Archive for the ‘Venture Capital’ Category

High Job Satisfaction Week: Gist, Glue, Medialets, Pogoplug, Cohen, Eminem and more…

When work is going particularly well, my partner Jason Mendelson and I like to say, “today is a high job satisfaction day”. Well, this past week has been a high job satisfaction week. (Of course, in general I feel like an insanely lucky guy to have the job that I do, so my job satisfaction stays at a pretty high level most of the time.) But this past week was a particularly good one for Foundry Group.

First off, I’m very excited about the three new investments we’ve announced in the past week: Gist, Medialets and Pogoplug. Second, we are in the final hours of the Glue Conference here in Denver, put on by the indefatigable Eric Norlin (who also runs the equally excellent Defrag Conference), with the help of my partner Seth Levine who also put a ton of work into making this conference a great one. Highlights of the conference for me including having the opportunity to have dinner with Mitch Kapor last night, followed by listening to him give a great keynote this morning that nicely outlined the history of innovation/disruption in the technology work from the mainframe era to the present date.

I’m also happy to say that David Cohen, founder of TechStars, has announced the close of a $2.5m seed fund today. Having worked with David and TechStars over the past several years, I’m excited to welcome another fund addressing the very early stage into the mix, and I’m delighted to be a personal investor in the fund as well.

Finally, in other news, Topspin Media, is now supporting the release of Eminem’s new album, Relapse. This is a big deal for Topspin, since Mr. Marshall Mathers is definitely the biggest star the company has worked with to date. You can buy it here, or listen to it below. Enjoy!

May 13th, 2009     Categories: Gadgets, Music, Venture Capital    

FAS 157 Blows

File the newly enacted FAS 157 under “stupid accounting tricks”. In addition to making investments and representing Foundry Group on the boards of companies we’ve invested in, my partner Jason Mendelson also runs our back office and is responsible for overseeing our audits and financial reporting to our investors. Jason is knee-deep in audit season right now, and he has a great and detailed rant up at Venture Beat about the stupidity of FAS 157.

FAS 157 is theoretically designed to make the valuation of our portfolio more transparent to our investors by requiring us to value our investments at “fair market value”. Sounds like motherhood and apple pie, right? Who could have a problem with this? Well it turns out that valuing early stage private companies like the ones we invest in is more art than science and valuations are open to interpretation (and discretion), thus opening the whole system to valuation related liability and false comfort from false precision. In the good old days of VC, one basically (with a few exceptions) set the valuation of a company to the price of the last round of financing. While there were situations in which this could produce misleading valuations (particularly when the market was going down), it worked pretty well and in my opinion, and didn’t create busy work that leads false precision around company valuations.

While FAS157 arguably makes sense when valuing public companies (and perhaps formerly public companies that were taken private and have the scale for public market comps to make sense), for the early stage venture world, it creates a process that wastes resources and money and helps no one but the accounting firms — and perhaps law firms down the line when valuation lawsuits start inevitably springing up.

I am constantly amazed by the the creativity and initiative the accounting industry has shown in the wake of scandals like Enron and Worldcom. While they were complicit in these frauds, they somehow came out the other side as beneficiaries when laws like Sarbanes-Oxley and rules like 409A were enacted, essentially creating entirely new lines of business and mandatory employment for themselves. And now they’ve come up with FAS 157, finding yet another way to bill ever more hours to produce an end result that has little meaning and helps no one. At least not in my corner of the universe, the early-stage VC world.

January 15th, 2009     Categories: Venture Capital    

Topspin, Baby!

Topspin on BillboardI’ve recently joined the board of an incredibly cool company called Topspin Media, via Foundry Group’s Series B investment in the company. This is an investment literally a decade in the making.

I met Topspin’s co-founder, seed investor and Chairman Peter Gotcher about ten years ago while he was a venture partner at Redpoint, via an introduction from his partner Geoff Yang, who was a board member and Series A investor in Excite, where I was one of the co-founders. As a guitarist and avid music nerd, I practically demanded that Geoff introduce me to Peter, knowing that Peter was the founder of Digidesign, maker of the industry standard digital audio recording platform ProTools. I had always fantasized about owning a ProTools rig, and once I had the means (thanks Excite IPO!), I outfitted myself with a system, which infected me with the ongoing and never-ending malady of recording studio gear lust.

Peter and I became friends and he even invited me down to LA for a product brainstorming session with the guys at Line 6, another very cool music technology company that Peter helped get started that, among other things, pioneered digital modeling of analog gear and became one of the largest manufacturers of guitar amplifiers around.

I met Topspin’s other co-founder and Chief Product Officer Shamal Ranasinghe in 1998 when he came to California to get his MBA at Stanford’s Graduate School of Business, where he was classmate of my wife Katherine. Shamal and I became fast friends and I was particularly struck by his passionate commitment to change the music world through technology. I introduced Shamal to Peter, which ultimately led to their decision to co-found Topspin several years ago. Shamal stayed true to his singular passion to work in the world of music technology, and spent time defining the product vision for RealNetworks, MusicMatch and ultimately at Yahoo! Music, via Yahoo’s purchase of MusicMatch.

While I was out on the road with Brad helping to raise the first Foundry Group fund last year, Topspin was very busy – they raised their Series A from Tim Haley at Redpoint Ventures, built their initial product offerings and scored a major coup by landing Yahoo! Music GM Ian Rogers as CEO, who has just about the ideal background for someone you’d want in the helm at Topspin. He’s been a software engineer, entrepreneur and record label executive and his career has included stints at Nullsoft, Grand Royal and Media Code. Ian also happens to be one hell of a nice guy and perhaps the most cogent thinker I’ve encountered when it comes to the issues facing the music industry today.

So last month, when Shamal and Peter called me and said they were thinking of starting their fundraising process for their Series B, my partner and band-mate Jason and I hopped on a plane to meet Ian and to get an update on Topspin’s progress since we had last spent time with them in the summer of 2007. We were blown away with the progress they had made with the product, and more importantly, with the breadth of their future vision and their understanding of the trends at play in the shifting sands of the music industry.

When we returned to Boulder, we shared our enthusiasm for Topspin with our partners and invited the Topspin team out to Boulder to spend a day with us. The day went incredibly well, we broke bread together at Frasca (my favorite restaurant in Boulder), and by the end of the day, we had agreed upon a deal. Just three weeks later, we closed our investment in Topspin. I’m honored and excited to be part of the Topspin team.

July 7th, 2008     Categories: Music, Venture Capital    

Mr. Moore in the Datacenter

Yahoo is celebrating its tenth anniversary, which led me to reflect on the fact that a decade is a very long time in Silicon Valley, particularly when viewed through the lens of Moore’s Law. As Ray Kurzweil and others have observed, when humans contemplate exponential progress, we tend to overestimate what can be accomplished in the short term (where the curve is relatively flat), but we tend to underestimate progress in the long term (when the curve gets very steep, goes up and to the right, does a hockey stick, etc.). People tend to think more easily in powers of ten (as opposed to the powers of two prevalent in the technology industry), so a decade is a good duration to look back and consider what Mr. Moore has done for us lately, after we’ve had six or seven doublings of memory density, computing speed and bandwidth. The datacenter is a great place to look to see these trends converge.

Given my background, it is perhaps not surprising that I’m a big fan of consumer-oriented web services such as Google and Yahoo, as well as recent Mobius VC investments Technorati and NewsGator. I’m equally enamored with enterprise-focused software-as-a-service businesses such as RightNow, Salesforce.com and Mobius VC portfolio companies Postini, Quova and Rally Software Development. Another cool software-as-a-service startup offers a hosted application wiki and is called JotSpot, which was founded by Joe Kraus and Graham Spencer, two of the guys with whom I co-founded Excite back in 1993. Though these enterprise and consumer oriented companies have different revenue models, their delivery model and back-end architectures for serving their customers are fundamentally similar.

Each of the companies I have mentioned above have benefited greatly from the drastic increase in the amount of storage, computing power, bandwidth and datacenter rack space that a dollar buys in 2005 versus what a dollar bought for the same thing in 1995, back when Yahoo and Excite launched their sites. I spent some time poking around the web trying to find 1995 prices for CPUs, RAM, storage, bandwidth and colo space, but it turns out that this kind of pricing archaeology is difficult to practice online, as all searches for these things turned up advertising and commerce sites focused on selling me these commodities today, not ten years ago.

I related my problem to my colleague Jocelyn Ding, who is the SVP Business and Technical Operations at Postini, and she was able to track down some old price lists from a variety of vendors from 1995, 1998 and 2000 for bandwidth, cage rental, one and four CPU servers and storage systems. Thanks go to Jocelyn for helping me put some real numbers behind my somewhat obvious assertion that a dollar goes much further in today’s datacenter than it did a decade ago. I also dug up a good whitepaper detailing costs of enterprise storage since 1992 which includes projections to 2010, which can be found here. For some items, the prices didn’t go back to 1995, so in those cases, I have extrapolated the price trend to estimate 1995 costs based on 1998 or 2000 costs relative to today’s costs:

Bandwidth: $1100/megabit/month in 1995 vs. $128/megabit/month in 2005

Cage Space: $175/sqft/month in 1995 vs. $25/sqft/month in 2005

Disk Storage: $1,300,000/TB in 1995 vs. $3,300/TB in 2005 (SCSI RAID)

1-CPU Server: $25,000 in 1995 vs. $1,000 in 2005 (web server class machine)

4-CPU Server: $360,000 in 1995 vs. $38,000 in 2005 (with 16GB RAM)

In addition to the price reductions, we also have to look at the compute performance of a web server class machine in 1995 vs. today. Given five or six performance doublings since 1995 courtesy of improvements in clock speed, bus speed, architecture changes from 32 to 64 bit, additional cache memory and faster RAM, a conservative estimate would be that today’s single CPU 1-U “pizza box” web server is roughly fifty times faster than last decade’s model. Couple that with the 25x price difference for this pizza box, and your 2005 dollar buys you more than one-thousand times as much compute power as it did in 1995. Bandwidth is at least ten times cheaper than it was in 1995, floor space in the data center is seven times cheaper and enterprise-class storage is at least four hundred times cheaper than it was only a decade ago. With some smart software and network engineering, the cost per gigabyte of storage can be brought down an order of magnitude further still using a distributed filesystem based on low-end IDE drives. Finally, with the rise of Linux, Apache, MySQL and open source in general, software license costs can also vanish from the equation when running a large-scale web service.

What does this mean for a web-services company? The cost to deliver an application to an end-user has dropped dramatically for these companies and the cost to operate their data centers therefore has much less of an impact on their costs of operations and capex budget than it used to, which means their gross margins for delivering their product have improved significantly since 1995. For companies like Yahoo, Google and more recently, Technorati, this means the cost to deliver a page view or search results page has gone down dramatically, while the average size of a search-results page is perhaps only marginally larger since 1995. Even considering the size of a search index (Google’s 8B pages today vs. Excite’s 10M in 1995) has grown nearly one thousand-fold, the costs of computing power and storage have accommodated this expansion while bandwidth costs and rack space have fallen nearly tenfold.

For enterprise-focused companies like Salesforce.com, Postini, Quova and Rally, the story is similar. Add in a subscription-based recurring revenue stream and you have a business model that has all the benefits of a dependable revenue stream and profit margins that can approach those of a traditional software company. Thanks to the low cost and high performance of today’s hardware coupled with an elegant service architecture, Postini is able to process several hundred million email messages per day for its customers with an extraordinarily light hardware footprint and does so quite profitably as a result.

The fun thing about doing a retrospective like this is to realize that when I write about this again in 2015, the increases in CPU speed, memory density and bandwidth will make today’s costs and capabilities look as quaint as 1995′s do today. Thus the environment will continue to become more hospitable to the software-as-a-service model, more entrepreneurs will create meaningful businesses based on this model, VCs will continue to invest in these ideas (myself included), and we’ll all be able to enjoy some mind-blowing applications a decade from now that are simply not possible today.

March 3rd, 2005     Categories: Venture Capital, Web/Tech    

VC Holiday Cheer

OnsetEvery December, many VC firms (Mobius included) send out a flurry of holiday greeting cards to their VC colleagues, service providers, portfolio company management teams, entrepreneurs, friends, etc. And every December, I look forward to receiving the card that Onset Ventures sends to me. Over the past few years, I’ve had the pleasure of sitting on the board of directors of Glimmerglass with Susan Mason of Onset, which is how I wound up on Onset’s holiday mailing list.

Onset creates cards that are always clever and have an amazingly high production value. (See the picture in this post for a preview from last year’s card). You can also access the archive of their cards here. My favorite was 2002′s card, which contained a series of haikus that reflected the angst of the time. I’ll close with a few of my favorites:

snow falls silently
blocking pathways, bringing gloom
just like the NASDAQ

‘e’ here and ‘e’ there
‘e’ was almost everywhere
except for ‘e’arnings

coal in my stocking
once nothing, now an asset
warmth underrated

December 10th, 2004     Categories: Venture Capital