If I was going to start a venture capital fund around a theme, I'd pick something a little different. Forget Enterprise, or Mobile... It wouldn't be "networks" or any other standard classification of startup. No geographic focus.
I'd start a fund around "Play".
Play, it seems, is making a huge run and should be positioned for success for a long time.
Sure, people have been playing with things for years, but the businesses created have been in the gaming space--experiences with winners and losers, leaderboards and points.
What I'm most bullish about is wide open, free-form play--the act of exploring, creating, and being curious. I don't think there's anything more important that you can teach a kid than to be curious about the world, but we've run into a problem where resolution had gotten so high, we don't have to imagine anything anymore. Instead of the Legos I grew up on, where I took random bricks and made them into things I'd never seen before, you've now got disassembled toys. You buy the Lego Star Wars spaceship in pieces in order to put together the Star Wars spaceship--not to mention that because it's Star Wars, the spaceship you build already comes with characters and a story.
No imaginaton needed. You don't have to play, you just replay. We're fed so much content that our ability to generate unique and original ideas feels like it's in jeopardy.
Coupled with education systems lacking for inspiration, anything that can create a spark in a child is in high demand.
Scarcity + high demand = Happy VC all too willing to fund playful things and entrepreneurs ready to play.
I'm talking about companies like littleBits, which makes tiny circuit-boards with specific functions engineered to snap together with magnets--"juiced Lego". There's Makerbot, which let you print out 3D objects you design yourself at home. Minecraft let's you create whole worlds online from the most basic elements.
Tinybop, a company my fund invested in, calls its products the "toys of tomorrow", and it's first app, the Human Body, doesn't have a way to win, but it does have a handbook for parents. Instead of cheat codes, it provides a lot of questions to inspire your kids to think and explore. Goldieblox, sort of like an erector set for girls, and Kano, a DIY computer kit, are focused on getting kids interested in engineering and science.
These companies are not only getting millions in VC investments, but huge revenues as well. Parents are making the "how much do you love your kid" market a very lucrative one to play in.
And it's not just parents in the US. When Tinybop launched, they weren't just the #1 education app in the US, they went to the top in over 100 countries. Being #1 in education in China meant being the country's #8 app overall, lest you need a reminder of how important the rest of the world thinks of education.
So if you're toying around with something you think can inspire kids, you might want to grab some time with a VC (especially if you're in NYC).
In a seed or friends and family round, tough questions, in the eyes of many founders, signal an investor that will either a) never get to the writing a check part or b) be such a pain in the ass afterwards that it might not be worth taking their money. Especially if you already have the round circled, without anyone giving you a hard time, why bother stopping for that one investor who wants more detail on how you're going to scale?
Personally, I learned an important lesson when I was raising the seed round for my startup, but I didn't learn it until we folded almost two years later...
Tough questions are a godsend.
Running a startup is going to be difficult. Something isn't going to go your way--product development, hiring, revenues. Angel investor Jeff Stewart once told me that either the product takes twice as long and costs three times as much to build as your plan, or takes three times as long to build and costs twice as much--you just don't know which one.
Whatever it was--I wish I had been better prepared for it. My fundraise was relatively easy. It was a party round before anyone used the term--twenty one angel investors including a lot of top names. Everyone supported *us* and no one really put our feet to the fire.
I wish they had.
Of course I appreciated their support, but there were so many questions I wish I would have had answered before I took anyone's money--questions that I see a lot of founders not having to answer before they raise. There are some really great folks who are essentially cashing in their social capital, building off their character, relationships, or even just the coolness of what they're up to. It's really not good for anyone in the long term.
Your next round isn't going to get raised like that. In a seed round, you can get by on who you are or some buzz or social capital, but a Series A is about the kinds of plans and numbers that come out of a rigorous dedication to traditional business processes. You may be able to get away with raising a seed round without even taking a guess around the economics of an individual salesperson, but don't attempt to raise $5mm without knowing that answer--and if it turns out not to work, why wouldn't you want to know the answer to that question a year ahead of time at your seed round?
I can't tell you how many times I've said to a founder, "I'm not trying to be a pain in the ass" when I feel like I might be the only one asking these types of drill down questions. It's really for your benefit just as much as it is for mine. I know the world is going to change and assumptions are going to be wrong, but if you don't have any assumptions to start with, you're going to drift aimlessly.
Plus, if you're not the type of founder who wants tough questions, then you're probably not who I want to back anyway--so I find that going deep during the due diligence process is a good litmus test on the founder.
Because at the end of the day, you may not like the process but you need someone to have high expectations of you and to ask you the tough questions.
You want me on that wall. You need me on that wall.
When I saw Coin, the all-in-one card, buying it was a no brainer. Instead of carrying three credit cards, a bank card, and a host of other random plastic in my wallet, I get to carry one card.
No convincing my friends to join some social payment network.
No shaking, waving, bumping, twirling or any other things I've never done to have to pay for anything.
No worries that if my phone runs out of battery, I won't find myself in first world technology induced poverty.
Swipe like usual, but better.
There's something to be said for just letting people do what they do normally, but using technology to make it better. I don't know if that means that Coin will be a great company, but as a product, I can't wait to get mine.
Fitbit and other wearables get this right as well. Snap it on and then--just do what you normally do. Walk, eat, sleep, done. It works without you haven't to remember to record a workout, check-in, or push a button.
Canary, a portfolio company of mine, takes advantage of this in the security space. Millions of people install ADT and then forget to set it or can't remember their codes--because it's a new behavior. For years and years, I've been walking into my apartment without having to type in a code. If I suddenly got ADT, I'd probably never remember to set it--but Canary is just set it and forget it, only letting me know when unusual stuff is happening in my apartment. I love services that work so discreetly that I might not even remember that I have them--instead of needing me to remember to use them.
Perhaps this is a common theme in my portfolio. SocialSignIn, software that turns wifi into an engaging social marketing channel, operates on the same premise. Tons of venues are already providing wifi. End users, well, we've already been mindlessly seeking out open wifi nodes like little bandwidth zombies for years. (WIFI=BRAINS!! in this analogy.)
This kind of product development comes from an insightful entrepreneur who is a great observer--someone who often has a diverse network or likes people watching. If all your friends are just like you, and you're a young tech geek, you're more likely to believe that people will change habits to do some cool thing that your friends are doing. "Normals" and people who aren't 22 tend to be a little more engrained in their habits--so services have to come to them versus the other way around.
That's what people used to want.
You moved from the little room that you grew up in to the little dorm room to your crappy little first apartment. Then you got a nicer apartment, which was inevitably a bigger apartment, and then maybe a bigger one after that--or maybe a house.
And you filled it with stuff, like TVs.
When they came out with a bigger TV, you bought it, because it was bigger. Now you needed a place with a much bigger living room to fit your big TV.
And your kids, they had to go to a bigger name school than you did--one higher up the rankings than yours. Tuitions, they got big, too.
Bigger, bigger, more more.
Welcome to the American dream.
Only, you weren't any happier.
"You may ask yourself, how do I work this?You may ask yourself, where is that large automobile?You may tell yourself, this is not my beautiful houseYou may tell yourself, this is not my beautiful wife"
And when the bank took it all away, turned out it really wasn't yours. But thats really what you clamored for. Yours. It didn't have to be the biggest thing. It had to be *your* thing.
Somewhere in trying to make *a* mark in the world, we lost the idea of making "your" mark in the world--but now that's changing. Call it mass customization, the maker movement, DIY, or whathaveyou, but more and more, what we want is unique. We want a hand in calling the shots in the creative direction of our lives.
I am the only New Yorker with "CEONYC" on my license plate. There is no mistaking *my* car.
Crazy, silly, idiotic, whatever. It's mine and there's nothing more satisfying about it than seeing a Tweet like this:
@ceonyc hey just saw you on the Verrazano bridge! Mustang right?— James Lopez (@imjamesjlopez) June 23, 2013
You can have a Mustang, too... just different than mine.
That's why when I met Ellen Johnston and her exceptionally creative team at Makr, a new app that launched today, I got it right away.
Makr takes personal branding to an all new level. Have you ever been at a networking event and had someone hand you a Vistaprint business card? Your expectation level for how inspiring this network is going to be just falls off the table.
"Oh, great... yeah... um... I'll definitely call you about that."
All of the sudden, everyone seems like a networking drone.. mindlessly handing out the world's dullest business cards. That's because these customization businesses were built a decade or more ago--when the hard part was hooking up a bunch of printers to the web and figuring out the logistics.
Design was an afterthought.
In today's world, design can't be an afterthought. It should be the initial thought. Why even bother customizing your brand's look and feel if the tools can't truly express your individualism.
Makr changes all that--and not just for business cards. Nearly anything that you can think of that might have your personal touch will be able to be created at Makr, all from the convenience of a tablet. Honestly, even if I hadn't invested in the company, I'd still think this was one of the most beautiful, powerful creative apps ever.
Just check it out:
Check out the app on your iPad today. Whether you're an Etsy seller, home brew your own beer or cook up your own bathroom gin, you shouldn't ever let your products leave your hands without carrying something personal--a thank you note, a label, an insert, an invitation to your next customer appreciation event--something that you designed.
Because off the shelf is dead (Just ask Makerbot, Quirky, Shapeways, etc)--and Makr can help you personally tell that story for yourself, your family, your small business or your startup.
I'm excited to that my fund, Brooklyn Bridge Ventures, is a backer of Ellen, and Makr, along with Lerer Ventures, Betaworks, Collaborative Fund, Founder Collective, Undercurrent, David Tisch at BoxGroup, Taylor Greene, and Nicholas Callaway. Ellen is a designer by trade, a first time CEO and one of the most creative people I've ever met.
Oh, and did I really need to tell you that this company is located in Brooklyn? :)
Yesterday, I saw this tweet come across my screen...
This feels like a West Coast mentality, because deals seem to feel "hot" more often out there--I believe because of founder pedigree. It's more often the case that founders are repeat entrepreneurs on the west coast. Combine that with a larger number of seed and early stage funds chasing deals, things "look good" earlier, based on the team or maybe some quick traction around a small, tightly connected base of people, and seem to pick up fundraising momentum quicker.
While I believe that personal branding is important for everyone, especially entrepreneurs and investors, I'm really bothered by the credence people put into a deal being "hot", especially given my own personal experience with "hotness".
Today, I can tell a nice little story about spotting hot deals, and, in fact, I raised my fund off of that narrative. Only, I didn't spot a hot deal any more than anyone makes a viral video. Videos don't start out viral. You make them, and then the audience decides that it should be passed around a million times.
All along this narrative, there was really nothing special about my interest in any of these companies. My brand didn't really have much to do with my ability to plant a noticeable flag on the company's behalf.
If you've read Nick Bilton's Twitter book, you saw my quick cameo...
"Do you twitter?” he asked Fred in the e-mail. “You should check it out. . . . I didn’t get it at first, but now that there’s a group going to sxsw, I get it,” Charlie wrote. “I’d never text all the people I’m texting now . . . but it’s a really seamless way to text groups and individuals at the same time.” Fred wasn’t convinced, telling Charlie that such a service would never work and that other companies that had tried to make Twitter-like products had all failed.
Of course, Fred was open-minded enough to dive right in as he usually does and quickly changed his tune, but think about that. This was *eight months* after the launch of the service and the guy who eventually led the deal still wasn't totally convinced.
Not exactly what you call a "hot deal".
Two years later, Foursquare launched at that same conference and I sat on joining it for months and months after. Dennis and Naveen had pitched just about every investor you could think of and came up with a whopping zero term sheets.
Not hot at all.
I just didn't quite get it until I realized that it didn't have to be about a game and that it could be my way of interacting with my locality. I wrote a post about this realization and it touched off a flurry of activity that led to their seed round.
The funny thing was, I was hardly the first to join it. *Anyone* could have funded it from March '09 until that July--and yet, now there's story about me "finding Foursquare."
Feels like a Columbus discovering the New World story. Tell that one to the Native Americans who were already here.
And now that I'm an investor out on my own, one of my best performing companies is an investment that the founder could hardly give the equity away for in the beginning. When Raul Gutierrez was fundraising for Tinybop in the fall of 2012, he didn't actually finish the round--instead getting about three quarters of the way and then deciding to just get started working on the app.
Not hot--and it wasn't a deal that anyone pat me on the back for "getting into". It wasn't my brand that got me access to that round. It was just my willingness to write a check. (Well, I guess I had to seem like a reasonable guy, but the company really, really needed the money.)
Of course, it's hard to be a "hot deal" before you've written any code, let alone launched, but the point remains--it was an investable deal for *anyone* for months and months.
It didn't get hot until it launched nine months later. Since then, they've been #1 on the app store in education in over 120 countries.
Just a few months later, when I led the seed round of Canary, we closed the round just a couple of weeks before their record setting $2 million pre-sale on Indiegogo. In fact, a local venture firm turned the company down just a week before the pre-sale. In fact, several of them did. The round itself took about five or six months in total.
A pre-launch hardware company? There was a good chance that I was crazy.
Not hot at all.
The point of this nice walk down memory lane of Monday morning quarterbacking?
Most of the best deals that an investor will get into won't look like much of anything at the time. Just about anyone can get into these deals if they're early enough and show some conviction. There was nothing special about my relationship to any of these companies and, in all four cases, I wasn't the first one to notice them. I might be in a sweet spot of mild notability and earliness, but in every situation I can point to lots of people who came before, took bigger risks (like, ah-hem, the founders themselves!) and who created a much bigger impact.
The lesson for people who want to get into the asset class?
1. Show up early.
2. Make quick decisions.
3. Visibly go all in with your reputation and effort. You don't even need money for this. My story as a "picker" really starts with two deals I didn't even invest in. I wasn't even at a VC fund at the time.
You'll often be spectacularly wrong, but those failures will still earn the respect of the founders you back--and that's all you have as an investor.
Then, just hope that when all is said and done, your wins allow you to survive another day.
And the next big thing? I'm completely biased, but follow Makrplace for some big news this week. :)