The Socialist

Thoughts and stuff from an early stage investor living in the age of social

[christianhern-blog1]

1 year ago today... White Star was unveiled

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Post by Christian Hernandez.

[christianhern-blog1]

Getting to Yes and why VCs default to No most of the time

  When I was at Facebook, the Platform team had a mantra that signaled our desire to engage with a broad set of developers to prove the value of Facebook as a development and distribution environment while realizing that our small team could not support the number of requests we received for help and insight. We called it “Saying Yes at scale.” Over the past year as we have evolved White Star Capital, I have come to realize that the same mantra applies.

Vinod Khosla recently published a deck to help entrepreneurs “Pitch like VCs think” (I strongly recommend entrepreneurs to read it). Underlying the deck (and my mantra above) is the reality that Venture Capitalists are, by definition, going to say “No” to the majority of the investments opportunities that are presented to them.

It starts with absolute numbers: Passion Capital has a great infographic outlining their dealflow: close to 2,000 businesses plans received in a year and 35 investments made or around 1 in 55. Satya Patel of Homebrew also outlined their funnel of the close to 900 opportunities they reviewed in 2013, and the 9 investments Homebrew made (1 investment per 100 deals reviewed). White Star’s own ratio in the last year is also close to 1 to 100 with active deal flow from both sides of the Atlantic. 

As we have scaled our team and deal flow we have tried to actively manage the opportunities presented to us and try to be as responsive as possible to entrepreneurs (and I am the first to admit we have not gotten it 100% right but we actively track the data to keep us honest).

So, in an effort at transparency, and with hopefully some insight for entrepreneurs, how could you help a VC go from a default No to a Yes? 

-Is the deal at an appropriate stage for the fund? White Star is an early stage investor focused on Seed and Series A opportunities. We see some deals too early (raising an Angel round) and sometimes too late (raising a Series B where buying into the deal is prohibitive for our size of fund).  We will pass on those but ideally track the Angel deals as they get ready for their Seed round.

Advice to entrepreneurs: Do some research on Crunchbase to determine at what stage funds have invested in the past.

-Is the deal in the geographies where we are active? We have revived business plans from Vietnam to Hong Kong, Argentina to El Salvador, Qatar to Jordan along with Berlin, London, New York and Montreal. Some of these were great ideas, but simply not in the geographic markets in which we operate (mainly North America, with an office in NY, and Western Europe with a presence in London). This does not mean that we will not invest selectively in other geographies, but that it will simply naturally lead us more towards the “No” camp. Some early stage funds will only invest in the Valley, or New York, or the UK be it because they want to be physically close to their investments or because their investor base demands that they deploy funds in a specific geography.

Advice to entrepreneurs: Understand whether funds have geographic constraints either imposed by their own investors or self-imposed in terms of focus. 

-Does your idea have scale: VCs have shareholders, their Limited Partners, who have entrusted them with their money under the expectation that will generate significant returns. These returns are usually predicated on a small number of deals having very high returns (Black Swans, Unicorns, Ten-baggers, etc). Matt Oguz lays out the distribution behind VC returns in this great TechCrunch post.

So very early on a VC will be evaluating whether the business plan you are proposing is addressing a large enough market to have significant scale for a potential outlier exit. This is made harder by the fact that we are, by definition, in the business of funding businesses that could create new markets so the size of the potential market is hard to grasp (see AirBnB as a great example).

Advice to entrepreneurs: Are you building a VC-backable business or a “lifestyle” business and if so is VC the best way to fund your idea?

-Can the team pull it off: Early stage startups are fraught with risk (industry stats indicate that failure rate is over 50% for Seed stage startups). One key area that we focus on is the founding team, their experience, their technical and business acumen and their vision and passion for the business. You are backing the founders as much, if not more, than the business as a pivot is highly likely and as the product-market fit gets defined. Look at Instagram, which was initially funded by A16Z when it was called Burbn and was a location-sharing app before it pivoted to pictures. They backed Burb, but they also backed Kevin Systrom and supported him through his pivot (but famously did not invest further after the Pivot when Instagram became competitive with another portfolio company).

Advice to entrepreneurs: Convince me early on that you and your team are the right ones to devote your time and passion to your ambitious idea but also that you will have the openness to accept market feedback and identify the right product and tactics to get you there.

-Bandwidth, dry powder and portfolio construction: One reason for a “No” is completely out of the entrepreneurs’ control. It involves the maturity of the fund and its ability to deploy capital into new opportunities (ie “dry powder”). It also involves the ability for the Partner to devote bandwidth and time to a new deal (on top of others he or she might be working on, plus portfolio company management, Board meetings, Investment Memos, LP relationships, etc). The answer might really be “Interested, but not now.” And finally there is Portfolio Construction which is VC speak for how to allocate fund resources across companies at different stages of maturity to try and time when exits will happen and funds will start being returned to their investors.

Advice to entrepreneurs: Do some research on when the VC raised their last fund. If it was over 3 years ago it is likely they will be running out of dry powder as they focus remaining funds on existing portfolio companies. Read the signals from the investor on other deals he or she might be working on in parallel and, if you really want to mess with our heads, invoke the Fear of Missing Out (FOMO) by signaling the momentum [I say that last one half in jest]. 

At the end of the day the process through which a default No turns into a Yes is much more art than science and involves a number of factors many of which are not completely in the control of the entrepreneur (or the VC in some cases). Understand the ratios and the drivers… and continue passionately telling people about your vision. That is the single biggest driver for you finally Getting to Yes.

[christianhern-blog1]

The European Tech 'Mafias'

This post first appeared in Le Web's Blog 

Valley lore often refers to the “PayPal mafia”, the group of early PayPal employees that went on to found and fund many of today’s leading technology companies: Peter Thiel and Facebook, Reid Hoffman and LinkedIn, Jeremy Stoppelman and Yelp,  Chad Hurley and YouTube and Elon Musk and the Iron Man suit…

 ”The PayPal Mafia” by Jeffrey O’Brien in Fortune, November 2007

The density of successful exits in the Valley leads to individuals with sufficient personal liquidity to take the risk and go after new ventures – and their fellow alumni are there as angels and VCs to fund them. Google has anumber of famous alumni investors and founders, including Chris Sacca at Lowercase Capital, Aydin Senkut at Felicis Ventures, as well as entrepreneurs like Bret Taylor (Google -> FriendFeed -> Facebook CTO -> Quip) and Sumit Agarwal (Google Mobile -> The Pentagon -> Shape). There are now new mafias being created, with Facebook’s early employees now being called theFacebook Keiretsu with roles at Benchmark, General Catalyst, Greylock as investors and as founders of Quora and Asana and early employees at DropBox.

So what about in Europe? Does the European ecosystem have enough exits that allow individuals to become active investors or to bootstrap a new startup? The answer is yes and not yet. Yes in the sense that there are some, but “not yet” in the scale and liquidity of the US mafias.  Here are some European ‘mafias’ that spring to mind:

  Jamba/Jamster: The company that made Crazy Frog famous also became a central hub for some of Europe’s leading founders, including:

Oliver Samwer, who served as CEO and needs no introduction. He now leads Rocket Internet alongside his brothers.

Jens Begemann, who served as Chief Product Officer and is now the founder of Wooga, the Berlin-based gaming company.

Martin Ott, who was COO at Jamba, then served as CEO of Skrill/Moneybookers and now leads Northern Europe for Facebook.

Tradedoubler: The Nordic-founded internet marketing company has an impressive roster of alumni including:

Martin Lorentzon and Daniel Ek: Martin was the founder of Tradedoubler, which acquired Daniel’s company. They famously went on to partner and co-found Spotify, where Martin is now chairman and Daniel is CEO.

Rene Rechtman, whom I consider the best AdTech sales leader in Europe: He went from MD at TradeDoubler, to CEO of GoViral (sold to AOL for $100M), to running AOL International, to president of international at Maker Studios.

Andreas Bernstrom, who served as COO of Tradedoubler, then scaled out Rebtel to over $100M and is now leading Sinch.

Jacob De Geer, who led Tradedoubler in the Nordics and is now the founder and CEO of iZettle.

  Skype: If there is a single company that can claim the title of ‘mafia maker’ in Europe, it’s Skype, whose alumni include:

Niklas Zennstrom, who served as the founding CEO of Skype. He amazingly managed to get two unicorn exits out of Skype and has a few more unicorns via Atomico, the VC he created.

Eileen Burbridge, who was the first product manager at Skype, is now an investor at Passion Capital and has been called the Queen of Tech City.

Saul Klein, who, after founding what would become LoveFilm, joined Skype as VP of marketing. He has funded and founded some of the technology leaders in Europe through his role as an investor at Index and co-founder of Seedcamp.

James Bilefield, who was VP of BizDev at Skype, then CEO of OpenX and recently stepped down as president of digital at Conde Nast International. He invested in and sits on the board of Farfetch.

Michael Jackson, who led Operations at Skype and is now a partner at Mangrove Capital Partners (early Skype backers). He also claims the title of “inventor of the MVNO”, while at Tele2 in the 90s.

Klaus Hommels, who was an early personal investor in Skype, is one of the few Europeans on the Forbes Midas list and is now the founder of Lakestar, a new VC firm taking bold bets. 

A few other successful entrepreneurs have come together to create new Venture Capital firms, bridging the gap between Europe and the US, including the founders of Playfish, who established Initial Capital and had a massive exit with Supercell, and the White brothers, who sold not one but two companies (Star and Message Labs), then established Notion Capital alongside other members of their management team.

Speaking of the PayPal mafia, we should also provide an honorable mention to Zong, the Swiss based startup, whose founder David Marcus is now the (very visible) president of PayPal and Frederic Court, who funded Zong as a VC at Advent Ventures and also backed Vitrue (sold to Oracle), Farfetch, and DailyMotion, amongst others.

There are, of course, other companies that have had an amazing number of alumni playing a role in the evolution of European tech, but hopefully over the next years we will begin to see early employees of King, Criteo, Wonga, Spotify and others become active angels and investors, establish new companies, and be mentors to the next generation of tech leaders across the region.

[christianhern-blog1]

Exporting Culture beyond "HQ"

There have been a number of posts recently about the importance of culture in a startup. From Molly Graham's post on defining the culture at Facebook to Brian Chesky's "internal" email on Culture, to Jason Goldberg of Fab.com's post on rebooting the culture as he turns the company around.

I have been fortunate that every single company I worked in had a very strong culture, and I have also worked in "Corp" and in "the field" and I strongly believe that creating a culture is hard but creating a culture and exporting it correctly is 10x as hard.

Google Japan

Throwing around some colored paint and bean bags does not export a culture (just ask any Googler who would visit London from Mountain View in 2006 about the cultural vibe of the London office). Having "Hack" posters pasted on the wall does not export a culture. Even "exporting" employees from HQ into field offices does not export a culture. 

As companies scale beyond a single central location to multiple offices across cities or countries, founders have to be overly thoughtful of how the defining aura of their company will come to be represented in these remote locations. After all, these are the ambassadors of the company in that location...and oh yeah, they are as much an employee and creating value for the firm as any other employee back at HQ.

So here are some thoughts and anecdotes on how to be thoughtful about exporting culture:

- Define what the "culture" is. As Molly pointed out in her post, it wasn't until 2008 that the definition of the Facebook culture around the notion of "hack" came about. The Facebook culture (and strategy)  has and will continue to be defined and embodied by Mark. But how do you translate "Mark" into a concept, and ethos, that any new employee can try to emulate and live by. No matter where the employee might be, when your startup scales to hundreds of employees across locations, how will someone be able to answer the question of what defines someone to be an employee of your company.

The infamous Noogler hat (and yes they did exist)

-Indoctrinate new hires: When a company is growing in a single location indoctrination happens day in and day out. You come in with a previous "culture" but slowly you adapt your norms and actions to the specific subculture of the group. You absorb their norms, and make their beliefs your own. But when a new employee, especially when she is the *first* employee, joins in a remote office, she will never benefit from those interactions.

That's why I strongly believe that early hires outside of the main office are as critical, if not more, than key hires at HQ. Spend 10x as much time as you otherwise would focused on cultural fit. If that person was joining your company in the same role at HQ would she be an immediate ambassador of your culture. Can she be an ambassador by herself, 5,000 miles away?  

Alexandre Hohagen who lead Google Latam and then built up FB Latam

At MicroStrategy, the startup I worked with in the late 90s, the company spent significant resources to create a common culture by demanding that every new employee (engineers, sales, IT) spend at least 2 weeks (and as long as 6 weeks) in a Bootcamp. Employment was conditional on passing bootcamp and we worked amazingly hard, learning the company's software, competitors and soaking in the culture via daily visits from the founders and senior management. We also created amazingly strong bonds (some of my best friends are still the people with whom I did bootcamp in September 1997). MicroStrategy exported the culture by forcing everyone into this intense period in which technical skills, alongside cultural norms, were passed on to every single new employee. [We also spent a week in January on a cruise ship...all employees, from all around the world, average age 25, but that's for another post]

-Landing teams: A different model  has been to take employees from HQ who embody the culture and place them as part of a landing team in a new remote office. Facebook did this for new engineering offices where the seminal engineering team was made up of HQ engineers that then hired, trained and taught norms to new local hires to then return back to the US (or the next new office) a year or two later. 

-If the founder is the culture, then the founder should spread the love: Founders have 1,001 things on their plate and I have heard the argument that the best value of their time is to stay at HQ and to have the highest leverage. I disagree. When a company is scaling fast and new offices are being opened up the founders need to spend time in-market with the teams, and have consistent repeat visits to be visible, gauge the local culture and share a part of themselves, especially if founders define so much of the culture of a startup.

Sheryl Sandberg and the Facebook London team

It is really interesting to see what Twitter is trying by placing a key member of its management team across various geographies. Katie Stanton is in Paris and Shailesh Rao is in Singapore. It creates a high cost for the management team to have regular interactions as they would in a single office but it certainly signals that regions are as important as HQ by placing key members of the management team on the ground.

  -Measure and compare: Many companies track employee satisfaction and feedback on a regular basis (at Google and FB exec compensation was partly tied to the feedback we received from our employees against the overall company results). I would argue that founders need to rely on the data to track culture across offices and functions. Does an engineer in HQ and London respond to the definition of the cultural norms in the same way? Does a sales person in Mexico embody the same traits that you would want to see from a sales person in New York or San Francisco? More importantly, what do you do when the results show a divergence? Is it caused by a local leadership issue? Is there a wide variance even within a region (sorry Valley friends, Europe is not "Europe", it's London and Paris and Madrid and Stockholm, and each national identity will have specific impacts on the absorption of the company culture). 

Scaling out operations across new offices and countries is a good thing. It's a signal that a startup is reaching critical mass (users, revenue, etc) in that market that a local presence is needed to capture greater value. My belief is that, given the importance of culture in the success of a fast-growth startup, founders need to be overly mindful of the importance of scaling it out by the hires they make and the tools they use.

[christianhern-blog1]

On Product Managers vs Product Marketers

A former Google colleague, Mat Balez, penned a nice post on the multiple roles that Product Managers play. He argues that a Product Manager is a CEO of a Product, a Coach, a Janitor, and an engineer (or at least technical enough to be able to have a common language with his or her engineering team).

The post made me think about a recent conversation with a Valley VC on one of the challenges of tech startups in Europe and a similar discussion with a well known recruiter in the London tech space. In the "valley" sense we have too many folks with the title "Product Manager" who should really have the title "Product Marketing Manager."

At Microsoft we used to have a clearly delineated line and profile between Program Managers, Product Managers and Product Marketing Managers. At Google there was a Product Manager role, an Eng Manager role and a Product Marketing Manager (PMM) role. 

My view is that a true Product Manager should own

-The product vision. Not only of where it is today but where it is meant to go in two to three future releases and the empowerment to "make it so"

-An ability to translate the vision into tactical plans than an engineering team can go build (and therefore the technical understanding that Mat alludes to and that Google demanded in PMs)

-A direct and clear line of communication with the user to use data and qualitative feedback to improve today and tomorrow's product

A Product Manager can, in some cases (as was my case when we were a small PM team at a startup) also be tasked with creating messaging, collateral and what Microsoft used to call Go-to-market material (decks, salesforce education, press) but as orgs scale that should be passed on to a Product Marketing Manager.

The Product Marketing Manager is a different role. She is tasked with managing today's product and thinking a bit about tomorrow. They focus more on GTM and less on a longer term goal post. Their role is more marketing than technical/vision and their profile is more MBA than Eng. They leverage marketing and channel levers to drive adoption. In today's lingo this role has also morphed with the (ugh hate the term...) Growth Hackers.

It is really hard to find this level of multi-faceted talent of a Product Manager outside of the Valley and I would argue that there are limited examples of rockstar Product Managers (not working at Google or similar) in Europe. People I point to as examples of what we need more of in Europe include:

-Ian and Michelle at Songkick

-Gustav at Spotify

-Eric at Soundcloud (who has an amazing partnership with Alex)

-KP at Facebook who was a VP of Product and now does Product Partnerships acting as a PM-for-hire with FB partners.

I appreciate that this is a generalization in terms of Product Managers in Europe, but my point is that we need amazing swiss army knives down the stack (and not only in the CEO or co-founder role) and for that we need to define what rockstar PMs look like.

[christianhern-blog1]

[christianhern-blog1]

When the good guys win: King and Riccardo

In November of 2009, fresh off the plane from my 2-week induction at Facebook HQ, I had coffee with an old friend Tony Zappala who at the time worked at Index Ventures. We talked about some of Facebook's areas of interest for partnerships and when I mentioned gaming he said that I should meet the team at King.com, an Index portfolio company.

A few weeks later, in one of my first meetings as a Facebook employee, I walked up three flights to an office on Shaftesbury Avenue near China Town to meet Riccardo Zacconi, the CEO of King.com. For some reason I still vividly remember the fact that there was a fax machine in the office (who uses fax machines anymore?!?).

King.com had been around since 2003 and had built a decent business (rumors say over 100M EUR a year) doing casual games on portals (think Yahoo!, ProSieben). Index Ventures had invested alongside APAX.

Image source

I remember this tall, soft spoken, clearly smart man telling me the story about King.com, educating me on Games of Skill (and why it was NOT gambling) and talking about their Swedish studio and over 100 "casual" games. It was a nice intro meeting and we stayed in touch over the next few months.

In June of 2010 we managed to get Mark Zuckerberg to come to London and host a developer event at the Barbican Centre. In press activities he mentioned companies like Spotify, Zynga and Playfish (who had sold to EA in late 2009 for $400M). He spoke of Facebook's commitment to scaling out a team in Europe and working more closely with the developer community. The event was a great way to signal to London and Europe that we wanted to be more present and more active in the ecosystem.

What few likely remember was the presentation by a tall Italian gentleman, with Zuck in attendance, telling a capacity audience about how his gaming company had started using Facebook Connect as the identity platform for its online games and how the lifetime value of users leveraging Facebook was triple his average user. That person was Riccardo from King.

It was not purely through Facebook's charms and Zuck's speech that Riccardo started to pivot the company towards social (and mobile). Portal traffic was slowing down, Facebook was becoming the dominant destination for web-based gaming and his old business was at risk.

Over the next year, he talked about creating a new team purely dedicated to "adding a social layer" to his 100+ casual games. He experimented and learnt with the likes of Bubble Witch Saga. He bet on Facebook, but not on the Facebook of Canvas, Zynga and Playfish but on a Facebook that allowed him to identify, acquire, retain and engage users across web and mobile. He bet on social as the glue...

... And it paid off. In a 2012 interview Riccardo spoke about the evolution of social towards mobile. Bubble Witch Saga got to 4M MAUs, by the end of 2012 he launched the social version of a web-based IP in their portfolio called Candy Crush Saga.

Today Candy Crush reigns supreme at the top of the gaming charts on iOS and Android and has over 90 million DAILY players generating close to $1 Billion in revenue.

If King's IPO goes forward today as planned at $7.1B, a lot of people, including Riccardo, are going to make a lot of money... and you know what, they have earned it. This is not an overnight success, or an 18 month exit. It is over a decade of building and rebuilding a business, of adapting to trends and technologies, of being humble but hungry.

So here's to one of those stories where it seems the good guy is going to win. King, along with Rovio and Supercell, have put Europe at the center of the new mobile-centric gaming world. The King IPO is a huge shot in the arm for the London (and Sweden) tech scene and perhaps signals a new wave of European IPOs yet to come. As a tech banker told me recently "we haven't been this busy in decades!"

Sometime in late summer 2012, Riccardo and I had lunch on the rooftop of Soho House and talked about the evolving London tech scene. I remember his eyes gaining an intensity as he said something that (without him knowing) led to my decision to create White Star Capital: "Years from now when we have been successful and have had our exits, it is up to people like us to invest and support the next generation of entrepreneurs."

Riccardo is a good man, and I know he will keep his word.

[christianhern-blog1]

MSTR, this week in 2000

On March 19th, a Sunday, I went into my office at MicroStrategy to prep our demo room for an important meeting the morning of the 20th.

When I walked past the boardroom I saw a large group of people (everyone in the exec suite plus folks in suits). My boss, Joe Payne, the CMO, walked out of the room to ask me why I was there and suggest that I should go home and take it easy.

I was 24, our stock was on a tear (over $30B market cap) and I was massively naive. Paper money was "paper" but we were sure as hell spending it like it was real.

The next day MicroStrategy restated earnings. We lost 62% of our market cap in one day. To this day, Michael Saylor, our CEO is the answer to a Trivial Pursuit question related to his personal net worth loss that day.

What an amazing experience. I could write a lot more but figure some things are best left unsaid... I just wanted to celebrate  the fact that 14 years have passed since and that this experience was so seminal to my career since, but this quote could not be more appropriate:

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way" - Tale of Two Cities

[christianhern-blog1]

On Democracy and El Salvador

This post won't be about my usual focus on entrepreneurship, startups or Venture Capital. Instead I wanted to document my experience over the weekend in my home country of El Salvador where I voted for the first time in my life and managed to have a backstage view into the electoral process.

As background, El Salvador is one of the few examples in the world where a country has managed to peacefully evolve from an armed civil war into over 20 years of democratic rule. The former guerillas have evolved into the FMLN, the party that has led the country for the past 5 years, in part thanks to the support (and funding) from Venezuela. Long story short, Venezuela has been providing parties closely associated with the FMLN with massively discounted oil which is then sold at full retail via the Alba brand (brilliant capitalistic way to fund influence).

ARENA, the party that held power through 5 consequent Presidents, had a rude awakening in the first round of elections, with the FMLN coming within a percentage point of winning outright. 

I won't go into specifics on why an FMLN win scares me as a Salvadoran, but will instead refer to the Brookings Institution's note on why a win by Salvador Sanchez Ceren (former guerilla leader, second from right in picture below) would be bad for the democratic (and economic) insitutions of my country.

It was this fear, and feeling of national duty, that led me to fly home from London to cast my first-ever vote in an election. What I experienced was an amazing experience on both a personal and a national level.

Data indicates that close to 75% of potential voters in the country turned out for this second round (a lot of Salvadoreans live in the US as legal or illegal immigrants... a figure some assume as high as 2 million, or close to 20% of the population IN the country). In other words, people cared about the outcome.

I visited 4 polling places and the ambiance was jovial, collaborative and in a way...fun.

I was amazed by the number of young people (too young to vote) from both parties serving as volunteers, helping people find the right place to go vote, banging drums, leading songs... a hope for my small country that the younger generation cares about the future of their country.

I was also exposed to some interesting imagery such as the street hawker below selling FMLN paraphernalia...along with Venezuelan flags. Sanchez Ceren has called Venezuela the "guiding light" for what he wishes El Salvador to become. 

And so in this atmosphere my family and I headed out to vote... the process was smooth, international observers were visible everywhere. I proudly crossed my choice, deposited my slip and dipped my finger as deep as it would go into the ink to prove that I had voted. (This is my Dad and I after I voted... his idea to do a "selfie").

Later that day we went back to the largest voting place and were able to stay inside as the doors closed and the vote counting started. This was the largest voting venue in the country: a cavernous hall in the middle of the capital city with tens of thousands of voters flowing in through the day.

As the doors closes and the counting process was about to begin the volunteers who had been there all day defending the process, their own parties, their own interests all of a sudden... started to clap. An amazing celebration of democracy by those who volunteered to defend it.

One by one, each table opened the urns and with a volunteer from each party and international observers each and every individual vote was called out and counted.

I must admit that every single one made me smile. Every single one led to a smile, or a fist pump or once in a while a party-specific-chant from the party representatives. And it was all done in camaraderie, in a sense that they were all there for the same reason. I even saw an ARENA and FMLN pair hug when votes were counted (ARENA won that table...).

And so the process continued... and I went home to watch the results come in....and this is where the community feeling I had experienced all day, the camaraderie, the belief that democracy was working all of a sudden collapsed.

At around 8pm with less than 90% of votes counted (and FMLN leading by a small margin) the ARENA leadership came out and declared victory (?!?). Then the national election authority came on TV and claimed that it was too close to call and that they would stop reporting results (something they are required to do).

As we went to sleep, the future of a country was literally hanging in between 3,500 votes one way or the other with a small margin in favour of the FMLN

Ironically, I had been in the ballroom of the Republican National Committee the fateful night when Al Gore and George W. Bush ended up in a race "too close to call"... and here I was again. The runoff was deemed too close to call.

Votes seems to have been "miscounted", 5,000 army soldiers (who have traditionally sided with ARENA) were deployed the night before the elections to fight unknown  enemies. 

An just like that my country is now tied up in a process that once again divides it down the middle. Rhetoric flared up last night and this morning and the hand counting process has placed it all in limbo...

...and my naive hopes of democracy, my elation at feeling that my vote might count, my hope for my country is now all on pause while influences and influencers work behind the scenes to determine the future of this small country with such a big heart and such a tough history.

I can only hope that democracy will prevail and that the winner will seek to build bridges to the other half of the country.

On a personal basis, voting was one of the most amazing things I have ever done. It is a right many have died for, and a process many will continue to fight for.

I was home for 72 hours and very proud to have been able to say "Presente por la Patria!"

And in the meantime... we wait...

[christianhern-blog1]

Defending our own castle but fighting the same war

Recently, The Guardian asked me to write a Byline of my blog post on my bullishness for the European tech scene and asked me to inject some perspective from my experience at Facebook (oh and keep it to 750 words). 

I have been pleasantly surprised by the feedback and dissemination of the article and I hope that the core message has resonated with entrepreneurs, founders and funders across the region. 

Around the same time two other blog posts came out highlighting the vibrancy of other technology hubs

The first one, by Adam Popescu, appeared in Fast Company, advocating the vibrant scene in Los Angeles. He starts with a similar premise to mine:

"Los Angeles will never be Silicon Valley. Too often when they're compared, L.A. gets the short end of the stick."

Via White Star Capital we have seen the emergence of the LA scene through our investments in Science, Dollar Shave Club and Ellie. It is a city that affords a fantastic lifestyle, great weather, close ties to creative and entertainment industries and talent and strong and vocal founders and funders led by the likes of Mike Jones and Peter Pham at Science and Mark Suster at Upfront Ventures.

The second was by Nick Beim from Venrock, advocating the evolution of the New York tech scene and highlighting the growth in VC funding funneling into NY. 

What I found interesting was how we were all advocating similar themes

-Each node is special and has specific traits and should not and cannot be compared to The Valley

-Growth and momentum is measured by both funding flowing into the ecosystem, as well as successes and exits

-We are all passionate advocates for our own "castles"

This is not a zero sum game. There is -and should be- space for new tech hubs to emerge. My initial post speaks of "Europe" as a block but the reality is that London, Berlin, Stockholm, Helsinki, Paris are all individual hubs with individual traits and opportunities... and lets not forget others such as Israel, Turkey, Beijing/Hong Kong and why not Lagos and Sao Paolo.

We are all defending our own castle, but fighting the same war.

[christianhern-blog1]

Tech acquisitions per user and those that could have been a contender

The kind folks over at Brightside.io put together a great chart outlining the cost per user paid in major tech acquisitions.

It's a fascinating view of M&A, bubbles and perceived value of a user across time. The first thing that jumps out is the $4.65B purchase of Geocities by Yahoo! in 1999. The graph maps price/user not absolute price and one could argue that a) it was the dot-com bubble b) there were significantly less web users in the world and no smartphones. Still, on a per user basis, it's clearly the outlier of the past decades.

The second thing that caught my eye was how many of these were bought and then killed. I fondly remember Dodgeball, the SMS-based social/local network, which Google bought in 2005. I was an early Dodgeball user in Washington, DC and was excited to see the service scale out under Google. In 2006, when I joined Google to work on mobile partnerships, I had a meeting with Dennis Crowley in New York and was saddened to see them alone and relegated, unconnected (or purposely disconnected) from the rest of the mobile efforts. Dennis and Alex Rainert famously quit in 2007. CNET has a great eulogy of Dodgeball.

The other one to call out is Jaiku, the finnish micro-messaging service which Google bought in 2007. At the time Twitter had just raised its Series A and rumors have it that Jaiku had 2/3 the number of users at 1/3 the valuation (I have no direct knowledge of the deal or the actual stats). Within Google Jaiku was promptly made Open Source (ie killed) and the co-founder relocated to other mobile initiatives.

NB: Petteri Koponen, the co-founder of Jaiku responded to my tweet indicating that the numbers in this graph are incorrect

@christianhern The Jaiku figures are all wrong... but the graph is awesome! ;)

— Petteri Koponen (@hoopeekoo)

February 26, 2014

Then there is, of course, Bebo, which AOL bought for $850M (well done Joanna!) and tried to integrate with AIM to create a messaging-centric social network with unique content. Great idea...wrong execution or wrong time?

There are also marked successes in this graph including Paypal, Flickr (even if it took a while to re-boot it), YouTube and Skype (notice the $34/user difference between the first acquisition by Ebay and the second by Microsoft!)

The graph is not perfect, it relies on the notion of users as the denominator, and the number of potential users, and the ease to acquire them, have changed drastically since 1999. It is, however, a fascinating graph to put WhatsApp in context and remember some of those big buys that "could have been a contender."

[christianhern-blog1]

"The reputation of a thousand years may be determined by the conduct of one hour." - Japanese Proverb

[christianhern-blog1]

Hacked printer plays Eye of the Tiger

[christianhern-blog1]

Enabling Technologies at Wharton and erbium dipping

A bit over 10 years ago, I was not your typical MBA student at Wharton. I'd come from a tech background having recently survived the near-death experience of MicroStrategy (We had lost 70% of our market cap, once as high as $30B after having to adjust our earnings). And unlike most of my classmates I had no desire to become a banker or consultant, but instead wanted to stay in tech, and specifically in mobile (at MicroStrategy, our product team had developed the WAP 1.2 push notification protocols for a wireless alerting and notification platform... yes I have been claiming "this" is the year of mobile since 1999!).

So given the fact that I was not going for interviews with Goldman or Lehman, I also didn't have to take the usual classes like Advanced Corp Finance, (although we did do plenty of modeling and unlike my dear friends at HBS, had to actually build a Monte Carlo Simulation rather than just hit "run" on the Excel sheet).

My absolute favourite class from my 2 years at Penn was Enabling Technologies. The concept of the class was that the professor would bring forward a new technology area each class and we would debate the business implications and potential areas of innovation for each.

The example that still sticks in my mind is Erbium dipping. Turns out that if you use erbium, you can amplify the quality of light carried by say, fiber optic cables, a longer distance. Cool lab tech...so what?

Well turns out that if you're Comcast in 2001, you're spending hundreds of millions to lay fibre across major urban areas and you have to install optical repeaters every so often to keep the light traveling without loosing data or bandwidth. By using erbium dipping you could allow light to travel further and therefore put in repeaters further away. This therefore meant a lower CAPEX to deploy networks,  faster time to recoup deployment costs, happier fast-speed customers, and happier CFOs. 

I loved the class because it married interesting emerging technologies with business analysis and allowed us to blend the business acumen we were developing as MBA students with the inner geekiness most of us in that class had. (One of my classmates is now a Tech partner at McKinsey working a lot on smart grids and renewable energy, another was CFO for a company sold to Google).

The class is still being taught, and is now being taught by Kartik Hosangar, a former entrepreneur himself who co-founded Yodle. Every once in a while I go back to the course page to see what "enabling tech" he is teaching as an interesting signal of what MBA students are being shown as potential areas of disruption. I have pasted the latest syllabus below.

Of interest is the focus on my own areas of interest around mobile and AdTech, mobile EduTech and data and its power. In a way my career has allowed me to live this course day in and day out. From living through the explosion in mobile (and Android) while at Google, to the rise of Social and a social platform at Facebook and a continous desire and need to stay abreast of enabling technologies as an investor...

...I just wish that I still had the fun care-free moments that life as a student used to afford.

Syllabus for Wharton's Enabling Technologies

https://syllabi.wharton.upenn.edu/?term=2013A&course=OPIM662

Class (each lecture below is an 80 minute lecture. 2 lectures together make up a week of classes)

01. Introduction + Internet Industry Structure 02. Media Delivery Infrastructure (Content Delivery Networks, P2P)

03. Wireless/Cellular Markets I (Introduction + 3G/4G) 04. Wireless/Cellular Markets II (Mobile Platforms: iOS, Android, Windows)

05. Mobile Apps (Homework 01 Due) 06. Industry deep dive: Mobile Education Apps

07. Cloud Computing (Homework 02 Due) 08. Internet Marketing I (Search Engines and Sponsored Search)

09. Internet Marketing II (Display Ads, Ad networks, Social Media Marketing) 10. Internet Marketing III (Discussion of Online Ad Platforms) (Homework 03 due)

11. Case: TBD 12. Mini-projects Discussion (Quiz 01)

13. Guest Lecture: Video on Demand/Interactive TV 14. Personalization on the Web: Recommender Systems

15. Data Mining & Analytics 16. Analytics II (Guest lecture) (Mini-projects due at 6 pm)

17. Discussion of Mini-projects 18. Web 2.0 & Social Web (social media, social networks, etc)

19. Case: NTTDoCoMo (New Market Entry) 20. Evaluating Tech Startups Guest lecture)

21. Starting Up and Raising Seed/Series-A Financing (Yodle Case Study) 22. Innovation in Tech Firms: Analysis of Google, Apple & Pixar (Quiz 02)

23. Final Project Presentations (End of semester) 24. Final Project Presentations (End of semester) 

[christianhern-blog1]

On Seedcamp 2014 and the rise of a movement

              Last week, Seedcamp held it's 7th bi-annual Seedcamp Week London. Once again, 20 teams were selected from hundreds of applicants across Europe (and beyond). 

This year's batch was a lot more SaaS and FinTech heavy than in years past, perhaps a sign of the times on where the action is in terms of funding and exits. 

The companies from this batch are below, including a White Star portfolio company, interact.io.

                  Seeing Reshma and Carlos hustle last week and remembering the first Seedcamp I so excitedly attended 6 years ago, one can only admire how much this very small team has accomplished and what a force of nature they have been for the European tech scene. 

"Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has." -Margaret Mead

The rise of Seedcamp can be correlated directly to the acceleration of early stage density across Europe. The Seedcamp team has hustled running events from Slovenia to London to Berlin to Stockholm. The best part of Seedcamp week has ALWAYS been the amazing entrepreneur from a less-traditional country, like UberVU, Branient or Zemanta. Seedcamp is an investor, but also an advocate, a policy driver, an event organizer and more and more a strong glue for entrepreneurs and startups across Europe.

They have become a coalescing force for mentors and advisors... hundreds thousands of them across the Europe and the US. People who dedicate time (for free) because they are passionate, interested and willing to mentor early stage companies.

A shout out must also go out to Saul Klein, entrepreneur, VC at Index and passionate advocate on behalf of entrepreneurs, who was a strong force behind the creation of Seedcamp and rallied support around it.

I am thankful to Seedcamp for having invited me to be a mentor 6 years ago, and a member of their Advisory Board from 2011. I am more thankful, however, of the work the small but passionate team continues to do. We (the supporters, creators, funders of the Tech community in Europe) owe them a lot.

Gracias!

http://www.seedcamp.com/2014/02/meet-the-teams-seedcamp-week-london-february-2014.html

Please meet the 20 selected startups for Seedcamp Week London. Make sure to check out their great products and services ranging from skateboard hardware, Bitcoins, holiday rental sitebuilder, and affordable wifi solutions.

Buyerdeck, London, UK – BuyerDeck is a tool that helps B2B sales reps identify their most engaged buyers.

Comprimato Systems, Prague, Czech Republic – Comprimato helps to compress videos and images much faster with simpler hardware infrastructure.

Concept inbox, Madrid, Spain – “efficiency meets design process”. We combine project management, collaboration and version control for creative teams

Cryptopay, London, UK – Accept Bitcoins while being paid in traditional currency. Flat fee, no hidden charges.

Elliptic, London, UK – Elliptic – making Bitcoin and other digital currencies secure, simple, and powerful to use.

ETFmatic, London, UK – We help people make the most of their long term savings with less effort

Formisimo, Manchester, UK – Formisimo analyses online forms to allow their clients to optimise their sites and gain customers.

Gamification TV, Mexico City, Mexico – Platform that creates interactive stories to your audiences empowering the content to give meaningful experiences.

GoWorkaBit, Tallinn, Estonia – GoWorkaBit connects companies that need temporary workforce with people who need very flexible working options

interact.io, Berlin, Germany – Analytics Platform to Enrich Real-time Communications with Contextual Data

Lodgify, Barcelona, Spain – Lodgify is the Shopify for accommodations: Easily create an accommodation website and manage your reservations.

Pycno, London, UK – Innovating the Internet of Things to take back control of your life.

Spark, Gdansk, Poland – Redefining issue tracking & build distribution for mobile developers and their customers.

Stockflare, London, UK – Stockflare’s platform provides everyone with simple and effective tools to actively manage their own portfolio.

Svipe, Tartu, Estonia – Svipe helps merchants to offer customers better shopping experience and grow sale numbers

Swipes, Aarhus, Denmark – Swipes is a global community and a tool that inspires people to get things done.

Tanaza, Milan, Italy – Tanaza is an all-in-one SaaS solution that makes Enterprise-grade Wi-Fi affordable for everyone.

UNDRED, London, UK – Cashless payment solution for entertainment venues (nightclubs, concert halls…) that integrates a local networking app

We are Colony, London, UK – We Are Colony is the new place to launch films earlier and build a following.

Wodd, Paris, France – Wodd is a hardware for skateboarders.

[christianhern-blog1]

Crowdsourcing European VC value creation

tl;dr US VC-funded businesses seem to have created $1 trillion of value. Trying to figure out the number for European businesses. I'm trying to crowdsource a European list via this Google Doc.

This week, Recode wrote on recent research stating that, over the past 10 years, venture-funded business in the US have created over a Trillion dollars of value. The data was tabulated by Scale Venture Partners .

Over 80% of that value was created by Technology companies, and out of the Top 10 exits of the past decade, 6 were Technology companies (and yo could argue Tesla might count as Tech too given its founder's pedigree).

I wondered out loud via a Twitter post, whether such data also existed for Europe

Value of VC-funded companies in US in last 10 yrs > $1 trillion. Would love to see same for Europe from @EVCA_EU http://t.co/RvPbfes9sx …

— Christian Hernandez (@christianhern)

January 31, 2014

And the European Venture Capital Association responded

Europe has great VC stories of its own to share @christianhern. See this vid http://t.co/p8Zjdirynx & our report http://t.co/k4y47kWZT0

— EVCA_EU (@EVCA_EU)

January 31, 2014

The EVCA's report paints an interesting picture of a VC industry that has "right sized", of VC being a driver for job and GDP growth (Deutsche Bank states, for example, that a 0.1% GDP investment in venture capital has a 0.3% investment in real GDP terms).

What the EVCA's report does not map out is the "value creation" of Venture backed companies from Europe in the same was as the Scale Venture Partners report and that might be because IPO as the exit vehicle (which the US report identified as the largest value creation channel) has not been as clear for US companies.

So... I started a Google doc and want to ask for folks help to fill it out. The sale of Business Objects to SAP, Skype to Microsoft, IPO of Yandex and Qlik Tech are accounted for, but I am sure I am missing lots of companies that were sold or are now worth over $1B.

Please help by adding the ones you know of (with a source) here.

It might not be a trillion dollars, but I was already surprised to see my quick list add up to close to $40B... 

[christianhern-blog1]

Founders at Fail: On lessons from post-mortems

The Wall Street Journal recently published its Billion Dollar Club infographic  celebrating the success of Pinterest, Dropbox, Uber and Spotify.

We (a collective we of those interested in the tech ecosystem as funders, builders and supporters) often focus on the successes, but perhaps excessively forget to learn from the failures.

CBInsights has published a list of 51 stories of start-up failures...of entrepreneurs sharing what they learn so that others may benefit. Entrepreneurship is such a personal voyage, a leap of faith by the founders, the people they hire, their customers and their investors. So each of these blog posts brings with it a level of introspection few of us ever experience. 

A few years ago I devoured the book Founders at Work which details the early days of some well known startups such as Paypal, Hotmail and Flickr. I equally enjoyed European Founders at Work which describes the early days of Lovefilm, Yandex and Soundcloud. Perhaps someone should turn the CB Insight list into a new book: Founders at Fail.