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Just to be clear, Reservationhop--the line jumping fake name reservation making most hated startup idea on the internet right now--is not a particularly good idea.  

- It's too small of a market with too little monetization per transaction.

- It's rather easily foiled by ID checking.

- It doesn't provide restaurants with any value.

It is not, however, any more morally bankrupt than what a lot of other startup people fawn over.  I'm finding all the ethical hemming and hawing over this to be rather inconsistant.  

Let's recap...

Napster was totally cool because you got free music, which all us regular people and poor college kids love, while sticking it to The Man (record labels).  Totally illegal, but I don't remember too many internet people questioning its ethics. 

YouTube was totally cool because "Look, video!  And no plugin!"  Remember all those things you haven't seen in forever?  Yeah, all here.  Yay free copyrighted material!  Did I miss the ethical posturing at the time?

And when affordable housing advocates complain about Airbnb, they're just standing in the way of innovation, right?  Screw the law!

Tor's cool, right?  Go Tor!  IP masking FTW!  Because it's not like we're all using it to watch things we're not legally allowed to because of broadcast rules.  

And damn that Supreme Court for forcing Aereo to pay for TV rights the same way all the other TV providers need to!

But, God forbid anyone should mess with Opentable.  Jesus, Mary and Joseph!  People are up in arms over Reservationhop--the service that sells off hard to get reservations made under assumed names.  It's ruining the restaurant business!  How dare they!

Ok, let's get something straight.  No one funded this thing.  There's no board.  It's just a guy poking holes in a system testing out demand.  

We normally ok this kind of startup tactic.  "Don't ask for permission.  Ask for forgiveness."  

We tell startups to poke the bear and become a thorn in the side of big companies so that they have to buy you or at least bring you into talk about deals.  Maybe Reservationhop becomes so annoying to Opentable that they talk about a deal?  

Or is the ethical issue with auctioning off a place in line?

Let anyone who has never hired a Taskrabbit to buy a cronut or a Shakespeare in the Park ticket cast the first stone.

Restaurant reservations are a totally bullshit process.  If you were Jennifer Lawrence and you walked into any hard to get into restaurant at any time, there would undoubtedly be a table for you--almost immediately.  

In fact, I got pitched by a startup that told me nearly a quarter of all peak reservations at top places get cancelled the same day.  People are already doing Reservationhop--but they're doing it giving their real name, using their assistant.  The system is already full of fake reservations that are just placeholders.

Plus, these are places where there's probably an hour and a half long line of people not in the Opentable system that are just waiting at the bar for an opening.   

So instead of dismissing the idea with such disgust, you could have just as easily said, "Hey, this doesn't work at scale, because restaurants will just start checking IDs."

But that doesn't mean it isn't worth doing. 

Maybe it exposes something really potentially valuable to restaurants that they don't have:  A list of the people who want to eat at that place so badly that they're willing to pay extra money.  

Wouldn't most restaurants want that list--not to charge them but to make them their best regular costomers?

There's a pony in there somewhere--and it isn't charging the customer $5 extra bucks.  Actually, money probably isn't even the best currency.  What about someone with half a million Twitter followers.  Is it wrong for a restaurant to open their doors to that person ahead of others because they need the marketing channel?  Let's not dismiss the idea of even asking the question and lambasting experimentation around it.

Reservationhop isn't messing with the restaurants so much as it is messing with a monopolistic middleman that has long overstayed its welcome.  Restaurants deserve a better, more economical, way to distribute tables, and customers deserve more transparency and fairness.  

Opentable is a near monopoly in the reservation space--and most of the restaurants don't even like it.  They have to pay a ton of money for each customer when their margins are already super thin.  It deserves to be messed with just like the music publishers or TV broadcasters who have taken too big of a cut for too long.  

Fairness, you say?

Yeah.  If you told me I could get a reservation now for $10, I'd call that fair.  Douchey?  Sure.  But, at least I know what I'd need to do to get it.  Right now, I need to tell my assistant to pre-book three months in advance and cancel every day that I don't use it--because that's what everyone else's assistant is doing.  Or, I need to be some reality show celeb on whatever the current hot reality show is.  That's less fair than the $10 in my mind.  

I wouldn't fund Reservationhop because it's probably not a big enough problem worth solving.  Most places you can get into just fine--and the really hard to get into places--well, there just aren't that many of them to create a big enough marketplace to get into them.

But, I'd never fault the entrepreneur for the act of trying something where no one really gets seriously hurt--and I'm just not seeing a lot of hurt here.

The tactic is questionable, but *more* importantly, it's just not scalable.  That's where it breaks down first for me--not because the reservation is fake.  A huge number of them are fake--because tons of people have no intention of really eating there at that time.  Perhaps if you poke around this broken system enough, you find a real solution.  You don't get there, however, without some experiments. 

Sometimes, those experiments mean building arrays of little antennae and going to court.  Other times, it means offering up your apartment, uploading videos, or putting taxis on the road while you're being taken to court.  We tell startups to break eggshells all the time.  Let's at least be consistant about it.

Plus, if anyone really did find a way to take down Opentable, I'd be all about that. 

The Strong Rejection

When I turn down the opportunity to invest in a startup, I really turn it down.

I try and say exactly what I don't believe will happen, or why I don't believe in what you're doing.  In essence, I'm setting myself up to either be spectacularly wrong or to be right.

The last thing I want is to not have a view on the space.  My job is to have views--because not making a bet is making a bet.  If I don't have clarity on something, it means that I don't think the space and the opportunity size is big enough to get clarity.  

What I never say is "I love what you're doing, but...".  Sugarcoating isn't helpful to entrepreneurs.  You never want to get a rejection and scratch your head over why the person turned you down.

I'll tell you right now that I don't think a new form of video messaging is either a) something that consumers really want or b) a great way to make money because monetization just creates friction in the communication process.   

I could be 100% wrong about that, but that's my bet.  We'll know in a few years if I was right or wrong.  In my mind, uncertainty should never be a reason for an early stage investor to turn a deal down.  The world is uncertain and making bets in an uncertain world is what risk is all about.

So, I'm certain that I'll either be certainly right or certainly wrong--but I'm always certain.

I've been helping to syndicate a few opportunities lately and what has really surprised me was how wishy washy the turndowns were.  Entrepreneurs are sending me back notes saying "They turned it down, but I'm not sure why."   It's unclear what piece of information they were lacking or how someone could have gotten them over the hump.  It doesn't help them improve their pitch or adjust their model.  It just feels like the VC wasn't that interested in the first place and so they're not sure what the interest was in the first place.  If you take a smart home pitch, and you turn it down because you're not certain how the smart home segment will play out, what you should have done was tell the entrepreneur this, but offer up the opportunity to shed some light.  This way, they know there's a low chance of investment, and they can choose whether or not they want to spend their time educating you.

If an entrepreneur is going to invest their time pitching me or having a meeting--I'll do my best to invest my time to have an opinion.

It may sting a little when you get a direct pass from me with specific feedback, but you always know where I stand.  At the end of the day, my bet is that you'd rather get that.  You'd rather know exactly why I didn't do a deal than scratch your head over some opaque "VC speak".  


The Business of Who Makes is Changing

The 1970's was a boom for minicomputers.  Minicomputers were "midrange" machines that were used in all sorts of industrial applications--manufacturing process control, telephone switching and to control laboratory equipment.

"In the 1970s, they were the hardware that was used to launch the computer-aided design (CAD) industry," according to Wikipedia.

"The first commercial applications of CAD were in large companies in the automotive and aerospace industries, as well as in electronics. Only large corporations could afford the computers capable of performing the calculations. Notable company projects were at GM (Dr. Patrick J.Hanratty) with DAC-1 (Design Augmented by Computer) 1964; Lockheed projects; Bell GRAPHIC 1 and Renault." 

Those were basically the makers of the time--only big Fortune 500 companies had the resources to create at scale, so if you were building tools for makers, it was a B2B sale involving a lot of big iron.  

Microcomputers gave way to desktops and software made great advancements.  It is perhaps not surprising that both Autodesk and Adobe--the two software companies probably most responsible for digital first creation, were both founded in 1982.  Their tools brought creation ability out of labs with expensive hardware to masses of professionals in both large and small companies.

Still, users of creation tools were mostly professionals.  It takes a fair bit of skill to be adept at Adobe Illustrator or to use AutoCAD.  What we're seeing now is a third shift in the maker market--to individuals and hobbyists, i.e. everyone.  Quirky helps you develop and market your product ideas.  Companies like Makerbot and Shapeways bring physical production to the masses.  Etsy is a marketplace for things you make.  

There are also places to deposit what you've built or designed--Thingaverse is a core component of the 3D printing ecosystem.  GrabCAD helps CAD designers collaborate and leverage off of each other's libraries.  Splice is doing similar work in the music space.  

The biggest opportunity to innovate is probably on the consumer facing side of things--the medium of creation.  The other day I had a conversation with a friend about Vine and Instagram--and the sheer amount of creativity they've unleashed.  They've narrowed the gap between inspiration and creation--I think of something and I can make it, all on the same device. 

This was echoed in a recent Forbes article.  In it, Adobe’s VP of Experience Design, Michael Gough, "described... something that many creatives feel about technology, that for all it has given us is has also robbed us of expressiveness and the ease of making. He aims to bring the immediacy back with the goal of making more people more creative."

Making more people more creative is what Adobe is aiming to do with their expanded cloud offerings and new hardware--they've built a pen and corresponding app similar to what Fifty Three has with their Paper app and Pencil.

It's also the same bet that Brooklyn Bridge Ventures made with Makr--that enabling more people to be more creative could be revolutionary.  Squarespace also fits in this space--narrowing the gap between thinking of something creative and making it happen.  No longer does a creative individual need to wait weeks for a designer to turn around their branding materials--they can do it themselves with these new tools.  

We hear the term "maker revolution" and it's easy to dismiss it as just a few Etsy sellers producing limited batch products--but it's a more fundamental shift.  Tools like AWS, open source and web frameworks made the barriers to producing technology applications lower.  That unleashed an explosion in innovation.  You can go from idea to app in record time these days.  Similarly, by making maker tools easier to use and more accessible, we're experiencing an explosion in creativity that has only just begun.  Companies like Autodesk and Adobe will undoubtedly need to keep these creation tools on the radar, because the market where everyone is a maker is very different than the world of the 80's and 90's where you only had fulltime professionals paying for high end creation software with all the bells and whistles.  

Now, the core competency of your business needs to be around taking the power of these tools and making them simple enough for everyone to use.  When everyone is a creator--connecting networks like Behance look even more like critical parts of the ecosystem.  

How early should you connect to a VC? Here's some data.

How long does it take from first meeting a VC to getting cash in the bank?

That's an interesting question. Theoretically, someone could meet you, sign your document, and write you a check for deposit that day, but that's not how it usually works.

It's also not the best way to create a helpful syndicate of investors that share the founder's vision for the company.

Examining the actual data not only gives me some insight into my close process, but it helps me calibrate around relationship building.  If all my deals came as intros from trusted connections that I know for years versus at founder pitch events that's interesting data.  I might decide that I'm not mining one side or the other, or I need to redouble my efforts to build relationships with the people I know longest.  

It also helps me figure out who I should be spending my time with. If it turned out that the best experiences I've had as an investor come from knowing someone a long time, I might go to events that are more around a specialty, like software development or design.  In this case, I'd have the benefit of knowing someone long before they created a company.  If you meet someone at a pitch event, they've already got a company and they're looking to close as quickly as possible.

In fact, that's what I tend to do--at least, what I say that I do. The way I choose conferences and events, and my strategy once I'm there, is based more around who I'm going to back two years from now than it is who is raising now.  

But does the data play that out?  How long in advance did I know someone, or know about a deal before I wired money?  What led me to knowing about that deal in the first place and when did that event happen?

I went back across the 21 investments I've made both at First Round and at Brooklyn Bridge Ventures--a period that dates back to January 28, 2010, when I closed on Backupify.  I looked at how I got the deal, when I first met the company, when it closed, and then what connection I made to be in a position to get the deal in the first place.  For example, while I closed on the seed investment in Tinybop on November 19, 2012, I met Raul two years earlier at the first Brooklyn Beta in 2010, even before he was working on the company.  Similarly, I got introduced to Chantel Waterbury from chloe + isabel by Bo Yaghmie from Cooley, who was my lawyer when I had a startup--so I had to trace back when I first got introduced to Bo by Fred Wilson.  That was three years earlier. 

Of course, if I really wanted to go nuts, I could say that I had to be born, my parents had to meet, and the universe had to begin for any of these deals to happen.  That would get silly after a while, so I just kept it to the immediately prior traceable event.  If someone introduced me to a deal, I went back to when I met that first person.  If I already knew the founder, I went back to when I first met them, and then marked the day they started their company as the first pitch day.  

The first thing I did was trace my sources.  Here were the results:

I would guess that getting a third of my deals from events is probably disproportionately high compared to other seed investors on the east coast--and that my VC intro percentage is probably somewhat low.  The latter is someone I've been more conscious of lately and I've been working to share more of what I'm looking at with other investors, in order that they share more in return.  That seems to be paying off as I'll likely close on a deal this week that came from talking about dealflow with another investor.  

You might be surprised that I don't get more inbound deals given all the work that I put into my blog, Twitter, and newsletter.  Actually, these things play an important role, but not in the way that you might think.

My social media streams actually do more to keep existing connections warm than they do to create new ones.  It's a way for people to follow along on what I'm up to and to keep me top of mind when they do encounter a company.  I would say most of the times that I've gotten an introduction to someone, it came right after the person making the intro read something that I put out there.

So how long does this all take?  I did a lot of inbox mining and came up with the following:

So, on average, something I did almost two and a half years in advance let me to getting these deals, and from the first time I encounted them, it took about five months for these deals to close.

Five months?

Two and a half years??

Who has that kind of time???

Fear not, founders.  I could turn around a deal and close in the same week--heck, even in the same day if I needed to.  It just doesn't seem to happen that way.  I'd say my average turn around time these days on saying yes is probably within a week.  So what's taking so long?  A lot of times, it's a process of gathering other investors for a round.  It's also a function of meeting the entrepreneur before they've really decided what they want to raise, or before they have a deck.  I'd say that five months is the amount of time I'd pencil in from the day you're ready to tell other people about what you're up to, rather than how long it takes to close a round.  The tricky question is whether these early conversations should count as fundraising.  When you approach someone to catch up and tell them what you're up to, are you pitching?  Most founders would probably say no and most VCs would probably say yes.

To me, these early conversations were extremely critical to helping me get to know a founder, to sharpening the plan, and to build relationships for later rounds.  To go back to the Tinybop example, Raul wound up pitching Steve Schlafman while he was at Lerer Ventures very early on, and Steve came back to lead the Series A in the company more than a year later.  

As for the two and a half year mark, it should say a lot to anyone looking to get into venture.  One of the most important assets you have is your network--but it's not your network of founders.  It's the network of people who respect what you can do for a founder enough to make an intro.  That's what this multi-year relationship is all about.  It's interesting to note that a lot of these people were founders themselves that I didn't back, but I stayed in touch with.  They went on to do other things besides their startup and connecting with them turned out to be really important.

It also seems to reinforce a lot of the activities in the community that connect me to interesting non-founders.  These are the people that, a few years down the line, are going to run in the circles later that I would like to be connected to.  

So if you don't see me at a pitch event or a demo day, it's probably because I'm meeting up with someone from the future.  






Brooklyn Bridge Ventures invested in Ringly because being present is fashionable

A year ago, I wrote a post about how I was trying to keep my phone away during meals--No Phone with Food.  These days, we've got so much that can distract us, being present has become a rare feat.  I've tried to stick to it, but it's hard.  I run my own business and I try and make myself available whenever my entrepreneurs need me.  I also have a lot of family responsibility--with parents getting older and my grandmother making her way ever closer to 100, there are a few important folks I always want to stay connected to.

The problem is that the phone is a rabbit hole.  With just a few app installs, the notification screen quickly becomes short attention spam theater.  Sometimes, I wind up in Twitter or Instagram on my phone without even remembering why I pulled the phone out in the first place.  

For a guy, it's just too easy.  With my phone in my pocket, it might as well come out of a holster.  

For women, its worse.  Either you dump your phone into the black hole known as your bag, never to be heard from again, or it sits right there on the table as the third wheel.  There's nothing more distracting than having a phone buzz on your table or needing to walk around with it all the time.  

It says a lot about the evolution of mobile technology.  Cameras, for example, got smaller and better to the point where we didn't need a seperate device--and they just wound up in our phones.  Same thing for GPS.  Now, your phone is everything to everyone--a device you're always attached to.  What's lost in that process, however, is matching right interaction with the right time and place.  That's part of the promise of wearables, the connected home, and devices in cars.  I don't need a phone to provide me every notification and every tool all the time, but different devices have their difference place in my life.

Ringly is a platform for fashionable wearables, enabling them to filter your world for what you care about.  It's all about getting notifications in the right moment, without interrupting all of your other moments.  Now, you can finally put the phone away over dinner without losing touch with the babysitter.  They launched the pre-sale of their first set of rings today--their own design.  You should check it out.  I'm excited to see Christina and Logan's vision come to life and I'm excited to be on board as an investor.