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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We're hiring...

First Round Capital is looking for a (west-coast based) Venture Analyst to help us build and manage our growing portfolio of companies.  More information available here...

Google - The next vertical search engine?

Since First Round Capital has a few vertical search engines in our portfolio (Krugle - a search engine for developers; and Biggerboat - a search engine for entertainment), I've been spending a lot of time recently trying to understand the vertical search space. 

What I've been most interested in, however, is Google's approach towards vertical search.  While a lot of attention has been focused on the recently launched Google Co-op -- which allows Google users to create a search engine for a customized collection of content -- I think that not enough attention has been focused on their OneBox feature.  I think Google OneBox is a pretty decent attempt to create vertical search functionality inside of Google web search.

If you're looking to book travel, you could go to vertical search engine like Kayak.com -- or you could just enter "PHL to SFO" in Google and you get a travel OneBox on top of your search results.

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If you're looking to read books on global logistics, you could go to Amazon or Half.com -- or you could just enter "global logistics books" into Google and you get a book OneBox which lets you read the actual content from several books that discuss it.

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Looking for news on the Iraq War?  You could go to a news site or news search engine -- or you could just enter "Iraq War" into Google and get their top headlines.

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Looking to research a stock (say Microsoft)?  You could go to a financial search site like Hoovers or Quicken to get some info -- or you could enter MSFT into Google and get their finance OneBox.

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Looking for a person?  You could go to Switchboard, ZoomInfo or LinkedIn to do a person search.  Or you could just type in someone's name and city in Google and get their phone number and even a map to their home.

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Shopping for a product online?  You could go to a price comparison engine like Shopping.com or Shopzilla -- or you could just enter the product into Google and get links to their product search results.

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Looking for a place to eat?  You could go to Zagat.com, DineSite or CitySearch -- or you could enter the restaurant name into Google and get complete information including reviews.

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The list continues -- whether you are looking for pictures, Movie times, weather, a calculator,  or medical information, Google has a vertical search OneBox to answer your question.

I think that vertical search engines can still succeed if they offer additional application-specific features/navigation that differ from traditional search-box functionality (like Krugle) or if they focus on syndicating their results across other sites (like Biggerboat).  But Google's actions have real consequences for vertical search engines -- and I'm surprised that there has been more discussion around Google Co-op than Google OneBox.  By implicitly determining a user's intent, Google is able to take standard queries and filter them to their vertically focused sub-sites.  Am I missing something or does this have real impact on the vertical search space?

Memories

I just found some old Half.com TV commercials on YouTube -- it sure brings back the memories...

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Quick thoughts...

It's been a busy few days at the Web 2.0 Conference.  I thought that Mary Meeker's 15 minute presentation was the most information-packed presentation of them all so far -- check it out for yourself here.  There also is a good story on the shifting landscape for early-stage investing in today's New York Times. 

More to come when I have some time...

Web 2.0 Conference

Logo_and_date The First Round Capital team and I will be out at the Web 2.0 Conference this week in San Francisco.  We've reserved a meeting room at the conference (Sonoma Room - on the second floor) to make it easier for us (and our portfolio companies) to meet.  If any of you are around, feel free to stop by and say hello.

Mashery goes live...

MasheryCongratulations to Oren Michels and his team at  Mashery on their launch today

Mashery is a First Round Capital portfolio company that offers tools that make it simple to build, support, and manage access to web services, APIs and data.   Just as Feedburner makes it easier to syndicate/track/manage an RSS Feed, Mashery makes it easier to manage your API and developer program.  Mashery offers the only complete platform built specifically for this purpose, addressing the universal challenge that plagues all Web services companies - building and managing their developer network. 

In the last year I’ve seen that over a dozen of my portfolio companies have  had to create custom code to implement their developer program. With virtually every software company opening up APIs and offering web services, why should they all re-invent the wheel? 

Mashery provides metrics and reporting to track API usage, developer registration and key issuance, and comprehensive management of API access along with an integrated suite of community tools (forum/wiki/blog) to build a strong developer community. 
Each developer network is built on proven tools and practices while retaining the client’s look, feel and culture.  An upcoming release will allow API owners to charge developers for access to their API -- and will handle the logistics/processes required for billing. 

More about Mashery's launch can be found on Techcrunch (I especially like their conclusion that Mashery has the potential "to be a key force in the realization of a future built of mashups") and ZDNet.


If you're going to be at the Web 2.0 Conference in San Francisco this week, be sure to stop by the Sonoma Room at the Palace Hotel to learn more.

A whole bunch of seed...

Corianderseeds I woke up this morning to some interesting news.  Charles River Ventures is now investing at the seed-stage.  This is a smart reaction on their part to several market trends:

  • The fact that it costs less to start a software/Internet business these days,
  • The fact that there are fewer large exits (both via IPO and M&A) taking place, and
  • The fact that, over the long-term (10+ years), seed-stage investing has had a higher return than any other stage of venture investing.


It also is a recognition of some of the challenges that larger venture funds face.  Take a hypothetical traditional $400M VC firm.  In order to achieve a 20% IRR, the fund must return 3x their initial capital over a 6 year term -- or $1.2B.  Now say this hypothetical VC firm typically owns 20% of their portfolio companies at exit (an industry average).  That means that at exit their portfolio needs to create $6 Billion dollars worth of market value (ie, $1.2B / 20%).  Assuming that their average investment size is $20M, that means that they invest in 20 companies -- this assumes an average exit valuation of $300M PER COMPANY.  Given the tight IPO Market and an average M&A exit value of less approximately $150M, this math creates some real challenges.

I've only interacted with Charles River a few times (we were co-investors in Odeo together) but think very highly of them.  They have an enviable track record and a sterling reputation.  I think they are one of a few pro-active venture firms who are proactively seeking new investment models (I've now heard of two other venture firms that are establishing seed-stage programs).

However, I've always thought that there were some inherent conflicts that arose when venture funds moved to the seed-stage.  I'd be interested in hearing my readers thoughts on:

  • I've always believed that one of the key roles a seed-stage investor plays is to help their portfolio companies raise a Series A round.  One of the reasons I don't like bridge loans, is that there is not alignment of interest between the lender and the entrepreneur.  As a lender, I would convert into the price of the next round -- motivating me to keep the next round valuation low.  As a shareholder, my motivation is aligned with the entrepreneur -- we both get rewarded by a higher second round valuation.

  • When an venture investor has an option (but not an obligation) to take a certain percentage of your next round, I've always thought it created the potential for some bad optics.  If they exercise their option, and participate in the round, it could be a wonderful thing for the company.  But if they choose not to exercise their option, what signal is it sending to other potential investors?  As a small ($<50M) seed-stage fund, no one expects my fund (First Round Capital ) to be a lead investor in subsequent rounds...But if a larger VC firm has the option anddoesn't use it -- does that cause other venture funds to wonder why?

  • Finally, as the First Round Capital website states, "we look to take an active role in most of the companies we invest in. We believe our insight and expertise are far more valuable than our capital -- and we look for entrepreneurs who feel the same."  Our whole business model is to roll-up our sleeves and actively help the company develop it's strategy/partnerships/business model, etc.  In fact, we tend to be far more active in the early-stages of a company than in the later stages.  Given the size of larger VC funds, are their partners able to actively get involved in a seed-stage deal?

Thoughts?

UPDATE:  Matt Marshall at VentureBeat has interesting insights here and Fred Wilson of Union Square shares his analysis here...