The Two Prices That Matter

As an investor there are only two prices that matter:

1. The price you buy at

2. The price on the day you sell

Everything else is meaningless noise.

And yet, everything else is exactly what we focus on.

Look at the headlines today on the Zynga IPO here or here

Read these and you would think that Zynga is some terrible company, unworthy of public attention, flailing about helplessly looking for players to fork over cash.

And yet despite a sub par showing 65 hours after it had started trading the company is still worth over $7B in the public markets.

$7B is one heck of a large market cap - and a testemant to just how big a company Zynga has become.

And yet we will be greeted tomorrow morning across every financial paper with the IPO: Fail headline - or some variation.

And yet if you ask one of the early investors - they've done pretty well. (And that's a severe understatement)

It is only the two prices that matter.

People always ask me about Pandora - as I was associated with it for a few years. And they always point to the fact that it went public at $16 and now trades around $10 and what do I think of that.

My response is usually the same and goes something along the lines of: well I invested when the company was valued at under $100M and now it is worth over $2B - so I'm feeling pretty good about it. Moreover, I think they have built one hell of a company, with a great product, a great team and a great opportunity for the future. That's how I feel.

Sure there are people who bought Zynga at $14 per share earlier in the year who are marking their books down tonight (generally professional investors mark things at the lower of cost or market - and now we have a robust market for the shares) but did they invest thinking that they would buy at $14, IPO at $20 and see the first trade at $30 and hail themselves geniuses?

I sure as heck hope not.

Hopefully they invested at $14, thinking that Zynga has a hmmerlock on social gaming, the industry is just starting to grow, the opportunities for monetization are just rearing their heads, and that the management team has a business plan to generate enough free cash to support a meaningfully higher price than $14.

Anything less than this should expose them as traders and flippers - and not investors - and thus not worthy of much thought. I severely doubt they are that.

It is only when they go to sell their positions that the price will matter.

Everything inbetween is just noise.



Teamwork - You Never Know

Last night I went to see my beloved NY Rangers hockey club at the newly refurbished Madison Square Garden (Hint for all you New Yorkers out there - get to the Garden, they've done a wonderful job reinventing the place)

While the team came away with an L - getting shut out 1-0 - the game did get me thinking about teamwork.

VC's are always evaluating teams, not just the founder or founders abilities, but we are also making a judgement as to whether or not we feel that the founders are going to be able to field and motivate a great team around them. Very few men (or women) are an island. It does take a village (or a small office cramped with tech gear and red bull) to build a company.

The easy route is to invest where there has been previous success - founders who have built teams around them in the past.

Look at Zynga for instance. Mark Pincus certainly had built companies before, and I suspect that if you went back and asked Fred Wilson or Brad Feld why they backed Mark at Zynga, a lot of the reasoning would be around knowing Mark, and knowing he could pull a great team together around him.

There are lots more examples: Mike McCue at Flipboard, Chris Dixon when he put together Hunch, our partner Doug Camplejohn at his current company Fliptop (where Raptor is an investor), or Linkedin when Reid Hoffman started it.

The harder route is to invest in unproven builders - and yet some of the largest wins have come from exactly these people. Steve Jobs never had a company before Apple, nor did Bill Gates before Microsoft or Mark Zuckerberg before Facebook. I was lucky enough to be involved with Tim Westergren at Pandora - another start-up neophyte.

Most Rangers fans would have written off a large part of this season - yet here we are almost to Christmas - and the Rangers have the fewest losses of any club in the league. Most people can't name the stars on the team - but as a unit they are playing well together and getting the job done effectively.

I recently had dinner in Palo Alto with a team of 6 guys who all worked in one small room. What struck me the most was the level of camraderie among them, built through long hours of work in tight quarters, and their ability to joke and get along with each other. They were a tight unit and I believe they will do great things - even though there is no track record to point to.

Truth is, you never know which team is going to gel to get you to the promised land. There are signs along the way (hard work, great inter personal skills, ability to lead or inspire etc...), but none scream - this is the team: invest here.


An Inch Wide An Inch Deep or You Are What You(r Friends) Tweet

Everyone has heard the term - a mile wide and an inch deep

Well here's the corollary - an inch wide and an inch deep

Bryce Roberts has a great post up on his blog today: You Become Who You Hang Around

How true it is - and never more so than in the world of news and information

More and more people get almost all of their news from a Twitter feed, and while this is certainly a valuable real time hose of data - it is, by its very nature, self limiting to the feeds you put into it - and the time you spend reading those feeds.

Put in too few and you don't get enough information. Put in too many and you are overwhelmed, and can't possible read all the articles - so you resort to reading the headlines.

Speaking of headlines, how many people really click through the tweets to get to the ultimate story? Is reading the headline enough?

Thus my comment: an inch wide and an inch deep. Not enough information, and not enough depth of knowledge about the information you get. And because you are curating among the people you already know - and are probably similar in taste to yourself, you get almost no serendipidous content.

Me, I'm stuck riding the rails every day. So I get the New York Times, The Wall Street Journal, The Financial Times, The New York Post every day. Add 30 plus magazines and a ton of RSS feeds and I feel like I am pretty well informed at any given moment. almost as important, I'm exposed to a ton of information that I might never see otherwise - professional curation works pretty well.

So why is this important? Why does this matter to me?

In the VC world, outside of the obvious investment skills you need to have, the most important skill is probably your ability to relate to people - find areas of commonality - get along. The more you know, the easier it is to find common ground. the more common ground you find - the more likely it is that you will do something together - all else being equal.

Just as Facebook and other social media have formed a ton of "weak ties" among people - Twitter has spawned an era of "weak ties" among data and information - giving us the headlines and little more.

People are consuming more and digesting less.

In other words - an inch wide and an inch deep.

You truly are what your friends tweet!



Why Lytro Matters

The web has ben abuzz for the past 24 hours about a new start up called Lytro - which has come up with a technology to capture light fields instead of a plane of light.

Put simply, it is a new form of camera that allows for almost infinite depth of field and focus after the fact - it is like image capture for the human eye.

Very cool looking

So why is it worth yet another post? Why does Lytro matter?

the answer lies in the state of the venture world today:

Go back a few years and access to capital was of paramount importance - today, capital is plentiful and fungible

Technology used to be a very big key differentiator - now most tech is derivative (and I admit I'm not a tech guy and couldn't build any of these products or services - but most of the tech is being built using off the shelf parts, Rails etc...)

Ideas are important - but given the lack of tech differentiation, most ideas can be knocked off quickly and iterated on once use cases have come to the fore.

The key - as it always has been for some time - is the strategy and execution that a company ultimately brings to the table. Never has this been more true - and never have companies had less leeway in terms of their strategy and execution given the first 3 comments.

Why Lytro is so important is that they seem to have come up with a radically new technology.

You look at what they are doing and a few round the clock hack sessions is not going to duplicate it.

What is so important about this is the fact that Lytro, while still having to strategize and execute, will have a heck of a lot more time to do this - given their technological headstart.

This is a luxury that few companies have today

And that's why Lytro matters.

If you are just starting out - how are you going to give yourself more leeway in the execution of your plan?


It's Better To Be On Stage

Yesterday I attended the TechStars Demo Day in NYC.

11 companies vying for start-up capital after an intensive incubation period - mentored by some of the best and brightest NYC has to offer.

Now over the years I've gone to many investment conferences and you can tell by the crowd where and when you want to be investing.

The 11 companies yesterday were looking to raise roughly $8M between the lot of them - and there were perhaps 400 people in the audience representing well over $1B in capital committments - perhaps a lot more.

Reminded me of a distressed debt conference I went to a few years ago toward the end of the cycle in 09 - too many people chasing too few great ideas.

When this happens - your best bet is to hunker down and sit on your hands - or fish in an entirely different pool.

One might argue that Techstars and other Demo Days are to some degree a celebration of the vibrant start-up community in NYC - and a great networking event - and bothy statements would be true. However, the bare fact of it is that everyone on the floor at Webster Hall yesterday was sitting there thinking about some angle, some strategy, some insight that would make each of the 11 companies the next big winner.

There have been lots of debates as to whether we are in a venture bubble or not. The companies demoing yesterday certainly weren't asking for an outlandish amount of money - and the valuations for the ideas did not seem crazy (assuming they work!). What is difficult is the execution of such plans, when any engineer with an idea can get funded - rather than work to build a company for someone else. Why be employee #10 with a 2% stake and a salary, when you can give it a shot with a 33% stake.

It is pretty self limiting - because different investors are always going to find different things to like.

The things I liked might be things that other people hated - that's what makes a market.

Supply and demand is a pretty easy equation.

Given the economics, it's a lot better to have been on the stage than in the audience!
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