Wednesday, September 15, 2010

Enjoy Dumpster Diving?

I was greeted at home this evening by a violation notice from NYC's Environmental Control Board -- aka the "garbage police." My building was fined $25 because one of my neighbors disposed of paper and cardboard in the trash instead of recycling those materials.

Here is the exact hand-written text on the violation notice dated 8:17pm on Aug 31:
"I did observe 3 white bags placed out for collection. Upon inspection found paper & cardboard mixed with household garbage."
Are our dear city's finances really in such dire straits that Mayor Mike now employs garbage inspectors? I can't believe it!

Thursday, September 09, 2010

Bessemer's 10 Laws of eCommerce

A few years ago, my Bessemer colleagues Byron Deeter, Philippe Botteri (blog) and David Cowan (blog) led and synthesized a lot of our firm-wide views on what it takes to build a great software as a service (SaaS) business. They have since published several versions of a white paper entitled Bessemer's 10 Laws of Cloud Computing and Saas. Based on the number of press hits, the thankful compliments from SaaS executives, and the quality of the feedback and criticism they received, their effort to "open source" our thinking has been extremely successful.

Given the exceedingly high quality bar set by our colleages, it is with some trepidation that Sarah Tavel and I set out to do something similar for online retailers. We just began publishing (on Sarah's blog), Bessemer's Top 10 Laws of eCommerce, and we intend to share the full paper over the next several weeks.

We welcome your feedback, criticism and, most of all, experience with what believe are the most important rules for building an online retailer.

Thursday, August 26, 2010

A belated thank you

When I started leading venture capital investments for Bessemer in 2003, I was scared out of my mind. I suspect a lot of young investors feel similarly. It's incredibly frightening to commit millions of dollars of other people's money to a young (typically loss-generating) startup. There's a good chance you'll never see that money again. It's nerve-racking. I learned to think of the concept of being a "fiduciary" in the following manner: it's actually a lot more painful to lose a bunch of someone else's money than it is to lose your own.

My response to the fear -- which, after nearly a decade in VC, hasn't subsided much at all -- was to start slowly and conservatively. My first investment was $50,000 in a two-person startup called Hypertag. The founders and I decided to shut it down 6 months later, and I got back about $35,000. I felt like crap, and in an effort to cheer me up, one of my partners jokingly told me to think about it as a 70% return. Two of my next investments were much larger but in later-stage companies: Gracenote and Gerson Lehrman Group. Those worked out well and helped to increase my confidence.

A couple of years later, I started to do some "traditional Series A" venture capital deals, which I define as 7-figure investments in companies that have raised no more than a few hundred thousand dollars and have little or no revenues. It's the scariest type of investment one can make because there's enormous risk combined with serious dollars at stake. Of course the tremendous upside justifies the risk, but it can easily take 4 or 5 years to know if a Series A investment was wise or foolish.

After seven and a half years making venture capital investments, I tasted my first Series A success a few weeks ago. The founders preferred not to disclose the news, so we kept it quiet, but somehow the sleuths at TechCrunch got the dirt and published it here.

I helped Fabrice Grinda get started with OLX in early 2006, and after he brought on co-founder Alec Oxenford, I led the Series A financing with General Catalyst's Joel Cutler later that fall. At $10 million, it was a very large first round of capital, and, like every other investment I have made, it was scary.

But Fabrice and Alec are a fantastic tag-team, and it was a pleasure to watch them in action over the last four years. It was also relatively low stress because the business metrics improved almost every single month since the day we invested. When the company's web sites surpassed 100,000,000 unique visitors in a single month earlier this year, I knew some large Internet leaders would soon come calling.

Despite it's $15 billion dollar market cap, I didn't know much about Naspers until recently. They're based in South Africa and have a uniquely global perspective that I've rarely seen in Internet management teams. Naspers proposed a strategic deal to OLX a few months ago that was too compelling to pass up.

It is with mixed feelings that I celebrate my first Series A success. On the one hand, it's nice to earn a profit and see validation of an early-stage conviction. On the other hand, we sold our stake in the company, so I no longer get to work with the talented founders and their star executive team nor will I get to benefit from the upside that lies ahead for OLX. I've become fond of Joel Cutler's comment that as investors, we were "invited guests." Together with the founders, we decided it was time for us to depart.

Now that the news is out, I submit a public statement of gratitude to Fabrice, Alec, Ariel, William, Mark and the many other key contributors. Thank you for all the fun and capital gains!

Thursday, August 12, 2010

There's an App For That (on your TV)

Ever since the initial iPhone release in 2007, I assumed Apple would eventually extend its consumer device operating system to televisions. Benchmark's Bill Gurley predicted it here and even included a nice living room mockup.

To date, Apple has only delivered a mediocre tv attachment called Apple TV. Samsung, on the other hand, has delivered the real thing -- a television set on which you can load apps in much the same way you load them on your iPhone. To motivate developers to come up with some creative app ideas for its new line of TVs, Samsung is sponsoring a contest with $500,000 in prize money, and I'm delighted to serve as a judge alongside Mike Maples, Bob Borchers, Roelof Botha and Samsung's own Eric Anderson.

The winners will be announced at CES next January, and I hope to see some cool new concepts.

Tuesday, April 20, 2010

World's Greatest Cloud Service Provider

Along with several of my colleagues, I am particularly attracted to our cloud computing roadmap, and I spend a fair amount of time exploring related ideas and companies. It came as a bit of a surprise to find that the world's greatest cloud service provider was a virtual unknown just a week ago:

(Credit to my friends at Parallels for sharing this image with me.)

Wednesday, April 07, 2010

Spam is everywhere, not just in email

About five years ago, I focused on building highly valuable businesses on the back of user-generated content. I led my first related investment in 2005. It was in a San Francisco-based startup called Yelp. Over the following 18 months, I led three other Bessemer investments based on the same fundamental roadmap: Wikia, OLX and LinkedIn.

One nice thing about the roadmap approach to investing is that when you discover a compelling roadmap, follow it and identify talented entrepreneurs who share your conviction, you end up investing in some great companies. LinkedIn, Wikia and Yelp are each now among the top-100 ranked websites by Quantcast. It's a bit harder to measure the size of OLX because it’s largely used by consumers outside the USA across several domains (,, and many others), but it is probably the largest site in my portfolio and reached more than 100,000,000 unique visitors last month. As satisfying as the success these companies have had pleasing consumers is that that each has a proven, working business model. I wish all of my investment roadmaps were as productive as the one based on user-generated content.

But it's not all happiness in user-generated content land. There are lots of challenges with it, and perhaps at the top of the list is that you don't actually control your site's content. That leads to troublesome spam.

Spam at Wikia
Wikia is a giant collection of wikis that anyone can edit. I think it was about a month after we invested that one my colleagues rushed into my office to ask when I last visited Wikia's home page. Without hesitation, I pulled up the site and was greeted by a massive image of two naked adults exploring one of the more creative entries in the Kama Sutra. Sadly, it feels as though for every well-meaning Internet consumer, there's at least one evildoer. (The ratio is probably much better than 1:1, but the evildoers each seem to make the "contributions" of 10 or even 100 people, and so the "effective" ratio is probably much worse than 1:1.)

Spam at OLX
OLX provides free classified sites in almost 50 languages in 100 countries around the world. They now collect more than 100,000 new free postings every day. These posts advertise the likes of a used car for sale, an apartment for rent or a job opening. Incredibly, OLX's computer algorithms automatically tag 50% of those new postings as spam and delete them immediately. FIFTY percent! Even more incredible is that OLX tunes its algorithm to be extremely conservative: if it might not be spam, they don't delete it. Once the computers are done reviewing the content, a crack team of customer service agents in Buenos Aires manually reviews every remaining post. The human reviewers end up tagging half of what's left as spam too! That means for every useful post, there are three pieces of spam. Left unchecked, the spammers would completely destroy the utility of OLX because you'd have to wade through gobs of crap to find real posts.

Spam at Yelp
Yelp is a site where consumers post their subjective reviews of local businesses. Yelp identified the spam problem early in its development, and came up with a highly effective way to filter out spam on its site. Spam in the context of Yelp is most often a shill review written to make a particular business look great or (its competitor's look horrible). The sentiment embedded in Yelp reviews about most local establishments feels real because most of the spam has been removed. The opacity of Yelp's spam filter frustrated a number of business owners, and so Yelp just launched a new feature to let consumers look at the reviews that were automatically removed.

The result is amazing. In a random sample of business profile pages I just visited on Yelp, the "filtered" reviews account for anywhere from 10% to 50% of the total! Much of the spam is truly shameless. My favorite reaction to Yelp's new feature was from The Next Web, and it's priceless:
Looking through the reviews that Yelp’s algorithm filtered out brings to mind a single thought: ‘Wow. It’s like viewing Yelp through Citysearch goggles.’

Everyone knows that not a day goes by when spam doesn't invade our email inboxes. We use filters and other defenses to prevent spam from destroying the utility of email. It is less obvious that, if left unchecked, spam would also destroy many of the most useful properties on the Internet. Thankfully, some of the best user-generated content sites have developed sophisticated techniques to keep the spam at bay. Let's just hope they keep innovating fast enough to stay a step ahead of the bad guys.