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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Pinch Me

Istock_000006058306xsmall_2 I'm super excited about our new investment in Pinch Media.  My partner, Chris Fralic blogged about it here and our co-investors, Union Square Ventures, discussed it here.

Great Book: Predictably Irrational

Pi I recently received Predictably Irrational by Dan Arielly from the TED book club -- and highly recommend it.  Dan does a powerful job of convincing us that (1) People are not as rational (or smart) in making decisions as they think, and (2) The mistakes and errors that we make are systemic and predictable.  Thus, we are predictably irrational.

Chapter Three was especially interesting to me, as Arielly describes an experiment which proves my "Penny Gap" theory.  (A copy of the experiment is available on his website here.) 

And for anyone trying to decide how to price an online service, I'd strongly recommend the first chapter -- which discusses the importance of setting relative context for price/value determination.  (An excerpt from this chapter is available here.)

Some new thoughts on the "Atomization of Conversation"

E6aafd1041b098340e729dde5b89_2 About a year ago, right after Facebook launched its Platform, I started telling my wife about Facebook.  She didn't get it.  While she understood how it could be useful to college kids, she just didn't understand how it could be relevant/useful to adults.  In order to show her the benefits of the site, I set up a Facebook account for her.  But given her predisposition, my expectations for her longevity on Facebook were very low.

Surprisingly, however, my wife started to use the site.  She slowly but surely connected with old friends from grade school, summer camp and college.  She connected online with our neighbors and parents of our kids' friends.  She started playing Scrabulous with her mother and sister.  She even started updating her Facebook Status.  She now has over 250 friends on the site, and it's part of her daily routine.

This past week has been a really bad week for us.  On Saturday, I learned that my Grandmother passed away.  On Sunday morning, our seven-year old daughter awoke with sharp pain in the lower right-hand corner of her stomach.  Fearing appendicitis, we took her to the hospital, and they operated.  Her recovery took longer than expected -- and she was in the hospital for six days.

I canceled my calls and meetings and basically disconnected from the Internet for the week.  The only hint I gave was a brief Twitter message.  My wife also cleared her calendar -- but she provided some Facebook updates about the situation.

And what happened next really amazed me.  Her phone started ringing with calls of support and help.  Friends offered to pick-up and drop-off our son at school.  Home-cooked dinners arrived at our house.  Balloons, stuffed animals, and cards arrived at the hospital room.  Old friends from high school and college called her saying that they were there to listen if she wanted to vent or talk.

Her brief Facebook status update was all it took to activate her real-world support network.  It was incredible. 

Last week (just hours before this whole ordeal began) I wrote a post about the "Atomization of Conversation" in which I worried about the effects of asynchronous communication resulting from things like Twitter and Facebook Status updates. 

However, after witnessing how a 90-character update can unleash such a torrent of concern, support and love -- I now know we have nothing to fear from the atomization of conversation.  Rather, it's just the opposite.  As tools get created to atomize our interactions, they provide a much easier, much faster way for us to react to the events in others' lives.

My daughter is home recovering -- and I'm going to go play with her now...

Depending on pending...

Istock_000000687213xsmall If someone was to put together the "Founder's Manual" for pitching a VC, the section on barriers to entry would say something like: "When asked about your barrier to entry, tell the VC that you have several patents pending for proprietary technology."   Heck, I'm sure I used the same line when I was raising money for -- after all, we filed for our first patent in October 1999. 

Well, I'm excited to announce that the original patent (#7,373,317) was finally approved by the USPTO last week - eight and a half years after we filed it (and seven years after eBay acquired 

Most people don't realize that the average software patent will take many  years from initial application to issuance.  (According to the USPTO, software patents have the longest backlog of any type of patent.  In 2005 the backlog was almost four years...and it has grown larger since then).

Given that a patent needs to be issued before it can be enforced, and given that it takes 4+ years for a patent to issue, you can't really call it an effective "barrier" to entry.  Before you can even consider enforcing the patent, your company has already succeeded or failed in the marketplace.  And by the time you try to close the "patent door" to the barn, the horse has not only left the barn, it has probably died of old age. 

I believe there is little-to-no value in depending on pending patents for a "barrier" to entry. 

So should startups invest in patents?  I agree with much of what Brad Feld writes in his AskTheVC post on this topic - especially his conclusion that pending "patents are probably the most overvalued 'asset' that startups promote when raising funds".  [UPDATE:  Brad has a great post today on IP protection]

There is value in owning issued patents -- but that typically comes after you've experienced success in the marketplace.  (If a company has failed in the marketplace, their patent filing is typically abandoned/withdrawn).  I think Fred Wilson said it best when he said "Patents are like nuclear bombs, you just got to have some".  But if you're fighting a war today, it's better to count on weapons you have at hand today -- don't rely on a nuclear program that could take five years to come to fruition. 

You can't keep competitors out of your market just by depending on something that's still pending...

Converting data exhaust into data value

I've written frequently about my thoughts on the Implicit Web.  As more consumers spend more time online (and perform more of their activities online), they leave a trail of digital breadcrumbs exposing data about themselves and their interests.  This "digital exhaust' is often massive -- requiring terabytes of data and log files.  And while storage costs are coming way down, it is still typically too expensive for companies to analyze all their historical data.  Instead, companies frequently resort to sampling or archiving.  And for those companies that do try to retain and analyze historical data, they typically find that their database queries take hours or days.

That's why I'm so excited that First Round Capital portfolio company, Aster Data Systems, has launched today -- after three years in stealth mode.  Google and Yahoo power their sites using databases distributed across many clusters of servers.  Aster Data offers clustered databases for web analytics -- and today announced that they are already supporting Myspace (which is running a 100 server node cluster across hundreds of terabytes) and Aggregate Knowledge's Pique service (which is performing analysis on over 100 million users). 

As more companies seek to transform their data exhaust into data value (hey wait a minute -- perhaps that's the Web 2.0 version of "clean tech" -- converting messy data into clean insight) -- I think they will need tools like Aster Data to help them discover deep insights on massive data sets.  More information on Aster can be found on their website and blog.

Facebook's new Fortune 500 Advertiser...

Googfb While the blogosphere buzzes about Facebook's banning of Google Friend Connect, it appears that Google is not entirely a "persona non grata" at Facebook.  It seems that Google, the Internet advertising superpower, is actually purchasing advertising on Facebook's Ad Platform.  As you can see from this ad (right) from Facebook, Google is seeking candidates for their User Experience Research. 

Maybe Google wanted to test out Facebook's social ad targeting platform.  Or maybe they just wanted to recruit the candidates outside of the Google footprint.  Either way, I'm glad to see the two companies getting along ;-)

Oh -- and you can check out more information on Google's User Experience Research program here and here.

The "Atomization of Conversation"

Atom Last week I was speaking with Lawrence Hooper of Loladex and he used a phrase that's been sticking in my head.  When I asked him whether people would be willing to solicit their friends to make a local recommendations via his Facebook application -- he said how he believed his site represented the continued "atomization of conversations."

It's interesting to think about -- as more applications get connected to the social graph, conversation and dialog are being atomized.  If the current "geek" technologies go mainstream, you will no longer need to have a broad conversation about anything. 

  • Why call someone and tell them you're coming to town?  They've seen it on Dopplr
  • Want to tell someone about your recent trip to England?  Don't bother, they've seen the pictures on Flickr. 
  • No need to call me and ask whether the new movie I just saw is any good -- you've seen my review on Flickster
  • Want to know what music I'm listening to right now? -- check out iLike.
  • Is someone you know suffering from an illness or injury? -- stay connected and informed (and offer support) at their Carepage.
  • Did your friend just open a bottle of wine?  You can stay up to date on what they like (and don't) by following their CellarTracker reviews.
  • And if that didn't cover it, don't worry, you probably saw it in my Facebook Status updates or Twitter feed.

Conversations are indeed becoming atomized and asynchronous.  No need for the "Hey, how are you doing?" discussion.  Personal dialog is being replaced by a Mini-feed. 

Pro - David Levine says it best "Atomization means conversations are more powerful and real ones have more true content."

Con - There's something special and genuine about a conversation -- the anecdotes, personality and emotion don't come across the same in a 160 character SMS message.

Top Ten Tech Trends


Photo from VentureBeat

I just returned from participating on the Churchill Club's annual "Top Ten Tech Trends" panel.  Quite an amazing event -- they pick five VC's for the panel and each gets to present (and defend) two trends for the coming year.  With a panel consisting of Khosla, Jurvetson, Schoendorf, McNamee and Kopelman, I felt a little like I was part of a "Which One Of These Things is Not Like The Other" puzzle...but overall I think I did OK for a "rookie".  (I discussed the Implicit Web and a pending shakeout in VC as my two top trends).  A good summary of the event and all 10 trends can be found here, here and here

Oh, and while I know I have no chance of becoming an "A List" blogger, it appears that I've made the B-Z List.  (Or at least according to The Industry Standard).


Lifecycle Messaging

I recently blogged about the importance of conducting a cohort analysis to track user retention.   A good cohort analysis helps you understand how many customers you keep and how many you lose.  So now what?

I'm surprised how little pro-active messaging/communication most Internet companies do.  And if they do send me an email, it tends to be a generic weekly promotional email that they send to all users.  One thing that I learned at is the importance of lifecycle messaging -- in which you deliver different messages to different users based on where they are in their lifecycle.  Some examples:

  • The average fiction book is read within two weeks of purchase.  So if you purchased a John Grisham book for $8.75 on, chances are that you will finish it within 14 days.  We decided to implement an auto-email that was sent 17 days after purchase that said "Want your $8.75 back, click here to list your Grisham book for sale".  We found that the open (and conversion) rate of that email was amazing -- and it greatly added to our ability to "turn" the same book multiple times.
  • We noticed on our cohort analysis that if a first-time buyer did not make a second-purchase within 6 weeks of their initial purchase, there was a 80%+ chance that they would not return -- but that if a user made two purchases within that period of time, there was a 70+% chance they would return again.  So we created an auto-email with a personalized, limited-time coupon that was sent after six weeks.  Again, we experienced strong open/conversion rates.
  • We noticed that if a buyer left negative feedback on a transaction it had a definite impact on their repeat purchase behavior -- so we created a customized email campaign towards those users.
  • Like all e-commerce sites, had many "abandonded shopping carts" -- where people would put items in the cart and not check out.  We created an auto-email campaign that would merchandise the items left in the cart -- and send it out two hours after the cart was abandoned.  A very successful campaign.

And while these are examples of lifecycle messaging by email -- you can do the same thing on the site as well.  Many sites still display the same homepage for first-time and repeat users.  The leading e-commerce sites added personalized home-pages long ago -- so they can deliver different messages to new users (education, introduction, tutorials) and to repeat users (personalized recommendations, promotions).  If you'd like to see a good example, go to eBay as an existing user -- then delete your eBay cookies from your browser and return.

Conducting a cohort analysis is just the first step towards increasing user retention and activity levels.  Once you have your cohort analysis, you then should look at ways to systematically reduce churn and increase user satisfaction - by finding the key "touchpoints" which can dramatically change the course of a user's experience.  This is not rocket science, but despite the fact that Jupiter Research data indicates that lifecycle marketing campaigns generate as much as nine times greater results, few marketers are taking advantage of this strategy to deliver the right message at the right time.   

My co-founder at, Sunny Balijapalli, has recently started a new company ( - which was rated the #1 photo sharing and printing service in India by PC World) that First Round Capital has funded.  Not surprisingly, one of his first priorities was to put together a lifecycle messaging program.  With his permission, I've attached a copy of his program overview here.

A small digression.  The current issue of Wired Magazine discusses the "spacing effect" for human learning -- which recognizes that if a person is reminded of a fact at certain specified intervals, they are far more likely to remember the fact later.  (See chart below from Wired).  I think the metaphor can be extended to consumer marketing as well -- if you communicate with a user during certain specific intervals, they are far more likely to return to the site later.  They key is to figure out what those intervals are -- and what "triggers" you should use to drive the communication.


How to "Ask for the Order"

Sign I just read Fred Wilson's blog post about the need to ask for the order.  I completely agree -- if you don't ask, you don't get. 

However, I believe that there are different ways to ask for the same order.  And the way that you ask can either increase or decrease the odds of a successful outcome.  Some examples:

Before we launched, we knew that we needed to have a lot of  inventory on the site -- so we reached out to dozens of used bookstores, CD stores and video shops.  We had a team of three business development people working full-time to get these sellers to agree to list on our site.  Initially, we would call a prospective seller, explain our site/model, and if they were interested, we'd "ask for the order" and send them our standard three-page seller agreement.  Despite our best efforts, we found that small retailers were either intimidated by our agreement or didn't want to spend the money to have a lawyer review it. More than 60% of the interested sellers would drop out of the process before they signed the agreement.

We then made a slight change.  Instead of sending them a three-page legal agreement to physically sign, we added a click-wrap agreement to our site.  We then asked the sellers to register online, and during registration we simply asked the seller to agree to our terms of service by clicking a box.  Instantly, we eliminated our biggest challenge in getting sellers on board.  Because in this case, users are far more willing to agree to terms on a website than they are to sign a three-page contract.  We didn't change what we asked for -- we just changed the way we asked for it.

One of my portfolio companies recently experienced the same thing.  They were talking with a variety of prospects about a big advertising deal.  And initially my company was sending out an "Advertising Partnership Agreement" -- outlining the full terms of the relationship.  They quickly learned that all  non-standard agreements had to go to legal -- which added weeks/months to the process. 

So the company decided to try a change.  Instead of sending over a custom agreement, they sent over benign looking  "Ad Insertion Agreement" which had the exact same terms of our prior agreement.  Our marketing contact had full authority to sign an ad insertion agreement -- they do that all day long -- and now my company is able to get deals signed much faster by changing the format of our "ask".

The list continues.  When TurnTide wanted to send out a free evaluation unit of their anti-spam router, they originally had a long written agreement.  When they changed the format of their agreement to a one-page trial acceptance form, they cut weeks off their sales cycle. 

Say you work at Google and you want to get a prospective partner to sign an NDA.  You can send someone your NDA document and it goes to their lawyer.  There will probably be a bunch of back-and-forth on the terms.  That's pretty time consuming.  However, why not do it the easy way?  Just invite the guy over to lunch on Google's campus. 

Because whenever anyone gets a visitor badge at Google they are asked to sign an NDA as part of their visitor badge process.   I'm sure glad everyone brings a lawyer to help them sign-in at reception ;-)

The way you ask is just as important as asking.  If you focus on reducing friction in a transaction -- and ask for the order in the right way -- you might find that you improve both your odds of success and the time needed to get a deal done...