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This blog represents my own views, not those of my employer, Brooklyn Bridge Ventures.

Do not pitch me a story or book review for me to write about. This is my personal blog. For more info on that, see this post.

 

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If you'd like to pitch your startup to me, there's no such thing as too early to talk. Drop me a line at charlie@brooklynbridge.vc or see if I want to meet in person at http://meetme.so/ceonyc.

 

 

 

 

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Congrats to Backupify! A Great Exit Story for the First Company I Ever Backed

Today, Backupify announced that it is getting purchased by Datto.  It's a solid exit to a company that has lots of revs, is growing, and together will form a very formidable player in the data backup space--one that can definitely be a public company in the next couple of years.  

I'm super proud of Rob, Ben and the whole Backupify team--and this is particularly special for me because Backupify was the first investment I ever made as a VC, and the first board I ever sat on.  

In fact, my history with Rob and Backupify goes back almost ten years, well before the idea of cloud backup was ever a glimmer in anyone's eye.

I started reading a great blog called Business Pundit in 2004.  It was written by a guy about my age down in Louisville, Kentucky.  A former engineer, Rob was a great writer and a thoughtful student of management.  I don't remember when I started talking to Rob, but I know it was before February of 2005, because I found "rob@businesspundit.com" in the contacts I ported over when I left GM and went to USV.  

We used to chat a fair amount via our respective blogs about management and entrepreneurship.  He was an interesting guy and I watched him throughout a bunch of interesting projects, like a complete open source business where all the employees got to make the decisions.  

I didn't actually get to meet him in person until SXSW in 2007.  That was the year Twitter took off.  

I took this picture of Rob, Michael Galpert, and Danny Wen of Harvest.  Even then, Rob was an optimizer, trying to map the best routes around Austin.  

I liked meeting Rob so much that when I drove across the country that summer, I made it a point to go visit him.  

We stayed in touch and I got to know a bunch of the Louisville startup and creative crew, like Todd Earwood, Matt Winn, and Ashley Cecil.  

Rob messed around with some local video thing in 2008, which everyone but Rob thought was a pretty terrible idea.  Later that year, I sent a tweet that inspired a company that initially only Rob thought was a pretty terrible idea:

Still, he got his guys in the Ukraine to code something up.  On January 6th, just 9 days later, I got an e-mail from Rob:

"Flickr backup is now working.  We will integrate the design and be live for testing end of next week. I will keep you posted."

And keep me posted he did.  "Lifestream Backup" became Backupify and the service started gaining traction--just as the company that I started was losing traction.  Right around the time that Rob finally got convinced that Backupify was a good idea and needed some more resources, I wound up on the doorstep of First Round.  Less than 100 days into joining FRC after winding down my startup, I offered my friend Rob the first term sheet I ever sent out--to lead the seed round of the company I accidentally inspired with a Tweet.

We got the round done with some great names around the table--Jason Calacanis, Chris Sacca, and General Catalyst.  I joined the board and I was assuming everything would always be up and to the right, because that's the way success happens, right?

Well, it turned out the company was probably too early to the market--and while that gave them a lot of time to create the best technology, customer traction wasn't happening nearly as fast as we were spending money on AWS.  

Fundraising for the Series A looked like it was going to be difficult--and that's when Rich Levendov from Avalon Ventures stepped in.  He met Rob at a conference, took a liking to him and saw the same vision on where the space was going.  He took a long term view and jumped in with a check.  He was also there for the company in a big way during what would have otherwise been some bleak follow on rounds.  I thank Rich and his team, as well as David Orfao from GC for their support of my good friend long after I left First Round.  

I'm excited for the company's next steps.  In his note to users, Rob talked of a good future for their combined effort:

"In most acquisitions, technology gets neglected, falls behind, or worse, gets shut down. None of that will happen here. Datto is an R&D company at heart, and the plan is to double the size of the Backupify engineering team, and accelerate our vision of supporting all your cloud apps. We are working toward a joint vision of building the world’s only comprehensive data protection platform, to protect all of your business data, no matter where it lives, and available in seconds when things go awry, to keep your business running."

I'm proud of the whole team at Backupify and have been really impressed with Rob's ability to grow and learn as an entrepreneur over time.  

Plus, I'm glad he sold now, so maybe he can jump in as an investor in my next fund just like Wiley Cerilli did after he sold Singleplatform.  Maybe I should be writing that into my term sheets from now on:  "If this crazy thing works, you have to invest in the next fund after you exit."  

Ten Good Reasons to Take Venture Capital Money

Following up on my post from Monday that rang like "reasons not to take VC money" here are some reasons you should:

1) You really like the investor and believe they can add more value than you give up in equity.

2) You are growing, and if you don't raise, you won't be able to build the infrastructure required not to come apart at the seams.  

3) You have the team in place or identified to build the product, you've done your homework by talking to customers that it is, in fact, the right product, and you're the best person to lead the effort, but you can't fund the build of the product yourself.  

4) You've identified the best team, and while they're asking for reasonable startup salaries, you can't afford to hire them quite yet.

5) You've figured out how to get a sales funnel going, the flywheel is turning, you've got positive ROI on incremental salespeople or customer acquisition dollars and now you want to put gas on the fire.

6) You're on your way to building a network effect, you know how you'll likely make money because you've spoken to lots of potential sources of revenue, but can't monetize without critical mass.

7) You're making a ton of money at the company level, but haven't really ever made any money yourself personally.  Might be time to let someone you want to work with buy your equity.  

8) You're doing something disruptive that is going to have some regulatory or other kinds of hurdles that require human hours of changing the playing field. 

9) You're doing something physical in the real world that just requires a certain amount of capital overhead.

10) You're doing actual science and R&D to build something that doesn't exist yet, but could have a huge outcome.  

 

Ten Realities of Taking Venture Capital Money

If you take venture capital money...

1) You increase the chances that you may not be CEO of your own company one day--and that also might be the best thing for its long term success.  

2) You are signing up to sell the company one day--to another company or to the public market, but definitely to someone.  

3) You will almost certainly take more venture capital money after that.  

4) You will almost certainly go cashflow negative, increasing the risk that your company will fail.

5) You now have the responsibility to report the progress of the company to others--and to consider their opinions and feedback.

6) You have prioritized growth and your company will be bigger next year than it is now.

7) Some of the people working for and with you now will not be suitable for a growth phase and will have to leave.

8) There are smaller exit opportunities you will not be able to take because your capital structure makes them financially unattractive.

9) You will own less and less of your company over time as you take on additional investment.

10) You will face more competition as venture investment signals that what you're doing may be attractive.

Because the Domain Makes it Really Real

Three years ago today, I grabbed the domain name BrooklynBridgeVentures.com.  

It's kind of a funny answer to "When did you start Brooklyn Bridge Ventures?"

What might be a more relevant date is May 22nd, 2007.  That's the day I sat down for lunch at Coffee Shop with Henry Blodget, just six days after Silicon Alley Insider launched.  Henry told me that I should start a fund--me, a 27 year old former VC analyst turned product manager with no MBA at a startup that wasn't really headed in any particular direction.  It's probably the first time I'd really ever had the thought of starting my own fund.  

So thanks for playing Inception, Henry. 

I guess it's true what they say.  It's easy to be right about market predictions eventually.  It's just really hard to predict timing.  

The stories we tell ourselves about how things get started are often much more linear than they actually happened.  Who had what idea when?  When did you actually commit to something?

Getting a domain name...  I guess that's about as good a demarcation line as any, but that's never really the full story.

So when did I really start Brooklyn Bridge Ventures?

Well, I was born in 1979.

My godfather got me IBM stock right after that, so that's how I knew that a stock market and investing existed.

My dad brought home an IBM PS/2 in 1987.

I got an internship on the buy side at the GM pension fund in high school--in 1997.

I started a business newspaper in 1998 in college covering the stock market and the economy.

I got my first job in venture--at GM--in February 2001.

I tried to write a book for college kids in 2002-2003, couldn't get it published, so I started blogging in February of 2004.

I met Brad and Fred in the Summer of 2004, agreeing to join them later that year--my first job at a fund.

I started a company, failed at it, and joined First Round in 2009 to help them open up their NYC office.  In the middle of that whole thing, I wrote a blog post about Foursquare that a lot of people noticed.

After my two year stint was up, I bought a domain name.

Yeah, so, somewhere in there.

Chances are, your story of starting something is already happening but you don't even realize it.

Some Rules for Marketplaces and Distributed Workforce Platforms

I've been getting involved with a couple of different models related to labor marketplaces and platforms lately.  My interest dates back to my 2010 investment in chloe + isabel back when I was with First Round.  I was still at FRC when we invested in TaskRabbit and Uber, even though I wasn't on those deals.  I've also run about 30 Kitchensurfing dinners across NYC for tech and startup folks in the last two years.  My two most recent deals involve a distribution of labor or direct sales, and two of my upcoming deals are similarly structured.  

Yet, I'm quick to turn many of these types of deals down, too--and I've started noticing which ones I like and which ones I'm less interested in.  

Here are my two main rules:

1. The labor supply has to get enough out of the platform not to want to go around it.  

Your Handy cleaner is undoubtedly going to want to get paid directly if you seem satisfied with them for sure--and why not?  Once you like them, you'll just want them to show up at the same time and day each week or every other week or whatever.  The platform is providing little value after the initial intro.

This is highly unlikely to happen with your Uber driver, however.   Who knows where they'll be the next time you need a cab, and you're not likely to use the same driver twice.  In this case, it's not about the cash, but about their ability to replicate the volumes off platform.

Recently, I've gotten interested in two models where the marketplace was cutting the provider in for a slice of the sales, whereas they used to just get paid a flat, hourly wage.  Being on the platform would be a huge boost to their net income.  

2. You need to get a nice chunk of the transaction to make it worth it as a marketplace.  

With some platforms, I can't help but think that a heck of a lot of human effort was expended to net the platform not a lot of cash.  If you're only taking a small cut, you've got to have huge volumes to make up for it, and that just takes a long time.

How can you provide enough to the labor so that they accept giving up 25% or more?  Otherwise, the land of the 5-15% cut is just really tough to make a lot of money on.  

I had some other rules down, but they really always seemed to come down to the two above.