What Would Your Investment Thesis Look Like?

I’ve been thinking a lot about the venture capital industry lately. Many firms lay out an investment thesis that guides their investment activities and the type of deal flow that they’re looking for. This is then distilled into how the firm positions itself with regard to entrepreneurs. Union Square Ventures has a section of their site devoted to their focus and Foundry Group talks about their thematic approach to investing. First Round also explains their focus on their site. These are just a couple of good examples.

As I was thinking about venture capital, I started to ponder what types of opportunities I would put into my own investment thesis. I divided my thinking into two categories – “focus areas”, or large opportunities that I see near to mid-term in the marketplace, and “enhancers”, simply factors that create a competitive advantage for organizations. In my view, you can have a venture that addresses any of the focus areas, but if they don’t use the enhancers to their advantage, they are at risk of organizations that do.

I expect this to evolve, but with that to set the stage, some thoughts on what my investment thesis might look like.

Focus Areas

Data and the Cloud

Organizations have a ton of data. Having been a data warehouse and business intelligence consultant, I saw first hand the value that organizations derived from being able to understand and measure their data. However, the current state is that it’s time consuming, expensive, and difficult to effectively slice into your data. Enter the cloud with its new models for computing. I see the confluence of growing data repositories and more effective cloud computing continuing to align and changing the way organizations drill into their data without complex IT solutions or obtuse analysis platforms. And no longer will it just be large organizations that can afford the enterprise systems and consultants that get to dig into their data – these platforms will level the playing field in business intelligence.

Rapid Development/Deployment via the Cloud

Services like EngineYard Cloud (built on top of Amazon Web Services), Heroku, and AWS itself are changing the way products get developed and deployed. When I worked on startups in the past, much of the early part of the technology phase was setting up servers (remotely hosted) and installing software for version control, bug tracking, project management, etc. Then it all needs to be managed. For Three Screen Games, everything was a web service or cloud-based tool that we chained together. We used EngineYard Cloud for production and testing. Need to test a new release? Fire up a clone of the entire production environment, test the deploy and the change, and destroy it when you’re done. The end result is an extremely dynamic development team that reduces barriers to building higher quality products in less time. I see huge potential in continuing innovation in systems to ease the development and deployment of products using the cloud.

Mobile as a Content Creation Platform

Mobile has certainly changed the way that people work, but for the most part, that innovation has been focused on the consumption of data, media, documents, etc. In general, mobile platforms lack optimization to be effective content creation platforms. I believe there is a large opportunity to provide optimized mobile content creation platforms. For businesses, the key implication is greater productivity. For ventures, one of the key implications will be that as soon as mobile has a demonstrated value beyond just content consumption, the corporate spending spigots will open wider, powering an even stronger mobile-centric ecosystem. At the same time, this will align with another growing trend – that employees will be increasingly making (and supporting) their own technology choices. Lots of opportunity for mobile content creation.

Personal Branding

I believe a sea change is underway with regards to how organizations hire effectively. In certain spaces, the venerable resume has been fully supplanted by candidates’ online personal brands for hiring purposes. In the rest of the marketplace, this shift is coming. And for good reason – resumes don’t tell the whole story – an effective online presence opens so many doors to demonstrate not only your passion and interests, but your quality of work. In all, this transition is creating an opportunity for ventures that help both candidates and organizations take advantage of the new paradigm. Much of this still remains to be defined, but I’m passionate about startups that contribute to this shift by working to define/build out new aspects of it (i.e. privacy, etc.).

Social

The web has always about communication and is now increasingly about engaging interactions. Most of what gets branded as “social” on the web today still has a long way to go towards being truly social, though. Along with that, there are also markets that have yet to see fully baked social sites. We’ve been working on this at our startup, FanGamb, for sports fans, as an example. There’s a lot of valid concern over Facebook’s Open Graph plans, but whether it’s that particular initiative or something more evolved, companies will start to get social right. And will be rewarded for it.

Enhancers

• User Experience – effective UX is a competitive advantage. FanGamb was lucky to have a fantastic UX expert work with us.
• Seductive Interactions – optimizing for customer retention and engagement, not just conversions and pageviews. read this.
• Gaming Dynamics – one of the interesting things about having worked in the gaming business is how applicable the principles and dynamics of games (that work in the game’s microcosm) are to other (non-game) business models.
• Customer Development – there’s lots of talk about how important the principles of customer development are. Stellar implementation is rare.
• Agile – like the above, many claim to be agile, though effective agile isn’t as common.

Thoughts from Rework

I recently finished Rework, the latest book by 37 Signals, and the first one that went straight to print. So far, it seems to be well received and Jason Fried and David Heinemeier Hansson certainly have a nice collection of well-deserved praise from various influential business folks.

Overall, I enjoyed the book – it was an easy, very conversational read. I also had the privilege of hearing Jason Fried speak about some of the key points from the book at a recent AIGA event in Philadelphia, so hearing his take on things first-hand was interesting, as well. On the whole, though, while I thought it was an interesting and useful book, I didn’t think that it was as transformative as Getting Real, their earlier book on the right way to build software. Getting Real was more or less a new way to look at building software that opened the eyes of many people to 37 Signals’ unique perspective. Rework tries to do the same for business, but I feel that in expanding its audience, it loses some of its punch.

That said, there were a couple of really very good points from the book. Thoughts like the ones that I discuss below did make the book worth the price of admission (both in dollars and in time to read). Some of the points I thought were good takeaways:

• Build A Rockstar Environment (pg. 253): talks about how companies are hiring “rockstars” and “ninjas” and how companies should actually focus on making sure their environment is conducive to doing the best work, rather than filling the room with individual rockstars. Specifically, the section discusses how many companies lose potential by having it trapped by “lame policies, poor direction, and stifling bureaucracy.” I really espouse hiring people smarter than you that also have a lot of drive and motivation (key qualities that I think make someone a rockstar), but I’ve also seen firsthand how talent is no match for environments that stifle that talents’ ability to do anything. The amount of talent at IBM was incredible, however, a lot of it got lost in the big company environment and this happens a lot to large organizations. Granted, a startup has a big advantage over an IBM in its ability to create an environment to tap this full potential, but I think that Fried and DHH are correct that too few businesses really take the time to optimize this.
• Sounds Like You (pg. 262): this section discusses how businesses try to sound artificially big, when they miss out on a key benefit of being a small company – being able to have a simple and straightforward conversation with their customers. This one hit home for me – I remember the days of working to build my web development consulting company and how it seemed like the key to making the company successful was sounding like it was a bigger entity than it was. Instead of using the size advantage to emphasize that the company could provide really personal service and great communication, it felt like the right thing to do to pretend to be larger and almost impersonal with the marketing copy. I realize now that this was a key advantage not emphasized enough and Fried/DHH make a point here that isn’t discussed enough for new startups.
• Inspiration is Perishable (pg. 271): the conclusion of the book succinctly touches on how the motivation to go out and tackle an idea you just had is short-lived and you need to take advantage of it while you have it. Things come up and you lose this initial drive. A great way to conclude the book (and a subtle way to emphasize that the reader needs to go out and start to figure out what to do with some of the ideas in the book!). Things never get easier and you never have a clean plate to tackle things in isolation – while it’s important to not get distracted and lose sight of your key goals, this is a key point, as well.

Have you read the book? What did you think? Other points readers should be sure to takeaway?

Three Decisions Every Founder Needs to Nail for Success

My recent post mentioned that I spoke to a class of aspiring high school entrepreneurs, via a program called Startup Afterschool, earlier this month. Phin Barnes, Principal at First Round Capital, also spoke to the students to give them a perspective on his experience as an entrepreneur and now on the other side of the table as an investor.

Phin talked about a number of topics, including what it was like to be one of the early employees at AND1 and how his video game startup, responDESIGN, was able to do a deal with McDonalds. One of his comments really stood out.

Phin talked about the founding of responDESIGN, the successes and challenges that they had, and the three decisions that every entrepreneur needs to get right to be successful. Those are:

1. Team
2. Idea
3. Investors

That is, it’s really hard to be successful if you’re missing one of the key legs to the stool.

When you think about it, it’s really an elegant way of looking at things. Sure there are lots of other things that need to go well for a company to make the long transformation from concept to sustainable venture. However, if you don’t have these three things in place, that transformation is nearly impossible. Furthermore, once you have these three things in place, they’re also extremely difficult to change. The general idea is more or less locked in, though it will evolve. You can make changes to your team, but having too much instability among the founders and early employees is certainly not a good sign. As for investors, there’s no undo button for your funding deal.

So, the lesson was, choose wisely. Good words of wisdom. Thanks, Phin!

(I’d argue that advisors or mentors are really quite critical, too, as utilized correctly, they can keep you from stumbling into walls you didn’t see were there and they can help open doors that are otherwise shut to you. However, in Phin’s model, we can lump those into team – three key points sounds better than four. )

Bootup Labs Starts On Its Long, Long Road to Recovery

Danny Robinson from Bootup Labs posted an apology for the unfortunate events that recently unfolded. His ‘personal learnings’ are certainly good things for him to come to a realization on. However, Bootup has a long road ahead of itself in its quest for restoration.

The early stage startup community is a small one, and the way that seed accelerators differentiate themselves is by attracting the best founders and then building a clear history of sustainable companies that move on to the next phase. Unfortunately for Bootup, rather than founders learning about the program by hearing of some fabulous startup that emerged from the program, this mud-stained history of founder/investor issues is going to cloud their reputation. As founders have choices and are going to select accelerators that have been able to demonstrate a strong value-add, recruiting the next class is going to be extremely difficult for Bootup, I suspect. Comments at Hacker News show how greatly the program is burned and the first page of Google results is now half filled with this mess. It’ll be interesting to see how the program progresses and what they can salvage from this. Powerful lessons for the other startup accelerators and for how to conduct your operations in general.

Startups Afterschool for high school students in Philadelphia, and the first two steps for inspiring entrepreneurship

In January, Thomas Friedman wrote the following in his NY Times column:

“Obama should launch his own moon shot. What the country needs most now is not more government stimulus, but more stimulation. We need to get millions of American kids, not just the geniuses, excited about innovation and entrepreneurship again. We need to make 2010 what Obama should have made 2009: the year of innovation, the year of making our pie bigger, the year of ‘Start-Up America.’”

I agree that an entrepreneurial spirit has been key to America’s growth to this point and that we need to make sure that entrepreneurship and innovation continues to be a critical focus. And that starts with inspiring our students to take an interest in entrepreneurship and see it as something feasible and achievable. That was why I was excited when I spoke to a high school class of aspiring entrepreneurs last week.

A team of teachers and entrepreneurs launched a program that’s running at the Science Leadership Academy this spring in Philadelphia, called Startup Afterschool. While their classmates are interning at established firms, this class of students takes a few hours each Wednesday afternoon to work on their social entrepreneurship ventures. They hear from current entrepreneurs and investors, consider markets and business models, and work on their pitches. As an entrepreneur who got my start creating products and companies in high school, I think this is a fantastic opportunity to expose students to entrepreneurship.

My enthusiasm for the program goes beyond my high school entrepreneurship experience, though. From my work helping to build the Lion Launch Pad program at Penn State, I’ve come to find that much of the current work around increasing entrepreneurship goes into building programs to help entrepreneurs move their ventures forward. Tweaking their business models, figuring out market testing, and refining investor pitches – the efforts are focused around businesses that already, in one form or another, exist.

But where do these ventures come from? In talking with students, trying to figure out how to grow the Lion Launch Pad program, I’ve realized that to truly inspire entrepreneurship, those efforts are too high level and the focus needs to drop down a few levels. Ideas are everywhere – in class, in the dorm room, or elsewhere. Some ideas have potential for new ventures or products, others don’t. Yet, it takes some self awareness and practice to realize that when you have these ideas, that they’re the identification of a pain in the market and that there could be potential for new venture creation. However, unless you’re searching for ideas or get lucky, too many of these ideas are just dismissed. And if the person with the idea realizes that the idea might have potential, where do they turn? There are actually a lot of resources available already, but it usually takes a lot of legwork to figure out who can help and where to look.

So, I have come to the realization that if we’re really truly going to work on inspiring and encouraging entrepreneurship, we need to go to focus on these issues. We need to help expose students to entrepreneurship and show that it is indeed feasible to take an idea and turn it into a new business. And that other students who sat in a seat nearby did just that, either while a student or not long after graduation – showing that it is feasible for a student to take an idea and create a sustainable new company. Then, the second part of this is to make sure that there is a centralized “clearinghouse” of entrepreneurship support, so that when one of these students walks in the front door, there’s someone to point them in the right direction, someone who knows where all of the resources are, so motivation and energy aren’t lost searching for the programs that exist to help. And this “clearinghouse” needs to have a high enough profile that students actually realize that it’s there. Many universities will tell you that they have programs to support entrepreneurs – yet the students with the ideas don’t know where to turn.

Kartikeya Bajpai, a graduate student at Penn State’s College of Information Sciences and Technology, is headed to Kenya this summer to conduct research for his dissertation focused on the roles of social networks in helping disadvatnaged youth develop an entrepreneurship mindset. We had a conversation about his research project, which I find very interesting – it looks at how youths need access to social networks for advising/funding/technology, yet many of these networks are closed to disadvantage youth. Certainly, social networks and communities are very critical in the success of entrepreneurs – you need communities for advisors and mentors, along with communities to serve as markets/customers for the eventual product or service. So, for young entrepreneurs to have these social networks and to be able to tap into them is important for their success. However, I spoke with Kartik about what I just discussed above – that, in my opinion, the two things that must be addressed first, before you should worry about the rest of the support infrastructure, are (1) figuring out how to encourage an awareness of entrepreneurship in general, so that ideas with potential are recognized and (2) an awareness of where to turn for the support needed to take the next step in the venture creation process.

At the high school level, I think a program like Startup Afterschool is ideal and is working towards these two critical elements. The program provides the exposure to entrepreneurship and a high level overview of what the new venture creation process is, along with some hands-on experience with it. Next fall, they’re launching the program at five schools across Philadelphia. I think it’s fantastic that a program like this exists for high school students and I hope that we see a growth in similar programs elsewhere. In the meantime, I look forward to continuing to work with the program to do what I can to help it reach its objectives of demonstrating the importance of entrepreneurship to students and setting them off on a lifelong journey of innovation.

What efforts to encourage student entrepreneurship have others seen? What works well?

More startup accelerators – the list of programs grows from 77 to 93

It’s been a busy month or so in the accelerator space – there are quite a few new accelerators that I’ve come across to add to the master list since it was last updated. The list pre-update was 77 programs long; with this update there are now 93 on the list.

First, some noteworthy accelerator news:

• Lots of rumblings around BootupLabs in Vancouver. Check out the detailed post here.
• A new seed investment model came on the scene: Right Side Capital, apparently coming in the 2nd half of 2010, the program will be making 100 – 200 investments annually. Not only is the volume a differentiator, but the fund will also be providing support through an advisory board, a model necessitated by the large number of startups that will be passing through the program. TechCrunch provided this: “Kevin Dick says that they will set up educational sessions and events for portfolio companies, but will not be able to provide significant one-to-one mentoring for early-stage companies.” So, how much of an accelerator versus an investment engine Right Side Capital will be remains to be seen. More in this blog post.
• Launchbox Digital is opening an office in the RTP area. Based on other articles, it seems that what’s happening is the existing Triangle Startup Factory is being “folded into” Launchbox Digital’s program in RTP and the founder of Triangle Startup Factory, Chris Heivly, will run the RTP branch. Is this be the first merger of accelerator programs? Is this a space that we’ll see further consolidation in?
• IBM is launching its own startup accelerator, IBM Smartcamp, to help the tech giant partner with startups development the technology critical for IBM’s ‘smarter planet’ initiative. A specific post about this here.
• Some details emerged on the Start VI program from Belfast. First, the meaning of the ‘six’ in the name: “…that ‘SIX’ “š… it’s six companies, for six months at 6%.” Also, the program will be virtual: “StartVI is also virtual. (Another play on ‘VI’=Virtual Incubator). … meeting, conferencing, mentoring, presenting, discussing, deciding can all be achieved without face-to-face contact. That’s not to say there won’t be any in-person contact-just that lacking it won’t stop progress. Eliminating the tyranny of time and distance-shifts enables StartVI to bring mentors and advisors from around the world to bear on StartVI companies. A small, but enthusiastic group of successful entrepreneurs and executives from Silicon Valley have already offered their time to support this effort.” It will be interesting to hear what entrepreneurs participating in the program think of this model.
• Interestingly, a program has been launched that falls into both the Social Entrepreneurship and University-Affiliated categories – and it’s based in one of my favorite places, Bar Harbor, ME! The College of the Atlantic recently announced its new Sustainable Ventures Incubator
• And the launch of another program in Utah (two are being added to the list this month): Startup Utah — an interesting sidetone, though – either they’re confused about the location they’re running the program at or either they copied the app form from TechRanch or they’re running Startup Utah from Austin? Not sure, but their application form mentions Austin, TX: Application Form Here
• The Houston Chronicle reported that an accelerator program may be launching in the city in time for the summer.
• New possible accelerator coming in Montreal, Canada – FounderFuel Ventures
• Not an addition per se, but some accelerator news: The Difference Engine is following its teams and compiling a video series similar to TechStars.TV about the process. Watch it here: http://thedifferenceengine.eu/tv/

Now for the programs being added:

Seed-Stage Accelerators

• Dublin, Ireland – NDRC’s Launch Pad (article here and here)
• Italy – Working Capital (I must admit, I can’t read the page that I’m linking to, but based on this blog post, it sounds like the program fits the criteria – if anyone can translate and offer more specifics, please let me know!)
• Los Angeles, CA – LaunchPadLA – the accelerator program championed by VC blogger extraordinaire Mark Suster (coverage on TechCrunch)
• Nashville, TN – JumpStart Foundry, ‘microfund’ created by VC firm Solidus Co.
• Orem, Utah – BoomStartup (post on TechCrunch – based at the original site of WordPerfect Corporation)
• Utah – Startup Utah
• Taipei, Taiwan – appWorks Ventures Incubator Program

 

Social Entrepreneurship

• India – Dasra Social-Impact

 

University-Affiliated

• College of the Atlantic – Sustainable Ventures Incubator
• Finland – Aalto University – Aalto Bootcamp, program run by Aalto Entrepreneurship Society
• Santa Clara University – Global Social Benefit Incubator
• Stanford University – Student Startup Lab, run by current Stanford students as part of the Stanford Student Enterprises organization
• Syracuse University – Student Start-Up Accelerator
• Virginia Tech – DayOne Ventures (article from ReadWriteWeb)
• University of Michigan – RPM₁₀, sponsored by RPM Ventures
• The University of Texas at Austin – Texas Venture Labs, featured in Inc