Lots of discussion these days about the changes in the VC industry.  Here’s my take:

1. The VC industry grew dramatically as a result of the Internet bubble - Before the Internet  bubble the people who invested in VC funds (called LPs or Limited Partners) put about $50 billion into the industry and by 2001 this had grown precipitously to around $250 billion.

2. But VC is an “illiquid asset” so funds didn’t disappear quickly - In 2000/01 the stock market quickly adjusted punishing investors in the NASDAQ and in individual public technology stocks.  Consumers pulled their money out of these risky investments, but when LPs make commitments to VC funds they make 10-year, legally binding commitments. So as of 2008 total LP commitments were still at nearly $250 billion.

3. The VC industry in shrinking –  Paul Kedrosky was early on the scene with this prescient prediction that the industry would shrink.  What accelerated this was the collapse of the public stock markets.  LP’s who invest in funds are typically university endowments, public & private pension funds, insurance companies, large corporations and very high net worth individuals called “family offices.”  To give you an indication of how bad, for example, university endowments are suffering check out this chart.   You’ll notice that Harvard lost 30% of the entire value of its portfolio.  If you’re interested to read a more detailed piece on how they think about this check out.

So the people who invest in VC funds have two problems.  One is the “denominator problem” which says that if an LP invests X% (the numerator) into “alternative investments” such as venture capital and if their total amount available to invest (the denominator) goes down by 30% then the amount they allocate to VC will by definition need to go down by 30% to stay the same percentage.

The second problem is more troubling.  The VC industry has performed terribly over the past 10 years.  Many firms didn’t even return LPs their original money let alone a profit.  So even within the “alternative class” our LPs are looking at other asset investment choices such as distressed buyout funds, private equity or hedge funds.

VC will shrink.  Oh yes it will.

4. This means that some funds will disappear – Returns are not even.  The top quartile funds have performed well. [side note: our last fund at GRP Partners is currently ranked as the 5th best performing fund of the year 2000.  Our current fund was raised in 2008/09.]  Many funds have not performed and will start to disappear.  This is finally happening because the boom of 1998-01 means that many funds are reaching the maturity of their 10-year funds [strangely, 10-year funds usually last about 13 years!].

The best and most consistent funds in Silicon Valley (e.g. Sequoia, Kleiner Perkins, Accel) can and will easily raise money.  But even great funds that are not in this historic and long-established funds will not find fund raising easy.  This is best told in this amazing and brutally honest piece by Alan Patricof where he talks about the recent difficult fund raising experience at Greycroft [they just raised a $130 million fund].

I was at dinner with a large LP and mentioned that I had heard the industry would shrink by 50%.  She laughed and said, “Our predictions are for a much larger drop.”  Gulp.

5. Funds that raise money will be smaller - There is not only less money going into the VC industry, those that raise funds are often raising significantly smaller funds.  Some funds like Battery Ventures have bucked the trend by raising $750 million.  Others will, too.  But my conversations in the private corridors on Sand Hill Road in Silicon Valley is that many fund sizes will be smaller going forward.

6. This is producing a game of musical chairs –  You know: the music is playing while 8 partners walk around a circle of chairs.  The fund size shrinks by half so half the chairs disappear.  The music stops.  Partners leave the industry.  Some partners don’t have to walk – they just sit down while the music is still playing and therefore other partners need to go.

But equally some partners joined firms in 2000 and have still never seen any upside in cash since their funds haven’t yet returned the initial capital [note: VC funds usually return all of the capital that they raised first and then share 20% of the profits above this hurdle].

I suspect both were at play in Rustic Canyon Partners that went from a $500 million fund to around a $200 million fund.  PE Hub reported that there were defections and the implication was that the fund was “fighting for its life.”  I don’t think this is accurate.  There are some very talented partners remaining at Rustic Canyon and I’m told some committed LPs.  But I also know that some of the partners who left were also very talented.  PEHub followed up their analysis with this.  Think about the math.  It was clearly a game of musical chairs in some cases and in others a case of talented people believing they could make more money in a different job.  After all, most people don’t understand that “venture capital is a get rich slowly” scheme.

7. It takes less to start a business these days – We all know that it takes less to start a technology company these days.  You don’t need to buy hardware – there’s Amazon AWS.  You don’t need to buy expensive software – there are free open source solutions for nearly everything.  You don’t have to hire as many sales people because much can be sold online.  So companies are running for the first 1-2 years on significantly less capital than they did 10 years ago.

8. So super angel and seed funds are proliferating – As a result there has been an explosion in the number of amazing early-stage investors such as Softtech VC, Floodgate, Felicis Ventures, K9 Ventures, OATV, Lowercase Capital, Founder Collective, and many, many more.  There are also super angels that are so numerous I’d rather just link to the best list out there, which is VentureHacks’ AngelList.

9. And VC’s are doing earlier stage deals – And we all know that VCs are doing earlier stage deals.  The most notable is First Round Capital who built their entire fund and model around this type of investment and the notion that exit values in the future will be lower than they were 10 years ago.  They are also the most innovative new fund to enter the market in the past 10 years in my opinion.  There is also True Ventures that does early stage, seed investments.  And of course Foundry Group, Union Square and a whole host of other firms including my own.  I have written more in depth on this topic in the past.

10. This is producing a “boomlet” or a bubble in early-stage investing.  That’s OK. – This massive increase in seed & angel funding caused Paul Kedrosky to predict that there is a coming seed fund crash.  I don’t know whether there is a “crash” coming per se but I do believe that too much money is going into angel and seed companies too quickly.  I’m OK with this – it feels fairly benign.  But one problem it is causing is that early-stage deal prices are creeping up again higher than historic norms.  This smells like classic froth to me.  So IMHO it’s probably more of a mini “bubble” than an impending crash.

11. But it takes the same amount of money to scale a big business and this is where outsized returns are earned – If you want to build a big business you still need big bucks.  Fred Wilson wrote a great piece on this. He acknowledged the importance of the growing seed fund movement in creating a new wave of cost-effective innovation.  He then profiled his portfolio company FourSquare who started with a very small investment.  But now that it’s time for them to scale they need a lot more capital and therefore just raised $20 million from Andreessen Horowitz.  Think about it – while FourSquare has established itself as the clear market leader it is unquestionable that Facebook, Yelp, CityGrid and many more well capitalized companies will be gunning for them.  Staying “lean” is not an option.  If FourSquare wants to dominate it’s market it’s time to GO FAT.

12. Many angels and some seed funds will get burned – In good times it’s great to be an angel or seed investor.  You invest low amounts of capital and the company gets to IPO (96-99) or trade sale (05-08) without raising too much capital and certainly not on punishing terms.  But in bad economies many angels get burned. More money is needed, VCs are harder to come by and when they invest it can be on penalizing terms.  Often if you have deep pockets (or a proper fund) you can protect yourself by getting out your checkbook again.  But this only works if you have deep pockets.  And ironically the one time angels hate to get out their checkbooks is in a difficult market (in part because they’re also feeling it in their real estate investments, stock market portfolio, etc.).  So angel and seed stage investors’ returns will be dependent on good times continuing or on the ability of their portfolio companies to get financed.

13. So forming tight relationships with larger investors in the value chain is a critical skill for investors – The smart angels and seed fund investors know that one of the most important success criteria for an early stage investor is the ability to get the next round of the company financed.  Nobody understands this better than First Round Capital.  I have never seen a fund that spends so much time building relationships with every other VC (in addition to many entrepreneurs.)  Some seed angles and seed funds clearly get it.  Others spend less time on this activity.

I also think that seed funds with a very clear sense of purpose will do well.  One of my favorites is K9 Ventures.  Listening to Manu Kumar speak is like listening to a focused entrepreneur speak (and I can’t say this about all funds).  He has a set of clearly defined criteria in order to invest.  Price MUST be in a certain range.  Team must be purely technical.  Revenue must come from a primary source (as opposed to advertising or other third party sources).  Teams MUST be in the Bay Area.  And so on.  When you listen to his rules you get the sense that he really has a strong thesis for his investments and a belief in how he’ll make good returns.

14. This is especially true if we have a double dip economy – If the economy is in recovery then angels and seed funds are heros.  If we hit a double dip economy then the next phase of their investment cycle begins.  They’ll need to focus on getting portfolio companies funded.  Those that invested narrowly enough and/or have great relationships with VCs will do well.  Those that spread there bets widely or haven’t fostered VC relationships will have some triage work cut out for themselves.  ”Financing risk” is one of the biggest risks for seed stage investors.  This only becomes noticeable in down markets.

15. The reality is that right sizing the industry isn’t enough.  You need to right size each segment of the industry. – While many people publicly predict that the future of investing is about seed investing I think this is wrong.  There is a certain size market for seed funding that should exist.  Excess capital will drive up prices in that segment and drive down returns.  I think this segment has expanded due to structural changes discussed earlier but it still has a natural limit.  Then there is a certain size market for A round VCs, B round VCs and growth equity investors willing to put $50 million to work.

What you’ll see is a natural segmentation of the industry (which already exists) where each segment is right-sized and we’re all inter-related and our successes mutually dependent.  The earlier the stage, the cheaper the price, the smaller the check, the higher the risk and therefore the higher expected return.  So Chris Dixon is right that super angels and seed funds should perform better than VCs – they’re taking higher risks due to an early stage.  But many others won’t navigate these risks well and will underperform.    You don’t get the increased reward without the commensurate increase in risk.

I did a short explanation of this whole phenomenon in this video.  Start at minute 50.30 and run for just a few minutes.

16. Importantly, what does this all mean for startups? As I argue in the same video above – startups are better off by the “right sizing” of the VC industry.  When there is too much money in VC then too many companies get funded and raise too much money.  Try selling your product at a fair price when you have 4 competitors who’ve each raised $10 million in VC and who expect it will be easy to raise the next $10 million.  Over funding drives poor market behavior and makes it difficult for strong players to earn proper returns.  I’m not anti competition – to the contrary.  I just don’t like too much competition armed with large balance sheets funded on speculation and hoping purely for user numbers.

So in the future less of you will likely raise VC money.  You’ll have to find alternate ways of financing your dreams and that’s OK.  But those of you who do get funded will build stronger businesses, make better returns, hire better & more committed employees.  And of course you will produce our next wave of innovation.

[if you're not old enough to get the reference between this image and the title you can click on the image for a prompter]

This past December I spent a week in Boston to try to get to know some of the local VC’s and entrepreneurs a bit better.  One of the meetings I had (organized by my good friend Jeff Yolen) was with New Atlantic Ventures held the at the CIC, aka the Cambridge Innovation Center (no prizes for guessing where it’s located).

As they showed me around the CIC I was instantly envious.  I recently wrote a blog post about why I believe that startup teams in close proximity perform better.  I believe that first-time entrepreneurs also benefit hugely from working in close proximity to other companies.  VCs constantly share cross fund information and are therefore always getting dialed into what is going on in the industry. We know prices of deals, compensation, who’s doing well / poorly, etc.  Entrepreneurs need to share more information with each other.  I’m surprised how few people talk about valuations, term sheet terms, how much to pay recruiters, etc.  A tech lab is a perfect hub for this kind of cross-company fertilization.

I once mentioned this idea to a fellow SoCal VC when I told him I wanted a CIC in LA and he said, “Co-location is dead. We don’t believe in it anymore.  These days we all use Skype and collaboration tools.  We’re recommending to our companies that they be distributed.”

Uh, I guess he won’t be co-sponsoring a technology lab in LA with me then?  I found it shocking that it didn’t seem like a worthy endeavor to him to have a central hub of tech companies on the Westside of LA.  I guess I shouldn’t be surprised – I got a similar lukewarm reaction when we started Launchpad LA and that seems to be going pretty well.

I’m 100% certain this would benefit our community and not just the entrepreneurs that work there.  VC’s and more experienced entrepreneurs would have a central hub in which to gather.  Now I gotta go and build it just to prove him wrong.

The CIC, founded in 1999, is located adjacent to MIT and has more than 100,000 sq ft of space for nearby startups that qualify to be housed there.  And you can tell that the founders have thought greatly about creating the right kind of space for startup companies.  You can start with as little as one person and sit in a shared space that sort of feels like a coffee house.  In this space you don’t have a pre-assigned space but rather book space like a hotel.  You will be surrounded by loads of like-minded people all looking for work space at an affordable price and all, presumably, interested in meeting and interacting with other startups.

You can pay a little bit more to have your own dedicated space and you can even rent a “pod” which is sort of like a small office at a more affordable price.  In fact, this is the set up Jeff had as he was between gigs.  You can also get traditional office space for your team but you still feel like you’re part of a bigger tech zone.  It’s sort of like Amazon AWS auto-scaling – you can scale up your office space as your team size grows (and vice versa, but let’s hope not).

But the real benefits of being somewhere like the CIC is this interaction between entrepreneurs.  It’s what Silicon Valley / San Fran entrepreneurs get for free.  If you live in SoMa all you have to do is walk to the nearest Philz Coffee (which totally rocks, by the way) and you’ll bump into somebody building on top of the Twitter API or integrating with Force.com.  Or you can have a debate with your neighbors and hear how their implementing Cassandra or Hadoop.  It’s true that being in a lab can also have distractions but I believe this is far outweighed by the knowledge sharing benefits.

These kinds of office space arrangement are often called “technology incubators” or “startup labs” or something similar.  These are not to be confused with incubators like YCombinator or IdeaLab which look to invest in your company and take equity positions.

Probably the best known tech center in NorCal is the PlugandPlay Technology Center owned by industry veteran and insider Saeed Amidi.  Like most centers PlugnPlay hosts industry events, brings in speakers & venture capitalists and gives companies more visibility than being on their own.  By being in a facility like this you have a ready made peer group to ask about things like recruiting, technology, PR, venture capitalists or banks.  You also have a steady stream of VC’s passing through looking for the next big thing.  It’s far easier to stroll through such a center and see 20 companies than to travel around to them all individually.

The latest technology lab that I came across was dogpatch labs run by Polaris Ventures.  Dogpatch was the brainchild of Mike Hirshland, partner at Polaris.  If you want to get to know him a little bit better you can check out this interview I did with Mike.  Dogpatch has offices in Cambridge, New York and San Francisco where it houses more than 35 companies (about 50 people per location if I remember correctly).  I spent a day at Dogpatch San Fran and loved the vibe.  We then held the Open Angel Forum there in the evening.  It has big wide open spaces for such events.  I also had lunch there which was served buffet style with the rest of the office, which apparently costs $5 / day and you just let the office manager know in advance so they can plan numbers.

As I said, I’m seriously bummed that we don’t have something like this on an industrial scale yet in LA.  I’ve been to the CoLoft in Santa Monica and it’s certainly a great start.  CoLoft has similar features in that it is managed office space with other tech firms and they run regular events in their offices.  But I now want something more industrial scale – the next size up.  And I’m going to put my brain (and maybe some dollars) into fixing this problem.  I don’t think having a few facilities in a city is competitive – hopefully we’ll find a way to make it collaborative.

If anyone has experience, advice or dollars and wants to help please be in touch.  Anyone have positive or negative experience in such an incubator? Do tell …

Paul Graham and the folks over at YCombinator have done much to reenergize early-stage entrepreneurship and encourage the creation of many new and innovative startups including DropBox, Posterous, Loopt, Justin.TV, Scribd and many others.  They also gave us Hacker News, which for me was a welcome addition for discovering tech stories.  HN and Techmeme are the main two tech aggregators that I frequently skim.

Paul explains the rationale behind HackerNews this way:

“We wanted to try to recreate the way reddit felt back in 2006, when the users were mainly hackers. As reddit became more popular, its focus inevitably changed. This was good for most users, but it left some of the earlier ones feeling left out. We wanted to create a new home for people like us”

He also places a huge emphasis on civility in the comments and makes a commitment to “aggressively ban … mean people” as quoted below

“The other thing we’re determined to do is keep the comment threads civil. We’re going to aggressively ban spammers, trolls, and mean people. The policy will evolve over time, but here is the core principle: don’t say anything in a comment thread that you wouldn’t say in person. And in particular, no ad hominems. If you dislike something someone has said, point out why it’s mistaken, instead of making remarks about them personally.

Most forums degrade over time, but we don’t think that’s inevitable. We’re determined to keep this site good, because we use it ourselves.”

Unfortunately HackerNews falls short on this goal.  At first I thought it was just me but I asked around and other people concurred.  One prominent YCombintor graduate CEO said,

“Hacker News [can be] somewhat out of control. I only read HN comments when I want to get upset.”

In my opinion HN can get downright mean.  Here is an example from pw0ncakes.  It starts with “F***ing a**hole” and then “I am sick and f***ing tired of people ripping on my generation for not playing by someone else’s shi**y rules. Are the older people really so damn entitled as to not understand all this?”  This comment received the most votes (61) out of 128 total comments and therefore comes first as you can see here.

Here is an example from Brerrabbit, whoever that is. Starts with “what a f***ing pompous blowhard … F*** you, you are not my Mother or my Father & I resent that implication.”  Or this one from earl that starts with, “The reason Mark is an a**hole is that he’s trying to create / exploit cultural norms to prevent employees acting in their own self interest.”

Aside from the hatred directed at me for starting the debate, I actually think we did a good job of getting the debate going if 128 people left lengthy comments on HN to my post plus 80 more in Paul Dix’s rebuttal and yet more on Andrew Warner’s rebuttal.  Overwhelmingly people were against my views.  That’s fine.  Overwhelmingly people were harsh but avoided obscenities even when they made personal attacks on me.  I’m no prude, it’s just unpleasant to have stuff like this plastered on the internet about you.  See definition: ad hominem.  This is what many of the comments descended into.

I CERTAINLY opened myself up to attack by writing my original blog post about job hoppers with some incendiary language and tone.  I walked some of this back, apologized and tried to tone down the argument here and then followed up with final thoughts here.

But the comments on my own blog were so much more balanced with people taking both sides of the debate.  For anyone who attacked me on my blog but used their actual names I left their comments.  Believe me there were plenty of these and many were hurtful and inflammatory.  I have thick enough skin or I wouldn’t blog.  If somebody was really inflammatory and posted anonymously I deleted the comments.  I think I deleted about 3 out of 322 comments (<1%) and those were for attacking other commenters.

I’ve seen vitriolic responses on HN on several occasion.  I mostly get hammered on HN if I write about a controversial topic like criticizing Apple (in fact, what prompted me to write this post today was that I was asked on Twitter to write a post about Facebook.  I have been avoiding it because I wasn’t up for the inevitable public pummeling this week).  It’s not enough to attack my ideas – it has to be personal.  Ad hominem.

In fact, I was reluctant to write this post because I know it’s likely to lead to the inevitable bashing on HackerNews, which unfortunately also spills over into hate emails that some people from HN send me personally (no prizes for guessing my email address).  From Ji [last name withheld]

“Congratulations … Your post have [sic] made it on front page of Hacker news … lot of good engineers leaves you after they worked for you. I believe it’s more likely that you suck that’s why engineers leave you instead of the other way around …Good luck finding the 10% mediocre employees who are “loyal” and will stay in a company for 10+ years because they don’t have better offers so that they have to stand jerks like you.

one of your 10000+ haters”

Fun.

But I don’t want to be bullied into not furthering the conversation.  As I’ve said very publicly I love blogging because I believe in the freedom to state one’s points of view and the learning that comes from the discourse afterward.  Public discourse is the highest form of democracy.

My suggestions (which will not be popular with many of Ycombinator’s hackers but may meet your goal of civility).  All

1. Make all users post under real names that you verify – This in and of itself would help temper comments.  It’s totally acceptable to me for people to harshly criticize my points-of-view.  No problem.  But calling me a f***ing a**hole or some of the other epithets used goes too far.  If people used real names and if these were crawlable and searchable in Google the transparency alone would help regulate people.  Not everybody but many.  HackerNews doesn’t need to be JuicyCampus.

Better still add photos the was Disqus and Quora do.  It humanizes everybody and drives more civil conversation.  As Paul said in his blog posting, “don’t say anything in a comment thread that you wouldn’t say in person.”  Photos drives this closer to reality.

2. Allow people to flag inappropriate comments - HackerNews only allows you to flag stories that might be inappropriate.  So there’s no way for me to highlight that I’m being harshly attacked by Brerrabbit and no retribution to his standing on HN for crossing the line.

3. Send me alerts when comments come in on a story I’ve written – The interesting thing about HackerNews is that I don’t submit my own stories there – others submit them.  So I often have no idea when I have a story on the site.  I usually find out late in the day or the next day when I see the logs and am having a lot of links come in from HN.  Even then you can’t always find the story!  You can only find it easily if you have the story ID.  It would be easy to implement this.  If you have a blog and you link it to a HackerNews ID and email address then when any stories on your site are submitted you could opt to receive an email update when somebody comments.  This is how Disqus and IntenseDebate work.  I feel that if people are going to say negative things about you at a minimum it is helpful to at least know they are being said so you can defend yourself if you think they’re unfair.

Has anybody else noticed that the discourse on HN can at times descend into a mean spiritedness when people disagree with you?  Is it just me?

I sent out a Tweet tonight asking whether anybody uses Google’s Buzz product independently of Twitter.  I got a pretty luke warm reaction.  The overwhelming majority of people who responded gave one of three answers (paraphrased):

1. It was turned on by default by Gmail.  It’s annoying.
2. I don’t get it?
3. I use it to communicate with some Gmail friends who aren’t on Twitter (this was the minority)

And I have to say it myself.  I fall into both category 1 and 2.  Gmail turned it on by default.  I feel annoyed.  I now have a number that appears alongside Buzz every time I log into Gmail to indicate something.  Probably total number of new (and meaningless) Buzzes (is that what they’re called?).  Mostly (I’m guessing 80%) they are just things that were sent as Tweets on Twitter and echoed in Buzz.  I know I could turn it off.  I don’t just to see if anything interesting eventually happens.

OK, I get that Buzz allegedly has threaded conversations.  I wish Twitter did.  I threaded conversations when I use CoTweet.  And I guess that is one of the features people loved the most about FriendFeed.  But why else are people using it?  Is anybody using it?  Is it primarily use case 3 above?

And for me it begs the broader question – why did Google launch Buzz like this in such a haphazard, unplanned way with an uninteresting, undifferentiated product?  Don’t get me wrong – I’m no Google hater.  I drank the kool aid long ago with Maps, Gmail, Earth, etc.  I think when they put their mind to things they are the most talented technology company on the planet.  Or at least in the top 3.  But it seems to me that Google has 2 issues:

1. For all of the talk about Yahoo’s “Peanut Butter Manifesto” in which Yahoo! was accused of not focused but rather just spreading a lot of resources evenly around the bread like peanut butter it seems as though Google has a bit of this, too.  But they also happen to have the most profitable and successful single business ever created (perhaps).  But … kind of reminds me of a certain Seattle company that for years has tried to create new break-out markets but still derives much of their profits from an operating system and a set of productivity applications.
2. At some point when you’re a “real” company I wonder whether you can really get away with just launching Beta versions of everything and seeing what sticks.  Might work for Silicon Valley startups.  Not sure it is as effective for big, branded companies that are supposed to stand for quality.

What do you think?  Am I just missing the buzz about Buzz?  Are there some use cases I’m missing?  Are they working on some killer features that are going to lure us all in?  Do you find the rollout of Buzz as strange and poorly planned as I do?  I know this is old but here’s an interesting piece on the missing buzz about Buzz.

p.s. anybody know how to remove the space above the picture and below the title in WordPress?  Annoyingly I had this fixed and it has reappeared with my new install of WP.

* Image courtesy of The Daily Telegraph in the UK

I have read much commentary on my Twitter stream (ironically) and in the press about how investors are going to abandon investments in the Twitter ecosystem because they seem to appear hostile to ecosystem partners.  Let me be the first to say that I don’t agree with this notion.

Let me explain.

1. Regarding protecting the quality of the stream from an influx of low quality advertising, I emphatically agree with (what I perceive to be**) Twitter’s positioning. I could not do justice to Ad.ly’s own response, which is wonderfully put forth in this article by our CEO, Arnie Gullov-Singh.  If you want to understand what the company believes about Twitter’s positioning please read the linked article.

Despite the criticisms they’ve received, Twitter’s desire to maintain the quality and integrity of the Twitter stream is worthy and will benefit both the platform and all of us as individuals who have poured our time and energy into communication through Twitter

2. The position that Twitter should be compensated by third-party applications that monetize through Twitter is both correct and is actually great news for the long-term viability of the ecosystem. For any platform to succeed it needs to achieve revenue momentum.  Why should any of us expect a free ride?  Our success as businesses that hope to build a strong ecosystem and prosper as 3rd-party apps depends on Twitter’s success.  Just ask Zynga where they’d be today if Facebook wasn’t building a hugely profitable platform.

3. Furthermore, when Twitter publishers make money from their work in supporting the Twitter platform this is good news for all involved. Let’s face it, if people want to blog as a career they have to be able to make money.  If people want to cultivate a following on Twitter they, too, need to be able to be compensated for their efforts.  This is good for Twitter as well.  They don’t want to ever wake up and hear their users saying their moving on another platform where they can make more money as Lady Gaga’s manager does here about MySpace.  By embracing high-quality in-stream ads Twitter will help foster its own ecosystem of publishers and advertisers.

So I believe that Twitter needs to come up with a plan to maintain the quality of any in-stream advertising.  While Ad.ly and others were formed on the basis of taking the high ground we know that over time other companies will not.  We share the goal of helping Twitter to maintain a quality platform.

Some other thoughts from me for Twitter

• Denoting third-party ads as a separate color on Twitter.com would add to transparency for consumers.  This would make advertising even more visually transparent.
• Offer a premium “advertising free” offering to consumers who prefer an ad-free stream.  If they charged just $2 / month and if they converted just 5% of their user base this would add more than $40 million in profits to Twitter’s bottom line.  This would benefit everybody and offer consumer choice.  And it supports my goal of making Twitter a healthy economic ecosystem and one that can rival Facebook’s as an engagement platform for audiences and brands
• Establish clear guidelines on advertising quality scores.  There are many ways to implement this but one idea is to judge based on a combination of unfollows, Retweets, CTRs or third-party evaluations based on subjective spot tests.  This would be no different that Google’s having quality scoring
• Establish a clear policy of revenue sharing.  This can evolve over time but laying the foundation with clear pricing statements would help third-party developers plan better.  For ad-networks this can be a simple revenue share as is customary in more traditional online media.  For other developers there might be consumption-based pricing.  Having a clear rate card (as Apple, Salesforce.com and others have) would help alleviate concerns.  Saying “you’ll figure it out” isn’t good enough for the commercial stage of Twitter’s business.  If I were them I’d hire some ex Salesforce or Intuit folks who could help with this.  They’re masters at the games of pricing, segmenting offerings and marketing to customers.

As a user I remain bullish on Twitter as a platform.  Having seen the economics of a Twitter application firsthand, I am even more bullish as an investor.

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** Note: When Twitter acquired Tweetie and launched a BB application I stated that I thought both moves were fair and were correct but that they could have done a better job at PR in selling these to the ecosystem.  The same is true for this latest announcement.  I actually think that Twitter is doing a great job of navigating the tough waters of moving from a free ecosystem to a commercial one.  I just think they should hire an experienced Chief Marketing Officer (I don’t think they have one?) who would get out in front of the news cycle on stories and make sure all communications [and pricing plans] were thought through before announcements.

This week I was preparing for my weekly This Week in Venture Capital web show and was researching some of the deals that were announced for the week.  One of the companies that just announced $10 million in funding was a company I had never heard of called Huddle.  I wanted to look at what they actually did so in looking at their website I saw this positioning

“Huddle helps businesses connect, share and work better together.  With Huddle, you can manage people, projects and information inside and outside your company, securely.”

OK, so that could mean a lot of things.  Dig deeper and you see that they do: project management (like 37 Signals), share and store files online (like DropBox and Box.net), create and edit documents online (like Google Docs & Zoho), Wikis (like SocialText) and Discussions (like Yammer). Oy vey.  In my show with Dana Settle (near the very end of the video if you’re interested) I said two things: 1) I’m routing for Huddle because I always route for UK-based companies and 2) I was worried that they were spread too broadly and perhaps they should focus around a few key areas in which they can build market-leading products.

I always worry about companies that spread themselves too broadly.  I believe that you need to have product excellence in order to scale to being a really big business and that’s pretty tough when you have such a wide remit.  An amalgamation of other people’s services might win business with some companies (there is an age old debate between “best of breed” versus “integrated solutions”) but in the end I doubt a business that goes “a mile wide and an inch deep” can be a huge company.  So my advice was to focus a bit more.

But then I saw something really nutty.  When I was looking through their company’s history I saw the following statement made in September 2009:

“Takes on WebEx, launches web conferencing and announces its US expansion with 900 US resellers”

Really?  Aside from attacking yet another market segment all I could think about is, “Why enter the web conferencing market.  Isn’t WebEx already dead man walking?  And for that matter GoToMeeting also?’

When you use technology for a really long time you begin to spot patterns.  Like when in the space of a week everybody I knew had signed up for Quora.  Or when I lived in Europe and everybody I knew was using Skype.  This happened in Europe way before the US because to make any call out of the country was a paid call whereas in the US you had a lot of “all you can eat” national plans.

So Skype was ubiquitous.  And then eBay bought them for $2.6 billion (plus an earn out that could have totalled $4 billion but didn’t in the end) in 2005 before selling 65% of the company in 2009 for $1.9 billion (they retailed a 35% stake valuing Skype at $2.75 billion).  So at least they preserved some value and they didn’t “pull an AOL“.  But it wasn’t exactly the boon that they had expected.  If Skype continues its growth eBay should at least see a return on its investment.

I’ve been thinking about Skype a lot again.  I’m spotting another trend.  And as I foreshadowed, it doesn’t bode well for WebEx let along a wanna be WebEx killer.  I first noticed it while filming an episode of This Week in Cloud Computing.  Kevin Epstein, VP Marketing of CloudShare had Skyp’d in to our broadcast.  And when we asked him to demonstrate his product he reverted his Skype session to a screencast (e.g. he was showing us what was on his computer).

I hadn’t used Skype video too much in the past year and hadn’t noticed this feature.  I registered it in my mind at the time, “hmm, a screen cast while you’re on Skype, that’s pretty clever.”  CloudShare as a product also sounded like a great idea to me.  You can create virtual instances of computers in the cloud.  I could see that being really useful.

The very next week I organized a call with Babak Nivi of VentureHacks to present to the Launchpad LA class.  We were doing an educational session on term sheets.  The two bibles on this topic on VentureHacks Archives and on Feld.com so I asked Nivi to do a Skype call.  I had expect a Q&A style session and as I asked the first question – BOOM – he went straight to screen sharing using his term sheet write-ups on VentureHacks.   Then David Lapter, the CFO & EVP Operations of KickAps in the same week did a Skype / Webcast presentation of his business to the SoCal Venture Alliance monthly meeting.

There it was staring me in the eyes.  WTF would I ever use WebEx or GoToMeeting?  And how were they going to exist as paid products in the future?  As Om Malik points out here: Skype is HUGE!  It’s the largest telco in the world.  They have 560 million users!  Nearly two times the entire size of the US population.  And growing.  Skype accounts for 12% of the world’s international calling minutes.  36% percent of Skype calls include video.  And they’re averaging more then 12 billion Skype-to-Skype calls / month.  Yes, with a “B.”  And soon that will include screen sharing.

Just as Skype took a major chunk out of the international carriers businesses, so to do I believe it will take a major bite out of the web & video conferencing business.  I’m writing this post from Shanghai.  I just got off a Skype call with my wife and kids.  The voice was more clear than my mobile phone.  And we had full screen video.  I had forgotten just how awesome it is.  And as soon as more people find out about screen sharing I imagine a lot of cancelations to people paying big fees for web conferencing.  If Cisco were smart they would have more aggressively used WebEx to push a free Skype competitor.  After all, the success of the VOIP market helps push its core router products that get sold to telcos.  Too late.  Skype is king.

So the only room I see left in the paid market in the near future is for super premium services that offer features that I don’t believe Skype will any time in the near future.  This could include value-added features like audience polling, caller Q&A that is moderated, multi-location support for highly distributed meetings, etc.  I doubt there will be much middle ground.  Low end to mid end = free.  Super high end = paid.

And that leads me back to Huddle.  I think they should take some advice from their brand name and then regroup around what their core strategy will be.  I don’t doubt that there’s room in the markets for which they’re playing.  Just not each of them simultaneously.  And certainly not “tak[ing] on WebEx.”  That’s not a battle I’d be thrilled to win.

__________________________

Update: Just thought I’d add for record that I’ve been a happy user of GoToMeeting for years (and Placeware before that.  Before Microsoft bought them and did nothing exciting with them).  I see nothing wrong with GoToMeeting.  But you still face problems that: 1) you have to wait for a lot of people to download the client (it’s not as ubiquitous as Skype) 2) it costs money and 3) it’s not designed for voice/video.  So I think it’s simply a case of Skype’s creative destruction of that market than of anything WebEx or GoToMeeting did.

What do Google Analytics and print newspapers have in common?  They’re both one day out of date when you read them.  I’ve been using Chartbeat for over a month now to track performance of my blog and I find myself looking at Google Analytics much less these days.

In fact, I’m surprised by how antiquated Google Analytics feels.

Chartbeat is a relatively young company and product.  I’m not a shareholder and I’m not even actively looking at making an investment.  I’m only writing about the product because I’m passionate about it.  Basically, it rocks!

Let’s start with what I like most about the product.  That’s easy, it’s real time.  You can log in at any time and see a realtime indication of how much traffic is on your website, where that traffic is coming from, what stories people are reading and how many people are active vs. inactive.  I’m sure in the future they’ll add a whole lot more.  But it provides a great cockpit for performance.

I was recently over at the Mahalo offices in Santa Monica and I noticed that they had a great big screen TV with Chartbeat displaying their traffic data.  I

asked Tyler Crowley how they used it.  He told me that it has become an essential tool to their business.  Their staff can see in real time what’s performing and when a story starts becoming hot they can find out the root causes of what’s driving the traffic.  For Mahalo this often means making modifications to the story in real time both to update any facts and to improve SEO on a story that is already becoming popular.

Here are some great features with screen shots:

As you’re logged in the right-hand side of the screen scrolls with each new page view on your website.  It shows you which story the person is reading, when the clicked on it, where the traffic came from and where the user is located.  For example, in the screen shot my my recent visitor found my website by searching on the term “Jason Calacanis” and is located in Tennessee in the US.

The next user down is from India and came to me from India.  The next users after that is reading a blog post that I wrote nearly 9 months ago.  It’s fun when a story is blowing up to see the right hand side of your screen light up like a pinball machine.  It’s addictive.

The middle part of Chartbeat shows the pages that are being read at the moment.

It’s Sunday night as I’m grabbing these screen shots and I haven’t written a post since Saturday morning so traffic is a bit light.  But I can always see the correlation between writing a blog or publishing on a social network and traffic.  Just to show you an example I’m about to Tweet out an old story and even though it’s a Sunday night at 9pm PT (midnight ET and middle of the night in Europe) I should be able to notice a little bump in traffic.  Let’s see.

Both Fred Wilson and Chris Dixon recently wrote blog posts about how the narrative is more important than presenting numbers in your first VC meeting.  I tend to agree with them but I think that numbers are important in VC meetings.  Most VC’s still expect them and it seems to me to be prepared for what most people are going to ask.  I’ll respond to that post another day but for now I just wanted to link back to an old post I had written on the topic to show you how you might actually view Chartbeat post some sort of marketing effort (newsletter, Twitter, Facebook, SEO refresh, whatever).  Below are my numbers about 3 minutes after I Tweeted.

It’s now 20 minutes later and there are still 64 people active on my blog.  I can now see that some of the people who read my “business plan” post stuck around to read other posts and I can see what they’re reading.  Another part of Charbeat that I monitor is traffic sources as shown below.  Here you can see that some of my traffic right now is coming from HackerNews (news.ycombinator.com).  On occasion I’ll see this number at 200 and know that a post that I did is “blowing up” over there.

Or I might notice 50 incoming links from PEHub (one of my favorite websites and a daily read for me), which is usually my first indication that they’ve covered me that day.  On the left nav they cover “minutes on page” and “reading/writing.”  This latter section is never accurate – I don’t understand why they have it.  I’ve never noticed any correlation between that and reality.

Like most analytics tools I can get my geo map from Chartbeat.  I find this addictive.  You can scroll around the map  and you can see an actually count by location.  If I’m up early it’s fun to see this lit up on the East Coast and then by 7.30am PST it’s lit up on California.

Finally, as with any great tool these days it can pull in information about who is talking about my blog in the social networks – mostly Twitter.  You’ll see the shot below.  It’s a great way to quickly scan whether people are sending out Tweets covering your blog.

Oh, and know I can head over to Google Analytics to see … how I performed yesterday.  Yawn.

I’m flipping back to Chartbeat.  It’s an hour since I first started this post and I’m still holding strong at North of 60 readers.  Oh, and now that I’m hitting publish on this you can imagine I’m enjoying watching my Chartbeat conversions come in.

And final example just for anybody interested / still reading.  You can see the Chartbeat report from this AM now that the story has been published.  I noticed that traffic is coming in from HackerNews (news.ycombinator.com) so I flipped over there and saw the story on the front page.

]]> http://www.bothsidesofthetable.com/2010/04/18/charbeat-is-to-blogs-as-google-analytics-is-to-print-newspapers/feed/ 132 http://www.bothsidesofthetable.com/2010/04/10/twitters-acquisition-chirp-managing-developer-relationships/ http://www.bothsidesofthetable.com/2010/04/10/twitters-acquisition-chirp-managing-developer-relationships/#comments Sun, 11 Apr 2010 06:11:22 +0000 Mark Suster http://www.bothsidesofthetable.com/?p=2396

So Twitter is buying and building Twitter clients.  I don’t find this surprising at all.  In fact, I said as much in September 09 at a Twitter conference in LA on a panel that Guy Kawasaki was moderating.  I said in the following video that I thought Twitter would buy Seesmic, the company that makes one of the most popular Twitter clients.   (If you’re interested you can watch my comments by fast forwarding to minute 31.25 and listening for about 90 seconds.  There’s also a segment that I like from minute 12.30 for two minutes talking about why I think people wrongly obsess about their number of Twitter followers and had a nice little debate about it with Guy.  Short answer: quality is more important than quantity).

So why did I believe it was the right thing for Twitter to acquire a Twitter client?  First, I believe that Seesmic has an excellent product – especially the web version of their product and that having another senior and experienced exec like Loic Le Meur would be great for Twitter.  I guess it may be impractical for Twitter to acquire Seesmic given it has raised considerable amounts of venture capital (reportedly $12 million) but the broader point for me is that I always believed Twitter should control the client versions of its product.

Think about the creative tension.  If a single Twitter client could amass a large volumes of users (lets say 20m+) then the relationship with the consumer is divided between the client and Twitter itself.  Ultimately to become defensible the client application would want to diversify its “stream” so would start supporting Facebook, MySpace and perhaps even IM products.  I said this many times publicly before it ever started happening with Tweetdeck and Seesmic.

In fact, I encouraged my favorite IM aggregator client, Digsby, to go the opposite direction and become a Twitter client also.  They have done this (they had the idea, too, so I’m not taking credit for egging them on).  In a world in which you have strong client applications for consuming “multiproduct streams” then they gain relative power to any individual stream (e.g. Twitter).  This also would give the client the upper hand in discussions with advertisers, image providers, URL shorteners, etc.

And aside from having great market power (the main reason for Twitter to own the client and the customer) advertising is one of the primary reasons that I believe Twitter needs to own the client applications.  As people consume Twitter on mobile clients they are almost definitionally not doing so on Twitter.com.  How can you offer up advertisements as Twitter if you don’t control the place where people consume their Tweets?  Kind of obvious, huh?  I still think that Twitter should acquire Seesmic rather than just build their best features but I’m now betting that they won’t do so.  And I also think that Seesmic can carve out a meaningful position for itself as a multistream provider.

But wait, aren’t you the guy who invested in Ad.ly, the in-stream advertising company?   Aren’t they going to get squashed as Twitter starts to focus more on advertising?  No, I don’t think so.

Two things:

1) when I invested in Ad.ly I made sure that their thesis was in-stream (as opposed to being a side-bar advertisement like Google AdSense).  I believe this is important because it means that Ad.ly is integrated with the content while being specifically denoted as an ad.  So the ad appears wherever content is consumed.  It also means that the publisher (person writing the status update) can share in the monetization.  It also leads to higher CTR’s (click-through rates) than side-bar advertising in all of the tests we’ve run.

2) I also clarified that the strategy of Ad.ly would be “multi-stream” ad network (e.g. not just Twitter) and we’ve made huge strides in that realm that will be realized and then revealed over time.

So I agree with Fred Wilson’s post that startup applications shouldn’t simply be plugging in minor feature gaps in Twitter’s offering.  Or if they do they should do so without raising venture capital so that they can still be acquired for reasonable prices.  Actually, the latter could be a reasonable strategy for super technical entrepreneurs who can sustain themselves without big financing needs (see: Atebits, owner of Tweetie). I articulated in a previous post that startups should not treat the iPhone as a business but rather as a channel.  The same is true of Twitter, and as a VC I would personally never fund a company that looked to simply plug a functional gap in Twitter.

So how does this all relate to the upcoming Twitter Chirp conference next week? I think Twitter made a minor gaffe by announcing their Blackberry app and their acquisition of Atebits (Tweetie) before the Chirp conference. My rationale is that I think they’ve set the cat amongst the pigeons right before their most significant conference to date and I think this discussion might subsume anything else that they wanted to be the centerpiece of the conference. From a PR perspective I would have made those announcements 2 weeks after the conference.  But in the long run this will all be forgotten, I’m just sayin’.

But what should Twitter now do at Chirp and how should they treat the community? I think there is much that they can learn from Salesforce.com. And I saw a lot of this first hand in Salesforce’s acquisition of my company, Koral, which was a content management company. Naturally every other CMS company was pissed off and felt that they had wasted all of their investment in integration with Salesforce.  Immediately after the acquisition we held meetings with all of the integrated CMS vendors and highlighted to them which bits we were going to make our core platform and which bits we weren’t planning to offer ourselves.  We didn’t have the resources to do it all.  Specifically we encouraged vertical applications like financial services and healthcare. We asked them if they would use our CMS API’s and encouraged them to partner even more closely with us.  In retrospect we could have also encouraged corporate video integration more.

And Salesforce did this more broadly in all of their key areas. Salesforce was very good at managing the 1-year roadmap so at any point in time we had a pretty good idea about what we would be developing and what we wouldn’t. We also knew what we wanted to build but wouldn’t be able to get to. Often these were things that would make Salesforce more competitive vis-a-vis Oracle and Microsoft. Salesforce was excellent at outlining to the developer community what they considered “core” and what white space they wanted filled. If they gave you the white space you knew you had a good period of time to build a business without being boxed out by Salesforce and you knew that Marc Benioff was likely to highlight you at a conference or with journalists. Importantly, all of this was done privately, as it should be.

So if I were running Chirp that would be my top objective. I would want to hold up a “high level” road map of what Twitter views as important to build themselves while being careful not to step on existing businesses in the short term. I say “high level” because Chirp is obviously now a major and quasi public event so they can’t say anything that they expect to stay confidential. As important as talking about the roadmap will be marketing the white space that they don’t plan to fill. They should make clear statements about areas that they don’t plan to build in the next 12-18 months and areas that they would like to see be built.  This should be as public as possible.

The other thing that Salesforce is genius at is using these seminal events to market success stories of their developers. Salesforce’s annual DreamForce conference holds sessions for their developers to market what they’re doing to potential customers and partners. They have employees who know these apps sit in on the break-out sessions and talk with customers, analysts, journalists and VC’s about why they love that particular area.  The validation from Salesforce.com helps tremendously.

And finally, the most important meetings will be post Chirp. I think that Twitter has a responsibility to quietly reach out to vendors who might be in their crosshairs in the next 6 months and warn them that this might happen. An obvious example would be URL shorteners, photo sharing or video sharing platforms, Twitter authority platforms or whatever else Twitter has in store (I’m not privy to this so I’m not implying that they will move into these exact areas). Having a quiet chat that “we haven’t made any final decisions and may never move into your space but it is on our short-list of areas that are likely some day. We wanted to give you advance notice to help you pivot if you choose to. Here are some areas that we won’t likely touch that we would encourage you to consider.”

At Chirp I would say, “Look, there are times we’re going to build functionality that conflicts with what an application developer has built.  Other times we may make acquisitions and almost every acquisition leaves some company needing to pivot in a different direction.  Our promise to you is that we will do our best to communicate with you often.  We will be direct and forthright.  Where possible we will try to signal the areas we hope to own one day.  But in any platform community this happens.  We care about all of you and will do our best minimize the fallout to anybody.”

If Twitter wants to build a long-term, health, happy ecosystem this type of approach will suit it well.

“Staple green cards to the diplomas of foreign students who graduate from any U.S. university in math or science” (Thomas Friedman)

I’ve been meaning to write this post since September of last year when Brad Feld first wrote about the The Founders Visa Movement.  I commented briefly on his blog and made a mental note to write a blog post.  I was prompted again by Friedman’s Op Ed this weekend on immigration & jobs, which was covered by Fred Wilson (more succinctly than I am capable of).

Two weeks after Brad’s post I was at the 140 Conference in LA and I held open office hours for any entrepreneur who wanted to spend 15 minutes talking with a VC about their business.  I filled up with 20 people pretty quickly and realized this schedule was masochistic. But it turns out I met a bunch of really interesting entrepreneurs.

The one that stuck with me the longest was my chat with TWTFelipe (Felipe Coimbria).   TWTFelipe is the founder of TWTApps, who had developed some really cool add-on applications for Twitter to extend its functionality.  TWTFelipe and I ended up speaking for nearly 30 minutes and we talked mostly about why his company was based in Canada and not the US.  At the time he granted me permission to write about his story.  I hope that didn’t have a stature of limitation!

Felipe grew up in Brazil.  He came to the United States in 2001 to study Software Engineering at Auburn University.  In 2005 he was graduated and took a job in South Carolina working for technology company while he started his own web design company on the side.  He made some mistakes on his immigration paperwork so he was forced to leave the country for 8 months.  He spent a bunch of this time in Canada. By 2006 he had received proper authorization to move back to the US to join a company in the town I grew up in: Sacramento, California.

But TWTFelipe is an entrepreneur.  He started another company on the side while he was working during the day at a technology company.  His new company was called YowTrip and he wanted to work on it full time.  But in the US your immigration is tied to your employment with another company so if you want to create a new company (read: create jobs) you cannot easily do so.  So he decided to start his company in Canada.  He applied for the necessary immigration papers to run his company in Canada.

While he was waiting for the paperwork to be reviewed he moved to Boulder, Colorado and took a job with a local tech company there.  He told me that at the time he still held out hopes of being able to start a company in the US.  As a technologist he felt the US was “ground zero” for technology innovation.  But it wasn’t meant to be.  TWTFelipe moved to Montreal, Canada.  Naturally he is happy there and probably has few regrets.  But I have some.  TWTFelipe and everybody like him who want to start high-tech, green tech or other scientific companies in the US should be encouraged to do so.

That is the reason I am so supportive of the Startup Visa movement that has been so successfully championed by Brad Feld, Dave McClure, Eric Ries, Shervin Pishevar and many others.

I know all of this from first hand experience.  At my first company, BuildOnline, we were based in the UK and decided to open US offices (read: create US jobs) but as the CEO I couldn’t leave our HQ.  So I asked our COO, Stuart Lander (a Brit) to set up operations for us.  Eventually he got paperwork to do so, but it was ridiculously long and riddled with red tape.  We then moved our CFO, David Lapter, to the US.  Again, much red tape even though David grew up in the US (he had since moved to Europe and married a wonderful woman from Romania).  We then moved our Chief Software Architect over.  He’s South African.  More red tape.

I felt frustrated because I saw economic possibilities in our US expansion but it was riddled with all sorts of difficulties and complexities.  By 2005 I had moved back to the US and we started hiring US employees (The first two employees we hired had both grown up in India!  Irony, hey?).  In 2006 we sold the company to a French services company.  I wanted several of the software engineers to join me at our next startup but their employment was tied to BuildOnline.  We had the consent of the acquiring company to take them yet US regulation prohibited it.  So BuildOnline kept the employees on their books and they did subcontracting work for our company, Koral.  Hrrmph.

In 2007 Salesforce.com wanted to buy Koral.  You can imagine the complexities.  They wanted to employ our entire team post acquisition.  But two of our employees were tied to BuildOnline’s visa and four of our employees were in the UK.  I won’t bore you with the details but the deal almost didn’t go through as a result of immigration hassles and it took a full 2 years for all of the employees to become proper employees of Salesforce.com in the US.

So immigration policy has always been top of mind for me.  Not least of which because my father immigrated to the US in the 1960′s for his residency program of medical school.  When he had finished the program the US wanted more doctors due to the Vietnam War.  My Dad was drafted into the Air Force and was given accelerated citizenship.  While many doctors went to Vietnam my father was a pediatrician and they needed those in the US.  He was fortunate.  It seemed that back then the US government recognized the importance of attracting the best and brightest from around the world.  My dad’s father fled Jewish oppression in Eastern Europe as a teenager and ended up in South America.  Immigration and multiculturalism were always top of mind in my household.

So I was intrigued when I read Thomas Friedmans’s Op Ed in December 2008 about the need to Reboot America.  The world had just gone into crisis and I was in a period of reflection reminiscent of September 2001.  Friedman said,

[we have] “immigration policies that have our colleges educating the world’s best scientists and engineers and then, when these foreigners graduate, instead of stapling green cards to their diplomas, we order them to go home and start companies to compete against ours.”

January 2009 where he said in a column on Tax Cuts for Teachers:

“One of the smartest stimulus moves we could make would be to eliminate federal income taxes on all public schoolteachers so more talented people would choose these careers. I’d also double the salaries of all highly qualified math and science teachers, staple green cards to the diplomas of foreign students who graduate from any U.S. university in math or science — instead of subsidizing their educations and then sending them home”

Crazy, huh?  Subsidize their education and then send them home.  He covered the topic again in June 2009 titled Invent, Invent, Invent.  He stated:

“China is also courting trouble. Recently — in the name of censoring pornography — China blocked access to Google and demanded that computers sold in China come supplied with an Internet nanny filter called Green Dam Youth Escort, starting July 1. Green Dam can also be used to block politics, not just Playboy. Once you start censoring the Web, you restrict the ability to imagine and innovate. You are telling young Chinese that if they really want to explore, they need to go abroad.

We should be taking advantage. Now is when we should be stapling a green card to the diploma of any foreign student who earns an advanced degree at any U.S. university, and we should be ending all H-1B visa restrictions on knowledge workers who want to come here. They would invent many more jobs than they would supplant. The world’s best brains are on sale. Let’s buy more!”

Friedman again in this weekend’s (Apr 3, 2010) NYTimes:

“Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less,” said Litan. “That is about 40 million jobs. That means the established firms created no new net jobs during that period. … Good-paying jobs don’t come from bailouts. They come from start-ups. And where do start-ups come from? They come from smart, creative, inspired risk-takers. How do we get more of those? There are only two ways: grow more by improving our schools or import more by recruiting talented immigrants. Surely, we need to do both, and we need to start by breaking the deadlock in Congress over immigration, so we can develop a much more strategic approach to attracting more of the world’s creative risk-takers. “Roughly 25 percent of successful high-tech start-ups over the last decade were founded or co-founded by immigrants,” said Litan. Think Sergey Brin, the Russian-born co-founder of Google, or Vinod Khosla, the India-born co-founder of Sun Microsystems.

I was fortunate enough to spend 2 hours with Thomas Friedman in a group of about 15 people at UCSB last year discussing green tech, clean tech and immigration.  I guess you could tell by my quotes that I’m a big fan (by the way, if you never read From Beirut to Jerusalem and want a better understanding of Middle East politics you should absolutely read this book).  What I love about Friedman is that he’s neither “left” or “right” on issues.  OK, he’s usually RIGHT, but not “right.”  He didn’t mince words in our discussion.  He stated clearly that the US is F’d up on immigration and both parties are fighting it.

Contrast that with my very disappointing meeting with Barbara Boxer last year.  It was also in a group of about 15 people in law offices in Los Angeles.  I asked her about how we could streamline the H1-B visa process for the best foreign entrepreneurs to start companies in California (this was before Brad ignited the whole Startup Visa movement).  Her response?

“Well, I’d be for anything that helps but doesn’t weaken the positions of our existing citizens in California who are looking for work.”

Such bullshit.  Uh, Ms. Boxer, go read Friedman. “Good-paying jobs don’t come from bailouts. They come from start-ups …25 percent of successful high-tech start-ups over the last decade were founded or co-founded by immigrants.”

I won’t be voting for Boxer or any other candidate that hedges this issue in an attempt to “not alienating their base.”  I’m tired of politicians at the edges talking to the fringe voters to win primary elections.  We need to create jobs in this country.  We need to be positioned long-term in the US against countries that are hungry to compete with us on creating the next generation of startup technology companies.  I certainly don’t want the next generation of iPad-like innovation to come “with an Internet nanny filter called Green Dam Youth Escort.”  Do you?

If you use Twitter and think it is a valuable service then you’re probably tired of the steady stream of your friends who tell you it’s just a fad and they don’t feel compelled to join.  They “don’t care what people ate for lunch.”  They’re fine on their existing social networks, which these days mostly means they’re happy with Facebook.  I think they’re missing something.

I’ve covered Twitter topics much in the past.  I’ve talked about how Twitter is a new form of RSS (curated RSS), it’s a a new form of IM / SMS, it’s a place where business is conducted and it’s a place where advertising will drive leads due to the link sharing nature of Twitter.

But Twitter is different than Facebook because it’s more open and it’s asymmetric.  Traditional social networks are more restricted to people whom I already know and information and updates are less discoverable.  And as a result Twitter Networks are currently different in my mind than many other social networks.  Twitter Networks allow you to build open and serendipitous relationships with new people where social networks do not.

Let me give you some examples:

Tristan Walker: I first met Tristan online when he was merely human (e.g. before having 300k followers!).  He had followed me on Twitter and sent me a nice message about my blog.   I always look at who follows me on Twitter.  I can’t follow everybody back because I feel that this would clutter my Twitter stream and make it harder to hear from people I really know or from whom I want to learn.  But I do like to follow some random people that I don’t yet know.  Usually people that I think I might someday get to know.   I tend to to look at their bios, sometimes click on their links, read a bit of their Tweet stream and make a quick decision whether or not to follow.  If over time I don’t find any value in what they say I just unfollow in the future.  So when I saw the merely mortal Tristan with a normal sized Twitter following I clicked through to his link, saw his blog, saw that he was a second year at Stanford and just thought, “hey, he seems like an interesting guy.  Maybe I’ll follow him for a bit.”

The day after I first heard from Tristan I was coincidentally in Palo Alto and had a series of back-to-back meetings in one day.  I had a lunch meeting scheduled with Gadi Shamia, whom I love spending time with, at Shabuway on Castro Street in Mountain View (I only mention it because if, like me, you enjoy Shabu Shabu it’s a great place to go).

But I had an hour to kill before lunch and I was on California Street in Palo Alto.  I sent out a Tweet saying, “I’m in Palo Alto for an hour, anyone want to grab coffee?”  Within 2 minutes I had 5 responses to meet me for coffee.  One of them was Tristan.  So I agreed to meet him at Printer’s Cafe.  We spent an hour together.  I instantly loved the guy.  Great life story.  Energetic.  Ambitious but not too full of himself.  He had just finished a project for Twitter and was doing some side work for a small 5 person company called FourSquare.  If you follow them you’ll know that they’re now on fire and Tristan is now VP Business Development.  It wasn’t always so.  We’ve talked on the phone a few times and trade Tweets but we still only met that one time in person.  Somehow he still feels like an old friend.  Strange, huh?

Brad Feld: I first learned of Brad Feld like many of you – through his blog.  I was raising money for my second company and having been burned by term sheets on my first company I was eager to get myself knowledgeable before signing up to take VC again.  I started reading Brad’s “term sheet” series.  If you haven’t read it and you’re thinking about raising money, it’s a must read.  So when I first signed up for Twitter I naturally subscribed to Brad’s feed.

One day Brad Tweeted he was going to be in LA with his dad.  I generally try not to stalk people I don’t know when they announce they’re in town, but as a fellow VC (and a partner in Southern California’s largest fund), I felt we had a legitimate reason to connect.  As he wasn’t following me at the time I wrote to him with the @ sign as you can do in Twitter.  His father, Dr. Stanley Feld, who writes his own blog and covered the encounter in this post,

“Mark Suster twittered Brad on Saturday and asked if he could meet us for breakfast on Sunday. Brad did not know Mark. Brad googled him on his Iphone. He then twittered him a yes at the Mondrian Asia Cuba at 8.30 a.m. It is an instant world out there folks.

The breakfast meeting was wonderful. Again I learned how things are done in the New World.”

It was a great breakfast.  I obviously enjoyed meeting Brad, but I also really enjoyed meeting his father.  Brad was originally from Dallas and his father is still a practicing doctor there.  So is my uncle, Dr. Neal Sklaver.  So I played the usual game of “do you know” and it turns out that they used to have practices in the same building and knew each other well!  Small world.

A few weeks later I was in the Bay Area and  I saw another Tweet from Brad that says that he’s traveling with the governor of Colorado who’s in town to meet with VCs.  I sent a message to Brad saying that I was in town and he invited me to the meeting.  This is back when Brad wasn’t disappointed with the governor  Anyway, another nice, serendipitous encounter.

Ozumo Sushi:  Final story – a few weeks ago I was traveling to San Francisco and had pre-booked every imaginable hour of every day for the full 5 days I was there.  But I was flying in late on a Sunday night and never like to overbook the first night in case the plane isn’t on time.  So when I arrived late at my hotel I decided to try an experiment.  I sent out a Tweet that I was going to Ozumo Sushi in San Fran and if anyone was around they were willing to join me.  This was obviously more open than my Palo Alto Tweet because I actually named the location.

What a pleasure the night was.  It was late but three people still turned up: Justyn Howard (founder & CEO of Sprout Social), Jamie Quint (founder of a YCombinator company), Saumil Mehta (product lead at Kosmix).  I had known Justyn for a while and he was fortuitously in town from Chicago but I had never met Saumil or Jamie.  We (I?) had a great evening talking tech and startup.  We even had a pretty funny end to the night.  I just spoke with Jamie again today on the phone, which is what made me think to write this post.

The world is now wired, connected and open.  I believe you need to be careful with your public whereabouts more than many other people seem to feel.  But in a controlled way I like to get to know people through my Twitter Network in ways that other social networks don’t do it for me.  I get @ replies from many people I don’t know and I try my best to answer most of them.  If people have meaningful things to say, share good links, participate in the comments in my blog and introduce themselves at events, I look forward to getting to know them over time.  It’s the aspect of my job I love the most – meeting new people, hearing their stories, learning and building enduring relationships.  I find this new, open world very encouraging indeed.