I moderated a really excellent panel last week on the State of Product Management. A really nice summary (with photos) was posted on VentureFizz by Greg Rublev. Check it out.
It’s a great scene in many movies. There is a climactic moment when it’s clear that the odds are badly stacked against the heroes. But it’s also clear that there is nowhere to run, or no time to avoid a conflict. It’s now or never, and a glorious battle ensues with a dramatic outcome, win or lose.
There is nothing like really having your back to the wall to focus a startup’s efforts. I actually find that the founders that we work with that perform the best tend to be extremely goal and milestone driven at every stage of the company, and try to instill that sense of urgency pretty regularly with their team. They push themselves to not wait for mediocre results to turn around, and they think creatively about how to try cheap and quick things that might create a real inflection point that could put a company on a much more attractive path.
I find that cash in the bank and runway tend to be enemies of focus. IT’s easy to relax and lose the entrepreneurial impatience that allowed the company to do seemingly super-human things early on with little or no resources. But that said, raising a bit more if possible, extending runway, and buying time are all pretty prudent things to do.
Remember though that you have your back to the wall until the day you have a steady and reliable stream of cash that sustains your business. Users, press mentions, awards, hype, fame, doesn’t change that. This goes for employees as well as founders. Yes, startups have been the shiny new thing for a while, and you can pat yourself on the back for joining a hot company with hot investors.
But there are graveyards full to hot companies, and billions of lost dollars flushed down the drain by hot investors. Our backs are all against the wall.
About 4 years ago, in Feb 2009, we were having breakfast with one of my neighbors when she mentioned that she had just bought a “groupon” to a local restaurant. At the time, I was thinking generally about the concept of aggregating demand for products and local services, and just hearing the word “Groupon” piqued my interest.
I went to Groupon to find the daily deal site has just launched a couple weeks prior in Boston, after running a few deals in CHicago in late 2008. This was when Groupon was very much still in experiment mode for its parent company “thePoint”, but right before the craze exploded.
To make a long story short, I cold called Andrew Mason and fought like crazy to try to invest in what was ultimately a huge round at a $250M valuation led by Accel in the fall of that year. I think Andrew would still say that I was the first VC to ever call him about Groupon (NEA was already an investor in thePoint through a longstanding relationship with Eric Lefkofsky and Brad Keywell). I was unable to invest, but built a nice rapport with some of the leadership of the company that continues today with our really nice collaboration with Lightbank on a number of investments.
It’s funny to think that it all started with a conversation I happened to overhear with our neighbor who is a high-school science teacher in a nearby town.
Similarly, about 2 years ago, a friend of mine who works in marketing and publications for a local prep school mentioned a site called Lynda.com that he used exclusively to teach himself how to use publishing software. I had never heard of it before, but checked it out and was pretty blown away by what they were doing. Remember, this was way in the pretty early days for Kahn Academy and way before online education was considered “hot”. At that point, I was focused on seed stage investing, so never pursued the company. Today, it was reported that Lynda raised $103M after bootstrapping itself to over $100M in revenue. Really impressive.
In a business where I’m always thinking about what’s next, and inundated with flashy headlines about the sexiest companies, I kind of enjoy thinking that two of the most interesting companies I’ve heard about in the past several years was mentioned to me by “normal” people who are way outside of the tech sphere. It’s kind of cool too that both were very simple, straightforward businesses that were simply predicated on giving customers what they wanted in an excellent way, and charging for it (BTW, many early Groupon merchants were very happy with the company, as were consumers).
We do like stuff that is really whacky and controversial, but have also had a lot of success investing in the least sexy sectors or in services that resonate with “normals”. We invested in ThredUp before the whole consignment craze heated up, and I love telling people that what attracted us most to Fred Shilmover and his team at InsightSquared was that NOBODY was trying to start a SMB SaaS Analytics business out of business school in 2010.
Sometimes, the best companies or the best business ideas can be found in the most normal of places.
This year will mark the third year of NextView’s existence. As a founder, it feels like a long time, but it’s really a blip on the radar in the scheme of things. As such, I still get asked pretty often to articulate our focus as a firm. Amidst the mass of new initiatives, new firms, new strategies, etc that constantly pop up in the early stage investing landscape, it’s helpful to have a clear articulation of what VC’s are focused on and how they see the world.
Some VCs have very clear “here’s what we look for” sections on their websites. Actually, growth equity firms I find are best at this, because they have very specific financial criteria that they look for, such as ranges for revenue, ebitda, growth, etc. Here’s a good example from Volition Capital.
We don’t have such a section on our website (yet) and in some ways, the seed/early stage is more amorphous. It’s harder to articulate strict criteria. This is why I’ve made a habit of profiling our portfolio quantitatively and why we write summaries announcing pretty much all of our new investments. Check out these old posts here and here.
So, here is our annual quantitative summary of our portfolio. But I’ll start first with a bit of a summary of our strategy and approach as a whole.
Our Focus at NextView
- We focus on investing in seed stage companies. We almost always invest in the first round of institutional capital for these companies, in rounds that range from approximately $500K – $2M. We rarely look for opportunities to invest in larger rounds. We do look for opportunities to invest in smaller rounds.
- Sectorwise, we focus on internet-driven innovation and believe that we are currently straddling two converging technology waves. See my recent blog post here for more detail.
- We typically invest between $250K – $500K. We have pretty strong guidelines internally about how much capital we want to invest in a given company, at what valuation, and thus, what ownership we are looking for. We tend to be fairly strict, but not dogmatic about these. See my post here on ownership targets, why they exist, and why almost all VC’s have them whether they say so or not.
- We have a bias and desire to lead rounds. This means that we like working as a catalyst for a round, negotiate terms, bring in other investors, and sit on boards. The fact that each member of our team has worked at larger, institutional venture capital firms is an important asset. In the seed investing game, there are a lot of great investors to fill in rounds, but when it comes to leading, we find there are fewer than one would think. We don’t need to be the lead, and in a number of cases, we have participated alongside another lead. But we behave pretty much exactly the same way in those companies as we do when we are the lead and only institutional investor.
- We invest in about 10 companies each year. This equates to 3-4 investments that are “led” internally by each partner. This isn’t a quota. last year, I “led” 2 investments, and I feel zero pressure to “catch up” this year. We invest in the best companies we can find, and treat each investment the same way – as a full-scale, important investment for us. We don’t do much more than ~10/year because we don’t have the time to work with portfolio companies and make a meaningful impact unless we are focused in our activities. We have no junior investment staff, we are a partner driven investor that is focused on each and every portfolio company. It’s an old fashioned idea, but it’s what we would want if we were founders taking capital from a VC, so that’s the model that works for us.
A Stroll Through Our Portfolio
- We have made 25 investments. 23 of these have been announced and are on our website. Three of our portfolio companies have been acquired (RentJuice by Zillow, Hyperpublic by Groupon, and One Jackson by TaskRabbit)
- Geography: 20 / 25 investments are based in the Boston and New York areas. 5 are in other locations.
- Repeat Founders: 8
- First Time Founders: 9
- Tom Brady Entrepreneurs: 8
- Source Type:
- 6 month+ prior relationship: 12
- Introduced by other entrepreneurs: 6
- Introduced by a co-investor: 5
- Other: 2 (includes 1 inbound from a blog post)
- Pre Product: 12
- Live Product, Pre Revenue: 6 1/2
- Post Revenue: 6 1/2 (the 1/2 is for a company that had revenue, but did a major product pivot as part of the financing)
- Type of Product and Business:
- Consumer vs. B2B
- Consumer: 9
- B2B: 9
- Hybrid: 6 (includes payments companies, publisher tools, and marketing/commerce platforms)
- Business model (intended or actual)
- SaaS: 6
- Premium Service: 5
- Commerce: 5
- Adtech / Lead Gen: 4
- Payments: 2
- Other / TBD: 3
- Consumer vs. B2B
- Syndicate Composition:
- NextView + Seed Funds + Angels: 9
- NextView + Angels: 4
- NextView + Lifecycle VC + Others: 12
One of the really pleasing things about doing these summaries each year is to be able to see the consistency of our approach through the first years of our fund. Almost nothing about our approach has changed from a macro level from when Lee, Dave, and I set out to start NextView. We are still laser focused on seed stage investing, and almost always invest BEFORE traction. We are still extremely focused on what we consider a really attractive and underserved market on the East Coast with 20% allowance for opportunistic investments in other areas. And we still look for terrific entrepreneurs of a variety of profiles with authentic founding stories. This is probably the most rewarding element of our job. In the last year, we’ve had the good fortune to start working witha 3X entrepreneur coming off a win (Andrew at Lookout), first time entrepreneurs and recent college graduates (Eliot and Dan at Plastiq), and promising “Tom Brady” founders who were up-and-comers from successful startups like AppNexus and SuccessFactors. It’s the people that make this business really rewarding, and ultimately, behind any of these stats are amazing founders and teams that we are fortunate to be working with.
I’ve been noticing something that I think will make some big strides in 2013.
It’s a trend that I think we’ll see in consumer services. That’s right, even amidst the gloom of the series A crunch and the flock towards enterprise focused software, I think we are going to see a big and important shift in consumer facing services in the coming year and beyond.
That shift I think is the movement from real-time to the timeless. Or, from temporary and ephemeral to durable and lasting.
That may seem ludicrous when we are hearing about the explosiveness of services like Snapchat, which is temporary and disposable by design, and of course, Twitter and other similar services on a smaller scale. But I notice more and more users growing frustrated and doing unnatural things to combat the fickleness of the content that flies across our screens each day.
One of our portfolio company founders, Jeremy Fisher, shared this essay with me a few weeks back that argues that we are entering the age of “anthologies” where users will be given more tools to reconstruct their content flows for more useful consumption. From the article:
“An anthology flies in the face of the web as it exists, simply in that one may “finish” because it “ends.”3 I hope we are finally admitting to ourselves that we can’t stomach as much as we thought. We’ve realized that the way to make sense of this meal is to step away from the table for a while and come back later.”
I see services that are starting to hint at this. In the realm of written media, some version of this has been going on for a while. Time shifting tools like Instapaper and Pocket are very popular tools, and curation and summary services like Long Reads and Circa are pointing in this direction. But I think we’ll see this theme take hold in a bunch of other areas. As a parent for young children, I experience the need and see it in the experience of my friends. We have tons of content out there about our kids – they reside on blogs, Facebook, Instagram, etc. and are flying through our social graphs at lightning speed. The need to share and record is well solved, but are we really building the kind of collection of memories that we are taking these photos or videos for in the first place?
I often hear parents lament that they are concerned about storage and security when it comes to family photos. To, me that is a case of articulating a concern that is the symptom, not the actual problem. If I could guarantee 100% security and free storage for images forever, do you really think that we’ll go into our cloud in 10 years and sift through 10,000′s of photos to share memories with our kids? I submit that the beauty of photo albums and wedding slideshows is not in the volume of images, but in the selection, curation, and organization of images in a way that turns content into stories… and in turn use those stories to revive memories.