Found an interesting article on how the $3 billion Snapchat valuation was arrived at.
I still see this sort of investing and playing with companies as some sort of high stakes gambling. Companies used to be about something more than an exit strategy. The notion of building something lasting now seems antiquated. Perhaps that's because our collective attention spans have become so short. I suppose when your entire business is based on one app or service you don't really have the luxury of thinking much beyond an exit.
There appear to be two basic axioms you need to be familiar with if you're going to play this game:
- Cash out by selling the company before your thing jumps the shark.
- Get big fast, go public and start buying other things before your thing jumps the shark.
I pay for Eldarion sites that I use such as Thought Streams with my personal credit card. If we expect our users to pay for added value on one of our sites, we should be no different.
I'm a firm believer in the notion that eating your own dog food should include paying for it.
For love or money?
In the wake of the WhatsApp acquisition, there's been a ton of posts and articles flying around about all aspects of it, from how Facebook arrived at their valuation to how it challenged a lot of the conventional wisdom about what it takes to make a successful company in Silicon Valley.
There's a lot of jealousy. There's also a lot of talk about this lust many entreprenuers have for liquidity events, and there is no shortage of analysis on how or where the next one of these may come from.
All I have to say about it is this; if you're driven primarily by a big payday and lust for a liquidity event, you're probably in the wrong game. With any creative endeavor, people who are or who become the most successful are driven by a passion for what they do or the problem they are solving. For these people, the paycheck is often a secondary consideration.
I'm sure there's more than a modicum of satisfaction for the WhatsApp founders in their liquidity event. However, I think you'd probably find that they were driven more by the satisfaction of solving a problem for hundreds of millions of people than they were about the prospect of what has arguably become the most epic acquisition in the history of acquisitions.
Most successful people are driven by a passion for something. They win not because they want to pursue something for the rewards and accolades, they win because they need to pursue it; they are driven by a force they can't control or understand. Those driven by want of success may well find it, but it's very often short lived and not long remembered. The Beatles didn't write hit songs because they were motivated by the payday. Paying the bills I'm sure was important, but they wrote hit songs because it's what they loved to do. The Monkees on the other hand were nothing but a contrived commercial response to The Beatles. The Monkees were successful, no doubt, but I'm willing to bet that most people of my vintage or older, can rattle off more songs and facts about The Beatles than they can about The Monkees. Once the hype faded, so did The Monkees. The Beatles on the other hand, have been an influential fixture of pop culture for decades. The Monkees, decidedly less so. The Beatles changed the world, The Monkees were an attempt to cash in on the fact that The Beatles had changed the world.
If I were ever asked, my advice to those entering this game would be simple; solve a real problem and stay true to who you are and what you do. Don't let money be your primary motivation. If you believe that what you're doing is important, and you are passionate about it, a lasting and satisfying success is very likely to find you. There are never any guarantees of success of course, but passion very often disregards risk or accepts overcoming it as a challenge.
If there is another WhatsApp out there the most obvious choice for the moment is probably dropbox, but given the valuation on their last round of a reported 10 billion, who could afford them apart from maybe Apple?
ArsDigita, Greylock and Me.
For me, getting involved with James Tauber as a co-founder of Eldarion didn't require a whole lot of thought. While I was never much of a web programmer, I understood enough about what he was proposing to recognise the potential in his vision. In fact, my brief involvement as an investor in a company built around what was arguably one of the first open source web application frameworks had me extremely interested in Eldarion right out of the gate.
This web framework that I speak of was the ArsDigita Community System, or ACS, which is now known simply as OpenACS.
While it may not have been the first open source WAF, it certainly was among the first, and the business that ACS founder Philip Greenspun built up around it in the mid to late 90's was pretty amazing. In less than two years, he managed to grow the company from zero to about 20 million/year in revenue with no funding or support from outside investors.
Philip was nothing short of a pioneer with his work on building web communities and open sourcing a WAF like the ACS. His books and blog posts left quite an impression on me, and while I didn't head down a more web centric path until joining up with James on Eldarion, a lot of that experience and certainly looking back on it now as someone involved in a similar venture is something I find extremely valuable.
The other interesting thing is that it seems like lot of what Eldarion does from the qualification of the types of jobs that we take on, to our approach to open source follows principles very similar to those of AD. I think that James brought a lot of this into play naturally with his own style, but looking back at some of Philips old blog posts the way he ran AD sounds very similar to how Eldarion is run now.
The story of ArsDigita as a bootstrapped startup growing fast and furious with very little outside help is incredible in and of itself, but the whole ArsDigita story is a really interesting and cautionary tale of how involving VC's can alter the path of a company.
My part in the ArsDigita story was small but rather interesting.
After having sold my consulting firm in 1999, I decided to play around in the music business for a bit and was supporting an artist named Bobby Lee Rodgers, who was teaching in the guitar department at Berklee College of Music in Boston. One of Bobby's Boston area fans, Andrew Grumet, who was also a web programmer, offered to build and maintain a web site for Bobby.
I offered to pay Andrew something for his services, but being the great fan and person that he was, he wouldn't take any money for the site. He did, however, let me take him to dinner In Kendall Square as a way of saying thanks for the effort he was putting in. Over dinner, I asked about his day job, which turned out to be web programming at ArsDigita.
After hearing Andrew's stories about the crazy, meteoric success AD was having, I was instantly hooked and had to meet Philip.
We took a walk to AD's Cambridge offices after dinner and even though it was well past 8:00, Philip and a bunch of his programmers were still there working. Philip and I seemed to hit it off instantly. We had a great conversation where he explained the business he'd built around building and hosting sites based on ACS and how he traveled around evangilizing ACS and all the powerful things the open source platform had to offer for building database backed web sites.
When Philip told me that he'd spoken to a number of VC's that didn't seem to get his model of using open source to build and host sites for companies,, I offered to introduce him to some guys I knew at Greylock.
The meeting between AD and Greylock happened shortly thereafter and by all accounts, had gone very well. A month or so after meeting Philip, my contact at Greylock reached out to me to let me know that AD was getting a term sheet for a large equity deal that would include Greylock and General Atlantic.
In return for bringing them the deal, Greylock offered to allow me to invest in the 30+ million series A round.
At this point, I had recently sold my consulting firm, Lexington Software Associates, to a company named Interwoven. The LSA transaction was stock only, no cash, which by the way, I will probably never do again unless it's stock in a publicly traded company :-) Since the LSA sale was just ahead of the Interwoven IPO, I was still under lockup and couldn't sell any of the stock that I was awarded for the sale of LSA for six months after the Interwoven IPO. Apart from the money that I was making consulting, I didn't have much if anything in my savings as I'd drained it to fund LSA. Greylock was very accomodating however, and the deal was worked out such that the shares would be waiting for me once I was free of the lockup period and could sell my Interwoven shares to cover my AD buy.
I couldn't have been more excited to not only be involved with my first series A investment in a very promising company led by an extremely bright founder, but to also have invested along side a VC who was, and to this day continues to be, one of the top VCs in the country if not the world. "How could this possibly miss?" I remember saying to myself as I signed the stock purchase agreements with all their caveats and warnings about loss of capital...
The deal eventually happened, the company famously augered in and became a smoking hole in the desert, and millions in VC money, not to mention the relatively small in comparison, yet tidy sum I had invested, atomized in the ensuing conflagration.
I don't ever pout about the financial loss. I knew what I was getting into. I think I was much more upset to see such a promising business with such an ethical, articulate not to mention visionary founder evaporate so quickly. I didn't spend nearly enough time with Philip and AD as I would have liked. We had a number of very cordial email exchanges following our initial meeting and leading up to the deal, but never really met in person again that I can recall. It probably would have been a lot of fun to work at AD, which is something I should have explored.
Bringing what turned out to be a bad deal to Greylock didn't seem to hurt my standing there. In fact, James and I actually went to Greylock for some advice shortly after founding Eldarion. My contact there has always been pretty reassuring about the fact that they did their homework and knew what they were getting into. Had someone else referred them the deal, they probably would have done it anyway. Watching the whole thing unfold I will admit, has changed the way I view VCs as a financing mechanism. I don't have anything against them at all, and I do believe in using them, but with caution. The key is I think is, and really has always been to have as much leverage as you can going into a deal and use it to ensure the deal is crafted fairly and as much in your favor as possible.
Reading Philip's account of the internal power struggles and legal battles that followed the investment sometimes makes me wonder if my introduction of the VC's into the ArsDigita story was a sort of catalyst that lead to the failure of the company.
I think outcomes like the one AD experienced are extremely difficult to predict, but I think that being able to watch it all unfold from the sidelines as a stakeholder did teach me some very valuable lessons all of which were well worth the price of admission.
Approaching 30 years in high tech.
It was September of 1985 that I took my first job in high technology on the assembly line for a computer workstation manufacturer by the name of Apollo Computer. Within a year, I was a system admin in the operating systems lab, within two, I was a software engineer working with the team responsible for porting Sun's ONC platform to Domain/OS.
Apollo was my first real full time work experience, and even though I was badge number 4103, it still had the atmosphere of a startup and I loved being a part of a company that was years ahead of its time.
After subsequently working for at least a dozen startups, consulting for dozens of companies and having founded and sold one company of my own, Apollo stood for many years as one of the high water marks of my career in high tech. That is of course, until Eldarion came along.
The excitement of seeing the vision that James laid out for Eldarion being realized has been truly amazing. The team is perhaps the most talented I've ever seen or worked with, the opportunities that lay before us incredible, and the chances of it continuing to eclipse any of my work experiences of the past 29 years, excellent.
Silicon Valley: Place or State of Mind?
There was a Fred Wilson blog post the other day that was in response to a Marc Andreessen tweestorm defense of Silicon Valley. In the post, he argues that Silicon Valley is "a mindset that is infecting large swaths of the global economy."
I find that view pretty easy to agree with and accept, but I have to say that I'm much more comfortable with the mindset than I am with the actual place. For me, there are other cities that I think fall into a similar category and that have very similar attributes.
In my nearly 30 years in tech, I've spent a lot of time either working for or with companies in Silicon Valley (SV). While the scale of the fervor around SV has waxed and waned over the years, one immutable perception of it has sort of been etched in my brain about it which is, that it's really no different in many ways to Hollywood, Nasville or any other place that's come to be regarded as a mecca for something.
Having worked to some extent in music and film, and extensively in tech, it's very easy to see the similarities among the three.
The best concentration of talent can be found in these "jeweled cities".
This is universally true in my experience. Thousands of extremely talented people flock to these jeweled cities for a variety of reasons, but not just because they're looking for their pot of gold. I would say that one of the more common reasons is simply because they want to be surrounded by lots of interesting work and other very talented people. Who wouldn't?
A great concentration of talent does not always result in either quality or original product.
In the film and music business, the term "sell out" is very often associated with Hollywood and Nashville. This is because a lot of people who go there feel that they need to sacrifice their artistic integrity to the Gods of Commerce in order to "make it". This sadly, is by and large true. People often find themselves taking jobs that they don't like or producing work that is unfulfilling just to pay the bills, which is understandable. Many more people just spend their time chasing the flock rather than trying to follow their own muse and develop something truly unique.
The unfortunate reality is that investors, whether they be in tech, music or film, have an aversion to risk. If you can convincingly position or pitch yourself as "the next" Taylor Swift, Steven Spielberg or Snapchat, you're probably more likely to get a meeting or even a deal than if you're pitching something that's completely out of the box and disruptive. I'm sure there would be a raft of people that would object to this assertion and claim the opposite it true. I'm not claiming that this mindset and behavior is an absolute, but I feel that it is closer to the norm.
This is not to say that originality can't or doesn't shine in these places. It does, and it often does shine very brightly,, it's just that when a crowd of people are shining mirrors in your face, it can be tough to tell which is the brightest.
Regarding the quality front, I know this one from personal experience in the tech space from at least three separate dealings with SV based companies. Perhaps the biggest example was when my first company was acquired in 1999 by a then SV and Wall Street darling just before its IPO. I was asked to run a portion of the field organization post acqusition and found the quality of the product to be so terrible, that I couldn't even bring myself to stay for the year it would take to vest the remainder of my shares. This is by no means to suggest that the quality of work in general in the Valley is terrible. That's not my point, my point is simply that being there with all that great talent doesn't guarantee a quality product.
You'll find a lot more failures than successes, but successes are almost always bigger.
There's a very simple mathmatical certainty that just comes from the sheer numbers of people flocking to these places; there's just not room for everyone to make it and more people will fail than succeed.
What adds to the buzz, allure and long term success of these jeweled cities is that when they do produce a hit, the effects can be far reaching and the rewards and impact huge. Just look at Google and Apple.
Some of the biggest disruptions and successes come from outsiders.
When Mutt Lang, the long time producer for big name rock acts such as AC/DC and Def Leppard took a little known country artist named Shania Twain under his wing and started producing her, the resulting wave of hits and the new sound he produced turned Nashville completely on its head. Lang's vision and sound paved the way for acts like Faith Hill, The Dixie Chicks and Taylor Swift to name a few. Country music was now no longer just the sound track for a blue collar, middle aged, predominantly male crowd. The revolution that Lang, a complete Nashville outsider started, opened up an entirely new market and demographic. The longevity of this shift was demonstrated to me last year when my production partners in New York revealed to me that the Country Music Channel demographic was now trending predominantly toward teenage girls.
It's important to note that while Twain was originally signed by a Nashville label before she met Lang,, it wasn't until Lang, the outsider, produced The Woman In Me that she began to achieve huge commercial success.
Facebook came from a kid in a dorm room in Cambridge Mass as did Dropbox and a host of others. It's difficult to know if Zuckerberg or Houston could have found the same success had they started in SV, but the fact remains they didn't. There's no question that their moves to SV helped propel them, but their ground breaking ideas were more the product of SV the state of mind vs. the location.
Even when the success comes from an outsider, the jeweled cities usually end up with the credit.
Invariably, through the lens of time, the fact that some of these major successes and disruptions came from outside the walls of the jeweled city becomes lost or murky and the city often end up with the credit. This only serves to fuel their mythic power and allure.
Since both Zuckerberg and Houston moved their efforts to SV so early in their development and took funding from mostly SV based VC's, the vast majority of the credit over time I'm sure will go to SV, even though they both benefited more from suckling the breast of SV than being nurtured in the womb of SV.
Stanley Kubrick, who came from New York and spent very little time in LA and produced the vast majority of his work in London, is to this day still viewed as a "Hollywood" icon.
Once Nashville realized that Mutt Lang wasn't some sort of rabid dog, and the freshness of his innovative approach overwhelmed the industry, the established Nashville crowd had no choice but to embrace, praise, and then start to try and emulate his sound wherever they could.
What's the point?
Someone once told me, "the clothes don't make the man." I think that you could also say in the context of this discussion, that the place doesn't make the artist or entrepreneur.. Certainly these places can and do inspire and influence, and they undoubtedly produce winners. I just think that people should understand that you don't necessarily have to be in one of those places to produce amazing work and achieve brilliant success. For some, they prove to be more of a distraction than the ideal location to hone their craft.
Kubrick was once asked why he chose to work in London as opposed to Hollywood. His reply was:
"Because I direct films, I have to live in a major English-speaking production center. That narrows it down to three places: Los Angeles, New York and London. I like New York, but it's inferior to London as a production center. Hollywood is best, but I don't like living there. You read books or see films that depict people being corrupted by Hollywood, but it isn't that. It's this tremendous sense of insecurity. A lot of destructive competitiveness. In comparison, England seems very remote. I try to keep up, read the trade papers, but it's good to get it on paper and not have to hear it every place you go. I think it's good to just do the work and insulate yourself from that undercurrent of low-level malevolence."
I think that there's more than a kernel of truth and wisdom in this that can also be applied to Nashville, and of course, Silicon Valley and I think it supports the idea that the state of mind for any of these jeweled cities can be an effective and sometimes safer construct than the actual place.
There are a finite number of "change-the-world entrepreneurs".
Interesting to see that a VC with strong ties to the Boston area, Charles River Ventures is rebranding as "CRV", presumably because they want to be considered a hip SF area VC and that a name that ties them to the east coast is somehow problematic. What's in a name? Does it really matter that much?
The other thing that I have a huge problem with is that while they might have better luck fishing in a pond that's over stocked, the idea that there are a "finite number of change-the-world entrepreneurs" sounds like one of those misguided predictions from the turn of the 20th century that claimed that everything that could be invented had been invented. Do they really believe this? Seems strange to me.
Music, Film and Eldarion
James Tauber once described his vision for the way team Eldarion comes up with ideas as being analogous to a group of great Jazz musicians improvising over a tune.
He's referred to our joint development ventures as "co-productions" based on the "studio model" of development, which is similar to the way a film studio will work with a writer or director to turn their great idea for a film into an actual film.
Both of us being a musicians and filmmakers, these analogies sit very comfortably with us. I have to say as well that the creative lens through which we look at the company makes it a great deal of fun to be involved with. Perhaps the most fun I think I've ever had with any company.
You only have to be right once.
Saw a tweet today from someone claiming to be a startup marketer that read "don't worry about failure, you only have to be right once."
That sounds like something a gambler would say. People who achieve lasting success are typically right a hell of a lot more than once.
Failure is about getting a lesson. Success is about how well you apply those lessons.
What Your Technical Cofounder Isn't Telling You
Here are a few whoppers that I've overheard other technical cofounders telling their non-technical cofounder:
We need to have our own servers.
Call me maybe. Right now it's really inexpensive to start on cloud platforms like Amazon AWS, Google, Microsoft Azure, Rackspace and a host of other cloud platforms. Self-hosting means your dev team / cofounder will be spending a chunk of time managing hardware instead of building new features.
The cloud is too expensive
This might be true for your startup. You might be the color of unicorn that happens to have a couple $50,000 servers laying around and just needs a data center.
But development time costs $1-$2/minute. Amazon's biggest, baddest instance costs around $5.50 per hour (it's a lot less if you commit to a [reserved instance])(http://aws.amazon.com/ec2/purchasing-options/reserved-instances/).
We should build on iOS only.
iOS is awesome. But it's like only selling to people who buy luxury cars. That's 11% of the market. Yes, there's more money there, but the rest of the market behaves differently. Usually the motivation for not wanting to go to market on other platforms is simple: when all you have is a hammer, everything looks like a nail.
X is Awesome and Everything Else Terminally Sucks
This really means, I only know X, and I'm unwilling to learn anything else. Get a new cofounder, or you'll end up doing so later on when you have to migrate off X.