May 16, 2013
By Richard Kerby
Consumers have been minimizing time and cost by shopping online for awhile now. Amazon and others have been offering an online shopping option for years. However, more people are looking into ordering perishable items such as groceries or flowers and they’re requesting same-day delivery. In this post I will explore four services that I’ve tried: Google Express Checkout, Amazon prime, Instacart and Fresh Direct to see how each works and what their pros and cons are for consumers looking to shop through them.
Amazon Prime
Amazon prime customers are able to enjoy live streaming video and streaming movies from Amazon prime’s website. Amazon prime customers are also able to enjoy other discounts on the site including discounted express delivery costs. Recently, Amazon Prime began offering discounts on same-day delivery much to their customers’ satisfaction. The good thing about Amazon, is that it doesn’t just offer same-day delivery on perishable items, it also offer same-day delivery on any item that has the prime logo near it. Most of these items are shipped and sold from Amazon and not third-party companies, although there are a few exceptions. People can enjoy same-day delivery on items such as furniture, food and gifts for as little as $3.99. Amazon same-day delivery is called Local Express Delivery.
Fresh Direct
Fresh Direct is a well-known online grocer that delivers everything from eggs to toilet paper directly to your home or place of business. At the moment, they primarily deliver to NYC and parts of Connecticut and Pennsylvania. Since they have a 100% satisfaction guarantee, customers feel safe purchasing products from the site even if they can’t view them in the store before hand. A lot of their popularity comes from the fact that their prices are similar to those that you would find in a grocery store and sometimes less. Items are all shipped in a refrigerated truck seven days a week between the hours of 6:30 AM and 11 PM, making it very convenient for those who need their groceries anytime of the day. The great thing about fresh direct is that they also have an app that allows consumers to shop directly from their iPhone, iPad or android powered device. This was a go-to service for me when I lived in NYC.
Instacart
Instacart is well known across areas of San Francisco, Palo alto and other surrounding neighborhoods. Unfortunately they don’t deliver outside of California just yet. Instacart allows consumers to purchase items from stores such as Safeway, Costco, Whole Foods and Trader Joe’s from the convenience of their home computer, tablet or smart phone. They carry over 30,000 grocery items from the stores and they’re all available for same-day delivery within as little as one hour. The way it works is that the consumer purchases items from their online catalog, the order gets routed to a personal shopper for collection and then it’s delivered directly from the grocery store to your home. Depending on where your home or office is located, these items could be to you in as little as 60 minutes. The prices for their deliveries vary, but most customers choose to have their groceries delivered in under two hours (the majority of these orders there around $35) making the the delivery just around $3.99. They deliver on holidays and weekends in their normal delivery hours are between 10 AM and 9 PM seven days a week.
Instacart has been my favorite service in SF.
Google Shopping Express
Google Shopping Express, not to be confused with Google Express a.k.a. Google Wallet, is a delivery service that allows consumers to purchase from big retailers such as Walgreens, Office Depot, Staples and Target for quick same-day delivery. At the moment, Google Shopping Express only delivers in the San Francisco Bay area, but they are looking to expand into other cities and states. The Google model is identical to Instacart’s, however the big downside her are the delivery times. While Instacart has one hour delivery windows, Google uses 3 hour delivery windows which is pretty burdensome for those of us who can’t block off 3 hours of our day to stay in one location. I am sure Google will improve on their delivery items since the service is not yet publicly launched.
There a plethora of other services that can also provide a similar service – TaskRabbit, Exec, etc. I love products and services that make me more efficient.
What are everyone else’s thoughts?
April 24, 2013
By Richard Kerby
There is a new type of connected technology that’s making eyebrows raise all around the world – self driving cars. Ok ok, so everyone is actually talking about Google Glass, but I have a greater fascination with the way in which the self-driving car can change the lives of all of us.
So, What’s the Big Whoop?
Some consumers and companies are worried about the programming going rouge and causing the passengers to be in danger, and others wonder if this will be a solution to the global warming crisis that seems to be worsening each year. Below are some reasons of why I think this innovation will help in more ways than one.
Minimizing loss of life. Everyday dozens of drivers are killed in automobile accidents. Driverless cars are able to detect potential hazards and work as the eyes and ears for the driver. According to Google, their driverless cars will reduce traffic accidents by 90 percent. In addition to saving lives, these driverless cars will also cut the annual cost of traffic accidents, which is currently over $450 billion per year.
Saves money on commuting. Not only do driverless cars know the most efficient routes to get to your destination, but they’re also estimated to use less gas. Google claims that using driverless cars can save over $101 billion dollars in fuel costs. The majority of this $101 billion is spent on wasted gas from taking incorrect or less-efficient routes, which will equate to savings in your pocket and savings for the ozone.
Auto Industry Disruption Businesses are already lining up and investing in buying fleets of these driverless cars. Businesses such as Zipcar could see a fundamental change in the structure of their fleets once these driverless cars hit the road as livery/taxi services and are produced in mass numbers. The reason investors are scrambling to invest in driverless car services is because of the profit margin and the best part about it is that they won’t have to hire in a staff to drive. The car will do all the work itself so there’s no need to pay those high health insurance payments or employee salaries.
All in all, I think Google has got something something special here (and we thought Google glasses were cool). Are you ready to ghost ride the whip? When driverless cars hit the mainstream, will you buy one?
April 11, 2013
By David Pakman
I’m going to Venturescape, the NVCA Annual Meeting May 14 and 15 in San Francisco and you should too. I haven’t been to one in many years, but this year is different.
The NVCA is the National Venture Capital Association. It’s much more than just a trade organization, and this year’s annual meeting demonstrates that.
My friend Jason Mendelson from Foundry Group is on the NVCA Board of Directors and he is running Venturescape. That being said, if the meeting was going to suck I wouldn’t go. But it looks quite good.
I’m excited about the agenda, as this is the best lineup I’ve seen at one of these events. Included in the mix are:
- Dick Costolo, Twitter CEO
- General Colin Powell
- Ginni Rometty, IBM CEO
- Anne Wojcicki, 23andMe CEO
There is also the world’s largest VC Office Hours. And for the first time, “fun” is part of the meeting in the form of NVCA Live! — a great concert featuring Pat Monahan from Train and Legitimate Front, a band in which I’m staring as the drummer and main groove man.
If you are a VC, I hope to see you there. If you are an entrepreneur, ask your VC funders for tickets to NVCA Live!, as that is open to everyone, although tickets are only purchasable by NVCA members.
If you are coming, especially to NVCA Live!, let me know. See you there.
March 20, 2013
By brianascher
Having worked in the FinTech space many years ago, invested in the space for over a decade, and met with hundreds of talented teams in this area, I have observed the following ten traits among the most successful companies:
Rule #1: Unlock Economic Value Most traditional financial service firms have invested heavily in branch networks that create expensive cost structures which result in higher prices to customers. Mass-marketing channels and poor customer segmentation also result in higher costs and marketing expenses which translate to higher prices. Online-only financial services can unlock significant economic value and pass this along to consumers. Lending Club offers borrowers better rates and more credit than they can get from traditional banks, while offering lenders better rates of return than they can get from savings accounts or CDs. SoFi is disrupting the world of student loans with better rates to student borrowers and superior returns to alumni lenders relative to comparable fixed income investment opportunities.
Rule #2: Champion the Consumer Consumers are disenchanted and distrustful of existing financial institutions. Let’s take this historic opportunity to champion their interests and build brands deserving of their love. The team at Simple has envisioned a new online banking experience that puts the consumer first via transparency, simplicity and accessibility. Its blog reads like a manifesto for consumer-friendly financial service delivery. LearnVest is another company on a consumer-first mission to “empower people everywhere to take control of their money.” Its low-cost pricing model is clear and free of conflicts of interest that are rampant in the financial sector. There is plenty of margin to be made in championing the consumer. The speed at which consumer sentiment spreads online these days creates an opportunity to become the Zappos or Virgin Airlines of financial services in relatively short order.
Rule #3: Serve The Underserved In my last post explaining why the FinTech revolution is only just getting started, I described how the global credit crunch left whole segments of consumers and small businesses abandoned. Some segments at the bottom of the economic ladder have never really been served by traditional FIs in the first place. Greendot was one of the pioneers of the reloadable prepaid cards bringing the convenience of card-based paying online and offline to those who lacked access to credit cards or even bank accounts. Boom Financial is providing mobile to mobile international money transfer at unprecedented low rates and ultra-convenience from the US to poorly served markets across Latin America and the Caribbean, and eventually globally. No need for a bank account, a computer, or even a trip downtown to dodgy money transfer agent locations.
Rule #4: Remember the “Service” in Financial Service Just because you are building an online financial service does not mean that your service is only delivered by computer servers. When dealing with money matters many people want to speak to a live person from time to time or at least have this as an option just in case. Personal Capital delivers a high tech and high touch wealth management service via powerful financial aggregation and self-service analysis tools, but also provides live financial advisors for clients who want help in constructing and maintaining a diversified and balanced portfolio. These advisors are reachable via phone, email, or Facetime video chat. As a rule of thumb every FinTech company should provide a toll-free phone number no more than one click from your homepage.
Rule #5: Put a Face on It Chuck Schwab, Ken Fisher, John Bogle, Ric Edelman. These stock market titans may have very different investment styles but they knew that consumers want to see the person to whom they are entrusting their money and as a result they each plastered their face and viewpoints all over their marketing materials, websites, and prolific publications. If your startup wants consumers to entrust you with their nest eggs, you ought to be willing to show your face too. This means full bios of the management team, with pictures, and clear location for your company as well as numerous ways to be contacted. It’s also a good idea to make sure that your management team have detailed LinkedIn profiles and that a Google search for any of them will yield results that would comfort a consumer.
Rule #6: Be a Financial Institution, not a vendor The real money in FinTech isn’t in generating leads for FIs or displaying ads for them. That can be a nice business, but the real margin is in making loans, investing assets, insuring assets, or settling transactions. In just a few years Wonga has a become a massive online lender in the UK by instantly underwriting and dynamically pricing short term loans. Financial Engines and a new crop of online investment advisors make and manage investment recommendations for their clients. You do not need to become a chartered bank or an investment custodian as there are plenty of partners that can provide this behind the scenes, but if you can brave the regulatory complexity and develop the technology and skills to underwrite and/or advise exceptionally well, the opportunities are huge.
Rule #7: Use Technology Creatively The incumbents have scale, brand history, brick and mortar presence, and armies of lawyers and lobbyists. If FinTech startups are going to disrupt the incumbents, you will need to work magic with your technology. How clever of Square to use the humble but ubiquitous audio port on smart phones to transmit data from their swipe dongle and for using GPS and the camera/photo album to make everyone feel like a familiar local when using Square Wallet. MetroMile is a FinTech revolutionary disrupting the auto insurance market by offering pay per mile insurance so that low mileage drivers do not overpay and subsidize high mileage drives who tend to have more claims. They do this via a GPS enabled device that plugs into your car’s OBD-II diagnostic port and transmits data via cellular data networks in real-time. Start-ups playing in the Bitcoin ecosystem such as Coinbase and BitPay are certainly at the vanguard of creative use of technology and are tapping in to the mistrust of central banks and fiat currencies felt by a growing number citizens around the world who trust open technologies more than they do governments and banks.
Rule #8: Create Big Data Learning Loops Of all the technologies that will disrupt financial services, Big Data is likely the most powerful. There has never been more data available about consumers and their money, and incumbent algorithms like Fair Isaac’s FICO scores leave most of these gold nuggets lying on the ground. Today’s technology entrepreneurs like those at Billfloat, ZestCash, and Billguard are bringing Google-like data processing technologies and online financial and social data to underwrite, advise and transact in a much smarter way. Once these companies reach enough scale such that their algorithms can learn and improve based on the results of their own past decisions, a very powerful network effect kicks in that makes them tough to catch by copycats who lack the scale and history.
Rule #9: Beware the Tactical vs. Strategic Conundrum One challenge when it comes to financial services is that the truly strategic and important financial decisions that will impact a person’s financial life in the long run, such as savings rate, investment diversification and asset allocation, tend to be activities that are infrequent or easily ignored. Activities that are frequent and cannot be ignored, like paying the bills or filing tax returns, tend to be less strategic and have inherently less margin in them for FinTech providers. Real thought needs to go into how you can provide strategic, life changing services wrapped in an experience that enables you to stay top of mind with consumers so that you are the chosen one when such decisions get made. Likewise, if you provide a low margin but high frequency services like payments you must find a way to retain customers for long enough to pay multiples of your customer acquisition cost.
Rule #10: Make it Beautiful, Take it To Go A medical Explanation of Benefit is possibly the only statement uglier and more obtuse than a typical financial statement. Incumbent FI websites are not much better and over the past ten years many large FIs have heavily prioritized expansion of their branch networks over innovating and improving their online presence. As a FinTech startups you have the golden opportunity to redefine design and user experience around money matters and daresay make it fun for consumers to interact with their finances. Mint really set the standard when it comes to user experience and beautiful design, while PageOnce pioneered mobile financial account aggregation and bill payment. To deliver a world class consumer finance experience online today one needs to offer a product that looks, feels, and functions world class across web, mobile and tablet.
There has never been a better time to be a FinTech revolutionary, and hopefully these rules for revolutionaries provide some actionable insights for those seeking to make money in the money business.
March 20, 2013
By brianascher
The Occupy Wall Street protestors are gone (for now), but the real revolution against banking is still taking place at breathtaking speed, thanks to a new breed of technology entrepreneurs. The financial services industry, long protected by complex regulations, high barriers to entry and economies of scale, is ripe for disruption. Here’s my take on the macro environment, how consumer attitudes are changing and why technology and available talent make now the best time to challenge the status quo.
Global credit markets clamped shut in late 2008 and froze entire sectors of consumer credit. Mortgages became less available, millions of credit cards were revoked, lines of credit dried up, and banks essentially abandoned the small business and student loan markets. This left tens of millions of households in the position of “underbanked” (have jobs and bank accounts, but little to no credit) and the “unbanked” (no traditional banking relationship at all.) This credit crunch fueled demand for startups like Wonga, Billfloat, and OnDeck Capital to establish themselves and grow rapidly, and the reloadable prepaid card market pioneered by GreenDot and NetSpend soared. While credit has eased for certain segments in certain markets, there are still big opportunities to fill credit voids, especially at the lower end of the market.
The last few years have seen significant changes in banking, payment, tax, investment and financial disclosure regulations. While complex legislation such as the Dodd–Frank Wall Street Reform and Consumer Protection Act is hardly intended to unleash entrepreneurial innovation, and virtually no single person can comprehend it in entirety, it does contain hundreds of provisions that restrict incumbent business practices, and typically when there is change and complexity there are new opportunities for those that can move quickest and are least encumbered by legacy. Other regulations such as the Check 21 Act which paved the way for paperless remote deposit of checks, and the JOBS Act crowd funding provision are examples of technologically and entrepreneurially progressive laws that create opportunities for entrepreneurs and tech companies. Inspired by the success of pioneers such as microfinance site Kiva and crowd funding sites like KickStarter and indiegogo, I expect that once the JOBS Act is fully enacted and allows for equity investments by unaccredited investors we will see a surge of specialized crowd funding sites with great positive impact on deserving individuals and new ventures.
Within a few weeks of Occupy Wall Street in Sept 2011, protests had spread to over 600 U.S. communities (Occupy Maui anyone?), hundreds of international cities (did I see you at Occupy Ulaanbaatar Mongolia?), and every continent except Antarctica. Regardless of what you think of such protests, it is safe to say that as a whole we are more skeptical and distrustful of financial institutions than virtually any other industry. Clay Shirky’s term “confuseopoly”, in which incumbent institutions overload consumers with information and (sometimes intentional) complexity in order to make it hard for them to truly understand costs and make informed decisions, is unfortunately a very apt term for the traditional financial services industry. There is thus a crying need for new service providers who truly champion consumers’ best interests and create brands based on transparency, fairness, and doing right by their customers. Going one step further, peer-to-peer models and online lending circles enable the traditional practice of individuals helping one another without a traditional bank in the middle, but with a technology enabled matchmaker in the middle. Perhaps the ultimate example of bypassing the mistrusted incumbents is the recent acceleration in the use of Bitcoin, a digital currency not controlled by any nation or central bank but by servers and open source cryptograpy.
As a Product Manager for Quicken back in 1995 I remember sweating through focus groups with consumers shaking with fear at the notion of online banking. Today it is second nature to view our bank balances or transfer funds on our smartphone while standing in line for a latte. And while Blippy may have found the outer limit of our willingness to share personal financial data (for now), there is no doubt that “social” will continue to impact financial services, as evidenced by social investing companies eToro and Covestor. You can bet it will be startups that innovate around social and the incumbents who mock, then dismiss, then grope to catch up by imitating.
I think we will look back in 20 years and view the smartphone as a technical innovation on par with the jet plane, antibiotics, container shipping, and the microprocessor. While the ever improving processing power and always-on broadband connectivity of the smartphone are the core assets, it has been interesting to see such widespread capabilities as the camera, GPS, and even audio jack used as hooks for new FinTech solutions. While there are over a billion smartphones worldwide, the ubiquity of SMS service on virtually all mobile phones means that billions more citizens have mobile access to financial services 24×7 no matter how far they live from physical branches. Cloud and Big Data processing capabilities are further fueling innovation in financial technology typified by the myriad startups eschewing FICO scores in favor of new proprietary scoring algorithms that leverage the exponential growth in data available to forecast credit worthiness.
Financial institutions have long employed armies of developers to maintain their complex back office systems but until recently the majority of these developers worked in programming languages such as COBOL which have little applicability to startups. While COBOL has not gone away at the banks, more and more of the technical staff spend their time programming new features and interfaces in modern languages and web application frameworks that provide highly applicable and transferable skills to startups only too happy to hire them for their technical training and domain experience. In addition, successful FinTech companies from the early days of the internet such as Intuit and PayPal have graduated experienced leaders who have gone on to start or play pivotal roles in the next generation of FinTech startups such as Square, Xoom, Kiva, Bill.com, PayCycle, OutRight, Billfloat, and Personal Capital.
These are just some of the reasons now is a great time for financial technology startups and why venture capital is flooding in to the sector. In my next post I will offer some suggestions for FinTech revolutionaries.
March 8, 2013
By David Pakman
Here is the video of a panel I hosted at NATPE in Miami on January 28th. It features Rich Greefield from BTIG, Betsy Morgan CEO of The Blaze, Chet Kanojia CEO of Aereo, Alex Carloss from YouTube and Kevin Beggs CEO of Lionsgate. Great conversation about the disruptions facing the TV industry.
March 7, 2013
By David Pakman
It’s a good thing Facebook is thinking of redesigning the News Feed. Because I think a funny thing is happening to Facebook. For me, the news feed no longer surfaces anything of interest. The opaque algorithm behind it is just not able to produce anything relevant and, more important, timely, at least to me. Facebook appears to be turning back into what it once was: a way to research people in non-real time. A look back into the past. A people-stalking product. It’s back to being a personal LinkedIn.
People publish stuff on the (increasingly mobile) web that is timely and relevant. Sharing baby pictures isn’t really one of those. Sharing pics of how you are experiencing life, which is the Instagram use case, is a great example of this. But my News Feed does not have anything like that in it. My Instagram feed does.
People share highly informative and timely links to news articles and blog posts on Twitter all day long. But my News Feed does not contain any of those. And when I share these types of posts on Facebook, I get no engagement. When I share pics of my kids, I get a lot.
People share bookmarks of products and apparel they want to buy on Pinterest all day long. People don’t do that on Facebook.
Facebook started as a non-real-time service. It was a way to check people out. In the face of the rise of Twitter, they responded aggressively with a News Feed product that showed promise. But now I feel they really screwed the filters up that govern that feed, which creates feedback to those of us who post into it and it feels like a vast river of noise and irrelevant posts from people and events who aren’t really relevant to me. Perhaps most importantly, I can’t tune it. The tuning mechanisms are either too subtle (“hide”) or too crude (“report as spam”). I feel powerless.
The irony is that LinkedIn is moving to increase daily engagement by syndicating highly informative posts from influencers. They are trying to become more real-time just as Facebook seems less so.
It’s still amazing for stalking people, though.
March 6, 2013
By David Pakman
It’s finally happening. The Internet is taking over TV. It’s just happening differently than many of us imagined. There are two major transformations underway.
- The Rise of The Internet Distributors. Led by Netflix, the group of new distributors includes Amazon and Microsoft now, but maybe Apple and Google later. They are largely distributing traditional TV shows in a non-traditional way. All the content is delivered over IP and usually as part of a paid subscription or per-episode EST (electronic sell-through). Important to note that all of this content contains no advertising and is available entirely on-demand. This content falls into the “non-substitutional” cotent bucket. To watch it, you don’t need to be a cable TV subscriber.
- The Rise of Alternative Content Producers. Thanks to YouTube’s Channel strategy and investment in hundreds of content providers, new producers of content are emerging and offering non-traditional programming, usually in shorter form. This content is marked by dramatically different production economics than traditional TV content, taking advantage of an expanded labor pool and low-cost cameras and computer editing. This alternative content is chipping away at long- and mid-tail viewership on traditional networks (the “filler” and “nice-to-see” buckets.)
Both of these transformations are successful to date and will only become more-so. Rich Greenfield has a nice summary of why the TV industry suddenly loves Netflix. (Disclosure: I am long NFLX and have been a stockholder for some time.) The first transformation takes advantage of the massive pressure MVPDs place on traditional cable nets to not offer their programming direct-to-consumer. In this case, the HBO’s and AMC’s requirement that you authenticate your existing cable subscription in order to watch their programming over IP successfully persuades the cord-nevers to just avoid the programming on those networks until the hit shows are offered through Netflix or EST. Netflix, once again, looks like the hero. Those empty threats by Jeff Bewkes that he will never work with Netflix turned out to be, well, empty. The second transformation will take longer to fully prove out, but I believe it will happen. As more of our viewership takes place over IP, we lose our allegiance to networks as the point of distribution and allow new distributors to guide us towards content choice.
There is a third budding area of transformation, but I don’t yet see evidence that a business exists: trying to re-package cable TV bundles and sell them over IP. Companies like Aereo and Nimble.TV offer versions of this. I believe we live in a show-based world. Consumers aren’t looking for networks (with the exception of ESPN and regional sports nets) so much as they are looking for shows. Shows delivered over IP allow for the slow unbundling of television. One of the many challenges about this model for traditional broadcasters is that there is no advertising in this world. The traditional cable net business model enjoys two great revenue streams: affiliate fees and ad dollars. In IP-delivered shows, there are no ads.
Who are the winners and losers in this model? Well, show creators continue to flourish. The new distributors enjoy great success. Of course, ISPs, who are often the same companies as the MVPDs, do fine in the ISP business, but I believe the decline in total cable subs will continue. In a world where shows do not contain advertising, why do we need Nielsen? They have been a measurement standard for decades largely because advertisers needed a third-party validator of viewership. You can see why they have a vested interest in insisting TV ad viewership is not on the decline (despite everyone’s experience to the contrary.) I don’t think cable nets are in immediate trouble. They enjoy a great business model now, and also get to reap EST or licensing benefits after the shows air. But the Netflix House of Cards effort shows that consumers will now expect to be able to watch shows whenever they want and not be bothered by inconvenient broadcast schedules. The day is coming when the cable nets will have to respond.
For startups, one of the wide open spaces seems to be in cross-provider discovery. Now that my shows are spread among Netflix, Amazon, YouTube and on my DVR, I would prefer one interface to reach them all. Companies like Dijit’s NextGuide, Peel, Squrl, and Telly are taking cracks at this important space.
March 5, 2013
By David Pakman
It was an honor to be asked to address the 2007 Penn Engineering class as their commencement speaker. The video has been posted on YouTube for years, but I was recently asked to post the text. While it is several years old, I don’t believe the message is out of date.
Good afternoon. I know exactly what you are thinking; what is a guy that you have never heard of doing up here delivering your commencement address? Well, truth be told, I am wondering the very same thing. In fact, when Dean Glandt asked me to be here with you, my fist reaction was, “No. I have not accomplished enough to stand in front of such a distinguished crowd. What wisdom do I have to empart to them?” Well, I will do my best today to share something meaningful with you. Let me assure you though, this is not where I expected to be when I was sitting in your seat 16 years ago, thinking, “now what?”
When you got into Penn Engineering, your parents, like mine, probably breathed a sigh of relief. “At least he’ll have valuable skills and a career – and not just some vague liberal arts degree.” Well, I have some bad news for your parents. Engineering is the new liberal arts. It is the lingua franca of the next generation. Technology has become so pervasive, particularly in western cultures, that we engineers are no longer the geeks in the corner – we are now responsible for nothing less than the economic, media, and communication underpinnings of society. But the good news is, if you speak this new universal language – and all of you do – then your opportunities to contribute – not just to your own success but to society at large – are limited only by your drive, your desire, and your ideas.
When I sat in your seat 16 years ago, I of course knew exactly where I was headed. Had it all mapped out. I wanted to be a rock star – a drummer in a rock and roll band. Granted, that is not the most expedient path to becoming a CEO of a digital music company. But please don’t be misled by my title. Yes, I realize being a CEO opens some doors. It gives me the platform to accomplish things that I might never otherwise do. But CEO is the least important aspect of my career trajectory. It is representative of the fact that I have merged my two passions into my career. And that’s what I’d like you to think about today.
What are your passions and how can you incorporate them into your career? How can you utilize these newfound skills? How can today become a jumping off point for tackling the things you deeply care about?
When I graduated from Penn Engineering, I had two passions: I was really into computers and I was really into music. Like many of you, I was tuned in constantly. I played in bands around campus and here in the greater Philadelphia area. I left the engineering lab as often as I could to practice and play gigs. Yes, I was a musician. But I was also an early adopter of technology. Penn helped open my eyes to that. It was clear where the music was headed – computers – to compose and mix, electronic drums, all the new tools of the trade. But I think I knew then that making a career out of my rock and roll aspirations was a long shot.
I came away with a couple of takeaways from this experience. For one thing, I learned that I had somewhat radical intentions from a very early age. The straight and narrow probably was not going to work for me. But the biggest lesson – and the most empowering one of all – was that it is possible to do what you want to do. Maybe not play Madison Square Garden to 20,000 fans. But I was hopeful that I could combine my passion for music with my keen interest in technology.
So I took the same degree that you are receiving today and I went to work at Apple in California. At that time, Apple was still a huge underdog and its future was by no means certain. I fit in with the culture perfectly. Apple embodied the rebel mentality. It was, pardon the expression, marching to the beat of a different drummer. Working for an underdog and innovator like Apple was a great influence. I learned to “think different.” I learned that consumers will reward you for innovation. And most importantly, I learned that technology could be terribly disruptive to incumbent industries.
Remember the phrase “desktop publishing?” Because of the Macintosh and laser printers, an entire business was upended. Apple (and eventually Microsoft) reaped the benefit. It turned the print industry on its head. I saw a chance to take that very same disruptive psychology and apply it the music industry.
When I was a student here, Penn was an early contributor to the development of the Internet. It was clear that as information and entertainment became digitized, the businesses of distribution and retail of entertainment would be transformed. I already knew that music was my true north. So I devoted my career toward working to accelerate, and hopefully reap the benefits of this transformation in the music business.
After joining the first digital music company and then founding another, and trying multiple times to build a business which would be pivotal in the transition of the music industry, eventually, with some partners, we bought eMusic, an abandoned dot-com company in disarray. Long story short? We turned it around to become the number two digital music service in the world. Second only to my old company, Apple. It’s success is due to the fact that consumers, not the music industry itself, forced a format transition from physical goods to digital goods. All enabled by technology. While the incumbent music industry feared, and even ran from this inevitability, I welcomed the disruptive nature of technology and knew it would fundamentally alter the entertainment industry,
However, I don’t want to set up false expectations that if you stick with the drums, you’ll end up CEO of a music company. Dean Glandt did not ask me here today to talk to you about playing in a rock and roll band. So I asked myself, what can I possibly share with a group as educated and informed as you that would be original and have any possible value whatsoever? I labored over this and as I did, it struck me. It’s not about technology or engineering. It’s about the disruptive nature of it.
You see, you all are sitting in the catbird seat for the next industrial revolution. You can join existing industries and work to build them bigger – or you can be the disrupters. The shapers. The policymakers. Every last one of you can land a job in any technology role. At the biggest and most successful companies! You already speak the language. But is that enough? Do you want to get out of bed every day just to log on? Or do you take this incredible genius you possess – this mastery of bits and bytes – and use it for something that matters to you? Something transformative?
There is an ambassador who comes to mind who also got his start like I did, in music. His name is Bono. You’re probably sick of hearing about him. Why does a scruffy singer from a small country in the North Sea have so much clout on the global stage? Because he took a common language, mastered it, and made it his platform for change. It begs the simple question. What is your platform for change going to be? How will you disrupt?
I understand – you might be scratching your head and saying, “C’mon, it’s happened already. The billions have been made – with Microsoft, Google, Yahoo!, MySpace, YouTube. All the big bets have been placed. Everything has already been disrupted.” But in fact I don’t think that’s true. Those companies are just the building blocks for the next wave. These companies, these web players did not exist 30 years ago. No one knew where it was going back then and honestly, we don’t know, today. That’s where you come in.
How do you take these Goliathan companies and their all-encompassing technologies and turn them on their head? How do you wrap your arms around this knowledge and do something that no one has thought of yet? How do you take this “language” Penn Engineering has taught you and make it stand for something you care about?
My understanding of the digitization of music gave me an inkling that someday the songs I grew up with would be available in formats we could not imagine as kids. The model was changing and I saw that and embraced it and tweaked it and now I get to wake up every morning and spend my days guaranteeing that people can buy it. Any kind of music on any kind of player. Period. That’s what I believe in. That’s where I staked my tent.
Although I’m a computer scientist by degree, I am no quantum physicist or nanotech engineer. I didn’t invent something that is going to save the world. I foresaw a market trend in a field I was passionate about and was fortunate enough to get on board at the cusp of the transition. Sniffing out market trends? This is a very good skill to hone. And you’re not going to find it in any book. Turn to your instincts on this one.
Here are some more examples: Sergey Brin and Larry Page – the guys who figured out how to do “search” better? They got it. Andreas Pavel? How many of you know THAT name. He and his girlfriend tested a new musical device he’d invented, on a snowy day in the Swiss Alps, listening to a Herbie Mann/Duane Allman composition – outdoors! – while they walked! The Walkman was born. Transformational! The way we listen to music has never been the same. And Steve Jobs can’t take all the credit on this one.
Nick Negroponte from MIT media Lab? One laptop Per Child! He is going to change the way children learn and he aims to do so one laptop at a time.
And it won’t just change the way children learn and think. It will change the way countries pull themselves out of poverty. The way emerging markets become self-sustaining. One man’s vision – and the language of technology – is going to change the lives of kids who never dreamt of having a chance – from Angola to Myanmar to Kazakhstan. These people are all using technology to disrupt the natural order, and making something better for consumers – for people – at the same time
Does this mean you have to invent the next big idea? if you have it, fantastic! But I think your mission is greater. You see, as I said at the outset, you are the new liberal arts generation. Technology is now omnipresent in society and you speak the common language. However, there are a lot of you speaking that language and believe me, the pack is closing in. You’re going to need more. You’re going to have to be aggressive, disruptive, and visionary.
I know many of you are thinking about the jobs you will start tomorrow. If I could spark one thought in you today, it would be to look five years out. Ten years out. Ask yourself, what are your kids are going to be listening to? What are they going to read, and watch? What’s their world going to look like? And how are you going to shape it? What industries are going to be completely disrupted by the inventions of today, and how can you, and society, benefit?
So I offer you a challenge. Look at yourself today, and ask what’s going to matter to you tomorrow. Which one of you is going to use your remarkable talent to feed Africa? Who’s going to tackle global warming? Does any one of you really believe, 20 years from now, that we’re going to still be running our cars on thick black crude pumped 2 miles out of the ground from a desert?
You are the 2007 graduating class of Penn Engineering. But engineering is merely the platform for the future. You will be more than engineers. You can engineer the shape of our society and shape the destiny of our lives. You will be inventors. Designers. Architects. Engineers. But through your ideas and design and architecture, you will become the de facto policymakers of the 21st century. You will define our society, all because you understand technology better than everyone else.
Call it a grave responsibility, or the greatest road trip you’ll ever undertake. Either way, you are empowered. There is no turning back. You are truly on the launching pad.
In closing, I offer these words. Follow your passion. Question the status quo. Bang a few drums. Don’t be afraid to make some noise. Take this awesome new language you speak and use it. Put it to work. We truly are on the cusp of a revolution. Get out there and be disruptive. Be responsible and give a damn. And lead. Show us where we’re headed next. It really does matter.
March 2, 2013
By David Pakman
With my mind fully stretched in various different directions, a bunch of thoughts are coalescing, coming out of another fantastic TED. Three main points are loosely stitched together in my mind and they point to a bunch of future opportunity.
First, we heard convincingly from economists like Robert Gordon, Erik Brynjolfsson and Andrew McAfee that America’s manufacturing jobs which, for so long, powered our healthy middle class, are not coming back in any big numbers. Many of us scratch our heads to understand how to fill this enormous hole. At Venrock, largely informed by a similar Hunter Walk observation, we believe this dirth of fruitful middle class employment is leading to so much of the activity in the shared resources sector (AirBNB, etc.), in the peer to peer marketplace sector (PoshMark, etc.) and in the digital labor market sector (Uber, TaskRabbit, etc.) as income supplementation. This will help and is a highly investible opportunity. But still, is this enough?
Second, we marveled at Elon Musk and his unrivaled appetite to tackle the planet’s largest problems through commercial endeavors filled with enormous risk (SpaceX, Solar City, Tesla). He is an international treasure and it simply begs the question…why aren’t there more of him? Of course, there are many fantastically successful entrepreneurs and we celebrate them all. But how many Elon Musks are there on the planet? One hundred? One thousand? Ten thousand? Why aren’t there ten million? What are the specific experiences, personality traits, education paths, parenting, and DNA necessary to produce the planet’s super humans driven to defy the odds on such interplanetary scale? It is clear the planet needs more of them, and so why aren’t we unlocking the answer to the question of how to make more? A speaker reminded us of the Chinese proverb…
If you want one year of prosperity, grow wheat. If you want ten years of prosperity, grow trees. If you want one hundred years of prosperity, grow people.
We need to grow more Elons (and Steves and Bills, etc.)
Finally, Sugata Mitra delivered a compelling argument that our schools are simply obsolete for the task of turning out the kind of people we now need in our modern society. He argues for far more self-organized small learning groups of kids with cloud-based tools and light direction from a teacher. That may be part of the solution, but it is likely only a part of it. If our future doesn’t need line workers but needs more inventors, creators, risk-takers, builders, and makers, where will they all come from? Surely there is no natural limit on the number of people with these strengths in our species, right? Surely we can teach and encourage more people to excel in these areas, right? In order to do that, just how much of our society needs to change? Isn’t it more than just our schools? Isn’t it the goals we set for our kids as parents? Is the over-whelming emphasis on organized team sports in our suburban communities part of the problem? When we reward kids at spelling bees, perhaps the ultimate test of rote memorization, are we not helping? Shouldn’t every kid on the planet be playing Minecraft? How deep must we dig to get at the real root here?
I suspect this is perhaps the greatest issue we face as a society. How do we produce more entrepreneurs?
(Special thanks to fellow TEDster Juliette LaMontagne for the helpful brainstorming.)
February 26, 2013
By Richard Kerby
Immigration
The United States is one of the leading countries in technology innovation. Every day businesses all over the states think up new and creative was to tackle some of the world’s most difficult business challenges. Whether it’s inventing new platforms, creating more effective marketing strategies or developing mobile apps that are designed to make life easier, the U.S. is always looking to improve things. However, the current immigration laws have many worried that if things don’t change for the better, innovation will inevitably suffer.
How Current Immigration Laws are Proving Problematic to Innovation
When H1-B visas were plentiful, the U.S. economy was on a steady incline. At the time, no one thought that the reason for this incline was related to the foreign workers. The truth is, foreign workers holding H1-B visas are responsible for creating more jobs for Americans. Critics believe that the influx of foreign workers are hurting the economy by minimizing job opportunities for U.S. citizens; however, there is much proof to the contrary.
The majority of American college graduates major in Liberal Arts, whereas technology and math skills are what’s needed to fuel technology; which foreign workers have. According to Hamilton Place Strategies, 40% of founding roles in fortune 500 companies were created by highly skilled foreign workers and their children.
So what results from the current visa cap? A loss of jobs and a loss of newly created positions, which will in turn hurt the economy and decrease U.S. technological innovation. See below for a look at how the visa caps have trended over the last 30 years.
How Technology Companies Plan to Tackle the Issue
Technology companies in the U.S. are aware of the impact that the visa cap will have and have thus begun creating strategies to circumvent the current immigration limitations.
Some businesses have resorted to hiring foreign workers as “freelancers” working from home offices, while others have even more creative solutions. A company called Blueseed has decided to create a mobile office in the form of a ship to spark innovation. This ship will house a thousand of the most highly skilled innovators from several different countries and will be docked approximately 12 nautical miles from San Francisco (where the water is still considered “international”). This is meant to spark new ideas and create new start-ups that will eventually expand and inevitably end up in the United States. For more info on Blueseed check out this great slideshare http://slidesha.re/12It42j.
As businesses begin to realize the real economic implications of the visa cap, multiple solutions will no doubt follow. This is needed to obtain the skills these foreign worker possess while offering them resources to continue creating more U.S. jobs.
Being the first person in my family born in the US, makes this a particularly important topic for me and I would love to hear everyone else’s thoughts and what other tactics you are seeing companies employ to get around the current immigration roadblocks.
January 28, 2013
By Ray Rothrock
http://www.slate.com/blogs/browbeat/2013/01/24/pandora_s_promise_review_nuclear_power_documentary_is_persuasive_and_timely.html
http://insidemovies.ew.com/2013/01/24/why-is-the-way-way-back-a-crowd-pleaser/When was the last time you saw a documentary that fundamentally changed the way you think? It’s no secret that just about every political and socially-minded documentary shown at Sundance is preaching to the liberal-left choir. The issue may be dairy farming, human rights abuses in Vladimir Putin’s Russia, the marketing of AIDS drugs, or Occupy Wall Street (to list the topics of four festival docs this year), but the point of view is almost always conventionally “progressive” and orthodox. So when Robert Stone, who may be the most under-celebrated great documentary filmmaker in America (watch
Oswald’s Ghost if you want to touch the elusive truth of the JFK assassination), arrived at Sundance this year with
Pandora’s Promise, a look at the myths and realities of nuclear power, he was walking into the lion’s den. For this isn’t a movie that preaches to the choir. It’s a movie that says: “Stop thinking what you’ve been thinking, because if you don’t, you’re going to collude in wrecking the world.”
Pandora’s Promise is built around what should be the
real liberal agenda: looking at an issue not with orthodoxy, but with open eyes.In
Pandora’s Promise, Stone interviews a major swath of environmentalists, scientists, and energy planners, all of whom spent years being anti-nuclear power — and then, as they began to look at the evidence, changed their minds. The film begins with a deep examination of the psychology of the anti-nuclear view: how it took hold and became dogma. It goes all the way back to 1945, of course, and the horror of the atomic bomb. From that moment, really, the very word
nuclear was tainted. It meant something that was going to kill you, in the form of lethal radiation that you can’t see. By the time of the “No Nukes” protests of the ’70s, to be “anti-nuclear” was to conflate nuclear weapons and nuclear power into a single category of scientific evil, a point of view whipped up, over the years, into a doctrinaire frenzy of righteous fear and loathing by anti-nuclear activists like Dr. Helen Caldicott and reinforced by movies like
The China Syndrome and even, in its benign satirical way,
The Simpsons.
Stone, a lifelong environmental lefty himself, unravels that thinking. The film’s incredibly articulate — and deeply progressive — spokemen and women explain the nuts and bolts of why nuclear power, manufactured with the sophisticated breeder reactors that are available today, is fundamentally clean, efficient, and, yes, safe. As Richard Rhodes puts it in the movie: “To be anti-nuclear is basically to be in favor of burning fossil fuels.” Pandora’s Promise makes a powerful case that in an age when former Third World countries, striving for modernization, are beginning to consume energy in much vaster amounts (and why shouldn’t they have the right to do so?), none of the alternative energy sources that are commonly talked about by environmentalists (wind, solar, etc.) can begin to fill the planet’s energy needs. Only nuclear energy can. That’s why France, faced with its own energy crisis several decades ago, went nuclear. (Eighty percent of France’s energy is now generated by nuclear power plants.)
Ah, you say, but what about Three Mile Island, Chernobyl, and Fukushima? The ultimate issue raised by nuclear power — the one that, according to conventional progressive thinking, stops the pro-nuclear argument right in its tracks — is, of course, the issue of safety. And the very names of those three locales cast a dark mythological shadow. You hear them and think: Meltdown. Radiation poisoning. Death. Disaster. But this is where, as a society, we desperately need more filmmakers like Robert Stone. Carefully, piece by piece, without hysteria and without dogma, he looks at the evidence of what actually happened during those three infamous catastrophes: the reality of the damage, and the reality of the aftermath. The results, if you truly listen to them, are almost spectacularly counterintuitive. They won’t leave you shaken. They will begin to shake you out of your old tired ways of thinking.
The most startling argument mounted by Pandora’s Promise is that the rise of nuclear power is not merely a good thing, but probably inevitable, because it is, in fact, the only way that we can power the planet and save it at the same time. In what has to be the ultimate liberal-documentary irony, Stone demonstrates that the dire threat of global warming all but demands nuclear power as the key to its solution. Without it, the debate will go on, but carbon dioxide will continue to fill the atmosphere, and liberals everywhere, caught up in reflexive modes of environmental “activism” that are now not just complacent but perilously out-of-date, will continue to let their anxieties trump reality.
January 28, 2013
By Ray Rothrock
Image Credit: Claire Folger
The term “crowd-pleaser” should probably be retired from the movie universe. When a serviceable January horror flick like Mama can make $20 million its opening weekend (and that’s demonstrably in the off season), you can bet that virtually every film that opens week in and week out at number one is, in ticket sales and essence, a crowd-pleaser. So it seems unnecessary, or maybe just redundant, to single out any one film for fulfilling that definition. It would sort of be like referring to Twizzlers or popcorn as “popular movie junk food.”
At the Sundance Film Festival, however, the term “crowd-pleaser” takes on an almost ideological meaning. Though Robert Redford always tries to play it down in his opening remarks to the press, one of the many things that this festival does is to search for crowd-pleasers, a high-stakes endeavor that is basically — though no one likes to put it this way — a game of trying to find a mainstream movie in a haystack. It’s usually one movie each year that’s annointed, by the collective buzz, as the festival’s reigning crowd-pleaser, and that excitement often translates into the Audience Award — the judgment of the people, man! — and into a headline-making business deal (it was picked up for $3 million! $5 million! $10 million!) that, in many ways, defines the nexus of art and commerce at this festival. Crowd-pleasers matter at Sundance because if Sundance can’t produce movies that please crowds, then it’s just a boutique event, and not the Hollywood-meets-the-edge crossover party that it has promised to be — and been — for the last 20 years.
The more you look at all the famous Sundance crowd-pleasers (Little Miss Sunshine, The Spitfire Grill, Pieces of April, Tadpole), the more you realize that they’ve become a genre unto themselves. They share a lot of the same qualities. They are almost always tales of family dysfunction. They feature token bits of bad behavior by characters who basically have hearts of gold. They are usually centered around kids. They have tidy narratives that are engineered to make you feel really good. And that’s the grand irony, isn’t it? The movies that get hailed as crowd-pleasers here are embraced because they’re basically middlebrow higher-sitcom television. They’re called the real deal, but in many ways they represent everything that the real deal is supposed to be against.
The Way, Way Back is the movie this year that’s been the recipient of the biggest wet sloppy audience kiss at Sundance. (It was also picked up for $10 million by Fox Searchlight, the most money spent for a Sundance film since Searchlight bought Little Miss Sunshine for $10.5 million in 2006.) When I was filing out of the Holiday Village Cinemas after a showing of it, and I started talking to a movie-columnist friend about why I liked the film okay but my enthusiasm for it was limited, she immediately said, “It’s not for critics,” which of course made me sputter for a moment, as I tried to argue that I don’t dislike big open-hearted crowd-pleasing movies, just cookie-cutter versions of them, which is what I think The Way, Way Back is. But there’s no winning that debate. When crowd-pleasing fever is in the air, anyone who goes against the crowd is the enemy.
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So here’s why I thought The Way, Way Back was a perfectly nice and even, at moments, touching movie that didn’t really wow me because I thought it had a shallow, see-through agenda. Directed by Nat Faxon and Jim Rash, the Academy Award-winning screenwriters ofThe Descendents (Rash, of course, is also a star of Community), the film is about a 14-year-old kid, Duncan (played by the scowling, cat-eyed Liam James), who is spending the summer with his divorced mother (Toni Colette), along with her boyfriend (Steve Carell) and his teenage daughter (Zoe Levin), at a beachy driftwood vacation home in what looks like a small town in New England. Duncan is miserable: silently angry that his mother has hooked up with a man he neither likes nor trusts (Carell’s uncharacteristically thin performance cues us early on to see that he’s right), and bored, too, with nothing much on his plate. But then Duncan winds up riding a bike over to Water Wizz, a kitschy, antiquated water-slide park — it was built in 1983 — where he catches the eye of Owen (Sam Rockwell), one of the workers there, who recognizes what a repressed, unhappy kid Duncan is and is determined, almost by instinct, to snap him out of it.
This isn’t hard for Owen to do, since he’s an arrested cut-up who talks in baroque put-ons. He’s like the last verbal exhibitionist in America who doesn’t have his own late-night talk show, and he brings Duncan out of his shell by razzing him with affection. Almost everyone who has seen The Way, Way Back has compared it to Meatballs, the 1979 summer-camp comedy that put Bill Murray on the map as a big-screen star. Rockwell tosses off some priceless line readings, and his character is certainly, among other things, a knowing nod to Murray’s. But the movie is really Greg Mottola’s Adventureland made with a lot less complication and flavor and pop pizazz. The difference between The Way, Way Back and Adventureland is that the quirky characters in that film all had pasts, whereas Rockwell, a moonstruck sprite of an actor who is now 44 years old, is playing the guy who’s still working at the water park, and the movie gives us no idea why. He flirts, rather relentlessly, with one of his co-workers (Maya Rudolph, doing her usual song-in-the-key-of-peeved reaction shots), but we don’t know where he comes from, or how he ended up here, or what his dreams are. He’s just a “character,” a guy who exists to help the hero grow.
And grow he does. The most “crowd-pleasing” scene in The Way, Way Back is the one that made me cringe the most: At Water Wizz, Duncan is asked to break up a bunch of kids in bathing suits who’ve gathered in a circle to watch a couple of crunk dancers. He tells the dancers to take their cardboard floor away, but instead of getting mad, they make him dance (it’s Welcome to the Dollhouse meets Napoleon Dynamite), and after managing a few hip-hop robot moves, he ends up with the nickname “Pop ‘n’ Lock.” I’m sorry, but that’s either going to make you feel good, or it’s going to make you feel like throwing up in your mouth a little.
Liam James, a good young actor, does an impressive array of variations on moping, but what’s missing from his character is any desire that goes beyond fulfilling the situations that the movie sets up for him. Duncan thinks Carell’s de facto stepfather is a dick — and time will prove that he’s not wrong. The girl next store (AnnaSophia Robb) is a junior hottie who is, like him, a child of divorce, and their bonding over their lost-kid status sprouts a few peck-on-the-cheek romantic blossoms right on cue. It’s all so programmatic, so uplifting. So carefully diagrammed to please.
* * * *
When was the last time you saw a documentary that fundamentally changed the way you think? It’s no secret that just about every political and socially-minded documentary shown at Sundance is preaching to the liberal-left choir. The issue may be dairy farming, human rights abuses in Vladimir Putin’s Russia, the marketing of AIDS drugs, or Occupy Wall Street (to list the topics of four festival docs this year), but the point of view is almost always conventionally “progressive” and orthodox. So when Robert Stone, who may be the most under-celebrated great documentary filmmaker in America (watch Oswald’s Ghost if you want to touch the elusive truth of the JFK assassination), arrived at Sundance this year with Pandora’s Promise, a look at the myths and realities of nuclear power, he was walking into the lion’s den. For this isn’t a movie that preaches to the choir. It’s a movie that says: “Stop thinking what you’ve been thinking, because if you don’t, you’re going to collude in wrecking the world.” Pandora’s Promise is built around what should be the real liberal agenda: looking at an issue not with orthodoxy, but with open eyes.
In Pandora’s Promise, Stone interviews a major swath of environmentalists, scientists, and energy planners, all of whom spent years being anti-nuclear power — and then, as they began to look at the evidence, changed their minds. The film begins with a deep examination of the psychology of the anti-nuclear view: how it took hold and became dogma. It goes all the way back to 1945, of course, and the horror of the atomic bomb. From that moment, really, the very word nuclear was tainted. It meant something that was going to kill you, in the form of lethal radiation that you can’t see. By the time of the “No Nukes” protests of the ’70s, to be “anti-nuclear” was to conflate nuclear weapons and nuclear power into a single category of scientific evil, a point of view whipped up, over the years, into a doctrinaire frenzy of righteous fear and loathing by anti-nuclear activists like Dr. Helen Caldicott and reinforced by movies like The China Syndrome and even, in its benign satirical way, The Simpsons.
Stone, a lifelong environmental lefty himself, unravels that thinking. The film’s incredibly articulate — and deeply progressive — spokemen and women explain the nuts and bolts of why nuclear power, manufactured with the sophisticated breeder reactors that are available today, is fundamentally clean, efficient, and, yes, safe. As Richard Rhodes puts it in the movie: “To be anti-nuclear is basically to be in favor of burning fossil fuels.” Pandora’s Promise makes a powerful case that in an age when former Third World countries, striving for modernization, are beginning to consume energy in much vaster amounts (and why shouldn’t they have the right to do so?), none of the alternative energy sources that are commonly talked about by environmentalists (wind, solar, etc.) can begin to fill the planet’s energy needs. Only nuclear energy can. That’s why France, faced with its own energy crisis several decades ago, went nuclear. (Eighty percent of France’s energy is now generated by nuclear power plants.)
Ah, you say, but what about Three Mile Island, Chernobyl, and Fukushima? The ultimate issue raised by nuclear power — the one that, according to conventional progressive thinking, stops the pro-nuclear argument right in its tracks — is, of course, the issue of safety. And the very names of those three locales cast a dark mythological shadow. You hear them and think:Meltdown. Radiation poisoning. Death. Disaster. But this is where, as a society, we desperately need more filmmakers like Robert Stone. Carefully, piece by piece, without hysteria and without dogma, he looks at the evidence of what actually happened during those three infamous catastrophes: the reality of the damage, and the reality of the aftermath. The results, if you truly listen to them, are almost spectacularly counterintuitive. They won’t leave you shaken. They will begin to shake you out of your old tired ways of thinking.
The most startling argument mounted by Pandora’s Promise is that the rise of nuclear power is not merely a good thing, but probably inevitable, because it is, in fact, the only way that we can power the planet and save it at the same time. In what has to be the ultimate liberal-documentary irony, Stone demonstrates that the dire threat of global warming all but demands nuclear power as the key to its solution. Without it, the debate will go on, but carbon dioxide will continue to fill the atmosphere, and liberals everywhere, caught up in reflexive modes of environmental “activism” that are now not just complacent but perilously out-of-date, will continue to let their anxieties trump reality.
Follow Owen on Twitter: @OwenGleiberman
January 28, 2013
By Ray Rothrock
If You Care About the Environment, You Should Support Nuclear Power
Nuclear power reactors in Saint-Vulbas, France.Photo by JEAN-PIERRE CLATOT/AFP/Getty Images
A good, politically charged documentary often seizes on what the audience already believes and throws fuel on the fire (see, e.g., the work of Michael Moore). A better such documentary tries to convince its audience that what it takes for granted is flat-out wrong. Pandora’s Promise, which premiered at Sundance, does just that. It makes the utterly convincing case that anyone who considers themselves an environmentalist or takes climate change seriously should favor more nuclear power.
In the 1980s, nuclear power, never truly popular, contracted an image problem to rival Lance Armstrong or even Penn State football. Chernobyl and Three Mile Island were so downright terrifying that the public immediately lost its appetite for the stuff. Invisible, cancerous, deadly: Radioactivity hits all of our deepest fears. Hiroshima, Fukushima, Silkwood—the words themselves seem to poison the air.
But our fears may be way out of proportion to the actual risks, Pandora’s Promise says. Truth is, no one has actually died in the United States as a consequence of a nuclear power accident, while coal kills more than 14,000 people a year (mainly through particulate pollution). In terms of worldwide mortality rates, nuclear is scary, but it kills fewer people per watt of power than coal, oil, and even solar. (People fall off rooftops when installing solar panels.) Chernobyl, the worst nuclear accident in history, though it killed many people at the time, has had surprisingly limited long-term effects, according to scientists. Perhaps, like many people, I picture Chernobyl as Hell on earth—but animals and people are actually living there again, and the radiation is at merely background levels.
It’s a question of alternatives. The film centers on a new breed of scientists and environmental activists who were once ardent foes of nuclear power, but now think there is no better option. Greens are all against fossil fuels, but the new breed think that pinning our our hopes entirely on wind and solar actually increases our dependence of such environmentally devastating energy sources. Everyone loves the idea that we could just install more efficient light bulbs and live off windmills and solar panels, but that’s a dangerous fantasy, one that makes us blind to the hard choices we face.
The fact is that even after decades of subsidized investment and building, even the United States, which has invested in wind and solar heavily, still relies on those sources for just 3.6 percent of our power needs. Meanwhile, in China, India, and Brazil, where demand is growing fastest, the wind and solar option is basically off the table. It’s going to be fossil or nuclear: There is no other choice. Indeed the film alleges that the fossil fuel industry loves solar and wind because it knows they will never pose a serious threat to the supremacy of oil and coal. The bottom line is, if we care about climate change, we have to surrender the fantasy that solar and wind are going to solve our needs.
I found watching this film uncomfortable, because, like most of us, I intuitively find something scary about nuclear power. Michael Shellenberger, one of the leading greens for nuclear power, confirmed to me that no major environmental group in the United States officially supports nuclear as of now. But what is the role of science if not to meet our greatest fears with actual data? Tomatoes were once thought poisonous, and doctors once believed it was wrong to treat illness by cutting open the human body. Our fear of nuclear power has gone too far.
January 28, 2013
By Ray Rothrock
This incredible Entertainment Weekly review settles it: “Pandora’s Promise” is a breakthrough!
Congrats to Robert Stone!!
http://insidemovies.ew.com/2013/01/24/why-is-the-way-way-back-a-crowd-pleaser/
When was the last time you saw a documentary that fundamentally changed the way you think? It’s no secret that just about every political and socially-minded documentary shown at Sundance is preaching to the liberal-left choir. The issue may be dairy farming, human rights abuses in Vladimir Putin’s Russia, the marketing of AIDS drugs, or Occupy Wall Street (to list the topics of four festival docs this year), but the point of view is almost always conventionally “progressive” and orthodox. So when Robert Stone, who may be the most under-celebrated great documentary filmmaker in America (watch Oswald’s Ghost if you want to touch the elusive truth of the JFK assassination), arrived at Sundance this year with Pandora’s Promise, a look at the myths and realities of nuclear power, he was walking into the lion’s den. For this isn’t a movie that preaches to the choir. It’s a movie that says: “Stop thinking what you’ve been thinking, because if you don’t, you’re going to collude in wrecking the world.” Pandora’s Promise is built around what should be the real liberal agenda: looking at an issue not with orthodoxy, but with open eyes.
In Pandora’s Promise, Stone interviews a major swath of environmentalists, scientists, and energy planners, all of whom spent years being anti-nuclear power — and then, as they began to look at the evidence, changed their minds. The film begins with a deep examination of the psychology of the anti-nuclear view: how it took hold and became dogma. It goes all the way back to 1945, of course, and the horror of the atomic bomb. From that moment, really, the very word nuclear was tainted. It meant something that was going to kill you, in the form of lethal radiation that you can’t see. By the time of the “No Nukes” protests of the ’70s, to be “anti-nuclear” was to conflate nuclear weapons and nuclear power into a single category of scientific evil, a point of view whipped up, over the years, into a doctrinaire frenzy of righteous fear and loathing by anti-nuclear activists like Dr. Helen Caldicott and reinforced by movies like The China Syndrome and even, in its benign satirical way, The Simpsons.
Stone, a lifelong environmental lefty himself, unravels that thinking. The film’s incredibly articulate — and deeply progressive — spokemen and women explain the nuts and bolts of why nuclear power, manufactured with the sophisticated breeder reactors that are available today, is fundamentally clean, efficient, and, yes, safe. As Richard Rhodes puts it in the movie: “To be anti-nuclear is basically to be in favor of burning fossil fuels.” Pandora’s Promise makes a powerful case that in an age when former Third World countries, striving for modernization, are beginning to consume energy in much vaster amounts (and why shouldn’t they have the right to do so?), none of the alternative energy sources that are commonly talked about by environmentalists (wind, solar, etc.) can begin to fill the planet’s energy needs. Only nuclear energy can. That’s why France, faced with its own energy crisis several decades ago, went nuclear. (Eighty percent of France’s energy is now generated by nuclear power plants.)
Ah, you say, but what about Three Mile Island, Chernobyl, and Fukushima? The ultimate issue raised by nuclear power — the one that, according to conventional progressive thinking, stops the pro-nuclear argument right in its tracks — is, of course, the issue of safety. And the very names of those three locales cast a dark mythological shadow. You hear them and think: Meltdown. Radiation poisoning. Death. Disaster. But this is where, as a society, we desperately need more filmmakers like Robert Stone. Carefully, piece by piece, without hysteria and without dogma, he looks at the evidence of what actually happened during those three infamous catastrophes: the reality of the damage, and the reality of the aftermath. The results, if you truly listen to them, are almost spectacularly counterintuitive. They won’t leave you shaken. They will begin to shake you out of your old tired ways of thinking.
The most startling argument mounted by Pandora’s Promise is that the rise of nuclear power is not merely a good thing, but probably inevitable, because it is, in fact, the only way that we can power the planet and save it at the same time. In what has to be the ultimate liberal-documentary irony, Stone demonstrates that the dire threat of global warming all but demands nuclear power as the key to its solution. Without it, the debate will go on, but carbon dioxide will continue to fill the atmosphere, and liberals everywhere, caught up in reflexive modes of environmental “activism” that are now not just complacent but perilously out-of-date, will continue to let their anxieties trump reality.
January 23, 2013
By Richard Kerby
While at CES, I noticed a large amount of connected TVs and connected cars, which led me to think that these devices are ripe for breach from hackers, so I went digging and low and behold thieves in the UK have begun the looting process (http://bit.ly/10PWDyJ). Thus I felt it was a topic worth writing about. Here are my 2 cents.
Why Does Connected TV Security Matter?
Cyber attacks to Android and iOS powered cell phones and computers have increased dramatically over the past five years. Now that televisions are becoming “smarter” by being powered through these platforms, the attacks have become more sophisticated.
Increasingly, televisions are starting to incorporate smart operating systems which enable them to run wifi. From here, criminals are able to hack into the system through an app. Cyber criminals have already discovered a flaw in some Samsung smart TVs, which allows them to listen in and look into households through the television.
Do Cyber Criminals Really Care About Connected Cars?
Cyber criminals care about any smart device that allows them to gain access to your personal details. They no longer just have an interest in stealing your login details to social media networks or your bank account information; cyber criminals are now interested in controlling your car, as well.
Connected cars have wifi connectivity which enables the driver to access GPS, email addresses, and stream movies. Some connected cars offer security features through connective devices which include the braking and door locking systems. Cyber criminals could potentially hack into your connected car system, giving them the opportunity to take control of your engine speed, car security alarm, wifi connectivity, door locking system, and your braking system.
How to Make Sure You’re Safe
Manufacturers of connected vehicles have already been briefed on these threats and are working to create patches and encryptions which make it harder for potential cyber criminals to hack in. The U.S. Dept of transportation is also testing connected car devices to decrease their vulnerabilities.
Downloading security apps and making sure your devices are password-enabled helps to decrease your risk of being hacked; however, some criminals are still able to bypass the systems.
Covisinit, Windows, Cisco, McAfee are all devising ways to reduce the risk of cyber attacks through connected televisions and vehicles. These measures include cloud services that restrict access to connected devices, beefed up security access, SSL encryption and authorization certificates.
Would love to hear further thoughts on the matter and what other companies out there I should be paying attention to?
January 20, 2013
By Ray Rothrock
When I was a young nuclear engineer in the late 1970s there were protests and public debates on nuclear power. Antinuclear protestors even painted condemning remarks on the side of the nuclear reactor building at MIT where I was a graduate student. I participated in many of those debates on the pro nuclear side, of course. It was tough going but very eye opening. Then in 1979 there was Three Mile Island – America’s only nuclear power plant accident and meltdown. The nuclear industry did what it could to recover, but soon the nuclear industry was flat lining. It seemed as though the anti’s had won.
Fast-forward 40 years. Things have changed.
A couple of years ago two of my friends, Jim Swartz and Steve Kirsch, approached me to consider helping them seed the development of a documentary film about nuclear energy to be titled Pandora’s Promise. Always interested in things nuclear since a little boy, I met with Robert Stone, the director. Through his own education and research, Robert had concluded that nuclear power is the only real solution to address global climate change related to CO2 production. And, he had found many environmentalists young and old who had also come to the same conclusion through their own work. I was sold.
As a team we raised the money to produce Pandora’s Promise – a Robert Stone documentary about how the environmentalist, also known as the greens, are now supporting nuclear power. The film sets you back in your chair with an opening of the Fukushima disaster in 2011. It then lays out the arguments against nuclear energy conveying well the vigor and vile of the anti nuclear movement in the 1970s. Having lived through it, some of this was tough to watch.
You then watch a short bit of history, some great footage I might add, of how the decisions that determined today’s nuclear power designs were made, but also what could have been. You learn the scientific truth about the real impact to the environment and to human life caused by the disasters of Three Mile Island, Chernobyl, and Fukushima. Only Chernobyl caused any deaths.
And then you take a tour of the planet to show you that we live in world of radiation. Stone measures radiation all over the planet, including at the sites of the three disasters, where people are coming back to live. The simple measuring of radiation, conveyed by a simple yellow device is the most prominent and in-your-face element of the story about the non-issue of radiation. Throughout the film you watch and listen as the greens change their mind about nuclear energy as they too learn the truth about nuclear power, its risks and its benefits so well conveyed by the movie.
I’ve never been to Sundance, but I’ve seen films that ultimately make it to the larger market. Knowing that about 8000 films are submitted I’m proud that Pandora’s Promise made all the cuts to be premiered. I only hope now that those who see it see it for what it is – a true story about nuclear energy, a case for nuclear energy in the 21st century and the key role it must play in the fight against climate change from CO2. But also, just how really safe nuclear power is.
A word on Climate Change
The world’s climate is changing; make no mistake about it. While the Sun is the largest factor on Earth’s climate, science tells us that CO2 is a major factor as well. And the biggest contributor to CO2 in our atmosphere is the burning of fossil fuels – coal and gas for electricity and petroleum for automobiles. I’m not a climate expert, but I can read and understand the science in the reports of these experts. So, how can we slow down or even stop the production of CO2? The biggest impact would be to switch our sources of fuel we use to make electricity from fossil to nuclear.
Lots of power plants are going to be built in the next several decades, even century. Developing countries are building electric plants as fast as they can to satisfy demand of their growing economies. China is reportedly starting up a coal plant every week. By mid 21st century the countries of the developed world, the United States, Russia, Europe, South Africa will have to replace their electric infrastructure just to keep their economies going and their way of life stable.
The world is demanding more and more electricity. Intelligent estimates put the increase in electricity production in the world to double by 2035. Double. Folks, we have choices to make.
Some people have put forth that alternative energy sources like solar and wind can provide the base load power the world demands. When smart people run the numbers on what is required, it simply does not pencil out. This is not fiction. Rather, this is science and engineering. The sun does not shine at night, and the wind does not blow all the time. Hydro, a significant contributor in the alternatives category is largely built-out in the developed world. China just completed the world’s largest hydro power plant with at Three Gorges – a massive facility. Demanding economies, new and old, need electricity 7×24 forever.
So we have a choice. We can continue to build fossil fueled plants and produce prodigious amounts of CO2 contributing to climate change and suffer the consequences thereof. Or, we can start to roll out nuclear power plants for our base load electricity and reduce CO2.
I hope you will see “my” movie and think about its message. Thanks, Robert, for making it. And many thanks to all those who contributed to its making.
December 13, 2012
By Bryan Roberts
Spray and pray…. Try before you buy… Foot in the door… Take your pick, these describe the dominant seed investment strategy today in Silicon Valley. The start-up world’s current angst around the “Series A crunch” is in great contrast to my seed experience, where most efforts progress to further financings and several are on their way to being standout successes in the Venrock portfolio.
For me, seed investing is not a low cost, little-time-required option on the A round. It is a big investment of time and effort in order to be intimately involved in the formative stages of a company, despite the fact that the dollars-in and percentage ownership don’t hit usual venture fund metrics. Since the commitment front-runs the money and ownership, it is something we only do when we are so compelled by the people and the idea that we “have” to jump in long before it makes “traditional” sense. Our mission is to help in whatever way we can, in hopes of increasing the company’s speed, likelihood and scale of success. It also allows us to emphasize our approach as long term, supportive, performance oriented company builders. Let’s face it, money is cheap, but time and effort are really expensive – for both entrepreneurs and venture capitalists.
A “deep involvement” approach requires making far fewer commitments than most others who have embraced seed investing in recent years – whether angels or venture funds. I have done about one a year across a variety of the more capital efficient healthcare subsectors – healthcare IT, diagnostics, and services. Castlight Health and Ariosa Diagnostics are among several recent examples that illustrate our approach.
In mid-2008, I partnered with Todd Park (x Athenahealth, now CTO of the U.S.) and then Gio Colella (x RelayHealth), both of whom Venrock had funded previously, to explore the opportunity to create a company at the intersection of web – healthcare – consumer. We worked for six months on the project and, in early 2008, seeded and incubated Castlight Health. In that initial round, we invested $333,000 and proceeded to build the company brick by brick, eventually investing $17 million for nearly 20% ownership. Over the last four years, Venrock has devoted every possible resource and connection possible – countless strategy sessions, customer meetings, management recruiting, follow on investor introductions, and the Board now includes a second Venrock partner in Bob Kocher, who still spends more than a day a week with the team. Today, Castlight has the opportunity to become a pivotal participant in the creation of a functional healthcare delivery market, improving care while saving billions of dollars.
Ariosa is a similar story, but one whose roots are found in an unsuccessful Venrock seed investment. We lost $300,000 after nine months in a diagnostic start-up when the CEO, John Stuelpnagel (x Illumina, a Venrock investment), came to the Board with the message that we all had better things to do than continue to push that particular rock uphill. Soon thereafter, in 2009, we seeded the combination of a terrific first time entrepreneur/CEO in Ken Song, then at Venrock, with John as Executive Chairman to tackle new approaches to prenatal molecular diagnostics. Three years later they are leading the race to provide an entirely new and improved standard of care to expectant mothers – where they can confidently assess genetic abnormalities with no risk to the baby at ten weeks of pregnancy.
Success in venture investing is really hard to come by, and with seed investing even more so. No matter what the strategy, there will be failures and even more pivots before those few that succeed become great. That said, as with Castlight and Ariosa, when it works, it is awesome. You can assist in a company’s formative stage; create close and productive relationships with entrepreneurs; as well as build your ownership over subsequent financings. Early help in the project typically leads the team to want to work with no one else but you – in essence, you have become part of the family. This month I made my seed investment for 2012 – a stealth company, also in the healthcare IT space. I think these entrepreneurs would tell you that our track record as active participants in prior seeds, as described by those CEO’s, was the over-riding factor in their decision to work with Venrock. We will do our best not to disappoint them.
In the end, our, and every VC’s, goal is to create great returns for our LP’s. We believe that a targeted, time intensive approach to seed investing is orthogonal to others’ and increases the chance of creating great companies by affording them resources early on that they would not get in other seed models. But it requires a leap of faith and trust between entrepreneur and VC – a leap we are eager to take.
December 9, 2012
By Ray Rothrock
A lot has been said and written about innovation, risk taking, and entrepreneurship. The American capitalistic economy has always been and continues to be the hotbed of innovation and risk taking. It is, in part, what makes the United States one of the greatest countries in the world and its economy the most productive.
People come from all over the world to be entrepreneurs in the United States. Today American universities offer many entrepreneurship courses in all degree categories. It is a wonderful thing. But there is a side of entrepreneurship that is not often taught or even discussed. I’m talking about real world entrepreneurial experiences that seem to happen over and over again. Failure. But it is those failures that ultimately lead to the great American companies, truly great companies.
Everyone knows that not all new ideas succeed in business. That’s part of the process. But how many budding entrepreneurs know that from failure comes great success. Not necessarily a badge of courage, failure is not fun.
Failure is a fact of life. Anyone who dares to do something different, or something important, or something bold will fail at some part of the process. And the truth is, failure is part of the process of innovation and its ultimate success – maybe even the most important part.
In life there is no immunity from failure. But failure is often a prelude to success. What matters is what you do when failure presents itself.
History is full of famous failures -‐ innovators who failed before they were successful. They demonstrated real entrepreneurial grit -‐ the kind that makes great companies.
Did you know that Walt Disney was fired from a newspaper job because he lacked imagination and had no original ideas?
Or that Michael Jordan was cut from his high school basketball team?
Henry Ford lost all the money from his first group of investors without producing a single car. It took him three tries to get Ford Motor Company right.
One of my favorite examples of entrepreneurial grit is Robert Goddard – the inventor of the liquid-fueled rocket. For most of his career, the press ridiculed him for his theories about space flight. In fact, a New York Times editorial in 1920 scoffed at his idea that man could build a rocket capable of reaching the moon.
On July 17, 1969 – the day after the launch of Apollo 11 – the Times wrote a three-‐paragraph editorial titled “A Correction.” It summarized its editorial from 49 years earlier and concluded with the following statement, “Further investigation and experimentation have confirmed the findings of Isaac Newton in the 17th Century and it is now definitely established that a rocket can function in a vacuum as well as in an atmosphere. The Times regrets the error.”
The list of accomplished Americans who failed before they succeeded goes on and on.
Clearly, Winston Churchill was employing his great and powerful skill of observation when he said, “You can count on Americans to do the right thing… after they’ve tried everything else.”
Bringing the discussion to more current times and locales, what can the Silicon Valley inform us about failure. It certainly has had its share of flameouts, as we say in the venture business.
Before Apple launched the Mac in 1984, there was the Lisa. Lisa was a powerful innovative computer that offered many great features we take for granted today. But it lacked sufficient performance to satisfy business users, and failed in the market.
And then there was the Newton, Apple’s early personal digital assistant and tablet platform. Despite investing more than $100 million in Newton, the device failed in the market. Of course, Apple got it right with the iPod, iPhone, and iPad. From a few failures over a decade came Apple’s most spectacular successes.
It is not possible to discuss failure as a prelude to success without mentioning Steve Blank. Steve is now an award‐winning teacher of entrepreneurship at UC Berkeley, Stanford and Columbia. Steve is a force of nature. He is blunt and wicked smart with boundless energy. Like all great entrepreneurs exhibits impatience and urgency all the time.
In his 20 years as a serial entrepreneur in the Silicon Valley, he started or worked in 8 startups. His last startup, Epiphany, was a dot com pioneer in the customer relationship management space and a huge commercial success.
But two startups that Steve lists on his resume and that occurred before Epiphany standout for exactly the opposite reason. In Steve’s own words, they were both “huge craters.” That’s Valley speak for big failures and loss of major investor money. A life‐is‐too‐short kind of guy, Steve has often said that in his career he liked to “fail fast, move on and not look back.” Again, in Valley speak we’d say, “The lemons ripen fast. Next.” Steve is one of those entrepreneurs who picked himself up and went after another innovation after learning amazing lessons around startups.
Sometimes when failure presents itself, you have to reassess. Entrepreneurs are clever if nothing else. But with assets in hand, team assembled, and a few dollars in the bank, a company of mine demonstrated that from failure one can rise to succeed. That company was called Qpass.
In 1995 I provided seed funding for Qpass. The company built an infrastructure to process micro transactions on the Internet just as ecommerce was taking off. Things were going so well that the company early in 2000 filed an S‐1 for an IPO. Then the Internet bubble popped. And all – and I do mean all of Qpass’s customers disappeared literally over night. The company was so close to winning big.
But did we give up. No! Why? Because there was a great team and a working product. The company just needed a market to apply their products! Who could have foreseen the crash in 2001.
Qpass pivoted and became a transaction engine for cellphones. It was the very early days of smart phones and everyone wanted “wallpaper” for their new phone. Qpass made that happen, millions of transactions a month.
A great success, failure, and success again, Qpass was successful because it had a team, capital, and grit, and ultimately a market.
It is clear that there is something very real about the idea of failure as a prelude to success. I seen it many times.
Even when deals are successful, the course to success can be anything but straight up and to the right. In my early years as a venture guy I heard over and over, every week at the partners meetings when our companies were running out of money that “it always takes more time and costs more money to achieve success.”
With limited experience I asked the senior partner at Venrock, “Exactly how much longer does it take, and how much more money does it cost to be successful?” He turned to me and said – “that is a great question, Ray, why don’t you figure that out? So I did.
I spent months pouring through Venrock’s archives and analyzing the data of our winners. At that time, of the 150 or so successful tech deals on which I could get good data, I found that it took about 18 months longer to break even and about 2.5 times more capital than the entrepreneurs originally estimated. These are real numbers based on real data.
A related question easier to answer is just how many successful companies actually accomplish their original business plan on time and on budget. I can tell you that of the 300 or so companies in Venrock’s history that we considered successful, just 5 made their original plan on time and on budget. Just 5.
If you are wanting to be an entrepreneur, these next few paragraphs are for you. After a career of nearly 25 years and 52 direct investments in addition to assisting in hundreds of other Venrock companies, I’ve made a few observations about what works and what doesn’t work and about what the great entrepreneurs do to be successful. You might say it’s my pattern recognition.
First, your goal as an entrepreneur is not to not fail. Your goal is to win. The team that plays, “not to lose” almost never wins. Play to win for your company.
Second, you must be agile. The world changes every day. Be prepared for that. Use your pattern recognition skills to see what works and what doesn’t work. Study your competition. Take calculated risks along the way, not crazy chances, but thoughtful calculated risks. If you sense failure on your current course, then pivot. Regroup. Rethink. Restart.
Third, never give up. Your goal as an entrepreneur is to take risks and build something great. Build a great company and I promise you – the money will follow, not the other way around.
Just Imagine the world without Mickey Mouse, Michael Jordan, or the iPhone.
I have also concluded that there are five things that all great companies have in common.
Great companies and great entrepreneurs have the ability to communicate a vision to its employees, customers and investors. Being able to succinctly, clearly and in an exciting manner tell your mission is where it all starts. I started at Venrock in New York on the 55th floor of 30 Rock. Imagine you are getting on the elevator at 30 Rock to come see me. It is a 60 second ride to the 55th floor. Amazingly, Mr. Rockefeller gets on the elevator with you and of course you recognize him. Like the gentleman he is, he introduces himself and you return the introduction. After the pleasantries he asks, “ What does your company do?” You now have about 30 seconds to answer that question. It turns out this is not an unusual story but it can be difficult to do well. The point is you must project your vision in a clear, crisp and exciting way. You never know when that matters because it matters all the time.
The second trait of a great company is its talented and committed team. Turns out you can’t do it alone and great teams win. I once heard that a great vision without great execution is just a hallucination.
Building a startup is difficult. The third element in success is dedication to company first and above all else. Entrepreneurs who are about themselves and not the enterprise fail and often quickly. Also, smart and savvy employees who’ve joined the team quickly figure this out if it wasn’t obvious in the beginning. If the team goes, so goes the chance of success.
The fourth observation I’ve seen in organizations large and small is goal alignment. Alignment of goals among all the stakeholders is crucial. It is hard to be successful if some stakeholder in the value chain is not successful. Stakeholders are your employees, your investment partners, and most importantly your customers. Alignment is crucial and essential, not just sufficient.
The fifth element to great success is to have fun. Fun is contagious. Fun is the sort of buzz that gets out and suddenly you have more great people wanting to be at the company. Also when things aren’t going so well, and there will be those days, the fun will save you from despair and keep you on track.
This all boils down to people – employees, customers, investors – who must believe in you, your idea, and your vision. This is what the founders of the most successful companies have done. I’ve seen it many, many times.
The founder of Venrock, Laurance Rockefeller, followed his grandfather’s, John D. Rockefeller, inspiration. These words you can read on the plaque at skating rink at 30 Rock. It reads:
“If you want to succeed, you should strike out on new paths rather than travel the worn paths of accepted success.
That is what being an entrepreneur is all about. Striking out on new untested paths. There will be failures along that path. It’s up to you what you do with those failures and how you turn them into successes.
November 28, 2012
By David Pakman
I was invited to testify in front of the IP/Competition/Internet Subcommittee of the House Judiciary Committee on the state of internet music licensing. I presented the following testimony today:
Testimony of David B. Pakman
Partner
Venrock
U.S. House of Representatives Committee on the Judiciary
Subcommittee on Intellectual Property, Competition and the Internet
Hearing on “Music Licensing Part One: Legislation in the 112th Congress”
November 28, 2012
Chairman Goodlatte, Congressman Watt, and Members of the Subcommittee:
Thank you for inviting me to testify today regarding the state of internet music radio licensing. I am a venture capitalist with the firm Venrock. We invest in early stage internet, healthcare and energy companies and work to build them into successful, stand-alone, high-growth businesses. We look to invest in outstanding entrepreneurs intending to bring exciting new products to very large and vibrant markets. Our firm has invested more than $2.6 billion in more than 450 companies over the past 40 years. These investments include Apple, Athenahealth, Check Point Software, Intel and DoubleClick.
Although I was previously a multi-time entrepreneur in the digital music business, we are not currently investors in any digital music or internet radio companies.
As venture capitalists, we evaluate new companies largely based on three criteria: the abilities of the team, the size and conditions of the market the company aims to enter, and the quality of the product. Although we have met many great entrepreneurs with great product ideas, we have resisted investing in digital music largely for one reason — the complications and conditions of the state of music licensing. The digital music business is one of the most perilous of all internet businesses. We are skeptical, under the current licensing regime, that profitable stand-alone digital music companies can be built. In fact, hundreds of millions of dollars of venture capital have been lost in failed attempts to launch sustainable companies in this market. While our industry is used to failure, the failure rate of digital music companies is among the highest of any industry we have evaluated. This is solely due to the over-burdensome royalty requirements imposed upon digital music licensees by record companies under both voluntary and compulsory rate structures. The compulsory royalty rates imposed upon internet radio companies render them non-investible businesses from the perspective of many VCs.
The internet has delivered unprecedented innovation to the music community and allowed more and more artists to be heard unfiltered by the incumbent major record labels and terrestrial radio stations. I believe more people listen to a more diverse set of music today than ever before in our time. However the companies trying to deliver these innovative services are unsustainable under the current rates and frequently shut down once their investors grow tired of subsidizing these high rates and elusive profits fail to arrive at any scale. Pandora is a company that has done an amazing job of trying to make their business work at the incredibly high rates under which it currently operates — but their quarterly earnings reports make abundantly clear why they are virtually alone in this category. Regretfully, I cannot point to a single stand-alone business that operates profitably in internet radio. In fact, in all of digital music, only very large companies who subsidize their music efforts with profits from elsewhere in their business currently survive as distributors or retailers of music.
There was a time when the record companies were part of conglomerate media companies which also distributed and licensed the music they controlled. These joint “owners” and “users” of music appreciated the need for healthy economics on both sides of a license. Once the internet emerged, new distributors or “users” of music grew outside of major label ownership. Perhaps in response to their failure to prosper as internet distributors of music, the major labels took a short-term approach and refused to license their music on terms that would allow the “music users” to enjoy healthy businesses. To this day, more than 15 years since I first entered the digital music business, I remain baffled by this practice. In my opinion, it is in the long-term best interest of music rights holders to encourage a healthy, profitable digital music business that attracts investment capital, encourages innovation, and indeed celebrates the successes of the licensees of its music. A healthy future for the recorded music business demands an ecosystem of hundreds or even thousands of successful music licensees, prospering by delivering innovative music services to the global internet. Yet the actions of the RIAA seem counter to this very goal. They have appeared on the opposite side of every issue facing digital music innovators, opposed to sensible licensing rates meant to achieve a healthy market. Regretfully, and perhaps most upsetting to all of us, the artists are the ones who suffer most. They depend on the actions of their labels to encourage a healthy market to grow and have little influence on the decisions of the RIAA.
I am a believer in the value of open and unfettered markets and generally prefer market-based solutions. Unfortunately, the music industry is controlled by a mere three major labels, two of them controlling about two-thirds of all record sales. That amount of concentrated monopoly power has prevented a free market from operating and letting a healthy group of music licensees thrive. That said, I do believe there has been great value in compulsory licensing regimes such as the one governing internet radio. This structure has allowed internet radio companies to license the catalogs of all record labels and tens of thousands of independent artists, not just the dominant majors, bringing unprecedented exposure and revenue to the vibrant long tail of indie music — often where music innovation itself gestates.
The problem is simply that the rates available to internet radio companies under this compulsory license are too high. They frighten off investment capital, prevent great entrepreneurs from innovating, and kill off exciting attempts to bring great new music services to consumers. American entrepreneurship and innovation require vibrant markets unburdened by artificially high rate structures. I am hopeful you will see through the rhetoric often employed in this debate and make sensible policy based on sound economics. I would like nothing more than to invest in the many entrepreneurs we have met who have great ideas about the future of music. With a sensible rate structure in place, our focus on this market could return.
Please note: the views expressed herein are my own and are not necessarily those held by Venrock or other individual partners at the firm.
November 1, 2012
By David Pakman
Today we announced our investment in Dollar Shave Club, a consumer subscription service focused on men’s grooming. I am honored to be joining the board of the company Michael Dubin has so successfully introduced to the world.
eCommerce companies can be challenging for venture investors. They tend to require lots of capital and usually have low multiples. There are a few cases where outliers can emerge. In subscription commerce, a few rules have to be met for large companies to be created. First, the market must be enormously large. Subscription, by its very nature, usually appeals to a subset of any market it aims to serve. Consumers must intend to make a long-term commitment to a brand in order to subscribe and must not tire of of the service. My experience running eMusic taught me the key metrics to look for in subscription models in order for large companies to be built. Churn rates must be very low. If your average customer leaves after, say, nine months, a large company cannot be built. Your average customer must stay in the service for many years. Think cable, satellite radio, and Netflix. These companies have average monthly churn rates of less than 3%. In the razor market, brand loyalty is measured on the order of twenty-five years. You generally can acquire a customer for a lifetime. And that is exactly what Dollar Shave Club aims to do.
Even more exciting, however, is how Michael sets out to build the brand. He believes that brands are now publishers and must market themselves largely through content. His overwhelmingly successful launch video, viewed more than seven million times, instantly went viral and jointly conveyed the brand personality and the benefits of the service deftly. In this age where social media dominates our collective conversations, we believe very large brands can be built without the widespread use of paid traditional media. It will take several years for the incumbent CPG companies to master these new marketing arts. In the meantime, companies like DSC emerge and get very large despite the massive spend of the traditional guys. We refer to this as asymmetric marketing — no matter how much money spent by the incumbent, the new brand can still become very large for tiny fractions of that spend.
Michael and his fine team have exciting plans. They look to build an enormously successful men’s lifestyle brand. I hope you’ll give Dollar Shave Club a try. I loved the product so much, I invested in the company. 
October 23, 2012
By Bob Kocher
(Post co-authored by Nikhil Sahni and Bob Kocher. A version of this post also appeared at HealthAffairs Blog.)
America’s health care market does not work well. It is inefficient, asymmetric, and in most cases not particularly competitive. The Affordable Care Act (ACA) legislated a myriad of changes to reform and improve insurance markets with exchanges as a centerpiece. While exchanges and reforms like subsidies, guaranteed issues, age bands, community rating, reinsurance, and risk adjustment are all helpful, a huge opportunity remains to segment the health care market around different categories of patient demand.
Basic economic theory states that a well-functioning market is aligned between supply and demand. Ideally, suppliers and customers align around the preferences of the customers – the unit of alignment is driven by the demand side. When we examine health care, we see demand falling into three segments: healthy people who have episodic needs, chronic disease patients with predictable needs, and highly complex patients with less predictable needs. Given the high variance between the three submarkets, we believe that each of these segments should be thought of as a discrete market and served by different types of insurance products, payment models, and health care providers.
We believe that this is necessary since each of these segments values providers differently. For a healthy patient with periodic needs, convenience and experience are likely to matter more than continuity with a provider and care team. Conversely, chronic disease patients are likely to value clinical outcome attainment, complication avoidance, and care coordination very highly. And complex patients will need and value the customization, access to research, and specialization that the latest medical breakthroughs can deliver. Not only are the sources of value different, but so are the delivery systems and payment models needed to align incentives for value.
Re-Envisioning The Health Care Market
Healthy patients. For healthy patients with periodic needs, an episodic approach is also the most economically efficient. These patients do not require the fixed cost of a large system of care and instead should purchase discrete specific services — ideally a bundle of care to deliver a specific pre-defined outcome. In this model, a patient buys insurance and broad access to providers and, when a health need arises, receives a budget for his or her episode of care. We favor reference-based pricing so the patient can purchase an episode outcome without additional cost sharing while retaining the option to pay more if he or she chooses. The market is thus incentivized to manage to a specific outcome in the most cost-effective way and to compete on delivering extra value for those patients who are willing to pay more.
To meet demand for bundled payments organized around episode outcomes, the supply-side should realign into specialized care units that focus on a few procedures, organ systems, or disease areas — a broad PPO network. This has historically proven successful for elective conditions: the Dartmouth Spine Center has a surgery rate of 10 percent –- lower than the national rate –- with 100 percent of patients reporting their needs were well met. Other examples of episodic providers include ambulatory surgery centers, orthopedic and cardiovascular specialty hospitals. We also foresee capitated systems managing population health procuring discrete episode services from specialty providers, since these providers should be able to offer equal or better outcomes at lower prices than an Accountable Care Organization (ACO), integrated delivery system, or multispecialty group.
Patients with chronic disease. For chronic disease patients, the primary outcome goal is to minimize a condition’s short-term inconveniences and long-term complications. The market should thus incentivize a long-term perspective centered on patient engagement, adherence, and side-effect prevention. On the demand-side, customers should purchase care from a provider able to care for all aspects of a patient’s condition, which creates incentives for all players –- patients, doctors, providers, and drugmakers –- to manage cost. The basis of competition should be the ability to deliver annual health and complication avoidance at lower costs.
In this model, incentives are most aligned when providers are paid using a risk-adjusted capitated payment. To compete, providers should organize in organizations such as ACOs, Patient-Centered Medical Homes (PCMHs), multispecialty groups, or integrated delivery systems with strong capabilities in managing risk, population health, and costs. Examples of these types of systems are Group Health, Geisinger, Kaiser Permanente, Healthcare Partners, and CareMore. In this model, incentives for patients to adhere to treatment plans, and remain in the system of care, are reinforcing.
Complex patients. Finally, there are certain conditions that are too complex to fit into either market, such as complex cancers, high acuity conditions, and rare diseases. These conditions often exhibit both chronic condition and episodic characteristics and are best managed by academic medical centers or high-acuity specialty facilities like comprehensive cancer centers and children’s hospitals.
Our view is that the current fee-for-service system is the best approach for handling these cases. To constrain inflation and encourage competition, fee for service should be coupled with utilization review, incentives to use evidence-based care, and transparency around risk-adjusted outcomes and expected out-of-pocket costs. Paying for these as episodes will not work because high patient heterogeneity exists and the size of the market cannot support competition at the episode-level. Moreover, it is hard to define quality and value for many of these types of patients and conditions.
The Way Forward: Turning Theory Into Practice
These payment models and provider organization approaches maximize value by encouraging healthy patients to get their conditions fully resolved for a fixed price, chronic disease patients to access a care team rewarded for avoiding complications, and complex patients to receive customized care and access from specialists. Furthermore, each of the three submarkets –- healthy patients, chronic disease, and complex and rare conditions –- is large enough to be self-sustaining and attractive. We estimate that the chronic condition market is $1.1 trillion, the episodic care market is $760 billion, and the residual fee-for-service complex and rare conditions market is $900 billion in 2011.
The three markets are growing at similar rates. (See exhibit 1, click to enlarge.) If the economics are aligned, they will also be able to create growing value for patients through productivity gains, falling prices, better outcomes, and far better patient experiences. Fortunately, each of these markets and provider models exist today in many geographies. They are just not widespread enough or coexistent.
Giving consumers more insurance options. Transforming theory into a tangible system presents certain challenges, which we believe will be overcome in the next few years. First, patients need insurance product choices. The advent of state exchanges and community rating are catalytic events that could lead to this reorganization if exchanges permit reference-based pricing plans and allow integrated delivery offerings with narrow networks. The employer market is already moving down this path with the marked increase in defined-contribution health benefits supported by private exchanges, where higher cost sharing and narrow network plans are often offered. We are also seeing many more employers shifting to reference-based pricing and episode bundling approaches for elective conditions to rewards employees for selecting high-quality, lower-cost providers, and to encourage providers to offer a full course of care for a bundled price.
Provider restructuring. On the provider side, theoretically overhead should not increase, but should decrease. The largest providers that can pull in adequate populations will focus on patient and population health, a trend already being seen with groups like Partners Healthcare shifting to an ACO and capitated payment orientation. Competition will also lead to emergence of more specialized providers for acute and episodic care among community hospitals. Already for complex and rare conditions, regional centers like the Mayo Clinic and traditional academic medical centers exist. The push to submarkets should accelerate the provider landscape transformation and reduce the extraneous providers that lack focus and a niche.
The biggest barrier today is linking benefit designs and reimbursement models with patient segments. Once commercial payers approach providers with products that segregate patients into these segments with corresponding reimbursement, providers will rapidly reorganize to serve the segments that they are most competitive at supporting. While this approach does generate more ACOs and PCMHs, the past year has shown that these can be formed relatively quickly to meet demand. The emergence of retail-oriented primary care providers also indicates that episodic care models are able to proliferate and scale in response to demand.
Addressing changes in consumer health needs. One additional challenge will be how patients react when health needs change mid-year. All patients regardless of submarket will have certain basic aspects: insurance, preventive care, and consumer protections. The value in longitudinal care is irrespective of submarket and hugely valuable to reducing the growth of health care costs. As health needs adjust for patients during the year, we see two potential solutions. First, patients will still have access to other submarkets to receive the necessary care. Second, the pool of patients who will need product adjustments will be significant, and the value cannot be ignored by payers. Thus, some supplemental plans may emerge that enable patients to gain access to additional types of providers.
Matching patient needs and demand with specific types of providers and reimbursement approaches is better for patients. If incentives are aligned with the types of value desired by different types of patients, price increases should no longer outpace value creation, and providers will compete and differentiate in ways that are most valued by their core patient constituencies. Doing this through the creation of well-functioning submarkets — instead of forcing a single, ill-functioning market — should also unleash productivity gains as providers specialize around narrower segments and stop investing in services that they do not do well, do at scale, or need.
Overcoming the barriers will be a significant challenge. However, we are already seeing some shifting in the health care landscape, in addition to certain provisions in the ACA which will come online in the upcoming years and add further movement.
October 6, 2012
By David Pakman
On Friday night, Chris Dixon (@cdixon), Jonathan Glick (@jonathanglick), Peter Kafka (@pkafka), Todd Sawicki (@sawickipedia) and I had a conversation on Twitter about media concentration and where the power lies these days. It was inspired by an Erin Griffith (@eringriffith) post called “Spotify’s Best Chance at Beating the Digital Streaming “Suicide Pact” Is With Ads.” Chris assigned me the homework of blogging about it, so here goes.
Typically, as a distributor gains scale with lots of customers, we expect market power to accrue to them and provide them negotiating power over rights and rates of content from the content owners. As we will see below, this is true in some forms of media, but not in others. What types of media are more prone to distributor power? Jonathan offers us a framework:
- Content tends to be more fungible and less likely to benefit from concentration when it takes less time/cost to create a hit, the value of a hit is in decline, many substitutional offerings exist, aggregators have existing strong market power, and/or a strong motivation exists for self-publishing.
- Content tends to be less fungible and offers concentrators great benefit when it takes significant time/cost to create a hit, the value of a hit is increasing or sustained, there are few substitutions available (by regulation, uniqueness or otherwise), aggregators have low value, and/or content creators have strong and sustaining brands.
- A shift seems to occur allowing distributors to amass power when a disruption materializes in the format/form of the media object itself (usually the new object has higher volume, velocity, virality). Some recent examples, perhaps, are YouTube clips, Tweets and Kindle singles.
- Any media that’s worth owning is worth concentrating and there will always be capital available to do so. Only limit is regulators, until a format disruption occurs.
Let’s examine the state of many top media categories.
Music
One assumption many people have made about Spotify is that, while their current economics as provided to them by label licensing rates are essentially unsustainable, once they reach scale, they will have leverage over record labels and will be able to reduce their on-demand royalty rates. The reason this won’t happen is because of extreme continued concentration of supply. In 1999, when Napster was the harbinger of the demise of the recorded music business, there were six major labels who controlled about seventy-five per cent of the commercial recorded music market. With the EU’s recent approval of UMG’s purchase of EMI, there are now only three major labels. They control about seventy per cent of the world’s music catalogs. Indies have made a good run, and have grown in importance, but the world’s superstars are, for the most part, on major labels. And you just can’t operate a digital music retailer at scale without hit music content. I tried, when I ran eMusic for five years. We were the largest online retailer of indie music, but only reached about a half a million subs at our peak and came to believe that we could never be significantly larger than that without major label content.
So, suppose Spotify reaches 50M listeners and 10M paid subs? Or even 50M paid subs? Will they be able to demand better rates? No. Because they don’t have a service without the full catalogs from those three majors. If even one of them pulled their catalog, at least twenty per cent of all Spotify’s content would disappear. All the playlists on the service would break. And a third of the hits would be gone. Paying consumers would never stand for it and the service would crumble. The labels know this. They know they have fully concentrated power. In fact, I would bet that if Spotify ever reaches that scale, the majors will demand even higher rates, and they may be able to get them. Highly concentrated popular content allows owners to extract unprofitable rights deals. Even though Spotify is building listener scale, the absolute dollars they pay to labels still small, given that streaming rates are very low per play.
Does this mean Spotify has no future? That’s a different discussion, and my view is they do, if they diversify into other content types. But the music business for them will be, at best, a twenty per cent gross margin business (it was two per cent last year), and that is tough. (Remember, even Apple, the world’s largest music retailer did not have leverage to hold rates steady and gave in to rate increases imposed by the majors.)
So, in music, the power is in the hands of the content owners, not the distributors. Will this change? Will there be fragmentation among ownership? I hope so, and it is conceivable, but the amount of time it will take for a highly fragmented market to occur could be 10 – 50 years. At this rate, we will likely have two major labels within the next three years.
TV
I blogged about Hunter Walk’s view that TV content sits in three main buckets, No Substitute, Nice to see, and Filler. If you want to be an MVPD, you must have the No Substitute and the Nice to see content. Sure, you could try to operate a service without the Filler, but that is not how programming is sold. It’s sold by the channel, and each channel has its mix of each of the three tiers above. (Actually, it is sold as a package of channels, to be more precise. If you want MTV, you must also take Logo, etc.) Whenever an MVPD gets in a rate dispute with a programmer and the channels get pulled, the customers go crazy, put huge pressure on the MVPD, and start switching services. The MVPD generally gets beat. This is why Comcast bought NBC…to finally have some hedge protection against the power continuing to concentrate in the hands of the programmers. So, in traditionally delivered TV, the power is in the hands of programmers. I am told the NFL Sunday Ticket deal leaves DirecTV with essentially no margin in ways similar to online music rights deals.
How might this change? Well, one scenario is that the rise of IP-delivered TV programming (Netflix, Amazon, Apple TV, YouTube, etc.) breaks the channel model back into shows, since that is all we care about as consumers. In that case, the supply is quite fragmented. You can operate an IP-delivered video service without all the content (in fact, all of them do today, since none of them offer a package as complete as an MVPD). The challenge here is that the programmers are pricing their hit content in such a way as to make it economically challenging for you to assemble all of your shows on-demand, and/or they are withholding key programming from IP delivery unless you authenticate as a paying MVPD subscriber. Note that YouTube is attacking this market differently, and is going after the time we spend watching Filler programming. I think they will succeed.
News
In this category, supply is highly diversified. Content is highly substitutional. While important brands exist here, and we show a preference for many of them, the power exists in the hands of the distributor. Audience size brings increased revenue (whether ad-supported or consumer paid). This content category is highly fungible. A storm-is-a-brewing because of social media, however. Many prominent writers (and ones less so) are building enormous social media brands sometimes bigger and more loyal than the audience size of the news distributors themselves.
Books/eBooks
As Benedict Evans (@benedictevans) points out, there is considerable diversity on the supply side here, with many book publishers and one dominant eBook distributor today in Amazon. In traditional book retailing, there is less of an all-or-nothing phenomenon It is possible to create retailers without complete book catalogs. Nevertheless, a hit dynamic happens here too, and it’s hard to be a leading seller of books/eBooks if you don’t carry Harry Potter or whatever 4-5 titles dominate the bestseller lists. Today, in eBooks, Amazon has the balance of power and is certainly exercising it on pricing. Publishers hope Apple and B&N pose some competition here.
Generally, we expect the distributor to have power when supply is highly fragmented, and most media follow that axiom. While the internet has allowed a massive diversity of publishers and contributors to enter the market, big media ownership of “hit” content has been consolidating to extend their grip on pricing in the short-term. It’s reasonable to expect, however, that more and more “hits” will come from outside the consolidated super-structure. In TV, one could argue that nothing stops Netflix from buying high-end video programming direct from content creators, for example. But in the last few years, the networks (who often own/fund production companies) have worked hard to prevent this from happening and try to extract full value from their content before it gets into Netflix’s hands. In written media, super-blogs employ well-established mainstream writers. And in music, Adele is signed to an indie. But where hit media remains consolidated, media giants will exercise leverage.
September 26, 2012
By David Pakman
To build the online media giants of tomorrow, companies need models where the costs of both content and distribution are near zero. Google, Facebook, Twitter, Instagram, Pinterest and countless others employ this model. These models allow scale to emerge at very low-cost.
And in these particular examples, the scale achieved is astronomical — on the order of hundreds of millions or billions of users. In thinking through how to build businesses around this scale, a lens emerges: what kind of traffic produces that scale?
In the case of social media companies like Facebook, Twitter, Instagram, Pinterest and Tumblr, the root activity on the site is the sharing of content. But the content shared on those sites differs widely, particularly around which content attracts the most engagement. Broadly, Facebook attracts photo sharing and light-hearted personal content. Twitter responds far better to true news and topical information sharing. Tumblr seems to resonate around entertainment and creative media. And Pinterest lights up around home design, apparel, food and other commercial items. (I am taking some liberties by generalizing, but you get the point.)
At the scale of Facebook, you could have your users share almost anything and still be able to build a large business, purely by loading the site up with lots of advertising that is (at very least) rudimentary targeted. At that scale, you can reach billions of dollars in revenue. And I believe, even at their scale, their ad load will need to further increase (along with their targeting abilities) in order to signficantly grow the business. (They also must move advertising off-site, as they are now doing, which I detail in this post.)
But if your service attracts particular verticals of content engagement, not all content is created equal, and some is much more valuable than others.
I divide traffic/content engagement into three buckets: topical, informational and transactional.
- Topical content engagement is what is mostly taking place on Facebook, Tumblr and Twitter. It is comprised of posts generally linking to news, information, family, entertainment, photos, etc. The signal in this stream is the lowest of the three in terms of monetizeable traffic.
- Informational content, often found on sites like SlideShare, Zillow and automotive blogs is the sharing of information that is near the top of the funnel for demand creation. Things like business white-papers or product reviews are perfect examples of informational traffic. This traffic has significantly more value than topical traffic, and excels at attracting endemic advertisers in the key verticals of travel, auto, tech, financial services, real estate and pharma, to name a few. Intent is well understood in this traffic and the signal is strong.
- Transactional content is traffic that is essentially one click away from a purchase. Obviously, traffic found on ecommerce sites is the prime example of this and search traffic is a close second, but increasingly Pinterest is proving itself to be a massive source of high-converting traffic. Here, intent is clear and the signal is strongest.
I believe, with the Facebook share price correction, we are entering a period where sites based on topical content traffic are going to struggle in generating value for themselves. Much of the valuations around the consumer web are rationalizing, and because of that, investors are once again focused on understanding business models. Social media properties building traffic around informational or transactional content will be significantly more valuable than topical ones in this forthcoming period. This general notion that every social property with scale will be able to create their own custom “social ad” units and monetize themselves consistent with their earlier valuations, I think, is flawed, unless those properties are in the two higher tiers of content.
September 13, 2012
By Ray Rothrock
All, I just had to post this article from the Tech Review. It is spot on. Sadly, I’m not a billionaire, but I’m working in every way I know to think big and convince those individuals who can to invest in major planet changing projects. More to come on this subject.
The former chief technology officer of Microsoft on why he’s backing the nuclear energy startup TerraPower.
NATHAN MYHRVOLD
Wednesday, September 12, 2012
For some technologists, it’s enough to build something that makes them financially successful. They retire happily. Others stay with the company they founded for years and years, enthralled with the platform it gives them. Think how different the work Steve Jobs did at Apple in 2010 was from the innovative ride he took in the 1970s.
A different kind of challenge is to start something new. Once you’ve made it, a new venture carries some disadvantages. It will be smaller than your last company, and more frustrating. Startups require a level of commitment not everyone is ready for after tasting success. On the other hand, there’s no better time than that to be an entrepreneur. You’re not gambling your family’s entire future on what happens next. That is why many accomplished technologists are out in the trenches, leading and funding startups in unprecedented areas.
Jeff Bezos has Blue Origin, a company that builds spaceships. Elon Musk has Tesla, an electric-car company, and SpaceX, another rocket-ship company. Bill Gates took on big challenges in the developing world—combating malaria, HIV, and poverty. He is also funding inventive new companies at the cutting edge of technology. I’m involved in some of them, including TerraPower, which we formed to commercialize a promising new kind of nuclear reactor.
There are few technologies more daunting to inventors (and investors) than nuclear power. On top of the logistics, science, and engineering, you have to deal with the regulations and politics. In the 1970s, much of the world became afraid of nuclear energy, and last year’s events in Fukushima haven’t exactly assuaged those fears.
So why would any rational group of people create a nuclear power company? Part of the reason is that Bill and I have been primed to think long-term. We have the experience and resources to look for game-changing ideas—and the confidence to act when we think we’ve found one. Other technologists who fund ambitious projects have similar motivations. Elon Musk and Jeff Bezos are literally reaching for the stars because they believe NASA and its traditional suppliers can’t innovate at the same rate they can.
In the next few decades, we need more technology leaders to reach for some very big advances. If 20 of us were to try to solve energy problems—with carbon capture and storage, or perhaps some other crazy idea—maybe one or two of us would actually succeed. If nobody tries, we’ll all certainly fail.
I believe the world will need to rely on nuclear energy. A looming energy crisis will force us to rework the underpinnings of our energy economy. That happened last in the 19th century, when we moved at unprecedented scale toward gas and oil. The 20th century didn’t require a big switcheroo, but looking into the 21st century, it’s clear that we have a much bigger challenge.
As China, India, Brazil, and other parts of the developing world raise their standard of living, they’ll want a lifestyle—and therefore a degree of energy consumption—that matches ours in the United States. Meanwhile, our own energy consumption increases. To meet these demands, the world’s energy generation capability will have to multiply by a factor of at least five in this century, and possibly more.
What about renewable energy? Unfortunately, no such technology can completely replace fossil fuels, which provide base-load power all day and night, regardless of whether the wind is blowing or the sun is shining. There is no carbon-free base-load power source except nuclear energy.
Let’s be clear: conventional nuclear energy has drawbacks, principally that it relies on enriched uranium. That’s problematic for several reasons. In the first place, there’s not that much uranium: if you tried to scale conventional nuclear energy to meet the world’s energy needs, you’d run out. And the enrichment process required to use natural uranium in today’s light-water reactors is complicated, expensive, and wasteful. In the U.S., more than 700,000 metric tons of depleted uranium—the by-product of enrichment—sits in storage.
TerraPower’s technology is designed to use that depleted uranium as fuel, turning the cheap by-product of today’s reactors into enough electricity to power every home in America for 1,000 years. The technology would also virtually eliminate the need for new enrichment facilities, which is important because enriched uranium is a proliferation risk. It can be used to make bombs, and so can plutonium, another by-product of the nuclear fuel cycles in use today.
TerraPower offers a path to zero-carbon, proliferation-resistant energy. Yes, there are a lot of challenges—scientific, engineering, and above all, political. The time it takes to develop a nuclear reactor and get it licensed is so daunting that it would be a crazy proposition for any ordinary entrepreneur.
But we are not going it alone or starting from a blank slate. TerraPower is building on decades of research at the U.S. national labs, and some of those labs are now doing important contract work to help us perfect the designs. We’re also working with the U.S. Nuclear Regulatory Commission, and similar agencies in other countries, to help governments understand the details of new types of reactors so that they can regulate them when the technology is ready for commercial deployment.
Though we believe there’s a lot of good TerraPower can do for the world, it’s a for-profit venture. It has to be: competing commercially is the only way any energy option can become sustainable. That said, TerraPower’s investors, which include Khosla Ventures and Charles River Ventures, share the long-term view of its founders. They recognize that the biggest returns come from the biggest advances, and those take time. That long-term view makes it possible to invest in innovation that could revolutionize our energy infrastructure.
Like Jeff Bezos and Elon Musk, I was once a little boy who played with model rockets and aspired to learn nuclear physics. Back then, the idea of science as a dynamic thing that can change lives was captivating. It still is. Our challenge now, especially for those of us whose financial success is the greatest, is to think big. (Ray’s emphasis)
August 26, 2012
By Ray Rothrock
Neil Armstrong was America’s hero of heros. While he would never want this said of him because, as he said, it took tens of thousands of people to get us to the Moon and it was only a 50 50 chance he would actually land on the moon, this is what he is. It did for sure, but he did take the first step and that was not easy. Walter Cronkite once said of Armstrong that 500 years from now when the history books are written, the 20th century will be remembered for Man Landing on the Moon — and Neil Armstrong. Why? Cronkite clearly a student of history observed that history books today regarding the 15th century only talk about Christopher Columbus and the discovery of the New World, and in that order. You see in time, wars, politics, boundary disputes, and the like are all irrelevant when compared to humankind’s quest to discover new things, new worlds, and new ideas.
I was lucky enough to know Neil and his wife Carol. They were so generous with their time and home letting Nathaniel and I stay with them on our trip across America to college in 2009. Like many, the first I had heard of him was when I sat glued to the TV watching that first step after starring for hours at the TV screen of that black and white moonscape just waiting for him to come down the ladder. Later in life, he helped me with a little company, space.com, back in the 1990s. What fun that was despite that it didn’t work out too well. He was always a trooper, always had good ideas, and always brought good sense to our board discussions. And, once he told the board the story of why the pilot sits in the left hand seat of an airplane. It’s a good one told to Neil by his original flight instructor when he was 15 who happened to with the Wright Brothers when it came to pass. You can imagine he had a lot of great stories. Nathaniel and I listened for hours!
We were together at a board meeting when SpaceShipOne made its successful voyage to the edge of space. There he was, clued to the TV screen pointing out everything the news people were not. He commented on the engineering, the trajectory, the issues and concerns, but mostly he commented on how great it was to see this endeavor. While skeptical of commercial space flight, he never thought it a bad idea for folks to try.
Neil always thought he knew his place in the world. Last year I inquired of him to be the keynote speaker at the National Convention of Tau Beta Pi, the national engineering honor society, and where 400 or 500 of America’s top engineers gather each year. He politely declined saying something like, ‘if I could do it justice I would but I’m afraid the bar is very high to address a distinguished group like this and at my age I fear I would let them down.’
So Neil, we will miss you very much. We will miss your subtle and humble leadership on matters of national importance and we will miss your always optimistic smile and charm. As he inspired me to think that, if you don’t invest in the future, you will have no future.
Nathaniel, Neil, Ray
May 2, 2012
By Ray Rothrock
Good morning, everyone, and welcome to the NVCA 2012 Annual Meeting. My name is Ray Rothrock, a partner at Venrock.
It’s a great pleasure for me to be here this morning and a special honor to begin my new role as Chair of the Board of Directors of this amazing organization with all of you here today.
By all measures, the past 12 months have been productive and successful for the NVCA, culminating in the passage of the JOBS Act, which will have a huge impact on our mission of fostering innovation and entrepreneur. It’s quite possible this might be the ’34 Act of the 21st Century. Time will tell.
There are a lot of people who worked hard on the JOBS Act over the past 12 months. But there is one person I especially want to thank for his leadership, and that is Paul Maeder the outgoing Chair. Paul’s leadership of the NVCA stands out – as he does –for its unique blend of powerful ideas touched with a great sense of humor. We will certainly miss Paul in the coming year, but hope he remembers us when he finds his next big deal!
I’d also like to acknowledge our outgoing directors, who were instrumental in our recent successes. And of course Mark Heesen and the rest of the staff at the NVCA deserve a huge shout out for their strategy, commitment, tenaciousness and good old hard work that makes the job of being an NVCA director look easy.
Thank you one and all.
I’ve been part of the venture capital industry for the last 24 years. During that time, the industry has grown and changed so much. We’ve had our ups and downs, but through everything I can honestly say that there has never been a day in the last 24 years that I wasn’t proud to be doing this work. Reconnecting with many of you is wonderful.
That’s because at the end of the day, our mission as venture capitalists is to discover the very best entrepreneurs with the very best ideas, and help them build and grow companies. The capital and sponsorship we provide help eliminate barriers and reduce friction that might otherwise impede their growth. And when they are successful, our limited partners and we share in their success.
Even more important, the American people benefit from the success of innovation and entrepreneurs – through great new life changing products and services, through outsized contributions to the American economy and its global competitiveness, and through jobs. This is the American story.
History has shown us that when bright entrepreneurs are given a chance and the capital, they can create great companies and in many cases great industries. Semiconductors, personal computing, local area networking, wide area networking, bio pharmaceuticals, medical devices, overnight delivery, ecommerce, social networking – the list of industries that came into being because of the partnership between entrepreneurs and venture capitalists goes on and on.
Now, most of the people in this room are painfully aware that the venture industry is coming out of a relatively bleak decade, perhaps an understatement. I’m sure we’re all happy to put it behind us. And while our economy is improving after the Great Recession of 2008, its global aftermath persists, creating a lingering uncertainty.
Through this entire gloomy decade, I’ve been continually amazed at how entrepreneurs just don’t seem to read the newspaper, watch TV or the news. And if they do, that just doesn’t seem to stop them. They keep on looking for opportunities to bring great ideas to life. Their ideas, their belief in a better future and their unflagging optimism is inspiring.
This year, we are seeing a renewal of the IPO and the public market in general. Frank Quattrone’s remarks yesterday show this to be the case. The renewal is stoked in part by companies reaching the scale to go public, but also by the buy side seeing these young companies up close, and having enough confidence in them to buy their stock and watch them grow.
The public market is so very important to venture. I don’t think we fully grokked its impact until it went away a decade ago. Besides liquidity for our startup dollars, you may already know that 92% of all job creation from successful venture backed companies comes after the IPO. Further – and I’ve said this many times – the public markets keep the M&A process honest and active. When growing companies have choices, everyone wins.
So in this next year – as the JOBS Act takes hold, as the public markets pay more attention to our startups, as our limited partners start to get a return on their invested capital – we all need to keep in mind that the company creation process is an essential element of the growth and prosperity of our economy and our way of life. This industry matters for the nation, and for the world. We must keep it strong.
This process is uniquely American. The industry is changing, yes. We’ll talk about some of that today in our sessions. But these changes are good. And just as entrepreneurs invent new products and industries, as venture capitalists we must reinvent ourselves to better partner with them.
Let me wrap up with one short story.
When I started at Venrock in 1988, we were backed 100% by the Rockefellers. Every year, like all good venture capitalists, we would give our annual report to our investors. In the room were David Rockefeller, Laurance Rockefeller, their aides, and many other family members. And every year we would go through our successes and our failures, giving a completely transparent report. Mr. Crisp, our CEO, held nothing back.
Our founder, Laurance Rockefeller, would sit patiently in the front row taking notes. There would be questions sprinkled all through out the presentation, mostly details about this or that company. But every year he would ask the same questions at the end of the report:
How many people does the portfolio employ?
How much wealth for the companies and their shareholders was realized?
What incremental tax basis did we create?
What impact to the American economic landscape did we have?
That’s because for Mr. Rockefeller, venture capital was not just about the return on investment. It was also about the impact that entrepreneurs and their companies could have on people’s lives and on their well-being. It was in his DNA as investor and visionary. It’s what drove him to found Venrock and start what today is a 74 year tradition.
It may sound a little corny, but it was real. And for me, at that most impressionable time in my professional life, his view of why we are venture capitalists still resonates today.
In a few moments, we’ll hear from another superangel and statesman of our industry who also carries the highest regard for entrepreneurs and their impact on society: Arthur Rock. I hope it inspires you to remember that while our industry may grow and it may shrink, at the end of the day it’s about building great companies with great entrepreneurs.
Let’s Connect with them. Let’s Discover with them. And Let’s be Inspired by them. If we do this right, the all the rest will follow.
Thank you, and enjoy this meeting.
April 6, 2012
By Ray Rothrock
Today, in the Rose Garden at the White House at about 2:40, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act. This morning when I departed my hotel it was overcast and pretty chilly outside. I suddenly regretted not having my overcoat. But, as the morning past and early afternoon arrived it suddenly was a beautiful day with tulips in full bloom everywhere at the White House. The sun was beaming overhead making it warm and soothing in the crisp spring air. When I think about making the JOBS Act law, this day is a perfect metaphor. From a gloomy start to a sunny and warm finish complete with exploding tulips there was a sense of optimism and renewal for American innovation. This law makes capital formation easier, safer, and better for everyone from the smallest startup in Ithaca to the boldest tech startup in Boulder.
The JOBS Act does not do away with any of the important work of the last decade bringing abuses under control. It moderates and allows startup companies to obtain capital from the smallest of investors previously excluded to allowing the adolescent company to become an adult over a period of years or success. Nothing was eliminated, the rules and regulations were only modified to adapt to the real world of American innovation.
There are so many places that summarize this new Law I’ll just link to them. But let me say this. It is very possible that fifty years from now, the country may look back at the JOBS Act and call it the 12 Act, kind of the like the “34 Act.” The Securities and Exchange Act of 1934, known as the 34 Act was a seminal piece of legislation which put in place regulation and control of financial securities issued by companies following the Great Depression. It created the Securities and Exchange Commission.
In his remarks today President Obama highlighted how important startup companies are to the United States and the world. He cited Bell, Edison, Gates, Google and others that have created whole industries with their big ideas. He cited how important it was that today’s entrepreneurs have access to American capital at the smallest amount. And he emphasized how important that access to the public markets was essential for American to remain competitive and create new jobs. He is so right.
Prior to the signing ceremony I also attended a Roundtable in the Roosevelt Room at the White House chaired by National Economics Council Gene Sperling and Steve Case. There were 20 people in the room from small and large businesses from all over the United States. Crowd Funding was a part of the JOBS Act and it was highlighted in this session to a great degree. I pointed out that at the other end of the spectrum of capital formation that making it easier for growing, successful companies to tap the public markets was essential for two reasons. One it would be source of unlimited capital for expansion leading to new jobs by the millions and to new industries. Two that 90% of the jobs derived from successful startups are created after the IPO. It was pointed out that this bill is also good for large private companies for a variety of reasons. Everyone got something from this effort, that was clear.
My hope is that it will also shorten the lifecycle of risk capital that folks like I put into promising ideas. Recycling capital more quickly means that we all get more swings at bat. It also meant that more of my brethren in the venture business might return to their early stage roots and take chances on unproven but attractive deals, like so many people used to do in decades past.
So all in all, I want to thank the team at the NVCA, and Kate Mitchell and everyone else who contributed to this effort. Mostly, I thank our Congress and our President for doing the right thing as hard as that is in an election year.
March 30, 2012
By brianascher
Network Effects are magical. They are the pixie dust that makes certain Information Technology businesses, especially on the Internet, into juggernauts. They can be found in both consumer and enterprise companies. Network Effects are special because they:
- Provide logarithmic growth and value creation potential
- Erect barriers to entry to thwart would-be competitors
- Can create “Winner Take All” market opportunities
Network Effects are like a flywheel–the faster you spin it the more momentum you generate and enjoy. But not all markets lend themselves to Network Effects. They are not the same as Economies of Scale where “bigger is better.” To be certain, Economies of Scale can give strong competitive advantage and defensibility to the first to get really big (or Minimum Efficient Scale as the economists call it.) For example, SAP and Oracle benefit from having massive revenue bases which enable them to employ armies of engineers who develop rich feature sets and also to hire huge sales forces. However large these companies are today, though, their growth rates, especially in their early years, were far more modest compared to those Network Effect companies whose growth resembled a curved ramp off of which they launched into the stratosphere.
There are four main types of Network Effects:
- Classic Networks, in which the value of a product or service increases exponentially with the number of others using it. Communications networks like telephones, fax, Instant Messaging, texting, email, and Skype are all examples. Metcalfe’s Law captured this as a simple equation where the Value of a network = N², where N is the number of nodes. Typically, each node in a classic network is similar to each other and possesses both send and receive capabilities. This will become clear juxtaposed against the other network effects below where there are different types of nodes. Other examples of classic Networks are social networks (eg Facebook) and payments (eg PayPal).
- Marketplaces, where aggregations of buyers and sellers attract each other. Lots of sellers means variety, competition, and price pressure, which all serve to attract more customers. And because the customers flock, more sellers are enticed to participate in the marketplace. eBay, stock exchanges, and advertising networks are all examples. One nuance of marketplaces, however, is they differ in terms of the scale required for acceptable liquidity. For example, ad networks can achieve sufficient reach and liquidity at relatively low levels which is why you see thousands of online ad networks, where they each exhibit network effects but not in a winner take all fashion. Stock exchanges and payment networks require far greater scale for network effects to operate, which is why you see much greater concentration in these industries.
- Big Data Learning Loops. “Big Data” is all the rage in techland, but just having gobs of data is not necessarily a Network Effect, nor any sort of competitive advantage per se. What you really need is unique data and algorithms that process that data into insights which then lead to decisions and actions. A flywheel effect comes when you get a critical mass of data that you mine for insights; pump that value back in to your product or service; which attracts more users which get you more data. And so on. Venrock portfolio company Inrix is a good example, where they mine GPS data points to derive automotive traffic flow data. The more commercial fleets, mobile app users, and car companies they can get data from, the better their traffic analysis becomes, which gets them more users and hence more data. They turn data into an accuracy advantage that earns them the right to get even more data.
- Platforms are a very special and powerful form of network effects. In Information Technology, a true “platform” is where other developers build technology and businesses on top of your technology and business because you offer them one or more of the following:
- Lots of users/customers, and you represent a distribution opportunity for them
- Compelling development tools, technology, and (sometimes) advantageous pricing
- Monetization opportunities
Example include Operating Systems like Microsoft Windows, Apple App Store, and Amazon Web Services.
Each of these four types of network effects can be extremely powerful on their own. Yet, even more power is derived when a business can harness multiple types of network effects in synergistic ways. Google, Apple and Facebook do this for sure, but a less well known example is Venrock portfolio company AppNexus that operates a real-time online advertising exchange and technology platform. The exchange aggregates advertisers, agencies, publishers and ad networks for marketplace liquidity, but also offers a hosting and technology platform for other AdTech companies and ad networks to augment their own businesses. And the vast troves of data AppNexus processes every millisecond flows back into the system as optimized and targeted ad serving.
Network Effects are what you want fueling your business. Sometimes you just need to get clever about discovering and harnessing them.
January 4, 2012
We are big believers in Klout! I was lucky enough to participate in the Series B financing. Since that time, through the hard work of Joe Fernandez and team, Klout has experienced explosive growth. With that backdrop, I am thrilled to announce Venrock’s participation in the Series C Financing.
Klout measures consumer influence across social media. As social platforms continue to grow, it becomes increasingly important to have a standard system for identifying and measuring influence. Klout is this global standard.
The Social Media category continues to fragment with new platforms showing explosive growth. These platforms are quickly becoming real media channels with scale. As with any media channel, businesses need to understand the nature of the channel, the mix and makeup of the audience, who matters in that audience, and how to reach that audience at scale. In a broad sense, I like to think about Klout as the Nielsen of social media. Klout enables advertisers to determine where and whom to target to help gauge the efficacy of advertising. Any consumer-facing company that uses a CRM product will want Klout to enhance their customer outreach. Any application can use Klout to better understand their consumers by using influence scores and categories.
Klout uses the data it collects across different social media sites to identify influencers and segment them according to influence category. Externally, consumers have a single Klout score that measures their general influence online, but behind the scenes these users are segmented according to an incredible array of categories. Klout currently analyzes a variety of sites, including Facebook, Twitter, LinkedIn, FourSquare, YouTube, Instagram, Tumblr, Blogger, Last.fm, Google+ and Flickr, with many more on the way. Advertisers and businesses can access influence data via an API to run targeted campaigns with consumers in different categories of interest.
The imprimatur Klout has achieved with brands and agencies is remarkable. The company has achieved a high level of recognition and has emerged as the standard for influence. As the web is rebuilt around people rather than pages, Klout has become the next critical layer of the analytics and measurement stack.
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December 1, 2011
By Bryan Roberts
(A version of this post also appeared at AllThingsD.)
The oldest adage in start-up’s, for entrepreneurs and VC’s alike, is “the key to success is the quality of the people.” Markets and innovative approaches are important, but my experience supports this notion unequivocally. I have had the good fortune to be involved from an early stage with several billion dollar companies, and most found success after a material pivot from their original approach – Athenahealth, Ironwood Pharmaceuticals and Sirna Therapeutics to name a few. “I invest in people” is the start-up ecosystem’s version of motherhood and apple pie, but how do you identify “Great” prospectively?
Whether explicitly or not, everyone has their own answer to this question, and based on the success rates, those answers by and large stink. I don’t have a Magic 8 Ball on the topic, but two things make this the issue I wrestle with most: (1) the often-unpredicted success or failure of “nobodies” or “sure things” respectively, and (2) the outsized rewards for locating great, juxtaposed with the probability of abject failure when settling for good. The A+ entrepreneurs with whom I have partnered have come in unusual packages – simply put, there has been no central casting: a biology post-doc who thought about opening a microbrewery B&B; a large animal veterinarian who went to business school in his late 30’s; an x EMT who was also nephew to the President among others. The best VC’s seem to show the same diversity of background.
I now focus on these attributes:
- Great talent finds a way to win… and is relentlessly driven to do so with a real sense of urgency. They follow through and complete the task – starting is easy, finishing takes real will. It is not that they think out of the box, there simply is no box. They view ambiguity as opportunity, not risk. When things get uncertain is when they really perk up and start to pay attention because that is when real change is possible. Most of all, they exceed expectations. They bend the space-time continuum in some fashion and their accomplishments are extra ordinary.
- Experience is overrated. By and large, the world is changed by the young and the hungry. Experience can be enabling or constraining, but it is not even close to the silver bullet many believe it to be. If you are seeking a VP marketing or head of sales at a 100+ person company, absolutely look at a resume. But to find someone with the passion and uniqueness to actually create an early stage venture, you have to spend the time: watch them and see what they do, talk to them and see what they think, ask around and see how respected they are.
- Balance exploring/driving with learning/listening. Great people have a very clear grasp of the their vision, while understanding that the world has a lot to teach them. They are humble students of the game, but very confident in their abilities, and never “do what they are told.” They don’t avoid conflict and will always bet on themselves rather than shy away from risk. They ask questions and argue on facts, balancing their gut with innumerable data streams to get to what they believe is the right answer.
- Great people are magnetic. They are not only smart and driven, they attract resources when all the data suggests they should not – whether capital, people or partners – and thereby become larger than just their singular efforts.
While potentially controversial today, I have come to believe that great entrepreneurs and great VC’s are two sides of the same coin. Both embody these characteristics. They are maniacally focused on changing the way we live with innovations others thought were not possible. They are passionate about building a great company and put the company before themselves. No great VC takes solace in having a portfolio when an individual company struggles – like entrepreneurs, this is deeply personal and about so much more than just money. Their roles are complementary, like looking down opposite ends a telescope, but those different perspectives to a problem can be extraordinarily synergistic. Great future entrepreneurs can look like great young VC’s, and vice versa – three of my recent investments are stellar companies started by these “crossover” folks.
All venture firms are simultaneously never, and always, looking for team additions. I believe this is a direct result of how elusive it is to identify those who will be not only smart, passionate, personable and high integrity, but also successful in this ever-changing, ambiguous entrepreneurial world where what worked last time is no recipe for future wins – and more likely charts a path to mediocrity. In fact, my own difficulties in finding conviction around potential team additions for our firm is what spurred putting these thoughts on paper.
July 6, 2011
Update: This is simply a market sizing exercise for people building a business in a market that doesn’t exist. It does not reflect my actual thoughts on value. If you notice, I rewinded to 2009 and only explored one business model for clarity.
The New Market
Yesterday we talked about the established market but the market sizing exercise starts to get really interesting when you think about markets that don’t exist. Let’s take a company like Twitter circa 2009, when there was still a lot of ambiguity around what the size of their market opportunity looked like (some might say this ambiguity still exists today). The executive team probably had a vague sense that there was going to be some kind of advertising supported model to the business and I’m sure their investor decks contained the requisite ad-supported slide: “$300B in advertising spending in the US and only $25B of it is online!”
Like most consumer internet companies, the key market sizing question for Twitter is very simple: what is their annual revenue per user at scale?
Let’s start with a very simple model. Let’s suppose that Twitter will be purely ad supported. The basic market size equation that we’re going to start from is as follows:
Twitter Market Size = (Users) * (number of ads/user) * ($CPM of ads)
We can begin by decomposing the number of users. What does a typical Twitter user look like? A simple assumption to make is that over the next 3-5 years, the typical Twitter user will be somewhere between 15-34, with a lower diffusion rate in the 35-49 year old category and a very limited diffusion rate above 50. The Zynga case might make us question some of those assumptions around people over 50 but let’s play it safe. To begin, let’s start with the following numbers, based on US Census Data from 2000:
· 15 – 34: (79MM people) * (100% possible diffusion) = 79MM users
· 35 – 49: (65MM people) * (50% possible diffusion) = 32.5MM users
· 50+: (76MM people) * (10% possible diffusion) = 7.6MM users
· Total Potential Twitter Users = 119MM users
There are several factors that will influence this number, including what percentage of people have internet access, socio-economic factors, and general appetite for digital media. Clearly, this number can be refined.
From here, we need to think about the number of ads each user will see. This is particularly tricky with Twitter given that a lot of users are on 3rd party clients where it may be difficult to track ad views and CTR’s and where Twitter may not even be able to serve ads into. This is a whole other discussion but for purposes of this analysis, let’s assume that everyone goes directly to Twitter.com. This is where the wheels start to fall off the proverbial VC short bus. Twitter has no idea what the ad units will look like, what is the ideal number of ads served, how much time a user will spend on Twitter.com, or whether ads will work at all. Oh well... The analysis must go on. Let’s assume that our thesis is that Twitter.com will be primarily a source of news distribution. During the week, most users check a news website once in the morning and once in the afternoon, for an average number of daily visits of twice per day. On the weekend, let’s assume that an average user won’t check Twitter at all since they’ve got a lot more time on their hands to read magazines, browse their favorite sites, and won’t need the quick-news-fix that Twitter provides. Given the short format of Twitter, serving 1 ad per visit is not unreasonable. Putting these assumptions together, let’s look at how many ads an average user will see in a year:
Number of Annual Ads Per User = (1 ad per visit) * (2 visits per day) * (20 visits per month) = 40 ads per month.
As a sanity check, this feels a bit low. Just browse the web for 20 minutes and count how many banner ads you see. We’ll want to revise this number upwards later on.
Lastly, what is the average $CPM that Twitter will be able to charge? At scale, let’s assume that Twitter directly sells out 75% of their inventory at a $5CPM and uses 3rd party ad networks to fill the remainder at a $1CPM after revenue-share to Twitter. These are reasonable numbers based on average CPM rates across all categories for banner ads, but there is a huge open question of whether Twitter ads will behave like banner ads in terms of branding value, CTR’s, and other metrics. The ad effectiveness profile could be wildly different, in which case our $5/$1 assumptions could be materially off.
Now, let’s put all of this together to see what the potential ad-supported annual market size is for Twitter in the US:
Twitter Market Size = (119MM Users) * (40 ads / month * 12 months) * ($5 CPM * 75% of ads) / 1000 (necessary to calculate CPM) + (119MM Users) * (40 ads/month * 12 months) * ($1CPM * 25% of ads) / 1000 (necessary to calculate CPM) = $228,480,000 revenue/year.
As a sanity check, is it reasonable to expect Twitter to capture $228MM of advertising revenue, given that online advertising revenue in the US will hit $50B or so in the next 3-5 years? Probably. As I noted, there are a number of areas where the analysis can be refined and it is likely that our core thesis of Twitter as a distribution medium of news is too limited. Beyond that, we haven’t explored a variety of other business models that Twitter could pursue, including subscription, commerce generation, data sales, and so forth. This is where the really interesting discussion points begin.
Hope this was helpful!
MC
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July 6, 2011
Over the last few weeks I’ve had some meetings where the topic of market size could have been a bit more rigorously addressed. It’s a hard issue to tackle – particularly when you’re creating a new market – but the topic is critical in every pitch. There are some occasions where the market size is fairly straightforward. For example, I’ve looked at a few female focused online fashion companies recently and while I know this is a huge market, it’s still helpful to dive into the issue of sizing for a couple reasons:
1. Most companies are going after a slice of the market. The fashion market for 15-44 year old females with household income of $40,000-$80,000 dollars is quite different than the market of all female fashion. This is an obvious point but I’d say that about 1/3rd of the pitches I see contain market size estimates that include sectors that are outside of the focus of the business.
2. The market sizing discussion is incredibly helpful in getting to know how you think. Most of the time the intro pitch is the first meaningful interaction between entrepreneur and VC. I like to think of the market sizing discussion as almost an intellectual discourse between professor (entrepreneur) and student (vc).
With that in mind, I’d like to share a couple different ways that I like to think about market sizing in the consumer internet space. There are a variety of other ways to think about sizing and a lot has been written on the topic. I’d encourage everyone to spend some time on Google and read up on other opinions.
Established Market, New Product
Continuing on with the example above, let’s say I’m starting a women’s fashion company that aims to sell scarves online. Those of you that know me are probably chuckling right now since I’ve been wearing the same 3 scarves for the last few years now and am thoroughly unqualified to run such a business.
Let’s take a first cut here.
Market Size = (number of females in the US in the target market) * (average number of scarves purchased by females) * (average price point)
The types of scarves that I’m selling will appeal to 15-44 year old females with a household income (HHI) between $40,000-$80,000/year. The US census data groups people into segments of under 15, 15-24, 25-34, and 35-44. The data tells me there are 8.7MM females in this category. Not a bad start. Unfortunately, my instincts tell me that scarf consumption varies dramatically by geography. I’m going to make a simplifying assumption and segment consumers into two groups: California People (which also include people from Arizona, New Mexico, Texas, and other states where scarf consumption is de minimis) and Everyone Else. Note that I’m a New Yorker, though, I must admit that some of my favorite people are from California! After looking through a map of the US and segmenting different states into warm and cold climates , I’ve decided that 20% of the US population are California People and 80% are Everyone Else.
Next, I need to determine how many scarves are purchased by the average 15-44 year old female in both of these segments. To do this, I got on the phone and called up 20 friends in each of these groups. Those of you that did not major in History like I did will likely groan that this is not a statistically valid sample. I agree. It’s a start. If you want a statistically valid sample, there are a number of online survey companies that can get you this data fairly cheaply. My very un-rigorous survey reveals that the California People buy 0.3 scarves/year and Everyone Else buys 1 scarf/year. Moreover, I got the sense that Everyone Else takes the quality and fabric of their scarves seriously and probably pays more on average per scarf than the California People. More on this later.
Now we’re on to the final stretch. What is the average price point of a scarf? In my informal survey above, I asked my friends for their average price point but most of them didn’t remember and those that did seemed to give me inflated numbers (so snobby!). To get insights into this question, I went on Amazon, navigated to the women’s clothing section and searched for the keyword “scarf.” Here is the breakdown:
· Under $25: 3,758 (50%)
· $25-$50: 1,728 (23%)
· $50-$100: 1,348 (18%)
· $100-$200: 524 (7%)
· $200+: 107 (1%)
· Total: 7,465
Using this informal technique, let’s assume that the average price point is $25 for Everyone Else and a slightly lower $20 for the California People. These are a decent ballpark approximation but can obviously be refined further.
Taking the data we’ve gathered, our first cut at a market size for my new company is:
(8.7MM females * 80% Everyone Else) * (1 scarf/year) * ($25 average price point) + (8.7MM females * 20% California People) * (0.3 scarves/year) * ($20 average price point) = $187,050,000
Does this number seem reasonable or is it out of line with reality? As a quick sanity check, the next thing I did was go to the Consumer Expenditure Survey maintained by the Bureau of Labor & Statistics and look at the total amount spent on clothing by US households and the look at what percentage of the total clothing market the $187,050,000 represents.
Lastly, I asked myself, what is a reasonable amount of the market that I could capture? Fashion is a particularly fragmented market and even if I become the category killer in scarves, it’s unlikely I’d get more than a few percent of the overall market. Let’s say I can capture 5% of the overall scarf market – an extraordinary number in any fashion related category, then I’d be making around $9.3MM/year given the numbers above.
Note that this is a quick-and-dirty analysis. An actual analysis should be significantly more rigorous in terms of data quality and layer in more refined assumptions. For example, my segmentation of California People and Everyone Else, while entertaining, is too simplistic to withstand real scrutiny. The same goes for my methods of data collection. Tommorow I’ll post some thoughts on how to approach a new market.
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July 6, 2011
I was in San Francisco last week and had fun meeting with lots of companies. I also did a short interview with Bloomberg. Here it is..
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May 27, 2011
It’s a very natural thing to do on your first day of work: fire up your computer, check a bit of email, and read up on the upcoming events of the week. On this particular day, reading up on the events of the week meant looking through the materials for our upcoming Limited Partnership meeting. Contrary to popular belief, the “LP meeting” is not one of those shrouded-in-mystery type events; it’s fairly straightforward. The team presents to the investors on the state of the portfolio, fields questions, and gets to hear from a few select speakers.
It struck me that the job description of the keynote speaker at the Venrock LP meeting was unusually sizable: “Aneesh Chopra’s job will be to promote technological innovation to help the country meet its goals such as job creation, reducing health care costs, and protecting the homeland.” Wow. Kind of puts things in perspective. Aneesh is the Chief Technology Officer of the United States and was appointed by President Obama in 2009. Even more importantly, he is the first person to hold this title (and what a great title it is). Just thinking about this…the ENIAC, which is widely regarded as the first computer ever invented, was built in 1946. Fast forward 63 years and we now have our first CTO. There’s a definite thoughtfulness in the selection approach for this role.
Aneesh covered a wide range of topics in his discussion, but underscoring all the themes that he touched on was the issue of data analysis. The US government generates unbelievable amounts of data across every category you can imagine: packaged food composition, mining production, reservoir water levels, medical facility ratings, and my personal favorite, the American Time Use Survey. All of this data has been coming online over the past few years and there is still a tremendous amount of data that is not yet accessible. A number of interesting companies have already begun to use these datasets to gain a powerful advantage. As @jonathanmendez pointed out, one great example of this is Urban Mapping. I am confident that many more will emerge.
The conversation with Aneesh was inspiring because it brings into focus the reason that I got into venture capital in the first place: to find and invest in great entrepreneurs that are tackling problems of vast importance. Venrock has a long and rich history of executing on this goal and I’m proud to be working with such an accomplished group of investors. With such an exciting entrepreneurial community bubbling here in New York ($2.2B of venture money in NY in 2011!), I’m enthusiastic about what this next year will bring.
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April 6, 2011
By brianascher
On April 14th I am moderating a panel at the Digital Healthcare Innovation Summit in New York City titled “The Hospital as Production Center: Holy Grail or Impossible Dream?” [For anyone who wants a discounted registration rate, see the end of this post.] In an effort not to suck, I’ve put some thought into what makes a great panel. Like many conference junkies in the tech and finance worlds, I’ve sat through hundreds of panels, been on a bunch, and moderated a few handfuls over the years. Here’s a list of a dozen suggestions that I plan to implement:
- Have at least one colorful character on the panel. Conferences can be a grind, and lots of people find the most value is in the lobby, meeting people. For those willing to actually sit through your panel you want to entertain them as well as inform them if you expect them to pick their heads up from their smartphones and remember anything from the hour of so they give you of their (partial) attention. Having at least one spicy rebel on the panel that is willing to share provocative views and mix it up with the other panelists is key.
- As the moderator, get your panelists on a call ahead of time to brainstorm and interact with each other. This is your opportunity to figure out if you’ve got the right mix of characters and also form a plan for what you’ll cover and set expectations. Don’t procrastinate on this.
- Know your audience. Conference organizers purposely cast a wide net in their marketing and promotional materials so they can get the best turnout. Find out for sure who the bulk of the audience is really likely to be.
- Send questions ahead of time. Your goal as panel moderator is to make your panelists look brilliant, not to try and stump them so you look like the smartest person on stage. Give them the questions ahead of time and know who is likely to have the best answers for each of them.
- Keep intros brief. Maybe not at all. Most intros take too long and are pretty boring. If the conference materials have speaker bios, I personally don’t think there is any need to go into detailed introductions other than to identify who is who.
- Know the context of the rest of the conference. Pay attention and make reference. Planning your topics and questions ahead of time is great, but you want to keep in mind the context of the rest of the conference so there is minimal duplication but appropriate linkages to other topics and speakers, etc. If prior speakers or panels have covered topics relevant to your panel, make reference to them. It shows the audience you were not sleeping through the earlier sessions, so maybe they won’t sleep through yours. J
- Use social media to promote, distribute, and even moderate in real time. Twitter, LinkedIn, Facebook, your blog, are all great ways to promote your panel ahead of time. SlideShare is a great way to distribute PowerPoint or materials afterwards. Set up a Twitter hashtag to solicit questions ahead of time and from the audience during the event. I’ll be using #hosprod as the Twitter stream for my panel. Feel free to send me questions ahead of time, and check for comments during the panel.
- Hit the hard deck, dig for details and examples. Give the audience reasons to take notes by getting granular. Force the panelists to get specific and give real information.
- Stir the pot. Incite a riot. A panel where everyone agrees with every point is boring. Elicit differing viewpoints and force the discussion to explore the conflicting opinions. This will likely be the most useful content, as well as the most entertaining. Avoid chair throwing.
- No crop dusting. It can be very monotonous when the moderator goes up and down the row asking each panelist each question. Pick your respondents strategically and use them for different purposes. Move on to the next question as soon as the topic has been sufficiently covered, regardless of whether everyone answered.
- Engage the audience, but moderate ruthlessly. Audience Q&A can be very useful and fun, but can also attract rambling questions, people shamelessly plugging their own company/viewpoint, or all manner of unexpected divots. It’s your job to be respectful but firm in keeping the Q&A on track out of respect to the rest of the audience.
- Watch the clock. The ultimate respect for your audience is to finish on time. Even if your panel is rockin’ and everyone is having a great time, you should finish within the allotted timeframe. If they still want more, they can follow-up with you and the panelists afterwards.
If you are interested in attending the www.digitalhealthcaresummit.com enter the special key code VNRPR to receive the discounted rate of $695.00. You can also contact Cathy Fenn of IBF at (516) 765-9005 x 210 to enroll.
February 6, 2011
By brianascher
By the time you read this post, Super Bowl XLV will be over and everyone will be talking about the … commercials. Why? Because most of them are entertaining, some are memorable, and the $2.5 million price tags (for air time alone) pique our curiosity. Why are brands willing to pay so much? Because it is one of the only ways to reach 100 million consumers simultaneously, and because a great 30 second video ad packs an emotional payload in support of your brand unlike virtually any other form of advertising.
Over the past few years I’ve noticed more and more web companies producing great videos to market their companies, often presenting them front and center on their homepage as the introduction to their company. A great video overview can really help explain what you do for customers, how you do it, and present your brand in a flattering light. The best videos go viral and bring you exponential attention and new visitors. And web videos have never been cheaper to produce (at 1/2000th the cost of a super bowl commercial even a start-up can afford them.) So, here are five thoughts on what makes a great marketing video for web companies, and a bunch of examples:
Answer WIIFM: A great marketing video should clearly and convincingly articulate a few simple benefits that customers care about. Mint.com does a terrific job of this, as does Dropbox, both front and center on their homepage. The Dropbox video is particularly noteworthy because it takes an esoteric concept and uses analogy to demonstrate user benefits everyone can relate to.
Show how it works: A great overview video shows just enough of the product and how it works to lend credibility to the benefit statement. Word Lens does a terrific job of this for a product that truly needs to be seen to be believed. A full blown demo would have been less effective than just these short glimpses of the product in action.
Be yourself: Video is such a rich and engaging medium it is perfect for showing the personality of your brand. It is a great way to set tone and speak to your customers and prospects in an authentic voice. Flavors.me does a terrific job of this through music and images alone, letting actions speak louder than words in convincing you that they can make your personal homepage look amazing because they do such a killer job of presenting themselves through this video. Style personified.
Be fun, get remembered: Great marketing videos are fun to watch and somewhat memorable. You don’t have to be knee slappin’ funny or so hip it hurts, just smile-inside funny will go a long way. SalesCrunch and SolveMedia both take pretty dry categories (CRM SaaS and AdTech respectively) and rivet their viewers through entertaining use of cartoons and wit.
Be Brief: Even a great marketing video starts to feel long after two minutes. Shoot for less. This video from Smartling gets the job done in 38 seconds. [Disclosure: Smartling is a Venrock investment.]
These are the five characteristics which I think make for a great marketing video for your web company. If you think there are points I missed, or have other great examples, please comment and add to the list. If you are the production agency responsible for making any of these videos please take a bow by claiming your work. I’m sure others will want to contact you. If you are looking for more of a live action marketing video, TurnHere can help produce custom video for ridiculously low rates [disclosure: TurnHere is a Venrock investment.]
Thank you to Ward Supplee, David Pakman, Dev Khare, Dan Greenberg, and Arad Rostampour for sharing some ideas for this post.
January 18, 2011
By brianascher
Today I faced a choice. Should I go out and enjoy the beautiful weather and waves and go for a surf or should I blog about my favorite financial reporting tool? Seems like a pathetic question for a surfer to ask, or maybe this financial reporting tool is really that great. I’ll settle for an answer of “both”.
The tool in question is the Waterfall Chart. It’s a way to compare actual results across time periods (months or quarters usually) against your original Plan of Record, as well as forecasts you made along the way as more information became available. It packs a ton of information into a concise format, and provides management and Board members quick answers to the following important questions:
1. How are we doing against plan? Against what we thought last time we reforecast?
2. Where are we most likely to end up at the end of the fiscal year?
3. Are we getting better at predicting our business?
The tool works like this:
Across the top row is your original Plan of Record. This could be for a financial goal like Revenue or Cash, or an operating goal like headcount or units sold. Each column is representative of a time period. I like monthly for most metrics, with sub-totals for quarters and the full fiscal year. Each row below the plan of record is a reforecast to provide a current working view of where management thinks they will wind up based on all the information available at that time period. Click the example below which was as of August 15, 2010 to see a sample, or click the link below to download the Excel spreadsheet.
Waterfall Report spreadsheet
Periodic reforecasting does not mean changes to the official Plan of Record against which management measures itself. Reforecasts should not require days of offsite meetings to reach agreement. It should be something the CEO, CFO, and functional leaders like the VP Sales or Head of Operations can hammer out in a few hours. Usually these reforecasts are made monthly, about the time the actual results for the prior month are finalized. When you have an actual result, say for the month of August, $2,111 in the example above, this goes where the August column and August row intersect. On that same row to the right of the August actual you will put the new forecasts you are making for the rest of the year (September through December.) In this fashion, the bottom cells form a downward stair step shape (a shallow waterfall perhaps?) with the actual results cascading from upper left to lower right. You can get fancy and put the actuals that beat plan in green, and those that missed in red. You can also add some columns to the right of your last time period to show cumulative totals and year to dates (YTD). With or without these embellishments you’ve got some really powerful information in an easy to visualize chart.
Two questions an entrepreneur might ask about this tool:
By repeatedly comparing actual to plans and reforecasts, won’t my Board beat me up each month if I miss plan or even worse, miss forecasts I just made? If you are a relatively young company, most Board’s (I hope) understand that planning is a best-efforts exercise not an exact science. Most Boards will react rationally and cooperatively if you miss your plan, as long as you avoid big surprises. By giving the Board updated forecasts you decrease the odds of big surprises because the latest and best information is re-factored in to the equation as the year progresses. They probably won’t let you stop measuring yourself against the Plan of Record, but at least you’ve warned them as to how results are trending month to month and course corrections can be made throughout the year.
Won’t this take a lot of time? Hopefully not a ton, but it does take effort. However, it should be effort well worth it beyond just making the Board happy, because as a management team you obviously care about metrics like cash on hand, and this should be something you are constantly recalibrating anyway. The waterfall is the perfect tool to organize and share this information.
Most of my companies using this tool track five to ten key metrics this way. Typical metrics include:
- Revenue
- New bookings
- Cash on hand
- Operating expenses
- Net income
- Headcount
- Units sold or new customers acquired
- Some measure of deployed/live customers (if there is a lag between a sale and a live customer)
- For internet companies, some measure of the “top of the funnel” such as Unique Visitors or Page Views
Whether or not you agree this is the single greatest financial reporting tool ever, I hope you give it a try and find it useful. Now I’m going surfing….
November 8, 2010
By brianascher
There is much conventional wisdom in venture capital. One such belief is that hospitals are a really horrible market for tech startups to pursue. Back in 2002 when we invested in Vocera, an innovative communications system for hospitals (think Star Trek), many other firms had looked at the deal and passed. Although this was the company’s third round of financing, the company was still pre-revenue and pre-launch, and this was the first round raised subsequent to their strategic shift from a horizontal solution to one vertically focused on hospitals. Most VCs ran from it. Following are some of the reasons potential investors gave for hating the hospital market then, most of which persist as concerns, often valid, today:
1. Hospitals are highly budget constrained
2. Most hospitals don’t have profits motives and are not subject to the same competitive forces as for-profit businesses
3. Hospitals are complex political environments with many forces that influence decision making and purchase behavior that seem counter to rational business judgment. Those who decide, those who approve, those who pay, use, benefit from, can all be different roles in the organization.
4. Sales cycles are very long, often measured in years.
5. Hospitals are technology laggards when it comes to adopting information technology.
6. Hospitals are dominated by large technology vendors such as GE, Cerner and IBM.
There is some truth to each of these, but here’s the counter argument that led us to make a second investment in the hospital market, namely Awarepoint, an indoor GPS system for tracking people and assets in the hospital.
1. There are lots of hospitals. Over 5500 in the US alone, and there are little blue signs pointing you to each of them. Given the annual budgets of your typical hospital, this translates into a very big market. Vocera now serves over 650 hospitals and more than 450,000 daily users, and is still growing very rapidly, believing they have tapped less than 10% of their core market opportunity.
2. Hospitals are sticky. Once your product is adopted, and assuming it works well, they are reluctant to switch you out because solutions get so enmeshed in different processes and systems, and so many employees get used to them. You can’t screw up, or raise prices dramatically, but you may not have to sing for your supper every time a competitor issues a press release.
3. Hospitals are willing and able to spend on IT if it is a priority and they see an opportunity for a large return on investment. This is one of the things helping Awarepoint penetrate the market, and they are not alone. Companies like Allocade , which creates dynamic patient itineraries to improve throughput, are also having success based on the ROI they can deliver.
4. Because hospitals are underpenetrated by information systems, there is lots of low hanging fruit and relatively basic problems to be solved. Electronic Medical Records vendors are having a field day, both because of stimulus incentives but because many hospitals, especially the 72% of all community hospitals with under 200 beds, still don’t have this basic form of digitizing their information. The trend towards Accountable Care Organizations, and the related financial incentives, will require greater clinical integration of care across health care settings (inpatient, ambulatory), greater financial efficiency, and increased transparency and flow of information about the process, costs, and outcomes of health care, all of which will require better healthcare information technology.
5. Hospitals are similar to each other and willing to serve as references to each other. Yes, they do compete in some ways, and each has its unique attributes, but you find a higher degree of collegiality and similarity than most industries where competitors hate each other and each may have very different ways of doing their core activities.
There are a few reasons why the hospital market is ripening for startups and the VCs who love them:
1. Hospitals are feeling financial pressures to run efficiently. With healthcare reform there will be more patients coming in their door requiring services, while price caps will get tougher. And there will be financial penalties for things like readmission rates that often correlate to operating inefficiently, and which technology can help prevent.
2. With the EMR mandates and installations, the Chief Information Officer is now in an elevated position in the organization and even considered a revenue generator. Many EMR installation projects are leading to ancillary projects and opportunities to automate and digitize other aspects of hospital operations.
3. New IT paradigms like cloud based services, open data initiatives (thank you Todd Park @ HSS), APIs, and Open Source means that it is less expensive to build and deliver better products into the hospital.
4. Wireless technologies, and relatively cheap and robust devices like iPhones and iPads, make it easier to reach caregivers on the go, whether nurses at the bedside or Doctors on the golf course. Companies like AirStrip are getting real-time info to the caregiver wherever they are, and caregivers love it. Also, WiFi and Zigbee in the hospitals means your equipment and monitors, and even staff, can transmit their info from wherever they are without wires and expensive, disruptive installations.
5. This current generation of Doctors and are used to technology in their personal lives. They use email, carry iPhones and Blackberries, shop online, etc. And the residents entering hospitals today are Digital Natives. There will be an increasing expectation that hospitals adopt these technologies that most other verticals have embraced.
While we fear the unexpected visit to the hospital as much as anyone, Venrock is looking forward to more investments in companies that serve them with compelling HCIT solutions.
October 5, 2010
By brianascher
This blog post was a collaboration with my Venrock colleague Bryan Roberts, who in addition to being a great bio-tech and medical device investor, was also an early lead investor in athenahealth, and currently on the Board of Coderyte and Castlight, two really hot HCIT companies.
Having participated in healthcare IT for the last 10+ years, we decided to collect and share some lessons learned. The list is by no means exhaustive, so let us know your thoughts – where you disagree, what you would add, etc.
- The product must be a true “have-to-have”, not a “nice-to-have”. Any healthcare IT product needs to solve an important problem for a defined customer base (providers, payors, patients) and this is where lots of companies go astray. The product needs to help someone enough for them to be compelled to adopt it, while they are busy worrying about a lot of other things, and it is not enough to have a product that helps out the “system”. If you can’t convince yourself that it is one of the top three things that your specific customer is concerned with, forget it.
- Healthcare is actually an aggregation of many small “markets”. While the overall healthcare market is measured in billions – if not trillions – very few needs, ideas or businesses can span the entirety. Many companies/ideas are only applicable to a subset (breast cancer, arthritis, heartburn, etc.) of healthcare or require significant re-work as one moves from one disease area to another – think content for different diseases. This dynamic also substantially impacts some of the revenue stream opportunities and the critical mass needed to make a business viable. For example, pharma advertising for a given drug is targeted at patients with a specific disease, not all healthcare consumers, and so the number of overall users needed to amass a specific target population and access that ad revenue, is many multiples of that target market.
- Start-up revenue streams and value propositions are elusive. There are lots of potential revenue streams in healthcare, but many are only accessible to a business that has hit scale (perhaps $100MM revenue) and critical mass creates an ecosystem such that the network has value above and beyond the interaction between the individual customer and the product. This is especially true for advertising and data revenues, but also for lead generation and others. It is much simpler to create viable revenue streams when your business reaches a substantial size than it is to find the revenue stream that gets you from $0 to $50MM… So think hard about the value proposition and revenue stream for the start-up phase of your business before you hit critical mass and dominate a space.
- Customers must have more money with your product, than without it. There is no room for broad adoption of products that are a financial drain. Remember that every participant in the healthcare system is strapped for cash – hospitals are lucky to run a profit, doctors’ earnings have decreased consistently over the last decade and patients are used to “free” healthcare. You have to offer hard, demonstrable ROI. You can get away without it for a small number of leading edge customers for a while, but the primary goal of those customer engagements must be to get the ROI data that will be necessary to support broader customer engagement. Adding another cost, even with a long-term ROI is very hard.
- Businesses with strong network effects are gold mines. Given that healthcare has complex problems and customers are tough to secure (long sales cycles), a network effect can solidify a first mover advantage and continually decrease sales cycles, as well as afford sub-5% annual churn rates. Happily, the healthcare industry is ripe to create businesses with network effects given the historical underinvestment in the space and the proliferation of “big data” business opportunities. Every customer should benefit from the cumulative customer base, with each subsequent customer deriving and creating more value than prior customers.
- The customer is mobile. Unlike many verticals, most health care providers do not sit at their desks all day; they are doing rounds and moving between exam rooms or even buildings. Meanwhile, consumers are making decisions that impact their health (eating choices, exercise, lifestyle) while out in the real world, living their lives. This situational complexity cuts both ways. On the one hand it makes some traditional enterprise strategies more difficult, while on the other, especially when combined with the proliferation of smart wireless devices, it creates opportunities for a new breed of mobile healthcare applications not seen previously.
- Expect to have a service component to your business, but avoid becoming a customized consulting shop. Healthcare is complicated and confusing, and although technology may solve a multitude of problems, it will require some handholding and take time. There is nothing approximating shrink-wrapped software in healthcare – and you want to use the service component of your business to help improve your software product. There is a virtuous cycle between the software and service. On the other extreme, the technology infrastructure should not be stove piped or custom-built for each individual client, even “marquee” clients. In healthcare, for a variety of reasons, there are significant pressures to bring your technology infrastructure directly under the thumb of the customer—the servers, the code, the management of the upgrade schedule, etc. Try to resist these pressures and ensure that you build a common chassis that you own with “plug-ins” for individual clients as needed.
- Beware of businesses dependent upon heroics…Make it easy. The healthcare sector is a notorious technology laggard, and for good reason. The environment can be chaotic, collaboration is complicated and staffing is convoluted. Simplicity is key with user interfaces and alerts are essential. For businesses targeting health systems, if your business depends on the brilliance, creativity and bandwidth of hospital IT, think again. Hospital IT is massively overworked and understaffed and has a list of number one priorities a mile long. The perfect solution for hospital IT is one that requires little or no effort on their part. For business targeting consumers, it’s dangerous to assume that consumers will wake up and start taking better care of themselves. Consumers will eventually start taking better care of themselves, but it is unlikely to occur before you run out of cash.
- Know your domain. Healthcare IT is neither healthcare nor IT. Concepts and actions that traditionally work in each of those established spaces can run afoul in Healthcare IT. Navigating this sector is complicated – from a regulatory perspective, privacy, relationships, etc.
- Secure customer references and studies. Winning “lighthouse” accounts, such as the prestigious clinics and teaching hospitals (Mayo or Johns Hopkins), can be great validation for your product or service. These customer references will earn you respect, but unfortunately many customers will look at those institutions as fundamentally different from their own situation (whether based on size, financial resources, scope, etc) and thus not relevant as case studies. Often you will need multiple, credible local references in each geography before you can enjoy the efficiencies of reference selling. Same goes for ROI and effectiveness studies.
- Do well by doing good. Healthcare can be viewed as a business or a calling, but the most successful ventures view it as both. It is hard to beat an entrepreneurial team that is powered by the dream of both financial and social rewards. So strive to create value across the board (customers, investors, community).
