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Monthly Archives: April 2012

On Venture Capital and other stuff: Chris Yeh

2 Comments Posted by on April 29, 2012
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Chris Yeh is many things, among them a General Partner at Wasabi Ventures, Vice President of marketing at PBworks, father, and blogger. Chris is neither a Droid or Apple guy, but very much requires a physical keyboard on his phone. He hopes someone buys RIMM’s patents, and soon. Chris and I talked about how Wasabi Ventures works, a recently created accelerator at Loyola University Maryland, and some other questions about the industry. You can read much more from Chris directly at his blog Adventures in Capitalism and his personal website, or you follow him on Twitter at @chrisyeh. Here we go…

Image representing Chris Yeh as depicted in Cr...

Image by Eastwick Communications via CrunchBase

From my understanding, Wasabi Ventures doesn’t operate like other venture capital firms. Can you talk about your operating model?

We like to think of Wasabi Ventures as kind of a throwback to the old days of VC. In the old days, venture capitalists didn’t invest as much money as they do now, but they did a lot more hands on work. Over the years, the industry has become much bigger and the amounts of money invested have gotten larger, despite the fact it’s cheaper than ever to start a company. We’re trying to return to a traditional means of venture capital. We invest small amounts of money but we also invest our own time and expertise to provide that kind of nurturing startups need.

Wasabi Ventures recently launched an accelerator program at Loyola University Maryland. What motivated that?

The new accelerator we launched at Loyola is a joint venture with the university that tries to serve what we view as an underserved market. The wonderful thing about the internet is you build these products and companies through distribution channels that are now global, like social media or the various app stores. It seemed like a place like Silicon Valley had a monopoly on innovation because they have so many resources. It’s not because they have more smart people, though there certainly are plenty of those. Silicon Valley has an ecosystem: attorneys who will work with you, experienced executives who can provide mentorship, former entrepreneurs who are now investors, VCs who are used to putting in money. We feel like we can bring some of those things to the Baltimore area and fix the situation there. The good news about Baltimore is it has strong support from the state of Maryland. There are a lot of very smart people and good universities in the area. It just needs some catalysts, and starting an accelerator at Loyola is one of them.

You recently wrote a post on Adventures with Capitalism called “Is There A Social Media Bubble?” That’s very topical right now. Can you talk a little bit more about why you think the startup scene is overheated?

Ultimately, overheating in markets is where the valuations get away from what can actually be supported. I’m an old school guy. I believe you can value any company or opportunity. You do that through the old-school method of a discounted cash flow analysis. You add together all the future cash flows and discount them back to the present day using the appropriate discount rate to arrive at the present value. What I see is similar, but not to the same extent, of what I saw during the dot com era. Then, if you did a discounted cash flow analysis on eBay, it was clear the valuation of the company was based on it maintaining a 100% annual growth rate for two decades, which just simply isn’t possible. No company can grow at a rapid pace forever. Even an enormous company like Apple can’t grow forever; otherwise it’s larger than the world economy. Everything has to slow down eventually and everything has a finite value. In the dot com era, there was no way you really calculate a scenario under which they’d be worth the amount of money they were worth in the public market.

The same thing could happen today. I’m going to invest in a company, a seed stage startup, with a ten million valuation. Here’s the problem. What are the chances that a startup that gets funded eventually exits at a good value? Let’s walk through a scenario. You seed that company. Let’s say there’s a 1-in-3 chance you get venture funded and from there it’s a 1-in-10 chance it becomes a big success. You now have a 1-in 30 chance of a success. So what does a big success look like? Probably on average, it’s two hundred million dollars. You’d feel pretty good selling a company for two hundred million dollars. But if you have only a 1-in-30 chance one of your companies is worth that amount, and you had to make thirty investments at ten million each, effectively you’ve paid three hundred million for a two hundred million return. The math just doesn’t work out; you have to pay a lower price. Or you have to see much higher exit values. The reason why we get bubbles is people see exits like Instragram. Zero revenue, one billion dollars. Well gee, if my average exit becomes a billion dollars, then even if I make thirty investments at ten million each, that is, pay three hundred million present value and get a billion back, you’d do it seven days to Sunday. The problem is those kinds of public market valuations or acquisitions aren’t sustainable. We saw it happen during the dot com era and during 2007, and we’ll no doubt see it happen again in the near future. We just haven’t reached that point yet.

What’s an example of one mistake or failure you’ve had and what did you learn from it?

I won’t use the company’s name because I don’t like to talk bad about any entrepreneurs, but I’ve certainly made mistakes in investments before. You try to learn from every mistake. But if you lose a bunch of your money as an investor, you really tend to remember the lesson. One company, for example, was in a space that I thought would be very strong, and people still haven’t cracked it yet but it could potentially be huge. The entrepreneur was a friend of a friend. He’d been very successful and had led a publicly traded company. He was a very credible figure tackling a problem area that I felt was very strong and attractive. The issue was that he hadn’t gotten the product to the marketplace yet though. As it turns out they were never able to get the product to market and I lost all my money. In fact, I was unwise enough to be the only investor in that particular venture. So, the lesson was don’t invest in companies before the product is there, no matter how great the entrepreneur or market seems to be. It’s very difficult to know the product will be there.

Still, there are exceptions to every rule. I recently did an investment in a company with two very strong entrepreneurs that hadn’t yet decided what they wanted to do. These folks had a proven track record of building and selling products and were themselves coders. The previous entrepreneur, however, was a business founder and had to rely on others to build the product.

Roger Ehrenberg of IA Ventures and Dave McClure of 500 Startups recently wrote separate posts on whether or not venture capital is scalable. Do you think so? Why or why not?

Venture capital as we know it is not a scalable model. The reason is simple, it’s math. Venture capital depends on three things. The first is having a ready supply of capital to deploy. That’s not the limiting factor on scalability. You could always raise larger and larger pools of capital. Warren Buffett has clearly done it with Berkshire Hathaway and has proven you can scale up investments. The second piece of the puzzle is number of available exits. Ultimately, as a VC, you have customers: the public markets and public companies that buy your investments. The total amount of money paid back into the ecosystem is limited to the total number of acquisitions and IPOs. Historically there are not that many monster IPOs or acquisitions. In a typical year, the number of hundred million-plus transactions can easily be counted in the low double digits. There aren’t enough buyers to support increasing capital by 10x. This is why individual venture firms tend not to scale up beyond a certain point. And third, an individual human being can only serve an active role on so many company boards. So let’s say each company you invest in has a board meeting every month. You sit on ten boards, and then you’ve got your own work. As a VC, you’ve got Monday, which is taken up with partner meetings. That’s you and the rest of the partners deciding which investments to make. So Monday’s shot. You’ve got ten companies, so about every other day you have a board meeting. You have to do prep work and follow-ups after, that consumes time. Then, you’ve got to meet new companies and try to assess investment opportunity. It simply isn’t possible to add that many more investments. What I’m sure Dave McClure is doing is arguing that his approach is different and scalable. If you assemble a collection of people to do the mentoring and whatnot, and you make investments rapidly, and invest in companies that can exit for small amounts, that has greater scalability. But that’s not venture capital.

Who are your biggest personal and professional influencers?

I’m a little unusual in that I draw from a wide range of influences from outside the startup world. For example, a big influence on me, from an intellectual standpoint, is Martin Seligman. He’s the former head of the American Association of Psychiatrists who started the positive psychology movement. I’m very interested in issues of popular psychology and behavioral economics. I think those things impact my professional career more than random investor this, random entrepreneur that. That being said, there are definitely people in the community who I know and don’t know personally who I admire a great deal. In terms of investors, there’s Jeff Clavier. I’ve been very impressed with his ability to find good deals and do traditional venture capital stuff. He’s been extremely successful. From a business influence, I really admire certain aspects of what certain famous entrepreneurs have done. Clearly, like many people I’ve tried to learn lessons from Steve Jobs and Jeff Bezos. Both have been enormously successful despite being heavily criticized at various points of their careers. Finally, I’d say in terms of people who’ve made a big impact in the startup ecosystem, it’s hard to match what Paul Graham has done at Y-Combinator, both in terms of producing some pretty amazing companies as well as changing the ways startups and entrepreneurs think.

Do you have an investment thesis that really excites you right now? What is it and why?

Let’s go with two. One’s a traditional investor answer and the other one is not. The traditional investor answer is I think there’s a ton of upside in touch screen computing for the enterprise. A lot of people call it mobile but I prefer to call it touch screen because tablets aren’t necessarily mobile in how I think of mobile. But it’s absolutely huge, because for the first time the devices are adapting to the human interface instead of the human adapting to the computer interface. That has opened up the market enormously. When you have applications that babies and cats can use, then you’ve really broadened the market. There’s no way a baby or cat could pound on the keys of an Apple II and do anything.

For the second one, I feel like there’s a tremendous opportunity in Silicon Valley to drive value with a greater emphasis on startup management. I think most companies and entrepreneurs don’t really think about how to manage or build a great culture. They pay lip service to treating their people well. I think it’s very valuable especially in the kind of environment we’re in, where jobs are highly available for the talented. I think companies and entrepreneurs who really focus on building a great company will have a serious advantage.

What’s the neatest startup you know that you’re not invested in?

As a relatively established startup that I continue to be impressed by, I’d say Square. They’ve taken on an enormously valuable and powerful industry, credit card processing and payments, in a way that PayPal had taken them on about a generation ago. They’ve done it with an incredible amount of style and attention to design. I doubt the food truck industry would exist without Square, because people want to be able to pay by credit card. They swung for the fences and really connected, and I admire that.

Actually, that brings up a related question. Near Field Communication (NFC) technology has been frequently touted as the next big thing. Why do you think someone like Square hasn’t gotten involved with it?

Square’s issue with NFC technology is they’ve already achieved a very strong position and it’s unlikely merchants will stop using Square’s products. I think they can afford to ignore NFC because of that. The reason probably is because NFC is going to require additions to their product, which takes resources to support it and to figure out all the different flavors and phones. Now that Square’s already a little established, until NFC becomes a clear winner, they can afford to wait on making the investment. Meanwhile, I’ll bet Amazon is investing heavily in NFC because they have the financial wherewithal to flesh it out early, much like they did with the Kindle. I think NFC could potentially be huge, but it takes someone like Amazon to invest the money and be patient, and a series of startups that are willing to gamble their existence on it, to really exploit it.

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Social Travel with Pete Sullivan

Leave a Comment Posted by on April 22, 2012

Pete Sullivan is the 27 year old co-founder and CEO of social travel network Tripl. Pete, originally of Brooklyn, New York, created Tripl while he was an MBA student in Sweden. He sat down and talked to Startup Harbor about where Tripl’s been, where it is now, and where it’s off to next. You can follow Pete on Twitter at @pjsullivan3. If you visit New York City someday soon, you might even be able to connect with him on some common interests.

Pete – talk about how Tripl came to be.Tripl

A few years ago I was working in finance in San Fran and at night I was trying to get involved in the tech scene. I coded when I was younger, learned graphic design by myself, and was trying to do a startup at night in the secondary ticket market, like a ticket exchange. I was going to a lot of concerts and sporting events at the time and it was something I was really passionate about. I couldn’t dedicate 100% of my time to it, and I knew I needed to if I wanted it to succeed. I found this opportunity to go to Sweden for a free MBA and it was ending soon so I jumped on. In the back of my head I knew it would give me the time I needed to do build something. By coincidence, when I made that decision I came across an issue that needed fixing. Before I left for Sweden, I stopped in Miami. I tried to find people I could connect with, through Twitter or whatever communities, but I couldn’t pull the resources I needed. At the same time, I took a look at what was going on with Facebook’s API. Back in 2009 there was a change where you could cache data, when before you had to delete it after 24 hours. That made it really difficult to build any cool applications and I said there had to be a cool opportunity here.

So I flew over to Stockholm and registered a URL called VacationRelation. It sounded good, it rhymed, but it turned out to be a nightmare. It was a 14 character domain and had bad overall branding but we stuck with it. I also met my Swedish cofounder through it. After that kind of fizzled, we discovered we had to build an application that people can engage with all year long, not just when they travel. That May we put together a round with Swiss and New York angel investors and knew we had to find a really tight internal team. It sucked. We recruited for about 3 months prior to that round just selling the dream to our new hires that we would be closing a new round. At the same time, it was like we didn’t close it, we didn’t close it. Finally we got it done to our huge relief. We got a good team on board and started building what’s now Tripl at the end of May and let private betas in during September or October. This December we launched the public beta and right now we’re basically heads down in a major iteration. We’re taking everything we’ve learned from all the analytics and saying, our thesis was this then and now our thesis is about how do we get conversations forming around these topics? And the whole jist of what we’re trying to do is connect people around travel. If you take all these dots that are moving around the world every day and dots that are staying still, all these connections are being missed. As we become more of a global society, technology will help us capture them.

What’s an example where something went wrong?

Back to Vacation Relation actually. We were launching it in November 2010 and came to New York. I tried doing cold call walk-ins on all these VC offices and had basically a 0% success rate. It’s unrelated, but now fast-forward a year, having built out Tripl’s social proof connections, we were sitting down having meetings with most of those guys. But back then, instead of raising money we built a prototype demo. No backend database, it was a total façade. We built a video around and it and sent it to a big travel conference called PhoCusWright. Turns out we got in and were like “Oh fuck! Now I have to build this out!” We scrambled for money and got our first investment from a professional poker player, a guy younger than me. He got all this office space filled with other poker players he was training and some other startups he invested in. It sort of evolved into an incubator. When we approached him we literally only had drawings of what we wanted to do. He supported us when we had nothing, but then we got some support from the Swedish government, launched the product, and almost instantly knew where we screwed up. Even though there were all these people traveling all the time, and you could add on Facebook where and when you’re going and through our product see if anyone else was heading there too, it required way too much critical mass. First, we had all these filter features but they only work when you have a shit ton of people. Next, people don’t travel all that often. People ended up putting in dummy data to try the application that wasn’t relevant. These people would get in the system for the week and then they were gone and you’d never see again. At the end, it was good though. Our lessons led us to Tripl though.

What are upcoming plans and changes we can expect from Tripl?

Today we’re actually finding out if we made it into The Next Web conference in April and if we do we’ll make a few announcements about a new funding round (ed. note: they got in). We’re looking to do a summer accelerator program to get our biz dev up, a new web app design. For the new design, when you view it on your phone everything adjusts even if you don’t have the app to make it feel like it app. It’s not a mobile site; it just adjusts to your product. We know a lot of content sites that do this but we don’t know any web apps that have actually done it. We’ve got an iPhone app targeted for the beginning of May, and we’re releasing our first social travel aide. We have around three million people indexed in the database so far, and that data’s starting to become valuable. We’re finding over ten thousand trips per week based on check-ins, so even if they’re not saying their going on trips, we’re able to surface them. This summer is all about getting the distribution set up and working with 3rd parties and travel sites.

What’s the iPhone app going to look like?

We’ve been looking at statistics and turns out people don’t use mobile web on their phone when they travel abroad. However, people are using their phones as their primary source of internet at the hotel. So how can we utilize that? By caching things for use later on. A friend told you to go somewhere, you can cache it on your phone locally so when you’re not on wifi you can use it. The real premise for the iPhone app is you should fire it up every day. Even when you don’t have a trip planned there’s a stream of people coming to your city. We use social context and interests so you could set up an alert for any interest of yours, like fintech maybe. Whenever someone comes into New York with that interest, you’re alerted and can say hey, I’d love to talk to you. We also track where your friends check in, on Facebook status updates or anything from Instagram or Foursquare that has geo data. So, in practice, your friend from New York takes a picture from London last night. So ok, he’s there, you know 10 people in London, but he doesn’t have connections there. Tripl helps you put them together. So it has a human element of viral growth, you can connect two people who’ve never used the service

What’s the overall goal or thesis you guys are working with?

No travel company has been able to get people think about traveling 365 days a year. If your app inspires people to be constantly engaged, there’s a big opportunity to sell products organically. So your friend logs into Tripl and adds a trip to Cancun. We know the dates he’s going, we know where your location is. We can quickly ping a price for you to go on the same dates as him at his hotel and say your friends going to Cancun, want to go? Right now we’re trying to partner up with an airline via API and we’re checking out other interesting things we can do it with. You and your friend want to meet up at a location? What’s the cheapest place for you to meet up with that would have a bunch of girls? We’ll take into account demographics, pricing, social context, like where do you have the most common friends that’s cheapest to fly. The possibilities are endless. Our actual revenue model is built around engaging different travel partners like airlines, hotels, activities, etc. Activities are also huge. It’s not about daily deals. So if you’re going to Berlin and three days before your trip, you can check out things other people are up to. We know your demographics, and you’re going with your girlfriend, and we say there are four other couples from the US who have done a backpacking excursion with the idea that tour operators and online travel agencies sell that package deal. We want to be an agnostic hub. We don’t care where the traffic comes from, we provide an opportunity for them to retarget and resell products. The big vision is you book a hotel on Expedia, Expedia passes the information to us. Without your knowledge, a friend or a friend of your friend is booking the same trip on Priceline. Normally these communities don’t talk, but if we’re an agnostic hub we can provide that connection. We can hopefully take those users and provide them suggestions that redirect them to the product providers. We’ll add a product to your trip that’s socially targeted to you. That’s the big vision but it’ll take a while to get there.

Tripl is based out of Sweden but you’re moving operations to New York. Has that presented any problems?

We started it just as masters students on picnic benches and it evolved into something serious. We should have said “No, let’s not start it in Sweden, it’s a major mistake.” The market there isn’t mature yet for tech companies. You have really good developers and designers, but the capital market, legal structure and communities aren’t strong. For one, having to recruit is really hard there. It’s really expensive compared to even New York and it’s really hard to get housing. Knowing that we wanted to be here the whole time, we should have just set up here. We’ve had to restructure with a parent company here and a wholly owned subsidiary there. We literally have to do taxes in Swedish and I don’t even know Swedish. We’re in the process of moving everyone here and winding down the Swedish entity. Who knows though, we have to see if it becomes an advantage or not.

Ben Elowitz (co-founder/CEO of Wetpaint, former co-founder of Blue Nile) recently wrote a piece for AllThingsD about the different ideas of social. Basically, he said the goal isn’t to create something viral, measured by number of fans, or even comment-style engagement. The end goal is create a lasting relationship. How does Tripl do that?

In this iteration, it’s been about building a conversation. Our users have over a thousand interests tagged and we’ve tried to attack it algorithmically but we don’t feel it has the right context sometimes. When you write a post on Tripl, it’s like a structured sentence that has editable parts. It says “I’m looking to meet/network with/party,” then a custom option where you can add tags. It’s similar to how you add people on Facebook with status updates. It forms a sentence and you post it. If you’re a local, all travelers and locals see it, and if you’re a traveler, you engage locals. We match on interests. You’re interested in kayaking and this local had mentioned kayaking before. We alert you and get that conversation started. It’s about forming a conversation in the community, where people feel they’ve made an impact on someone else’s trip. It’s also another way we look at revenue models. Everyone talks about gamification, but maybe the oldest form of it is points and travel. Maybe you earn all these points and apply them to real life rewards. We want to look at engagement the same way. You engage with the community, give advice, meet up with them, even on those days you’re not traveling so when you do travel you can apply those credits and points and get half off your Hilton stay.

I’d heard somewhere that you were a Lean Startup convert. How do you apply that philosophy to Tripl?

At first we were shitty at building product, and it took us a few months to use our sprints efficiently. Then we got good and kept adding other features. In development we’d move onto the next feature but our code would accidently create a dead end on an existing one. We ended up stripping away half of our products and features and found the one or two things that can really spur growth. Now, when we contemplate a product build, before we actually build, we create a button for it asking you to engage. When a user clicks the button, it leads them to an error page and we count those clicks. If you’ve shown something to a thousand people and five clicked, people prove they don’t want it or else we’re not showcasing well. We did that with our login feature. We knew that people wanted to use not only Facebook but Twitter or Foursquare, and when they try to login with those networks, we measure it. When we survey people, we find that people say one thing but clicks say another. We don’t build, we test. Listen, people know you’re a startup so if they land on a funny error page they’re cool with it. That then saves us a month of programming designing and debate in the team.

Anything else you’d like to say?

Social and travel is a really noisy industry and we knew it was coming. It was obvious it would happen. There are a lot of people who have taken the notion of places, like bars to visit or museums to see, but I don’t think there’s a lot of value added. If your friend went to London and checked into Starbucks, big deal, that doesn’t help. So even on a restaurant or intimate neighborhood level, people are already competing on the local level, like Zagats. It’s super crowded and people are trying to do places, like Pinterest for travel. We’re sticking to our thesis that people are the connectors. You don’t actually have to meet but we want the conversation to happen. That’s where we’re letting our users go and now we’re going to learn from them.

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Startup Harbor chats with Brad Svrluga

1 Comment Posted by on April 15, 2012

Brad Svrluga is a co-founder and General Partner at High Peaks Venture Partners, a firm that invests in seed and early stage software, internet, and digital media companies, with a focus on New York City. Just recently, High Peaks had a big win by selling TxVia to Google. TxVia is a mobile payments technology company they seeded over four and a half years. Anyways, Brad and I got on the phone together and covered a lot of ground. Want more from Brad directly? You can follow him on Twitter at @bradsvrluga and at his blog, appropriately named Can I Buy a Vowel?

Image representing Brad Svrluga as depicted in...

Image via CrunchBase

You personally manage an exciting portfolio that includes WhoSay, Savored, Kohort, Flat World Knowledge, and Ticketfly amongst others. What’s the biggest challenge facing one of your portfolio companies right now?

I’ll make a general statement first. The challenge we talk about a lot across the portfolio as a whole is for the last year or two, we’ve been the beneficiaries of a really frothy early stage capital market. Good companies, even moderately good companies, haven’t had trouble raising cash. Whenever that’s the case, we always err a little on the side of paranoia and wonder when it’s going to end. Many of the companies in our portfolio will need to raise capital again before they get themselves to profitability. Our question becomes what are the price and terms for that financing? If this market turns at the wrong time, that could present a challenge. Fortunately, I think the vast majority of our companies are solid and should be able to raise money. It’s just a question of optimizing pricing and terms. We worry about that a lot and for the past year we’ve been encouraging all of our companies to take capital now while it’s available just to make sure they don’t get caught in the crossfire if the markets do turn.

On the individual company level, there are a handful of specific challenges. One common to a couple of them, WhoSay and Savored in particular, is that both of those companies have done a fantastic job in the early days building up very valuable networks. In the case of WhoSay, it’s really an unparalleled aggregated network of celebrity talent who are using the WhoSay platform as the starting point for all of their social networking interactions. That’s an incredibly unique and valuable thing. In Savored’s case, they’ve built a fantastic network both of restaurants and consumers. But the real asset is on the restaurant side, and the restaurants are big fans of the service that Savored provides them. The big challenge and opportunity for both of those companies is, how do they optimize their business model to maintain the strength of their network while also building the most valuable enterprise they can. In each case, it’s not one of those “Boy, we can’t think of any good ideas for how to monetize this network.” It’s more that we have a lot of different opportunities. For each company there are at least 3-4 “obvious” opportunities or solutions, but when you’re in the early stages of a company, you can’t run several at a time. You have to take one or two and execute relentlessly against them. So the choices those guys make as to how they winnow down the opportunities and make smart bets on the very best will be key to determining how successful they will be.

On the other hand, what do you think is the biggest opportunity one of your portfolio companies has right now?

The single biggest opportunity is the flipside of WhoSay’s challenge. That business has an incredible amount of potential and we really think it could completely reinvent the celebrity media content business. Certainly when you have authentic, personally produced content coming straight from these people and their lives, it’s a lot more appealing to the average consumer than a grainy paparazzi picture. I think there’s a multi-billion dollar potential media opportunity with their business. It’s hard to imagine anybody else replicating the network they’ve built.

What’s your thoughts on investing in me-too companies?

The easy answer is we don’t do it. But at the same time, that doesn’t mean that if company X is leading a market doing a particular thing that you should stay away from anything remotely similar. It’s not always the first guy in who wins; it’s frequently the fastest followers. However if there are two, three, four, or five companies, and sometimes now it’s fifteen or twenty-five, going after the same opportunity, and maybe with different geographical slices on it or slight tweaks to the model, I think that’s a bad idea.

You need to be careful though, because sometimes the baby gets thrown out with the bathwater. People focused on avoiding me-too’s tend to stay away from companies that may appear at a glance to be copycats, but are in fact something different.  The real key is to think about when there has been large macro level paradigm shifts in the way markets operate driven by market leaders. That creates the opportunity for other businesses to leverage those trends and disrupt those markets or other sections.

As an example, I got asked by a bunch of people when we invested in Savored, does the world need another daily deals business, a restaurant oriented deals business? But that’s not what Savored is, it’s a yield optimization platform for the restaurant industry. It’s far more like Hotels.com (a large and very profitable business) than it is like Groupon. But importantly, Savored’s success has been in no small way a result of the work that Groupon and Living Social have done in educating the marketplace about the value of small local businesses doing direct marketing to consumers for discounts and other special promotions. While Living Social and Groupon proved to restaurants that you could reach consumers and drive a lot of traffic, they also proved that their particular model didn’t work very well for fine dining. Savored came along and said hey, we’ve got a better answer. It’s something that solves your problem every day of the week, instead of every six months with a Groupon deal, and we can give you far more control and flexibility on how that platform works. Both the restaurant and consumer side of Savored’s business took advantage of some macro-level tailwinds that Groupon created in the marketplace. Savored has worked out by disrupting an industry as a derivative of their work, but it’s obviously not the same thing.

What typical characteristics do your portfolio companies display and what do you look for?

It’s going to sound simple. At the end of the day, it’s about great people and teams solving very real problems. For the most part in our work, it means doing that at the application level not at the infrastructure level. We’re also not trying to say we’re going able to look around the corner and spot the next Twitter or Tumblr twenty miles away. So while we love companies that build large networks of connected users or customers, we don’t tend to make big, completely speculative bets on businesses that aren’t attacking an existing, understandable market opportunity. For that reason, I’ll unfortunately probably never have a Twitter or an Instagram in my portfolio. But that’s OK. I want to talk to entrepreneurs who are looking at real pain in the market place and addressing that directly by showing a nuanced understanding of the market and customer dynamics. At the end of the day, it’s really about the people. That’s a lesson I’ve had to learn and relearn again and again in this business.

What are the most common mistakes entrepreneurs make when they pitch ideas to you?

I consistently find entrepreneurs diving into the weeds too quickly on exactly what their product is and how it works and, as a result, skipping the opportunity to talk about the most important thing. I think every pitch should start with the back story on the business, where the idea came from, why the team is excited about it, and why they were compelled to quit their prior gigs because they had a burning need to build this business. I want to hear what I call the genesis story. Great entrepreneurs always have good genesis stories, and I always learn a ton of valuable context from hearing them.

One of the things about today’s frothy market is, unfortunately, there are too many people kicking around ideas just for the sake of starting something. Those businesses don’t tend to be as powerful or important, because they didn’t evolve from people’s organic understanding of a market problem that needs a solution. They evolved from four guys sitting around throwing an idea against the wall and then finally finding something that seems good enough to give it a shot. That’s not a great back story. The great back story is I was working in this market and I saw customers consistently feeling pain and I knew we could make money if we went out and built something to address that pain. That’s the kind of story you hear behind great companies like Dropbox and AirBnB, or in our portfolio, behind Ticketfly or TxVia.

What do you do if an investment in a portfolio company starts going bad, what actions do you take?

Well, we do roll up our sleeves and jump in and try very hard to be helpful. One way is that we force management to take dispassionate and honest looks at the data in a business. When things feel like they’re going off the rails, it’s not uncommon, when you dig in and really understand the data, to find out you’ve been chasing the wrong path. If you look differently at the data your business is generating, you can often see there’s a better way.

What’s the hardest lesson you’ve learned in venture capital?

It relates to the last question. It’s the challenge of balancing a desire to really dig in and be helpful with the realization that ultimately, portfolio returns are driven almost entirely by the degree of success of your best companies, not the degrees of relative success or failure for your underperforming ones. So when you have struggling companies, every fiber of my instinct says I should help these guys as much as I can. But you have to understand that you’re playing a zero sum portfolio management game, and so an hour spent helping a struggling company is an hour spent not helping a flourishing one. Your ultimate returns are going to be driven more by, can you help your winners turn from 6x deals to 8x or 12x deals, not if you can help your struggling companies change their outcomes from fifty cents on the dollar to eighty. It’s a really hard reality and it’s a tough thing to internalize. To be clear, that doesn’t mean just abandoning tough situations – but it does mean being careful not to get sucked too far into them. It’s an essential part of decision-making on a day-to-day and hour-to-hour basis, and if you lose sight of that, you’re not doing a good job of managing your portfolio.

What’s the best advice you’ve received in the industry?

Again, related to the last point, very early in my career a real veteran of the business said, “It’s important to remember that you can never lose more than 1x your money.” We talk about deal outcomes in multiples and the point is you can make five, ten, or twenty times your money. I mean Accel’s probably going to make a thousand times their money on their Facebook investment, and Andreessen Horowitz just made like 250x on Instagram. But you can never lose more than 1x. If you don’t put another dollar into a bad situation, you won’t lose it. If you invest a million dollars in a company, the worst that can happen is you can lose a million. So how do you balance your energies? Helping a company that’s doing well, and where you invested a million, do things that will make your million worth fifteen million instead of ten is probably a better use of time. It’s “don’t put good money after bad,” but also don’t spend your time and energy in the wrong places. If you fail to help a struggling company, the situation won’t necessarily get a lot worse. If you fail to lean into your winners, you’ll almost certainly leave money on the table.

What do you think an entrepreneur should be looking for in an investor?

There are a couple of things, some of which are obvious ones that everyone points to and some are ones that people don’t. The obvious ones are what’s the direct experience of the investor in my industry or what companies do they work with that are like mine, and what are the networks or relationships that investor might bring to my business? Those are valuable, for sure, but one that is under emphasized is what’s my true fit with this investor? What’s the cultural style of the person? How genuinely helpful do I feel these people will be? Will their style and approach mesh well with mine and can I learn from it? I’m always amazed at the willingness of entrepreneurs to take money from investors without doing diligence, without calling other portfolio companies and finding out if the investors put their money where their mouth is. What were they like to work with? Did they deliver on relationships? Were they responsive and consistently trying to be helpful? Did they help you when times got tough? You’ve got to get that, you’ve got to develop a holistic picture of what working with these people is going to be like. Those relationships are going to be as important as any senior management hire you can make. You’re going to be in bed with these people for a long time. Don’t make a decision based on the firm brand and partner’s bio alone, make it based on fit.

We’re almost home, what’s the best or most exciting startup you know besides your own companies?

Probably my favorite venture backed company right now, as a consumer for sure and I suspect as an investor as well, is Uber. They’re a brilliantly executed mobile-driven black car service. They’ve created a network of black car operators and a simple consumer service where you go into an app, and it shows you on a map where all the cars in the network are. Go play around with it, it’s a freaking brilliantly designed service. It’s a market that’s desperately been in need of disruption and some improvements on the distribution end. I had looked pretty hard at a business in the black car industry that was trying to consolidate it about four years ago, but I didn’t think they had the model quite right, and they certainly didn’t have the distribution piece well executed. Uber has made it happen. It’s consolidated that industry incredibly effectively with a consumer service that I think is unmatched by anybody in the web or mobile app world. It’s so simple to use and elegantly designed, it’s such a beautiful experience. Literally every time I use it, I’m like, “was that really that easy?” It almost makes my heart skip a beat. I’d love to find businesses that make my heart skip a beat like that as a user.

Two more… so what’s your advice for people who want to become Venture Capitalists?

Work at a successful startup, make it as successful as you can, get to know the venture backers, and when you come out the other end of that success story, work those relationships and try to find a gig. It’s a hard business to get into and it’s getting harder because it’s shrinking, not growing. I think you need to find ways to get in front of VCs and get to know them professionally rather than hope you get lucky. It will take luck no matter how good you are to rise to the top of the list of the dozens of Harvard, Wharton, Stanford and other MBA grads who are trying to apply through the front door.

Ok, last question. How do you pronounce you last name?

Spelled phonetically, it’s SVER-LOO-GA.

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Meet Greg Gortz from Zemanta

3 Comments Posted by on April 8, 2012

Greg Gortz is the Vice President at Zemanta responsible for sales and marketing strategy amongst many other things. Zemanta, a Slovenia based startup, is a blogging assistance service that suggests relevant material to its users including tags, links, and pictures. Greg was kind enough to sit down and talk about the company and other assorted topics. You can follow Greg on Twitter at @GregMG.

Image representing Zemanta as depicted in Crun...

 

Just recently, Zemanta launched a new service called Blogspire. Can you talk about it a little?

Zemanta is trying to help bloggers blog every day. We do quite a bit of user testing and we found “what to write about” is an issue many bloggers face. Blogspire aims to help bloggers come up with topics to write about. We start by indexing your current blog as well as your Twitter stream. We also ask you what other bloggers you admire and strive to emulate. We pull this data together and curate a list of topics we think you would be interested in/interested in blogging about and send it to you daily via email. If you see a headline that inspires you, with one click, Blogspire takes you to the backend of your CMS (content management system), includes a snippet from the topic, as well as a thumbnail image, and prompts you to begin blogging.

So Zemanta is backed by Fred Wilson and Union Square Ventures. What does having a firm like USV in your corner do for you?

Being a USV portfolio company lends a certain credibility to Zemanta. As a startup you are trying to build your brand and reputation. It can be a slow process and many times perspective clients will know our investors, even though they don’t know Zemanta. It can help you get an initial call or meeting. With all our investors, including USV, we can go to them with questions and issues. They have seen it all before with their other portfolio companies. USV also does a great job of promoting community within their companies. When you’re a startup you have tons of questions and it’s nice to have people in similar spots to bounce ideas off of.

Who’s someone you look up to in the startup industry and why?

I appreciate Chris Dixon‘s insights. He has an original take on things that is not common. David Kidder from Clickable blew my mind during SxSW.

Since you’ve been at Zemanta, what’s something you’ve struggled with or overcome?

I came on board to help build business and bring in clients, build a revenue generating model. I was much more concerned about the business side of things originally and less focused on the user experience. After a few months though, I realized quickly that there can’t be revenue generation at the expense of the user. Every single decision we make is with the user in mind. We want to give them the best possible experience and then we’ll figure out a way to monetize it later.

That’s actually a great lead into my next question, but the answer seems pretty clear. What’s more important to a startup, great revenue model but no user traction or great user traction but no revenue?

No doubt about it, you need user traction. The rest will follow.

What are your indicators of success at Zemanta? How do you measure whether things are working?

I think there’s a lot of components and ways to see if things are working. There are intangible things, like have we created the best possible user experience? What can we do to improve it? Then there’s hard data, have we hit 1,000,000 users? Have we hit our revenue targets? Then we have other goals, do we have the top bloggers and writers out there using us? There’s not one answer, it all needs to come together.

What’s the best startup out there, besides Zemanta of course?

Is Evernote considered a startup? I find it super useful. I also like what Uber is doing with car service on demand.

Do you have any popular advice out there that you disagree with for aspiring entrepreneurs?

This may fall more into advice. When you are putting together a team, it’s okay to hire folks who didn’t go to Ivy Leagues. I think the best companies have a wide mix of personas, with varying backgrounds and experiences. Specifically on the business side of things, look for people who are leveraging social channels. More and more I see the people who are comfortable with social channels – interacting with ideas and industry leaders, curating content, networking – and those are the ones who will help your startup grow.

So what should people do if they want to build or get involved with a startup?

I’d say they need to dive right into the scene. Are you following the right people on Twitter? You start to realize that people are constantly connecting with one another and you can feel how the scene interacts and works. You’ll also see what they think is interesting, which is a good leading indicator. Go to Meetups! They’re filled with VCs, people with brand new companies looking for talent, and other folks you can network with. I go to the same breakfast one every month at a minimum.

Last but not least, SxSW just wrapped up not too long ago. If you were able to present a talk, what would it be about?

In my role, I find that my peers and I have discussions about what’s sales, what’s business development, what’s marketing? How are they the same and different? I think it’d be interesting to talk that out. I’d also love to be on a panel that talks about the New York startup scene, which I think is just as vibrant as anywhere right now. Besides that, I’d love to get a brand manager from a major company, like Coca Cola, and talk to them about how they’re changing their marketing strategies and engaging the customer. They’re not just beating people over the head with ads on polar bears anymore. They’re finding other ways to connect with end-users, through different campaigns. I think my Zemanta perspective would make for a good conversation on it.

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