Union Square Ventures...jacked into the Matrix looking for deals.

You've dreamed of it.

You're sitting in your house, minding your own business, and the doorbell rings.  You peek through the front window to see who it is, catching a glimpse of the rusted out '82 Chevelle in your driveway, and...  can it be?  Yes!  Yes, its him!

Xzibit has come to pimp your tech services business.

He's going to set you up with a phat new 22 inch metadata warehouse and some chrome 3rd parties who want to know what your userbase is up to and are willing to pay some bling for the audience data and access.

There's a catch, though.  Your company might look like a data business on the outside, but, just like on "Pimp My Ride", they never pimp your engine.  Inside, providing a steady, but unspectacular cashflow is still your little tough to grow service business.  It pays the bills, but VC's aren't really falling over themselves to get it.  Try raising capital on the promise of your data centric business but based on the revenue multiple of your yawner of a service business.  The two just don't match.

The ironic thing is, yawner or not, your service business actaully has, well, real live guinuine customers, and those customers are what drives your data business.  You don't want to give those away for free, but a VC isn't really interested in that side.  VCs want in on your startup data business, at a single digit premoney, not a 3x multiple of a services business that doesn't scale.  They do care about it, though, because they have to--its the boring core services business that generates all the metadata that's driving the upside of the new, but untested, venture.

You could seperate the businesses and even have one invest in the upside of the other, but then how do you divide your staff?  Try holding a company meeting and asking for volunteers to stay to care and feed the services side while everyone else joins the new Web 2.0 data venture.  Who's going to be the odd man out on the management team?  Seperating:  easier said then done.

But yet, if you don't raise money, you might not be able to take advantage of this potential opportunity.  Clearly, as services business realize that data is the key to differentiating themselves in a crowded market, a lot of thorny questions are going to need to get addressed to ensure they hit the ground running with the right balance sheet and the right resources.

PWC Networking Breakfast for VCs.  What's with all the suits???  I was the only one w/o a tie.  Are we sure these are VCs?

After popping in at a few local tech/blogging events lately, something has become apparently obvious to me.  I need a wingblogger--someone my age as interested as I am in being a part of the more social side of this community that I can drag around to all these events.  For someone who works at a VC firm, I probably have the least tech savvy social network possible.  That makes it incredibly difficult, at least for me, to go to all these events and meet the people I'd like to meet--especially given that, because of my age, I have a natural advantage over a lot of other people in my industry.  I can relate a lot better to a lot of the very creative people that are disrupting some of the markets that USV has interest in.  Even though I may be outgoing, I really do hate doing much of anything alone.  I need to be able to go somewhere, run ideas by someone, recap the event, discuss, plan, etc. 

At the same time, I don't want to be too "networky", which, as a venture guy, is probably about the worst thing you can do, especially in New York.  In spite of the fact the NYC is the financial capital of the world, not everyone doing some kind of interesting project is in it to make it big.  Sometimes, like in the case of the Vimeo/Collegehumor guys, success seems more like an accidental byproduct of serious goofing off.  Not everyone wants their audienced monetized.

Ideally, I'd have a friend or two that worked in media/marketing/tech that was curious about new trends, interested in meeting people, and savvy enough to find some events that I missed.  The management is currently accepting applications for wingbloggers. 

Highly amusing way to say that a website is down...  Jurvetson must be going out of his mind.

Fred and I, in collaboration with an entrepreneur to be named later, put our heads together via IM/e-mail (He's out sick today, but still can't unjack from the Matrix, so send him some get well comments) and came up with this chart.  GM shed four bucks today on the news that it would post a loss of about $1.50 a share, versus the previous target of break-even.  I know weathermen that can predict better than that.  At the same time, Microsoft is trading at about 60% of its 2000 levels.  As you can see from the chart, both companies have traded similarly on the way down.  Coincidence?  Yes.  Relation?  Not a bit.  However, they do both fall into the same category:  Companies that are too big to achieve sustainable growth and  ones getting their lunch eaten by competitors that innovate better and act faster.  I'm not sure what to expect sooner...   Longhorn or a GTO that actually looks like a GTO.  So does that make Toyota and Honda the Mozilla and Google of the car world?  (Of course, that would also make Internet Explorer the Aztek of the browser world.) 
     The real challenge for these companies is focus.  Both have lots of attractive products and also lots of properties that seem to be a bit adrift.  The interesting thing is that GM has always been in the business of trying to get smaller, spinning off EDS, DirectTV, etc, while Microsoft never seems to waive the white flag on anything.  The unfortunate thing at GM has been that these highly profitable sales haven't helped the business at all, with proceeds going into the black hole of pension benefits and medical expenses.
     Another interesting comparison is the quality issue.  GM's product quality has made great strides over the years, while Microsoft, well...   you know. 
     Here's the question of the day.   If Blackstone is successful in raising its highly anticipated trillion dollar buyout fund, differences in market cap aside, if you were Steve Schwartzman which company would you rather buy and try to turn around?   Could you generate a better return from buyout GM, spinning off GMAC and slugging it out with the unions on the healthcare and benefit issues?  Would you buy Microsoft and inspire some actual innovation or just milk it like a cash cow? (Since the company has been last to the party on, let's see now, search, blogging, what else is hot?)   Perhaps I should start a MSFT vs. GM index on my blog to keep track of which would have been the better deal.

Five years ago, the Nasdaq peaked at 5048.  Today, it opened at 2065.  Unreal... and it really didn't take long to come down either.  By the close of 2000, its value had already been cut in half.  I think at the time we all knew it was coming... eventually...  but it was all a matter of when.  Sure, during the runup, we talked "New Paradigm" and thought the growth would continue forever, but there was a point after which it just got ridiculously out of hand.  I think the AOL - Time Warner, and the fact that a little punk startup that could was suddenly worth as much as this offline, established media giant threw a lot of cold water in people's faces.  But, whatever it was, it all ended very quickly on this date five years ago.

Lessons learned?  I hope so.  Public investors seem to be pretty well sobered, but that tends to go in long cycles and I'm sure they'll be some other kind of bubble 10-15 years from now anyway.  As for the private side and venture?  I'm not so sure any lessons were learned, because there are still a lot of investors around with a lot of capital.  However, like in any investment cycle, the quality investors will still succeed, and in bad times, while everyone suffers, its the wannabees that really get wiped out, and that will always happen. 

Anyway, to commemorate this event, I put up, on my CafePress site, a Special Unlimited Edition (meaning I'm happy to sell as many as I can sell) mug... well, actually, two mugs and a mousepad, with the following logo:

And here are the items themselves (large and small mug):

In addition, I've put up some funky blogger related t-shirts as well.

Happy shopping!

__________________________________________________________________

Link: WSJ.com - AOL to Launch Net Phone Service, Giving VOIP a Mainstream Name.

I've been pretty down on AOL for a while after being a big supporter (and a stockholder) until the merger.  Nothing that the company has done, not a single new innovation (not that there were any) has made me believe that the company had any hope for future growth.  However, if done right, I think maybe VOIP might be something big for AOL.  What does "done right" mean?  It means that AOL has to AOL-ize the product.  It needs a cute little yellow running man and a "You've got phonemail" message and all the same little hokey things that made the internet so accessable to people back in the late 90's.  So many users tiptoed on to the web with AOL holding their hand, and eventually, they grew up to be internet savvy and left home.  VOIP may prove to be the warm, homecooked meal that keeps the kids around for a little while longer.
  The key will be converting the dial-up people to a broadband connection+VOIP service, and somehow manage to squeeze AOL for Broadband in between.  VOIP is clearly a superior value to someone still holding on to a landline in their house, and that represents the bulk of the AOL userbase.  AOL users, for the most part, are beyond late adopters, and I believe that the majority of them are not yet broadband enabled.  They're internet dinosaurs, like my dad.  My dad is still on dial-up.  My parents don't even have call waiting.  But AOL speaks dinosaur... they must, because they still have 22 million subscribers.  AOL might have a pretty decent shot shopping cheaper phone service, and replacing the phone company with this relatively trusted brand they inexplicably hold on to. 
    So lets see what the pricing and features look like...  all I'm saying is, this could be a ray of hope for a stagnant company.

This is the view from the window directly across the room from me in Reception.  :)

The NYC weather was bizzare today, dropping about 25 degrees in like three hours and even starting to snow.  Yes, it was 52 yesterday.  Right now?  20... and the wind is howling like you wouldn't believe. 

The snow didn't really stick at all, except around the rooftop greenhouse you can see on the building next door to us.  (That's Broadway down there.)  Maybe, if you're lucky, I'll post a few more office pics to show you what my work environment is like.  This way, all of the entreprenuers can visually prepare themselves for the encounter beforehand. 

Well, this is a bit weird, since I can't find actual mention of this anywhere...   I mean, its advertised on Friendster, but Six Apart doesn't seem to have it on their site and no one else seems to be commenting much on it.   You can now create a blog on Friendster, and its powered by Typepad.  In fact, it basically is Typepad and there isn't much integration on the site between the two products, other than the fact that you can annouce your new blog to all of your first degree friends. 

The interesting thing is that there's a free version, and from what I can tell, its essentially FREE  Typepad.  However, it says that it will be Ad-supported, although they don't seem to have placed them yet on my test blog... maybe because I have no content yet.

The interface is clearly Typepad, though, and so are the pricing levels for the ad free services.  I thought, to be honest, that I was going to be sent to LiveJournal when I picked the free one.  I'm really surprised there's now a free level of Typepad out there for Friendster members.  Its really a fantastic value and I think that a lot of people will take advantage of it.  Supposedly there are 13 million people on Friendster.  That's a lot of free blogs out there supported by ad revenue.  I wonder how the ad revenue will be split between Friendster and Six Apart.

I also why I didn't get an e-mail from Friendster on it, or why it didn't show up on Six Apart's website.  To my knowledge, this is the first such deal they have providing blogging services to a content partner.  Will this start a battle to snatch up portal users?  When is Yahoo going to start offering a blogging service to its members?  Might they use Typepad the way Friendster has or go on their own?  Fascinating stuff.  And now I should go to sleep.  I wish there was a way to connect this story to my Success Blogging site...  I'm desperate for traffic there.  Ah well.  :)

Former Mets GM Steve Phillips is speaking at the Buyouts Symposium.

WTF?

What does he have to do with buyouts?  He wasn't even a good GM...   the Mets fired him.  Plus... its the Mets.  I mean, I'm a Met fan, but its not like the team has done anything to warrent their fired GM speaking anywhere.  To be honest, I think I'd rather see Bobby Valentine speak.  Maybe he could wear a moustache, too.   That would be hilarious. 

There are speakers that, if you can get them, apply anywhere...   Rudy Guiliani, Bill Clinton.   Steve Phillips is not one of these people.   He wouldn't even be welcome at a Mets Fans Symposium.  I don't get it.

So tonight I went to the NY Tech Meetup with Brad.  I have to say, its really cool to be around so many people really into what they're doing--and somewhat tangentially thinking about the money aspect.  From what I've experienced so far, this scene, at least the people that strike me and leave an impression, are so much more focused on building on great ideas.  Its a few derivatives later that the idea of cashing in comes in.  The people I relate to want to build on great ideas, and from what will come great companies, and great companies will bring great returns, which is what the investment side of VC is conceptually supposed to result in anyway.  The focus in our office has definately been about the ideas... that's hugely evident even in the first three weeks of me being here.  We sat down with an entrepreneur that we really like tonight who started talking about possible revenue streams and partnership deals and Brad and Fred definately pushed him back to just working on the idea...  get working on the idea and building up a great product and the rest will come in time.  It really made me feel like I'm in the right place with the right people. 

The funniest moment had to be when these two guys from a startup were presenting, and it was so obvious that they were in Beta...  like... not even in Beta... more like, "We built this for ourselves and it came out pretty cool so here it is."  Anyway, someone asked how you make money from the deal...  Its just too hard to explain not only if you weren't there, but you aren't in this world... this little NY tech circle of lots of exciting things going on.  Who knew that in a city of 8 million people you had a few passionate people with great ideas that were not too worried about VC fundable business plans?  Their answer to his suggestion of what they might do?  "Um, yeah.. sure."  Love it. 

PS...   I had somebody use the "chips and routers" term to me.  For a second, I was like, "Hey, that's what I call it."

Duh.

He reads my blog. 

I know how many hits I get and how many Feedburner subscribers I have, but when you meet an actual human being who reads and actually remembers...   well, that's faaaantastic. 

Jeez... now that I think of it... that's a lot of pressure.  If I have actual human beings reading, and not just numbers on a Feedburner stat page, I better go work on trying to be interesting. 

Scott at the NY Tech Meetup...

Link: Many-to-Many: Social Software: Stuff that gets you laid....

Keeping your eyes on the prize...

That was the quote from a temp that came in this morning to replace Kerri while she was out at a vendor training.  I told her, "I had come to terms with it, but thanks for opening up that wound again."

This is my new desk and yes, its out here in the open, but I wouldn't say its in "Reception".  We're all kind of out in Reception, because you can see everyone's office as soon as you walk in the door.  Key items on the desk include a picture of my nieces and a sunset picture I took at Fordham.  I also have a little Fordham banner and a mug full of pens.

In all seriousness, I like being out here.  We have a small office here, but I already did the office thing at GM and I really didn't like it.  I'm right here in the thick of things and nothing happens that I don't see.  In fact, I tried to get into the "bullpen" at GM, but no one wanted to switch with me, so I got "stuck" in an office.  (sob, sob... I know)

Remind me again....  Is it the third, or the fourth sign of the Apocalypse when two mobloggers capture the same exact moment?  In this case, its the Six Apart folks (not surprisingly):  Ben and Barak.  Where was Andrew when all this was going on?  Clearly, he dropped the ball on the moblog trifecta.

We had an interesting discussion yesterday about blogging.  In particular, we talked about my blogging in relation to my employment at Union Square Ventures.  Blogging is a very powerful medium, and you never know who is reading.  While its very easy to put up a "My opinions aren't that of my company" note, that doesn't mean that there won't still be some entrepreneur who reads my blog and decides that USV isn't the kind of firm they want to work with.  Of course, my penchant for flip commentary and shooting from the lip doesn't help that.  Now, of course, flip commentary about baseball or kayaking is unlikely to have that kind of effect, but opinionated commentary about companies and technology might. 

In addition to my potential for saying something out of line that isn't reflective of my firm, I'm more concerned about putting myself out there as more of an expert on something than I am.  Its so easy for blog content to proliferate around the net, and perhaps I'll post some kind of groundbreaking insights that everyone will want to trackback to.  (It could happen!)  All of the sudden, I've put myself out there as someone who knows something more than they really do, and, at this point, that's not something I'm particularly comfortable with.

Therefore, I've decided to institute some new policies around here, in the form of a policy statement:

- I am employed by Union Square Ventures as an analyst, not a partner.  The opinions expressed on this site are not necessarily reflective of the opinions of other employees of the firm, nor of the official positions of the firm (if there are such things) and should not be construed as such.
- I have decided not to post my opinions, for the foreseeable future, on technology and venture capital related topics in terms of their viability or potential success as a business.  From time to time, I reserve highlight what technologies I find useful from a technology consumer standpoint or point out what features I would like to see added to existing products as a consumer. 
- I will not be posting any discussion about companies that Union Square Ventures is looking at for a potential investment or is currently invested in.  However, I may actually use or link to some of their publicly available services on my blog as a user.  Obviously, if we like a company enough, its not unlikely that we would use their services. 
- I will not be posting any internal business and technology related discussions, whether it be with Brad and Fred or with any companies I might speak to.  Fred can post on such discussions if he so chooses on his own blog, and Brad, well, I'm sure Brad will cave eventually on the blogging. 
- Please send any business plans you might have to Union Square Ventures through our website, and not directly to me.  This is my personal site and while Charlie as a person is an analyst for a venture capital fund, this site is not about that fund and mention of its activities are incidental to descriptions of my life.

So, my first day went well.... thank you to everyone who asked.  :)

Of course, it was a bit awkward.  I mean, you work for eight years in one place and all of the sudden you're thrust into a little world that existed before you got here.  Its really about the little things.  What's my best route to work? How loud to I have to be so Brad and Fred can hear me in their offices, which are about 12 feet away from me and glassed in?   How loud should I be?  Where's the bathroom?  What time do people go to lunch?  Where can I get lunch?  Should I be talking more or less to Kerri than I did to Jeff when he sat behind me?

And the answers?

I haven't figured that out yet, but this morning I just took the 4 train all the way to Union Square and walked back up b/c it was so nice out.  It seems to be too crowded at Grand Central to switch--that might be different when I'm back on my gym schedule.   I don't need to be too loud.  I can probably be loud enough to do it, too, without getting up.  I have a vague idea where the bathroom is, but in all honesty, it hasn't come up yet.  Maybe I should be drinking more water.  Brad gets soup for lunch, which would fill me for, ooooh, about two hours, so that's not an option.  Fred went at about 1, and he took me out minutes before I passed out.  Hench, I brought my lunch in today so I could eat at my normal noon feeding.  As for Kerri, I still haven't figured that out yet.  She hasn't had a coworker in such close proximity for years, so she's very focused on her work pretty much all day.  Since Jeff and I chatted endlessly all day, I'd bet that I'll be less chatty in general. 

So, I apoligize to anyone expecting to hear from me.  It will probably take me a good week to get fully back up to normal.  Cleaning out all of the office and car junk from my apartment would be a good start.  When my apartment is a mess, it definately affects me in the outside world... similar to the way I was in a funk when all my Ikea furniture hadn't been assembled yet when I first moved in.  I'll get there, though... don't worry about me.

On Monday, I will join Brad Burnham and Fred Wilson as an analyst at Union Square Ventures.  This is the story of how it happened...

Last September, Marcy popped her head in my office and asked me to come with her to a fundraising meeting with a new group. Being a large and well known program that has been in the asset class 25 years, we tend to see A LOT of groups passing through. And it isn’t just because we’re big… the new funds we see don’t even need that much money... at least not necessarily in the size that we have the capability of putting out. They know we’re sticky money if you meet our bar, which is pretty high. We are committed to the asset class and while its tough to get us to give you money, when we do, we’re in it for the long term.

Anyway, I was pretty busy that day, and almost didn't go, but I know how important it is to have a colleague with you when you see a new group.  Sometimes, you need to bounce ideas off of each other and get feedback to really get a good assessment.  So I went, and that was the first time I met Brad and Fred--when they were fundraising for Union Square Ventures.  Well, actually, it was the first time I met Fred in person.  It turns out I had been reading his blog for a while, but, to be honest, I'm reallly bad at associating people with the blogs they write.  Had he introduced himself as "A VC" I would have realized it.  I'm just as bad with AIM screenames.  I kept thinking, "How do I know this guy?"  I thought maybe it was just because he looked like Gary Sinese.  Only after the meeting when I went back to my Feed Demon did I put two and two together.

There are a lot of "me, too" emerging funds out there.  Just as there were too many funds popping up in '99 and '00, there are way too many people out there raising money, and to be honest, all their stories sound the same.  If I had a dime for every fund with a few guys with short track records and one or two hits that weren't even really their deals, and portfolios sitting at cost, which makes them top quartile for the vintage...  well, you know how it goes. 

Brad and Fred were different.  They had track records going back over ten years.  They had a story--one that made a lot of sense to me.  They weren't going to do "chips and routers"... they're were enough people doing that out there.  They were going to do applications of interesting technologies--in New York of all places.  I remember at the time I was noodling all the blogging going on about the "web as a platform" and I was already convinced that the real money was going to be made building on top of all the infrastructure that had already been laid out.  I had also been working on due diligence for Ignition.  They, too, were extolling the virtues of consumer services and the new layer of opportunities being created, and I really respect their knowledge and insight.  Plus, it all just sounded very reasonable, and I am, if nothing else, a reasonable guy.  I like buying into ideas that make sense to someone like me who might not have a degree in electrical engineering.

Very quickly, USV was down to its last $15 million (they were raising 125) and about to close.  Marcy and I really liked them and so we fanagled our way back into a window to check out the fund.  At the same time, we were going through a strategy review on our philosophy and approach to emerging funds. 

I've been joking around that we didn't come through with a commitment, so Brad and Fred spitefully took an analyst instead.  The truth is, we liked USV, and want to keep track of them over time, but we don't usually do first time funds for a variety of reasons.  I personally never really bought into the "first time fund" idea for people with extensive track records like they had, but there is an added element of risk when you have two people working day in and day out together for the first time.  That isn't to say that veteran teams don't tire of each other and break up as well.  Partnership dynamics are a tough thing to diligence and probably impossible to predict, so you thoughtfully decide where you want to play and you hope it all works out.

At the same time, as you well know, I was thinking about grad school.  I was looking at the future and trying to figure out what was going to be the best route for me going forward.  GM was a fantastic experience for me--all eight years of it, but when you're 25, and you're working with one of the best teams of experienced partner level people in the business, there is a limit to how fast and how far you can move up in responsibility. 

After meeting with Brad and Fred and doing due diligence, I had continued talking to them about the space.  One day, as I was thinking about potential career paths,  I dropped Fred a question over e-mail:

"Out of curiousity, what is the profile of the type of candidate a smaller VC firm  would look for in an analyst/associate role?  What would role would they play in the firm?  I'm filling out all these grad school essays and its just making me think about career options from this point forward in general."

Fred's response:

Would you consider a one/two year stint as an analyst at Union Square before
going to B School?

If you are interested, let me know

Admittedly, I wasn't really prepared for that.  You have to understand what a mainstay GM had been in my life, and while I was still having a great experience there, it was the third time in a couple of months that I had been face to face with the prospect of actually leaving.  First was grad school, and second was the possibility of applying for Liz's position at Fordham's career office.  I took this one the most seriously, though.  Life was trying to tell me something and, once again, I fell into a fantastic opportunity.  I have a great track record with random chance.  :) 

So, Brad, Fred, and I got together and started talking.  I think it was beneficial for them to have almost a year of my blogging to help in their initial due diligence.  (That's what helped clue me in to the idea that blogging could act as a career tool, as well.)  My first interview was like a fourth interview and we went straight into pretty substantive discussion.  They were direct, and honest, and I appreciated that.

So we kept talking as they finished their fundraising and, after the holidays, it became obvious that this was all coming to a head.  I have to say, they were very thorough in their due diligence.  We met again right before they started going through my reference list and that's what sparked this post. 

Perhaps Fred will blog more about what they thought they were getting when they hired me, but I doubt it, because I have yet to directly appear on his blog.  I did get referred to once, though.   That was special...  seriously!  (He's like a blogging rock star!)

Anyway, I'm looking forward to this new experience.  I've been at GM eight years now, four interning in various groups and four fulltime in private equity.  When I first started, it came out of a high school internship.  We worked for a free lunch, and then, in the summer, I asked to be brought on as a paid intern.  I remember getting my offer--a fixed rate per day--and then calculating whether or not that offer was better than my hourly rate in the mailroom of Waterhouse, where I had worked the two previous summers.  I was 17, and I was more concerned with money in my pocket than the upside potential of working for the largest corporate pension fund in the country versus the mailroom of a brokerage firm that was being bought out by a Canadian bank.  Good thing my offer at GM was better.  I might still be in the mailroom.  :)  Point is, I could have never conceived that all this would lead to where it has brought me up to this point.

That's part of what is exciting about joining Union Square.  I have no idea where it will lead me.  Perhaps I'll move on to grad school afterwards and come back on a GP track somewhere.  Maybe I'll wind up joining a startup, or doing my own.  To some extent, my success so far has afforded me a certain amount of predictability and stability in my career relative to a lot of people my age... and I'm very lucky for that.  But now, I think its the right time for a shakeup.  I thought Stanford was going to be that shakeup, but life has an interesting way of playing bait and switch at key moments.

So, on Monday, I'll start working with Brad and Fred, two people whose accumulated experience I plan to download as much as they'll let me for at least the next two years.  Am I nervous?  No, not really.  I think when you know you're making the right decision, your clarity of vision calms you.  Anxious?  VERY.  I know there will be a ton of things I want to dive into--one of the great things about a small group with a wide open mandate.  A group of LPs has given these two professionals (with a hopefully helpful contribution of support from yours truly) a mandate to go forth and make money in the second generation of the web and media convergence.  Plus, I'm anxious to prove myself, too.  I know they could have had almost anyone and I really want to make them glad they chose me--everyday that I'm there.  If this isn't a chance to do something utterly fascinating with my time, then I don't know what is.

How's this for odd?

"Dear Customer,

We've noticed that customers who have purchased Audio CDs by Leon Russell also purchased the work of Joe Cocker. For this reason, you might like to know that Joe Cocker's Heart & Soul is now available. You can order your copy at a savings of 14% by following the link below."

Greeeat.  Now, if only I either a) knew who Leon Russell was or b) purchased any CD in the past five years, then maybe I'd find this helpful.  This is a case of a dog chasing its own "long tail."