What We Must Learn from Asia

August 11, 2009

asia2I run a monthly meeting called the VCA that represents the majority of Southern California venture capital firms.  My goal is to bring in informative speakers who stretch our collectively thinking on topics that will influence our investment strategies and use it as a way for us to share our experiences in ways that I hope benefit the Southern California technology ecosystem.

In the past 6 months we’ve heard from Dmitry Shapiro on the future of online video, Ian Rogers on the future music model, David Sacks on the future of social networking and Michael Crandell on where Cloud Computing is headed.

All have been fascinating.  This month’s presentation was truly mind boggling so I wanted to be sure to share the entire presentation with all of you.  This was one of the most fascinating presentations I’ve seen in a long time and a must read – although you’ll see clearly better in person with commentary.  Benjamin Joffe (the author), a Frenchman who runs a consultancy in China that tries to help non-Asian investors understand the innovation occurring in Asia as a way to bring ideas to their local markets.  He also consults companies in Asia.

I lived in Europe for 11 years and in Tokyo for 6 months so the idea that innovation is happening outside of our 50 states in not new to me.  I’m sometimes surprised how little people here in the US want to try to learn from what is happening elsewhere.  I find that a shame.  When I reached out to Benjamin at the suggestion of Dave McClure who told me what a great guy he was I was fascinated.

To see the deck click —->  HERE (sorry, I can’t do embeds yet, I’m migrating from WordPress.com to WordPress.org in the next few weeks).  As I mentioned, some pages unintelligible without commentary but well worth a read to get to the nuggets.

My take aways are below:

1. Wacky, weird and low cost: Before diving into what I learned in the deck I want to share something crazy.  Motorola gave us in the US the RAZR (before they stopped innovating).  But China literally gave us the Cell Razor.  Benjamin brought in a cell phone where the bottom pulls out and you have an electric razor.  No joke.

2. Film innovation – If Benjamin’s analysis is right – even many of our most successful films have been adaptations from Asian films.  I knew some were but the scope was surprising.  Especially Star Wars & The Matrix.

3. Internet users in US – 225 million, mobile 260MM.  China Internet: 340MM, Mobile a staggering 650MM.  Don’t bet that China won’t innovate in mobile. (slide 29)

Korea4. 70% of Korean population has Internet speeds > 5mbps (and avg = 15 mbps) – don’t bet that the Koreans won’t innovate on online content (slide 30).  Larger online game market ($1 billion) than Japan despite 1/3 population and 1/2 GDP per capital (slide 99).  Way ahead of the US on mobile gifting.

japan-flag5. More than 90% of Japanese mobile subscribers are on 3G networks (vs. 20% in the US) (slide 30), More than 50% have mobile TV & NFC chipsets (slide 87). Mobile ARPU = a staggering $110 / month for content and commerce alone (slide 88).  Massive fall-off in ringtone and massive uptick in full songs (slide 89) —> still think we shouldn’t be watching what’s happening in Asia?  Sales of avatars in social games nearly 50% of total revenue eclipsing revenue from affiliate transaction, ads or paid games (slide 97).  Mobile game content revenue > PC game revenue (slide 98)

6. China’s leading social network (Tencent, who’s product is QQ) already does more than $1 billion in revenue.  That’s 2x Facebook estimates.  Tencent market cap on public market is $21 billion, Facebook’s is a theoretical $3-15bn (slide 52). China is innovating in many of the categories that the US is trying to solve now including mobile

ChineseFlag

couponing, vertical social networks, Internet TV, etc.

7. Free-to-play gaming with micro transactions has become huge in Asia with very nice profit margins. EA and others in the US are copying this success (slide 71)

When I lived in Europe in the 90’s we all texted people on mobile phones.  I was surprised when I came back to the US and the only people texting were 13 year olds.  When I worked in Japan it was crazy how much people were using mobile content on the i-mode phones.  Now they have TV & NFC chips.  I have been looking at a South Korean online start-up and am blown away by the innovation in this company relative to the online models I see in the US.  It is a global world – I plan to make sure I’m tapped into Europe, Israel and increasingly Asia to know what trends I can look for here in California.



1 Twitter Tip You Can Fix Straight Away

August 10, 2009

names on TwitterHow do your friends, colleagues or admirers find you on Twitter?  One of the obvious ways is to click on “Find People” on Twitter and search for your name.  

But one of the oversights for many people is that they list their Twitter handle as their name making them very hard to find in Twitter Search.  (e.g. if I listed msuster as my name rather than Mark Suster)

If you findy anybody who has done this please forward them the link to this post, which is –> http://bit.ly/15foOH and let’s make Twitter and easier place to find people.

UPDATE:  People have made the fix and say they still don’t appear in the search results.  It takes a while (a day or more) to get your name propagated in Twitter’s search index.  Be patient – it will appear.

I’ve posted three people’s examples to the left.

First is Amanda Coolong of TechZulu.  If you search for her (as of July 10, 2009 at 5:45pm) you will get no result and the text, “did you mean Amanda Choong?”

Second is Jen Raymond.  Search for Jen Raymond and you’ll get 2 of them – neither one is the Jen Raymond who works for Pfizer and lives in Santa Monica.  Search on Jennifer Raymond and you get 24 results – none our beloved Jen from SM.

Third is Bryan Hale, a former colleague from Salesforce.com and former VC from DFJ.  You get my point – 7 results, none him.

So please go check your Name and make sure that it isn’t your Twitter handle (assuming you want people to be able to follow you).  While you’re at it put in a link (if you don’t blog or want to link to your company at least link to your LinkedIn or Facebook profile).  And write a short bio about yourself.  Anything.  At a minimum it will help people know whether they have the right halebr (who you should follow, he’s a cool guy ;-)


WTF is Traction? A 6-Step Relationship Guide to VC

August 8, 2009

iStock_000009170146XSmallThis is part of my ongoing series “Pitching a VC” – the outline is here.

You’ve pitched several angels and VC’s.  Everybody seems to like you but nobody seems to be getting out their checkbooks.  Most of them are telling you that they just need to see a bit of traction before they’d be prepared to invest.

Your friends and advisers tell you that this means you need revenue because in this economy VC’s will only fund businesses with revenue.  Unfortunately your advisers are wrong.

The “more traction” feedback is a very typical scenario is a down market economy like the one we’re in.  Investors are giving you a version of the “soft no,” which basically means that they’re not prepared to invest now.

So if it’s not necessarily revenue that’s preventing an investment, then WTF is traction?  Unfortunately there is no real objective measure.  Traction can simply mean showing that you’re making progress with customers, product development, channel partners, initial revenue as a proof point, attracting well-known angel investors, winning industry awards / recognition.  It is code word for “I’m not ready to invest for whatever reason … I need more proof.”

Now there are some firms that have strict rules about not funding pre-revenue companies – that’s different.  But many Series A firms tell people they have a “revenue rule” and then you look at their portfolio and see many exceptions.

Traction really is about building a relationship with a VC over time and showing them that you can move the ball forward.  Many entrepreneurs make the mistake of thinking that funding is something you do in “funding season,” some mythical  2-month period when you’re ready with a great Powerpoint deck and you hit up all of the VC’s at the same time so that you can quickly raise money and get back to the job of building a business.

Fund raising is an ongoing process and not an event on a workplan.  You need to build a relationship with investors over a long period of time.  That is how you convince VC’s that you’re gaining “traction.”

6 Steps to Building a Relationship with VC’s and Solving the Traction Problem:

alec baldwin1. Always be Pitching (line stolen from my favorite scene in one of my all-time favorite movies. At 3:15 here if you’re interested).  Go see a few select VCs before you’re even ready for institutional money.  Tell them about what you’re up to in your business, show them your product or prototype, tell them your strategy, talk about the deals you’re working on and seek feedback.

If you wait until you’re “ready” to fund you’re too late.  Funding is about developing a relationship over time.  Most of us wouldn’t get married on the first weekend we met someone in Vegas.  And most VC’s wouldn’t fund the first time we meet you.  Given that many VC’s base their decision on the team, the longer they have to get to know you the better.

2. Over deliver – The people who get funded are the people who actually get things done.  They tell you that they’re working on biz dev deals with distribution partners and they get the deals signed.  They tell you they’re going to ship product and they do.  They get their widgets embedded or their products piloted.  They hire key staff.  They get positive product reviews on TechCrunch, GigaOm or Paidcontent.org.  They make progress.  You need to over deliver and communicate back with VC’s showing the progress you’ve made.

radarScreen-7194853. Keep on the radar screen – I know the VC’s seemed to love you when they met you.  The problem is that they see hundreds of pitches and they often don’t proactively step back and think about the companies that seemed promising but they weren’t ready to pull the trigger.

You should send “update emails” that are very short but highlight some of the achievements you made with the intro saying, “since you showed interest in my company I just wanted to provide you a brief update on our progress.” This is important because it keeps you at the top of the stack in their memory.  It’s marketing 101 for tech companies in terms of how you market to customers.  You have buyers who are ready now and those that aren’t.  Sales owns the former, the latter get marketing emails so you’ll be top of your prospects’ minds.  VC’s are the same.

4. Find ways of helping the VC – If as an entrepreneur you get to know other interesting entrepreneurs / companies it is a good technique to send intro’s the the VC and ask if they’re interested in meeting the company.  I usually recommend that you send the companies Powerpoint deck and ask the VC if they’re interested but don’t necessarily copy the company on the email until the VC says he/she is interested.  If they’re not at a minimum you’ve shown that you’re thinking of them and you’ve stayed on their radar screen.  It’s not required but I have seen this technique be used effectively by entrepreneurs.

5. Schedule a follow up meeting. Contact the VC again when you’ve signed a few more big deals. In your email to the VC tell them about the additional progress you’ve made and ask for a short, 30-minute session to update them on the business.  Don’t take no for an answer.  Show some chutzpah.  But be polite.

You might find that you get a “we’re really not interested” response.  That’s OK – at least you’ll know to cross them off the list.  When you do get a follow up meeting tell them about your new revenue model, ask to show your new demo, talk about the progress you’ve made and what has turned out differently then expected.  Update them on your fund raising progress.  Seek more input from them.

Stick to your 30 minutes so you build the trust that every time you come back you don’t abuse your time commitment.  Leave them wanting more.   Don’t come back with fake progress.  If the businesses isn’t getting “traction” then probably best not to come back with a bad impression.  Your time is better spent actually making progress.

lather6. Rinse and repeat – When you do raise a round, start immediately building the relationship with VC’s who do B rounds.  Some of the masters at this VC relationship business are Jason Nazar  (DocStoc), Jon Bischke (EduFire) and Ophir Tanz / Ari Mir (GumGum).  In the latter case, every time I saw them they had moved the ball forward and evolved their strategy.  After more than a year of updates I pulled the trigger and invested.

We all build relationships over time.  Doing an investment is more permanent then marriage – there are no divorces for irreconcilable differences.  I know that in a booming market people fund quickly.  And I know many stories of Benchmark or similar investors writing term sheets after the first meeting.  But I also read stories about people winning the lottery.  Neither is the norm.


6 Tips for Using the @ sign in Twitter

August 4, 2009

email symbol blueThere is much confusion on how to use the Twitter @ sign – even amongst daily Twitter users.  So as part of my ongoing series Twitter Insights, I wanted to cover how the @ actually works (even experienced users may be surprised by some of the points)

The basics:

1. When you use the @username (e.g. @msuster for me) the message you write appears in my @msuster inbox on Twitter.com and on any of the desktop or mobile clients.  Great. 

2. This is a good way to call something out to my attention since it is narrower than just broadcasting hoping that I might see the message

3. It is also a sign of attribution when you retweet a message by another user (e.g. RT @msuster).  People also use it in other obvious ways including suggesting users to follow such as #FollowFriday @msuster

4. You can send an @ message to anybody – whether or not they follow you.  You can only “d” people (direct message) who follow you.

5. I am currently not overwhelmed with people who @ message me so I read all of mine.  Usually in a timely manner.  But if the person you @ has tons of followers (think Robert Scoble, Michael Arrington or any celebrities who use Twitter) don’t assume they’ll see your messages

More advanced:

1. This is important … If you send somebody a message and you START it with an @name then the only people who will see your message are people who follow you and people who follow the person you replied to.  Most people don’t seem to know this.  For example, if you follow me but not @deblanda an I send her a message starting with an @ then you won’t see it at all.  Anyone who follows both of us will see the message.  If you precede the message by anything, even a dash and a space like, “- @deblanda nice to see you” then everybody will see it.

When does this come into play?  Sometimes I’ll see people who want to make people aware of a blog posting.  They’ll say “@msuster provides great insight into VC valuation discussions – see http://bit.ly/C5t6O” .  They might have 2,000 followers.  I have 1,200.  Only the small subset who follow both of us, say 100, will see the message.  

So if you’re really responding to somebody and you don’t want all your followers to see it (but you don’t necessarily want to send a private message via DM or you can’t because they don’t follow you) then start with an @.  Otherwise make sure it has text in front of it.

2.  Equally important to know … If you reply to a message as above and therefore assume that only a small subset of followers will see the message – you need to be aware that anybody can proactively look at the message by clicking on your Twitter name and seeing all of your posts.   If you truly want it to be private stick to DM or email (or better yet … telephone!)

Did I miss any idiosyncracies?  Make sure to add them to the comments.


Did Twitter Kill the Blogger Star?

August 3, 2009

Video_Killed_the_Radio_Star_single_coverWhen Twitter first became popular with niche crowds in 2007 it seemed to take hold initially with bloggers.  People had been steadily blogging for 2-3 years and this crowd seemed to bifurcate.

On the one hand were the blogs that “blew up” and became real businesses like TechCrunch, GigaOm or TalkingPointsMemo.  On the other hand were  everybody else including those that tried to make a full time of it like Robert Scoble as well as those that did it as a side job like VCs, CEO’s and start-up entrepreneurs.

So Twitter was initially billed at a “micro-blogging” platform.  It seemed to save all of the bloggers from coming home at the end of the day from whichever conference they were attending and have to turn in long-form content like a journalist.  Suddenly it was about very frequent commentary in a bite-sized format.  Whew.  Now we could all sleep more.  Or could we?

So with the metoric rise of Twitter now forecast at 45 million as of August 3rd, 2009 (and rising fast), has Twitter Killed the Blogger Star?

I would argue it’s the exact opposite.  I believe that Twitter has sparked a resurgance in blogging.  Here is some anecdotal evidence:

1. Shel Israel, famous tech blogger from Wave 1.0 started blogging again outlined here

robert-scoble_h2. Robert Scoble has also started blogging again as outlined in the link in point 1.  The same article refers to several other people who are coming back to blogging: Liza at Maui Blog and the futurist Chris Saad.

3. Bill Gurley, a well known VC from Benchmark Capital, seemed to have a 2-year hiatus from blogging and has now picked up the pace

4. My LA VC colleague Peter Lee of Baroda Ventures has started a blog about VC

5. I have started blogging again having taken a hiatus since 2007 (actually, I was initially embargoed by Salesforce.com who didn’t want me blogging after they acquired my company).

So what gives?  Here’s my view:

– When Twitter started gaining hyper traction in early 2009 many people signed up and/or returned to use it again having had failed attempts at getting excited by Twitter in 2007 (I am in the latter category)

– With an onslaught of new users everybody was scrambling to figure out whom to follow

– It quickly became clear that Twitter had a built-in popularity contest.  How many users followed you was (gasp) publicly available

– Initially people would follow people who already had a lot of followers.  Why?  Because Twitter used to list the pictures on the right side of the page by people who followed you with the most followers.  Therefore, the more followers you had the more you would accumulate.  They were critisized this and began to randomize them.

– Initially people thought that all you had to do was give funny Tweets and people would follow you.

140_characters

– Over time it emerged that the currency of the Twitter world was links and people began creating mad links to anything: NYTimes stories, TechCrunch stories, funny videos, anything.

– As many tech and VC professionals becan to realize that Twitter wasn’t just a fad they realized that links to other people’s websites was like free lead gen for somebody else’s brand.  If you wanted to build up your own profile on Twitter and in the Internet economy you needed to have something original and interesting to say yourself.

– And guess what?  It ain’t that easy to say interesting things in 140 characters!  (photo credit: here) Thus, Twitter reinvigorated the Blogger Star.  And I’m loving the renaissance.  I’m enjoying reading all the new content created in the tech / VC industries.  I’m enjoying the creative process of getting my own personal thoughts down in writing.

And I’m enjoying being part of the two-way conversation again as I was from 2005-2007.  Thank you, Twitter.


Is VC Right for You?

August 3, 2009

suster foxI recently appeared on Fox Business News covering the topic of raising Venture Capital.  If you’re in the market or thinking about VC in the future the following video may be of interest to you – click here to view.  Video is about 7 minutes.  If you want to learn more about “Pitching a VC” make sure to check out the entire series here.

The main summary of my interview is that VC may only right for you IF:

1. You can achive revenue of at least $50-100 million within a 5-7 year time horizon

2. You’re prepared for “home run” only exits (e.g. not a business in which you have profits of $1-2 million / year paid in dividends)

3. You’re ready for rocket fuel … if you’re business isn’t pointing in the right direction now – imagine once a VC invests.  The expectation is that they need to exit 7-10 years after investing.  This adds some pressure to speed things up.

4. You’re prepare to share control.  VC’s don’t want to run your business but they do want a say in the major decisions you might make including executive hires, compensation, M&A, major expenditures, etc.

I then covered how to access a VC including:

Most VC’s have a “submit your business plan” place on their website.  Don’t.  Instead you should get intro’s as follows

1. Start-up lawyers – we do deals with them constantly.  They know us, we know them.

2. Other entrerpeneurs – look around in the community at who’s raised money in the last year.  Good bet they can give you the most recent and practical advice.

3. Portfolio companies – All VC’s list their portf0lio companies.  Easier to start by networking with some of our investments.  Don’t bombard them but respectfully approach for relationships.  Best not to approach the larger investments.  I’m guessing it’s easier to get a meeting these days from Fred Wilson at Union Square Ventures than from Evan Williams at Twitter.

4. Social networks – When I raised capital in 1999 it was hard to know who knew the VCs.  Now it is spelled out for you in black & white.  Check LinkedIn, Facebook and Twitter.  There’s a good bet that the people I’m following know me.

5. Other VCs – Great advice from Jason Spievak of RingRevenue.  Most VC’s will pass on your investment just by sheer numbers.  They might be wrong stage, wrong industry, wrong geography or maybe just plain old wrong timing.  So respectfully ask the VC for an intro to other VCs.  I provide them all the time.


Twiistup 6 Highlights

August 3, 2009
ExpenseBay Wins Showoff

ExpenseBay Wins Showoff

Twiistup 6 has come to an end.  It proved to be a great transitional year.  Out is the “cocktail only” Twiistup and in is the new format of a conference that should take its rightful place on the national technology calendar.  I believe that Twiistup is now a platform from which to grow and highlight what is uniquely LA.  We are a city unique in merging the world’s best content with digital media and technology expertise.  Much of this was highlighted at Twiistup.

LA not only produced the obvious – MySpace – but also created the whole category of sponsored search (Overture), AdSense (Applied Semantics), Local Search (City Search), comparison shopping (PriceGrabber, Shopzilla) and lead generation (LowerMyBills).  In SoCal we are also leaders in affiliate marketing (Commission Junction), Internet video (Hulu) and bringing local businesses online (ReachLocal).  We are also home to DemandMedia (Richard Rosenblatt) and Mahalo (Jason Calacanis).

We have accomplished much yet have much work to do.  There are now a second generation of entrepreneurs and companies that have learned from their last successes and are producing great new companies like TopSpin Media, Sometrics and GumGum.

For highlighting what is uniquely LA, for adhering to a strict quality standard for speakers and for building this great platform for the future Francisco Dao (aka “The Man”) should feel proud of what he has accomplished.  As should Eric Sikola and ExpenseBay who won the “Showoff” judges competition (Photos featured here taken by (cc) Kenneth Yeung – http://www.thelettertwo.com).  Twiistup 6 featured 12 showoff companies as the opening act of a 2-day conference.  From this crowd of 12 I believe you’ll see 4-5 companies with the potential to rise to prominence.

Andy Sack, Dave McClure, Brad Feld & Jason Nazar (photo by Jolie Odell)

Andy Sack, Dave McClure, Brad Feld & Jason Nazar (photo by Jolie Odell)

We had an excellent opening panel on early-stage investing with Dave McClure (Founders Fund – NorCal), Brad Feld (Foundry Group, Boulder) and Andy Sack (Founders Co-Op, Seattle).  The panel was hosted by Jason Nazar who brought his usual frenetic energy.   My favorite line from this panel: Feld, “If LA companies still have a chip on your shoulders about not being in Silicon Valley, I have one message for you – get over it!” And of course there was the F-bomb count that Cathy Brooks and I were keeping on Dave … by the end of the panel we had counted 8.

There was the usual cogent presentation by Brian Solis on the future of PR in which he implored us to get beyond the echo chamber of Silicon Valley and Techmeme and focus on staying on the radar screen of real America.  In today’s “attention deficit” economy you need PR more than ever and this doesn’t come through press releases but rather a continued, authentic conversation.”

In the afternoon we had a corker of panel.  Quincy Jones III, Ian Rogers and Chamillionaire were all on the same panel facilitated by Brian Zisk.  I have seen Ian Rogers speak before and when he does he usually has the audience on the edge of their seats.  Ian is so knowledgeable about the evolution of the digital music business and speaks with a Howard Roark like truth about where it needs to go.  My favorite Rogers line was, “musicians of the future will be entrepreneurs and not employees [of labels].”  He obviously believes this since he has become CEO of TopSpin Media – a firm designed to do just that.

Mark Suster, QD3, Brian Solis, Chamillionaire, Ian Rogers, Bryan Zisk

Mark Suster, QD3, Brian Solis, Chamillionaire, Ian Rogers, Brian Zisk

But in this case Chamillionaire stole the show.  He displayed a deep mastering of the power of the Internet, direct marketing and Twitter to manage his business.  He talked about the need to give personal access to fans and remain authentic while still leaving some room for mystique.  He talked about artists needing to retain rights for their website and digital content like ringtones.  He got this VC talking so effusively about his entrepreneurial instincts that my wife accused me of having a “man crush.”  (I don’t) I think this guy has the chance to be the Digital Puffy if he can amass a team to help young artists own & manage their digital careers. [photo credit to Brian Solis]

The evening cocktail party was an 80’s theme and lived up to the traditional Twiistup fame with an open bar, elaborate costumes, Hollywood lighting and poker games until 4 in the morning.  Having been out until 3am at the cocktail party the night before I called it quits at 12:30am or as Neil Patel told me, “OK, married men should go home now” though something tells me he may not remember this quote ;-)  … (Percival cocktail photo by (cc) Kenneth Yeung – http://www.thelettertwo.com)

pervicalsThe late night didn’t make for a productive start to the morning but by the time Sean Percival got on stage to host the panel with Chris Brogan, Micah Baldwin (who started #FollowFriday) and Ben Huh (ICanHazCheeseburger) there was a great discussion on what it takes to be an Uber-blogger and social networker.  I think I could summarize the hour by saying, “don’t be a douche.”  And we heard Sean’s rant of the moment about how he hates being shaken down for DM’s by friends asking for RT’s and how he’s tired of DM Spam in general.

After this was my panel (co-hosted by Christian Gammill who had to leave mid-way to race off to Hawaii to get engaged and by Tony Adam), with Mike Jones (COO of MySpace), David Sacks (founder of Geni and Yammer) and Jamie Montgomery (CEO of tech investment bank Montgomery & Co).  The tone of the panel was set by David’s announcement that he was relocating to Silicon Valley (and dragging Geni & Yammer with him).  A debate ensued in which the consensus was, “to build the next Google or Salesforce.com you probably need to be in Silicon Valley but that SoCal had produced many great companies that made a tremendous amount of money and that would likely continue.”

The closing event was the filming of a live version of Jason Calacanis’ “This Week in Start-Ups” (appropriately named TWiST – episode is here).  He started off the session of breaking news of the most important product announcement of his life to date – the pregnancy of his wife with his baby daughter.  He then led us through a series of discussions about the most relevant topics of the day along with Chris Tolles, the CEO of Topix.  Jason’s cutting wit and insightful commentary made for entertaining listening on topics ranging from the Microsoft / Yahoo! search deal (“will go down calacanisas one of the worst deals in history”) to the skewering Jason gave to his competitor Nick Denton (of Gawker fame) when he stole his most productive employee.

Anyway, to close my Twiistup 6 Summary post I will borrow from the wisdom of my forefathers, “next year in … Santa Monica.”  No doubt the platform that Francisco built will take Twiistup 7 to a whole different level.  Now back to work – we’ve got a venue to get booked.