June, 2010

Eric Ries has an interesting post named What is a startup?  He writes, “A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.”  He then goes on to dissect that definition.

I am often asked about the stage of development that is of interest to SJF Ventures.  While some individuals like to focus on revenue as an indication of seed, early and growth stages, I focus a lot on market validation of the company in the segment of the business that represents upside.

Gauging the level of market validation is a bit of an art, but I tend to focus on growth, engagement and enthusiasm.  For example, a consumer Web business with one million uniques per month and a lot of churn tends to be less exciting than a company that has 250,000 uniques, high growth, an engaged audience that comes back to the site over and over again, and a excited group of members that touts the service to others.  Similarly a business-to-business company with $5 million in revenue and decently interested customers feels riskier to me than a b-to-b company with $1.5 million in revenue and highly enthusiastic customers.

I emphasized that the market validation needs to be in the area that represents upside because new products and lines of business have high failure rates.  Entrepreneurs are often able to get their businesses off the ground by performing a service that generates hundreds of thousands or millions of dollars in slow-growing, tough-to-achieve revenue.  They plan to launch a different service that can turbo charge the business and take it to the moon and seek venture capital to launch the new service.  Such switches in the business model are difficult to pull off and hard to achieve.  Again, I would rather invest in a company that has no revenue but an offering that is on fire and can scale rapidly than a company that has $3 million in revenue but must launch a new type of product in order to achieve the type of growth necessary for a venture return.

Some see it differently.  Some would say that generating $3 million of revenue is tough to do and indicates that a company has worked through a lot of challenges that arise in a startup phase of a business.  It’s a fair point, but I tend to look for a company where the product or service that can generate a venture return is already humming, regardless of the revenue level.

Alan

I like the debate that paidContent is highlighting on Goolge TV.   Staci Kramer says that it’s hard to get excited about the concept when so many similar services have failed.  Forrester Research says that Google TV is going to be bigger than people think.  I tend to believe that the next 24 months will be the time when Internet and TV finally merge in a big way.  And I am really interested to see the extent to which the new media is consumed on tablets (iPads).

Morgan Stanley analyst Mary Meeker may speak in broad brush strokes and have a strong bullish bias, but her presentations on Internet trends are always fun to see.  Here is her latest trends report.

I think Fred Wilson nailed it with these comments:

“We use it for our sonos remote, to do crossword puzzles, play games, pull up menus to order in, read techmeme and hacker news, and watch the occasional youtube video. It’s replaced our kitchen computer on our kitchen countertop. It’s become a member of our family. And when visitors come over, they love to use it. It’s great at a party.

Our iPhones, Androids, and Blackberries are our personal devices. We wear them and they are with us everywhere. Our iPad is our family computer in way that the kitchen macbook never was.”