If 300k per month is noise, then show me the signal baby!


CNET really seems to have misread what Jeff Clavier – one of my favorite VC blogging guys – said to them recently about startups and income.    Rafe at CNET implied that Jeff was suggesting that even for a startup making a respectable 300k monthly income was noise and was distracting them from the big money which they could only obtain through big financing.   When I read that I was really surprised, because 1) it was clearly wrong to suggest a company pulling in 3.6 million annually should necessarily be worrying a lot about VC money and 2) it did not sound at all like Jeff Clavier, who has a great reputation for good reason – he’s happy to share a lot of helpful information  and he recognizes that in some circumstances there is no reason for VC funding or VC guidance.  

So, Jeff’s reply to the story made more sense.  He said he was talking about *one* particular company in what he seemed to think was an off the record conversation.   That made a lot more sense, and it sounds like CNET owes him an apology? 

Mashup Camp 6 returns to Silicon Valley


Mashup Camp 6 is in about 10 days and I’m really looking forward to the firehouse of new mashups, APIs, startups, and application information that’ll be there.    I attened the first two which were both great, then missed the last three including Dublin which would really have been fun. 

Incredibly, this *four day* technology conference is free of charge.  This is especially notable because from an education point of view Mashup Camp is arguably one of the very best conferences in Silicon Valley, laregely because it’s run in large part by the participants and this always leads to excellent levels of interaction and information flow.    Everybody knows that the best conference stuff often happens in the halls or after hours when you can really get into good conversations with speakers and other folks, where at Mashup Camp this type of interaction is more likely to happen right in the sessions which are generally very unstructured and informal. 

Organizer David Berlind had actually started out by charging some attendance fees this time – partly just to reduce the number of no-shows that can make conference planning even more difficult.  But concerns about the fees led him to refund them all, making the conference totally free, supported by the many sponsors who help with everything from the espresso cart to the excellent lunches and great Mashup party on Wednesday Night.   I’m not clear why anybody would protest the trivial $35 for developers and observers, though people who routinely pony up that much on a bar tab can be notoriously cheap when paying for education.   Perhaps though the protests came from some of the Venture Capital folks for whom the formerly free entry fee was boosted to several thousand.   

Compete.com sale a champagne moment? Not at ~8% per year return it’s not.


Update:  Silicon Valley Insider is reporting that there is an additional 75MM in the deal as an “earnout” over the next several years.   That may make this deal sweeter than it appears at first.

At first glance you’d think the sale of website COMPETE.com, which measures web traffic, for 75MM must have been a big payday for a lot of folks.   However as Venture Beat notes some 43MM of venture capital had been poured into  COMPETE over the past 8 years.  

Assuming most of this came at the beginning of the cycle, and assuming most of the 75MM is going to the VCs, the return on this VC investment would be a very modest 8-10%.    If the founders and workers also had a decent stake in the sale this return could be lower – approaching what the VCs might have realized with long term CDs over the same time period.     Break out the champagne?

I’ve noted before the dirty little secret of many “successful” venture capital deals – they often make a very modest return when time is factored in properly.   In fact it appears that *most* VC deals lose money for the players.    Data is sketchy, and obviously only the winners are happy to share the details making it very difficult to analyze this since many (most) of these deals are not in the public record.  

Sure there are VC winners like Fred Wilson and Jeff Clavier, both very clever VCs who blog some of the details of their failures and successes.    However I think this is not typical, as Jeff even suggested here at the blog some time ago.

Israel Web Tour coming to Silicon Valley


Following is a Press Release – this looks like a very interesting event for Silicon Valley:

IsraelWebTour Returns to Silicon Valley with 15 Hot Web Startups

California Israel Chamber of Commerce Announces 15 Israel-based Companies to Tour Silicon Valley

SAN FRANCISCO January 16, 2008 The California Israel Chamber of Commerce (CICC) has announced the selection of 15 startups that will be touring Silicon Valley as part of its popular road show. 
 
The Tour will kick off on February 4th, 2008 when CEOs from Israel’s most exciting startups arrive in Silicon Valley for a week of activities.  The companies will meet with investors, strategic partners, customers, entrepreneurs and industry leaders in a mix of private one-on-one meetings, roundtable discussions and ad-hoc networking events. The highlight of the week will be a public showcase on Wednesday, February 6h hosted at Microsoft where each start-up will present to the industry and press. The tour will end with a closing night party in San Francisco on February 7th.
 
Over 90 companies applied to take part in this year s tour.  The IsraelWebTour Committee selected the following 15 startups:
 
5min – www.5min.com
PLYmedia – www.plymedia.com
AllofMe – www.allofme.com
NuConomy – www.nuconomy.com
ClickTale – www.clicktale.com
blogTV.com – www.blogtv.com
Sportingo – www.sportingo.com
PicScout  – www.picscout.com
Qoof – www.qoof.com
8hands – www.8hands.com
Velingo  – www.velingo.com
Erayo – www.erayo.com
Semingo – www.semingo.com
PageOnce – www.pageonce.com
Journeys – www.codename-journeys.com
 
The IsraelWebTour is an initiative spearheaded by the CICC (The California Israel Chamber of Commerce) – a non-governmental, industry supported organization.  The 2008 Tour is sponsored by: Google, Yahoo, Adobe, Sun Microsystems, Microsoft, Lehman Brothers, USVP, Wilson Sonsini Goodrich and Rosatti, Elron and Gemini Israel Funds and the Israeli Consulate in San Francisco.
 
The IsraelWebTour is proven to be an excellent platform to present and accelerate emerging internet start-ups from Israel — offering hands-on tools, strategies and fast- track access to Silicon Valley s leading VCs, companies and industry influencers, said Shuly Galili, Executive Director, CICC.
 
About California Israel Chamber of Commerce
The California Israel Chamber of Commerce (CICC) is a not-for-profit, non-governmental membership supported organization dedicated to strengthening business and economic relations between California and Israel. With its wide and dynamic network of over 5,000 companies, business executives and investors, CICC is positioned to serve as a facilitator and active supporter for joint ventures between the two communities. Through its programs and activities CICC supports hundreds of Israeli entrepreneurs through their journey to grow, fund and advance their startup companies.  www.ca-israelchamber.org

Venture Capitalism – luck or science?


Over at his excellent blog, A VC, Fred Wilson is bearing his Venture Capitalist soul and offering a lot of insight into his very successful VC firm.     Today, his analyses of why some startups fail sounded really compelling to me in the same way many stockpickers sound compelling.    Yet in the stockpicking world it’s common knowledge that past performance is no measure of the future.   In fact a lot of the ideas about “good” vs “bad” analysts are bogusly based on after-the-fact analysis of records.    Predictions, not after the fact stuff, are what we need to test hypotheses about what works and what does not.

Fred also has this post suggesting VC is not like stocks, but I’m not seeing data to support this.  In fact if he’s right – that the top VC funds can pick a lot more winners than losers – then why doesn’t *all the startup biz flow to them immediately?*.

My working hypothesis is turning into the following ideas:

Winning VC firms are like winning stock pickers – they for the most part are the firms  hat were at the right place at the right time.   The winning record is NOT the product of conscious, clever, consistent application of any sets of rules.    It is simply the product of math – you’ll have a top tier by definition.  

I also apply this rule to my own successes and failures in biz and life in general, though I always catch myself thinking I can “outwit” chance.    I think egos get in the way of good analysis about the world, which suggests a lot less control over things than we’d like to think.    This is still in the working hypothesis stage and I have not reconciled that fact that I can predict with enormous accuracy that, for example, I’ll be drinking coffee tomorrow morning, yet I can’t even tell you if Google stock will be up or down tomorrow.

NO – you can’t time stocks either, and I’ve got huge money to bet you if you think you can predict stock up and downs even slightly better than chance. 

With stocks when you use a performance record you don’t find good predictive relationships between the past and the future.   Many people think they *do* understand those past to future issues, but in the stock world this does not hold up to scrutiny.  If it did, staggeringly huge returns await anybody with even very modest  level of long term predictive power and a modest initial stake.   How?   

If you could predict the daily up or down movement of any stock  with even a modest level of accuracy you could use options (or buying short and long) to quickly turn a buck.  If the stock was highly volatile and options were available your leverage would turn a few thousand into a few million in a year thanks to leveraging of your success percentage predicting the up or down movement.   If you could predict things with high accuracy – well above chance – you could turn thousands into millions every month.    This does not happen.  

I’m open to a disproof or alternative hypothesis for VC firms.   But don’t tell me about successes and failures  – I want predictions.   There will  *always* be a top tier of winners.   What supports my hypothesis is that those winners change over time and past does not predict future (in Stocks – I’m really not up on VC stats except that the average returns are negative).  

I think VC may have more of a schmoozing human component than stock picking so that may play a role here.   I’ve noticed from the few Venture Capital folks that I know how they tend to be very bright and personable.    Yet even this is somewhat conspicuous given that average VC return is negative, where the average bright personable person is doing well.

Venture Capital: Fred rules but his 3x rule is too optimistic! ?


Fred Wilson’s got a fascinating post about his history of investments over at Union Square Ventures.   Of course he’s got every reason to post his results, which appear to be exceptional although he has left out a key factor in his little analysis, which is time.  I note over there:

Fred, these are impressive results and to my understanding much better than average VC returns, which are negative, right? Don Dodge posted min-analysis some time ago where he wound up concluding there was a lot more VC failure than is normally thought.

There are elite guys like you and Jeff Clavier who “beat the averages”, but isn’t “making money” with startups an unrealistic expectation, since those VCs and companies that succeed are still around to talk, but those who fail are not blogging about the burgers they now flip to pay the bills?

I’m also noting that without “time” as a factor the return is not meaningful. 3x is easy….if you use a 15 year horizon!

At a very modest annual return of 7.33% one would expect to triple an investment in 15 years.     A 10% return will leave you with 4.5x your initial investment in that same time frame.    More dramatically, if time is not a factor then I’m happy to guarantee you a return of, say, a million percent.  It’ll just take a while.

This isn’t to suggest Fred isn’t a great investor because I think he is the exception to the normal rule in Venture Capital, which are low returns.   After I wrote about Don Dodge’s suggestion that average VC returns appear to be negative  Jeff Clavier also suggested in a blog comment here that only the top 25% of VC firms are averaging positive returns, and this really shook up my understanding of things.