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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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...


This work is licensed under a Creative Commons Attribution 3.0 Unported License.

Follow the leader?

You_are_invited Whenever First Round Capital holds a party, we sometimes get emails from a few of our guests asking if they can bring another person with them.  Maybe a VC friend of ours wants to bring another partner with him.  Maybe it’s an entrepreneur who wants to bring a new executive hire.  Maybe it’s someone who works at Facebook and wants to bring a co-worker.  Unless we’re dealing with a venue that has a limited space, we typically are fine with the extra guests.  It’s a great way to expand our network – and meet new, interesting people.  The few times we weren’t able to accommodate those requests typically were due to hard constraints (either budgetary or the size of the venue).  And when we don’t have room, we tell that to the person who asked – and they typically are very understanding. 

I just read my friend, Roger Ehrenberg’s, latest blog post on syndicating seed rounds – and totally agree with his main conclusion (that rounds tend to work best if there is a lead investor to represent the interests of the syndicate).  But the most meaningful part of Roger’s post, in my opinion, is when he writes about how a syndicate gets chosen.  Specifically, he writes: ‘One can have a reasoned discussion concerning capacity, etc., but fundamentally if an entrepreneur wants a particular investor in I am going to make room – period.’   I could not agree more.  I think that the entrepreneur should be the “decider” on the syndicate – not the lead investor.  The lead investor should help establish terms, provide feedback and input on potential co-investors, and bring other investors to the table if asked/needed – but the lead investor should not force a syndicate on the entrepreneur.  

If I’d react badly to a guest trying to force me to let another guest into my party for a few hours (ie, “the only way I’ll come is if you let this stranger in”), I can only imagine how badly I’d react if I was an entrepreneur that was forced  to spend the next 5+ years with someone I don’t want.  In my view the lead investor should offer feedback and offer introductions – but ultimately should follow the founder’s lead on syndicate composition.  If the founder wants certain angels to participate – done.  If the founder thinks that a certain fund could add value – done.   

Just like I think that financing rounds should be based on company math (as opposed to venture math), I think the syndication decision belongs with the founder (as opposed to the investor).  The founder should be free to choose the investors that increase the company’s odds of success.  And building a syndicate is the entrepreneur’s opportunity to figure out who the founder wants to spend time with, who the founder respects, and who the founder thinks can help the company the most.  

Oftentimes the first strategic discussion that a lead investor gets to collaborate with a founder on is the discussion around the syndicate.  And while I'd clearly expect a reasoned conversation to occur, I believe that an early stage investor is funding a company because they believe in the entrepreneur's ability to make strategic decisions and to optimize for success.  And ultimately, it should be the investor who follows the founder's lead when it comes to syndicate composition (and not the other way around).

Location in the Cloud

I just read the news about Google's upgrades to Google Latitude -- and boy is it a bold move with major implications.  If done right, I think it could ultimately be as transformative as when Facebook opened up the social graph. 

Before Facebook opened up their social graph, if a web site wanted to know your relationships/friends it had to ask you.  Each and every time.  Then came Facebook Connect.  What Facebook did with Facebook Connect is to build out (1) a utility/infrastructure that enables third-party sites to gain access to your social graph, and (2) a permissioning model that gives users control of what third-party sites can access your data.  While there are a number of privacy issues that Facebook is working out in public, I believe that they will be ultimately resolved -- and that Facebook's social graph will become integrated throughout the net.  

And today, Google announced a similar model for location data.  Previously, whenever an application or website wanted to know where you were it had to ask you for permission to obtain your location from your phone.  Each and every time.  With Google Latitude's new API they are changing the game.  Rather than have dozens of applications that each ask for your location, Google's Latitude application will keep track of your location -- and put it in the cloud.  And then users can authorize third-party applications/sites to access their data.  Three million users already use Google Latitude, making it one of the largest location-based services around. 

Assuming Google can work out the privacy implications (which are non-trivial), there could be hundreds of potential applications, like:

  • Imagine linking your ATM or Credit card with Google Latitude. If you want to make a large ATM withdrawal or charge more than $1,000 -- your bank can check with Google Latitude.  If your phone is more than 500 feet from the transaction point, they might be alerted to fraud.
  • What if you could link your online photos with Google Latitude.  Your photos could be automatically tagged with your location -- just by looking up where your phone was at the time.
  • When you visit a website (like OpenTable or Fandango) on your desktop computer, it can look up your phone's location via Google Latitude and deliver a personalized experience.
  • I could be automatically notified when out-of-town friends come to town -- or my meetings could be notified when I'm running late.
  • Companies can use Google Latitude for expense report creation -- or even to replace time cards.

How often does someone go more than 200 feet from their cell phone?  In my experience, not often.  In today's world, your cell phone is now a personal location beacon.  And by making it programatically accessible in the cloud, Google could enable an entirely new class of applications. 

Combine this new ability to obtain location from the cloud with the types of tools and data overlays that SimpleGeo (a First Round Capital portfolio company) offers -- and developers now have an amazingly robust set of tools to build upon.    I can't wait to see what they build...

Size Matters (at least for venture funds)

 I've previously written several blog posts about venture capital fund size -- and how it impacts fund performance.  I just came across a report that Silicon Valley Bank wrote last month which had some amazing data on fund-size and performance. 

While I would recommend that you download and read the entire report, I think that the chart below tells a powerful story.  Specifically: 

If you were to look at the performance of large funds (those greater than or equal to the vintage year median size) for venture funds between 1983 and 2003, just 2% of the large funds returned more than 2x contributed capital.  And 92% of the funds returned less than 1.5x capital.  But if you were 24-logo-1to look at the performance of the small funds (those less than the vintage year median size) for those same years, the performance is much better.  Indeed, 48% of those funds returned 2x -- or, put another way, small funds were 24 times more likely to produce returns above 2x than large funds.  And just 36% of small funds returned less than 1.5x capital.  Wow.  And this is not some small sample -- the SVB study included the returns of more than 850 venture firms...


Early investing = Early adopting

Screen-shot-2010-04-21-at-11-04-10-am As seed-stage investors, First Round Capital invests early in a company's life.  Typically we're funding PowerPoint slide decks -- and are investing in pre-product, pre-revenue companies with incomplete teams and uncertain business models. The reason we're able to take this much risk is because we only invest in areas we really know:  Internet-enabled businesses (both enterprise and consumers).  By restricting our investments to a specific focus, I find that we are (hopefully) able to leverage our experiences and industry knowledge to help us make smart investment decisions.  My own experiences in eCommerce, for example, have been very helpful to building our investment hypothesis in that area...

One of the best ways for us to stay informed about the industry we invest in is to be hands-on with the technologies that impact the market.  My partners and I were some of the earliest venture bloggers.   We were among the first 140 Twitter users (though I'd gladly trade my early adopter Twitter user-number for Fred Wilson's Twitter equity).  And our recently redesigned First Round Capital website, provides us with a very valuable sandbox from which to explore new web technologies.  The integration of data into the First Round Capital News Feed (including job postings, company news, new investments, tweets, and even foursquare checkins) has helped us better understand the power (and limitations) of the implicit web.

And that's why, when Facebook announced the launch of their distributed "Like Button" today at their f8 conference -- we jumped on it.  Just a few hours ago Facebook launched a feature that allowed publishers to leverage Facebook's social connections inside their own sites.  And they rolled out the feature with over 30 major publishers participating in the launch.  Big publishers such as CNN and ESPN.  And I'm happy to announce that First Round Capital has just joined the list.  The news feed on our homepage now integrates into Facebook - bringing the social graph onto to our site...and hopefully leveraging Facebook to drive incremental traffic.

I think that by being hands-on with new technologies, you can get a good sense of the possibilities they unlock.  And so far, I'm very impressed with the ability to bring social interaction onto our site.  (And I am also impressed with our in-house product manager - who was able to get it live in less than 12 hours after the announcement).