Dear Dumb Airlines

Why is it that when these guys send you an e-mail telling you it is time to check in - they always include a link to check in

and that link takes you to a page where you have to log in again

or find your confirmation number and departure airport

or re enter your name

or whatever

heck: these guys send you the e-mail, they add your confirmation number, they know what time you are flying

why can't the link just take you right to your flight.

Just wondering.

Dumb.

Rethinking Mobile Business Models

A few years ago, you might have a real debate as to whether your consumer company should be mobile first, but the market has spoken and for many companies mobile is the way that consumers engage.

And it shows not only in the venture world, but in the public markets - where investors are keeping a keen eye on the mobile monetization strategies of companies like Zynga, Pandora and Facebook.

interestingly, at first, the goal was simply to get consumers to engage with the mobile apps - which were web apps initially, moving toward responsive design and now more commonly native apps in either iOs or Android. Now the question isn't so much engagement (which is taken as a given based on having a superior product in a category) but how you can monetize your engagement.

As you might expect the same business models as ever have emerged - being subscription (think news organizations with a pay wall), in app sales and disruption marketing - i.e. advertising.

While advertising has gotten more personalized and more advertorial (see BuzzMedia), the marketing opportunities are limited by the amount of time a consumer spends with the app. In other words, the better you deliver content and the faster you get your message across - the less time you actually have to monetize - unless of course, you are Google, and sending people off of your app pays in terms of search monetization.

What many of these mobile companies are missing is a lesson learned by cable channels a long time ago - which is that placement matters.

there are few people who do not suffer from app overload - and increasingly, it is the aps that sit on your home screen that get used 90% of the time - with everything behind relegated to the other 10%.

So if you happen to be a Pandora or a Yelp you actually have an asset (screen placement) that has yet to be monetized - but should be.

To this end, we at Raptor Ventures have partnered with Sonic Notify, a company that distributed data signals through a hypersonic signal on any audio system, and which can be decoded by any mobile device - assuming that the SDK is attached to an app on the phone. 

Thus, Pandora, with its 200M users and 75% mobile use can actually benefit from its largely home screen presence during the 23 hours a day when the average user is not engaged with the app. Same with Yelp, same with Facebook. All they need to do is integrate a small bit of code - and they immediately can begin to serve ads (and they can decide which type of ads they wish to serve - or if they wish them to be geofenced) and reap a big chunk of the ad budget from an advertiser.

So instead of having audio ads on Pandora, perhaps users who agree to receive push notifications or offers from partners of their choosing can receive a free Pandora One subscription - or perhaps the same applies to Spotify. Who knows what the future might bring - but the system is there for the using. 

While we expect this system to take some time to develop, we truly believe that the opportunity to rethink some of the business models in mobile will yield real returns in the years to come.

Swan Farming Part II - It's Really Powerball.

Paul Graham had a very interesting post up today on Black Swan Farming

Go read it here.

If you didn't read it - I'll summarize:

1. Venture investing is hard because the return distribution is so skewed toward outliers that it is almost impossible to tell which those will be.

2. Great ideas often lok like idiocy at the beginning

3. You don't know if you've won until after they've drawn the numbers.

For those of us who have been investing for years, much of this is a rehash, but a great one written by a very thoughtful investor.

Point One:

It should come as no surprise that the return distribution in venture is far more fat tailed than one would typically expect. After all, what is seed stage investing across a ton of companies but the purchase of a lot of lottery tickets. While one can predict the outcome of a single company based on the founders, the idea, the marketplace, the opportunities for exit etc... - the ability to predict the next Google / Facebook simply does not exist - and more than the ability for me to pick the winning powerball ticket with certainty.

And yet, that Powerball distribution is what we seen in seed stage across a large portfolio. One winning ticket absolutely dwarfs all other outcomes. More people play Powerball than invest in seed - and despite the average persons desire to see Gaussian normal distributions, people participate in fat tails twice a week.

Of course, as the saying goes - You've Got To Be In It To Win It

Point Two:

It is very rare to make great returns betting with the crowd.

You need to be early, and you need to be willing to be alone and wrong.

Oh yeah, and you need to be right.

That pretty well describes point two.

Just betting against the crowd is not enough - because more often than not -the crowd has it right. It is only by looking at things in a different way than the crowd, and seeing the possibilities that you can get those big outcomes.

Point Three:

Graham goes into great detail about funding as a measure of success and how he doesn't do this with the YC classes.

Methinks he doth protest too much.

I don't know Paul, and by all rights he is doing a great job and is incredibly well respected - but as a complete outside to his world, and from the press coverage we are already seeing, it seems as if the purpose of YC (or any other incubator these days) is to be able to jack up the proce of your next round. Lots of posts on this - but the main point is this: you really don't know if you are winning until you have won - and winning is a long term game.

VC is a long tailed asset class with an enormous amount of volatility in it.

Go back and read the Black Swan and Taleb will suggest these sorts of investments paired with super safe bond portfolios.

Not a bad suggestion

Michael Moritz

I've never met Michale Moritz and I don't know Michael Moritz - except through the reputation he has earned through years of exceptional returns at Sequoia.

Reading that he was stepping back due to an incurable disease reminds me not so much of Steve Jobs (I'm sure we will see quite a few comparisons there) but of Lou Gehrig stepping back from one of the great teams of all times.

And like Lou Gehrig, Moritz is already in the investing Hall of Fame.

While the absolute numbers at Sequoia have kept it at or near the top for long term returns, it is how they have generated these returns that is most impressive to me.

For years, Sequoia, under Moritz, has been a proponent of long ball investing - knowing that they would strike out a lot - but understanding that when they hit the ball out of the park, they would score a ton of runs (see the initial Google investment - or YouTube)

While many firms preach this sort of investing mantra - few have followed it with the discipline of Sequoia.

Moritz an his partners have  managed to extract the correct risk reward ratio across their portfolios - whereas others have not gotten nearly the reward on their winners (the risk is always the same in every case - a goose egg)

As an investor you simply have to understand the relationship between risk and reward and size your investments accordingly. Moritz and his partners have.

And that's the difference between the hall of fame and an under performing asset class over a career.

Who Are Your Customers?

At Raptor, we have the privilidge of getting to meet with a ton of great founders every day - and listening to them speak about their passions, and how they are going to turn these into great businesses.

On Friday we had a serial founder in the room and we were discussing why he had made certain decisions so far at his nascent company.

What he said was this:

"The most important decision a start up can make is to choose its customers. Once you do that, most of the questions and decisions answer themselves."

Pretty good advice that stuck with me all weekend.

when I came back around to it - I thought of all the companies that we have seen that have succeeded and those that failed - and this focus on an initial customer set seemed to be a reasonable common ground.

Simple and easy

So: who are your customers?