Tech Capital Partners Blog

In September 2008 I posted What’s in the Deadpool?; a categorization of failed startups (based on TechCrunch coverage). I’ve done the same analysis for 2009 and the results are below. If you are interested in the details behind the analysis I suggest you take a look at the original post, What’s in the Deadpool?.

Admittedly, charts like this are interesting but can be interpreted in many different ways. I’ve offered a few comments below but I’m curious to hear what you think…

All categories are 2% of total unless otherwise labelled.

Deadpool 2009 Highlights

• Social networks were still “hot” in 2009, coming in at #1 again but taking a smaller chunk of the pie. I also categorized them as vertical social networks because they were all targeted at a specific group of people. All of the failures in this category are remnants of the social networking startup explosion of ‘07.
• In similar fashion to the previous analysis, media streaming took second place (in 2008 I combined video and audio into one category called Media Streaming). In 2009, Music streaming alone had enough failures to warrant a dedicated category…looks like a tough business to be in, filled with lots of competition and licensing nightmares.
• A lot of money was spent on Search over the last few years; another difficult space to be in and what seems to be a lack of consumer interest in vertical search engines.
• MVNOs disappeared from the list…not too surprising.

Notables

• 7 out of the 45 (~16%) deadpool members were divisions of Yahoo! (acquired companies) that were shut down (eg. Maven Networks, GeoCities, FareChase, etc.
• 2 members were founded 10+ years ago (GeoCities and FileFront) both belonging to the File/Web hosting category.

Other Stats

• Average number of years from launch to deadpool (alive period): 2.8 years for 2009 deadpool members (1.8 years for Jan 2007 to Sep 2008 period)
• Longest ‘alive’ period: 10.3 years (6.4 years)
• Shortest ‘alive’ period: 6 months (2 months)
• Standard deviation: 2.1 years (1.25 years)

PostRank published the Top Blogs of 2009 today and along with a very detailed list of the top blogs, there are some interesting stats from the gobs of data they collected during 2009. One in particular stands out: over 80% of reader engagement with a publisher’s content is occurring off-site. I think this is an obvious and natural progression but it has major implications on how you promote your content, maintain readership, and measure your audience.

Kudos to the PostRank team. It isn’t easy to crunch over 2 billion pieces of data, make it look good and provide a great resource for a variety of audiences. Whether you want to learn more about engagement metrics, are looking for the best blogs for a particular topic, want to know who key influencers are or want see how your blog stacks up, PostRank Top Blogs of 2009 has something for you. I encourage you to check it out.

So how did Tech Capital do?

Not too shabby

In my last post, I discussed strategy for charitable giving and promised to add some thoughts on how you can be very strategic about it.

1. Philanthropic giving is much like venture capital investing. When we invest in a company we make sure the business has enough money to cover its basic operating costs but also ensure it has some extra funds in order to try new initiatives. I think you should take the same approach to your charitable contributions. A percentage of your giving should be done with no strings attached and should be to allow organizations to cover their basic overhead costs. If a charity can’t pay the rent, pay its staff and turn on the lights it can’t do its basic job.  On the other hand, we also need to ensure charitable organizations have adequate funds to be able to try new innovative ideas. Again, this is not unlike venture investing. In a recent transaction a company came to us looking for $1 million in financing we decided to invest $2 million because we knew giving the company $1 million meant they would not have the ability to take risks and make mistakes. Shouldn’t we take the same approach to philanthropic investing? It is impossible to innovate without making mistakes and taking risks. This is clearly acknowledged in the business world yet we don’t give our non-profit leaders the same flexibility. Far too often CEOs and Executive Directors of charitable organizations live in fear of making mistakes because they simply don’t have the financial resources to take risks. I encourage you to allocate some portion of your charitable giving to funding innovative ideas. In some cases the ideas won’t pan out but unless we invest in these opportunities we will not give the leadership at our non-profit organizations the resources to “change the world”.
2. Tied to idea #1 is the notion of supporting strong leadership teams at organizations you are assisting financially. In the venture world we know that most management teams are prepared to trade off some cash compensation for equity but we never go out looking to hire the most inexpensive management team we can find. Often this is not the case in the non-profit world. Too many boards pride themselves on keeping CEO and ED salaries very low. I am an adamant opponent of this strategy and truly believe “you get what you pay for”. This doesn’t mean that organizations have to pay through the nose but it does mean that minimizing management salaries shouldn’t be a goal. Several of the charitable organizations where I have been board chair have significantly increased compensation for the head staff person and in all cases the organization has moved to the “next level” as they have been able to attract outstanding candidates. I encourage you to get involved with the organizations you are supporting financially by letting them know it is okay to use your contributions to compensate the staff team appropriately.

We all want to live and work in a healthy vibrant community. In order for this to occur we all have a role to play in supporting our non-profit and charitable entities. As we approach a new year, I hope you will take some time to think strategically about what role you will play in supporting these organizations in 2010.

All of us at Tech Capital are very involved in supporting charitable activities in our community. As a result, I am often asked for advice by those who are trying to figure out a strategy for their charitable giving. Let me share my thoughts on this topic:

1. Charitable giving is about more than writing cheques. The gifts we can contribute are often described as the “three Ts” being Time, Treasure and Talent. In thinking about your contributions I think you should be giving all three. That doesn’t mean you have to do all for each entity you support. In some cases I am very involved with organizations, sitting on the board, volunteering time at events and providing financial support. In some instances I just provide financial assistance or in other cases will provide a skill set to help with an issue without  providing financial assistance. Evaluate how much you think you can give for each of the Ts and allocate accordingly.
2. When it comes to financial contributions I am often asked “how much should I be giving”? There is no easy answer to this question but I do think a general guideline should be that your giving should “hurt” a bit. What I mean by that is I encourage you to give to the point where you have to make a small sacrifice personally in order to make your financial contributions. This will be a different level for everyone. For some it will be $100 a year for others $50,000 a year. My point is that while it is different for everyone you should know when you hit it.
3. Be strategic about your giving – balancing ongoing support with being able to respond to new requests. I have several core organizations I support each year because I believe in their mandate but I leave some room each year for “one off” situations that come up.
4. If you are unsure where to start, you may want to chat with some friends and decide collectively to support a charity or project. This is the way groups like SVPI work (www.svpi.org). Jacqui Murphy and I attended the SVPI annual conference this year and hope to have a Waterloo Region branch approved at their 2010 annual conference.

Stay tuned for some thoughts on how you can approach charitable giving in the same way we approach venture capital investing…

I recently read “Pay Walls: Content Needs to Be Fee” by Mark Evans and there were a few things that caught my attention. I actually agree with Mark’s overall thesis that everything is not going to be free but there are a few statements that stuck out:

1. how else will newspapers be able to pay the journalists who collect, synthesize and write the news that more people than ever are reading?
2. it’s time for consumers to realize that the free all-you-can-read buffet is going to disappear because it makes no economic sense.
3. the economic model in which newspapers give away all of their online content doesn’t work…It is becoming obvious newspapers must start charging for their online content

Let’s breakdown the “news ecosystem” to the simple parts.

• Create Content
• Distribute/Publish Content
• Consume Content

Now let’s think about this system in the context of past and present and specifically look at competitive advantage, barriers to entry:

• Create Content
  • People: If you think about journalists and talent then things haven’t changed much from past to present. One of the greatest resources of any company that is inimitable are its people. Sure, things like how Newspapers source stories or carry out their work have changed but at the end of the day you need talented people to write good content.
  • Trust: Newspapers still maintain a competitive advantage in terms of content quality because many people trust traditional media (I use the word trust loosely) over new media. There are signs that this is changing but as it stands today the barrier to overcome this is pretty high.
• Publish/Distribute Content
  • Past: This was a major competitive advantage and barrier to entry. First you needed the facilities and equipment to pump out a physical paper each day and then you needed a way to distribute that paper out to a large number of locations.
  • Present: People still read physical copies of the newspaper but when people talk about the problems with newspapers today they’re talking about the transition to the online world. This is pretty obvious, but the barrier to entry for publishing content online is basically zero, and distribution is equally as easy and therefore no longer a competitive advantage (for static content).
• Consume Content
  • Past: Subscription fee or newsstand purchase. Limited window to access.
  • Present: Still have traditional subscription and newsstand but many people read content online. Easy 24/7 access.

The problems currently experienced by the Newspaper industry are not unique. We’re talking about a business that has enjoyed a profitable “physical” existence for quite some time and is now having a difficult time maintaining revenues/margins as more and more of their customers consume news online. There is no reason why Newspapers can’t charge for content, and there is no special business model that is going to make them the profits they once had. Consumers have choice, and unfortunately most of the stories newspapers distribute are not original. Go to Google News right now and look at the top stories, there will be hundreds, if not thousands of sites that offer you the same news story.

#1 – It’s all about content, trust…and less money
Things have changed and if you believe my “news ecosystem” breakdown then the only real place for newspapers to differentiate themselves is content (I know, this is pretty obvious) and trust. The problem is that only a fraction of most newspaper content is unique (read Clay Shirky’s post on created vs acquired content) which greatly diminishes the value they provide. The competitive advantage does lie with the content creator and as Mark suggests in #1 these journalists need to be paid. But will people pay for content? Sure they will, but only a small portion of them. The rest will go somewhere else for their content needs. Unfortunately the reality for Newspapers is that as daily paper subscriptions decrease their online subs won’t increase at the same rate because there is an abundance of choice. Yes, people will pay for content but just like anything else in the real world they will only pay if they feel it provides enough value at that price. If a paper reports the same news as the free guy, why pay for it? Papers need to use content and trust to their advantage in order to get people to pay. Competition is tough, isn’t it?

#2 – But I like the free all-you-can-read buffet
I don’t think consumers need to “realize” anything. This isn’t how the world works. People don’t make conscious decisions about whether they should give money to corporations to ensure their survival. If free content exists and it is the same as paid content then people will take the free content. Market forces such as competition, supply/demand, etc. will determine what the price is, who survives and who dies. Set a price and let the market decide. This is what scares the hell out of most papers…and of course government regulation can change all of that.

#3 – No Money Mo Problems
As of late there has been a lot of talk about charging for content. I’m waiting for someone to just pull the trigger and get it over with. If you have the best content then you should be able to charge for it. If the revenues are enough to sustain a profitable business then great, if not then welcome to the world of competitive business.

The harsh reality is that in many cases Newspapers will not be able to maintain the revenues/profits that they once knew. How can they? Differentiation through distribution is difficult in the online world and as everybody knows, once the barriers to entry drop and competition increases, competitive differentiation is going to have to come from somewhere else to fight off the downward pressure on prices, margins, etc. You can choose to embrace and adapt to market changes or you can fight them. In many cases fighting them is a losing battle since healthy competition and minimal government intervention always leads to victory for the market.

Assuming the government doesn’t get involved what we’re going to see is a lot of papers close their doors, consolidation, fat-cutting. I don’t foresee people paying for daily news content but there is obviously a business around premium content. New businesses will emerge that are structured to survive in the “new world”, older businesses will need to change to do the same.

So in the end we have the same old story:

• Don’t fight the market…you will lose
• Don’t fight consumer behaviour…you will lose
• Differentiate, provide value and people will pay…whether they pay enough to make you happy is a different story

People who know me know I hate to waste time… Even more so, I hate it when folks at our portfolio companies have their time wasted. These days, more than ever it seems, time is our most precious resource.

As an entrepreneur (and a funder) priorities are constantly changing and it is often easiest to focus on the task in front of us as opposed to the “right” task. Should you spend time filling out this application for government funding or should you spend this time on a plane heading to visit a prospective customer? Should you spend time applying to speak at an upcoming conference or spend this time writing a business proposal? The answers to these questions are not easy and we juggle constantly…

It is with these thoughts in my mind that I bring you the “best of Entrepreneur Week”. There are a number of events this year that I think could be well worth your time…

Highlights for me:

• Chris Hughes, co-founder of Facebook and coordinator of online organizing for Obama’s 2008 presidential campaign – I’m expecting some major tips on grassroots company/campaign development
• Ali Asaria, founder of Well.ca – Always an inspiration and fantastic lessons learned that he willingly shares
• Tim Bray – If you don’t know who Tim Bray is, you should (not that I would ever “should” you)
• Andy Macaulay – WLU grad and very experienced agency guy (for all of you digital media types who need to learn more about this sector!)
• Entrepreneur Hall of Fame Gala – Celebrating our successful entrepreneurs (and now mentors)
• Jim Estill – Entrepreneur, serious angel and time leadership guru, has had a huge impact on many many companies
• StartupCamp – So refreshing to see entrepreneurs providing direct feedback to each other and I expect there will be a big turnout, this is where you will see all the “new stuff”
• Ideation Day – Some of my fave entrepreneurs presenting at this event
• Founders and Funders Dinner – Did someone say 40 funders (including angels hurrah!) and twice that many companies? (Disclosure: I don’t know exact numbers but the last one was awesome… and packed…)
• Strategic Partnering Day – RIM, Google, Intel, Microsoft, Celestica, Open Text, Sybase, Agfa, Rogers, On Semiconductor… I don’t think I need to say anything more

So just a few events that I believe will help you build your business. Of course, only you can decide what is the best use of your time.

Go here for more info and to register.

I find generational labels fascinating. As if a group of people whose age spans 20+ years can be summed up and boxed away neatly. I understand the merits of this and the purpose but there are people out there who treat this stuff as market dogma. The teen group seems to be quite popular these days — I bring this up because during my usual morning “reading time” I stumbled across the following in a VentureBeat article:

This may be obvious to many of you, but I was also struck by how isolated the teens seemed from all the cool new tech that Silicon Valley nerds are excited about. None of them owned an iPhone, or any of the newer smartphones. They still used Google for all their web searches and only seemed vaguely aware of Microsoft’s search engine Bing. And while almost everyone I know uses Gmail for their personal email, one teen (a boy) declared, “Hot girls use Hotmail.”

At least the author starts off by saying “this may be obvious to many of you” so he’s at least aware that the bubble he lives in may be relatively small. When I first read the paragraph above I thought to myself: You’ve just described 90% of the world population.

The Bubble Calculator
I think it is important to step back once in a while and make sure you’re still aware of what’s going on outside of the bubble you live in. Sometimes it’s easy to get caught up in all the hype and forget that the world does not consist solely of the 100 km² around your home. That being said I think most would agree that all of us live in a bubble of some size (some larger than others) but I’ve come up with a scientific approach that is 100% accurate to determine the size of your tech bubble based on your answers to a few simple questions and a complex scoring system. Note that this has nothing to do with speculative bubbles…this is about the bubbles people live in that prevent them from seeing beyond what they’re comfortable or accustomed to. A small bubble means you don’t get out much.

One of the joys of writing for the Tech Capital blog is the intense and relentless rivalry [sarcasm] among the various authors of this blog. I undoubtedly blame PostRank for this.

The first thing PostRank did was introduce the Top Posts Widget (right column of this blog) and for a while I was comfortably in the lead until Jacqui leapt in front and took the top 2 spots. I’m not going to say whether she rubbed it in my face or whether I cursed under my breath, but I will admit there have been a few amusing exchanges because of the widget… all in good fun of course.

2 weeks ago things progressed to a new level of scrutiny when PostRank Analytics launched. This has enabled us to easily compare blog posts and track:

• Engagement over time – we can quickly see how posts are performing and where interest is originating from.
• Conversations – there is a great consolidated view of all the various conversations happening for a specific post. I particularly like this feature because you see activity from all the various social media sources including comments on your blog, tweets that reference the post’s URL and/or your twitter username, delicious bookmarks, etc.
• Google Analytics – Data from Google Analytics can be integrated to supplement the social media metrics with pageviews, average time, unique visitors, bounce rate, etc.
• Engagement Activity charts, Concierge Reports – of course there is much more but I suggest you go and check it out yourself.

PostRank says that 80% of a publisher’s engaged audience is commenting, tweeting,  bookmarking, recommending, etc. somewhere else on the web. Most websites measure traffic to their site using services such as Google Analytics but with so much activity happening offsite, a service like PostRank Analytics makes a lot of sense if you want a more complete view of how your content is performing.

It just so happens that for those of us at Tech Capital, it has the additional benefit of being a great way to determine who has the blog’s bestseller.

Brad Feld and Fred Wilson have both written blog posts over the past few days on “Books for Entrepreneurs” (and I would add VCs), and Zachary Burt has started a Wiki that consolidates all of the great recommendations in one spot.

I’ve just picked up Creative Capital: Georges Doriot and the Birth of Venture Capital by Spencer E. Ante and my favourite (note the Canadian spelling) book for entrepreneurs these days is One Hen by Katie Smith Milway. You might sense a “back to basics” theme in these two books… Enjoy.

Yesterday I read Fred Wilson’s post titled “Streaming Kills Piracy” and I completely agree with the point he makes. However, there is one thing (at least here in Ontario) that seems to be at odds with streaming high quality video at a level of consumption that approaches normal TV viewing habits…it’s called “the monthly usage allowance.” The “allowance” is the silent partner for many companies that can throw a major wrench into your product/service. I’ll get to this later but first some obvious observations:

• The number of people viewing video online is rapidly increasing
• The amount of online video content that can be streamed is increasing (Hulu, Youtube HD, Netflix, Zip, etc.)
• Video quality has increased alongside increases in bandwidth
• There are a host of set top boxes (“internet enabled devices”) able to deliver online video to your television set

The promise of being able to watch any TV show, movie, etc. whenever you want, by streaming video over the internet is here. It sounds great but ISPs have implemented what they call the “Monthly Usage Allowance.” At first glance, these allowances seem perfectly reasonable because they are designed for most people who only check emails, browse the web and download the occasional video. However, if you decide to subscribe to a video streaming service like Netflix (in Canada Zip.ca will be offering a similar service) then the story could change.

How does the “Monthly Usage Allowance” affect someone who wants to start streaming most of their video consumption over the internet? Well, first consider that according to Nielsen media, the average American watches 153 hours of television a month. For the purposes of this post I’ll use Bell and Rogers as example ISPs since they own the majority of the market where I live. Assume that as a Rogers or Bell internet subscriber you’ve decided to watch all of your TV shows, movies, etc. by streaming online video. Based on the video quality (i.e. bitrate) you choose and the internet package you’re subscribed to, the following tables show how many hours of video you could watch until you reach the monthly usage allowance. (By the way, a higher bitrate means higher quality video. i.e. 3800kbps is better than 500kbps):

# of online video hours (per month) – Various Video bitrates

# of online video hours (per day) – Various Video bitrates

What these tables both illustrate is that unless you’re watching low quality video you’re going to reach the monthly data usage allowance before you can reach the 153 hours the average American watches each month. For example, if you have the Bell Performance package and only stream SD Video @ 500kbps, in a month you’ll be able to watch 111.1 hours of video (or 72.6% of the monthly American average) or approximately 3.6 hours of video a day. That’s not too bad but we’re talking about low quality video that is a bit better than Youtube. If you bump up the quality to 1000kbps then you’re getting half the hours/month. Even worse, let’s say you’re paying for premium HD content, with the Bell Performance package you’ll be able to watch about 15 hours a month or roughly half an hour a day (9.6% of the monthly average). Remember, I’m talking about just using your internet connection to watch video only, the number of hours would actually be lower since you have to expect some usage for other online activities.

Some context on video quality:

• Normal Youtube video is around 250kbps; high quality is around 900kbps
• SDTV (normal TV) is anywhere from 1500kbps to 5000kbps (or higher).
• Netflix encodes SD video at 500, 1000, 1600, 2200, and 3400kbps depending on the speed of your connection. HD video is encoded at 2600kbps and 3800kbps.

One other point of view I thought I’d share with you is the length of time in hours you could use your internet connection at full speed potential before reaching the usage allowance.  

The Point
I think there is something important to recognize here. Many companies, startups included, make an assumption that data usage for the traditional consumer (at home) isn’t something to worry about. A video streaming service like Netflix or Zip.ca is based on the premise that bandwidth is available and cheap for the end user but the effect of the amount of data used and how this usage will affect the end customer is often not considered. Sure, your company isn’t restricting the data, but the experience you’re providing could indirectly cost the consumer more money. Is your business relying heavily on an upstream partner? What is your relationship with this partner? Maybe ISPs will increase the caps over time but if they don’t it will be interesting to see how things play out as more data intensive services inevitably become available and the average consumer begins taking advantage of these services.