Redeye VC

Josh Kopelman

Managing Director of First Round Capital.

espite being coastally challenged (currently living in Philadelphia), Josh has been an active entrepreneur and investor in the Internet industry since its commercialization. In 1992, while he was a student at the Wharton School of the University of Pennsylvania, Josh co-founded Infonautics Corporation – an Internet information company. In 1996, Infonautics went public on the NASDAQ stock exchange.

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Monthly Archives for 2010

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Welome Aboard Chris!

Chris Fralic starts at First Round Capital today.  (More info here -- in pdf format).

I've known Chris for almost 10 years now -- he was the first executive hire we made at Half.com -- and I'm really excited to be working with him again.   He's seen it all and has been around the technology industry for 20+ years with stints at Oracle, AOL, Half.com, eBay, del.icio.us, and Yahoo

Welcome aboard Chris - we sure can use the help!

LinkedIn Profitable

LinkedinCongratulations to Reid, Konstantin and the whole LinkedIn team for reaching profitability.  It's been a lot of fun watching them efficiently execute without losing their customer-focus.  While there's still work to do, they clearly have proven some of the doubters wrong.  I think Reid is one of the savviest consumer Internet guys in the business - and I continue to be thankful that he allowed me to participate in their angel round...

"le" magic...(or, Bubble ends in "le")

1995-2000 was the era of the "SCAPES" (Netscape, Medscape, Wellscape, etc.).


2000-2004 brought the era of the "STER" (Napster, Feedster*, Friendster, Dogster, Eurekster, etc.).

 

And now, I believe, we have now entered into the era of “LE”. While some might argue that flickr's success has made "kr" is the Official Suffix of Web 2.0, I disagree. After Google’s phenomenal success, there’s beenLe_2 an influx of companies wanting some "le" magic. Google itself launched Froogle. Now we have Kaboodle, Kanoodle, Azoogle, Oodle, Ookle(s), Rabble, Dabble, Zazzle, Taggle, Quimble, and Krugle*.

 

So, here’s my thought – some web hacker should build an "le" crawler to search the whois database for all available "le" domain names. This way we can determine when all of the “le” domain names are taken – giving us Web 2.0 investors some advance knowledge of when the music will stop… For now, I think we’re safe – kafroogle.com, kabloodle.com, and shlurfoodle.com are still available.

I can’t wait to see their business plans.


*Note - I am a happy investor in Feedster and Krugle...

Another reason to blog...

Last week Michael Arrington of Techcrunch ran a small entry about two deals we've funded -  Aggregate Knowledge and BazaarVoice.  He was kind enough to include a link to the First Round Capital website.

Techcrunchtraffic
When I took a look at my Google Analytics data for firstround.com, I was surprised to see the real surge in traffic that one (well-placed) blog link can bring.  Our page views increased about 8x the normal daily average.  Not bad for one link in a small story.
Dealflow
Just today I took a look out our dealflow log -- where we log all inbound dealflow.  I was surprised to see a corresponding spike in dealflow -- and that the increase in submissions persisted far longer than the increase in web traffic. 

It got me wondering - what deals have I missed out on by not being part of the online conversation?


VIP Treatment

CriticWhen a restaurant owner recognizes a food critic in their restaurant, the critic gets extra-special treatment.  To be a good restaurant critic, you have to be anonymous.  Otherwise, the critic's "picture is posted in every four-star, low-star, and no-star kitchen in town" and they get special service. 


Restaurant owners understand the power of the press -- and go to extreme efforts to ensure that influential customers have a wonderful experience. 
This isn't rocket science -- it's good business! 


Why is it that online businesses don't do the same?  They should!  One of the first things we did after we launched Half.com was create a VIP list, containing the email addresses of all influential reporters, competitors, potential acquirers, analysts, and investors.  (Bloggers didn't exist back then - but they would qualify as well).  We then had our system alert us whenever a VIP created an account, purchased an item or listed one for sale.  When a VIP purchased a CD we'd have someone from our customer service group telephone the seller to confirm that it shipped promptly.  When a VIP listed an item for sale, we'd monitor it to see if it sold.  And if a (hypothetical) reporter listed a (hypothetical) book for sake, and it didn't sell quickly, a relative of a
(hypothetical) Half.com employee in Oklahoma might (hypothetically) purchase the item...Resulting in a (hypothetical) story in the New York Times


Half.com offers a good service -- just like most restaurants serve good food.  But, doesn't it make sense to be on your best behavior with influential customers?

Do you have a VIP list for your company?  Do you know what experience journalists, bloggers, analysts and acquirors are having with your product?

When the music stops...

Chairs_2As a little kid, I always lost when I played musical chairs.  Maybe I wasn't fast enough or big enough -- or perhaps I just was enjoying the music so much that I failed to anticipate when it would stop.  In the three businesses I've been involved in founding, I've been lucky enough to catch a chair right before the music stopped.

I recently returned from Etech (O'Reilly's Emerging Technology Conference) where, just like at the last fall's Web 2.0 Conference, I participated in several discussions about whether Web 2.0 is a bubble -- and if so, when it might burst.  I'll leave that topic for a future post...But, regardless, I think that it is very important for entrepreneurial CEO's to always be on the look out for signs that the "music may be stopping" - and make sure that their company is well-positioned for it.  The funding (and M&A/IPO) market for startups is cyclical. What can you do to better position you to "grab a chair" if you hear the music stopping?

  • Focus on adapting to change rather than predicting the future.
    I've seen a ton of business plans over the last few years -- they all only had one thing in common: they all were wrong.  Most understated costs and overstated revenues - a few actually beat their projections.  But if you look at their five year forecasts, every single business plan was wrong.  A business plan is a document that outlines your plans and assumptions at a specific moment in time – it is your prediction of the future based on what you know now.  As soon as you hit print on the business plan, things change.  Competitors emerge.  Technologies shift.  Regulatory changes effect your marketplace.  Key employees quit.  Macro-economic factors impact customer spending.  Shit happens.  I'd much rather invest in a founding team that shows an ability to adapt to change than one that claims to accurately predict the future. I believe that teams that are nimble, market-focused, and are willing to rapidly test/iterate/shift their plans are more apt to perceive the signals that the music may be stopping.
  • Understand the unwritten term in the term sheet.
    Almost every entrepreneur I talk to strives to get the highest valuation humanly possible. And often that is a valid desire. However, entrepreneurs should understand the “unwritten term in the term sheet”:  few VC’s will willingly part with a “winning company (ie, a company that is executing/performing well) for less than a 10x return. Peter Rip of Leapfrog Ventures highlights the tradeoff:

    ”Lots of cheap capital, available at high valuations seems great, until you do the exit math. Raise $8M at $12M pre-money and your post-money valuation is $20M. Your investors want to sell for $200M. Raise $2M at $4M pre- and your investors get the same rate of return at $60M. But a $60M exit is 10X more likely than $200M. Few VCs will write the $2M check these days, precisely because a $20M return doesn’t move the needle in a $500M fund. That’s why valuations are moving up – the need to invest more money – not the intrinsic value of startups. Higher valuations and high venture rounds may feel good in the short term, but with IPOs as scarce as they are, they can price you out of the very exit you seek.”

    There are often good reasons for taking a lot of money at a high valuation. However, I’ve found that all too often the entrepreneur did not fully understand the deal that they were making – specifically, they did not explicitly accept the fact that they were eliminating options for a shorter term exit. Again, there are plenty of good reasons to “swing for the fences” and raise a large round at the highest valuation possible – just make sure you've agreed to the trade-off.
  • Build to last – with options.
    I, like Ed Sim, believe that companies are not sold. They’re bought.

    In every exit I’ve been fortunate enough to participate in – both big (Half.com or Infonautics) and small (Turntide, del.icio.us, Vamoose.com, e-Touch or Snapcentric) – the opportunity to exit was there only because we had begun to build a company that has differentiated technology, a strong team, offers customers real value, demonstrates traction in the marketplace, and/or solves a real need for the acquirer. You can’t build a company to sell it – I’ve never seen it work.

    That said, I sometimes see entrepreneurs draw the wrong message from the “Built to Last” story. They believe that in order to build a company for the long term you need to make long-term commitments in short term. They enter into long term leases. They hire too many people too fast. They overspend on hardware. They lock into a product development roadmap without an iterative development/alpha/beta process. They sign long-term strategic partnerships before their model is fully baked. I’ve heard people justify doing all of these things under the “we’re in this for the long haul” rationale. However, I believe that the best way to insure that there is a long haul is to maintain flexibility. Things change. Mistakes are made. Keep your options open – including the option to look for a chair when you think the music is going to stop.

Why I haven't blogged...

For the last three years, I've frequently been asked why I don't blog.  Here was my typical reply:

  1. I'm afraid that people would realize that I'm not that smart.
    Put me in a one-hour meeting, and I have can typically impress people.  I can hold my own for an hour -- giving a good performance -- sounding informed, knowledgeable, funny and generally make a good first impression.  But with the pressure to post frequently -- and sound really smart on an ongoing basis -- I'm afraid that the world will learn what I already know...that I'm not really that smart.  Just lucky.
  2. If I did have a unique thought/perspective, why share it?
    I really believe in the power of an elegant, simple idea.  Combine the best of eBay and Amazon and create a marketplace to let people sell their old books, CDs and movies (half.com).  Create an anti-spam router (Turntide).  Sometimes the most "obvious" (after the fact) ideas are the most powerful.  And since it's so rare for me to have a truly original idea (see item #1 above), I've often wondered why I'd share it.
  3. You can't say what you really want to say.
    Most VC bloggers can't/won't say what they really want to say -- or what you really want to read.  I've seen some bad pitches, awful term sheets, and bad behavior by startups and VC's alike -- but I'd never blog about them.  Instead, I'd end up posting yet another "how to give a good VC pitch" or "how to run a good board meeting post"...when deep down I'd really want to post about the unbelievably naive entrepreneur who wants to build a "tropical fish vertical search engine."
  4. I don't have the time.
    There are currently 364 unanswered emails in my inbox.  I have 14 phone calls to return.  Six meetings a day.  I'm currently sitting on the redeye flying back from SFO to PHL. I have a wife.  Two kids.  If I had an extra hour a day, I'd rather spend it sleeping.

So why start blogging now?  Candidly, I'm not sure.  Maybe, it's because I hope it will provide me with a way to maintain an ongoing dialog regardless of which coast I'm currently on.  Hopefully I'll conclude that the benefits of a public dialog/discussion outweigh the invested time.  Perhaps, I'll realize that I do have something interesting to say.  Perhaps not.  Maybe this will end up a "New Years Resolution Blog" -- starting out with the best of intentions, but getting abandoned after a few months. Or, perhaps this blog will end up being a hype-blog for our growing portfolio companies (although I hope not).  For now, call it an experiment.