Be a Founder

Each year First Round Capital interacts with over 3,000 founders.  These are amazing people – people who will shape our society and our lives.  Every product you use, every store you visit, every restaurant you eat in – all of these things exist because a founder had an idea (and the perseverance to turn the idea into reality).

 

For the last year, every founder who has entered one of the three First Round Capital offices has been offered a free “Be A Founder” T-shirt.  We believe that the world needs more founders – and that founders (not venture capitalists) should be celebrated.  That’s why our annual holiday videos showcase the founders in our community.   Our First Round Review provides real-world tactical advice to make founders more successful.   And that’s why we’ve worked hard to build a culture at First Round Capital that recognizes (and appreciates) the unique role that founders play in the world.

 

One of the people who has helped build that culture at First Round Capital for almost six years has been Kent Goldman.  Kent joined our team  right after we raised our first institutional fund -- and has played a pivotal role in our growth and development.  He’s helped us reimagine how a venture capital firm could work to help founders win.  He’s introduced well over a dozen amazing companies into our community – companies that are having a big impact on the world (and on our results).  And a few months ago Kent told me that after spending almost six years helping founders – he wanted to be a founder, by starting his own fund.

 

In the coming months, Kent will be announcing his plans publicly.  But from what he’s shared with me, I’m excited for him.  He’s carrying on First Round’s values of community and innovation in a way that is uniquely his own -- and I plan to make a significant personal investment in his fund.  All of us at First Round Capital are thrilled for Kent – and will miss his energy, his insight, and his passion.  But we understand the allure of “being a founder” – and we wish Kent the best of luck and look forward to working together with him in his new fund.

On Data Persistence...and Confide

Over the last several years, as the cost of storage dropped (and the power of “big data” analytics has grown) the online industry has viewed data persistence as a critical feature.  Google’s Gmail proclaims that you don’t have to “waste time deleting messages” and that the “Gmail way” is to “go for years without deleting a single message.”  Online storage services such as Dropbox, Box, Egnyte and Bitcasa all make it very easy to retain your documents without worrying about running out of space.

My partners and I have been thinking about data persistence for years.  (In fact, my partner Rob chose to name his blog “Permanent Record” over six years ago - reflecting the empty threat that school principals invoked).  But watching Snapchat create a $3B company on the back of ephemeral messaging  -- messaging that is intentionally not persistent – has been eye-opening.   danah boyd, a senior researcher at Microsoft has a great point when she said that apps like Snapchat “challenge the assumption that persistence is the right default and raises questions about when and where people don't want persistence.  Given the privacy rhetoric...a persistence-by-default-minded assumption is that anyone who doesn't want their data to be persistent has something to hide.”  Yet, she argues, that is not the case for most users.  Instead, ephemeral messages allow users to communicate without clutter – allowing people to communicate more authentically and freely.

Over the last several weeks my partners and I have been playing with a new app called Confide (much more on Confide below) and have begun to wonder whether we will begin to see more products where limited data persistence is a feature.  

• While I didn’t attend CES this year, I read with interest about the realization that cars are now collecting information about drivers (Are they wearing their seatbelt?  Are they going 75 miles per hour?  Where do they drive to?) – and the growing debate on how those records are stored and used.     It didn’t help when Ford Motor Company’s top sales executive told a panel at CES: “We know everyone who breaks the law. We know when you’re doing it. We have GPS in your car, so we know what you’re doing.”

• Last week, DuckDuckGo (a Philly-area company!) announced that queries to their search engine increased by 250% (to over 1B) in 2013.  The main reason for this growth is because they do not retain any search history (unlike Google which retains records of every web search a user performs when they are logged into a Google account).

What’s taken me some time to realize is that ephemeral content doesn’t equate to illicit or illegal activity.   Almost every Fortune 500 company has a records retention policy – identifying what messages should be saved and what messages should be deleted.  Just because a company has a policy to delete records doesn’t mean they are doing anything illegal.  Just as the fact that Google Chairman Eric Schmidt chooses to ignore the “Gmail way” and deletes his old emails “as quickly as possible” does not mean that he’s done anything wrong.   Just like every company that purchases a shredder is not Arthur Anderson.

For years Facebook has given users the choice of who gets to see a specific message – as a user, they give me the option of seeing who gets to view every update I post.  I also think that it is reasonable for a service to allow a user to set how long every message should persist.

People intuitively understand that different communication mediums are used for different audiences.  When someone says “I’d rather discuss this in person” that doesn’t mean they are conspiring to conduct illegal business.  But rather, that some in-person discussions allow you to be more blunt, more transparent, more candid and more human than digital discussions allow.  Almost every US President in the last 20 years has fallen victim to a “hot microphone” – where their conversation intended for a small audience was broadcast to a larger audience via a live microphone.  It’s very clear that they communicate differently in public than they do in private.  And I think that one of the problems of digital communications today is that every email is like a hot mike – you have no idea who will ultimately see it.  As a result, people tend to be far more guarded in their digital communications than they are in person.  (With the exception of Governor Christie’s staff – who have seem to have no problem communicating transparently in email).

That is why my partners and I are so intrigued by the recent launch of Confide.  While Snapchat targets young consumers (the vast majority of their users are under 25), Confide is an ephemeral messaging app for enterprise.  When you are able to be certain that your message is only going to be seen by your intended recipient -- and it is not persistent – I think you are far more likely to be transparent and direct.  I know that I often spend a lot of time editing/refining emails and adding context – not because I’m concerned about how the recipient will take it, but because I want to make sure I add enough context so that the email conveys my authentic beliefs in case it gets forwarded to other people.

Many companies have had problems with their internal messages, documents and dashboards being leaked externally.   And as a result, companies have to be extremely guarded in what information gets distributed electronically.  Non-persistent messaging won’t eliminate all of these events from occurring, but it can facilitate an environment where companies are more willing to share information with their teams – and become more transparent.

We’ve recently started using Confide internally at First Round and I’ve already have seen more candid/transparent communication.  And that is something I hope persists.

2904 days ago...

Today:  

Aggregate Knowledge announced it's acquisition by Neustar for $119M.    All of us at First Round Capital are super-excited for Dave Jacobowski, the founders (Paul Martino and Chris Law) and the entire AK team.   It is particularly poignent for me, because I was just getting started in the venture business -- and this was one of our first investments from First Round Capital.  

 

2,904 days ago:  I wrote Paul the email below...

 

  -----Original Message-----

From: Josh Kopelman
Sent: Thursday, November 17, 2005 11:45 AM
To: Paul Martino
Subject: Aggregate Knowledge

Paul –

Howard Morgan recently forwarded me your email about Aggregate Knowledge.  Howard and I are partners in a seed-stage fund that invests in early-stage technology companies.  I don’t believe we’ve met, but I’ve heard wonderful things about you from several folks.  I, like you, am a serial entrepreneur and have been an active angel investor over the last few year, with investments in LinkedIn, Del.icio.us, Riya/Ojos, Flock, IronPort, LiveOps and others.

I was particularly intrigued to learn about Aggregate Knowledge.  Over the last year or so I’ve been thinking about the difference between “explicit” and “implicit” actions – and how they impact online navigation.  I believe that while explicit actions (like tagging, bookmarking, entering in a query) clearly add immense value to users, there could be even more value derived from mining implicit activities (where did people go after they read this article, where did people go after they researched prices for a used honda accord at KelleyBlueBook.com, etc).  In addition, I also have been thinking about metaphors for using this knowledge to help web users before they ask for it (ie, why force users to search for information – what if there was a persistent tool in the browser that recommended sites based on your current navigation path).

Maybe I’m reading my thoughts into your venture – but it definitely sounded like we were on similar paths.  Howard and I are very interested in participating in your current angel round – so much so that if we were meeting in person, I would slide a check across the table right now.  Since I can’t do that I thought I’d do the next best thing.  Attached is our “virtual check” – just tell me where to send the original ;-).  

I understand you are heading off on your honeymoon (congratulations, by the way) – but I would love an opportunity to participate.  (us “Philly Boys” need to stick together).  I look forward to hearing from you.

Regards,

Josh

 

-----Original Message-----
From: Paul J. Martino [mailto:[email protected]]
Sent: Thursday, November 17, 2005 3:10 AM
Subject: Aggregate Knowledge

 

Friends,

 

We wanted to let you know that we have started a new company: Aggregate Knowledge (www.aggregateknowledge.com). Our goal is to deliver the best content to people based on the aggregate behavior of everyone who has gone before them. We think that the wisdom of crowds can help people get at the best of all the information that's out there. Our website doesn't have much information yet, but will soon.

 We are still very early in our company's life cycle. Currently, we are closing a small "friends and family" round of funding and thank those of you who are participating. Our goal is to do an institutional round in the spring.

 As many of you know, we previously launched WSFinder, a wiki-based directory of web services and APIs that people are using to create mash-ups. This was the starting point of our analysis of the web services landscape and marked the beginning of our goal to understand what was happening in the Web 2.0 world. The insights gained are driving much of the thinking behind Aggregate Knowledge.

WSRelater is the first web service that we are offering. It is an Amazon style "people who liked this, also liked that" engine that anyone can add to their website with a few hours of work. Since the engine is implemented as a web service, all sites that use the service can contribute to the aggregate knowledge database. We are pursuing direct applications of this technology with companies that are selling goods online and want to incorporate this functionality to their browsing experience.

 The WSRelater service is in "Alpha" mode. We will move from Alpha mode once we have good feedback from a few experimenters about the service and move to more production ready hardware. The API for this service and its documentation are online at www.wsrelater.com. Please send us any feedback.

 There are two things that we are asking our friends for assistance with in the short term.

 1.    If you know of a great sales / business development person that can help us knock on a few doors we'd love to meet them. Media and/or retail Biz Dev experience is really what we are looking for.

2.    If you have a site and would like to participate in the alpha of the recommendation service please let us know!

We are targeting a January unveiling of our first consumer facingservice.

This new service will leverage the WSRelater engine to create a compelling user retention solution for media portals. You will hear more about this at the beginning of the year.

We will keep you posted.

Paul Martino and Chris Law

Some Context on Cover

Today we’re excited to “take the cover” off our latest investment – Cover.  Cover is a context-aware Android app that automatically recognizes the places you spend time (home, work, car), learns which apps you use in those places, and puts them on your lockscreen for easy access.  While this sounds simple, we think it’s extremely powerful because the company is harnessing the power of two important trends:

First, we believe that context will be an increasingly important element of the mobile experience.   One of our early investments, Uber, for example, was one of the early apps to take advantage of a very simple contextual-layer (location).  Today we see an increasing number of opportunities to leverage context – so that, ultimately, you have a phone that seamlessly changes based on a user’s surroundings.  Google Now is an early example of an app that leverages context (through software) to enhance value.  And we’re already seeing companies begin to build context detection into hardware (like the MotoX and the M7 coprocessor of the Apple A7 chip).  

We expect contextual awareness to proliferate all all layers of the stack -- and Cover is one of the first stand-alone startups that is 100% focused on context.  Their product today learns when and where you use different apps, using your location as well as the day of week/hour of day (for example, you might use stocks/weather in the morning, and watch Netflix at night. You might use Foursquare/Yelp more on the weekends, etc). Your home and work are recognized through a combination of geo-fencing, wifi networks, and cell towers. Car detection is built using low-power sensors (no GPS) so it doesn’t drain your battery.  (Watch their video here to see Cover in action).

And contextual computing gets even more exciting when you add the “wisdom of the crowd” into the mix.  If everyone who walks into a movie theater puts their phone on vibrate, wouldn’t it be neat if your phone could automagically do the same – even if you’ve never been to the that specific theater before?

The second trend that Cover is harnessing is the power of Android.  We believe now is the right time to bet on Android.   A few reasons why:

• Android phones have really improved in the last two years.  The first Android phone I used was the Google Nexus One – and it was really lacking.  However, I’ve been using the Samsung S4 recently – and have really been impressed with it.  It’s really fast, and the ability to customize the phone has actually made it easier to use.   I see why David Pogue called it a “rival to the iPhone.”  And I’ve heard even better things about the HTC One.
   
• The market for Android has become immense.  Android captured 80% of the smartphone market last quarter (while iOS hit a new low of 14%).  And while there still is a big monetization gap between Android and iPhone, I believe that gap will close over time due to the staggering volume of billions of Android phones and nicer Android phones coming out – resulting in more high-end users switching to Android.  The hardware has now caught up – and as innovation moves to software over the next few years, Android developers stand to benefit.
  
  
• The Android developer toolset has really improved in the last year.  Apple has had Xcode (Apple’s integrated development environment for iOS) for years.  Yet Android announced an officially-supported IDE (Android Studio) just five months ago. Google has been rapidly developing Android Studio, with over 20 new releases since May.  As more developer tools are built to make it easier to develop on Android, I believe you will see an increase in the number (and quality) of Android apps.
   
• Even Android’s infamous “fragmentation” is getting less severe.  The vast majority of Android phones are now running Gingerbread or above, and Jellybean is approaching 50% of the market. That means that developers are benefitting from a more mature platform without the complexities that characterized early versions of Android (and though Gingerbread itself is complex, it is now reasonably well-understood and documented).

We are super-excited to work with the Cover team.  The founders have run massively successful projects at Facebook, Google and Yahoo – and they are building an incredible team of Android engineers.  Unlike most companies (who have just one or two Android engineers) the Cover team understands Android down to the metal.

We’re thrilled to welcome them to the First Round Capital community.  If you use an Android phone, be sure to join the waitlist for Cover here – it’s worth it.

Why Real Food Works

Today I’m excited to announce First Round Capital’s investment in Real Food Works -- a Philadelphia-based company that offers subscription-based programs for home delivered meals.  The company’s goal is to improve health by helping people to eat a real food diet for both weight loss and healthy living. Customers have an online portal where they manage their account and select meals.  And weight-loss customers have weekly coaching sessions and track their behavior and results and interact with the company through an online portal.

The magic of their business model is the supply chain. The company uses local restaurants (and their excess capacity) to produce the food. Each dish is the restaurants' own creation, tailored to fit within stringent nutritional specifications. They create delicious dishes that contain all whole foods — and nothing processed or artificial, no dairy, and very little added fat, salt, and sweeteners. Each plan provides customers with meals from a variety of restaurants each week.

Personally, I’m excited about our investment here for a few reasons:

• First, as someone who’s been trying to avoid wheat and dairy for the last few years, I’ve had firsthand experiences with the challenges of finding quality food to  accommodate a restricted diet.  With Real Food Works customers don’t need to make a trade-off between good-tasting food and healthy food.
• Second, in addition to First Round Capital’s investment, Real Food Works is the first investment from the StartupPHL seed fund (a public/private venture fund that we run in partnership with the Philadelphia Industrial Development Corporation to increase the availability of investment capital for Philadelphia-based startups).  In fact, Real Food Works moved their offices to the city of Philadelphia as a result of the StartupPHL investment.
  
  
• Third, it’s great to be working with the company’s founder, Lucinda Duncalfe, again.   I’ve known Lucinda for almost 20 years – and have invested in several companies she’s led (including Turntide – which was acquired by Symantec in 2004).  I’m thrilled to be working with her again on this project.

They currently service the Philadelphia-area  – so if you live in the region, please give it a try.  It’s a great way to save time, lose weight and eat healthy!  Or, feel free to join them for one of their free Farm Table Lunches!

Six months in Philly

It’s been a little over six months since we moved our headquarters into the city of Philadelphia.  And boy has a lot happened since then:

• We announced the Dorm Room Fund here in Philadelphia.  We received interest from over 700 students to serve on the investment committee.  We selected 11 students.  And they have already begun to make investments at a rapid pace!  So far they’ve committed over $150K for investment into 8 companies founded by Philadelphia-area students. We’re so happy with the traction that we’re seeing here in Philadelphia, that we’re even expanding the Dorm Room Fund to other cities.
• We’ve hired over a dozen interns from Penn and Drexel, including six Portfolio Consultants – who have completed over 30 consulting engagements for our portfolio in the last month!
• We’ve hosted thousands of people at dozens of events in our new space.  These events help bring us closer to the Philadelphia tech ecosystem.  From meetings to help plan Philly Tech Week, to Open Angel Forum meetings, to Startup Corps weekly mentorship meetings, to Girl Develop It Philadelphia meetings, to Good Company Ventures Investor Day -- we’ve met some really incredible people. 
• And in the last six months we’ve been thrilled to see other investors step up to support Philadelphia entrepreneurs.  Goldman Sachs committed $10 million in loans to Philadelphia startups.  Blackstone (in partnership with Temple University, Philadelphia University, and the University City Science Center) announced a $3M LaunchPad program to provide mentorship and venture consultation to entrepreneurs, Drexel University unveiled plans for a new fund --  Drexel Ventures  -- which will provide seed funding for technology startups.  The University of Pennsylvania Healthcare System, Blue Cross and DreamIt Ventures teamed up to launch DreamIt Health – an accelerator that provides investment, mentoring, and customer-access to healthcare entrepreneurs.  And we’ve been approached by several suburban venture firms who are contemplating moving to the city!

Finally, today we are excited to announce that First Round Capital has been selected by the City of Philadelphia and the Philadelphia Industrial Development Corporation (PIDC) to manage the Startup PHL Seed Fund, a new fund announced by Mayor Michael Nutter to increase the availability of investment capital for Philadelphia-based startups.  This fund will be a co-investment fund – where the PIDC has allocated $3 million to be invested alongside $3 million from First Round Capital in qualified, Philadelphia-based startups.  We’re hoping that this fund will result in more companies starting – and staying – in Philadelphia. 

It’s been a busy six months – and I can’t wait to see what happens in the next six!

First Round Capital is Hiring: Platform Experience and Operations Manager

First Round Capital is an entirely new kind of venture firm built from the ground up to help the world's best entrepreneurs build better companies.   One of our key tools to deliver on this promise is crafting incredible in person experiences for the entrepreneurs we work with – it's something we now do over 50 times per year.  We're creating a new role at First Round, a Platform Experience and Operations Manager, to help us take these events to the next level, continue to innovate and create experiences we haven't even thought of yet – and build systems and process to allow our entire Platform team to scale.

As a Platform Experience and Operations Manager you will be responsible for running and innovating on all aspects of our in person experiences that range from intimate dinners with the most influential names in technology through CEO and CTO Summit, our internal conferences that bring together the leadership teams from our 170+ companies.  You will have the opportunity to work with the entire First Round team as well as directly with the founders and companies in our portfolio.  In addition, you'll help our 7 person Platform team scale through innovative systems and processes.  This team includes business development, recruiting, learning and research.

The qualities we care most about:

• Relentlessly resourceful – you need to be able to see a project from idea stage through successful completion – and whatever it takes to make it a success. You're looking for an opportunity to take on huge responsibility and grow in a high velocity work environment.
• Get things done – this role will require you to get an incredible amount of work done in very short time periods.  We bias towards action.
• Curious – you're interested in learning new things and can learn very quickly.
• Pixel perfect – in everything we do, we try to bring care and thoughtfulness to our work.  So while the big ideas matter – we care deeply about the details.
• No ego – you're willing to do anything and the phrase "that's not my job" is not something you'd ever say.  Ever.
• Passion for technology – everyone on our team is passionate about technology, startups and company construction – and you need to be too.

We're looking for someone with anywhere from 0-3 years of professional experience.  The position is based out of our San Francisco office.

If you're interested in joining First Round and helping us turn venture capital upside down – email [email protected] with 3 specific examples of when you were relentlessly resourceful and your résumé.

Announcing our latest investment, Flatiron Health

It's always exciting to get the chance to publicly share a new investment - but today is even more exciting given this is the second time we've partnered with serial entrepreneurs Nat Turner and Zach Weinberg.  Nat was one of First Round Capital's first interns ever and built our very first website.  He then went onto intern at a First Round company, then called VideoEgg (now Say Media) and soon after, with Zach, came up with the idea for a company focused on algorithms and ad targeting called Invite Media (acquired by Google in 2010).

Nat and Zach are the kinds of founders we love to partner with, they're heat seeking missiles.  With Invite Media they pivoted away from their original product and essentially invented what is now known as a Demand Side Platform.  They are insanely effective executors and learners, resourceful and constantly curious.  For example, while they were not ad tech domain experts when they founded Invite Media, they immersed themselves in the space, accumulated as much knowledge as possible and ultimately discovered an opening in the market at the right time and rapidly grew the company before exiting.

So when the guys told us they left Google to dive into an entirely new space -- healthcare -- we were instantly excited and thrilled to participate in their initial round of financing.  Their new company is called Flatiron Health and it's focused on bringing the power of big data to the healthcare space.

I always seem to hear how a ‘cure for cancer’ is right around the corner, but the clinical trials to bring drugs to market is such a long process that 'the corner seems' seems to retreat farther and farther away.  Or, to be more precise, eight years away – the time it takes to test each potential cure.  While part of this time period is required (it can take years before we see the results of a cancer treatment), there has to be a way to make this process quicker.  In other industries, we've seen Big Data help buyers, sellers and everyone in between make more efficient decisions.  Yet Big Data has only just started to make it's way into MedTech.

Flatiron Health, based in New York City, is building an “oncology data platform”, which allows cancer care providers to aggregate, structure and mine their clinical oncology data (they call it "making cancer data actionable"). Flatiron’s platform integrates a cancer center’s disparate data systems to provide a truly longitudinal and comprehensive view of the patient population. Through the platform, administrators and clinicians gain deep analytics for business and clinical intelligence, resource utilization, treatment patterns, network management and research. Cancer centers can also monitor their adherence to national cancer care guidelines and benchmark their performance.  Flatiron is currently in private beta.

Nat and Zach join a number of other First Round companies focused on the healthcare IT space - including DNAnexus, Mango Health and Sherpaa.  Please join me in welcoming Nat, Zach and the entire Flatiron Health team back into the First Round Capital Community.

Oh, and if you're interested in joining the team and changing the world for the better, they're hiring for insanely good engineers and product managers - you can learn more here: http://www.flatiron.com/careers/open.html

Student Engineers: Apply to work at 170+ startups with one Common Application

We've talked a lot recently about the amazing amount of talent that exists in universities across the country – and one of the main reasons we launched the Dorm Room Fund was to create a new and more efficient way for capital to flow onto campuses and into the best and brightest entrepreneurs.  But we realize that not everyone wants to start a company; many students, instead,  would love to join one.   But it’s often really hard for students to find the perfect startup jobs.  Startups typically don’t recruit/interview on college campuses.  And they rarely post job openings for internships.  Too often, it is often based on who you know.  So a lot of top university talent simply end up taking an internship or full-time job at Google or Microsoft.   We don't think this makes sense.

Last year, we quietly launched an experiment called the First Round Capital Common Application.  It was a simple idea: allow engineering students to fill out one application and get matched with the perfect startup from across our 170 companies.  That tiny experiment lead to some incredible matches.  Will Drevo, undergraduate CS student (and winner of the Autonomous Robotics Competition) at MIT said, "Applying for an internship through First Round Capital unexpectedly landed me a dream internship at a cutting-edge stealth startup of 12 employees - ToyTalk, Inc. It was honestly the best work experience I've had to date and I worked with a truly amazing and fun-loving team. I got to walk into work every day and talk with the CEO and CTO - I really felt like part of the team. But I never would have heard about ToyTalk unless I applied through First Round Capital."

So we’re super excited to launch this year's Common Application for university students.   With this one application, engineering students can apply for summer internships or full-time jobs at over 170 amazing startup companies.  Maybe you're an algorithms and data junkie looking to work on insanely tough problems with a small team in SF, or perhaps you're more interested in doing iOS development for an eCommerce company in NYC  – just tell us about yourself, your interests and desired location and we'll take care of the rest.   If you're a student, you can apply here now.

Once you complete your application, our Talent Team will review your submission and if you're a fit, we'll follow up directly and connect you with relevant companies.  You'll receive a number of introductions so you can choose the opportunity and company you are most excited about.

We hope our Common Application continues to make it easier for the most talented students to have the opportunity to work at small startups with big ambitions.  The only way to learn how to build great companies is to be a part of them - and we hope more students have that opportunity in 2013.

Why First Round Capital funded a lawsuit

You can imagine the scene in the board room.

The CEO of our portfolio company, Techforward, is discussing a “make the company opportunity" -- Best Buy wants us to to power their nation-wide buyback program.   And Best Buy is talking about launching it with a Super Bowl commercial!  We had just finished a pilot test in several Best Buy stores and the results were very strong – and now, before we moved forward with the national rollout, Best Buy was asking us to provide them with access to our proprietary analytical model. This model was our crown jewels -- we had invested years and millions of dollars building it.  But we had signed a non-disclosure agreement with Best Buy – and they had assured us the information would remain confidential and was critical to moving forward. The board ultimately agreed to share the model – knowing we were protected by our confidentiality agreement.

Fast forward a few months and many more meetings in Minneapolis. Best Buy abruptly tells Techforward that it is not moving forward with them – but rather, they are moving forward themselves. They launch a Super Bowl commercial staring Ozzy Osbourne and Justin Bieber to promote their program. And Best Buy goes on to generate over $140M in revenues through this program.

Now imagine the scene in the Techforward board room.  Although the company had been providing services for other retailers (like Radio Shack and Dell), the company had invested well over a year’s effort to get the Best Buy deal underway.  And Best Buy’s last minute actions posed a fatal blow. Techforward sued Best Buy – but it would take a very long time before the case made it through trial.   And since Techforward had invested so much money working on the Best Buy deal, the cash position of the company was not looking good.   The board ultimately had to make a horrible choice – they sold Techforward’s assets to a third party.  BUT – they did not sell the lawsuit. Instead, First Round Capital (along with our co-investor, NEA) decided to keep funding the lawsuit.  And over the last 18 months, we and NEA gave the lawyers hundreds of thousands of dollars to keep the suit going.  This wasn’t an easy decision. We are in the business of funding companies – not lawsuits.   But my partner, Howard Morgan, was a board member of Techforward – and he sat in those board meetings. And Howard was convinced that Best Buy shouldn’t get away with their behavior.   We needed to send a message to Best Buy – and every other large company – that they can’t blatantly violate agreements and steal ideas from startups.  And if big companies believe they can violate agreements with immunity because a startup can’t afford to sue them, it is bad news for every startup in the ecosystem.

Today Howard is smiling.  Because after 18 months in court, a nine-person jury found Best Buy liable for misappropriation of TechForward’s trade secrets and breach of contract, and returned a verdict of $22 million in favor of TechForward.  And the jury also found by clear and convincing evidence that Best Buy did so willfully and maliciously, so the judge awarded an additional $5 million in punitive damages.

As we saw the information that was produced by Best Buy during the trial (some of which is summarized here), I was amazed by their brazenness.  Best Buy had:

• Internal emails that acknowledged that it would “...be a couple of years before we [Best Buy] have a model that is up and running…” and “...I’m not convinced we’d be able to organically duplicate Tech Forward’s model in a reasonable period of time…” so they “…wanted an opportunity to peek under the hood a little bit at their [Tech Forward’s] modeling…”  
   
• The models which Best Buy did build internally were virtually identical to the models that Techforward had provided them.  And there were internal Best Buy emails asking Best Buy employees to “…remove the Techforward reference in the file names…”  
   
• While Best Buy promised to build a “brick wall” to protect the information that Techforward provided them, they acknowledged that they did not do so. And in fact, the same people that reviewed Techforward’s model were the ones who built Best Buy’s model.  
   
• My favorite email is one from a Best Buy employee (I am using all my willpower to not put his name here) who argued in favor of running the program internally, saying that “I don’t think we should be making this company [Techforward] rich…” 

This has been an educational process for me.   I had (naively) assumed that senior-level employees of a $50B company would know right from wrong.   (And this is a company that recently launched a “College Innovators Fund” to help discover innovative ideas on college campuses… Applicants beware ;-)    Going forward, I won’t be as trusting.  This should be turned into a case study that every major company should make their business development people read.

I also learned that our justice system, while slow and imperfect, does work.   And while the outcome here is still not what we had expected when we funded the company initially, it’s nice to turn a money-losing outcome into a money-making one.   And I am thrilled for the founders of Techforward - Jade Van Doren and Marc Lebovitz - who finally have vindication after doggedly pursuing justice for almost two years.  

I hope that going forward we can stop funding lawsuits – and just fund companies. And I won’t be shopping at Best Buy this holiday season.