money

Venture Capital Irony, Bubbles and Booms


Photo by epsos

Late in 2008, after the rest of the economy crashed and burned due to the housing crisis, the tech sector seemed to be fairly resilient. Maybe it’s the nature of the industry… less money at stake, generally, in tech VC deals than other industries. For instance, Biotech.

That all went out the window when Valley-based VC behemoth, Sequoia Capital, gathered a now-infamous meeting of all its portfolio companies and gave them what can only be described as a “the sky is falling” lecture.

In that lecture (that presentation is shown below), they advised their companies to buckle their seatbelts, lay off employees, and get rid of non-essential expenditures. They said it would be a dangerous ride ahead and that only the companies that had enough forward-thinking prowess to survive, would do so.

The presentation opened with an ominous title slide with the words: “RIP Good Times”. The presentation instructed CEOs to look for M&A deals as quickly as possible, raise new cash now (i.e. late 2008) if they were looking to raise a new round, and have at least a year of cash in the bank.

Pretty ballsy move that, frankly, spelled the beginning of the tech sector decline. If Sequoia was instructing their companies in this way, then something must be severe, thought many other VCs who followed suit with their respective companies.

In some ways, Sequoia was correct. It would be a long road to recovery. In other sectors of the economy, the recovery is ongoing or is just beginning.

The tech sector is not that way, however. In the past year, we’ve seen huge investments in 2010. Twitter raised $200M+ on a $3.7B valuation. Zynga, the social gaming company, raised $147M on an estimated $5B valuation. Tumblr raised $30M.

The bubble has been gaining full steam. And then there was yesterday.

Yesterday, you might ask? Yes… yesterday. Yesterday it was announced that Sequoia Capital led a $41M Series A round (Yes, you heard that right… Series A!) for new mobile social photo sharing company, Color.

I’ll let you read about what Color is because, though it’s a bright, shiny object that is interesting in some ways, it’s not, to me, a $41M play.

Sequoia seems to be taking the approach that many smart VCs these days, including Mark Suster from GRP Partners, said last week when describing investment strategy relating to teams and not products.

Whatever you’re working on now, the half-life of innovation is so rapid now that your product will soon be out-of-date. Your existence is irrelevant unless you continue rapid innovation. Your ability to keep up is dependent on having a great team of differing skills. Individuals don’t build great companies, teams do.

And while I fully agree with Mark, I do have to question Sequoia making a $41M play less than three years after they virtually single-handedly drove the nail into the coffin of the tech sector. To me, it seems Sequoia made an opportunistic opportunity to drive the market rates down on valuations, to eventually make a big play like this at lower valuations (Disclaimer: I don’t actually know the terms of the Color deal). With a lower valuation, they can throw more cash and own the lion share of the available stock ownership. You know… waiting for a slam dunk, as it were. Mission Accomplished!

However, it’s notable that the Color team is truly a notable team. The former Chief Scientist at LinkedIn. The guy who sold Lala to Apple in 2009. Five other notable experienced entrepreneurs and successful startup people.

I’m sure Sequoia knows what it’s doing. It’s certainly interesting to watch investors defend them. There’s just very practical questions about how the company that started the tech recession could come out guns blazing on this one.

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SXSW Protips


This will be my fifth SXSW interactive. It’s also, notably, the first SXSW that I am an Austinite. Since SXSW starts next week, the usual flood of tweets asking for advice or emails asking me to provide tips or asking me to be their guide began. It started earlier this year (back in January) than in years past. I’m chalking that up to the fact that I’m also living in Austin and am expected to “know the ropes”.

Trust me. I do. On Austin and on SXSW.

I’ve got a rant going up on Get Off My Lawn next week. But this post is not a rant. This post is about trying to be helpful to the many attendees coming here without having to commit to coaching each of you. This is my coaching. :-)

There are 18,000 Attendees this Year

That’s right. 18k. That’s more than every other year of interactive and is now the largest of the three SXSW festivals, eclipsing music for the first time and dwarfing film. You can’t meet everyone. Don’t try.

Attendees will be everywhere. They will be at the convention center. At the bar getting a beer during the day. In the Hilton Lobby, a place WP Engine Advisor Ben Metcalfe (@dotBen) posits the following observation:


Sitting in Hilton lobby bar during SxSW is like sitting a safe distance away from the car stuck on the level crossing with the train comingless than a minute ago via YoruFukurou

My point is… people are everywhere. Don’t be in a rush to be someplace. Ever. You’ll miss out on an opportunity.

The Right Place, The Right Time

Continuing that thought, if you’re scheduling your day out, you’re doing it wrong. As my friend Jeremy Wright (@jeremywright) puts it:


@duanebrown most of southby is knowing your options, and then making a choice on the fly.less than a minute ago via TweetDeck

Use your Plancast, Google Calendar, or whatever. Use these tools. Give yourself options. You may have some things that are required items and are non-negotiable (i.e. you’re throwing a party… it’s your party. You better be there). Other times, you just need scaffolding to give you options. Then you make your decisions in real-time. If you plan everything out and try to stick to that plan, you will miss out on opportunities and people.

Anecdotally, because I was in the right place at the right time, I’ve met NBA Dallas Mavericks owner and serial entrepreneur Mark Cuban, former Twitter CEO Evan Williams, Fark.com creator and Chief Looney Officer Drew Curtis just by being at the right place at the right time.

If you rush, you’ll hate SXSW and you’ll miss opportunities.

Hydrate!

I cannot emphasize this practical tip enough. In Austin in early March, you’re going to have warm days (the long-range forecast at this time shows mid-70s most of the time) and cool nights. (We’re also good for a monsoon-like storm at least once… it happens every year). You’re going to be drinking a lot at night. You’re going to be walking a lot during the day. With a bag on your back. Hydrate. And take a 5 hour energy* before you start going to town on booze… you’ll thank me in the morning.

Strategic Locations for Some Random Product that May be Launched on Mar 11

Apple Store – Barton Creek Mall
2901 S. Capital of Texas Hwy
Austin, TX 78746 (map)
Estimated Cab time: 15 mins

Apple Store – The Domain
11410 Century Oaks Terrace
Austin, TX 78758 (map)
Estimated Cab time: 25 mins

AT&T Store
1011 W. 5th St
Austin, TX 78703 (map)
Estimated Cab time: 5 mins

Verizon Wireless
9600 S IH-35
Austin, TX 78748 (map)
Estimated Cab time: 20 mins

You know… just in case.

Food

Go to @peachedtortilla, my favorite food truck in town, and say hi to Eric and Lou. Get some Banh Mi tacos or pork belly sliders. I think they plan to be around Congress and 6th 5th and Colorado but follow them for more details.

Also, on the Saturday of SXSW (Mar 12), Franklin BBQ is opening up a short walk away from the downtown center at 11th just east of I-35. Franklins is somewhat legendary in Austin because of their original restaurant farther north.

Grab the chicken fried steak and a Mexican Martini for lunch at Cedar Door 3 blocks away from the convention center at 2nd and Brazos (behind the Hampton Inn).

Enjoy some Absinthe-based drinks at Peche on W. 4th St in the Warehouse District. It’s a mere 6 blocks and worth it. Don’t ask for vodka. No, really…

Finally

Don’t be a douche. We welcome visitors and want you to enjoy this fine city. Leave it the way you found it. Remember, you are a guest and we have long memories. Tip your bartenders well. Did you hear me… WELL. If it’s an open bar, assume no one is tipping them. Carry some cash for the occasion. Bartenders do remember bad patrons just like patrons remember bad bartenders.

You’re not entitled to anything. Don’t jump party lines or use “Do you know who I am?” lines. No one gives a shit and you look like a prick. Treat people respectfully… Most of you do. Some of you don’t.

And that’s it. Any veterans have some protips to share as well?

* 5 Hour energy tip given by D’Ann Faught :-p

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