither is great. However together, it’s a much better photo. It tells a story: a group of friends on the field before the 49ers game. There is human emotion, context, and feeling that you are at the game with us. 

Most users have multiple photo apps on their phone. In the US, the two most popular are Instagram and Snapchat. I think Frontback will become the third pillar. It fits between these two products. It has the authentic feel of Snapchat, such that it often captures human emotion void of filters and curation, with the openness of Instagram, given that the product revolves around the newsfeed and photos are all shared publicly. It’s a simple yet elegant product. 

It’s the simplicity that gets people to try it, but it’s the authenticity that keep people coming back.

I think it’s up and to the right for this one.

You had one job

I really like the ‘you had one job’ meme. There are a number of sites that have them now. The idea being that someone messed something up that was fundamental to the project they were working on. 

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This happens in technology too. 

Building great products is hard, but sometimes I see something out of companies that should be better than that. Startups can get away with a ton of mistakes, but bigger more established companies are held to a higher standard. 

This is the most recent one I came across from Spotify:

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Again, building great products is hard, and a music recommendation tool is no exception, but making sure that the outputs are different in a ‘Since you follow X, you might like Y’ feature seems pretty damn basic. That should be one line of code. 

Not sure what happened here, but I did get a pretty good laugh out of this one. I’m sure Spotify will fix this pretty quick. 

*note: I do in fact like parachute. don’t judge me. 

Delightful product

Every once in a while, a product truly delights me. Sometimes it’s when i use a new product, but more often it’s when a product gets a little new feature that just nails it.  

This happened the other day when I was flying from NYC to SF. I was searching gmail for my flight confirmation email to check the time and airport. Once I found the email, a little product feature that I have never seen before delighted me.

Here is a screen shot of a bar that was inserted above the confirmation email. 

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Gmail must have added this recently as I have flown many times in the last couple months and have never seen this. 

This is live flight status information displayed directly into my confirmation email. What a brilliant product/feature. This is why I love Google - they build products that are very relevant but stay out of your way. From their roots in search, they build products that try to give you the information you want at the time you want it, all without being annoying. 

  • Great products are not easy to build. They take great people, great ideas, and great execution. Sometimes people scratch their heads when Google doessomething, but it’s products like this that make us realize we are all just a couple years behind their master plan. 

Right Person, Right Place, Right Time...Right Biosignals - The Fourth Dimension in Advertising Could be Deeply Personal

Advertising is one of the oldest industries. From the first paid ad in the French newspaper La Presse, in 1836, to the Don Draper age on Madison Avenue, to today’s giants like Facebook and Google, the holy grail of advertising has always been to understand as much about the consumer as possible, so that your ads can get in front of the right person, at the right place, at the right time. These three dimensions (right person, right place, right time) are no longer sufficient. 

In the early days, getting in front of the right person was hard. Before television, radio and the internet, ads appeared in newspapers and on billboards - formats that reached broad audiences with little room for targeting. As technology evolved, so did advertising. With the introduction of radio and TV, advertisers could target based on channel, segmenting the population to deliver more targeted messaging. For example, delivering beer advertising to male audiences on sports radio and TV channels. 

Although TV still accounts for 50%+ of advertising dollars, the Internet was a transformation for the advertising industry. For the first time ever, not only could we get in front of the right person, but we could do it at the right time. The Internet captured eye balls better than any other medium before. People spent more time online than watching TV, reading the newspaper, or walking by billboards - combined. With eyeballs stuck to the web, and search becoming the entry point for most users, advertisers could target customers further down in the purchase funnel right before they made a purchase decision - the right time . 

Recently, we entered the age of ‘mobile’. Mobile unlocked the ability for advertisers to target at the ‘right place’. Today, not only can we easily target a 20-30 year old female (right person), who is in the process of buying a new pair of shoes (right time), but we target her as she is walking right by a Macy’s or Payless (right place). This ability to target ads across all three dimensions is transforming the industry. 

But there is another wave of innovation that is just starting to emerge - and no, it’s not ‘social’ (I see ‘social’ as helping better inform advertisers to all three dimensions previously covered). In my opinion, the next dimension will be a biological layer - it will be a way of not only targeting the right person, at the right time, and the right place, but it will allow advertisers to target users based on their historical and real-time physical state (such as walking, running or biking) and biological state, using biosignals (such as heart rate, blood pressure and other vitals). By combining these physical and biological signals you could get a new dimension on customers. 

Think about the simple example of Glacier Water being able to target you with a $1 off coupon to a local grocery store given they know you just had an sustained, escalated heart rate over the last 30 min from data coming from a Nike+ Fuel Band, Fitbit or a some new gadget not yet launched. Sure, they could use mobile phone location and gyro data to guess you were running; but, by layering this new dataset advertisers will have a more accurate and complete picture of what the consumer is doing and in the mood for.

Most people will probably push back and say this is too futuristic, too hard or will never be legal - and some of that may be true. There are some large hurdles for this to become a reality, but my bet is that within the next ten years,  physical and biological data collected from the explosion and constantly improving ‘quantified self’ devices (Nike+ Fuel Band, Fitbit, apps) and connected medical devices will be somehow used in advertising.

Time to first venture round increasing

Today I read an interesting article about the time it takes angel-backed companies to raise their first venture round, commonly called the series A round. The article, based on Crunchbase data, states that angel-backed companies in 2013 take, on average, 526 days to raise a series A from the date they closed their seed round. This is roughly 90 days longer than the average in 2012, which was 434, so roughly a 3 month difference. Here is the chart. 

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So what does this mean? Well, I think it all boils down to a combination of three things:

1. Series A Crunch - As early as 2011, but particularly over the past year, the phrase ‘series A crunch’ has crept into investors' and journalists' vernacular. Although perhaps overhyped at this point, the problem is real, and there isdata to support it. The series A crunch is the idea that there is a great deal of capital available for seed stage rounds but a relatively small amount of institutional capital available for series A rounds; therefore, many seed-funded companies have a hard time raising series A rounds and eventually run out of money. Because of this, many investors, including our team at Susa Ventures, advise startups to take larger than normal seed rounds in order to increase ‘runway’. Runway is the time (often expressed in months) a startup can operate before needing more capital. By doing this, they give themselves more flexibility and insurance just in case it proves difficult to raise the series A round. So, investors’ advice plays a role in the data above. 

2. More Seed Capital Available - Related to the point above, there is a record breaking amount of seed capital available today. This increases the demand for seed rounds. In past years, a $1M target seed round might only get $1M of interest, but today, it is common for seed rounds to get oversubscribed ($ total committed exceeds what the company wants to raise). What ends up happening is that founders increase the size of the round, to $1.5M for example, thereby extending the runway of the company. When startups have a long period of runway, they typically won’t raise additional capital as quickly, hoping to get further along, and give away less of the company in the next round of financing. So, the ballooning angel investing market plays a role in the above data. 

3. Developer Productivity/Lower Development Costs - Developer productivity has increased 10X in the last 10 years with the introduction of tools such asGitHubAWSStackOverflowParse, among many others. Couple this with the fact that we have more ‘platforms’ today than ever before - mobile platforms such as Android and iOS, data platforms such as Factual, and social platforms such as Facebook or LinkedIn - on which developers can build low cost applications. All this leads to the fact that it is cheaper today than ever to build a company, specifically software based companies. This proliferation of tools, platforms and APIs enabled companies to build and iterate with only seed capital for much longer, theoretically extending the time between the seed and series A rounds. So, increased developer productivity and decreased development costs plays a role in the data above.

The four pillars of venture capital

Venture Capital is an interesting business. My friends ask me questions like ‘what is VC’, ‘what do VCs do all day’, so I set out to simplify VC into its core elements. 

VC in an interesting mix of PR, company building, finance, legal, fundraising, investor management, operations, marketing, people management, human relations, etc. 

However everything boils down to four core pillars, and it should be noted, that they are interrelated: 

1. Deal Flow - deal flow is the most important aspect of venture capital. It can be thought of as everything that goes into the top of the investment funnel. If you don’t fill the top of the funnel with great deals, you have no chance of investing in great companies - you are only as good as the deals you see. Although many things go into getting great deal flow, the very best way is by building a great reputation among entrepreneurs you have worked with. VCs such as USVFRC and IA Ventures have done a great job at this in recent years. Word-of-mouth has always been the best form of marketing.

2. Investment Decisions - if you have good deal flow, then there is no shortage of good deals to choose from. But good deals don’t return funds, great deals do. If deal flow is everything that is added to the top of the funnel, then making an investment decision is the process of selecting the few deals that make it. 

3. Post-Investment Support - every VC should spend as much time as they can helping their existing investments. Current investments should always be more important than the investment you are about to make. Startups are risky, and it’s the job of a good VC to do everything they can to de-risk an investment and help the founders build a big company. 

4. Limited Partner Management - VCs are money managers who just happen to have company building skills. The money they are managing comes from LPs, or Limited Partners. LPs range from individuals, to family offices, to endowments, and even to corporations, such as the case at Google Ventures or Intel Capital. Managing these LPs is one of the least visible aspects of VC, but it’s an unavoidable aspect of the business. 

Venture Capital is a mix of many skills and industries. I believe this is the reason there are so many different types of people in VC. Although this may cause confusion for outsiders looking in, the good news is that entrepreneurs get a wide variety of people in which to choose from. As the VC industry continues to evolve, change is certain, but I believe the four pillars above are here to stay. 

Waze - an acquisition gone RIGHT


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As reported in June, Google bought an Israeli mapping company called Waze.

As a user of both Google Maps and Waze, I was excited about the potential of this acquisition, as both products have inherent advantages.

What I was concerned about, however, is the fact that many acquisitions never live up to their potential. That is why, when only two months after the acquisition, I saw Google Maps already starting to pull accident data from Waze (see above where it says ‘reported via Waze app’), I got excited.

Although I am still waiting for Google Map’s directions and navigation to get smarter using better traffic data from Waze, I am delighted and encouraged by the fact that Google is putting the acquisition to work immediately.

This is the way to do Corp Dev. This is the way to do acquisitions. Don’t spin your wheels trying to do a massive overhaul. Pick the low hanging fruit and continue the integration form there. It’s a great way to delight your customers.