Stackdriver vector on dark (3)
Today our portfolio company Stackdriver announced the GA version of its intelligent monitoring solution for cloud-based infrastructure, systems & applications.  They concurrently announced that Flybridge, alongside the company's Series A investor Bain Capital Ventures, led the company's $10M Series B financing and that I will be joining the company's Board.

Flybridge does not commonly lead Series B investments, but Stackdriver is not a common company.  A few things stood out for us as we got to know the team and the company over the last several months.

First, the company hits squarely on two themes – the cloud, in particular the public cloud, is the dominant platform for new application deployments and that building a passionate base of Developers and DevOps professionals is key to driving adoption in this environment.  We previously wrote about the cloud here and developer adoption here.   In particular, Stackdriver has nailed the first two points from the developer post: rapid time to value through a two minute setup process and a fully functioning free version of the product to drive widespread adoption.

Second, this product excellence and value has led to rapid adoption with the company growing to over 400 customers since its beta launch earlier this year.  At Flybridge, we track key adoption metrics for our portfolio and prospective investments closely and Stackdriver is showing month over month growth on all relevant metrics that is in the top echelon of its peers.  Further, customers love the product and are increasing the breadth and depth of its usage well ahead of expectations.  If you are so inclined (blatant plug), the company's product can be found here.

Third, and most importantly, we love the team at Stackdriver.  The company's two co-founder, Izzy Azeri and Dan Belcher, embody entrepreneurial leadership with their smarts, a history of success at companies such as VMWare, EMC, Acronis and Sonian, an ability to surround themselves with talented resources and an unbelievable work ethic (including regularly doing demos with prospective European customers long before the sun rises). 

We are thrilled to be in business with this talented team going after a large and exciting market and look forward to being part of their success.


Earlier today Firebase announced that we and Union Square Ventures led a $5.6M Series A investment in the company.  We first led the company's seed round in the middle of 2012 and were thrilled to help fuel the company's continued growth with this financing.

When we committed to the seed we did so for four reasons: 1) we loved the two founders, James Tamplin and Andrew Lee and their vision for their market, 2) we had a hunch that real time features were going to be increasingly important for a broad range of applications, 3) the Firebase platform, which allows developers to implement real time apps with no back-end server code, was going to be an attractive way to do this and 4) the early signs of grassroots developer adoption were quite positive.  

Over the course of the seed investment the company proved out many of these assumptions and in a nut shell, that is why we are leaning into the Series A financing.  The two founders have hired an extremely impressive group of developers, this team has knocked down all the items on their roadmap in a very efficient and rapid manner, developer adoption has exceeded by a large margin all of our expectations and compares very favorably to what we have seen in the early days of other companies with similar business models such as mongoDB and Crashlytics and the company's customers are passionate advocates for the service (including one of my favorite diligence quotes of all time – "it is indistinguishable from magic, I feel like an alchemist").  

We often get asked what causes us to lead a Series A after a Seed investment.  Based on the above I would say the answer is hire well, meet or exceed your goals, add lots of users and make them incredibly happy!  Easier said then done, so hats off to James, Andrew and team on their success to date.

Gear up your business (at the right time)

[Two posts in one day.  When it rains, it pours.  If you are bored, check out today's earlier post here]

One thing we as venture investors focus on, both at a theoretical level when we are making new investments and at at practical level when we as board members are helping our (particularly later stage) companies think through growth and investment strategies, is the concept of operating leverage.  Operating leverage, or as it is sometimes called, marginal profitability or gearing, is, at a simple level, the percent of incremental revenue dollars that flow to the bottom line.  This is important because most investors, especially public equity investors, and acquirers value companies based on earnings growth and a company with higher operating leverage will over time be more highly valued than a company with similar top line growth but lower operating leverage.

At a theoretical level, operating leverage is a sign of the health of your business model.  To the extent you make expensive widgets with limited ability to premium price, less will fall to the bottom line.  If you can sell the same high value, low cost product over and over again, more will flow.  If you have real network effects at work in terms of customer acquisition, sales and marketing costs as a percent of revenue will decrease.  If your R&D team can stay the same size, while revenues increase significantly, you will have high operating leverage.  Most venture investors are attracted to models with high leverage as it allows company to grow profitably very quickly, thus decreasing capital intensity (unless there are high capital expenses or financing costs, which i have ignored for purposes of simplicity).  As a result, as an entrepreneur thinking through your long term business model and the points of leverage becomes an important strategic planning exercise.

To bring this to life with some examples, I looked at Apple – the current gold standard among tech stocks -  and compared the P&L for Q1 2011 to Q1 2010.  In this time period, revenues grew 83%, or $11.2B, while operating earnings grew 98%, or $3.9B (taxes and below the line items have also been excluded for simplicity and comparison across companies).  This means that for every incremental dollar of revenue, 35% fell to the bottom line [$3.9/$11.2].  Pretty impressive.  I also looked at results for some recent IPOs and found that Zillow had operating leverage of 38%, Financial Engines 31%, Zynga 17% and Linkedin 9%.  The all time high I found in a quick scan through public filings was Microsoft, which in 1997 dropped an astounding 67% of their revenue growth to the bottom line.  Not surprisingly, other high fliers with fabulous business models have seen significant operating leverage in their business such as Google, which in 2006 dropped 47% of each revenue dollar to the bottom line, and eBay which had marginal profitability of 56% in 2002.

Apart from working to improve the fundamental attractiveness of your company's business model, as you grow one of the tradeoffs that a CEO (and their Board) of a high growth company faces is how to balance the trade off between investing for growth and showing leverage.  Some the examples above show the these trade-offs.  Linkedin, which actually showed 27% marginal profitability in 2010 versus 2009, is obviously now investing pretty significantly for growth.  Microsoft, on the other hand, may have under invested in 1997 when many competitors were emerging around them.  Conversely, if Linked in continues to invest heavily forever and only drop 9% of each incremental revenue dollar to the bottom line, and if they were to trade at Google's current 14x EBITDA multiple, they would need to grow their revenues a staggering 32 times to $7.7B from the 2010 level of $243M to merely meet their current value of $9.6B.   Zillow, on the other hand, at the same multiples, would only need to grow 6 times from their 2010 revenues to justify their current valuation given they have vastly higher marginal profitability.

So as your business moves out of survival mode and into significant growth mode, managing these tradeoffs should be a regular part of the conversations you have with your team and Board.


When to reach for the stars

As anyone who follow the start-up world knows, valuations for high potential young companies as of late have been trending upward (how's that for an understatement) and are fairly divorced from underlying traditional (ie revenues and earnings) metrics.  This is currently true with both "later" stage companies such as Foursquare's $600M valuation and earlier stage companies that are seeing pre-money valuations that are 1.5-2 times what one would expect to see in "normal" markets.  As an entrepreneur this naturally sounds like good news, and it largely is, although I thought it might be helpful to share some of the perspectives from the investor side as well as some potential watch outs.  

As an investor, when to "pay-up" for a compelling opportunity is one of the more difficult decisions we make on the new investment side of our daily lives.  If you do it across the board, you will end up with a portfolio that has sub-par performance, but if you miss out on great companies by being too disciplined, the opportunity cost is exceptionally high.  So when confronted with such situations as an investor, some of the things that cross our mind are as follows:

  1. Is there downside protection in terms of the underlying asset?  The best example of this that I recall is a conversation I had with one of my former partners at Greylock in discussing their investment at $500+M value in Facebook.  At the time he told me that he was unsure about the upside from there, but that he was sure given the company's user growth, early revenues, relatively limited capital raised to date and the company's strategic importance, there was no way way they were going to lose money on the investment.  On Wall Street, they call these asymmetric trades: lots of upside and low downside.  While they may not all pay off, it can be a savvy approach for an investor to take.
  2. Is the amount of capital being raised sufficient to get through important milestones?  Even if they long term upside is high, if the capital being raised at a high valuation is not enough to get the company through enough value creating milestones that allow the next round to be at a higher price, it is unlikely to be worth pursuing as the pain of down rounds,the impact on morale and other issues can be painful.  Interestingly, this thought process often leads to larger rounds, with more dilution for entrepreneurs, and creates a whole host of risks that come along with too much capital such as lack of focus and unrealistic expectations.
  3. The last, and perhaps most obvious point, is that as an investor when you are reaching in terms of valuation, it needs to be for the right reasons.  At Flybridge, we rank our investments on a host of criteria including the strength of the team, the size of the opportunity, how robust the business model is, whether there are real network effects and how disruptive the approach is.  to reach on price, we need to be convinced on all dimensions as the criteria together indicate a strong likelihood of creating a lot of value and that the company can quickly grow into the value being established.  The wrong reasons to reach are competitive pressures or investments that are viewed as strategically important for the venture firm's brand.  Our LPs don't pay us to win all the time nor do they want us to use their capital to create a perceived halo that comes from being involved in high profile companies.

From an entrepreneur's perspective, raising capital at high prices sounds like a great thing.  There are, however, some words of caution that are worth running through having had a first row seat in the last overheated market.  The first is to recognize that a successful fund raise does not equal a successful business, so don't believe your own press and take an eye off running the business lest the next round be more challenging than the one you just closed.  Second, be careful about pushing your investment partners too far.  I remember one company where we were A round investors and they raised a Series B at very high prices and the VC director that came along with that financing was extremely dysfunctional when the business hit the inevitable bump in the road.  I don't think he was a bad apple, but rather was under a lot of pressure with his partners having gone to bat for the high price only to have the company do well, but not well enough to justify the valuation.  Finally, as alluded to above, reaching on valuation too early implicitly raises expectations that you have for yourself and others (employees and investors) have for the business and this can lead to the pursuit of overly aggressive strategies too early.  So the final word is be aggressive, but realistic.


What I learned in school last week

It has been great to see the recent focus on the state of public school education in the US through the Race to the Top program, the release of the documentary Waiting for Superman and just today, Mark Zuckerberg's impressive $100M gift to the Newark school system.  

From my end, while I don't make movies or have Mark's net worth, over the past few years, my wife and I have spent some time and devoted some of our resources to a local Boston charter high school called MATCH.  Their record of achievement is amazing.  The students of the school are selected randomly after entering the charter lottery and as a result reflect the demographics of the Boston public school district: 77% live in poverty as measure by eligibility for free/reduced price lunch programs by the State; 63% are African American, 30% are Hispanic and the remainder are Asian or white.  Most of these students enroll at MATCH in 9th grade with math and reading abilities that are well below grade-level.  Despite this, by 10th grade the school is among the best performing instituions, as measured by MCAS scores and shown in the chart below, in the state of Massachusetts.  Further, and most importantly, come graduation time, 99% of the students in the school's first seven graduating classes have been accepted into 4 year colleges.

So why am i writing about this on a entrepreneurship and venture capital blog?  A few reasons: First, reforming public education is critical to our country's long term competitiveness and MATCH, and other such "no-excuses" charter schools are one demonstration that dramatic improvements can be realized with the right attention and focus.  Second, on the chance you find these topics interesting and want to learn more, I would love to connect you to the school so you can learn more first hand.  Finally, and to the point of this post, when I was at the school last week it struck me that there are some important entrepreneurial leadership points in how MATCH has achieved it success that are worth highlighting. So what I learned in school last week was:

  1. The importance of a unifying vision.  Everyone at MATCH is 100% committed to achieving the school's goal: create a high performing environment where all students can change the trajectory of their lives by not just going on to college, but by succeeding in college.  This vision orients all of the school's activities, just as a unifying vision should orient the activities of your start-up.
  2. The importance of consistent, strong leadership.  MATCH is blessed by a great founder with vision, Mike Goldstein, a phenomenal Executive director, Alan Safran and a superb High School Principal, Jorge Miranda.  Each has been part of the school since its earliest days and they set a tenor for the school that permeates the rest of the organization.
  3. The importance of creating a culture of accountability.  Match does this by setting high expectations and demanding a lot of their team (in their case both students and teachers), while at the same time providing the right resources, training and support to help attain those goals, and then measuring and tracking progress very closely.
  4. The importance of innovation.  While having an audacious goal is important, at times you need to be willing to do things differently to achieve those goals.  In MATCH's case, their innovations have included the MATCH Corps, a group of 90 recent college graduates who provide 2 hours of individualized tutoring a day to each student in the school, an extended day for additional academic programming and creative collaborations with two local universities, BU and MIT.
  5. The importance of growth, but only once you have figured things out.  When MATCH started, they focused all their attention on building a top-performing high school.  Only once the model for doing so was well developed and honed, did they start to expand such that now they have a middle school, an application out for another charter in Boston focused on non-native English speakers, and a state-approved teacher training program that sends teachers not just to MATCH, but to other schools around the country.

So while many talk about lessons from business that can be brought to education, I have been thrilled over the years to take some lessons from education into my business.

Revealing Insights

Earlier today SAIC announced that they had signed a definitive
agreement to acquire our portfolio company, Reveal Imaging.  This is an extremely positive outcome
for the company, its customers, employees and shareholders and represents an
import waypoint on a fascinating and successful entrepreneurial journey for the
team at Reveal.  Reveal Imaging is
a company that develops physical security solutions – primarily explosive
detection systems – for the aviation security market.  While there are plenty of case studies about successful
entrepreneurial stories, what makes the Reveal story uniquely compelling is
that it involved a group of larger company executives who came together post
9/11 with a genuinely patriotic mission to bring innovation to the world of
aviation security, a market segment that is normally outside of the purview of
traditional venture capital success stories.  That said, many of the lessons learned along the way apply
more broadly and I thought they would be illuminating on a several [a baker's dozen worth, highlighted in brackets below] dimensions for prospective entrepreneurs.

Before jumping into the story, the people and the lessons, I
should explain what the company does. 
Reveal Imaging provides threat detection products to the global
transportation industry.   The
company’s first focus was on explosive detection systems for the aviation
checked baggage market, and their screening system today can be found in 100s
of airports in the US, China, Israel, Mexico and other locations around the
world.  The founding vision of the
company was that in the post 9/11 world, the transportation security
requirements of customers had fundamentally changed, but the solutions had not,
and that this represented a unique and compelling opportunity.

We first met Michael Ellenbogen, Reveal’s CEO, and his 5
co-founders in January of 2003 at the suggestion of his CFO, Charlie Tillet who
was previously the CFO of a former portfolio company. [Point #1: a warm introduction
to a VC from a trusted source is always the best start]
.  At the time, while the company was a
raw idea with only a PowerPoint deck, I remember being extremely impressed with
the team, their deep domain expertise and breadth of experience in the market
and the uniqueness of their vision. 
As a group, they had been responsible for developing three of the only
five explosive detection systems approved by the Transportation Security
Administration (TSA) in the US, the key initial customer.  Each of the executives knew each other
from prior companies, but they had also had worked in different companies so in
many respects the best combination a founding team can have: prior working
relationships but a diverse gene pool. 
Further, they each had an important role to play in the new company:
Ellenbogen as CEO, Richard Bijjani as CTO, John Sanders as Business
Development, Elan Scheinmann as Marketing, Jim Buckley as Sales and Charlie
Tillet as CFO.  [Point #2: pull
together the best team you can, with unique market and customer insight, as you
launch your venture]

While we loved the team from the outset, the market the
company was targeting, explosive detection systems for the aviation security
market, was by no means an industry segment we knew well.  In fact, after my initial positive
reaction to the team, my follow up reaction was why on earth would we invest in
a company building a hardware system that needed to be approved by a
certification body that would be sold to governmental customers.  Not the traditional VC recipe for
success!  That said, the team was
able to articulate a vision for their first product that made sense: driven by
a proprietary design and advanced software algorithms, it was going to be a
smaller, faster, higher performance checked baggage screening system that would
be lower cost from both a capital and operating expense perspective for the end
customer.  As a result, it fit into
airports where the existing solutions were not practical.  This IP based, better, faster, cheaper
value proposition was one we could wrap our arms around and, in conjunction
with the management team, we were able to build a market segmentation map that
outlined the size and scope of the opportunity which led to the conclusion that
there was the opportunity to build a company of significant size. [Point #3:
even for the most complex and arcane technologies, work to distill your message
into a simple, compelling, value proposition that translates into a large
market opportunity]
.  Also helpful
in this regard was that the company, through its network of relationships was
able to serve up as diligence resources prospective customers and industry
experts that had heard the company’s story and were able to validate this
perspective. [Point #4: always run your idea by key customers and partners looking
for both validation and ways to improve your positioning.  Also, if you are in an off the beaten
path industry, be willing to lead your VC by the nose through the due diligence

Having come to the conclusion that we liked the team, their
vision and the market opportunity, we had two remaining questions and
challenges.  First, could the
product be built (technical risk) and second, could we raise the necessary
capital to fund the development effort (capital risk).  Capital risk proved to be a bit
challenging for the Reveal team, as many VCs they spoke with turned down the
opportunity to invest based simply on the fact that it was outside of the areas
they knew well and was selling to governmental customer, although in the end,
the team was able to build a strong syndicate including ourselves, General
Catalyst and Greylock Partners. [Point #5: it pays to be a contrarian and don’t
let conventional investor wisdom discourage you]
.  The size and scope of the technology development effort,
especially as explosive detection systems need to be certified by the
government and at the time there were only two companies with certified
solutions, remained the last open item. 
In the end, despite significant technical diligence from outside
experts, this was the leap of faith that we decided to take.  That said, we structured the initial
$10M commitment to the company in two pieces, where the second slug of capital
would only come in once the first machine was certified.  The discussion around this point also
led to one of the best lines in the entire diligence process when Michael,
having been asked by a prospective investor what would happen if the machine
could not be developed and certified in a timely manner, responded “Well then,
I guess you and we are f#*$ed”. [Point #6: honesty and a sense of humor are always appreciated].

Armed with the initial capital, the Reveal team set out on
developing the system.  This was a
complex product development effort involving hardware, software and critical algorithms.  Soon after the initial VC financing
closed, the company also raised capital in the form of R&D dollars from
their target customer, the Transportation Security Administration.  This proved to be hugely beneficial as
it both provided a non-dilutive financing source and established an early
dialog with the customer to ensure that their needs were met.  [Point #7: early customer engagement
and buy-in is critical to success and it is even better if they will help fund
.  Despite this, as is
often the case in complex systems development, the product took longer and cost
more than anticipated and we reached the end of the first round of venture
capital money without being certified by the TSA – thus failing the previously
agreed to milestone.  This was the
first gut check for the team and investors, but we believed the technical problems
were solvable in a relatively short period of time and the market feedback we
were receiving continued to be positive, so we pushed ahead and put more
capital into the business.  Helping
this decision along were two other facts: first, the team was incredibly
transparent through the process, so we always felt like we knew where things
stood and second, given we had three investors, the incremental commitment from
each of us was relatively small. 
[Point #8: keeping your investors informed on all issues in an open,
transparent way, especially in challenging times, is critical] [Point #9: if
you face capital risk, syndicating early, even if the dollars are small, pays
dividends later] [(Self-serving) Point #10: having supportive, well-informed
investors always helps]

In December of 2004, 6 months later than planned, the
machine was certified and first revenue shipments began in early 2005.  After that, given the company’s success
in building pipeline, the company was on a steep growth trajectory.  Early in this growth, we received our first
inbound acquisition interest, which was turned down and the investors provided
more capital to fuel the growth of the business.  Given the team and Board were aligned around building a
large company, this decision was relatively easy and in hindsight while the
“quick flip” might have generated a nice IRR, it was far more satisfying
emotionally and financially, to build a large company. [Point #11: ensure the
founding team and each of the investors have aligned objectives around the
eventual outcome]

By the end of 2006, the company was on a revenue run rate
north of $50M per year and was profitable when the TSA, the company’s largest
customer at this point, went through an internal re-organization and re-prioritization
of their activities, leading the order flow to dry up for the next 4-5
months.  These were challenging
times for the company, but the team’s belief in the mission, ability to manage
expenses through the trough and a willingness to look for new strategic
indicatives to reduce customer concentration and expand the company’s product
footprint, got them through the dry-spell [Point #12: as an entrepreneur,
resilience is a requirement, and don’t declare victory or defeat too early]
.  In the end, the TSA did come back on
line as a key customer while many of the new initiatives launched in these
tough times around international markets and new products, began to pay dividends
in 2009 and 2010 when the company’s revenue run-rate exceeded $100M while
remaining profitable, a milestone they achieved in 2006.  [Point #13: being cash flow positive is
the only way to control your destiny]

So we take our hats off to the Reveal Imaging team for the
success they achieved and for teaching us, again, some key lessons along the
way.  Working with groups like this
remains the most satisfying aspect of what we get to do very day.

Thanks NESEA

This post is a quick shout out for the Northeast Sustainable Energy Association for the solar car competition they created and sponsor.  This event, called the Junior Solar Sprints, is for students in grades six to eight and involves building a small solar car that then is entered into competitions at sponsoring schools, then regionally (for the Boston area this was at MIT a few weeks back) and culminating in the finals, which were held on Sunday in Springfield, MA and included 128 cars from as far south as Washington DC to as far North as Maine.  The cars are judged on speed as well as on technical merit, innovation, design and craftsmanship with the winners at each level advancing to the next event.  The creativity all the kids showed was truly impressive.

In an era where the quality of science education in middle school is questionable and as a country the US is training far fewer scientists and engineers than we should be, events like this that bring concepts to reality and energize the students are fantastic.  Seeing the kids thinking creatively about topics such as design goals, friction, gear ratios, momentum (and how lower mass equals greater velocity for a fixed power source) is great to see.  Further, the contest also sparks good discussions about energy sources and what we as a society need to do to develop more sustainable energy alternatives.  If this program is not in place at your local schools, encourage them to look into how to participate.

Winner and Losers in the Tablet Wars

The long awaited Apple Tablet will finally be announced on Wednesday.  Like many folks, I believe the device will be quite successful and continue a transformation is how media is consumed.  As a result, i thought it would be worthwhile to review my quick takes on the winners and losers, apart from Apple of course, which will benefit more than anyone:


  1. Real time web participants.  As more and more folks have a network connected tablet at their fingertips at all times, it will continue the growth in usage of services such as Twiiter.
  2. Bloggers.  One of the primary use cases for the new tablet will be reading and catching up on your favorite blogs at all times.  In the short run,  don't know if the sheer number of readers will increase significantly, especially as most of the early adopters will be those who are already active readers of blogs, but the readership per post will certainly increase.
  3. Major media outlets.  Assuming they get with the Apple program, major media brands will benefit as the device goes mainstream and readers who recognize and trust major brands will be drawn into consuming more content.  Not to mention that the tablet will be able to make the trip to the rest room much more easily than a laptop!
  4. App developers, particularly gaming and vertical content vendors.  Just as the iPhone and iPod Touch became a new gaming and app consumption platform, the same will hold true for the tablet which will have the added benefit of offering a richer user experience.  In addition to games, I suspect there will be significant usage of travel guides, local search and other such applications, many of which have already been successful in the AppStore.
  5. Ad Networks that support all of the above.  As more media is consumed on such devices, ad platforms that benefit from the increase in content usage will see an increase in their reach and frequency.  One more reason why Apple purchased Quattro Wireless.


  1. Amazon.  Why have both a Kindle and a Tablet, especially if Apple can re-create a buying platform for books and magazines that is as compelling and easy to use as the Amazon store is on the Kindle.  Further, Amazon's efforts to woo developers to the Kindle run the risk of being too little, too late as most developers i speak with are already overwhelmed with supporting the iPhone and Android platforms and it will be easier to add the tablet to the mix than to add yet another platform such as the Kindle.  The same will hold true for the dozen or so other folks who aspire to the e-reader throne, especially as they don't have Amazon's heft or ability to drive low price points for a dedicated device such as the Kindle.
  2. Nintendo and Sony's handheld gaming platforms.  Some disagree with this assertion saying that the device wont sell enough units to make a dent in the DS and PSP, but in our household the usage of the iPod Touch as a gaming platform has rapidly eclipsed the handhelds we own and i suspect, as mentioned above, a richer UI will only serve to further drive this trend.
  3. Traditional media, including mainstream TV, producers that don't get with the program. This is not a new trend caused by the Tablet per se, but rather it will serve to accelerate what has been transpiring over the last several years.
  4. Microsoft.  Yet another device that will have zero content from Redmond and will further drive usage of cloud based services.
  5. Romance.  More media consumption at anytime and anywhere in the household, no doubt including the bedroom, won't be good for relationships with your partner!  Maybe divorce lawyers should be on the list of winners.

If you want further insights into prospective usage of the Tablet, Flurry has a great post of what they have observed over the past few weeks.  More importantly, I will be interested in your take on whether you will buy a tablet and how you expect to use the device!  

Room to grow?

The other day I decided to import my entire set of LinkedIn contacts into Twitter (via an intermediate step into gmail, so the whole effort was a bit kludgy) and follow them all.  Given the recent debates about whether Twitter has peaked or is still growing rapidly, I found the results interesting.  As a quick background, my Linkedin contacts are all professional, not personal, and virtually all of them are in the technology world and therefore presumably early adopters.  That said, first via a manual effort and then by using The Twit Cleaner, I found that 40% of them were not on Twitter, another 20% were on but had never posted and another 15% had posted less than 10 times.

So what does this decidedly unscientific survey tell me?

  1. Twitter still has a lot of room to grow in terms of new user acquisition, both here in the US and in the rest of the world, and
  2. Twitter still has an on-ramp problem that needs to be addressed such that those who do join can see immediate benefit and become part of the community, otherwise the growth may indeed peak sooner rather than later

You thoughts?

At Least Someone Is Putting Their Job On The Line

Fifteen years ago this month, I made the first investment of my venture capital career.  While I had previously done some diligence on projects for other partners at the firm, this investment was the first company I felt true responsibility for within the firm.  The company was called The Vincam Group, and it was founded by two fabulous, self made, entrepreneurs who had immigrated to the US from Cuba, Carlos Saladrigas and Jose Sanchez.  We invested $6 million in the company, which was at the time, interestingly, the largest initial investment the firm had ever made.  The company was what we would today called a technology enabled services firm that outsourced the entire HR function for small to medium sized businesses.  The company was a pioneer in the field and they referred to themselves as a Professional Employer Organization, a term that still is used in the market.  

Given the size of the investment and our relative lack of experience in the HR field, the decision to invest in the company was relatively controversial within the partnership.  As a result, we turned the business inside out from a diligence perspective including using outside consultants to pore through the financial statements given the company had relatively little by way of professionally prepared audits.  My guess is that in the post Canopy Financial world, this approach may become more common again and we were fortunate to have a real pro, Bill Teuber (who has since gone on to become the CFO and Vice Chairman of EMC) lead this effort for us.  As the investment decision came to a head within the partnership, one of my partners had a classic comment in which he dryly observed, "fortunately at least one of us around this table is putting his job on the line with this decision".  Given I was working on the project with one of the most senior partners of the firm and I was the only non-partner around the table, I knew who he was referring to!  Luckily for me, and my nascent venture career, the company went on to go public in 1996 and subsequently be acquired by ADP, where today it comprises the core of ADP's Total Source division.

The venture industry has changed tremendously since 1994 and this investment.  In 1994, the industry raised total capital of approximately $8.5 billion and there were less than 4,000 principals in the industry, versus approximately 8000 today.  As previously discussed, these numbers may not be far off where the industry is heading today. That said, what is more striking to me is how, at the core, how little has changed.

Our investment in Vincam had all the characteristics we continue to look for today: Talented and passionate entrepreneurs who have developed a compelling and disruptive value proposition targeting a large, untapped, market opportunity.  Further, from a partnership decision making process, there remains the constant tension between the excitement of transforming markets and the potential upside and the fear of all that can go wrong.  So we approach the business in a remarkably similar way: surround the decision with smart, skeptical, experienced partners who push the thinking on all the critical issues and risks and ensure no rock is left unturned.  Finally, and most importantly, I still feel as if I put my job on the line with every decision we make!