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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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...

 Svb

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).

Calling London - A Volcanic Opportunity

Volcano What a bizarre world we live in.  My partner, Chris Fralic, has found his trip to London "indefinitely extended" due to a volcano in Iceland.  So he's decided to put together a last minute "Office Hours" tomorrow, Sunday.  I know it's last minute - but it's worth a try.  If you are an entrepreneur in London (or thinking about becoming one), I'd suggest you sign up and stop by:

DATE:  Sunday, April 18th, 2010

TIME:  1300 to 1500 (That's 1PM to 3PM for the rest of us)

LOCATION:  White Bear Yard, 2nd Floor, 144a Clerkenwell Road EC1R 5DF LINK

You can SIGN UP HERE

What can you expect at Office Hours London?  The chance to meet up with someone from First Round Capital to get to know us a bit better, and for us to get to know you and your idea or company.   You'll also have a chance to mingle and interact with folks from other startups, which could be worth the alone -and we'll try to have some tea and coffee and snacks as well.

Have we ever funded a company we've met at Office Hours?  Yes we have, in fact it was just over a year ago at Office Hours New York that we met David Roth, CEO of AppFirst.  We invested along with FirstMark and just yesterday they officially launched at Under The Radar and won the audience and judges award in their category.  

Given the short timeframe, I'd appreciate any help in retweeting this or forwarding this to London-based entrepreneurs.  Thanks!

The importance of communication...

I am now experiencing full withdrawal symptoms.  It has now been almost a day and a half without access to my e-mail.  We use Intermedia to host our e-mail -- and have historically found them to be very reliable.  They are the world's largest provider of hosted Exchange.  And their service level agreement "guarantees 100% data protection and less than six minutes of Exchange hosting downtime per year".  Well, they are now 1,680 minutes past their six minutes guarantee...


This outage has shown me just how much I rely on email communication.  But it's also shown me how much I've come to expect open, transparent and constant communication from a vendor.  I totally get that despite every precaution, an outage can occur.  I get the fact that despite Intermedia's massive investment in DataEcho™ technology that securely replicates Exchange data across two of their four datacenters, the system can crash.  It might be human error.  It might be a hardware failure.  Shit happens.


What I don't get is why Intermedia has been so poor in their communication.  The "Network Status" page on their website reads as if it is targeted towards IT folks rather than people.  While it tries to explain mail queing, it never says "Hey...we're sorry.  We know we took down your email and that's not acceptable."  There has been not one post on their blog during this outage -- and the last post is still a whitepaper highlighting the benefiuts of outsourced Exchange hosting.  The last update on their twitter account is 19 hours old and inaccurate, stating that "At this time all services are online and functional..."  The Intermedia phone lines are unreachable.  And the homepage of their website has not changed at all -- with the "What's New" section not updated since March 4th.  


You want me to tell you what's new???  Your service has been out for more than 24 hours.  I was almost unable to file my taxes yesterday (and god help any accountants that used Intermedia) and my partner is stuck in London because of a volcano.  We're not getting email and you aren't talking to me!


For a company that is in the business of helping people manage their digital communications, Intermedia's failure to communicate is an inexcusable failure.  It has reinforced to me the importance of open and transparent communications.  I'm not saying they need to add a live stream to their homepage like First Round Capital has.  Just that they should use the tools they already have (their homepage, their blog, their twitter account and their network status pages) to talk with their customers.   


Now, given the fact that you historically have been so reliable and operated with virtually no downtime, I would assume that you've built your customer communications plans on the assumption that outages will be short and temporary.  I agree that if you are down/slow for 4 minutes, you don't need to re-write your homepage and put out a press release.  But I do think you need to have a completely different communication plan when faced with a massive failure.


When US Airways flight 1549 crashed in the Hudson River last year, I was very impressed with US Airways' response.  The homepage of their site had information updated hourly.  They released 8 press releases in the first 48 hours after the crash.  Their CEO was visible and making statements to the press -- even with incomplete information.  Now I know there is a huge difference between a server crash and a plane crash.  But I do think that there is something Intermedia can learn from US Airways. 

  • Communication, even with uncertainty, is better than silence.
  • Use all of the social tools out there to communicate with your customers.  If people are complaining on Twitter, respond to them.  It's amazing to see people like myself, Stewart Alsop, and others tweeting to Intermedia without a response. 
  • Speak to them as people -- not as engineers.  US Airways didn't start talking about engine construction and plane salvage.  Their CEO spoke with candor and personality
  • Say you're sorry.  And acknowledge the inconvenience.  Don't talk to me about mail queuing and RFC mail servers.
  • Be reachable.  US Airways set up websites and special phone number to reach them.   
  • The negative effects of silence are worse than the negative effects of communication.  For example, I assume that there must be some PR people at Intermedia that are worried that if they communicate about their outage too much (on their homepage, twitter, blog) than people won't want to use Intermedia.  I think that this is actually the opposite.  I am more upset by Intermedia's silence than by their outage. 

I've flown over 100,000 miles on US Airways since flight 1549 crashed -- in part because of the confidence I had after seeing the way they handled that crash (and also in part that it's hard to live in Philadelphia and fly any other airline).  But I do have a lot of choices for email providers.  And I'm not sure how much longer First Round Capital will be relying on Intermedia after seeing how they handled their crash. 

[And to save everyone the time in their comments -- yes, we will be considering Google's mail product]

Everyone I spoke with loved the idea...

Vcwear_momshirt It happens almost every day.  I'm talking with an entrepreneur about their business idea (say, for example, a new enterprise security software product).  And at some point in the meeting, they tell me about the conversations with people they had in their target market (say, for example, 13 CIOs) who all thought it was a great idea and want to beta test the software.

After seeing many of these companies fail to get traction in the market, I've come to realize that the key challenge is not "convincing" your customer -- it's reaching your customer.  Customers are inundated with options and choice -- and the hardest part of the "selling" process is not getting the sale.  It's getting the meeting.  And while marketers have learned that it's all about the "message," I think it's all about the "attention".  How do you get your customer's attention?

At my first company, Infonautics, we had built two online reference products called Homework Helper and Electric Library.   The main offering was an online service that offered access to over 2,000 full-text magazines, newspapers, books and other resources targeted at junior and senior high school students.  While it might not sound revolutionary now, keep in mind that Electric Library launched in 1995 -- this was back in the 1200 baud modem days...around the same time as Netscape shipped their first web browser.  And we had to get almost all the content scanned/digitized because it was not available in an electronic format.  This was such a big deal that Al Gore gave us a quote for our launch press release

While the service was targeted at students, we realized that the parents made the buying decision.  Everyone loved the idea.  Parents loved it.  Walt Mossberg loved it.  I could spend five minutes talking to a parent -- and I'd get 9 out of 10 to buy an annual subscription for $69.95.

But when we tried to market the product, we failed to get any meaningful traction.  We tried online advertising.  We tried direct mail.  We tried print advertising in magazines and newspapers.  We tried email advertising.  We tried marketing through groups and organizations (PTA's, American Federation of Teachers, etc).  We even tried an infomercial.  Seriously.  An infomercial!!  (I recently uploaded the 2 minute and 30 minute infomercials -- hard to believe that was less than 15 years ago).  After four years of trying to market a consumer-service, Infonautics ultimately pivoted and sold site licenses to school libraries.

So, here's my advice:

While it's important to have a product that people want -- that's not enough.  In this age of information overload -- you need to find a scalable, cost-effective way to get your customer's attention.  You need to find a way to get them to lower their guard and engage in the conversation.  Otherwise, you will be filming infomercials that no one watches...

Electric Library Short Infomercial from Josh Kopelman on Vimeo.

Some more thoughts on innovation in eCommerce

I had the chance to speak on a panel about Online Shopping at a NextNY event this week. And after a great discussion, I started talking with some folks about my last blog post (which commented on how little has changed in online shopping since I founded Half.com back in 1999 -- especially given the vast amount of change that has occurred on the web outside of shopping).  

And I wanted to put a little more specifics/numbers to my thinking.  So I did a little digging on Alexa today -- and found some data that appears to confirm my perspective:

  • More than half of today's top 15 most trafficked websites today did not exist back in 1999.  That is not a surprise, as Facebook, Youtube, Wikipedia, Myspace, Blogger, Live.com and Twitter are all new -- and are representative of the massive amount of innovation and disruption that has occurred in the last decade.
  • Yet, of the top 15 most trafficked eCommerce websites today, just one of them did not exist back in 1999 (NewEgg - which launched in 2001).  Which means that over 90% of the top eCommerce websites are over 12 years old!  That is pretty remarkable to me -- and reflects an amazing lack of external innovation (and disruption).   

AlexaSlide12Year (2)

  • And if you compare today's top 15 list of eCommerce websites to this list from 2005, you'll see it's almost identical.  So not only have almost all the top eCommerce sites existed for 12 years -- there has been virtually no dislocation among the leaders.

As I said in my last post, I believe we've seen more innovation (and potential for disruption) in eCommerce in the last 10 months than we have in the last 10 years -- with group buying, demand aggregation, game mechanics, flash/group sales, leveraging the social graph for customer acquisition and mobile.  And, I believe that this is a great time to be investing in these disruptive models.

Anyone want to bet whether, in the five years from now, the top 15 eCommerce sites will look pretty different than they look today?

Change is coming to online shopping

It’s hard to believe it’s been 10 years since we launched Half.com.  (Unless you watch the video of Half.com's launch on the Today Show -- in which case you'll see how much I've aged since then)

One of the things that’s surprised me the most over the last decade is how little transformative innovation has occurred in ecommerce.  eBay looks pretty much the same as it did a decade ago.  Amazon looks pretty much the same as it did a decade ago.  While the top 10 sites on the Internet have changed dramatically over the last decade, the top 10 online shopping sites on the Internet have not.  The traditional catalog/cart shopping model remains pretty much unchanged.  I’m not sure of the reasons why so little innovation has occurred – perhaps it is because of Google.  Specifically, the fact that online retailers had a scalable, measurable, and predictable source of customer traffic (through both SEO and Adwords) might have reduced the external pressures to innovate.

However, the online shopping paradigm is finally changing.  Indeed, I think we’ve seen more innovation in the last 10 months than in the last 10 years.  We’ve seen an explosion of interesting technologies and opportunities that seek to change online shopping, such as:

  • Mobile
  • SNO (Social Network Optimization)
  • User Generated Content 
  • Private Sale Shopping Sites
  • Virtual Goods 
  • Behavioral Data Augmentation
  • Game Dynamics
  • Demand Aggregation
  • Real Time Marketing and Messaging
  • API's that allow for syndicated shopping
  • Alternative Payment Technologies

DSCN0020 At First Round Capital we haven’t been bashful about investing in these spaces.  In fact, we currently have over a dozen companies in our portfolio that seek to transform online shopping.  And tonight we put those companies on display at our first ever First Round Capital eCommerce Summit.   Like our previous one-day events for our advertising-focused and entertainment-focused companies, the goal of this summit was to give our portfolio companies a forum to make brief (6 minute) presentations to their target customers.  So we were really excited that we were able to attract over 100 attendees from the country’s leading eCommerce sites, brands, tool providers, analysts and influencers – including representatives from Alibris, Apple, CafePress, eBags, eBay, Fandango, Forrester, Gap.com, Google, GSI, Ice.com, Intuit, Magento, Omniture, Open Table, P&G, ProFlowers, QVC, Red Envelope, Safeway.com, Shopping.com, Shopzilla, Shutterfly, StubHub, Urban Outfitters, Williams Sonoma, Ylighting and Zappos.

I left the day really proud of our portfolio – and excited about the future of eCommerce!

Our new website...

A lot has happened since we started First Round Capital in 2004.  We've invested in over 75 amazing companies, grown our team to include 8 investment professionals, and opened offices in three states.  We've also become the most active seed-stage firm in the country -- with the most visited VC website

Yet, despite all this change, our website remained pretty much the same as it looked in 2004. 

Well, not anymore.  Today I'm excited to announce the launch of the new firstround.com website. 

The core of the site is the First Round Capital News Feed (bring it on Facebook) on our homepage - which incorporates our new investment announcements, our blog posts, portfolio company news and job postings, and selective tweets and Four Square checkins from the First Round Capital team.

And while we really haven't changed our firm's focus over the last six years, we still thought it was important for us to highlight why we think we’re unique - and what we look for.

Our portfolio page allows you to sort our portfolio companies by location and tag cloud.  And every portfolio company’s page now integrates their tweets, blog posts and job listings – as well as links to any of their applications (like iPhone, browser plugins, etc) that can be downloaded.

Since all our investment professionals blog, we've integrated everyone's work-related blog posts onto one page - and made it easy to subscribe to all the posts from one RSS feed.

One of the most helpful things a VC can do for a portfolio company is to help them find key hires.  And the jobs section of our site contains well over 125 current job openings within our portfolio.  Indeed, just last month our website was responsible for connecting over 1,000 candidates to our portfolio companies.  In addition to posting the listings on our site, you can find them via an RSS feed of the jobs or at our @frcjobs Twitter account.  And be sure to signup for our Key Hire Wire newsletter which emails you one 1-3 executive jobs in our portfolio each week.

Finally, since it's pretty rare that a day goes buy without some news from a First Round Capital portfolio company, you can keep up with the news on our news page -- or subscribe to our news RSS Feed or follow our @FirstRound account on Twitter.

Our firm today looks very different than it did six years ago -- and now our website does too.  I'd love to hear your thoughts and suggestions.

 

Introducing the First Round Capital Key Hire Wire

One of the most useful things a VC can ever do for a portfolio company is to help a CEO make a key hire. While every hire is important, some additions are pivotal value creating moments in the life of a company.  

In an effort to find new ways to be helpful to the companies that we invest in, First Round Capital is starting a weekly e-mail newsletter that will highlight some of the best opportunities to work with the great teams we've backed.  Each week, we are going to send out a single e-mail with just 2 or 3 senior-level jobs (Director-level and above) that we want to find the best people for.

We just sent out our first email went out this week, which featured three amazing opportunities:

  • Vice President, Marketing - DoubleVerify (NYC)

  • Regional Vice President of Sales - BazaarVoice (Austin)

  • Senior Director, Product Management, BigDeal.com - San Francisco, CA


Would you like to get these weekly emails? If so, sign up here...

(And if you're interested in seeing all 166 current job openings at First Round Capital portfolio companies, be sure to check out http://jobs.firstround.com/ or just follow FRCJobs on Twitter).

Sharing and Exchanging...

DSC_0021 Yesterday was one of my favorite days of the year.   Not because Steve Jobs unveiled an iPod with a 9 inch screen.  Not because it was Obama’s First State of the Union Address.  Not because of any earth-shaking pronouncement made at Davos.  But rather, because it was the First Round Capital CEO Summit.  It was the one day each year where all of the CEOs/Founders of our portfolio companies come together in one place.   It was an amazing experience for me – to see so many smart people in one room.  Exchanging ideas and sharing experiences.  Doing deals with each other.  Asking each other for help.


I know that in addition to being cash constrained, the typical entrepreneur is even more time constrained.  And asking our entrepreneurs to spend a whole day of their time away from their office is asking them to make a big time investment.   And judging from the responses we’ve seen so far, I think the day was a success all around. 


One of the benefits of having a fairly large portfolio is that our portfolio companies can offer a lot of value to each other.  Whether it is sharing interview techniques, technical management strategies, sales leads, perspectives on the advertising market, or doing deals - it is always great to see portfolio companies helping each other succeed.  And now, I'm excited to announce that First Round Capital entrepreneurs also have the potential to benefit economically from  each others success.  That is because yesterday we unveiled the First Round Capital Entrepreneur's Exchange fund.  This exchange fund was created to allow First Round Capital entrepreneurs to contribute a small piece of the stock they own in their company  -- and share in the upside of all the other companies.  The fund is only available to qualified First Round Capital portfolio companies and First Round Capital does not receive any economic upside from the fund.  The goal of the fund is to allow our entrepreneurs to get the benefit of some tax efficient diversification without giving up their upside prematurely. 


When I was an entrepreneur, I remember the feeling of having all my eggs in one basket -- and it is our hope that this fund will remove some of that stress.  Now our entrepreneurs can get the same diversified portfolio that our limited partners get (with better economic terms) and receive a financial benefit when other First Round Companies exit (even if their own company is still years away from an exit).  I'm super excited about this fund -- as (I think) it is the first time that a VC firm created an exchange fund just for their entrepreneurs.  In addition to allowing our entrepreneurs to exchange their shares into the fund, I believe this fund will result in more sharing and exchanging of ideas and assistance between the companies.


I really want to thank the entire First Round Capital team along with our outside speakers and resources for putting on a great CEO Summit: Dick Costolo, Eric Ries, Jeff Jordan, Mike Marquez, Peter Kafka, Ethan Beard, Ted Wang, Satish Dharmaraj, Andrew Chen, Chris Mahl, and Andy Getsey.


My lawyer pestered me to add this dislaimer:  This is not an offer to buy or sell securities in the First Round Capital Entrepreneur's Exchange Fund.  In fact, even if you wanted to participate in the fund you couldn't (unless you were a qualified First Round Capital entrepreneur).