The Blog


A Startup CEO’s Guide to Burn Rates and Vaporization

 

The alarm has sounded.  A three-alarm fire, with alarms named Bill, Fred and Marc.  Burn rates are too high, change course or risk the consequences.

A CEO might be forgiven for asking: “that advice might have been more helpful before I hired those extra hundred engineers, and leased the fancy SOMA exposed-brick office to house them in.  Changing course on burn-rate now will be a lot harder than it would have been a year ago.”

To which I would say: suck it up and go run your business.  The past is past, and the decision you need to be focused on as the CEO is:  what should I do now?  The board is not running your business, they merely advise you, and you are ultimately responsible for making the correct decisions.

The question remains:  What should I do now?

 

The Past is History, … Read More »


What I Miss About Android

I switched to Android a year ago.  An experiment, I suppose. I was also (maybe unreasonably) offended by the iPhone 5S which seemed like such a zero in terms of improvements.

It took some real adjustment, but Android (Nexus 5) was pretty good.  The big negative is it was much buggier/less polished.  For example, when I would click on a phone number to dial it, it would pop a menu:  do you want to dial with Phone or Skype?  I could check “default to” phone, but still, every time, it would pop this menu.

Now that the iPhone 6 and  iOS8 added a large screen and 3rd party keyboards, I came back to Apple.  Why?

Less buggy experience
More cutting edge apps developed first or only for iOS
Better Battery
Better camera

Now, I could have got some of these by buying a high end android phone … Read More »


#TBT: Whatever happened to… B2B Marketplaces

When the bubble began to really inflate in 1998-1999, an excess of venture capital and would-be entrepreneurs latched on to Business to Business (B2B) commerce as the next wave.  Until then, the web was mostly a consumer phenomenon.  A raft of money and energy poured in to every nook and cranny it could find.  The race was on.  Venture funds were built just to address this market segment (CMGI and ICG, to name two.)  Then, those venture funds went public — you heard me right, the VCs went public and got a revenue multiple on the revenue multiple they paid for the underlying companies.  The higher the price they paid, the more they were valued. The double-order-of-magnitude-idiot-arbitrage, I call it.

OK, I can’t resist this digression, but to those who think we are in a 1999-style bubble today, I … Read More »


Winning Slowly

Marc’s tweet today was timely, as this is an issue I have thought a lot about through my career (both entrepreneurial and investing.

Silicon Valley has embraced the idea of early testing and market feedback wholeheartedly, and ushered in a much more capital efficient era of startup building.  It used to take $10M+ to get a website off the ground, now it is generally live before the first outside capital comes in.  While this speaks volumes about the state of programming tools, cloud services, and other catalysts to development, it also speaks to the ethos of getting a “minimum viable product” live and in consumers hands.  Once out in the world, best practices of the lean startup encourage you to analyze the metrics and iterate on the product based on what you learn.  Startup construction has moved from … Read More »


#TBT – What Series A Fundraising Looked Like in 1999

Times have changed pretty dramatically since I started my first business in 1999, and I thought for throwback Thursday it would be interesting to share with the young’uns what Series A fundraising looked like back in 1999.

My business was then called InsightMarket, as a placeholder, and we thought we would call it WannaBet. We eventually launched as Flutter.com and it became Betfair when we merged with our biggest competitor.

I think our financing was extremely typical of the era — but how does the Series A process of 2014 compare with fifteen years ago?

Take a look through this fundraising deck and marvel at how risky a Series A investment was in 1999 – how little we knew about the product, the customer, acquisition, product-market fit.  This 14 page deck was the entire fundraising pitch — there was nothing else, no model, … Read More »


Box, Uber and 29-cent Tacos

My twitter is alive today with stories of Box, now offering *unlimited* file storage for just $35.  What a deal!  Consumers love the idea of getting storage, which we all know costs real money, for a low fixed price, right?

Almost as much as I like me some UberX for half the cost of a crappy taxi.  And given that the price drops a further 25% with every new fundraise, we are asymptotically approaching free car service.  Who doesn’t like free transportation?

Still, I’m reminded of my view when Taco Bell offers a value menu with 29 cent tacos:  beware buying ‘food’ at a price for far less than it would obviously cost to make food.  If it’s too good to be true, it’s probably not true.

What do I think on Box?   I think maybe … Read More »


What’s the Big Idea?

“To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions.” — Steve Jobs

Conventional wisdom in the entrepreneurial community says that ideas are not valuable.

Let me tell you, as a wannabe entrepreneur without an idea of what you want to do … it doesn’t feel easy. I’ve started two businesses, and in both cases it took about 18 months for me to get from “I wish I had a good idea for a business to start” to actually starting a business.

Part of the reason for the conventional wisdom is the higher success rate of businesses started by operating executives, who see an unmet need in their domain or a chasm their employer can’t cross, and they go start that business. As an investor, I would prefer to back a business started by … Read More »


The Power of Preference

Uber is getting a lot of attention for the eye-popping price of their lastest financing round ($17B, in case you missed it).  It’s amazing to me how many people criticize that it can’t possibly be worth that, while others insist the price is surely too low.  Benedict Evans said it well:  “It’s hard enough to value a fast-growing company in an entirely new market when you have all the numbers. When you have nothing it’s idiotic.”

In this case, the number is so large that you might learn something from a rough, top-down approach, and I enjoyed this post by Aswath Damodaran on FiveThirtyEight trying to size the opportunity from the top down, and I thought he took a pretty good stab at it.  The HackerNews commenters don’t necessarily agree, primarily with his … Read More »


On Keeping Notes as a Founder

 

When Vince Monical and I founded our first company, we had no idea what we were doing.  We knew something about strategy, but hiring, firing, managing, product design, engineering and software development were all pretty much blank slates.  Needless to say, I made a lot of mistakes, and learned more than I have than at any other point in my life.  “Trial by fire” felt more literal than figurative at times.

Having moved to London to start the company, we had little network to rely upon for advice and guidance.  One figure that stood out was Vince’s father-in-law.  Neither of us were genetically driven to entrepreneurship, being the offspring of teachers and accountants.  But through marrying well, Vince had brought an honest to god entrepreneur, CEO and manager into the bloodline.

I can distinctly recall two pieces of … Read More »


Are Great Entrepreneurs Crazy?

 

 I’ve been thinking a lot about this exchange between two successful investors that popped up in my Twitter feed last week.

To make money as an investor, must you back unreasonable, mercurial, irrational entrepreneurs? This feels on the surface like it has a grain of truth to it. And both these guys have generated spectacular returns in their investment portfolios, so they should know what they are talking about.

Chris is most notable for betting big on Twitter, by acquiring a ton of common stock from employees and former employees, both for himself and on behalf of other investors. I don’t know Ev, Jack or Biz well, so I can’t personally grade them, but given that is Chris’ primary investment, he is likely referring to that. And if you’ve read Hatching Twitter, the … Read More »


Regulation and Startups

 

This post originally appeared in PandoDaily.

How should entrepreneurs (and investors) factor the risks and challenges of regulation into their decision to start a company or invest in one? It doesn’t come up very often — regulation rarely intrudes on the fate of startups. Even if you are in a regulated industry, generally you can fly below the radar for quite a while.

Lately regulation has been in the news with discussions around a number of industries. Drones have entrepreneurs salivating at the disruptive opportunity for unmanned flight to empower delivery of goods, aerial surveillance, and more. Yet, the FAA is concerned about flying objects weighing several pounds or more crashing and injuring people or property. In the automotive industry, Tesla wants to sell cars directly to consumers, arguably in violation of long-standing franchise … Read More »


That’s a nice little $40M ecommerce company you have there. Call me when it scales

It will surprise a lot of entrepreneurs to learn that building an e-commerce business with $10 million to $20 million in revenues is not that hard. It also surprises many to learn that it’s not actually that valuable. This is in stark contrast to, say, a SaaS business, which is very difficult to build to that level but valuable when you do.

As I read this week’s board deck for one of our portfolio companies, JustFab, I was struck by one of the reasons this discrepancy exists: marketing leverage. Most retail businesses (traditional or online) have to spend marketing money to acquire a new customer at scale. Small e-commerce companies can be exempt from that – if you fill a niche and you have distinctive product-market fit with a set of customers, you can and should land them Read More »


The Perfect Valentine

I’ve found the perfect Valentine’s gift for that geek girl in your life.  Actually, it works fine for non-geeks but given that you are reading my blog, I’m pretty sure your wife or girlfriends is somewhat of a geek.

That gift is a subscription to RocksBox.  It’s an affordable subscription to great jewelry — have something new, fresh and beautiful to wear every day, all for less than $20/month.  Not cheap plastic stuff, but real high quality pieces, generally $100+ pieces with a lot of style.

On behalf of Matrix Partners, I have just led the company’s most recent round of funding, and I couldn’t be more delighted.  When I met the founder Meaghan Rose the first time, I was very impressed, but early stage commerce ideas are hard to evaluate in advance of market data … Read More »


In Defense of MBAs

Dan Primack at Fortune re-started a discussion around whether MBAs make good entrepreneurial founders, based on Chamath’s remarks at an HBS event.

While I’ve commented on this on a Quora answer in the past, I’ll weigh in again… While an MBA certainly doesn’t mean you’re going to be a successful founder, it certainly won’t hurt and it might even help.

I went to Stanford GSB, and a great entrepreneur and professor, Irv Grousbeck, inspired me with the notion that I was qualified to be my own boss, and that the life of an entrepreneur was a virtuous choice.  I am certain that without his inspiration, I would not have chosen that path, and it was one of the most important decisions in my life.  So on your scorecard of MBAs not qualifying founders to start billion dollar companies, … Read More »


Q&A: Cold Email

Question:  Will an investor consider an investment via cold email, if that email contains complete info about the business?

In a world of no scarcity, I would read every email from an entrepreneur and take every coffee with them.  I rarely fail to enjoy hearing about someone’s business.  And, if you could remove the financing agenda, I would probably enjoy all of them.  (What I mean is: since I turn down 99 out of 100 investment opportunities, and in general decide quite quickly, I enjoy the meeting itself but that enjoyment is reduced by thinking about having to say no the the entrepreneur, and by the fact that my financing agenda and their fundraising agenda dilutes the quality of discourse in the meeting: they don’t want to talk openly about the things that are likely to kill … Read More »


Leaving iOS

After 6 wonderful years, I’ve left iOS for Android.  Thanks Apple, it’s been fun, I have no complaints.   Well, except that you’ve turned the population of people I interact with into robots who stare at their devices for most of the day, but ultimately it’s hard to hold you accountable for that.

My partner @antrod predicted I would flip back within a couple weeks, but it’s not happening.  I inadvertently burned the boats when my wife’s phone got stolen this week, and I gave her my iPhone 5.  No easy way back.

I picked up one of Google’s very cheap, very good Nexus 4 phones ($250 with no contract) and off to the races.

Why switch?

Fingerprints be damned, I think the pace of hardware evolution of the iPhone is slow at this point.  I think Android … Read More »


Opportunities in Digital Gambling

For those who don’t know, I co-founded the company that became Betfair, and have a keen interest in the space of online gambling.

I continue to wonder how opportunities are going to develop for startups in this space in the US.  Outside the US, most of the companies that have been built have pretty much been an online representation of what takes place offline.  (Betfair being one of few exceptions).  Consequently, most of the spoils have gone to pre-existing (pre-internet) companies who leverage their brand and presence to build an audience.  If all everyone does is put blackjack online, it boils down to a game of  customer acquisition and those with big brands have an unfair advantage.

Which bring me to the question of: what, if any, is the opportunity for startups in the USA if gambling gets legalized?

First, an aside for … Read More »


The “Bad News” Call

One of my CEOs just surprised me!  I just did a pre-board meeting call, scheduled at the last minute.  Actually, I just did two of these in two days.

I think of this as the “bad news call” — when the CEO sends me an email and says he just wants to catch up on something before the meeting, but gives no indication of what it is, I’m left speculating:  who’s quitting?  who did we fire?  how badly did we miss the quarter?

It’s borne of a good impulse: if you have bad news, you should absolutely get out in front of it, and diffuse it 1-on-1 with individual board members.  If you don’t, you risk the conversation going in a way you didn’t expect, or the group getting in a downward spiral.  It’s absolutely best practice to handle it this way.

But … Read More »


Quora Elevates the Web

Quora just announced its Series B fundraising, and I’m pleased to be a part of it, as Matrix is one of the large investors in the round.

I’m a huge fan and avid user of the site, and I think it has the potential to be one of the cornerstone web properties, and help make the world a better place.

I’ve spent a ton of time in this shared knowledge category on the web over the last 8 years.  In 2003, when I was looking to start my next business, I came onto this idea of community shared knowledge.  In the post-bubble era, no one was investing in content for the web because there was no economic model to support it, but by 2003-04 a number of things were happening.  Wikipedia was … Read More »


A Disconcerting Lack of Hubris

I agree with everything in @jasonfreedman’s outstanding blog post about raising seed capital in today’s environment.  I urge all seed stage entrepreneurs to give it a thorough read.

As Jason says, no investor should begrudge entrepreneurs for a strong fundraise in an attractive early stage financing market — but keep some perspective, this is a long game, and you can’t win it today at your seed stage financing.

I wasn’t able to make the YCombinator demo day this time due to a board meeting.  But For context of what I’m talking about, let me anonymize and share a representative email exchange from the previous demo day:

On Wed, Aug 24, 2011 at 1:24 PM, Josh Hannah <jhannah@matrixpartners.com> wrote:

Impressive presentation and interesting business.  Would love to learn
more, if you’d be up for a meeting?

Josh

Hey Josh,

We’d definitely love to talk!  We’ll look … Read More »


Treat your Angels Right

Before joining Matrix, I’ve had some experience with seed investors — I had a dozen or so of them at Betfair (Flutter), my first company, and then made a number of investments myself when my entrepreneurial investments began to bear fruit.  The following advice comes out of my experience, and while I was not terrible at it, I can’t claim I did this perfectly as a founder — you learn from what you do wrong as well as right.

Seed investors generally have little information rights, and that’s as it should be — as CEO you shouldn’t be spending a bunch of time updating these guys.  However, I’d argue it’s in your best interest to make at least a minimum of effort in communicating with your early supporters.  You should do this on a regular basis, whether … Read More »


US Gambling goes online?

Thoughts below are my personal opinions as a VC looking to invest in internet startups, and do not reflect any views on Betfair or its strategies, intent, or prospects in regard to the US gambling market.

All forms of online gambling, with the exception of horseracing, have been effectively treated as illegal in the US for the last decade or so. (Before that, they were essentially ignored).

The reasons for this effective illegality were somewhat murky.  After all, gambling is traditionally a state issue, where we leave states to decide what kind of regulation their citizens want.  Utah can ban it, Nevada can permit it, and everybody’s happy.  In 1961, however, Congress passed the Wire Act, in an attempt to control the spread of the mob, who at the time controlled the illegal betting industry.  The Wire act … Read More »


Online Poker goes on Tilt

James McManus recently wrote an excellent summary of unfortunate unraveling of online poker in the US this year.

I remain surprised at how surprised everyone seems to be at the unraveling of the poker ecosystem.  You needed no expertise at all to realize that the legal framework in which PokerStars and FullTilt were operating in was, at the very best, dark gray, and likely explicitly illegal.  Now, you might think, so are speeding and jaywalking, and despite being illegal (or nearly so), you might choose to do it anyway.  Fair enough.

But people were trusting these guys with a lot of money.  McManus reports having close to $20K in PokerStars when assets were frozen, and many people had much, much, more.  People seemed to trust that the operators were ringfencing the client deposits from the … Read More »


What to do about EV Charging

I’m now a all-electric two timers:  bought (and sold) Tesla Roadster #48 a few years back, and now the proud owner of a Nissan Leaf.  Each with their own merits, though the Leaf has found more “product-market fit”.

The Leaf has a practical range of 80-85 miles, which means a Bay Area commuter like myself must occasionally rely on charging outside the home.  Luckily for me, 120V wall sockets are plentiful at the Matrix West Coast HQ, so I can top it up during the day at work for an anxiety-free ride home.

But what of public charging?  I’d have to guess that the Bay Area is tops in the country, but still locations are precious few.  Palo Alto City Hall has a couple of spots just a block from our office, and I’ve enjoyed a publicly subsidized top off at Oakland … Read More »


Foreign Exchange

As a bunch of you asked for it, my recent discovery on moving large ($10K+)  chunks of money from British Pounds or Euros to Dollars (and back).  (For smaller amounts, I’m told PayPal works well but I haven’t tried it.)

Here’s the challenge I have had:  if I want to move it from a bank in the UK to a bank in the USA, I have to go through a complicated process to initiate the movement – often requiring me to be in the country where the money is, which is rarely where I am.  So I am in the bank’s office in London, or on the phone with them at 3am, and go through an hour of bureacracy (ID checks, paperwork, waiting) until the money is ready to be wired.  Then, they call their exchange desks … Read More »


Where Insights Come From

I’ve always learned by doing things. Trial-and-error may not be the best way to learn a known answer, but when you’re inventing (as entrepreneurs must do), you gain insights as you go and change the plan accordingly. One of the tough challenges in moving from entrepreneurship to VC is that my actual operating and market experience decays over time. You get a lot of new knowledge from seeing hundreds of presentations from entrepreneurs, and to some extent from the investments you have made, but you don’t accrue a lot of experience from hands-on activity. And there is no pivot in VC: I have to commit upfront to an investment, and back that entrepreneur come what may.

Nevertheless, I think you can learn from experimentation in this job. So I’m going to deliberately … Read More »


When will Craigslist be disrupted?

Craiglist has been disrupted, it’s just not obvious yet. And the world will be a better place for it.

Craigslist has fewer unique visitors today than it did at this time in 2009.

Bad sites with network effects show much slower decay in use than they should based on their absolute quality. (think eBay.) Bad sites who price most of their product at free show incredibly slow decay in use. (think Craigslist). But make no mistake, it is happening.

The evidence of their poor quality is so obvious it’s hardly worth stating. Suffice it to say, if I’m looking to rent an apartment, it would be nice not to see the same listing reposted every day, and having to re-read it and figure out if I’ve called them before. It might be even nicer to view them on a … Read More »


Do investors ever invest in a pre-revenue and pre-product company?

All the time!

Historically (i.e. before ~2006) this was the explicit role of angel investors in the startup financing ecosystem. Rarely, in fact, would angel investors have an opportunity to invest after a product and revenue were in place.

For consumer internet and SaaS enterprise deals, a lot has changed in the last few years. Technology has moved on, and for a host of reasons a lot more can be accomplished with 1-2 engineers and little or no cash. Now angel investors expect to see product and customers before writing a check, and to an extent, founders expect to own more of the company after that first money comes in. Everybody wins.

As a general rule today, angel investors are expecting to see a product, and customers (or at least users) in place before they invest.

However, there is still a role for angel … Read More »


Life threatening software bugs?

I thought the internet panic over the new TSA pat-downs and body images was a bit of an overreaction. It turns out that the pat-down may be much better than the alternative, going through the back scatter imaging system. It seems the science is very untested on the risks of this system, and those risks could be quite real.

Check out this letter from concerned scientists to the government urging more testing.

Some key points they make:
– people compare the level of radiation to exposure in a chest x-ray or cosmic rays. But this is a totally different radiation. By design it doesn’t penetrate the skin — so while a chest x-ray just flies through you, this all just stops in the skin.
– all the analysis compares … Read More »


Should you keep the founder title?

When I founded my first company, I referred to myself as “founder and CEO”, and in retrospect, I believe it was a mistake. Were I to do it over again, I would de-emphasize my founder status.

The benefit of keeping the founder title accrues more notably to more junior founders: if the company grows and over time people are hired above you, it offers ego compensation to keep that founder tag on your business card alongside “product manager”, if you’ve effectively been demoted from VP of Product. This seems less relevant for a CEO, who should get sufficient ego out of that title alone.

The reason I think it was a mistake to emphasize founder status is that I was essentially implicitly trying to say I was better than the other, non-founder employees. That I was special, and … Read More »


Mixing Entertainment and Commerce: Show Me the Fun

Anyone who knows me well always points me to new deals that look like Swoopo – I have a weakness for things that are clever. A lot of these new deals aren’t great venture investments, some might be good “lifestyle” businesses, but most of them prove to be neither great nor good. In the end, maybe a bit too clever.

But that doesn’t change the fact that the thesis of “entertainment commerce” is a compelling one – buying on eBay was once a thrilling experience where people ended up buying stuff they didn’t need just for the fun of the chase, or overpaying because they couldn’t stand to lose the bidding war. These days, buying on eBay seems a chore to me, and I suspect it does for most users. But the idea of making shopping fun – a … Read More »


A/B Testing: Can you iterate your way to great products?

Jeff Atwood’s (@codinghorror) blog about the movie “Groundhog Day” got me thinking much more deeply about A/B testing, a powerful tool in a set of tools that enable a new generation of nimble startups to compete effectively against the big Internet players.

For example, Match.com is stuck on a decade-old architecture and would be hard-pressed to create dozens of unique traffic funnels and ruthlessly tune them to extract optimal performance from each acquisition channel. Hence, the window is open for new competitors who can use these tools to develop products from the get-go.

But what are the limits of iterative optimization?

Split testing is, in my view, no substitute for product vision.

Human beings are probably the ultimate result of great product development through split testing – evolution is one giant iterative experiment. Unfortunately for Internet startups it took millions of years … Read More »


Executive Hires: The Case for Extreme Referencing

For CEOs, especially first timers, one of your most difficult tasks will be hiring truly great executives. There is no substitute for experience in hiring. I learned this the hard way as a first time entrepreneur with absolutely no hiring expertise. And yet, after hiring more than 100 people – and making a lot of mistakes – by far my best executive hire was my last one: David Yu, now CEO of Betfair.

The key lesson? If you are a young entrepreneur you need to surround yourself with investors, advisers and executives who are experienced and talented, especially when it comes to hiring other top executives.

An engineer will have a body of work that can be evaluated and tests that can be given. Technical talent can be evaluated for the first 90 days and replaced if they disappoint. … Read More »


Pricing Plans and Viral Acquisition for SaaS enterprises

Other bloggers, most notably my partner David Skok, have written extensively about building a sales and marketing machine for a SaaS business.  This, in our Matrix view, is the true revolution enabled by SaaS — the ability to unseat the traditional enterprise sales process and its multi-year sales cycles, multi-year implementations, and direct enterprise sales forces for a more efficient sales and marketing machine, and an environment where the best ideas and products (and not necessarily the best salesman) wins.

I recently invested in a great fast-growing SaaS startup called Huddle.    Here I will lay out an element of their model that I think is working especially well, and one area … Read More »


The Blog

In my journey to transform myself from an entrepreneur into a Venture Capitalist, I’ve been surprised how many new things I’ve had to learn how to do.  Often asked how the transition is going, I know I should just answer “Great!” but find myself giving the $10 answer to a ten cent question instead, and the punchline always seems to be “this job is a lot harder than it looks!”

One of the main changes in mindset is that I really need to get out and spend time with a lot of people.  Being an entrepreneur fit well with my private nature — I could work in peace on my own business, and measure my success through the standard metrics of results.  In venture, on the other hand, it’s really hard to invest in the best entrepreneurs if you don’t have … Read More »






From the Blog

A Startup CEO’s Guide to Burn Rates and Vaporization

 

The alarm has sounded.  A three-alarm fire, with alarms named Bill, Fred and Marc.  Burn rates are too high, change course or risk the...

What I Miss About Android

I switched to Android a year ago.  An experiment, I suppose. I was also (maybe unreasonably) offended by the iPhone 5S which seemed like...

#TBT: Whatever happened to… B2B Marketplaces

When the bubble began to really inflate in 1998-1999, an excess of venture capital and would-be entrepreneurs latched on to Business to Business (B2B)...