Master of 500 Hats

Dave is now blogging at 500hats.com

hi folks. I'm now blogging over at 500hats.com, using the medium.com platform. see you around, DMC

Congrats SlideShare + LinkedIn -- Best Wishes Rashmi, Jon, & Amit :)

This is a very special post for me to write, to congratulate some good friends on a job well done.

I first met Rashmi many years back at TagCamp while i was still working at Simply Hired in 2005, then again at Dana Street Coffee in early 2007 when i was consulting for Mint.com. I think Mike Arrington had written one of the very first TechCrunch posts on SlideShare in late 2006, and i was an immediate fan and user soon after. Upon seeing Rashmi again at Dana Street a few times we became fast friends, and i asked her and her co-founder Jon if i could become an investor/advisor to the company. To my surprise, they agreed and we've been hanging out ever since, both as partners and friends. I also finally got to meet their 3rd co-founder (& Rashmi's brother) Amit, when i was visiting India for our GeeksOnaPlane trip there last fall.

Over the past 5 years, i've had the pleasure of using SlideShare, telling everyone i know how awesome it is, and watching as the company grew and grew and grew to become the huge community it is today. I was just checking my own account on SlideShare, and some 2.7 million people have viewed my presentations and almost 50,000 downloads of my Startup Metric for Pirates and other talks.

Although not officially a 500 Startups company (SlideShare was one of my personal investments, long before we started the fund), i've always thought of SlideShare and particularly Rashmi, Jon, and Amit as some of the first members of our global #500STRONG family. They have been mentors to many of our other startups, and Rashmi in particular has been a role model for other female CEOs and founders in our portfolio (of which there are many, over 50 and growing currently).

But more importantly than me bragging about making a great investment, i'm very proud to be FRIENDS with them -- because they are first and foremost awesome people, and great entrepreneurs. They represent the best of what we all strive for in building a company, and i've seen them deal with both success and failure with grace, style, and tremendous warmth for their fellow employees and their customers and partners. I couldn't be more proud of them and what they've accomplished, and let me be among many to congratulate them as they join LinkedIn on the next phase of their journey.

Rashmi, Jon, Amit: you guys rock, and i <3 you very much :)

Fire in The Valley, Fire in My Belly... and Yes, Mike, I Have Stopped Beating My Wife.

So i've been debating whether to write this post all day. 

Unfortunately i probably have more balls than sense, but it drives me fucking insane to see some bullshit superangel conspiracy theory get whipped into a frenzy by people who weren't there, have no idea what the hell was discussed, and are ready to believe anything when someone yells FIRE!

so here goes nothing... first a few clarifications:

- mike arrington is a friend, an imposing figure, and a hard-nosed, hard-working journalist. that said, he's dead fucking wrong about there being some story around " collusion" (def'n). makes for great red meat on TechMeme & Twitter, but it's just so much horseshit.

- yesterday i was invited to a dinner with some well-known startup investors to discuss the latest & greatest in tech & startups. the agenda was drinks, good food, & shooting the breeze... it wasn't to collude, to price fix, to put out a hit on Paul Graham, or generally bust a cap in any founder's ass (ok maybe Zuck & Jobs have it coming, but people might notice if we shoved them furtively into Davy Jones' Locker). Yes: it was a private affair, and No: mike wasn't invited. neither was Barack Obama, your mom, nor any of 500 other friggin' awesome people in silicon valley or around the world.  meh... whatever -- i don't get to go to every cool kid party in the valley either.  sorry, mike... but if you want, i'll knock one back with you before we go onstage Monday morning at Disrupt.

- startups & investors bitch & moan about price (aka valuation) all day long, but i don't really give a damn what other people think most of the time. buy or don't buy. negotiate or don't. This is America, This is Capitalism, and it's a Free Fucking Country. me? i like convertible notes just fine, albeit usually with some kind of cap. sometimes a deal is "too expensive", sometimes entrepreneurs really are "awesome". usually, we're all W-W-W-WRONG about 10 different reasons why shit is gonna fail anyway.  you still in?  yeah, me too... so ante up, mofo. you're here in Silicon Valley because you're trying to change the world, or at least build a better mouse trap. either way, odds are against us. deal with it.

- from an entrepreneur's perspective, Paul Graham & YCombinator are killing it right now... and bully for them.  sometimes you got leverage, sometime you don't. regardless, PG should be commended for innovating on the venture model, and for encouraging startups to push the envelope -- on both product, and price.  still, people should realize the wheel comes around for everyone, and it's a small valley.  people on both sides shouldn't get too comfortable, and shouldn't try to fuck with each other too much.  Personally i prefer to leave a little more on the table for the other person, and focus more on building a long-term relationship and less on the tactical zero-sum crap. 

regardless: haters gonna hate, players gonna play.  just focus on the important stuff (build product, solve problems, get customers, make money... and don't be evil... much ;)

- my fund 500 Startups is investing in 7 or 8 YC startups out of the recent batch, and they are some very smart young entrepreneurs with some great business opportunities.  most of them will fail, but that won't stop them from starting, or me from investing.  and sure, the pre-money is definitely on the high side compared to rest of market / previous years.  so be it.  Mercedes Benz ain't cheap either.... but that shit is SHINY.  if you don't like it, don't buy it.

- innovation & investing is not about price.  it's about finding great entrepreneurs to build solid companies, and solve customer problems.  price matters, but innovation & execution matter a helluva lot more. find good people, bet on them, help them succeed. try to improve the ecosystem, and try not to be a dick (that last one is actually hard... it's sort of easy to be an asshole as an investor).

- at the dinner, there was a fair amount of kvetching about convertible notes, capped or not, hi/lo valuation, optimal structure of term sheets, where the industry was headed, who was innovating and who wasn't, and 10 million other things of which 3 were kind of interesting and 9,999,997 weren't unless you like arguing about 409a stock option pricing. 

however, in addition to pricing & valuation, some of the more interesting things discussed were:
 1) how can we increase access to startup capital (new geographies, new investors, Second Market, etc)
 2) how can we increase M&A for startups & increase awareness of startups for non-tech acquirers
 3) how can we increase startup innovation (more smart entrepreneurs, cool new platforms, better techniques for mentoring / entrepreneurship)

of course, none of that shit is nearly as sexy or exciting as how we're going to screw over some n00b startup founder at YC, beat the crap out of some clueless old dinosaur VCs whose IRR sucks ass, or hide our secret tinfoil cabal / conspiracy at Bin 38 from the Valiant Fourth Estate. 

in short: if it Bleeds, it Leads... and Fuck. That. Noise. about Fair & Balanced, right?

on the other hand -- some folks really are trying to innovate in venture capital, support & invest in thousands of entrepreneurs, that employ millions of people, who create billions of dollars in value, for customers and shareholders around the world. we ain't trying to kill the Man in the Arena, mike... we're rooting for him (or her).

naah, screw that shit & lets get back to Collusion cuz that sells newspapers.

and like Gordon said: Greed is Good... even if we're counting page views instead of dollars.

as for lil ol' me?

i'm here to Disrupt, motherfucker.  so go right ahead & Hate On Me.

If I could give you the world
On a silver platter
Would it even matter?
You’d still be mad at me

If I could find in all this
A dozen roses
Which I would give to you
You’d still be miserable

In reality, I’m gonna be who I be
And I don’t feel no faults
For all the lies that you bought
You can try as you may
Break me down but I say
That it ain’t up to you
Gone and do what you do

(Chorus)
Hate on me, hater
Now or later
‘Coz I’m gonna do me
You’ll be mad, baby
Go ‘head and hate
Go ‘head and hate on me, hate on
‘Coz I’m not afraid of it
What I got I paid for
You can hate on me

Ooh, if I gave you peaches
Out of my own garden
And I made you a peach pie
Would you slap me high

What if I gave you diamonds
Out of my own womb
Would you feel the love in that,
Or ask “why not the moon”?

If I gave you sanity
For the whole of humanity,
Had all the solutions
For the pain and pollution

No matter where I live,
Despite the things I give,
You’ll always be this way
So go ‘head and….

You cannot hate on me
‘Cuz my mind is free
Feel my destiny
So shall it be

"Hate On Me" – Jill Scott

Dave McClure talk about seed investing on GigaOm

Recent video interview i did over at GigaOm with LizGannes:

GeeksOnaPlane Shanghai!

Geeks On A Plane Shanghai
Originally uploaded by kk+

awesome kickoff to GeeksOnaPlane Asia 2010:

- spontaneous StartupVisa mtg with Sec. State Hillary Clinton
- "East Meets West" blogger meetup @ Shanghai World Expo
- *fabulous* dinner Table No.1, The Waterhouse Hotel

Check-Ins are Coupons. Game Mechanics are Bullshit. Show Me The MONEY or Go Home (Loser).

(shameless plug: May 12 SMASHsummit.com social media marketing conference - get a 20% discount at bottom of this worthless & wildly speculative post)

For everyone out there wondering if i'll ever return your phone calls or emails, my apologies... i have a bunch of rather significant not-quite-finished projects on my plate right now, along with the usual deals & events & insanity.  Blogging has taken a back seat as well, but i've been meaning to write this post ever since coming back from Austin after an amazing all-night jam session with GaryVee until around 7am at SXSW.  since my kids are sick & i'm procrastinating doing my taxes until the last minute, now is as good a time as ever to blast out this stupid little piece of navel-gazing. so have at thee...

Assertion #1: Check-Ins are Coupons. Gimme $5 or go home, loser.

(and i don't give a flying FUCK about yr "awesome" LBS game mechanics... it's just  meaningless early-adopter BULLshit unless/until u Show Me The Goddamn Money.)

for all u nosebleed-valuation VCs jockeying to finance the dorky geniusues at FourSquare, GoWalla, MyTown, and every LBS vendor / app developer out there, it's time to face the music. while i admit everyone at SXSW (including me) was tweet-whoring themselves all over Sixth & checking-in like a sex worker at a Fuller Brush convention, let's not delude ourselves -- the current method of check-ins is a classic case of early-adopter lust for shiny objects, & has not a damn thing to do with long-term sustainable mainstream consumer behavior. no way any normal motherfucker is gonna do this check-in shit.

Without financial incentives or discounts, there is absolutely no reason on god's green earth to "check-in" for your stoner cousin, your luddite penny-pinching aunt, and certainly not your clueless grandmother.  they could give a rat's ass about your stupid little iPhone app with the pretty pictures and clever auto-discovery that barely works while draining the hell out of the battery... that is, until you give them $5 off their next beer or 5-dollar foot long.... at which point guess what? 

HELLO, MAINSTREAM CONSUMER MARKET!

while there may be ways to s[t]imulate financial incentives & discounts with virtual goods, frequent flier miles, or other point-based systems & psychological motivations, nothing works better to increase conversion than a cool $5 bucks in yr digital wallet, or 20% off yr next offline purchase.

if you don't believe me, go take a look at the history of PayPal jump-starting initial account signup incentives with $5 discounts for joining, referring friends, and entering profile & bank info.  while arguably the payment friction on the eBay marketplace created enough motivation to use PayPal even without financial discount incentives, the company used this tactic for years to increase user growth and get to such substantial critical mass that it couldn't be displaced even by eBay's own internal payment system.  and PayPal certainly didn't have any fancy game mechanics to get people to use the product (altho i will admit we had some pretty sweet blow-yer-jedi-mind tricks for getting people to enter bank acct info, thereby reducing transaction costs by avoiding credit card processing systems & fees).

So STFU already and gimme the $5, or get your stoopid game mechanics out of my face and go home.

Assertion #2: <1M users in 12 mo's is *pathetic*... can u even spell the word "viral"? Facebook will CRUSH u like a friggin' bug.

srsly dude: u ain't sexy unless yr app has bikini models w/ double-D cups (oops sorry, Apple shitcanned that option)... or unless you show me 10M+ users & high double-digit % month-on-month growth.

I'm surprised everyone is paying through the nose for such anemic LBS growth rates over the past year.  let's compare that with Facebook rocketing to over 400M+ users globally in the past year, and 100M+ users in the US.  if you're a small startup and you're not acquiring users like mad organically / virally, or picking them up off Facebook or Twitter, you're going to get steamrolled by the larger platform players, or else some fast-growing upstart you haven't heard of. anything <1M users seems like a rounding error, and even Yelp's healthy 30-40M+ users is a bit of a blip compared to FB or other large platforms.

in order for any of these big LBS bets to work, u better start acquiring users at scale (let's say 20M+ users + a lot of local search data) or else yr only hope Obi Wan Kan-u-buy-mi is to maintain a decent technology lead and get acquired. oh yeah, i forgot -- your technology lead = doing a GPS lookup (which will be in every chipset in <12 months) + some pretty icons + some bullshit game mechanics that aren't working for anyone who doesn't speak Klingonese.  hurry your ass up or you guys are toast.  and i don't know if FB or even Apple or Google is gonna pay a 5-10x multiple on your $80M post-money round.  Yelp may have the location data in a few key metros to justify walking away from a $650M offer, but you little shits sure as hell don't. if you're lucky enough to get anything >$250M for your house of cards take the money & run, homey.

Assertion #3: the eventual LBS winner needs $100M+ to signup 1-2M local offline businesses & 20M+ users. (or maybe $500M i dunno but we're talkin' Money G)

Get out your VC "checkin"-book & write down a number w/ 10 zeroes:

$100,000,000.00

that's the minimum ante to play this game of poker.

i'm no expert on the sector-specific financials here, but here's my rough math: i'm guessing you need to acquire 20M+ users @ $5-10 each, and at least 1-2M+ offline businesses at $50-100+ each.  let's be generous & suggest it *only* costs you $100M-200M to get to minimum critical mass & basic viability (altho it could easily be $500M or more).

now who the H-E-double-hockey-sticks has that kind of FU$K-IOU money?

well, probably only 3-5 players can make those kinds of #'s work.

• Microsoft ($266B market cap)
• Apple ($219B)
  
• Google ($180B)
• or maybe Facebook...
• ... with lots o' help from a Private Equity group w/ Very Big Balls of Steel

Now certainly Twitter and Yelp could be in this game somewhere, and probably several other providers of local search data / business profile data, and other relevant stuff. But at a minimum, you're gonna need to have or acquire 10-50M users (active/frequent, not just registered) and have or signup 1-2M local businesses (perhaps more?).  this is customer acquisition cost on a scale that only a few big players can fathom, or a few larger venture / private equity players can go after.  And that's with a ton of execution risk.  Even Microsoft who has the money might not have the cojones to think they can buy & integrate all the pieces to make it work, unless it's just one big acquisition.  Google could maybe do it if they buy Yelp or Twitter, but they still need to get the social dynamics to make the user base work.  Same for Apple, altho either might figure it out if they're lucky and buy the right company(-ies).

But the odds-on favorite here by far is Facebook. With 400M+ users, an already very active userbase, and users' growing familiarity with FB Connect on off-platform sites, they are the easy pick front-runner. Maybe they buy somebody, maybe they don't.  Maybe they buy *several* somebodies.  But you can bet yer sweet ass the road to the LBS playoffs sure as hell goes thru 1601 S. California Ave, Palo Alto, CA.

Count on it... or should i say "Check-In" on it.

oh and one last not-so-minor point:

Assertion #4: Payments are a BIG part of the LBS winner-take-all equation

... regardless of whether we're talking about real money or virtual currency, payments matter a LOT.

Again, this plays to Facebook's potential future strengths (they're working on a payments product, and their users are very comfortable with various virtual currencies), and Google / Microsoft historical weakness (Google has only minor payments traction with Google Checkout, and Microsoft none to speak of).  However, Apple also now has substantial payments experience, and could be a player in this area.  And both Amazon and eBay (via PayPal) become very attractive targets for partnerships or acquisition by one of the major players.  But since Amazon is doing quite well thank you, and Bezos shows no signs of giving up the crown, expect either an ever-weakening eBay or still-growing PayPal individually to be in play by Microsoft, Apple, and/or Google within the next 2 years (yeah, i know i've been predicting this annually for the last few years... but just cause Ballmer's a blimey M&A idiot doesn't mean i'm wrong about the reasoning).

alright, got all that?

so here's my odds-on crazy-and-not-really-very-serious predictions:

1:2 - Facebook buys Gowalla, FourSquare, MyTown or Loopt, takes home the gold. this is the default.

2:1 - Apple buys one of the above, and/or Square, gives Facebook a run for the money.  probably still loses, because FB has too much frequent user activity, Connect dominates, & Apple doesn't move fast enough in software.

3:1 - Google buys Twitter for users/social + Yelp for local biz, gives Facebook a run for the money.  maybe also buys PayPal, maybe not.  probably still loses due to no clue on social, unless they let Twitter figure it out.  still not likely. (they likely do buy Twitter & Yelp, but still not enough to win LBS).

10:1 - Microsoft decides to spend a boatload of money buying something or several somethings, and fails miserably... unless it's Facebook.  but Zuck won't sell for less than $75B, and Ballmer doesn't live up to the first half of his last name.  so therefore Microsoft is FAIL. (probably hard & painful FAIL.)

50:1 - Google or Apple figures out a way to buy or merge with Facebook.  This is complete looney tunes, but would be the right move. however, Google can't likely pull it off without antitrust violations stopping them in their tracks.  and even if Jobs buys the farm, don't think he hands Zuck the crown unless some very unusual scenario comes down.

in summary: Facebook wins LBS. unless Jobs has more smarts than hubris than i think, and Apple buys Facebook (NFW.). somewhere along the way PayPal gets bought by somebody (likely MSFT), but prob doesn't matter.  Microsoft flails on mobile & LBS, and becomes irrelevant outside the workplace in less than 10 years.  Google probably swings & misses on LBS, but maintains strength in search and remains relevant in several others (YouTube, Gmail, maybe Android).  Apple keeps killing it in hw, and does well enough with sw & apps to maintain relevance in music, videos, books, other areas.  Amazon is pressured by Apple in media, but does well in e-commerce & infrastructure svcs. AOL stays alive in advertising & content (i think).  Yahoo does a lot of re-orgs, buys something, but nobody really gives a fuck. eBay dies a quick death after they sell off PayPal. Twitter has a shot at LBS, and so likely gets bought by Google or MSFT, but will still have a tough job beating Facebook.

once more for emphasis: Facebook wins LBS. Google, Apple remain strong in search & media respectively. PayPal gets bought (likely by MSFT). Amazon stays strong in commerce & infrastructure. AOL stays afloat in content & advertising (maybe). Microsoft dies in mobile & consumer (very) slowly, acquires lots of stuff along the way. Yahoo dies slowly, and/or likely gets bought (or merged with the new AOL). eBay dies quickly; nobody notices.  Twitter gets bought by Google or MSFT (or maybe Cisco?) within 3 years.

... or not, and i'm a friggin' idiot. 

but if you've read this far, at least i'm an entertaining writer, eh?  ;)

---

for those who made it all the way thru the mindless BS above, check-in to yr own lil' 20% discount off our upcoming May 12 SMASHsummit.com social media marketing conf by clicking here.

yer welcome, mofo.

Social CRM: The New Rules (by Jeremiah Owyang, Altimeter Group)

Why Jeremiah Owyang & Ray Wang rock + why Altimeter Group is kicking ass:

Social CRM: The New Rules of Relationship Management (blog post)

Social CRM: The New Rules (white paper)

View more documents from Jeremiah Owyang.

(this is also why Forrester shoulda never let the "franchise player" contracts expire on Jeremiah, Ray, or Charlene)

Startup Weekend Tokyo & GeeksOnaPlane Japan (Dec 2009)

Startup Weekend Tokyoo (Dec 2009)
Originally uploaded by fumi

thanks to KDDI, Jonny Li, & everyone involved with this past wknd's most awesome Startup Weekend Tokyo. & props to Mona & Chris McCann for helping me slap together a last-minute mini-GoaP Japan trip... no way could have done it w/o you guys.

big OMEDETOO! & congrats to Startup Weekend winners Wubble and Wishcovery for putting together some terrific ideas & apps!

if you can read Japanese, you can also see Serkan Toto's preview of the event on TechCrunch Japan here... you can also read Fumi's awesome summary post here.

for a few pix from the event look for the #swtokyo tag or checkout the sets from Fumi here & Derek here. 

You can also watch the [no longer live] Ustream below:

Live TV : Ustream

RethinkHawaii.com (Nov 1-5): Come Get Your Geek On.

Sometimes we all need a little time to Think. Time to get in touch with our Inner Geek.

Time to get in touch with Water, Land, & things Blue-Green.

Time to meet friends across the Pacific in the Middle.

It's time to...

RethinkHawaii.com

Come join us Nov 1-5 in Oahu for tech, green, clean, and mean social media... register now using code REDPILL, and save over $600 off the normal conference fee.

RethinkHawaii will feature a conference of mini-conferences around:

• Startups & Startonomics
• Sustainability & Clean, Green Tech
• Social Media & Business
• East Meets West (Internet Asia)
• Hawaii Unconference

Check out who's coming... including Pierre Omidyar, founder of eBay and the Omidyar Network.

hope you can be there with us, to think about what's coming next :)

Gordon Gekko 2.0: Flipping is GOOD. (aka Memo to Jason Fried: Sorry, You're Fucking Wrong.)

[clarification: i was a private angel investor in Mint's A round back in early 2007, when i was also doing some marketing consulting for the company. i was not directly involved in the Founders Fund investment in Mint's C round a few months ago. the comments below are primarily drawn from my personal experience with the company before i joined Founders Fund]

[disclosure: the views expressed below are my own, and do not in any way represent the official position or perspective of either Mint.com or Founders Fund.]

Dear Jason Fried:

Sorry, You're Fucking Wrong.

    Flipping is GOOD.

Let me explain...

In a poorly-researched post titled "The Next Generation Bends Over" (cute) penned a few weeks ago by Jason Fried, founder/CEO of 37 Signals, the author attempts to make the case that:

1) VCs behind Mint.com forced founder/CEO Aaron Patzer into $170M acquisition by Intuit

2) it's a growing trend "indicative of VC-induced cancer that’s infecting our industry and killing off the next generation"

3) young entrepreneurs should be more bold, audacious, go all-in on their vision, in order to "kick the ass" of the collective incumbents / dominant players

In order, these assertions are:

1) Fucking Wrong, and Irresponsible Conjecture & Hyperbole

2) Completely Wrong, and in fact Exactly the Opposite trend is going on, and finally

3) Wrong in most cases & crap advice for young entrepreneurs.

I'll now address each point specifically, and explain why Jason Fried -- although in his own right, an accomplished entrepreneur, whose products i use and respect -- is full of shit in this particular instance.

The VCs behind Mint.com Did NOT Force a Sale. Do Your Damn Homework Before You Speak.

First & foremost, while i respect Jason's opinion and right to post whatever the fuck he feels like, his article was -- by his own admission -- not based on any fact-checking.  At the beginning of his post, Jason states "i don't know the full back story, but i bet this sale was encouraged by a Mint investor."  IMHO, this is just incredibly irresponsible: you're a *very* visible figure ripping other folks on mere conjecture.

Perhaps you might want to contact one of these investors -- who, like me, are all publicly listed in Mint's entry on Crunchbase -- and ASK one of them, before you blow such a wild assertion out of your ass? You probably know several of them, and certainly through your connections it would be fairly easy to reach one of them to confirm or deny your suspicion. While i don't expect folks who aren't breaking-news bloggers to follow basic journalistic principles, making such an accusation without the tiniest shred of evidence is lazy at best, and borderline slanderous at worst.

Or, if you're simply too damn lazy to do some basic research, maybe you could just ask any experienced entrepreneur or venture investor why in the hell would it make any fucking sense for Series B investor Benchmark to encourage a sale that's likely only 4-5x its investment, or Series C investors who just put money in 30 days ago?  or do you somehow think the seed or A round investors were controlling Aaron's actions with a car battery attached to his balls? if you had any knowledge of Aaron whatsoever, you would know that he is one confident sonuvabitch who RARELY lets anyone force him into doing anything.

In short, your logic here is not only faulty, it's piss-poor and reveals your absolute ignorance of what goes on in the venture world.  Sure, you're absolutely correct there are some VCs that might force an entrepreneur's hand -- however, in most cases IT'S IN EXACTLY THE OPPOSITE SCENARIO of what you suggest. They usually want the entrepreneur to stay in the game, NOT sell, and aim for a larger / later win -- typically by FORGOING an acquisition and instead taking a round of capital -- which, in fact, was exactly what Twitter did when you were hypocritically whining about them last week.

Although there may indeed be examples of VCs forcing an entrepreneur to sell to get liquidity to investors, it's not at all typical and usually the opposite of institutional investor motivations.

The "Growing Trend" in Internet deals is towards More & Smaller Acquisitions.  But it's not because of VCs, or the Financial Crisis, or Sarbanes-Oxley.  It's because the Web is Maturing, and Internet Platform Giants are outsourcing / buying Innovation.

The second point that Fried asserts is that this is somehow a growing trend, and that VCs are changing the industry, "killing off the next generation" of entrepreneurs by forcing premature acquisitions. Again, nothing could be further from the truth... and in fact, the EXACT opposite is the notable trend going on in the industry right now.

First it should be noted that M&A have always outnumbered IPOs, but regardless IPOs basically shut down in tech after 2001 due to the dot-com blowup.  Subsequently, many armchair analysts have stated that Sarbanes-Oxley legislation has made it more expensive to go public. Others have noted the financial crisis ending as a reason for more acquisitions.  Still other conspiracy-theorists like Jason think VCs seeking liquidity for investments are at fault.

While any of these may be contributing factors, the more basic trend is this: there are now tens, if not hundreds, of large online platform companies with millions of users and positive cashflow.  In addition to Google, Yahoo, & Microsoft, there are also eBay, Apple, Amazon, News Corp, Facebook, AOL, CBS Interactive, ComCast, IAC, etc, etc, etc. There are tens of companies that can pull the trigger on a <$500M deal, and 100s that can do a <$100M deal.

What's fundamentally different in the last ten years is that most big companies didn't have a need or facility for acquiring web startups.  They didn't understand them, and couldn't figure out how to integrate them into their business.  However, as the Internet has matured, ALMOST EVERY company is now a web company, and the Internet is both a primary and low-cost distribution channel.  It is now very easy to integrate a web-based acquisition [at least from a technical standpoint... might be more challenging re: politics & fiefdoms].  And since most innovation doesn't happen at big companies, it's almost guaranteed that we'll see more acquisitions of small startups to help grow larger company platform strategies. 

In fact, as more platform companies compete for deals, you'll likely see deal size go down as they try and acquire products & talent ever earlier in the startup lifecycle.  There's no need to wait for companies to become $1billion-dollar powerhouses -- it's much more capital efficient to acquire them after they've proven out basic technology & gotten a little elbow in their customer adoption.  Why buy it for $500M a few years later, if you can buy it for $50M now?  I'm sure this was part of Intuit's thinking about Mint... as soon as they saw the Series C deal go down, they realized if they waited another 2-3 years, the pricetag might go up even further.  So they cut a deal now.

This particular trend is what is scaring the shit out of big VCs right now.  Both lower capital costs for startups and lower average exits for acquisitions are screwing up large VC firm strategy.  Fred Wilson and others have written about this, & experienced investors like Alan Patricof have downsized funds to under $100M to make them more manageable in this "small-ball" environment.

While this trend may negatively affect some VCs, it's actually a very positive trend for angel investors and smaller VC funds, and it's an especially GOOD trend for entrepreneurs.  This creates a great market environment for small investment / small exit deals that are exactly what Web 2.0 entrepreneurs are serving up. In other words: the Future is Bright, Time to Buy Sunglasses.

Why Flipping is GOOD, & Why Young Entrepreneurs Should Probably Sell Their Startup Sooner than Later.

Finally, i'll make an intentionally controversial stmt:

 Young Entrepreneurs Should Sell Out Early (and not Late or Never)

Why?  For the same reason Why Dogs Lick Their Balls -- BECAUSE THEY CAN.

Look, i'm not trying to get anyone to sell their grand vision short.  If you've got a great business to build, by all means give it your all and run it forever.  However, for most entrepreneurs it's not going to be the only business they do in their lives.  And for the young entrepreneur -- particularly those under 30 who've never done it before -- the single best thing you can do to ensure your future success is TO GET A DEAL DONE. It's heroic and glamorous to "go all in", but realize that many times that means you may come away with NOTHING.  Playing well sometimes means you take a single or a double instead of getting thrown out trying to steal home.  And sometimes it means just taking 4 balls and getting on base.  However you play the game, swinging for the fences every damn time may work for Babe Ruth and Albert Pujols, but i'm personally more a fan of Ichiro Suzuki and Billy Beane. Small-ball and MoneyBall can be just as beautiful as a homerun.

it almost doesn't matter how large or small it is (altho firesale acquisitions don't count), the ability for an entrepreneur to have future success is typically judged by historical metrics.  and since most startups FAIL, the fact that you can take a startup to ANY size exit proves you can beat the odds, and that you may have the ability to do it again.  Once you have a deal under your belt -- whether it's a $3M deal, a $30M deal, or a $300M deal, you are bankable.  People will bet on you again. Investors, Partners, Employees, Reporters, etc will all believe you can do it (sometimes to their detriment, because again the odds are most startups fail -- even those by previously-successful entrepreneurs).

In addition, contrary to all these haterz who paint acquisitions as a bad deal or a sell-out, i actually think it's a great thing -- imagine being able to take 3-5 years to build a product, develop it to some level of usefulness, grow customers, build revenue, and then sell to a larger organization that decides it could use that innovation to help their business where it sees new opportunities.  Isn't that awesome?  Isn't that a vision fulfilled?  How about the fact that you can perhaps after a few years go back out & do that again?  Why is it that no one seems to think switching jobs every 3-5 years is a bad thing, but somehow think that selling your business to someone who really wants it and will grow it isn't terrific?

More Transactions Grow The Market. Startup Ecosystem Efficiency Raises All Boats.

Lastly, here's the thing i really want to stress, more than peeing all over Jason's post: more transactions of any kind or size help improve overall startup ecosystem health.

Fact is, startups operate in a financial system that is inefficient, illiquid, and challenging to manage.

Venture Capital exists because startups are generally deemed too risky for debt capital, or for traditional financing. This item is often overlooked by entrepreneurs (and investors) who view the VC field as glamorous and confident, when it fact it is mostly ignorant and risk-averse.  VCs like to maintain asymmetric information advantages over their competitors, and sometimes even over entrepreneurs.  Keeping competing VCs, and even sometimes their own LPs & entrepreneurs in the dark about value and pricing is sometimes in their best interest -- it KEEPS PRICES DOWN.  However, infrequent financing round / transactions and lack of objective pricing actually don't serve the interests of entrepreneurs.  As with most markets, liquidity and transparency provide the enabling mechanisms to grow the market larger and to reward market participants more richly.

This is a non-obvious point. 

More & smaller transactions in the market actually improve ecosystem efficiency, and provide better pricing transparency.  In the long-run, it benefits all system participants for small transactions to occur, because it makes the overall market more knowledgeable -- this in turn, reduces risk and encourages greater investment... which also encourages greater [overall] returns.

In summary, the benefits of selling startups early -- or simply when a transaction is available -- may be a smart strategy for both entrepreneurs and VCs to help improve the market, and reward themselves at the same time.  It may not be the best strategy for Bill Gates, Steve Jobs, Mark Zuckerberg, or other titans of industry, but it might be a reasonable strategy for 1st-time entrepreneurs under 30 looking to establish their careers & ensure that future endeavors are more likely.

And Jason: now that i've ripped you a new one, i'd like to apologize for all the harsh commentary and say that altho i disagree with you on this issue, i still think you're an amazing entrepreneur, and i still use your products. Happy to buy you a beer and shoot the shit anytime.

Hit it Gordon: