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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First Round Capital Office Hours (and Free Coffee)

OfficehoursCORRECTION - My initial post had the wrong date.  The correct date is Tuesday, October 21st.

We live in interesting times.   Despite the recent doom and gloom forecasts for startup companies, we at First Round Capital are still investing in new companies and actively seeking talented entrepreneurs to back.  My colleagues on the west coast are holding our first Office Hours next Tuesday.  As Kent wrote in his blog post:

"At Office Hours, we’d love to meet with entrepreneurs, people thinking about becoming entrepreneurs or folks who would like join a start-up. We’ll be available for a bunch of informal ~15 minute chats. There’s no agenda. Ask us what we think of the market environment or share an idea for a company – we’ll be sure to have plenty of napkins available to help draft that first product plan. We’ll listen, share our perspective and pay for the coffee (which may be of more value than our advice).

When: Tuesday, October 21st , 11am – 1pm
Where: University Café, 271 University Ave, Palo Alto, CA 94301

All are welcome -- if you think you'll drop by, please RSVP, so they can get a sense of how many people are coming.   I'll be in town that week, so I'll be there from 11 until noon...

LeaveWallStreetJoinAStartup.com

For years, one of the biggest challenges facing New York city based startup companies has been the competition for technical talent.   It was very difficult for a venture-backed startup to compete with the compensation packages offered by the big investment banks.  Stock options had a hard-time overcoming oversized cash bonuses.

While no one is happy with the turmoil we're seeing facing the financial services sector, and no one is happy to see mass layoffs, this does represent an opportunity for startup companies to attract seasoned, technical talent.  With Bear Stearns laying off over 7,000 employees, Lehman Brothers rumored to layoff over 20,000 employees, and Merrill Lynch expected to layoff thousands after their sale to Bank of America, we're on track to see over 150,000 people lose their jobs this year.

If you are one of those 150,000 employees, you might want to consider joining a startup.  These days, startups are more stable than Wall Street (seriously).  And while a startup probably won't offer the creature comforts of a job in the financial services industry, startups offer different benefits.  You get to participate in the creation of something new.  Your work makes a direct (and clear) impact on the success or failure of the company.  No more politics, endless meetings, or multi-layered organization structures.  Plus, you'll likely get stock options to share the upside.

That's why I launched LeaveWallStreetJoinAStartup.com -- a website highlighting great job opportunities at NY-area startup companies.  If you're looking for a job in NY city, check it out.  If you're a startup looking for talent, send me your job postings at jobs@leavewallstreetjoinastartup.com and I'll add it to the list...

Announcing FundingSleuth.com

Srvcfinancial_servicefinancial_we_2 About 10 years ago, I helped create a web service called Company Sleuth.  The basic premise was that as a company conducted its business activities, it would leave a "paper trail" online.  And Company Sleuth tried to find that trail by automatically searching a variety of public databases (such as the US patent database, trademark database, domain registrations, job listings, etc.) for "clues" about all US public companies activities.  Users would tell Company Sleuth the companies they cared about and receive a daily email containing a list of all new "clues" that were found.

The service found some interesting data.  For example, while in beta we saw that the domain name "daimlerchrysler.com" was registered by Skadden Arps (Daimler's law firm) days before the deal was announced.  And we also noticed that MCI Worldcom registered skytelworldcom.com just days before they announced their merger, causing their stock to jump 16% and  prompting an SEC investigation.   

Unfortunately, Company Sleuth is no longer around (although I found an old version of the site on archive.org).

Last month I blogged about the Reg D and stealth mode.  And after I wrote the post, I got to thinking:  Why not create a tool that checked the SEC database every night for changes on the companies I'm interested in?  While the SEC doesn't provide you the details on the financing (amount, investor, etc), at least I can know if financing activity took place.

So I went to Rentacoder.com, got connected with m4k3r (a developer in Australia).  A few days (and $200) later, I had a tool built that would check the SEC Database for me.  Rather than keep this to myself, I've decided to open up the site to anyone.  So today I'm announcing the launch of  FundingSleuth.com.

Read about an interesting new company on Techcrunch?  Want to see if your competitor raised money?  Add the company to your list at  FundingSleuth.com  and you'll receive an email whenever there is funding activity.

Let me know what you think...

VideoEgg

Videoegg_logo First Round Capital portfolio company, VideoEgg, today unveiled several cool new features to make  video and rich-media advertising far more engaging.  Take a firsthand look at some examples in VideoEgg's Ad Labs:

LIVE: Use real-time RSS feeds to continually update the ad experience
LOCAL: Deliver zip code-specific messaging
RICH: Easily deploy and track a rich multi-video ad experience to increase user interactivity
SHOP: Brings the browsing experience to the user, updated real time
SHARE: Viral capabilities help spread the message through virtually any communication or social channel

The Story of Francis Bates

MailboxI've spent some time the past few weeks researching the life of a little known Silicon Valley entrepreneur named Francis Bates.  Here's his story:

Francis Bates was born in 1847 in Rhode Island.  His mother, Amy Ann, passed away when he was just 11 days old.  During his childhood, young Francis needed to assume many of the household chores -- make his bed, take out the trash, and fetch the mail.  While making his bed and taking out the trash weren't that bad, Francis really hated fetching the mail.  You see, the Bates house was located off the beaten path -- and pretty far from the main road.  And since his Dad wanted to read the mail immediately after it was delivered, Francis was constantly checking to see if there was mail in his mailbox.  In fact, Francis spent most of his mornings walking back and forth to his mailbox.  Most of the time it was empty, but from time to time he would find something in it. 

During the Civil War, Francis joined the Army and was injured.  In pursuit of health, Mr. Bates came to California in 1896 and settled in San Jose.  Like his childhood home in Rhode Island, his house in California was also a great distance from the road.  Francis really disliked the wasted time (and effort) he spent checking for mail - especially due to his injuries.  And in 1899, he had an idea.  Why not invent a flag that can be put on the mailbox to indicate whether the mailbox was full or empty?  Thus, the birth of the mailbox flag.  As Francis wrote in his 1899 patent (USPTO #627,635):

If the carrier is obliged to inspect every box to know whether there is any mail-matter to be collected, or if the people for whom the box is placed are obliged to go to the box in order to find out whether any mail-matter has been deposited for them, there is considerable loss of time; but by arranging some signal which is displayed for the carrier when there is any matter to be collected from the box and another to be displayed for those using the box to show whether anything has been left for them it will not be necessary to go to the box except when there is something in it to be collected.


Thus the birth of the modern mailbox.  Francis Bates became one of the first Silicon Valley entrepreneurs and grew extremely wealthy off his novel mailboxes.  They couldn't manufacture enough of these mailboxes -- "For nine years this firm turned out some 10,000 boxes a month, and then the demand was greater than they could meet".

The Internet today, is a lot like mail delivery in the 1800's.  Surprisingly, web services don't have "flags".  Rather, applications are forced to "ping" Flickr, YouTube, Twitter, etc. every few minutes and ask "have any of our users done anything new?"  These applications are literally checking to see if each virtual mailbox is empty/full every couple of minutes.  Now that more and more services are aggregating more and more updates, the growing volume of pings has created real scaling challenges for services (such as Twitter) and consumes a rapidly growing amount of bandwidth and resources. 

That's why I'm so excited about our investment in Gnip.  Yesterday, Gnip unveiled it's plans to solve the "ping problem".  In layman's terms, Gnip hopes to be the mailbox flag for the 21st century.  Rather than having to check for updates from services like Flickr, Digg, and delicious, Gnip pushes all relevent updates to you.    Read more about it here and here.

I think that Eric Marcoulier and the team at Gnip are well on their way towards becoming the Francis Bates of the Internet...

(You can read more about Francis on page 1014 of the History of Santa Clara - pdf download)

Welcome Christine and Kent

While First Round Capital has investments located all over the United States, our portfolio (and dealflow) is heavily concentrated on the west coast.  That’s why we opened a West Coast office two years ago, with the addition of my partner Rob Hayes and later Mazen Araabi to our team.  It’s why I’m going to qualify for Chairman’s Preferred on US Airways after my three trips to California this month.  And it’s also why I’m super-excited to announce the addition of two Principals in our San Francisco office – Christine Herron and Kent Goldman

I first met Christine while she was part of the investment team at the Omidyar Network, where we had several overlapping deals.  And this past year, Christine began working with us part time as a Venture Advisor, helping us out with a number of our new investments.  Her prior experience includes a number of entrepreneurial ventures in various capacities (including CEO).  And she started her career in venture capital at Geocapital Partners where she discovered a little company called Netcom before most people knew how to spell “internet.”

Kent’s journey to First Round Capital is a unique one – we truly were brought together by the "news feed”.  While I’ve known Kent for some time, we got to know each other much better this year when he was (unintentionally) ensnared in my ill-fated experiment with Facebook’s Social Advertising.  And, in an ironic twist you couldn’t script if you wanted too, the news of Kent’s new role at First Round Capital was also unintentionally revealed by Facebook’s pesky news feeds, as Kent blogged about earlier today.  Kent joins us from Yahoo, where he was a member of their Corporate Development team focusing on M&A to support the company's user-facing properties.  He also led business strategy efforts for Yahoo’s Front Page, Communications and Community products which included Yahoo.com, My Yahoo and Yahoo Mail.  Before Yahoo, Kent spent some time in investment banking and early-stage venture investing.

My partners and I are thrilled to welcome Christine and Kent to the team

The Steve Jobs of Classical Music

45256_254x191 I've been going to the TED conference for almost 10 years now -- and I've seen hundreds of incredible speakers take the stage.  Last year, Benjamin Zander - the conductor of the Boston Philharmonic, gave what I think is one of the best talks of all time.  Zander is the Steve Jobs of classical music. 

An online video of his talk was just released this week.  Ostensibly, his talk was about classical music.  But, in reality, Zander shows how in just twenty minutes one can expose people to new ideas, new possibilities and new passions.  He truly embodies his belief that "one of the characteristics of a leader is that he not doubt for one moment the capacity of the people he's leading to realize whatever he's dreaming".  I especially liked his realization that since the conductor of an orchestra doesn't make a sound, he depends for his power on his ability to make other people powerful.  His job is to awaken possibility in other people.


Take 20 minutes out of your day today and watch this talk.   You'll see an moving example of leadership, evangelism and passion.  And see how a leader can make your "eyes shine".

School Bus Gas Prices Impacting Software Sales

120407busfueling1tt_2409 So I was talking the a CEO of one of our portfolio companies today.  He runs an enterprise software company, and we were reviewing his pipeline.  During our conversation, he mentioned that he lost a $12,000 sale because of fuel prices.  Yes, that's right -- the price of gasoline is now impacting enterprise software sales.

Apparently, the customer was a large county school district.  And despite the fact that they had spent months going through a detailed RFP process (which our company won), the project was killed at the last minute.  The district has had to cut virtually all IT spending so they can pay for gasoline for their school buses and maintenance vehicles.  Apparently, they are not alone.  School districts across the country are facing similar issues.


What a tough month.  First, US Airways eliminates free pretzels due to fuel prices.  Now, school districts are slashing computer spending to keep the buses running.  Next thing we know, Google will start charging employees to ride the Google Bus to work. 

The Death of Stealth Mode

D Seeing how attacking startup lawyers seems to be en vogue this month, let's put this post in the category of "Things I wish lawyers told their startup clients."

Here's a situation I see all the time: 

A pre-launch, stealth-mode company just closes a seed round of funding.  Three weeks go by, and the news of the company's funding starts appearing in VentureBeat, PEHub, and Venturewire.  The story is then picked up by mainstream tech bloggers and press.  The CEO starts getting phone calls from journalists.  I then receive frantic, angry phone calls and emails from the CEO that go something like this: "Dude!  Did you announce the funding?  We wanted to stay under the radar..."

I want to reply, "No.  I didn't announce the funding.  Your lawyer did."

The culprit is a little known SEC regulation called "Regulation D".  A basic summary:

Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (or Reg D) contains three rules providing exemptions from the registration requirements, allowing some smaller companies to offer and sell their securities without having to register the securities with the SEC.  While companies using a Reg D exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what’s known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s executive officers and stock promoters, but contains little other information about the company.


When a company raises capital, most lawyers fill out the Form D paperwork on the company's behalf and stick it on the pile of papers a CEO has to sign on closing.  (Click here to see the complete form in pdf format).  There's little a company can do to avoid a Form D filing - more than 17,000 companies and partnerships made nearly 28,000 Form D filings in 2007.   I'm continually surprised, however, by the fact that few attorneys actually tell their clients about this public disclosure.  Maybe they don't mention it because they know that people can't access these documents online.  (You can search the SEC database to see if any documents exist, but you can't access the actual content/document.)  This by itself can be pretty revealing.  For example, although Twitter announced their funding today, you could have searched the SEC database and saw that the round closed on June 9th.  It's also a great way to get the address and phone number for stealth mode companies ;-)

In addition, hardcopies of these documents are available to the public (and press) for a limited time.  As Scott Austin of Venturewire writes:

The SEC makes hard copies of these filings available in a series of folders located in a public reference room at their Washington headquarters.  There's about a two-week lag time between when the filings are processed and when they hit this room, and after 30 days they disappear. Also in the room are four computers, but they're without Internet access.  And the staff members that work there are known to shrug their shoulders when asked for help.  In other words, this room appears to be intentionally uncooperative - much like the private companies and partnerships that wish to keep the information contained in these filings under wraps.  At VentureWire, news of start-up financings are our bread and butter, so we send a couple of helpful reporters from our Dow Jones Newswires bureau in Washington to sift through the filings and pull out the most interesting ones...


So it turns out that the SEC is the source of most of these "leaks". 

But, wait, there's more.  A few months ago, the SEC published rule amendments mandating the electronic filing of information required by Securities Act of 1933 Form D through the Internet.  Starting next year, the data filed will be available on the SEC Web site and will be interactive and searchable.  View the Final SEC Rule here.

One small positive change.  While your company name and amount of funding will be public, apparently the forms have been changed so that companies no longer need to disclose names of investors that own more than 10% of a class of securities.

If you're starting a company and want to stay in "stealth mode", make sure you understand the impact of your Form D filing and factor that into your plans.  And if you're a lawyer for a startup company, please tell your clients about the public disclosures you make on their behalf!

The Big Five for Face Painters and Entrepreneurs

DutchwonderlandMy family and I spent the past weekend at Hershey Park and Dutch Wonderland -- we had a blast at the two great amusement parks located in Pennsylvania.  (Near Sand Hill Road in Hershey, PA.  Not quite like the California version of Sand Hill Road -- it's full of houses/farms and it has cell phone coverage).

Anyhow, during our visit to Dutch Wonderland, I noticed this sign posted behind the door of the face painting booth.  While it was obviously intended for their employees I managed to grab a photograph. 

I thought that their "Big 5" tips were applicable to both face painters and to entrepreneurs:

  • Be Seen
  • Be Heard
  • Be Active
  • Be Prepared, and
  • Upsell