Don Dodge on The Next Big Thing

Startup founders can have their cake and eat it too

Back in the day Venture Capitalists were  king makers. They decided who got funded, facilitated strategic partnerships, and brokered M&A transactions for their portfolio companies. The world has changed...a lot. Evelyn Rusli wrote an insightful story for the New York Times about how startup founders are more in control now. Angel Investors are willing to invest more at higher valuations, and Private Equity investors are willing to invest huge sums at later stages and allow founders to cash in some of their stock. VCs are left in the middle with much less power.

Now startup founders can "have their cake and eat it too". They can get the funding they need to start or expand their company, AND maintain ownership control, AND take some money off the table by cashing in some of their stock before an exit. This is a big change.

Traditional Venture Capital (VC) investors would invest $1M to $3M in a Series A and take 40% to 60% of the company. More importantly, they would take Board seats, and sometimes control the company. Sometimes the BOD would replace the founders with seasoned executives, and later take on additional rounds of financing that would dilute the founders ownership to minimal levels. The VCs had all the power. Not anymore. From Evelyn Rusli's the New York Times story;

“For the next-generation opportunities around the Internet and social networks, I believe the biggest opportunities will be driven by young founders who maintain their C.E.O. positions,” said Jim Breyer, an early investor in Facebook and a partner at Accel Partners.

Angel Investors, "Super Angels" and some forward thinking VCs like Founders Fund and Accel Partners changed all that. Angels are typically wealthy entrepreneurs that have started and sold several companies. They are founders themselves and identify with the startup founders. Ron Conway, Mike Maples, Aydin Senkut, Jeff Clavier, Paul Graham, Brad Feld, Dave McClure, Paige Craig, and lots of former employees of PayPal, Google, Facebook, etc. are very active Angel investors. Often they can invest enough to cover what would have been a traditional VC Series A round.

Later stage investors like Yuri Milner (DST), Founders Fund, and Andreessen Horowitz are willing to invest from $50M to hundreds of millions in private companies at very high valuations. In the past only an IPO could support such high valuations. Not anymore. Now later stage investors are investing at billion dollar valuations and allowing founders to cash out some of their stock. In the NYT story, Andrew Mason, founder of Groupon says;

“By taking money off the table, you’re expunging a big source of risk, allowing you to focus on the interests of the company you’re building instead of your own,” said Andrew Mason, the 30-year-old founder and chief executive of Groupon. He said he was able to sell some of his shares in D.S.T. Global’s initial Groupon investment, a $135 million round last April.

Still Not Easy - Plentiful capital, and low cost of startup resources like Open Source software, cheap hosting, and pay as you go services, has made it fast and cheap to start a company. That doesn't mean it is easy. Far from it. It may be easier to start a company, but it is much harder to be discovered and gain traction with users and customers. There is a lot of competition for user attention.

There is another disruption happening in Press, PR, and startup promotion. The traditional PR agencies are of diminishing importance. The press editors don't have the king maker power they once had. The old line startup conferences can't charge the high prices they once did. Social media, blogs, Twitter, and Facebook are changing the way startups market to their customers. Techcrunch Disrupt, Ycombinator, Launch Conference, and TechStars provide a grand stage for startups to strut their stuff for little or no cost. That is disruptive.

All these changes have put more power in the hands of the startup founder. That is a good thing.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column. You can also follow me on Twitter @dondodge

Startup founders can have their cake and eat it too

Back in the day Venture Capitalists were king makers. They decided who got funded, facilitated strategic partnerships, and brokered M&A transactions for their portfolio companies. The world has changed...a lot. Evelyn Rusli wrote an insightful story for the New York Times about how startup founders are more in control now. Angel Investors are willing to invest more at higher valuations, and Private Equity investors are willing to invest huge sums at later stages and allow founders to cash in some of their stock. VCs are left in the middle with much less power.

Now startup founders can "have their cake and eat it too". They can get the funding they need to start or expand their company, AND maintain ownership control, AND take some money off the table by cashing in some of their stock before an exit. This is a big change.

Traditional Venture Capital (VC) investors would invest $1M to $3M in a Series A and take 40% to 60% of the company. More importantly, they would take Board seats, and sometimes control the company. Sometimes the BOD would replace the founders with seasoned executives, and later take on additional rounds of financing that would dilute the founders ownership to minimal levels. The VCs had all the power. Not anymore. From Evelyn Rusli's the New York Times story;

“For the next-generation opportunities around the Internet and social networks, I believe the biggest opportunities will be driven by young founders who maintain their C.E.O. positions,” said Jim Breyer, an early investor in Facebook and a partner at Accel Partners.

Angel Investors, "Super Angels" and some forward thinking VCs like Founders Fund and Accel Partners changed all that. Angels are typically wealthy entrepreneurs that have started and sold several companies. They are founders themselves and identify with the startup founders. Ron Conway, Mike Maples, Aydin Senkut, Jeff Clavier, Paul Graham, Brad Feld, Dave McClure, Paige Craig, and lots of former employees of PayPal, Google, Facebook, etc. are very active Angel investors. Often they can invest enough to cover what would have been a traditional VC Series A round.

Later stage investors like Yuri Milner (DST), Founders Fund, and Andreessen Horowitz are willing to invest from $50M to hundreds of millions in private companies at very high valuations. In the past only an IPO could support such high valuations. Not anymore. Now later stage investors are investing at billion dollar valuations and allowing founders to cash out some of their stock. In the NYT story, Andrew Mason, founder of Groupon says;

“By taking money off the table, you’re expunging a big source of risk, allowing you to focus on the interests of the company you’re building instead of your own,” said Andrew Mason, the 30-year-old founder and chief executive of Groupon. He said he was able to sell some of his shares in D.S.T. Global’s initial Groupon investment, a $135 million round last April.

Still Not Easy - Plentiful capital, and low cost of startup resources like Open Source software, cheap hosting, and pay as you go services, has made it fast and cheap to start a company. That doesn't mean it is easy. Far from it. It may be easier to start a company, but it is much harder to be discovered and gain traction with users and customers. There is a lot of competition for user attention.

There is another disruption happening in Press, PR, and startup promotion. The traditional PR agencies are of diminishing importance. The press editors don't have the king maker power they once had. The old line startup conferences can't charge the high prices they once did. Social media, blogs, Twitter, and Facebook are changing the way startups market to their customers. Techcrunch Disrupt, Ycombinator, Launch Conference, and TechStars provide a grand stage for startups to strut their stuff for little or no cost. That is disruptive.

All these changes have put more power in the hands of the startup founder. That is a good thing.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column. You can also follow me on Twitter @dondodge

If they aren't ready to listen, it doesn't matter what you say

Every salesperson knows this, but many entrepreneurs don't. If they aren't ready to listen, it doesn't matter what you have to say. Saying it five different ways won't help. Saying it louder, faster, more often, or getting other people to say it for you won't help either. Better to move on to the next opportunity, and come back to this one when they are ready to listen.

This is true for pitching VCs (Venture Capitalists), potential partners, strategic acquirers, customers, prospective employees...and just about everyone else. One young entrepreneur told me it was true of dating too.

So, why is it always a surprise to us when the other party won't listen? Well, we believe so much in what we have to say that we can't imagine anyone not wanting to hear it...and act upon it.

When I worked at Microsoft I would often find new startups that were doing amazing innovative things that could really add value to what Microsoft was doing. If the timing was right, and the product group was ready to listen, things happened very quickly...and successfully. I remember when I first saw Xobni I knew instantly that this would be great for Microsoft Outlook. I immediately sent a note to the top people in the Outlook group. They responded the next day and met with them the following day. Within a week or two Bill Gates was demoing Xobni to thousands of people on stage at the Microsoft Office Developers Conference.

Then there is the normal case. A year or two later I met the people from Gist. I was impressed. Gist had a great collaboration product that worked nicely with Outlook email. Gist captured all the relevant data, from lots of different sources, about a person in context of the email in front of you. The founders previously worked at Microsoft. Brad Feld, a personal friend, and well known within Microsoft, was a major investor. So, this should be easy, right? Wrong. The product group was not ready to listen. No matter what I did, or who I talked to...nothing.

Fast forward 18 months. I bring Gist to Google and they totally get it. Yesterday Google made an announcement about Gmail Contextual Gadgets. Gist (and Xobni) were part of the announcement. So, the people at Google are smarter than the people at Microsoft, right? Not really...maybe in some cases...but that isn't why it worked. It happened because the timing was right. They were ready to listen. Google had a product announcement coming up and needed ISV products to showcase.

I must say that Gist and Xobni both pulled off amazing engineering feats to get this done within days. They worked around the clock to meet an impossible schedule. The people at Google were amazed they did it. Now, Gist and Xobni could have said "Forget it. I have been down that road before and no one listened. I'm not going to turn my world upside down for you guys". They would have been completely justified in saying that. But, they saw opportunity and pounced on it.

So, why won't they listen? Lots of reasons. They could be totally heads down on a product release driving like crazy to a deadline. They could have other priorities that trump this one. They could have a similar idea already in the works. Or, they just simply aren't interested.

Things change with time. In the past I have taken a company or idea back to a group six months later...and they loved it. What changed? They were ready to listen. They were actively looking for ideas or solutions to problems they didn't know they had six months earlier.

Lesson for entrepreneurs - Focus on people that immediately get it. It won't be obvious to you who they are or where to find them. They will self select. They will react positively almost immediately. Pitch to everyone you see..all the time. You never know who will "light up" on your idea and want to help you. This goes for investors, customers, partners, potential employees, etc.

Don't waste time trying to convert someone who isn't ready to listen. Move on to the next prospect. Go back to the doubters later with a fistful of customers or partners. Or better yet, let them come to you...when they are ready to listen.

Subscribe - To get an automatic feed of all future posts subscribe with the buttons above right, or to receive them via email enter your email address in the box in the right column. You can also Follow me on Twitter @DonDodge

The Crunchies photos and videos

The Crunchies Award show was produced by TechCrunch, GigaOm, and VentureBeat. It is always one of the best parties of the year. This year was no exception.

The hit of the show was another clever song by the Richter Scales. Last year's prescient instant classic was "Here Comes Another Bubble". This year they came back with a hilarious song "RIP Good Times...Hello Great Times".

The song chronicles a startup CEO rallying his troops through the recession, turning down a $500M buyout offer, focusing on the positives (pounds of brains, and months of cash), and adding porn to juice up their product offering.

Rather than expound on all the highlights, let me just share some photos from the event.

Ray Ozzie (Microsoft - LiveMesh) accepting the Crunchie for Best Technology Innovation/Achievement for 2008, Steve Gilmor was the presenter.

Dan'l Lewin (Microsoft) presenting Best Startup, won by FriendFeed.

David Treadwell, Ray Ozzie, Om Malik interview

Jason Calacanis adding a touch of humor to the night. (Photo by Chad Scott)

Pictured below;  Ray Ozzie, MC Hammer, and Geoffrey Arone (DanceJam)

The TechMeme crew. Megan McCarthy and Gabe Rivera

Silicon Valley Angel investors; Jeff Clavier (SoftTechVC), Paul Graham (Ycombinator), and Dave McClure (500Hats).

Mark Zuckerberg (Facebook) and Don Dodge (Microsoft)

Microsoft Surface Computer attracted a huge crowd

Midori Lawler (Microsoft) and MC Hammer at the after party.

Early stage investors still writing checks - Web2.0 conference

21,000 companies got venture funding since 2001, but only 380 made it to an IPO (Initial Public Offering), according to Josh Kopelman at First Round Capital. Silicon Valley super angel Ron Conway said that 70% of the companies in his portfolio went out of business, total loss, in the last bust 2001 to 2003, also known as "Nuclear Winter in Silicon Valley". However, they kept writing checks to fund startups...and have done amazingly well.

Dave McClure moderated an outstanding panel at Web 2.0 Summit that focused on early stage investing. The panelists included; Ron Conway, Josh Kopelman, Paul Graham, and Jeff Clavier. These are the best early stage investors in the world, so when they talk, people listen.

There was so much great information from this panel it is hard to fit it all in one blog post. Let me just share some quotes;

Ron Conway "We want our companies to have at least 1 year of cash to cover expenses. They will need that much runway to weather this storm".

Paul Graham "We find teams that can build a product in 3 months, and start revenues quickly. They will have an infinite amount of cash if the can get to cash flow break even. I call it Raman noodle break even."

Jeff Clavier "I am doing 2 investments a month. In fact I did four last month. Investment size is about the same. We want to give our companies 2 years of runway so we figure out what the monthly burn rate is and raise the needed money."

Josh Kopelman "We take board seats but only for the first 18 months. This is when all the really important decisions get made where we can add value. After that it is all about execution, where we add little value."

Jeff Clavier "I sit on only 4 Boards out of the 51 investments I have made."

Ron Conway "I don't sit on any Boards, they are a waste of time. I add value at key inflection points; when they are raising money, when they are hiring key positions, when they are doing Biz Dev deals, or when they are negotiating an exit. I can use my experience and contacts to add value at those points."

Jeff Clavier "I always syndicate my deals with other early stage investors because they add a lot of value beyond the money."

Josh Kopelman "We don't compete for deals like VCs do. we work together because we don't need a huge percentage of the company to move the needle on our funds."

Paul Graham "We make tiny investments of $15K to $25K in 40 or more companies a year. It is more about the experience, advice, connections, and value add than it is about the money."

Paul Graham "We invest in 1 out of 30 companies that apply to Ycombinator. The odds are better getting into medical school. We do a pretty good job picking our companies. Many have already had exits and others are making great progress."

Josh Kopelman "We like investments where there are multiple exit points and we are happy to take an exit at $20M, $50M, or even let it ride to $200M. we look at it like the express train (VC) or the  local train with many stops. If the train door opens at $10M we might choose to exit. If it opens at $40M we might exit then. Or we might just ride the train all the way to the end. The entrepreneur really decides what is best, and we go along with them."

Ycombinator startup demo day Boston 2008

Y Combinator provides seed stage capital and a 10 week startup boot camp for budding entrepreneurs. At the end of the 10 week session Y Combinator invites VCs and angels to an investor day / demo day. Today YC unveiled 20 new startups to about 80 Boston area VCs and investors. Scott Kirsner (Boston Globe) and Roger Krakoff (Sigma Partners) are pictured here in the first row.

The companies covered areas like; a startup job site, video conferencing, cloud database software, a site for students, a news aggregation service, photo-sharing, social browsing, POS customer satisfaction surveys, white labeled social news, audience response software, music distribution, green certification, site creation for small business, a mobile-focused Evite competitor, a secondary ticket market, an event site, and a comment crawler.

These companies are only 10 weeks old, so some haven't launched yet and are still in stealth mode. Here is a summary of some of the companies that have launched.

Frogmetrics - puts touch screen devices into the hands of customers to get accurate, real-time feedback at the Point Of Sale. Frogmetrics measures customer satisfaction, employee performance, and advertising effectiveness to tell businesses what their customers think about products, services, and employees. Survey response rates typically exceed 85%.

The software aggregates data from unlimited locations, highlights significant trends, and helps companies gain insight into business performance—instantly, from any web browser.

Posterous is dead simple blogging by email. Just send text and attachments to [email protected]—no signup and no setup. You can photos, audio, video, documents, and rich text. Posterous automatically sets up a blog for you, then sends you an email reply with the URL address of your new blog.

TicketStumbler - a site to find and buy tickets to sporting events. Similar to StubHub, except TicketStumbler aggregates tickets from all the various ticket resellers. You can search by date, price, location, etc.

Best line of the day came from the TicketStumbler presenters "People go to Facebook to "poke" friends or some useless thing. People come to TicketStumbler to buy tickets. We make money on every sale."

Anyvite - Similar to Evite, a way to create events and invite guests. Ideal for the small to medium events. Simple to use. Guests can use email, SMS or IM to be notified of new events, and to respond without even visiting the site. Anyvite’s fully integrated mobile interface gives users the freedom to create and manage their events at any time and from any place.

Job Alchemist - a site for online recruiting, launched Startuply, a startup-specific job site, in July 2008. New sites targeted to specific industries and communities can be launched and populated in as little as 30 days.

Their next product will be JobSyndicate, a distributed affiliate job network. Companies put recruiting bounties on jobs, and anyone can use the widget technology to advertise these jobs on their site. When a publisher sources an applicant who gets hired, they get half the bounty: a payout of $2-10K or more.

There were several other interesting companies that I can't talk about yet because they are still in stealth mode. The 20 companies this year were very polished and business focused. The Boston area VCs are paying attention to Ycombinator now.

Some of the VCs I talked to included; David Hornik (August Capital), Fred Wilson (Union Square Ventures), David Beisel (Venrock), David Baum (Stage 1 Ventures), Rich Lavendov (Avalon), Roger Krakoff (Sigma Partners), Neil Sequiera, David Orfao, and Joel Cutler (General Catalyst), Eric Hjerpe (Atlas), Jeff Glass (Bain Capital), Bijan Sabet and Rob Go (Spark Capital),  Saar Gur (Charles River Ventures), Jonathan Seelig (Globespan Capital), and Jo Tango (Kepha).

Dharmesh Shah (HubSpot), Bob Buderi (Xconomy) and Scott Kirsner (Boston Globe) attended the YC Demo Day and wrote reports on their blogs.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

The Capital Gap or Where are the $Billion Startups?

Paul Graham wrote an interesting essay "Why There Aren't More Googles" where he basically places the blame on reluctant VCs who won't invest small amounts on tiny startups.

So what's the real reason there aren't more Googles? Curiously enough, it's the same reason Google and Facebook have remained independent: money guys undervalue the most innovative startups.
The reason there aren't more Googles is not that investors encourage innovative startups to sell out, but that they won't even fund them.

There is a Capital Gap between the $50K from Friends and Family, and the $3M to $5M from VCs. But, that gap is being filled by Angel Investors who invested $26B in over 57,000 companies in 2007.

How many Billion dollar ideas are there? Angels in vested $26 Billion in 57,000 companies last year, while VCs invested another $29.4B in 3,813 companies in 2007. The problem isn't a lack of capital, or even a lack of entrepreneurs. It is a lack of disruptive big ideas that can generate a Billion dollars.

Most startups are acquired before they reach $1B. Look at the M&A numbers over the past few years. Last year there were $25.4B in M&A transactions compared to just $10.3B in IPOs.

Paul Graham and Y Combinator are hatching some really cool companies. Is there a Billion dollar company in there? Certainly there are some $50M ideas, but a Billion? Possibly, but unlikely.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Boston startup events and resources

Boston loves startups. The Massachusetts Technology Leadership Council is doing a great job setting up events. Watch the MTLC site for future dates. MITX, The Capital Network, the Angel Capital Assoc, and others are also putting on events. Here are just a few of the upcoming events this week and next.

Tech Tuesday - is a regular monthly meet-up organized by Dan Bricklin, of Visi-Calc spreadsheet fame. Tech Tuesday is for geeks, tech savvy professionals, DIY-ers, press, and other industry luminaries for an informal gathering. Bring your laptops, robots, OLPC XO's, Amazon Kindles, new cell phones, gadgets, and other new-fangled devices. Tech Tuesday meets the second Tuesday of every month. Microsoft is a sponsor this month.

New England Angel Capital Conference - The Angel Investor groups of greater Boston meet once a quarter to review their best companies. Each group nominates companies to present. They are all looking for a round of funding that is bigger than any one Angel Group can handle. This meeting lets all the groups get a look at promising companies and pool their investment dollars.

Entrepreneurial Team Building - a panel of entrepreneurs that have built companies from the ground up and know the ins and outs of building great teams. What really makes a team come together? How can you be sure that you are bringing in the right folks? Who should be hired first, second, next? We'll talk about teams at the senior management level and at the BOD level.

Entrepreneurial Series - Plain English Term Sheets - This is a webinar for startup entrepreneurs who want to understand the details of financing term sheets. What to ask for...and what to avoid.

MITX - Mass Innovation & Technology Exchange have lots of great events for technology based startups. The next session is "Building Social Applications and Widgets".

The Capital Network - TCN's network consists of entrepreneurs on their way, entrepreneurs who have lessons and talents to offer and investors who may have themselves drifted across the entrepreneurial line. TCN has 3 or 4 events a month. The next one is on Founders Equity Issues.

The 128 Innovation Capital Group -  The regular meetings are held on the second Thursday of every month at the Best Western Hotel on Totten Pond Road in Waltham. Every month an investor provides our formal program. After Q&A, our speaker generally remains to speak with audience members, one on one. After the meeting, a roster with the contact information of all attendees is made available to those who came to the meeting.

Web Innovators Group - WebInno was founded by David Beisel of Venrock Capital. Scott Kirsner is also deeply involved. WebInno has regular meetings. The usual format; early stage start-ups and individual innovators will briefly demo their product/service in two different forums. First, there will be a couple center-stage presenters giving five minute demos for the entire crowd (aka “main dishes”) at 7pm. In addition, there will be a number of tables set up at the periphery of the room for live informal demonstrations to smaller groups during the schmoozing sessions (aka “side dishes”). Each will help provide the community a glimpse of current local endeavors in the space and offer the basis for further conversation.

Nantucket Conference - The 2008 Nantucket Conference audience will consist of approximately 150 of New England's top entrepreneurs, investors, and tech executives. Rather than sitting through a series of speeches and PowerPoint presentations, the audience will be engaged in a dialogue - and sometimes a heated debate - with Conference presenters.

Boston based bloggers

Scott Kirsner, a writer for the Boston Globe, and a blogger at Innovation Economy is always organizing and promoting startup events. Watch Scott's blog for announcements of upcoming events.

Jeff Bussgang - VC partner at Flybridge Capital Partners (formerly IDG Ventures Boston). Jeff is a former entrepreneur and now a VC. His blog is appropriately called Seeing Both Sides.

Xconomy - Bob Buderi, Rebecca Zacks, and Wade Roush cover Boston based startups, technology trends, and VC investments.

Mike Hirshland - VC partner at Polaris Venture Partners in Boston.

Nicholas Carr - Nicholas is a former Harvard Business Review editor and author of several books.

Boston based entrepreneur bloggers - Ben Saren (founder & CEO of CitySquares Online), Matt Douglas (founder & CEO of Punchbowl Software), Pito Salas (former CTO of eRoom).

BlogString has an extensive list of Boston events. Thanks to Nathan Burke for the link.

Come on out to these events. I try to attend all of them, and would love to say hello. However, for the next two weeks I am working in Silicon Valley...my second home.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Angel Investors put $26 Billion in 57,000 companies

The Center for Venture Research at UNH today released their annual Angel Capital report for 2007. Angels invested $26 Billion in 57,120 companies, up slightly from last year. The report says there are 258,200 active angel investors in the USA.  By comparison, Venture Capitalists invested to $29.4B in 3,813 companies in 2007.

Software accounted for the largest share of Angel investments, with 27%, followed by Healthcare Services/Medical Devices and Equipment (19%) and Biotech (12%).

Angel Investors continue to be the largest source of seed stage and early stage start-up capital, with 39% of 2007 angel investments going there.

Mergers and acquisitions represented 65% of the angel exits, and IPO's 4%, in 2007. Unfortunately, bankruptcies accounted for 27% of the exits. Overall annual returns for angel’s exits were 27.7%.

Angels tend to invest just like VCs except they do smaller investments $200K to $2M and they do about 15 times as many deals. However, Angels have the same investment criteria and expectations of significant returns. The "average" angel group makes 8 investments per year for a total of about $2M. The average deal size (seed stage) is about $250K.

The larger angel groups in Silicon Valley and Boston do significantly more deals and invest between $350K and $600K per round, and maybe $1.5M to $2M per company.

Keiretsu Forum is the largest angel investor group in Silicon Valley. I don't have the numbers for 2007, but I know they invested $51M in 2006 in 30 companies. Several of these were real estate deals so it skews the average deal size substantially. Keiretsu Forum has invested $115M in 125 deals since its founding.

Band of Angels is another large Angel group in Silicon Valley having invested $130M in 220 companies since its founding.

Boston has around 20 Angel Capital groups. Some of the larger groups are; Beacon Angels, Boston Harbor Angels, Common Angels, eCoast Angels, Hub Angels, and Launchpad. See the Angel Capital Association site for leads to angel groups in other parts of the country.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Y Combinator Demo Day - which one will be the next Google?

Paul Graham, Jessica Livingston, and the Y Combinator gang held their Demo Day yesterday for 21 hopeful startups. In most cases these "companies" are only 3 months old, have two or three founders, and are just launching a beta product/service.

Google was once a two person startup - So was Microsoft, Oracle, Sun, Apple, and every other successful company. They all started with a couple founders and an idea. It is truly amazing to see how much these Y Combinator companies have accomplished in just 3 months.

What is Y Combinator? - Y Combinator is a seed stage investor/incubator with a large network of entrepreneurs, VCs, and all the people you need to start a company. It is hard to explain but it is a cross between a startup boot camp and a traditional startup incubator. The best description of Y Combinator is on its application page. BTW, they are accepting applications for the next round of companies now. Deadline is April 2, 2008.

Y Combinator success stories? - There have been a surprising number of exits/acquisitions. They include; Reddit.com, Zenter.com, TextPayMe, Anywhere.FM, and Parakey. Several have also closed Series A or B financing rounds and have gained significant traction. Examples are; Loopt, Xobni, Scribd, Justin.tv, Weebly, Disqus, Wufoo, and Virtualmin.

Best of Show? - There were 21 companies presenting. TechCrunch did a short review of all of them. Here are my picks for most interesting or promising.

Omnisio - Video editing, sharing, tagging, and annotating made easy. Omnisio lets you take a YouTube video you like and create a clip, add tags, comments. You can easily embed your custom clip in a blog or web site. Omnisio creates a link to the source video and starts playing it where you want. There is an obvious advertising play here. Omnisio could insert a short video ad anywhere in your custom clip. It also collects lots of meta data (tags, comments, links) that help describe the video for better ad targeting.

BaseShield - Provides security and virus protection by running applications virtualized, isolated environments. BaseShield effectively quarantines viruses, spyware, and malware inside the virtual environment where they can do no harm. I have seen this idea before but it is hard to get the right balance between usability and protection.

TipJoy - Makes it easy to click a tip button to donate or pay a small amount. Visitors are not required to create an account. Just click the button and type in your email address. TipJoy separates the financial transaction steps from the act of tipping, so it only takes on click. Their demo showed that PayPal takes 8 clicks to complete a payment, while Amazon takes 7 clicks. So, how does it work? When you have accumulated $5.00 in tips or payments TipJoy sends you an email and asks you to "settle" your account by paying with a credit card or PayPal. No one will chase after you if you choose not to honor your tip. TipJoy makes money by charging a 3% fee for transactions...much the same way PayPal or credit cards work.

280 North - They have developed a new way to build web applications that has the "look and feel" and performance of desktop apps. Their first application is 280 Slides, an online presentation tool, that looks and feels something like Powerpoint...if you squint and imagine what it can eventually be.

Others companies have tried to implement a PowerPoint like application in the browser...and they all come up short. 280 North has many more features and feels more like a desktop app. Most importantly, once you are finished creating your presentation you can export it to PowerPoint and present in full screen mode. The founders pointed out that it is very distracting to watch a presentation from a browser with all the tool bars visible. Presenting in full screen PowerPoint is much more engaging and professional.

The 280 North people are building a "platform" for developing lots of online applications that "feel" like desktop apps.

Other notable ideas - Capturing user data, click streams, and attention data, for better ad targeting, was a common theme among many of the companies. Addmired, MightyQuiz, Mixwit, Deluux, Wundrbar, 8aWeek, and WebMynd are fun, engaging applications,with ad targeting as an underlying monetization scheme. Each one of these applications is interesting in its own way, and will evolve into much bigger ideas than what we see today. Which one will be a big hit? Nobody knows. But, we do know there is a profitable market for good attention data for ad targeting. Someone will figure this out and make a lot of money.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.