• Tony Hsieh and Ev Williams Use Holacracy: Should You?

    holacracyLast week, we learned that Zappos’ management structure is being replaced with a “self-governing” management system called Holacracy that dispenses with job titles and throws an elbow at traditional hierarchies, replacing them with a flatter structure that distributes power more evenly.

    At first blush, the news could be interpreted as a predictably quirky Zappos maneuver by its employee-friendly CEO, Tony Hsieh. But Holacracy isn’t as zany as it sounds. In fact, rather than throw out much of a company’s structure, Holacracy actually applies far more structure to every decision to make it easier and faster to get things done. For example, a traditional management structure where only a few people are authorized to make decisions can lead to delays and missed opportunities. By contrast, Holacracy assigns different aspects of the decision-making process to a wider range of people, theoretically yielding a shorter turnaround on new proposals.

    Brian Robertson — a Philadelphia-based management consultant who dreamed up Holacracy in 2007 after struggling to manage his first company — shared a bit more about how it works last week.

    Holacracy involves different “circles” and uses “tensions” to steer an organization. Is there another way to describe Holacracy to those who might be confused by that kind of language?

    At its core, Holacracy is a power structure for how to run an organization. Alignment, accountability – those are usually done through a management hierarchy. Holacracy doesn’t throw out those things but uses a different structure to get there, so instead of a single CEO, power formally rests in a constitutional process, and everyone is kind of on a level playing field because they know how to influence the organization through those rules.

    So Holacracy is less about democracy and more about transparency.

    It’s not democratic; decisions are autocratic, with every employee holding a different authority to make certain decisions. So it’s not a big consensus system; it’s just more distributed.

    How would a CEO go about learning more? Should they start by scanning the constitution you’ve created? Do they need to hire you?

    Any company is free to do what they want with the constitution itself, though we don’t recommend it. It’s a complex game; it’s hard to learn by reading a rulebook.

    We find people who are already looking for alternative approaches – CEOs who are aware of the limits of the conventional ways of managing but who don’t know there’s an alternative. Then we offer to come out for a day, and we put them through the Holacracy system and the meeting processes that we use. We also try it with some of the company’s real, live stuff. There’s a big learning curve, but it’s easy to see the potential of it straightaway. We often hear [at these trials] that a company just got 10 times more stuff done than it normally would.

    Along with Zappos, the publishing platform Medium is probably the highest-profile company using Holacracy. How did Medium cofounder Ev Williams discover it?

    David Allen, the author of Getting Things Done, is highly respected by a lot of interesting people, and when he started talking about us [publicly], Ev noticed.

    We wound up having a great breakfast. Ev said when he left Twitter [to start Medium], he was feeling this sense of dread, because he loved creative work, but he hated being a bottleneck manager. He was getting further and further from the work he loved. In fact, most of our clients aren’t people who are excited to have the [CEO] title for the first time; they’re pretty seasoned leaders who experience the same problems [as Williams].

    Do you have any proof that Holacracy works?

    We definitely lack hard data, but we do have a lot of stories from our clients, including David Allen Company and Precision Nutrition, in Canada. What we hear again and again is that it’s pretty transformative, and it’s usually the CEOs who are our biggest advocates.

    Image courtesy of Visual Facilitators.

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  • Zuora: The Hottest Company You Don’t Know

    images (1)Zuora isn’t a household name, but the six-year-old is becoming kind of a big deal as private companies go. Its high-touch subscription-billing platform already counts as customers dozens of established corporate giants (HP, Dell, News Corp), newer corporate giants (Box, Docusign, ZenDesk), and up-and-comers (Dollar Shave Club) for whom its technology handles everything from pricing to order management.

    Unsurprisingly, investors love the 300-person company. Zuora has raised $128 million to date, including from Benchmark, Index Ventures, Vulcan Ventures, and Marc Benioff of Salesforce.com, where Zuora’s cofounder and CEO, Tien Tzuo, was employee number 10.

    Still, Zuora isn’t planning to go public any time soon, say Tzuo. We talked about why earlier this week.

    You’ve said that you’d like at least another year or two before tapping the public markets, but it seems like you’d get a warm reception right now.

    The private markets are assigning valuations that are as strong if not stronger than pubic markets; there isn’t a lot of inherent value right now to going public. Staying private also allows us to work more on ourselves and to make big bets.

    Do you mean acquisitions?

    We haven’t made any acquisitions but our private valuation is getting to the size now where it’s starting [to make sense]. I suspect [we’d look at] more adjacent areas, as technology tuck-ins. It’s not a strategy of ours, but staying private gives us more flexibility.

    So what kind of big bets are you making?

    We’re kind of in a land grab [having recently opened offices in London and Australia, with plans to move into Asia-Pacific]. If we can raise money and focus on [expanding], then it just makes more sense to do that. Our big challenge is evangelizing the shift from a product to a subscription-based economy.

    Meaning the renting versus buying economy?

    Right. Eighty or 90 percent of companies getting funded now have a subscription model because of [cloud-based servers and other things]. Medical device companies that [used to spend a fortune on equipment] now use services hosted at Amazon and pay as they go for processing power.

    Everyone will wake up across the world and realize their business is a subscription-based model. Product-driven society, where you ship as many cars, pens, and computers, is no longer sustainable.

    Assuming that’s true, you’re probably as aware as anyone of the types of subscription-based companies that VCs are funding. What are you seeing?

    I’m seeing massive niches. Take GoodMouth, which sells toothbrushes. It’s kind of a no-brainer. You’re supposed to change your toothbrush every month or two; GoodMouth sends them to you. With the Internet, you can pick something that has traditionally been too small and scale it to the whole country.

    Another example is point-of-sale systems. It might seem like Square has the point-of-sale market locked up, but that’s not so. There are half a dozen companies focused on point-of-sale systems: there’s one that’s focused on grocery stores, another focused on dry cleaners. Very specific vendors can scale to a very large size today, unlike five to ten years ago, and smart VCs know it. Peter Fenton [of Benchmark, who sits on Zuora’s board], has a company in his portfolio called Revinate. It does hotel management systems. That can’t be further afield from the masses, but it’s a multibillion-dollar vertical.

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  • The Part-Time VC

    Semil ShahSemil Shah has a full-time job, spending most of each week doing mobile product marketing for a company called Swell in Palo Alto. The rest of the time, Shah is either writing a weekly column for TechCrunch; working as an informal (but paid) mobile technology consultant to several Sand Hill Road firms; or trying to participate in competitive seed-stage financings using a $1 million fund called Haystack that he raised last year.

    Shah — who has so far backed 16 companies and is beginning to think about a $5 million to $10 million second fund – calls his schedule “not normal.” However unusual it may be, Shah could well represent the future of early-stage investing given its ongoing atomization. I talked with him about his immediate plans over coffee last week. Our conversation has been edited for length.

    How does someone with a.) a regular job and b.) no investing track record raise a million dollars?

    I’ve always been interested in investing and basically wanted to get practice, so I turned to [VCs and founders] who I know for help. There’s a ton of trust involved and every LP is different. Even just getting a $25,000 LP check from someone who has the means isn’t easy. But I think people knew that I wanted to do it and was having a hard time, and [eventually] I sort of passed the passion test. I also invested some of my own money [in the pool] and didn’t charge a management fee.

    How has it been going?

    I’ve now invested in 16 startups across four areas, including marketplaces, core infrastructure, online and offline commerce logistics, and mobile computing. Quite a few are doing well, including Hired [which marries tech talent with jobs]; Paddle8 [a virtual art auction house that has already gone on to raise a Series B round] and Instacart [a same-day delivery grocery startup that counts Sequoia Capital’s Mike Moritz as a board member].

    What size checks are you writing, and what are you getting in return for them?

    I can write between checks of between $25,000 and $100,000, though they’ve usually been around $25,000. And as someone on the edge of these deals, you aren’t setting the terms; you’re asking to be in the deal. For me, you take what you can get. It’s very competitive; I was surprised by how competitive it is.

    How are you selling yourself to sought-after entrepreneurs?

    I do think that by working full-time in mobile, I connect better with entrepreneurs because my operational knowledge is sharper. I also tell everyone my terms of engagement, which are that I’m on call for the entrepreneurs. I let them know that I think [they’ll] figure out what they need to do, then to call me if I can help in a certain area or just to talk to, because I’m not one of the big players. I kind of underpromise and try to be helpful and available, rather than say, “I’m going to do all these awesome things for you.”

    For those who might like to do what you’re doing, how would you advise them to separate themselves from the pack?

    I think firms and individuals have to brand themselves because it’s so competitive, and there are three ways to do it: there’s content marketing, including through blogs and social media; there’s referral marketing – you work with someone and give them an amazing reference; and there’s performance marketing. At the beginning, what do you do? You media market to gain exposure. Either way, entrepreneurs are smart; they figure out [who adds value and who doesn’t].

    Any big surprises now that you’re so entrenched in the market? What trends are you seeing?

    There are a lot of companies coming out of Y Combinator and [other high-profile incubators] that are getting fancy with terms and trying to get cute with the caps, and the market doesn’t really bear that out. I think sometimes with first-time founders, you get into the game, and you just get caught up in everything.

    I think another thing that most people on the founding side don’t understand is the exit profile of most companies. There’s a $20 million to $50 million band, and a $50 million to $100 million band, then the curve just drops. Entrepreneurs and investors publicly say, “Oh, we’re not going to talk about exits,” but everyone is silently making their own exit profile when they’re considering making an investment.

    Do you think when the time comes to raise a second fund, investors will be ready to bet on you again?

    I hope so. I’ve gotten lot of inbound [deal flow] from my other deals. I feel like I’ve passed the trust threshold and also the he-got-into-early deals threshold. I want to be investing in private, early-stage technology for the rest of my life.

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  • Entrepreneur Tristan Walker to VCs: Not Focusing on African Americans is “Crazy”

    Tristan WalkerYesterday, StrictlyVC featured software mogul Mitch Kapor, who noted that VCs aren’t paying enough attention to the changing demographics of the country — even if it’s good business for his own investment firm, which is paying close attention. Indeed, among other things, Kapor goes to events hosted by the Latino Startup Alliance and aligns himself with NewMe, a San Francisco-based accelerator focused on underrepresented entrepreneurs.

    But Kapor isn’t alone in trying to wake up Silicon Valley. Tristan Walker, a Palo Alto-based entrepreneur who cut his teeth running business development at Foursquare and is now running his own still-stealth startup, is also doing what he can to shine a light on underrepresented groups.

    It’s personal for Walker, who is African-American, which puts him in the company of just 1 percent of black tech entrepreneurs in Northern California. But like Kapor, Walker also believes proactively reaching out to African-American and Hispanic groups makes good business sense. We talked late last week.

    A year or so ago, you set up the internship program Code2040 to bring black and Latino engineering undergrads to the Valley. Why?

    Because for the first 24 years of my life, prior to coming here [to attend Stanford Business School], I had no idea that Silicon Valley was a place, let alone a great place. I don’t want people making the same mistake, so I thought [to] create an organization that gets black and Latino engineering graduates into internships in the Valley, and I enlisted one of my classmates [Laura Weidman Powers] to run it. In the summer of 2012, we had five fellows; this past summer, we had 18.

    How does it work?

    Startups only have so many resources to recruit at universities, so while you find [recruiters] at Stanford and M.I.T. and [the University of] Waterloo, my thinking was: What about engineering students at Harvey Mudd [College in Claremont, Calif.] and Stony Brook University [in New York], where I received my undergraduate degree? There are kids at these places who are incredibly talented and deserve that chance. So we visit these colleges, connect with administrators and students, educate them, and make it easier for [startups] to find great talent in the process.

    Is this a pipeline problem or is there more to it?

    It’s an access problem; there aren’t enough black folks here to put people in the network. But there’s an awareness problem, too. Growing up, I wanted to be an actor or athlete because I saw the Denzel Washingtons and Michael Jordans of the world. I also wanted to work on Wall Street, because those guys were very visible. As Silicon Valley becomes more visible to elite engineers who happen to be of color, the virtuous cycle will [begin]. I do think we’re at the start of something.

    In another 30 years, the majority of people in the U.S. will be people of color. Is there more that VCs could be doing to target different demographics, so they aren’t playing catch-up later?

    Definitely. Talk of white founders of black founders aside, focusing on this demographic is good business. [African Americans] are the earliest adopting, most culturally influential demographic in the world. To not be focusing on them is crazy.

    Also, think about it: years down the road, if I’m a startup founder building a mobile app, do I build a Spanish-language version first? Do I focus on Android or iPhone first? What do I do about people who can only pay in cash? There’s a seismic shift [coming]; we should be thinking about it from now.

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  • Mitch Kapor Asks: Where Is Twitter’s Person of Color?

    Mitch-Kapor-001Mitch Kapor, who founded Lotus and is widely considered a pioneer of the personal computing industry, wasn’t impressed when Twitter announced it had finally welcomed a woman – Marjorie Scardino – to its eight-member board last Thursday. As Kapor says of the move, “There’s no reason that Twitter had to wait until now to put a woman on the board.”

    Scardino’s appointment also doesn’t address the fact that every member of Twitter’s board is white, says Kapor, noting people of color are even more active on the platform than whites. (According to Pew Research, 26 percent of black Internet users surveyed say they use Twitter, compared to 19 percent of Hispanic users and 14 percent of white users.) “No one is talking about the fact that people of color over-index on Twitter. Why aren’t we talking about the reason no one of color is on its board?” Kapor asks.

    Late last week, I chatted with Kapor – today an active investor whose personal foundation works to ensure equity, particularly for low-income communities of color – about Silicon Valley and issues of race. Our conversation has been edited for length.

    It often feels like Silicon Valley isn’t paying much attention to different ethnic and racial groups, including as end users. How big a problem is this in your view, and how is it remedied?

    Entrepreneurs scratch their own itch, naturally, turning problems into opportunities. So as you have more underrepresented people of color starting companies, they’re naturally going to form them in ways that serve markets that have been overlooked.

    But it has to be a multi-pronged approach, because while it’s the case that the Valley thinks of itself as a meritocracy, the gatekeepers take all kinds of shortcuts – paying attention to where you went to school, all the while professing that they don’t care what color or gender you are. It’s a ridiculous claim. People make all kinds of implicit assumptions about what success looks like that makes it harder for African Americans, Latinos, women, and people with accents to succeed.

    What’s a practical way to get the ball moving? Is it a matter of getting more underrepresented groups integrated early on into the ecosystem?

    A good first step would be to recognize that the smartest VCs and entrepreneurs are subject to systematic distortions from implicit bias. We could do much more to mitigate it if we’d stop pretending it doesn’t exist.

    The powers that be on this subject say the most amazingly stupid things. They say things like, “I don’t care if you happen to be black or Latino.” But no one happens to be black or Latino; you can’t grow up and not be treated differently in one way or another. And to fail to take that into account is poor rationalization.

    What else could ultimately make a difference? The country’s demographics are changing fast.

    It’s sort of like climate change. Even though the science was strong, people took a wait-and-see position at first. After the science kept adding up, you were left with a relatively small number of climate denialists. On the topic of changing demographics, it’s the same thing. It’s inexorable. It will only come out one way. It’s just a question of how long it takes to get to critical mass.

    At some point, especially if there’s one big outcome – one black billionaire – it will be a game changer. You can talk until you’re blue in the face without results. It’s when founders from nontraditional backgrounds start breaking out that we’ll start seeing a real impact.

    Who have you backed recently who has a different perspective given his or her nontraditional background?

    Take Regalii, a recent Y Combinator graduate whose founder is Latino. It’s a mobile solution for the international remittances market, and it comes out of [co-founder Edrizio de la Cruz’s] life experience as an immigrant from the Dominican Republic who went to Wharton. It’s a totally valid opportunity and the sort of thing that investors should fund, but it’s not the sort of thing that other people are necessarily going to think of, even though they should.

    I agree 100 percent that there are lots of opportunities to cater to underserved markets that entrepreneurs aren’t going after. Because we’ve become known for being focused on high-growth opportunities that have a positive social impact, we’ve become a magnet, and we feel like we have an unfair competitive edge. These are companies not being fought over by other VCs. But that’s their loss and our gain.

    Photo by Kim Kulish/Corbis.

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  • In Talk of Amazon and UPS Delivery Drones, a VC Sees Dollar Signs

    cyphy_works_uavAmazon and UPS made big news this week, disclosing that they are experimenting with flying parcel carriers, respectively.

    But the companies’ eventual use of drones isn’t what’s interesting to VCs like Bilal Zuberi, an investor with Lux Capital who has been studying the drone space for several years. The real story, as far as he’s concerned, is that two major commercial deployment opportunities have come into view, validating the market for unmanned aerial vehicles (UAVs) — and creating exit opportunities for them.

    The development is of particular interest to Zuberi, whose firm owns a piece of CyPhy Works. CyPhy builds UAV hardware and software and could ultimately be involved in delivering your Amazon loot.

    Jeff Bezos hasn’t invested in the company, but CyPhy was founded by iRobot cofounder Helen Greiner, and Zuberi tells me that Bezos is “close to the iRobot family.” (Bezos has invested in Rethink Robotics, a manufacturing robot company started by iRobots cofounder Rodney Brooks.)

    Even if Amazon — which acquired the robotics company Kiva System last year, paying $775 million for the company and putting its robotics warehouse workers to use — doesn’t buy CyPhy, Zuberi suggests that Amazon’s embrace of delivery robots could encourage other potential acquirers from Walmart to FedEx to enter the market.

    “People always ask me, ‘If you’re successful, who would buy you guys?’ Well, Amazon [has bought a robotics company]. Why would UPS or FedEx not buy one of these [UAV] companies?”

    Of course, that’s all years down the road. UAVs, currently used in military applications, can’t access U.S. national airspace until the beginning of 2015. And initially, only limited drone activity will be permitted so that the Federal Aviation Administration can adjust its policies if need be.

    Even then, observes Zuberi, companies like Amazon and UPS will likely stick to demo deployments for a while, as they figure out a raft of likely issues that extend well beyond picking up and delivering boxes to the right location. Among numerous other considerations, the companies will need to determine how to tightly integrate the technology into their supply chains and ensure the drones’ sensors can operate safely in crowded neighborhoods.

    Zuberi thinks that by the time drones are flying paper towels to consumers, the technology will work as it should.

    “I love where you have military and government use cases involved,” he says, “because they test and they test for resiliency and redundancy. These guys can’t have failures. Everything has to be perfect.”

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  • With Little Notice, Seed-Stage Valuations Begin Falling

    mo moneyA widely held belief in Silicon Valley is that valuations are still on a one-way trajectory toward the sky, with founders firmly in the driver’s seat.

    But the reality for seed-stage companies may be a bit more dire than that — and getting worse by the month.

    According to the research firm CB Insights, both average and median seed-stage valuations have fallen since last year, with the average valuation dropping from $2.2 million to $1.7 million and median valuation falling even more precipitously, from $1.7 million to just .6 million.

    Data from AngelList, a matchmaking service for investors and seed-stage entrepreneurs, also shows declining valuations. According to AngelList, which tracks thousands of startups in its system, the average seed-funded company’s valuation dropped from $3.9 million in the third quarter of 2012 to $3.6 million in the third quarter of this year. That isn’t a massive dip, but AngelList founder Naval Ravikant tells me that “by the time [a shift in one direction] shows up in the averages, it’s pretty pronounced.”

    A recent quarterly venture capital report out of Pitchbook, which operates a subscription-only database of private equity and VC deals paints a rosier picture. Pitchbook found that median pre-money valuations for seed-stage, VC-funded companies have nearly doubled over the last three years — from $3.2 million in 2010 to $5.2 million through the first three quarters of 2013.

    Still, this same report observed that lofty valuations are only making it harder for companies to raise Series A rounds. Pitchbook further noted that the rise of valuations can’t go on endlessly, suggesting there will likely be more flat and down rounds in coming years.

    Ravikant — noting that “everyone’s dataset is incomplete” — suggests the future is now. Though he can’t pinpoint exactly when things began trending downward, he thinks valuations “kind of peaked around the Facebook IPO, when it turned out to be less than people thought it would be.”

    According to Ravikant, there “hasn’t been a mass exodus out” out of the seed-stage investing market, mainly because “people still believe some percentage of your portfolio should be early-stage. But there’s increased recognition” that it’s a tough racket, with many angels suffering from investor fatigue and suddenly becoming more realistic about the chances of their portfolio companies receiving follow-on investments.

    There will always be a market for the most promising seed-stage startups, in other words. But evidence from CB Insights and AngelList suggests that for entrepreneurs just setting out, the road ahead looks bumpy.

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  • A Venture Firm Focused on — Wait — Youth Tournaments?

    thumb_csvWe’ve heard about startups backing professional sports athletes, including Fantex, which sells stocks designed to track athletes’ economic performance.

    Now, Capital Sports Ventures, an eight-month-old, Washington, D.C.-based venture firm, is targeting what it argues is a much bigger market: non-professional athletes. Specifically, the firm is targeting all manner of minor league and participatory sports opportunities, from youth tournaments to startups that enable people to track their performance during sports events.

    It may be far afield from the typical venture investment, but it’s a world that Capital Sports Ventures knows well. Firm founder Greg Bibb was previously EVP of business operations for the Washington Wizards NBA team and COO for the Washington Mystics WNBA team. Meanwhile, Bibb’s joint partner in the endeavor is SWaN & Legend Venture Partners, whose managing director, Fred Schaufeld, is also a partner in Monumental Sports and Entertainment, owner of the Washington Wizards; the Washington Mystics; the Washington Capitals NHL team; and the Verizon Center sports arena. 

    I talked with Bibb and Schaufeld recently to learn more about their plans. Our conversation has been edited for length.

    What’s so interesting to you about youth tournaments?

    FS: There are 10,000 professional athletes in the U.S, but hundreds of millions of sports fans out there and it’s a disjointed market.

    GB: That’s right; it’s a much bigger marketplace when you look at participatory sports. There are a lot of organizations that could be very successful, that are built on the relationships and expertise of folks who’ve spent the majority of their careers in that space. But while they’ve built these tournament businesses, perhaps they don’t have the expertise that professional sports teams enjoy including around sponsorships, licensing, ancillary event creation, and so forth. We’d make an investment, keep the operator in place, let them what they do best, and we’d bring capital and expertise to the equation.

    Are you disclosing how much money you’ll put to work? Have you raised a pool of capital, or will you be investing on a deal-by-deal basis?

    GB: SWaN & Legend is a $70 million fund and they are our anchor tenant, however they have multiple investments in addition to [us]. The precise amount that’ll ultimately be invested into [Capital Sports] from all sources is unclear and will be based on the opportunities we find.

    We have about 30 LPs altogether, most of whom are CEOs of companies [who add value to the firm]. Essentially, we’re looking for opportunities where our background can accelerate the ventures as much as money can. We run the gamut in terms of sports and entertainment experience. Ticket sales, branding, social media, event creation – there’s not an aspect of the sports entertainment space that we can’t speak to.

    Have you made any investments yet?

    GB: We haven’t but we’ve been close on a couple. It takes a while to go through the due diligence process. One particular case required a partnership to be created around certain regional entities around the country, but unless they could work out their partnership issues, we didn’t think we could bring the sport to the Nikes [and other major sponsors] of the world.

    FS: Getting to scale takes a while. I’m personally in the ownership of four pro sports team and these things take a while. But we’re patient. And Greg is very “trend right”; he knows what’s coming up next.

    What’s is coming up next, when it comes to youth sports?

    GB: LaCrosse right now seems to be a sport that’s on a significant rise; you’re really starting to see it spread west across the country. Another is girls’ volleyball, which is now one of the fastest-growing and lucrative sports in the country and is played more and more at the high school and middle school level, driven by club teams. Then, of course, soccer is the old “new.”  The sport was long ago established at the youth level, but it’s starting to [become popular with older kids], too, and it just expands as a generation of kids who had to educate their parents on the sport are now grown and beginning to educate their own children.

    What’s the exit strategy with these types of investments, and what’s your timeline?

    FS: We’ll see where the opportunities take us, but with professional leagues, some have sold to Providence Equity and people like that. Between myself and my partners, we’ve been involved with every kind of exit you can have — multiple times — and we feel comfortable letting the underlying businesses dictate [what happens].

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  • Yahoo Chairman Maynard Webb on His Giant, Low-Flying Investing Network

    Maynard_Webb_270x271Silicon Valley veteran Maynard Webb has a knack for winding up at the center of things. The former COO of eBay and CEO of LiveOps is the chairman of Yahoo’s board, a director on the board of Salesforce.com, and just yesterday was nominated for election to the board of Visa.

    Webb isn’t content to live in the world of public companies, however. On the contrary, since 2010, Webb has been quietly building one of the most sprawling, and lowest-profile, investment networks in Silicon Valley.  Called Webb Investment Network, the outfit, cofounded by Webb’s former LiveOps colleague Michael Neril, has now amassed a network of 90 “friends” who are invited into every deal that Webb is himself invited into — and he has backed 50 startups so far. 

    Webb calls giving these opportunities to invest alongside him “gifts.” I chatted with Webb yesterday to learn more. Our conversation has been edited for length.

    In 2010, you already had plenty going on. Why formalize your investments with this kind of firm?

    After I “retired” [in 2006] from eBay – eBay’s word for it – I was out running [the cloud-based call center service] LiveOps within just a couple of months. My wife asked how long I was going to do this and I said five years, thinking that would be a long time. But that five years came and went pretty quickly, and since I’d promised her that I wouldn’t operate companies any more [after LiveOps], as we started to come to late 2010, I thought, “Uh oh. What am I going to spend my time on?” I decided that I wanted to spend it helping entrepreneurs. Once I figured that out, I started looking at how to craft things in a way that I could provide help and also stay in touch with people I care about.

    How does the network function? A founder who is raising $1 million allocates $500,000 to you, and you then invite your friends to invest up to half that amount if they want to?

    That’s right, and that’s about our sweet spot, too.  I knew there was no way I could adequately provide advice to all the companies I might want to invest in. So I just thought, I’ll give gifts to my friends. So every time we find a deal, we get twice as much as we want to invest, and I ask a few of my friends if they want to invest. They can opt in or out. But if they opt in, they have to [be helpful to the founders].

    We thought we’d get 30 to 50 people [interested in the model] but we have 90, and there are usually a handful of people who invest, writing a check directly to the company. They’re like on-demand SWAT teams of executives [from every avenue of the startup world]. It’s been amazing.

    It’s early days, I know, but how is your performance so far?

    We’ve sold Rypple [a cloud-based social performance management company]; Saleforce bought that [in 2011] and that’s become Work.com. The [e-commerce startup] Fancy was also a very early deal for us and is one of our breakout companies. We have several companies in our portfolio that have raised four or five rounds, and more than half or our startups have raised additional rounds, so we’re feeling good.

    Do you subscribe to the theory that just 15 to 20 companies born in any given year become “breakout” companies?

    I think there are many more successful companies than just a few. [Companies like] Facebook – those are needle-in-the-haystack kinds of things. But a lot of companies that start with $3 million wind up getting sold for $50 million or even $500 million. It’s harder [to maintain a pro rata stake] in each of those tranches, but I’m very bullish about a wide number of entrepreneurs finding a way to make an impact.

    You’re investing up to $30 million of your own in this endeavor. Will you eventually take outside funding?

    We have a lot of people who want us to take their money – even affiliates who ask if they can just give us a bunch of cash. What I love about the way we’re doing it now is the only risk is my risk.

    As we look forward, I have to figure if I continue to self-fund this and for how long. I’d say the feedback we get is split down the middle: Half [my friends] say, “Don’t be an idiot. Make this a fund [with outside investors]”; others say, “I’d be thrilled to do it on my own.”

    As a member of the boards of Yahoo and Saleforce, two very acquisitive companies, do you help them decide where to shop, or is that beyond the scope of the job?

    We have firm policies at both companies that talk about investments and what you can invest in and when you need to notify them; we notify them every quarter of what we’re investing in.

    And the companies drive most of the acquisition decisions, at least until they reach certain [financial thresholds], and then the board gets involved. Those thresholds [which are publicly available] are very different at both companies. I’d rather not say more about either company, though, or I’ll get some [angry] emails in the morning. [Laughs.]

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  • Betaworks Closes a New $20 Million Round

    betaworks logoBetaworks, the six-year-old, New York City-based holding company that has collectively created and invested in more than a dozen startups focused on the “real time Web,” has raised $20 million in new funding, says cofounder John Borthwick, who tweeted in the wee hours of Friday morning: “Excited to bring a few new investors into betaworks. Approx. 20m total capital. The first time in 3 yrs+ that we have have done a raise.”

    A new SEC filing shows a partial list of the firms to participate in Betaworks’s newest round, including Lerer Ventures, RRE Ventures and White Star Capital in the U.K., all of which are existing investors.

    Also listed on the Form D are John Drzik, president and CEO of the management consulting company Oliver Wyman; Michael Buckley, a longtime managing director at Intel Capital who is now the head of finance and strategy at Nike Digital; and Paul Cappuccio, the chief legal officer at Time Warner.

     

    RRE Ventures, Lerer Ventures and White Star Capital were among the first firms to provide Betaworks with its first, $7.5 million round, announced in early 2008.

    Two years later, in 2010, Betaworks closed on a $20 million Series B round that was led by RRE Ventures and then-new investor Intel Capital, and which included DFJ Growth, AOL Ventures, The New York Times, Softbank Japan and Softbank NY, and Founder Collective.

    Betaworks both invests in, acquires, and helps create real-time media startups. One of its first big wins was with Summize, a search engine that Twitter acquired in a mostly stock deal in 2008. Betaworks is also the company behind the link-tracking analytics company bit.ly, the Web site monitoring service Chartbeat, and numerous other products.

    Recently, the company has made a big push into social reading, including acquiring Digg, which it nabbed at a fire-sale price last year, and  purchasing the bookmarking tool Instapaper for an undisclosed amount in April. Betaworks has since relaunched both products.

    Reached for comment on Saturday, Borthwick (nicely) declined to comment further, saying only that money was raised “recently.”

    Earlier this month, Betaworks hired former Huffington Post Media Group publisher Janet Balis as its very first chief revenue officer, a sign that it’s looking for more ways to earn money off its portfolio. As Borthwick told AllThingsD of Balis’s appointment: “Phase one of Betaworks was building great companies. ” Phase two is “really building Betaworks as an operating media company.”

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