Ten Predictions (before the world ends in 2012)

Guest post from Jim Robinson IV on what you can expect over the next few year prior to the apocalypse predicted precisely by Roland Emerich’s movie. – EDW

James D. Robinson IV

As a species, we almost always over-estimate how fast things will change. But we always underestimate how much things will change. Thus….

My ten predictions before the world might end in Dec. 2012….

·10) Eric Schmidt will no longer be CEO of Google. As giant media foes attempt to absorb excess profits in part derived on the backs of their content, things will get sticky. Eric will grow weary of the countless battles, stock price pressure, and growing discord in the senior ranks. One key factor? Bing. Why? Well, it’s like Pepsi, or Burger King. As Americans we are comfortable with virtual oligopolies, but not monopolies. We require an alternative to Coke and McDonalds. Yahoo by itself has failed at being a viable alternative. On the other hand, if there is one company that can challenge Google’s hegemony with pockets every bit as deep, it is Microsoft. Forget whether you think Bing is ‘better’ or ‘worse’ – irrelevant. It is a viable alternative, and it will be used by major media to try and squeeze Google’s profits. Which leads me to my next prediction….

·9) Paid search and natural search will become…. Search. We have grown comfortable in the knowledge that those slippery marketers are relegated to the internment camps of the paid section of search pages. But users really don’t care – what they want are good results – paid or not. The state-of-the-art today for paid results has them look and feel just like the real thing. Which they often are. In the near future, result hierarchy will be, in part, based on pay – but pay for performance – not just ranking. The gotchas leading to pay-walls and other poor user experiences will sink in the listings no matter the dollars thrown at them, in favor of a single search stream where dollars will play a role (but not the only role) in influencing rank. And this will happen in real-time!

·8) Steve Jobs and Apple will go one of two ways, and neither is great (but one is decidedly better than the other). In scenario 1, Jobs is permanently sidelined due to illness. To my memory, there has never existed a major corporation more personality-dependent than Apple (at least in modern times – I put him up there with Howard Hughes). Thus, within a very short period of time the brilliant, legendary, maniacal focus he possesses will be lost, and decisions that appear to be ‘better’ for the organization and its products will be made. These half-steps will be compromises designed to keep up with the world while preserving Steve’s ‘legacy’. This will not go well.

Scenario two – and in my mind also problematic for Apple — Steve Jobs sticks around but doesn’t ‘think different’. In this case, we run the risk of a 2.0 version of the capitulation that was Apple 1.0 failing to discern the tea leaves and license its software to other platforms. We are beginning to see this play out now. In fact, Android exists because Apple was unwilling to work out a deal with Google. Jobs’ personal demons may not be suited to an alternative path. Android has already begun to eat the world. History may not repeat, but it usually rhymes. Hence, my next prediction…

·7) Android will have 3x the number of applications in its app store than the iPhone / iPad / iTouch triumvirate does. Not too long ago, there existed a thriving packaged-software industry, and a trip to Computerland circa 1984 would have revealed shelf after shelf of Apple-ready software, along with a smaller section of IBM & compatible boxes amidst strange Charlie Chaplin posters. How long did it take the era’s ISV’s to swap over to Wintel? Not long. I know not a single example of a company with an iPhone app today that hasn’t either a) already ported, b) is about to port, or c) is planning on porting their application to Android. With Apple, the hardware is better. The vision is better. The usability is better. And it is a closed (curated is the current term of art, though iTunes is far more than just curated) system in a world that prefers open.

·6) Major media companies will erect pay-walls & windows where they can, attempting to suppress the notion that everything wants to be free on the internet. Actually, we are multi-generation-conditioned to pay for stuff (one way or another) on every medium ever invented. Will the efforts to erect a pay-wall at the NY Times go over well? No. Will it eventually work? Probably. Will the WSJ – under Murdoch – attempt to de-index Google? Probably. Will they be alone? Certainly not in threatening to do so.

A decade ago the world faced a fork in the road…. In one direction was a universe with pay-for-crawl deals where search engines shared their excess profits with the content vendors. Down the other road? Well, that’s where we are now. Those same media giants were too scared, disorganized and ill-prepared for the tectonic shift the free-wheeling internet posed. Thus, they were only too happy to have their wares crawled and displayed somewhere. Free distribution! In fact, that’s how they described it. Suffice it to say, their opinions have changed. In the end, those with (good) content tend to get paid. It certainly will not happen overnight, but by the end of 2012? I would say that fork will have merged.

·5) Google’s hegemony has a half-life about half that of Microsoft. Meaning, it will reach the populist doesn’t get it / is a death star stage in half the time. Some would say it’s already there. These would be the bleeding-edge types. Incumbents always have trouble transitioning to a new era. Despite a smorgasbord of books written on the subject, the issue is rarely the way they react to such situations. It’s in how they perceive them. Which is to say… they don’t. When you’re at the top of the mountain, it’s nearly impossible to overcome the feeling that you can see all.  Until you actually feel it in the pocketbook. Then you panic and seldom make the right choices.

Does this mean Google won’t be meaningful? Does anyone truly believe Microsoft isn’t still meaningful? Of course it is. Both are and will continue to be giants. But as outsized profits are re-distributed back into the ecosystem to the creators and owners of content, quarterly results will go from reduced ‘up-trajectory’ velocity, to flat-ish, and maybe even down-and-to-the-right in some areas. Stocks will dip. In Google’s case, people will speculate about what they will do with with all that cash. My guess… they will buy a big media company 🙂

And for a change of pace, I predict…

·4) Lloyd Blankfein will not be CEO at Goldman Sachs. His crime? Being too Googleable. Zero-sum-game hedge funds (like GS) do not do well in the spotlight; they are at their best working within the shadows, extracting profits from inefficient environments (or selling stuff nobody understands – you decide). At any rate, Goldman CEOs have always been notable for their distinct lack of notability outside of Wall Street. Blankfein no longer qualifies, and will ‘retire’ as soon as it’s clear he wasn’t forced to by outsiders.

·3) An accidental release of nano-particles will occur in a major body of water, killing an untold number of fish and other creatures as the tiny objects pass through the blood-brain barrier. This will lead to renewed cries for stricter regulation and temporarily slow down advancement in the technology. In an odd twist, this same core technology will one day dramatically improve the health of our world’s seas by delivering anti-pathogens to vast ocean-dwelling populations. But that will come later, after we kill a bunch of fish.

·2) People will begin to discover relatives they did not know they had – via the intersection of DNA sequencing and the internet. This will bring to the masses what is only experienced at the leading periphery today; that one can meet and then dislike relatives not just based on physical proximity (which for all of history is how it has been done), but via the internet.

·1) Tiger will again win the Masters…. In 2012. Then the world will go boom. Or not. If it does, it will have nothing to do with the Mayans. Solar Cycle 24, however? Maybe.

Everyone Deserves a Trophy?

Stuart Ellman

Jim Robinson IV

As if often the case at RRE, Jim and I tend to be of one mind (some say we share a single brain – which may explain a lot).  I have been thinking quite a bit recently about a phenomena around expectations I am increasingly noticing with some entrepreneurs, while Jim – as usual coming to the same conclusion from a completely different direction than myself – has been kvetching about a trend of political correctness that seems to be creeping into our industry.  We think both the causalities and the symptoms are important, so we decided to address them in a combined fashion for this piece.  Let the chips fall where they may….

EVERYONE DESERVES A TROPHY?

When I grew up, it was hard to get a trophy.   To get one in sports, you had to play in a competition with a large number of teams and come in at least second, if not first.  Even more vividly, I remember the ice cream.  To get an ice cream after the little league baseball games, you had to win the game.  Not tie, not come in close, but win.  I remember clear as day my little league team losing the first 5 games and not getting an ice cream at Friendly’s or Carvel for the whole first month.  But when we did get it, it tasted sweet.  Sometime after my generation, everybody became a winner just for trying.  Everybody got an ice cream.  Everybody who participated got a trophy.  It wasn’t about winning or losing but about trying hard.

It sometimes feels like this attitude has crept into the psyche of some entrepreneurs.  I respect nothing more than someone who quits a safe job and takes a huge risk to start something new.  I did and I know how scary it can be.  But startups are a brutal business, where few make money and many lose.  The following are situations where I find myself having to tread carefully when I know what the right answer is.

1) Don’t tell me my idea won’t work

The right answer: Look, I do not know for certain as I have been wrong before, but I am highly confident your idea will not work or ever get funded.  The key to being a venture capitalist is pattern recognition.  I have seen what you are trying to do many times in many industries, and it has never worked.  There is a small chance that I am wrong, but a much larger chance that you are about to waste years of your life.

What I feel I am supposed to say: It’s an interesting idea but we cannot fund it at the current time.

Why?  Because it would be hurtful to say that I don’t believe the idea won’t work.  But maybe being truthful would save this entrepreneur years of his career or his life savings.  If I tell the truth though, then I am arrogant or dismissive.  I gain a reputation as being a jerk and won’t see the more interesting deals.  So, what is the upside for me to tell the truth?

2) Don’t tell me I am not an entrepreneur

The right answer: Look, if you are telling me that you don’t want to take any risk in your job and need at least the same amount of cash as when you worked for IBM, you are not an entrepreneur.  Startup guys (and gals) take a lower cash salary for the higher upside they get in stock.  They love working without a bureaucracy, contributing concrete results, are okay making do with less and having no staff.

What I feel I am supposed to say: You have a great background; sorry we have no openings right now at our portfolio companies.

Why?  Because it would be hurtful to tell the truth.  But, by not telling the truth, certain people will continue to seek jobs where they will not excel and will likely get fired.  But if I tell people that, again, I will be called an arrogant jerk.  So what is the upside for me to tell the truth?

3) Give me a follow-on as convertible debt

The right answer: Look, you have missed your budget or tried a different business model.  You are not worth as much as the last time I invested but I still want to back you because I believe in you.  Go out to the market and get a term sheet from an outsider.  That will be the right price for the company at this time.  I will do my part once new money has set a price.  But don’t push me to give you convertible debt at a price that both you and I know is too high.

What I am supposed to say: Go to market and get a term sheet.  I don’t know whether you are worth more than the last round or less, but we need to let the market decide it.  If you can’t then I will likely support you anyway.

Why? Nobody wants to admit their pride and joy is not performing while the team tried really hard.  But, get ready to be known as a monster if you try to explain to the CEO what the company is really worth right now.

4) Don’t disagree with me on selling the company

The right answer: When you (the CEO) raised money from me at $25 million post, you showed me how you were going to sell it for $200mm or more.  Now, you have an offer for $30mm to sell the company and you are upset when I am unenthusiastic.  Why? Because you personally own 20% of the company and will make $6mm.  I get back $6mm on my $5mm investment, for a profit of $1mm after x number of years, leading to a poor return, on a company I believe has a huge upside.  It is not a good deal for me as an investor, and you promised you wouldn’t sell it at a cheap price like this.  Now that you can put away $6mm personally, however, you don’t care what you told me.  If I try to block the deal using the terms we both agreed on when I invested, I am an ogre, a financial engineer who doesn’t understand entrepreneurs.  But I am the one holding true to my word, you aren’t.

What I am supposed to say: I really think there is a huge upside to this business and believe we may be selling it prematurely.

Why?  Who wants to be called an ogre.

5) Pay me a bonus whether I hit my plan or not

The right answer: It is a pay-for-performance job and if the company doesn’t perform, then investors and our limited partners make no money.  You have a guaranteed performance bonus and you missed it.  It doesn’t matter if you tried really hard.  You didn’t win, you lost.

What I am supposed to say:  Yes, you tried very hard and we will come up with a bonus that reflects your efforts.

Why?  Perhaps in part because I need to keep the employees that are critical to the business, but increasingly often it has more to do with an expectation that trying hard = winning.

This is a black and white business.  You either make money or you don’t.  Somewhere along the line, being politically correct has entered the fray.  And when that happens, people stop communicating honestly.  Bad things tend to follow.

VCs are like Product Managers. Or … Actors?

Eric Wiesen

There is a conversation going on right now on Twitter between people whose views I respect: Chris Dixon, Eric Paley, Rob Go and Michael Karnjanaprakorn (and yes, I had to look). An analogy has been made, disputed and discussed about how VCs are like product managers, rather than product designers. That is to say, serial makers of bets, easy to do, hard to do well, and generally commodity.

I think some of the confusion in this discussion is that the analogy is directionally fine but ultimately tangential. The analogy I prefer is that being a VC is actually more like being an actor than it is like a lot of other things. Anyone can act, but very few can do it well. And generally speaking you know that Meryl Streep is a great actress and Jessica Alba isn’t, but you can’t necessarily say why or what they do differently in a measurable way. Similarly it’s hard to extract what exactly the good VCs do differently than the mediocre ones (although many have tried and will bend your ear with their theories). VCs get returns, which ultimately determine the good ones from the bad ones, but that’s retrospective scoring with plenty of variability (read: luck). Acting is the same – plenty of cruddy actors get paid a lot of money to do it (Paul Walker still gets paid to do movies).

Ultimately what this is about is technical skill versus non-technical skill. Acting is a non-technical skill (although that’s not to say there isn’t technique, talent or work involved). Because it’s simply doing things that everyone naturally does anyway, anyone can be a bad actor. VC is the same. When you truly boil down the job, it is essentially two things – choosing investments and serving as a Board Director. And both of those are non-technical skills. Anyone could point to companies and say (like the guy in Little Britain), “I want that one”. And anyone can show up to board meetings and render opinions. Because VC is fundamentally a job of judgment. And just like with acting, despite being non-technical, some people are really good at it and most people are not.

Compare this to truly technical professions. Acting is non-technical, but music is highly technical. If you don’t know how to play the trumpet you will not be able to play it badly, you will most likely to unable to produce a sound at all. Software development is technical. There are good software developers and there are bad ones, but lay people cannot write bad code – they wouldn’t know how to begin.

I would argue that both product design and product management are technical skills, and thus easily distinguishable from VC and less distinguishable from each other. Both are rigorous and both require specific knowledge to execute at all, to say nothing of well. And I’d argue that neither are commodity, although I’d agree that one is scarcer than the other.

Seemed easier to blog this than to break it up into 140-character chunks.

NYC Startup Career Fair

Eric Wiesen

Back when I was at Columbia, my friend Mark Davis decided that part of getting involved in the venture/startup ecosystem here in New York meant actively building a community that could support and foster entrepreneurs and their companies. Looking just around Columbia there was a terrific collection of talent without a lot of infrastructure in place to support their efforts.

Being the terrific builder of organizations that he is, Mark decided to start the Columbia Venture Community. I was a minor helper of sorts, but Mark has been the driving force behind this initiative since Day 1. Now, a couple years later, this community has teamed with the similar community at NYU to put together the NYC Startup Job Fair.

Many of us have bemoaned in recent years the observable phenomenon of smart college grads going to Wall Street or big consulting firms instead of joining startups. This job fair is a step in the right direction toward giving upcoming and recent graduates exposure to NYC startups and the potential jobs they might do inside of these companies. I have long believed that most students just do whatever they are tracked to do by their school’s career services apparatus. This is why most law students become lawyers, most MBA students wind up at banks or consulting firms. By creating a “track” for startup employment, groups like CVC and NYUVC are building important foundational pieces to encourage the best and the brightest to join our ecosystem.

If you’re a startup, participate in the fair. If you’re coming out of school or recently graduated and have thought about startups, this is a good way to see a bunch in one place. Nice work, guys.