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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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?


As Philadelphia gets ready for Halloween and the first snowstorm of the year, it's a reminder that holiday season is right around the corner.   And the approaching holiday season can only mean one thing -- it's almost time for First Round Capital's annual holiday video.   Our team is hard at work producing this year's video (and definitely feeling the pressure)...but in the meantime, I thought I'd share some of our favorite moments from the making of last year's holiday video.  


Subscription Commerce and Kiwi Crate

I've previously shared some of my thoughts on ecommerce.   Specifically, that there is the potential for massive disruption in ecommerce due to the explosion in interesting technologies and opportunities such as mobile, social networks, user generated content, virtual goods, etc.

One of the areas that First Round Capital has spent a lot of time looking at is subscription commerce.  We've seen that consumers crave curation -- and are willing to pay for a monthly subscription to receive items (sight unseen) that are curated by trusted experts/brands.   Two companies in our portfolio, Birchbox and Foodzie, are pioneers of this model...delivering a "wow experience" on a monthly basis to tens of thousands of happy customers.  

Today I'm excited to announce that First Round Capital has invested in a new company: Kiwi Crate.  Kiwi Crate is a monthly service that delivers monthly craft projects that spark creativity and curiosity for kids aged 3-6.  As a parent myself, I love spending time doing hands-on activities with my kids -- but rarely have the time (or talent) to invent new projects and shop for the supplies.  As a Kiwi Crate subscriber you don't need to worry about that.  You'll receive a monthly package with several projects that you can do with your kids without preparation or hassle.  

If you have young kids and are interested in trying out Kiwi Crate, feel free to use promo code FLYKIWIS3 for 50% off the first 3 months of a monthly subscription or FLYKIWIG15 for $15 off any gift subscription.

As I look at the growth in subscription commerce, I'm reminded how far we've come since this Everyone Loves Raymond episode aired:




Woulda Coulda Shoulda - Twitter

Investing in the earliest stage of startups is difficult.  At the stage we see companies, it is often with incomplete ideas, incomplete teams and incomplete business models.  While we try our best to predict the future, we are often wrong.  

Yesterday Business Insider published a story about "How Twitter Was Founded" that discussed the history of Odeo and Twitter.  First Round Capital was an investor in Odeo -- and I blogged about it almost six years ago when I wrote:

The reason I invested in Odeo in the first place was because I wanted to make a bet on Evan – and his recent actions have shown me how right I was.  I continue to be a huge “Evan fan” – and should he decide to raise outside capital again, I hope to be his first phone call.  

After Odeo, I kept in touch with Ev and Jack.  I was an early user and big fan of Twitter.  And we offered them a term sheet to fund Twitter in April of 2007 (I believe it was their first).  They turned it down because Ev wanted to keep self-funding the company.  A few months later, when they had term sheets for their Series A round, Ev asked us if we wanted to participate.  And I declined -- mainly because the pre-money valuation was 4x larger than the terms we offered them a few months prior and 2x larger than any other investment we had made.  Big mistake.  

We learned a lot from our mistake with Twitter.  While we still believe that valuation matters (and more on that in another blog post), we learned (1) how important a really strong team is , (2) that real market traction is worth a premium.   Thankfully we were able to apply those lessons when Jack founded Square and let us invest in his first round (at what the time everyone thought was a premium price -- but today seems like a bargain).

The venture business is humbling business.  Every firm has their "anti-portfolio" -- but few publish them.   We have our woulda coulda shoulda list - and Twitter is amongst the top companies (alongside Dropbox and Zynga).  

When Nicholas Carlson called me for his story about Odeo I chose not to participate -- and told him I would prefer not to have the story published.   Not because Ev made any mistake.  But because I did.  I passed on Twitter.  And if that story was going to be told publicly – I wanted to be the one to do it.

Ev has been nothing but straightforward, honest and direct with me.  I think he deserves all of his success.  I stand by everything I wrote in my blog post from 2006.  And if Ev does end up starting a new company, I still hope to get a call from him.  I promise I won't blow it this time :-)

Happy Holidays!

In the past we have wrapped our annual holiday greeting in song and dance. This year we have enveloped our yuletide message of holiday joy in the creative passion of the entrepreneurs we have been lucky enough to meet over the past six years. 




We are honored to play a small part in the success of the brightest founders with the biggest ideas; to work together, to laugh together and to shower together...

Wishing all of the internet dreamers a very Happy Holiday Season!



First Round - Six Years, Our Third Fund, and Looking Ahead

Six years ago this month, First Round Capital was started. 

 It started with a simple thought – that while the world had changed tremendously over the last 30 years, the venture capital industry had not .  So we asked ourselves a simple question - what would a venture fund look like if the model was invented in 2005 rather than 1975?    And over the last six years, we’ve learned several things:

  • That a small fund size is good and brings alignment.  Alignment between investors and entrepreneurs.  Alignment between GPs and LPs.  Alignment with the market’s current exit realities.
  • That the advent of email, IM, skype and air travel has made the country (if not the world) flat.  And while there are massive benefits to scaling/growing companies in a handful of ecosystems, there are amazingly talented entrepreneurs founding companies all over the country (like Eric and Susan Koger who founded Modcloth in Pittsburgh, like Garrett Camp who co-founded StumbleUpon in Calgary, and like Jimmy Wales who founded Wikia in Florida).  
  • That with the right level of investment, nurturing and tools, you can transform a portfolio of companies into a community of entrepreneurs.
  • That the entrepreneur is the customer – that successful investors exist to serve entrepreneurs, and not vice versa.
  • That you can’t take yourselves too seriously

Over the years, First Round Capital has evolved.  We’ve become one of the most active seed-stage investors with the most visited VC website in the country.  However, we have not changed our investment style or strategy.  We still fund Powerpoints (though more Keynotes these days).   We still fund pre-launch, pre-revenue ideas.  And, despite our growth, we have not really increased our average initial investment size.  We still make investments as low as $50K.  Our average initial investment size is still under $500K -- and we have never made an initial investment larger than $1M.     This week we successfully closed our third fund – First Round Capital III.  And we decided to keep it at the same size as our prior fund.   While it might be small by market standards, we think our fund size is ideally suited for our strategy. 

Over the last several years, First Round Capital has also grown our geographic footprint.  Our investment team has grown from Howard and myself working in Philadelphia to an 8 person investment team working out of three cities.  Our San Francisco office, led by my partner Rob Hayes, continues to be our most active office – with over half of our portfolio based in California.    Rob is joined by Kent Goldman and with Christine’s  recent departure for Intel we are seeking to grow our west-coast presence by adding a  SF-based Associate.   (If you’re interested in the position, please reach out to Rob Hayes with why you think you might be a good fit).

Just last year we opened our New York City office.  We did so because we continued to meet more and more amazing entrepreneurs from New York.   Over the last three years around a third of our new investments have been based out of New York – and we currently have an amazing portfolio over 25 NY-based companies.  Our New York office is led by my partners Howard Morgan and Chris Fralic.  And today I’m excited to announce that Phin Barnes (who previously has worked out of our Philadelphia office) is swapping Amtrak for the L-train and is moving his family to New York.  And that that Charlie O’Donnell is being promoted from an EIR role to Principal

I continue to be based out of Philadelphia (along with my colleague, Scooter -- aka Brett Berson) but will continue the lifestyle of a redeye VC – dividing my time  between Philadelphia (where my home is), San Francisco (where my true inner-geek lives), and New York (where the Shake Shack is).    As we approach Thanksgiving, I realize that I have so much to be thankful for.  I have the best job in the world.  I get to work with an amazing group of people – and get to spend my time with an amazing group of entrepreneurs.   I work with people who are trying to change the world. 

And I can’t wait to see what the world looks like in another six years…




Community-712702Over the last six years, we have tried to build First Round Capital as a community of entrepreneurs -- not a collection of companies.  We've always tried to find ways for our entrepreneurs to benefit from (and help) each other.  We've invested heavily in building this community.  We get all our CEO's together at our CEO Summits.  We hold portfolio-only conferences for our advertising, e-commerce and entertainment companies.  We have active mailing lists for our entrepreneurs to send questions, thoughts and suggestions to each other.   We even set up an Exchange Fund where qualified First Round Capital entrepreneurs can contribute a small piece of the stock they own in their company -- and share in the performance of all the other companies in the fund. 

And during that journey, we have assembled a diverse group of innovators all on a mission to build something massive.  Some have PHDs from the most prestigious universities in the world and others haven't gone to college.  Many have built successful businesses in the past and for some, this is their first time.  Some have a background in engineering or product management while others built world-class sales and business development teams.  One got suspended from high-school for hacking into the school's phone system, while another has commandeered The Cone of SilenceSome are incredibly young while others are…less young.  And we're lucky to have entrepreneurs from almost every corner of the world working at startups across the country.

Yet, until now this community of innovators was hidden on our website.  So I'm super-excited to unveil the new Community section on the First Round Capital site -- a place to see the faces, biographies and Tweets from the remarkable people that make up our community.

Not a bad day...

Friday'sLogo If day's could have a "like" button, I definitely would push it today.  An exit to Facebook. Two women First Round Capital founders on the cover of Entrepreneur Magazine. And an exit to Google just in time for cocktails.  Just another Friday at First Round Capital.

In the short-term gains category, congratulations to Justin and the HotPotato team.  While we've only been investors for a few months, it's been a real pleasure to see the HotPotato team in action -- and I'm sure they'll do amazing things at Facebook.

In the long-term gains category, I've now been working with Munjal Shah for almost six years.  Back in December of 2004, Munjal first sent me his plan for a photo-site code-named  That company evolved into Ojos.  Which evolved into Riya.  Which evolved into  Munjal is truly a heat-seeking missile -- he has an innate ability to collect a massive amount of data and determine the signal from the noise.  I've blogged about Munjal's journey before -- but it's not nearly as powerful as hearing Munjal talk about some of his lessons learned in this video.  This is our second exit to Google this summer -- and Google is getting an amazing team of folks.  Congratulations to Munjal, Burak, Gaurav, Vinnet and the entire team!

Finally, I'm super excited to see two of our female entrepreneurs gracing the cover of this month's Entrepreneur magazine.  Both Emily and Susan created their companies out of their personal passions and experiences.  Emily (the co-founder of Foodzie) was working as a brand manager at The Fresh Market and saw firsthand how hard it was for small producers to break into big retailers, even with their awesome stories and top-quality products. So she created a place in which producers could directly connect with customers.  And when Susan (the founder of ModCloth) was in high-school, she spent weekends thrift shopping for unique vintage finds. She found herself snatching up great pieces that weren't necessarily her size, but that she couldn't pass up.  So, at 17-years old, she decided to start an online shop.  Today Modcloth is one of the biggest online retailers of vintage-inspired clothing, with hundreds of employees...

I sure can't wait until next Friday!

New and Improved

NewImproved It's been almost five years since I went to Typepad and created this blog.  And while I've added content over the years -- the look of the blog hasn't changed.  Until today.  Today I launched a redesigned blog -- with a completely new design.  I've also taken off a bunch of the peripheral "widgets" -- which, hopefully, will make it faster to load and easier to read. 

The new look gives me added incentive to add some new content.  So stay tuned...

Thanks to Brett Berson for leading the effort, Philly's own Brian Hoff for the wonderful design -- and the folks at Typepad for helping me with the upgrade!

Founders and Heat Seeking Missiles

As a seed-stage investor, First Round Capital typically funds powerpoints.  Not only are the majority of our investments pre-revenue, but most of the time we are investing in pre-launch companies.  While these companies might have an alpha/beta version of their site, it's usually early enough that we can’t base our investment decision off of any market traction.  Instead, we typically make our investment decisions based on three key areas:  the size of the market, the strength of the team, and the product vision.   This is often made even more difficult by the fact that we know that many of the businesses we fund end up with (one or more) pivots -- since their business plan is always wrong. 

The Team

I've lately started to realize that our most successful companies are led by entrepreneurs who have a unique talent -- they are heat seeking missiles.  It doesn't matter where the missile is aimed pre-launch.  Successful entrepreneurs are constantly collecting data -- and constantly looking for bigger and better targets, adjusting course if necessary.  And when they find their target, they're able to lock-onto it -- regardless of how crowded the space becomes.  When Nat and Zach first came to us with the idea for Invite Media, it was focused on algorithms for ad targeting.  But once they got into the market the team saw a bigger opportunity -- the DSP space -- and they locked-onto that target with a successful outcome.  We funded VideoEgg back in 2005 with the goal of creating tools to manage online video -- but Matt and team quickly adjusted course and have now become a leading media network for brand advertisers.    When we first met Lance and Jia in 2006, they had a cool photo-hosting application called RockMySpace -- but they quickly found  the opportunity was much larger than photo-hosting, and RockYou has since became a leading provider of social networking and gaming applications.


Markets really matter.  Because the bigger the market, the more targets there are for the missile to hit.  I've seen many companies fail to reach their potential because -- despite the skill of the founders -- they ultimately realize that there just aren't enough (or any) big targets for them to lock-onto.  It's really hard to start a company -- and there are so many risks that all startups share, regardless of market size.  Whether you're targeting a $10M addressable market or a $1B addressable market, you're still going to face Hiring Risk, Marketing Risk, Competitive Risk, Technology Risk, and  Financing Risk.   And while bigger markets might pose more challenges than smaller markets, the risks involved in targetting a $1B market are not 100x greater than those involved in $10M market.  Choosing the right market is critical, because the market you choose determines the targets that are available for the heat-seeking missile to hit.


Sometimes entrepreneurs (like Aaron) will have such a strong sense of the market that their initial product plan is dead-on.  But most of the time we see the product iterate and morph over time.  As a result, product is often the hardest thing to evaluate pre-launch.   And some of our biggest mistakes have occurred when we passed on companies based on their pre-launch product.  So today we tend to focus on a company's product vision, rather than on the specific implementation of a pre-launch product.  We've also found that a pre-launch product plan is a great way for us to get additional input on the team.  Have they studied the competition?  Do they really understand how to leverage social networks, game mechanics, etc?  Do they have a data-driven philosophy or a gut-driven philosophy.  Why did they make the choices they made?

At the end of the day, I've really come to believe that you can't predict success based on where a missile is pointed pre-launch.  Instead you have to assess the quality of the targeting system (the team) and the density/size of targets (the market).   And hope that the missile you launch finds a true target -- rather than a decoy...


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