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Posts from the ‘Venture Capital’ Category

30
Jul

Investing in ideas, not just startup companies.

My last post reminded us that ideas are just a multiplier of execution, therefore the equation every entrepreneur and investor is trying to solve for is:
Business = (Idea x Execution) + Passion + Luck

AWFUL IDEA = -1
WEAK IDEA = 1
SO-SO IDEA = 5
GOOD IDEA = 10
GREAT IDEA = 15
BRILLIANT IDEA = 20

NO EXECUTION = $1
WEAK EXECUTION = $1,000
SO-SO EXECUTION = $10,000
GOOD EXECUTION = $100,000
GREAT EXECUTION = $1,000,000
BRILLIANT EXECUTION = $10,000,000

To make a business, you need to multiply the two.
The most brilliant idea, with no execution, is worth $20.
The most brilliant idea takes great execution to be worth $20,000,000.

Passion fuels you through challenges and determines how hard the company engine is working.
Luck is the wildcard you just have to accept as an entrepreneur or investor.

 

Investing in Startup Businesses via Incubators & Accelerators

There’s a trend of the so-called Y Combinator model (e.g. TechStars, LaunchBox Digital, DreamIt VenturesCapitol Factory500 Startups, Founder Institute, etc.) and it’s on the rise.  Nowadays, it seems everyone is starting up their own startup incubator/accelerator program:

These programs are great and I love them (My company, Koofers went through LaunchBox Digital ’08 as part of their first graduating class and now I’m working out of TechPad), but these investors are investing in businesses, not just ideas.  Remember the equation from above?  Businesses require both an idea AND executors.  That’s why many investors always stress that they’re not just investing in the business idea, but the founders and team behind the idea, a.k.a. the executors.

 

Investing in Ideas – VCs?

VCs who don’t want to setup an incubator type of office space fully equipped with pizza, beer, and ping pong tables are trying to get into the action via seed investments.  Sequoia Capital, a billion dollar fund tries to invest in seed rounds so they can “get in early” on great ideas that could blow up if executed on correctly.  Heck, they even claim to invest in ideas!

When I saw “Ideas” as a link on Sequoia’s main nav menu, I got super excited, thinking, “Cool!  A giant VC fund will hear my idea out?  Awesome, let’s do this.”  After I clicked the Ideas link, my excitement quickly vanished as I was greeted with a giant <h1>Writing a Business Plan</h1> followed up with “Submit a Business Plan” call to action button.  I clicked a link entitled “Ideas” yet it took me to this MBA-like business plan page filled with phrases like:

  • Sustainable business
  • Clarity of purpose
  • Large market
  • Rich customers
  • Focus
  • Pain killers
  • Team DNA
  • Agility
  • Frugality
  • Inferno
  • Business model
  • Team
  • Financials

Submit a Business Plan

Yuck!  I just wanted somewhere to submit my idea, not a 25 page business plan.  Sequoia, if you’re out there listening, I suggest changing that link from “Ideas” to “Business Plans”.

 

Good Ideas are Valuable
All the Y Combinator modeled incubator programs spend hundreds of hours sifting through ideas to find the “good ones”.  Many businesses (small and large) have brainstorming meetings to see if their employees can come up with good ideas for whatever project they’re working on.  So why isn’t there a business that is designed to take in ideas and turn those ideas into money?

 

Places to Submit Your Ideas Today

  1. HighDEAS – Sure, these are ideas people had when they were high, but there are actually some good ones in there.  For example, “Soda fountain machines should give out ice cubes with the same flavor as your soda“.  Not a bad idea!  I’d pay 5 cents more for my drink to have “Coke Cubes” instead of standard water cubes that will eventually melt and make my Coke taste all watered down.
  2. The Internet Wishlist – Ideas for apps and websites people are wishing for.
  3. My Starbucks Idea – Share, vote, and discuss ideas about Starbucks and the coffee experience
  4. Google Product Ideas – A suggestion box on ways to improve Google’s current products
  5. Pepsi Refresh Project – Pepsi is funding amazing ideas that refresh the world.  However, if your idea wins, you have to actually go out and act on your project idea.

 

Quirky – Social, Crowd-sourced Product Development
My idea is to have some kind of company that incubates ideas and finds a way to monetize off them (ideally even paying the idea makers back for their contributions).

The only company that I know that does this today is Quirky (and they’re still a young startup.  Founded in 2009).  Their process works like this:

  1. Submit your product idea to Quirky.
  2. Ideas are rated, sorted, voted, picked, and refined by the Quirky user community.  Every week the top 10 are assessed and 2 ideas are selected for the week.
  3. Expert product designers, researchers, and engineers develop working prototypes of those 2 product ideas.
  4. Quirky handles all the logistics (research, mechanical engineering, patents, manufacturing, packaging, shipping, etc.) and foots the entire bill
  5. Every unit of the product that is sold, all the community members who influenced the development of the product with their ideas are paid out accordingly


Quirky empowers average people with above average ideas to be financially paid out for those ideas.

Can the Quirky model of user generated and crowd critiqued ideas make it into other industries besides the product development world?

 

Large Companies Don’t Want Unsolicited Ideas

  1. Apple’s Unsolicited Idea Submission Policy
  2. eBay’s Unsolicited Idea Submission Policy
  3. Bank of America’s Unsolicited Idea Submission Policy
  4. Zynga’s Unsolicited Ideas Submission Policy
  5. Chick-fil-A’s Unsolicited Ideas Submission Policy

 

Nike… Just Do It Don’t Do It

A devoted and passionate customer of Nike turned to Nike’s support forums to contribute an idea he had:

http://forums.nike.com/message.jspa?messageID=191894
24 hours later, a Nike employee responded with a something along the lines of, “Hey, don’t send us any ideas.  We will only listen to any ideas that you personally own a patent to.  Thanks, but sorry.”

Nike - Don't Do It

Come on, really?  Some of the best ideas may be thought up by average consumers while taking a shower or riding the bus.  What if Nike never invented the wireless chip you put in your running shoes to track your every step?  Maybe an avid runner could have had the idea and could have submitted it to an “Idea Bank” type of company.

 

“Idea Freelancers”

What if a casual beer drinker thought he had a cold beer, started drinking it, then realized it was actually quite warm (even though the glass initially felt cold) and was disappointed because it wasn’t cold enough.  Maybe he would have come up with the label that changes colors once your beer is cold enough idea.  Sound familiar Coors Light?  Cold activated Blue Mountains label.

These are just some examples of what could have been thought up by an average person (not a full time employee of a company).  I’m sure there are thousands of genius ideas floating around in people’s minds right now, but no company wants to hear them (or won’t hear them due to legal reasons).

For starters, why isn’t there a Digg-like website (voting system) that allows people to submit cool website/startup ideas?  Programmers who just want to create something interesting and fun could check into the idea list and if they saw something that interested them, they could go program it.  I bet all kinds of cool and interesting sites would show up within days.

My buddy, Bill Boebel (successful entrepreneur and angel investor), comes up with business ideas all the time.  So, he created a separate blog exclusively for his “Startup Ideas“.

I understand many entrepreneurs are very protective about their self-proclaimed “genius” ideas and often won’t tell anyone what it is because they’re afraid someone else is going to steal their genius idea and make millions off of it.  But look, Bill Boebel’s not afraid to share his ideas.  Neither am I.  I’m sure there are many more “idea freelancers” out there willing to shoot ideas out.  I understand that the lawyers of all these companies are simply trying to protect their business with these unsolicited idea submission policies.  For example, if an Apple fanboy E-mailed Steve Jobs in 2001 detailing an amazing idea he had for a really cool MP3 player, that would be bad legal news as Apple was in the middle of developing their killer MP3 device, the iPod.

 

Let’s Think Different

Let’s embrace the wisdom of crowds.  Let’s realize as a business and tech world that the many are smarter than the few and that collective wisdom can truly shapes businesses for the better.

 

Thoughts?

This is my idea and one of my first blog posts to document it.  Maybe the idea sucks.  Maybe it’s good.
I need to hear feedback from the community.  Isn’t that the whole idea of my idea?

Comment below or jump over to the Hacker News thread at http://news.ycombinator.com/item?id=2826916

7
Jun

Prediction: Facebook Stock > Google Stock by 2018

  • Facebook IPOs in 2012.
  • Facebook dominates your entire Internet experience by utilizing your social graph
  • Facebook eventually “cracks the revenue code” like Google did with AdWords & AdSense
  • Google slowly dies (unless they acquire Facebook)
  • Search Engine Optimization (SEO) dies and it becomes all about Social Graph Optimization (SGO) and News Feed Optimization (NFO)

Back in 2005 (a year after joining Facebook when I was a student at Virginia Tech), I was telling people that Facebook would be a bigger and more powerful company than Google.  People laughed at me and called me insane.  But it was just so obvious to see how many college students were completely addicted to a website – I have never seen such usage and engagement ever before (and I still haven’t seen a page more addicting to the common person than Facebook).  Google is probably the biggest competitor in that sense, but people use it for 10 seconds then they’re off after clicking the first couple of results.  Then maybe some porn websites can rank up their in terms of traffic and addiction levels, but that’s limited in terms of audience, morality, and there’s only so much money to be made there.

Anyway, I’m kicking myself I didn’t actually document my claims in writing way back then, because people still don’t believe I could see Facebook being such a big deal – but it was so crystal clear.

I don’t know exactly how Facebook is going to “crack the revenue code”, but they have so much time, money, and power – they’ll eventually figure it out.  Whether it’s true social shopping with Facebook Commerce (fCommerce, the new eCommerce) or it’s Facebook destroying Google and all other search engines by totally killing off all SEO practices and moving the search focus relevancy to your specific tastes and likes compounded and further enhanced by your friends’ web history, likes/dislikes, and recommendations.

I’m looking forward to it.  I just wish Facebook IPO’d back in 2007-2008 because I would have plowed my entire life savings into them.  Even with the crazy potential I believe they have in their future, I’m worried about their IPO because I’m afraid there isn’t enough money in the world for a Facebook IPO.

19
May

LinkedIn IPO

  • Valuation of $4B+.  Raised $350MM+ in its offering.  One of the largest tech IPOs since Google in 2004.
  • Initial public offering was at $45/share.  Closed the day at $94.25. (+105%)
  • Underwriters screwed LinkedIn out of $130MM+ by under-pricing the stock and selling it cheaply to their institutional clients

The LinkedIn IPO sets the stage for Groupon, LivingSocial, Zynga, and especially… Facebook.

This will be interesting.  I’m afraid there isn’t enough money in the world for a Facebook IPO.