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.

Read more or visit First Round Capital

Monthly Archives for 2010

View the older monthly archives »

Fun Fact of The Week: Path to Revenues


Last week I posted some data from our portfolio about the pace of seed-stage financings.   And it sure looked like things are speeding up.

This week, I thought we'd take a look at the speed at which our companies generate revenue.   Specifically, we took a look at the 14 investments we made in our first fund (which was a 2005 vintage)...and wanted to know how many of them generated at least $250K in revenue in the 18 month period post-investment.  (I recognize that $250K and 18 months are arbitrary thresholds - but hey, we had to choose something).   And it turns out that just three of the fourteen companies in our 2005 fund (21% of the portfolio) generated revenues in excess of $250,000 during the 18 month period.  I was surprised to see how long it took those companies to generate revenue.  Especially because that fund has some really incredible companies in it.  It includes Bazaarvoice (who recently filed for an IPO ).  It includes SayMedia (formerly VideoEgg) who currently employs over 300 people in 10 different cities across the globe.  And it included (which was acquired by Google).

Then, we looked at the companies in our most recent fund (a 2010 vintage).  Specifically, we took a look at the 32 companies that have been in the fund for at least six months (since we didn't want to include the pre-launch companies we just funded).   And it turns out that 19 of the 32 companies in our most recent fund (around 60% of the portfolio) have already generated over $250K in revenues.

I was not expecting such a dramatic increase -- especially because while our fund size and investment team has increased over the years, our investment strategy has not.  Our average initial investment remains under $500,000.  We continue to invest in a company's first round of funding.  We still are focusing on capital-efficient internet startups.  So what's changed?

The numbers might influenced by the fact that we are bullish on online commerce -- and ecommerce companies typically have a shorter path to revenue.   It might be that the last six years have seen a dramatic growth in monetization platforms (whether it be advertising technologies, mobile platforms, virtual currencies, etc) that reduce the friction/cost/time to generate revenues.  It might be because the cost and technical complexity to start a company has decreased so much, companies today are able to get to market much faster (and possibly raise money much later) than they previously did.  It also could be that First Round has just gotten better at investment selection (though given the size of our woulda coulda shoulda list, I'm not too sure about that -- and I'm also not aware of any data that shows that a company's time to revenue generation corresponds to the size of a company's success).

Whatever the reason, I was surprised to see that companies today are 3 times more likely to get to $250K in revenue during an eighteen month period than they were six years ago. 

Disclaimer - these results are based on a small sample that only consisted of one fund's experiences.  This post is not intended to claim statistical significance -- just an observation of what we're seeing in our fund. 

Save The Internet

I rarely (or never) post about politics here.  However, today Congress holds hearings on a bill that would create the "first American Internet censorship system".  This bill is being rushed through Congress without any input from the technology industry -- yet it poses major risks to free speech online...  And could prevent the next Youtube, Facebook, or Tumblr from getting off the ground.

Please watch the video below, read more about the proposed law (Brad Burnham has a wonderful blog post about this today), and make your voice heard by visiting American Censorship Day today.  

UPDATE:  If you have five minutes and want to make your voice heard, click here and this cool Tumblr app will automatically put you in touch with your local congressman.  


Fun Fact of The Week: Time from Inbox to Investment

FactDuring the last few weeks there has been a lot of commentary about what’s going on in the seed funding markets.  Some say that web startups face a cash crunch.  Some disagreeSome think there is a “Series A Crunch”.   Others disagree.  

During this same time period I saw the movie Moneyball (liked it, thought the book was better) and my fund held our Annual LP meeting.  So I’m full of fresh stats about our portfolio of over 125 seed-stage companies.  I thought it might be interesting to take some of the data we’ve collected, and share it to help try to shed some light on what we’re seeing in the market.   So here is the first installment of a multi-part series:  Fun Fact of The Week

While there has been a lot of discussion about the number of seed deals vs the number of Series A deals, I haven’t seen anyone other than Chris Dixon talk about the impact of the accelerated pace of seed-stage funding rounds.   As the market for seed-stage investing has gotten more active, the average time to get a deal closed has gone down dramatically.  That means that the entrepreneur and investor spend much less time to get to know each other before making a major, long-term commitment.  This, as Chris Dixon put it, "is bad news for everyone."

From an investor perspective, the more time I can spend with an entrepreneur, the more I understand how they think, how they approach problems, what they are "working for", how they handle divergent views. It helps me get a better sense for their product vision. It gives me more time to do reference checks on the team. And it also lets me get educated on the market -- learning more about competitive products, etc.  And if I'm going to be paying a higher price due to increasing valuations, I am more comfortable doing so after being able to spend more time with the founders.  I know that there are situations when investors don't have the luxury of time -- and you have to make a quick decision. And of course I've made gut decisions that have worked out well.  But, I've found that there is much more variability in the investments where we've don't have enough time to get to know the founders well...

From an entrepreneur perspective, the more time they can spend with an investor, the better they understand their investor's goals and how they view the market.  They can make sure the investor shares their vision for the future.  They can call other CEOs to see how the investor behaves in the board room and how they behave in good times and bad.  They can get a better sense of the alignment of interests and personalities.  And they can try to get some insight into how helpful the investor will be in recruiting, strategy, future fundraising, and making introductions.   

So here's the data:

We took a look at the last four years of our initial investments (ie, not including follow-on investments).  We then identified the time it took for an company to go from "inbox" (when we first were introduced to the opportunity) to "investment" (when the deal closed).   The chart below shows the relative change in the median number of days it took us to go from inbox to investment for each year, baselined against 2008 (which was set at 100).   You'll note that the chart does NOT show the actual number of days we review each investment -- just the percentage decrease from the 2008 baseline.  You can see that the time we have to evaluate a prospective company has shrunk by 50 percent over the last four years.  While this data just represents our experience at First Round Capital, from what I hear from my colleagues at other seed-stage funds, they are experiencing the same thing...  

Inbox to investment

So the key question this raises is: Why is this occuring?  It could be because of the increase in available seed capital over the last four years.  It could be because of an increase in the number of great startups recently.  It could be because of the growth of incubators and their "Demo Days" (where companies often leverage their unveiling to force quick decisions and raise a round within a week or two).  It could be because of the growth in platforms (like Angelist and Gust) which seek to create a liquid seed funding marketplace.  It could be a combination of these factors.   What do you think?