Ning and Home Depot

Things that Ning and Home Depot have in common:

1. They are both warehouses
2. They both don't really teach you how to build anything of substance
3. They both prove that you still need a pro to get things done
4. They both are "not cool" by any sense of the word...

Does $45Million in first round buy you a better mouse trap? Playboy recently announced their new social network has been built on Ning's platform. This network is supposed to be private for college students only. Not too sure when we'll be adding this network on SocialURL but its something to keep an eye on and see if it gains any traction (which i'm sure it will).

This brings up the thought of what are game plans are for aggregating social networks on Ning and other DIY platforms...

Another quick thought before i forget- with Amazon making available their dirt cheap Virtual Servers with auto duplicating load balancing...someone or anyone with any knowledge of open source and a passion towards a niche interest could launch a social network and gain 100% of revenue rather than share with Ning or its competitors...so then what will be the ultimate win for Ning and its competitors?

...If Ning or any of its competitors are able to create a stable social network with over 150 members who are always online daily we'll consider them on our network page.

Facebook goes in content targeting

Its about time a social network started to target the content users willingly submit on their social profiles- just a no-brainer if you'd ask me. If you really think about it over 90% of MySpace's revenue comes from search with their Billion dollar Google deal.

After spending 2 days pitching to VC's and hearing the news about Facebook's revelations on search - i realized what had to be done. We have to figure out our potential search gains. With over 10 Million visits to our site to date this could be the missing link for VC's to gain their undoubted "YES"! This was really spawned from my meeting with Mike Brown from Foundation Capital he asked different probing questions about my vision and the future of the web and that felt really nice for a change...I can't wait to sit with him more often to bounce more philosophical theories about where i think the web is going.

Earlier on Thursday we met with Azure Venture Capital it was an associate named Barry Chubrik the pre-screener and numbers cruncher to make sure that we are the kind of stuff Azure would even come close to wanting to hear a pitch from. The first thing he says when entering the room on the 11th floor conference room overlooking all of San Francisco bay was I only have 30 minutes. Albeit nice, he carried with him that arrogance of "I have my MBA from a tier 1 school so my time is much more important than yours" - I found him pretty intriguing nonetheless. He didn't know a thing about our niche, but mustered up a few common names in the industry like NING.

After that meeting I had to yet again make some updates to our next meeting with Mike Brown...which turns out he didn't really seem to care too much about the sale but more about the vision and the genuine interest to want to help. We had talked about a month prior on the phone. I owe my thanks to that intro from Nathan at Limelight.

A few applications and tools we plan on building include email aggregation similar to what a group of developers have done at Fuser out of Boulder and a browser application ...can you tell we're preparing for some new updates before "Back To School" !!!

Bridging the gap between MySpace and Facebook

I'm starting a very interesting social experiment with 300 of my "connections" on SocialURL. Inspired by my most recently read book "The Tipping Point", I spent the last 2 days hunting down 300 profiles that had these criterias:

1. People who belonged to both MySpace and Facebook (Connectors)
2. People who had over 150 friends on SocialURL (Salesmen)
3. People who had lots of diverse interests (Mavens)

If you've read the book you know that each profile character above represent key people who create an epidemic. What I'm doing with 300 is trying to build personal relationships with them over the next 3 months. Selectively spreading my vision of SocialURL like a religion and out of the 300 the probability is that 40-144 will spread my words around to their existing 150+ contacts.

It is a proven fact that you can move an army with 150 soldiers if you are a great leader with interpersonal skills. Jesus started Christianity in this very same way- with small groups in a very short period of time. The HIV epidemic in the US was traced back to 1 flight attendant who had sex with over 1000 men in the span of 30 days. (last example was a bit random and morbid but you get what i'm hinting at)

It does help that i have experience as a Christian Evangelist during my college days and also have proven network marketing skills with (Quickstar the online extension of Amway). But worry not- I no longer sell soap or spread religion (at least not in that particular order:)

SocialURL and RembrandtVC.com

Our advisor (Anne Donker) set us up for a pitch meeting with RembrandtVC's general partner and principal Richard Ling today. We provided the venue for the meeting at an office space that belonged to Anne's friends. (won't mention names) Anyhow, I managed to come up with 3 additional slides to the powerpoint that i did not originally have and all within an hour prior to Richard's arrival!

Luckily he was about one hour behind schedule...:) Lessons learned:

1. Should have said "I don't know" at some point to make clear that funding would help us to get to that place of "Ahah...I know!"...this is often more about financials and profit models (those of you starting your own companies know what i'm talking about)

2. Sell what makes sense to your investors- not what you think makes sense to your ambitions...

3. Never pitch alone...always have an advisor or partner...

4. Get a haircut at Addy's he is an awesome hair stylist that will make you feel like $1MM bucks at $25 bucks! (promised i'd plug him)

5. Always Be Prepared...even when you don't feel like you are...act as if!

6. Be thankful for the opportunity even when its not in the form of a check!...working towards something you can't see, feel, smell or touch is one of the most profound experiences in the known universe...it is what separates Entrepreneurs, from the rest of society and the masses...not knowing when, why or how at times but moving along with determination, passion and conviction...

Updates for August 2007

First we want to welcome 2 new team members, Krishna Kashyap (Operations Director) and Max Young (Creative Director) You can visit their SocialURL profiles to find out more.

Secondly, We're excited to have Anne Donker our Chief Advisor on board who has gotten us a meetings with Rembrandt VC and Azure VC. We know that there are no guarantees in life but there is much more to startUps than guarantees and that is something you learn from day one.

Thirdly, we have made some updates to the site that we feel are pretty exciting...

"Stalk the stalker" feature is a member's only feature that allows you to see how visitors got to your profile...pretty cool huh? Imagine the kind of data you can collect as a member!

"Network" page update...we've finally cleaned this page up and we're pretty happy with the UI- we've gotten rid of the partner link exchange because too many sites were not sending us traffic back! So now we are selling premium ad space and if you have a social website and want some presence its going to be $$$ per 145x145 and its a flat upfront package...ya dig?!

Bolt.com is Out of dot biz!!!!

http://techfunked.com/web20blog/2007/08/16/boltcom-going-out-of-business-files-for-bankruptcy/#comment-3

This one has been a couple weeks coming… Bolt.com has officially announced it is ceasing operations. After copyright lawsuit debts amounting to $10 million, and the news on August 1st that GoFish.com was not longer in the hunt for Bolt, it’s over.

I’m just not understanding the economics behind this one. If anyone has any financial states, I would love to see them. I don’t put much faith in silly website rankings, but there’s no joking around with a Compete rank of 112. I’m assuming the copyright lawsuits also included cease and desist judgment for much of the content on the site. But still, with all the money being thrown around right now, it seems as if someone could’ve turned such a high trafficked site down a new path. Oh well, I guess that’s just more traffic that has now become available for the rest of us, right? :-\

New Ideas Not New Technology

Knowledge at Wharton has a great article with which i'm going to expound on paragraph by paragraph:

Venture Capital Firms Set Their Sights on New Ideas -- Not New Technologies
Published: August 08, 2007 in Knowledge@Wharton
This article has been read 1,498 Times

It has never been easier to start an Internet company. Create a web site, begin a "viral" marketing campaign to grow word-of-mouth and acquire an audience, garner some ad revenues, generate venture capital funding and sell out to a web giant such as Yahoo or Google. Startup costs can be minimized by using standard technology and by outsourcing corporate functions such as advertising sales. The business model, at least initially, is optional.

This blueprint is becoming increasingly common among so-called "web 2.0" companies -- web-based communities that facilitate collaboration and sharing. Companies like Facebook, the fast-growing social networking site, and Twitter, a popular mobile messaging service, didn't introduce break-through technologies, but they have become phenomenal success stories nonetheless. According to Wharton faculty and other experts, these companies have altered the traditional venture capital formula, which used to count technology differentiation as a key requirement for web companies. In many cases, technology has become a commodity, and a big idea can go a long way provided there's a rapidly growing audience.

Wharton management professor David Hsu says that in today's venture capital environment, ideas are valued more highly than innovative technology. "Is it the technology or the idea that matters? With the new round of companies founded in the last few years, both are viable. The barriers to entry have been lowered. I can grab technology off the shelf if I have a good idea."

"It is much cheaper to get a web 2.0-based company off the ground and running," says Jeffrey Babin, a lecturer in engineering entrepreneurship at the University of Pennsylvania. "The entrepreneur doesn't need as much money so he can do a lot more bootstrapping. He can build more value before even going to a VC."

New companies face risks in this kind of environment, however: If they are successful, firms may not be able to defend themselves against the myriad competitors that will inevitably spring up around them, Hsu notes.

For now, the VC funding keeps rolling in. PriceWaterhouseCoopers' Money Tree survey revealed that first-quarter venture funding was $7.1 billion, the highest level since the fourth quarter of 2001. Of that sum, Internet-specific companies garnered $1.3 billion, the highest level in five years. While the initial public offering market has been difficult in recent years, buyouts are prevalent. In 2005, News Corp. bought social networking site MySpace for $580 million. Yahoo purchased del.icio.us and Flickr. Google acquired YouTube for $1.65 billion in 2006. In May, CBS acquired Internet radio and social music platform Last.fm for $280 million. On August 2, Disney bought Club Penguin, a virtual world for children, for $350 million. Those deals are just a few among a bevy of recent acquisitions. Meanwhile, Facebook could be worth anywhere from $4 billion to $10 billion depending on the Wall Street analyst crunching the numbers.

Wharton management professor Gary Dushnitsky says there is an excess of liquidity -- not only from VCs, but hedge funds and private equity firms -- looking for a home. "The financing market has changed a great deal," he says. "There used to be a few dozen venture capital players. Now there's pressure from hundreds of private equity firms encroaching on VCs. The VCs feel more pressure among stages of investment. This money has to be invested or returned."

But as VC firms look for new targets, several questions come into play: How should companies be evaluated when they rely on technology that is easily replicated? How much value does a big audience carry? What's the preferred exit strategy?

"Advances in information and communications technology have opened up innovation in processes, products and services. There is a vast array of opportunities. How many of these will stick remains to be seen," says Raffi Amit, a management professor at Wharton.

Looking for Viral Growth

Amit says an evaluation of any company's prospects starts with the track record of its founders and management team. For instance, Joost -- which promises next-generation television service via the web -- has been able to attract funding because its founders, Janus Friis and Niklas Zennstrom, also co-founded Skype, which was sold to eBay for $2.6 billion in 2005. Joost raised $45 million in venture capital in May.

After that, the evaluation comes down to the basics, Amit says -- cash burn, addressable market, competition and profit potential.

For the latest generation of web startups, other qualities need to be considered as well, says Andrew Chung, a senior associate at Lightspeed Ventures. Chung looks for three items when sizing up new companies: viral growth, potential to sell advertising and transaction revenue. "The differentiator is no longer technology -- it's more [like] parts of a triangle," he says. "For instance, a company like professional networking site LinkedIn has all three [of these qualities]: It has viral growth, can sell advertising and garners transaction revenue with subscription services."

Gaining an audience is the precursor to advertising and transaction revenue, Chung says. Hsu notes that viral growth enhances the so-called "network effect," in which the cost to gain an additional customer decreases as users are added.

One of Lightspeed's investments is Flixster, a movie site that meets Chung's criteria. Flixster has seven to eight million users, sells advertising and its audience buys DVDs and other Hollywood content. In addition, Flixster can command higher advertising rates compared to mass market sites because of its focused audience. Other current Lightspeed investments include MyBuys, a behavioral marketing company, Wikio, a personalized blog and media search company, and Gmedia, a mobile Internet commerce startup.

Chung says that not all investments turn out well, but the beauty of the web is that losing companies are sorted out quickly. He looks for declining traffic, an inability to monetize page views and competitors gaining ground as signs that a company may not be worth the investment. "The companies we invest in are on the uptick. We don't invest in companies that have no traction. We're looking for guys on the way to an inflection point. If that viral leg doesn't hold up, you're in troublesome territory."

Amit notes that VC firms usually don't give all funding to a company at once. If a business misses key milestones, VCs won't lose all of the investment. "Venture capitalists overall seem much more cautious compared to the late 1990s," says Amit. "They are conducting their due diligence."

Business Models: When, Not If

While Wharton faculty and other experts agree that business models are important for new ventures, the question is timing: Should web 2.0 startups focus on a business model right away? Or should a revenue model be added later, once critical mass is achieved?

At the 2007 AlwaysOn Stanford Summit on August 1, Roger McNamee, managing director and co-founder of venture capital firm Elevation Partners, characterized the second view. "We are beginning the third wave of the web -- the first [was] aggregation; the second, indexed search; and the third is finding things based on references. I haven't any idea what business models will emerge, but I'm confident it will be big," said McNamee.

Mobile messaging service Twitter announced on July 26 that it had received an undisclosed amount of funding from Union Square Ventures and Charles River Ventures. Fred Wilson, a partner at Union Square Ventures and one of Twitter's investors, wrote on his firm's blog that business models aren't the most important item in an early round of funding. "The capital we are investing will go to making Twitter a better, more reliable and robust service. That's what the focus needs to be right now. We'll have plenty of time to figure out the business model, and there are many options to choose from."

Babin largely agrees with Wilson, especially in light of the fact that, these days, less capital is needed to launch a company. In other words, an entrepreneur can launch a company, see what customers do and adapt a business model accordingly. "You launch a site and then see the answers to questions like: Can I make this interesting enough for people to come back? What's the interaction? Are people coming to see something and doing something with the site?"

The answers to those questions will provide clues about what kind of model will work, Babin says. If a number of people visit the site to view something, perhaps advertising is the core revenue stream. If customers engage with the site, a model based on transactions could work.

Dushnitsky agrees that business models for web startups can be delayed a bit. "It's clear that whoever survives must have a business model, but a lot has changed between 2005 and 2007. There has been a shift from fixed costs to variable costs when starting up a venture. That means you can almost run a company like a hobby, with a low cash burn rate, and see what happens. The financing that went into YouTube was a fraction of what would have been required just a few years ago. That has shifted the timing of when you need a business model," Dushnitsky says.

However, Amit believes that business models are critical from the start. "You have to worry about the business model right off the bat. You have to think about how you will do business, enter a market and compete."

Hsu notes that companies need to ponder a business model so they can notify users of what's coming in the future. Given that next-generation Internet companies depend heavily on their "communities" of avid users, they need to build potential revenue generators into their services. If a web company becomes popular and then hits users up for dollars, customers could revolt, he points out.

"It's better to worry about business models as soon as possible," says Hsu. "It's a multi-front battle. We want people to love the site, but companies do have to worry about the revenue model early on. If you can anticipate and be clear about a model, your users will accept it. You can't switch midstream."

The Exit Strategy

Once a startup gets its business model right, VCs will start pondering their "liquidity event," or a way to cash out. In the late 1990s, the primary liquidity event was an IPO. Today, VCs are more likely to cash out via an acquisition.

"We now have [a situation that] we didn't have before: Yesterday's web startups are mature companies looking for opportunities to expand and grow," says Dushnitsky. "In the past, we had less acquisition opportunities. Now we have the Yahoos and Googles of the world with cash and looking to acquire. You also have other media companies looking to the Internet."

McNamee, however, noted during his talk at the AlwaysOn conference that acquisitions are rare relative to the number of web startups. "How many web 2.0 companies can be bought by Google or Fox [News Corp.]?" he asked.

Meanwhile, companies are less inclined to pursue an IPO. Entrepreneurs would rather stay private due to Sarbanes-Oxley requirements and public scrutiny, according to Bill Gurley, a partner at Benchmark Capital, which has invested in eBay, Palm Computing and Friendster, an early social networking site that has been eclipsed by MySpace and Facebook. "The fear I have is the lack of executives that want to be a CEO of a public company," Gurley noted at the AlwaysOn conference.

Many experts agree that entrepreneurs shouldn't think about exit strategies before they build a business. If startups evolve into viable enterprises, the liquidity events will follow. "While we want to see exit strategy, we want you to build a business," says Babin. "If you're focusing on an exit, you're not building anything."

McNamee agrees that a longer-term view is required. "If you're an entrepreneur, just do the things to make your company more valuable and be prepared to do it for a while," he said.

Brands are a Conversation

Yesterday I received an invite from John Battele of Federated Media to attend a conference in SF that involves "Brands as a Conversation" - how social networks and social media view Brand interaction with consumers.

Just a minute ago I also got an update from Red Herring that a social platform called Passenger received $8.3MM in funding to pursue white labeling for brands.

One of the notions is that Brands can communicate better with consumers if they had their own platforms. Although that is true it is only partly true. Brands as an isolated network to consumers is not as interesting as a private network that is connected to a larger open network.

I'm not going to give more detail as to how this can be leveraged and implemented on Social Networks as I have an idea that will be very exciting to implement on SociaURL based on this thought.

Me Too!

So its been about six months since we launched and boy o boy I've learned so much in this short period. For example, people who ping you to say they want to invest and help out have other agenda's...tread carefully!

Example 1: Pete Cashmore from Mashable did us a great favor by putting a blog on us when we launched and then he emailed me to ask about possibly investing and being an advisor. A few months later after I shared some of my vision thinking it would be safe because he approached me as an investor/advisor...he launches MyMashable and uses Converdge to copycat our platform.

Example 2: Dan Cohen from a DenverStartUps and TechStars (w/Brad Feld) catches wind about us a month or two after and he invites me to Boulder to talk to him on the same premise of being an investor/advisor. After we meet and I give him my pitch about where my vision is and how i'd spend my money I never hear back and next thing i know he sponsors a group called SocialThing that uses all of our colors and theme and market approach.

I've had 30 Angel investors tell me "NO", 3 VC's tell me this is too early, 2 "Let's keep Talkin" but examples above are ones that tug at you not because of any potential competition but because they make you feel like you've been suckered by those who you respect in the business.

My advisors are telling me its a good thing that these respected figures in the industry thought highly enough to copy our ideas to the tee but it also shows that we are running short on time. I'm down to my last few pennies and also moving myself with the wife and kids back to California to be near my partners and to be closer to potential investors from So.Cal and N.Cal.

I will be keeping up this blog more regularly with some reviews of recent startups on the web and my thoughts about each...Thanks for the IDEA PETE and DAN!