Notes from New York Viral Media Meetup on 9/7/2010

The recent meetup on Viral Media had an AMAZING cast of speakers, who each spoke for about 10 minutes. Thanks to AOL for hosting, Jon Steinberg for organizing, and the NY tech community for supporting such great events.

The panel had a great mix of experiences.  From the recent action at Reddit (why are they on Digg’s front page?) to old Milgram experiments, the panelists covered it all.

The speaker list included:

  • Duncan Watts, Principal Research Scientist at Yahoo! Research, author of the great book Six Degrees
  • Nihal Mehta, CEO Buzzd, discussing their new viral offers
  • Greg Galant, Sawhorse Media, on building a viral product: Shoutworthy
  • Erik Martin, Reddit, “How something goes viral on Reddit”
  • Brian Morrissey, Digital Editor AdWeek, “The Science of Sharing”
  • Tim Schigel, CEO
My favorite framework came from Greg Galant at Sawhorse. He said that viral products or campaigns must have 3 elements:
  1. Social Action – Enjoyment of the app or experience REQUIRES sharing
  2. Star Vehicle – Usage of the app or product enhances user’s career or social life, perhaps helping them better communicate with fans or friends. For example, Formspring and Twitter offer celebrities and self-promoters a new way to get their message out
  3. Ruckus – The app or product has something special or noteworthy. Perhaps it sparks imagination or disgust. Maybe its first to market. Maybe it has some simple hook that can easily be passed on.   My mom can’t explain why people Tweet, but she knows its a public message of 140 characters or less. People who don’t use FourSquare still know you can announce where you are and become mayor.

My favorite chart came from Tim of CEO  He said that certain verticals have more people in them who are likely to pass on content in the vertical.  Specifically, it appears that health content has a higher concentration of readers who will share the content.  See the full chart from their case study below:

There was a general agreement that to have a viral hit, you need to try often.  Duncan said its better to regularly trigger lots of small cascades, instead of trying to predict one large cascade.  Brian noted that “Elf yourself” was  one of 25 microsites by OfficeMax for the holidays, and only the elves went viral. [credit to @papillonc for elf reminder]. After the demo, Buzzd’s CEO said they regularly test content on their homepage which gets millions of unique visitors each month to see what has viral potential.

Duncan also noted that “less than 98% of tweets aren’t retweeted, and the majority of those that do, are retweeted once”. [credit to @justinjustin for reminder]

Lastly, I was impressed with how Erik and the 4 person Reddit team handled their recent opportunity from the Digg redesign.  He offered sage advice about milking a viral hit.  Once you have something going, you should do whatever you can:  change your logo for a day, release your stats to bloggers, turn your community into ambassadors, and go above and beyond to keep your company and its hit in the limelight.

Again, many thanks to all the panelists, organizers and hosts. I can’t wait for the next meetup.

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Is there a seed bubble?

Paul Kedrosky just claimed there is a super seed bubble. As I can count about 12 super seed funds in New York, many of which are new, I agree there is more money flowing in to super seed funds than in 2006-2008.  But to claim there is a bubble, you need to claim that the amount of money flowing in needs to be reduced.

There will be less super seed funds if it is not as rewarding as the investors hope.  Super seed funds make their returns on acquisitions and IPO’s of their investments.  That is when the investors and partners get capital back.  So, to assess the bubble, you have to see if the exits will be less than the investors are expecting.  Will the money that can come out in M&A and IPOs be enough to provide returns to the capital going in?

Lets say there are 25 super seed funds with $20 million to invest.
Say they aim to own 7.5% of companies when they exit in 7 years.
Say they want an average annual return of 12% across their fund.
So, can their surviving companies exit for:

[ 25 funds X  $20 million invested X ( (1 + 12% )^ 7 years ) ] / 7.5% ownership

= $15B.

Assuming the exits are over a 5 year period, that’s exits of $3B a year (i’m excluding the fact that some exits have liquidity challenges in the early years).

Given tech companies are sitting on lots of cash: Cisco has nearly $40 billion in cash reserves; Microsoft, $37 billion; and Apple, $23 billion. It seems possible these companies can get $3B from their coffers.  Add in 2 IPOs, and you’re there.

I would say that only the seed investors who partake in the homeruns will make it.  The $3B in annual exits will be driven by the YouTube, Google, AdMob, Zappos, and other large exits.  So, seed investors need to be in lots of deals to increase their chances of being in the few big winners.  But, overall, the super seed industry will survive!

I’ll be fixing the math/assumptions as I hear from y’all.

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8 Ways FarmVille Designs for Engagement

Earlier this week John Doerr, an investor in Google, Amazon, and Intuit, said Zynga is the fastest growing venture he’s ever been a part of.  Zynga’s flagship game, FarmVille, has 3 times the reach of Twitter. FarmVille has 71 million active users while Twitter has around 22 million active users (Twitter has 110 million registered users, of which an estimated 20% are likely active).  Perhaps more impressively, Zynga is estimated to generate $50 million in revenue from the most engaged members who buy virtual goods and keep up a toolbar.

Every web experience designer can learn from the tactics deployed in FarmVille to engage members over the long term. Here are 8 tactics you should include:

1. Reward users for returning in a short time period. Every website visitor is going to leave at some point. But why will they return in 24 hours? FarmVille is centered around planting and harvesting crops. The shortest time a new user can harvest a crop in is 4 hours. So on the first experience, FarmVille says: “Go away and come back in 4 hours”. How bold! In order to make progress in FarmVille, you need to go and come back. The site also has functionality that you can only use once per day (e.g., giving gifts to friends), further encouraging you to go and come back.

Come back to Harvest!

2. Reward users for helping friends every day. When you give a gift to a friend on FarmVille, it actually benefits you. Fertilizing a friends’ crops does not cost you cash. Instead, it raises your experience level. So, you can feel good about both helping someone else and gaining points at the same time. does something similar with their program for inviting friends that gives both the inviter and recipient extra space. But on FarmVille, you can earn coins and give gifts every day you visit a friends’ farm.

Help friends with a click, and earn points

3. Allow users to create without typing. FarmVille is incredibly easy to play–you just point and click. Click to till soil. Click to plant seeds. Click to harvest. It can be played by 5 year olds, drunk college kids, or tired parents. You never need to think about what to say, how to spell, or what key does what. Perhaps most importantly, it can be played by the user whether they have 5 minutes free (i.e., to harvest crops) or 30 minutes free (i.e, to redecorate their farm).

4. Show progress…everywhere…on everything. It seems like everywhere I look in FarmVille there are progress bars implying future levels of achievement can be obtained. If it’s an activity you can do on FarmVille, it’s measured somehow with coins, cash, points, levels, ribbons, and more. This make’s users aware of the value of their past actions.  It also suggests what the next step can be.

Top Progress Bar

Ribbon Progress

5. Make users feel lonely without friends–because if they get friends on, they’ll stay longer. After spending a few minutes clicking around FarmVille, you quickly see the game is designed for you to have friends. The main screen has at least 10 reminders of where your friends should be. These serve as a call to action to add friends. And you’re more likely to stay engaged if you have friends involved. FriendFeed claimed that, for their service, a new user is much more likely to stay active if they have 5 friends.

6. Enable self expression. FarmVille immediately lets you customize your avatar and start to customize your farm. You can represent yourself with just a few clicks of the mouse. And by making a representation of yourself, it’s likely you’ll care about it. Do you want to be the person who has withered crops or a small farm?

Customize your avatar...with a click

7. Offer increasing levels of complexity for mastery. After playing FarmVille for a bit, they started to unlock new things that cluttered my display. For example, after a week of play did I get a “gas meter” for a “Tractor”. I expect that if I keep playing they’ll be more and more things to unlock that can be mastered. [Editors note:  I've now heard that "horse trading" is something veterans can do]

8. Have surprises & limited time events. Sometimes when you plow a plot of land, you find coins. Sometimes when you log in, there will be a special promotion for a limited time stuff to buy.  These surprises make it fun and encourage repeat visits.  Even Google changes up it’s logo every now and then just to keep things fresh. I’m so curious about what FarmVille will think of next that I’m sure I’ll regularly stop by in the coming year.

Limited Edition Items

In summary, FarmVille is designed to retain users over the long run.  There is a lot that designers of websites can learn from the tactics deployed.  To hear about follow up posts on how FarmVille acquires users and monetizes, follow me on Twitter.


What do you think?  What else does FarmVille do well?  Will they still have more active users than Twitter in 2 years?

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Introducing the “Business Development Contest”

I’ve run business plan contests, been a finalist in business plan contests, and spent too much preparing for business plan contests. Given the choice, I would do it all again.   That said, I agree with Chris Dixon and Steve Blank that while contests are a good start, they are not great.  I’d like to preserve the quality discussed by Albert Wenger – that contests excite students – while at the same time making contests useful to those building a business.

Here are the negatives of business plan contests:  The business plan contest focuses on the resume of the team.  It suggests that market sizing and financial modeling are more important than learning from customers.  It suggests that you should follow a single plan.  It encourages you to spend time in Excel and Powerpoint, rather than getting outside the office.

Yet, there are many positive aspects of contests:

Contests Excite. On many college campuses, recruiters from big companies show up annually with trinkets in the Fall and job offers in the spring. They dangle pay checks. The business plan contest is just about the only exciting entrepreneurial event on campus. You get to hear about new ideas. See some classmates win a big check. Get some coverage in local papers. For a couple days, some students are actually talking about entrepreneurship

Contests Encourage. Though KartMe has reached the Finals of a couple contests, we’ve never won. That said, I met many entrepreneurs through the process who said “we lost too – and look at our company”. I got to hear stories about winners of contests who still had to meet with 50 investors before getting funding. Only by participating did I learn these war stories that give me encouragement.

Contests Connect. Through contests I’ve been able to meet classmates, entrepreneurs and investors who will be a part of my life for decades to come. Back in 2000 I met Geraldine Alias while she was running the business plan contest at Princeton and Anthony Marino when he was a judge. Both have generously lent helpful advice and connections throughout the years.

Contests Teach. Every contest includes a Q and A portion and also opportunities for judges to give feedback to teams. Through contests I learned to focus on things like the cost of customer acquisition, lifetime value of a customer, and business development pipeline. These metrics, which start-ups live and die by, are only cursorily passed over in business school and even most of the strategic and financial modeling I did before school as a Fortune 500 consultant and business analyst. Also, contests give you an opportunity to improve your presenting abilities – which are crucial for selling investors, customers and teammates.

Contests Legitimize. Every investor says they think independently. At the same time, investors talk to each other and look at trends in the market. Doing well in a contest provides a stamp of approval, or simply expose you to individuals who can provide that stamp of approval.

To improve, contests should focus on development of a business.   The contest should encourage students to identify risks, execute tests, and refine.  As Steve Blank suggests, judging should focus more on what students have done to develop their idea, and less on market sizing and cash flow analysis.  To participate, contestants should have:

  1. Developed a business idea
  2. Identified major risks to their business (e.g., customer adoption, customer acquisition cost, technology development)
  3. Implemented cheap tests to assess those risks (e.g., built an alpha, tried to sell an LOI)
  4. Assessed results
  5. Iterated the business idea and repeated steps 1-4

The winner will have proven the ability to learn the most and make the best changes cheaply and quickly.  Judges will score:

  • Did the contestant identify and test the biggest risks to the success of the business?
  • Did the contestant execute tests that produced measurable, actionable results?
  • Did the team make appropriate changes and conduct new tests?
  • Is the team substantially closer to having a viable business model?

While participating in contests, I wish I could have focused more on testing, learning and refining, instead of top down market sizing or building a cash flow statement.  It would have been a lot more useful to the success of the business, and more similar to what I do today.

What do you think?  Should business plan contests evolve to focus more on business creation?

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Reviewing “The MBA Oath”: Context Matters More than You Think

The MBA Oath

I hated how the this book, The MBA Oath, began.  There were sweeping generalizations, straw man arguments and grandiose proclamations.

Fortunately after about 75 pages, Max Anderson and Peter Escher started to use survey data and sociology studies to build a case for a Hippocratic Oath for MBA graduates.

Rather than continue to recite about how the United States is suffering a crisis of leadership and has a lack of moral education, the authors convinced me that systems and tools currently used to conduct business are divorcing managers from their human values.  There are unintended consequences from the mantra of “creating shareholder value”, the pressure quarterly reporting, and even the practice of using digital dashboards.  While I can’t yet say every business person must sign this Oath, the book led me to believe we should do more to infuse workplaces with moral awareness.

Current business practices create environments for unethical behavior. Sure, Wall Street is unloved right now.  But the authors got a step beyond the current debate to show how why ethical considerations are often not taken into account in business settings.

  • MBA programs teach students to think less about societal good when making business decisions.  The Aspen Institute found that before business school, MBA students believed the purpose of a corporation was to develop goods and services for the benefit of society, yet, after business school, the graduates believe the purpose of a corporation is to maximize shareholder value. This is particularly disconcerting as MBA enrollment continues to grow.
  • Hierarchical like corporations encourage deferral of moral authority. As managers report to senior executives who report to board members who report to shareholders, there are many levels in corporations.  At the same time, research from Philip Zimbardo and Stanley Milgram suggests that people can forget to make decisions in accordance with their values in situations in which they defer to a higher authority.
  • The pressure of hitting quarterly numbers can affect someone’s integrity. A study by John Darley and Daniel Batson showed that putting students at the Princeton seminary  under artificial time pressure led them to be less likely to help a stranger.
  • The distance between managers and cash is increasing, making business feel more like a game where cheating is ok. Business people in the Finance sector often make transactions on computer screens, business leaders are often paid in equity, and the booming derivatives market is defined by not involving cash securities.  Unfortunately an MIT study found people  transacting in a currency one-step removed from cash are twice as likely to cheat as when they’re transacting directly in cash.

Legal and company value systems are not enough to restore values to the workplace. The authors directly address a number of criticisms to their approach.  They note that the law usually lags best practices, so it is not effective at enforcing morals.  Company value systems are also not enough. Small companies may not have them, and large companies may not define them clearly or distribute them prevalently.  Enron apparently had a 20+ page values handbook.

A simple values message and triggers can be powerful. An MIT study found that forcing students to recite the 10 commandments prior to taking an exam reduced the likelihood of cheating.  This suggests that you can use “triggering” to get people to behave a certain way in context.  Even just hanging the MBA Oath on your wall, like the Doctor’s degree on their wall, could remind colleagues to take morals into account when making a business decision.

Adding a golden rule of business. Overall, I think the signable MBA Oath (as opposed to the book about the Oath) is too long and broad.  I don’t know if every MBA should be obligated to create “social prosperity” or “be a mentor”.   Near the end of the book, the authors share Warren Buffet’s demand of Salomon Smith Barney employees in the early 1990s:

“[when] contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends.”

This statement by Buffet covers most scenarios.  But I think it still allows for a “everyone else was doing it” excuse from employees, particularly when it relates to complex transactions or consumer products.  So, I also would like to add a addendum to Buffet’s statement:

Furthermore, employees should be reasonably willing to buy and consume what they’re selling.

One of the reasons I had to leave consulting was I was occasionally selling work that wasn’t really needed by the client.  For similar reasons, I couldn’t sell a mortgage to a person likely to default.  I couldn’t sell foods that might be leading to obesity.  I couldn’t help arrange a sale of a security I thought was going to implode.  So, I ask business people to be reasonably willing to buy what they’re selling.  If there is no way you would buy it and/or consume it, even at 50% off or if you had a higher or lower income, don’t sell it.   If you think it will help you in both the short and long term, you can bluff and make a big profit.  But you should be willing to buy what you’re selling.

Overall, The MBA Oath was a thought provoking read and should be considered by all MBA graduates. I’m glad the authors are continuing to call attention to the intersection of business and ethics, and hope they achieve the ultimate aim of positively influencing the behavior of leaders globally for years to come.


In the beginning of this post, I cited not liking the beginning of the book.  Here are my specific criticisms on how the book started:
  • The authors claim that “many business schools give insubstantial attention to business ethics” and that, specifically at Harvard Business School (HBS), teaching was siloed such that ethics wasn’t taught in a Finance class.  I wholeheartedly disagree  In the first year at HBS, we we’re required to take “Leadership and Organization Behavior” and “Leadership and Corporate Accountability”–and both these classes focused on ethical dilemmas as 5 or more cases from these classes appeared in the book.  And throughout the first year my peers and I discussed ethical dilemmas in classes on private equity buyouts in Finance I, management controls in Accounting, pharmaceutical promotions in Marketing, and globalization in Macroeconomics.
  • The authors occasionally make unfounded associations and assumptions.  For example, they imply that MBA graduates are likely to add debt to companies balance sheets because they took personal loans during school and “have been trained to operate this way in their personal lives during business school”.
  • The authors suggest that now more than ever business leaders are under attack, referencing recent polls and book titles.  I wonder whether managers may have appeared worse during the robber baron period in the 19th century, the muckrakers era in the early 1900s,  the economic depression of the 1930s, or the excesses of the 1980s.

Some general disclaimers:  I signed the oath, intend to uphold the oath, attended school with the authors, and suggest the The MBA Oath as a business school graduation gift.

Would you sign an MBA Oath?  How can we ensure ethical decisions in the workplace? What do you think about the claim that you should be reasonably willing to buy what you sell?

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The One Privacy Setting Facebook Forgot

Have you adjusted your privacy settings in 5 different places?  If not, your friends may be sharing your Facebook pictures, status updates, religious views and more.  Preventing your information from being used  across the web requires:

  • Visiting  Facebook’s settings for “What your friends can share about you”
  • Visiting  Facebook’s settings for “Instant Personalization”
  • Visiting Yelp
  • Visiting Microsoft Docs
  • Visiting Pandora

Instead of requiring 5 steps (a quintuple opt out!), Facebook should offer one setting, which allows you to easily opt out of sharing your data unless you give permission.

It seems like every year Facebook automatically ensures its members share more data with the world.  In 2007, Facebook Beacon automatically shared what members bought, without their permission.  In 2009 new privacy settings automatically defaulted most members information to the public.  Now, Facebook is looking to your friends to make your data public.  Senator Schumer is being polite when he says, “This opt out procedure is confusing, unclear, and you might even say hidden”.

It might be acceptable if this was the only place where you had to go to opt out of sharing:

Facebook privacy setting

In the image above, you’ll see the top privacy setting area is for your personal information.  However, there are now more privacy settings that control where your personal information gets shared. The settings below are not located in “Personal information and Posts”–they’re in “Applications and Websites”.

Facebook privacy setting

In fact, after exploring all the options above, in “Applications and Websites” area, I came across these settings for “Instant Personalization”:

Facebook privacy setting

I thought I’d click to “Learn More”.  That led to a long list of Q&A, where I found this:

Facebook privacy setting

So, it turns out that to ensure my past comments and pictures stay private, I need to visit each “instant personalization partner” of Facebook and opt out.  After doing some research, the Electronic Frontier Foundation confirms that only way to fully opt out of Instant Personalization is to take all these steps.  If you don’t take all these steps, your friends may unknowingly share all your past activity on Facebook.

Facebook says it requires Yelp, Microsoft and Pandora offer “an easy and prominent method for users to opt out”.   It would be nice if Facebook took its own medicine.  Here is a proposed privacy setting:

Proposed Facebook Privacy Setting

Facebook could define partners as applications, advertisers, and third party websites. They could offer more detailed options.  But the general idea is to make it a double opt-in system (1. you say you’ll share, 2. you say which partners to share to) rather than a quintuple opt-out system.

What do you think?  Should Facebook offer one easy and prominent method to opt out of sharing?

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Groupon is Overvalued

Groupon is red hot.  A recent press release says Groupon serves emails in 50 cities and has sold 4 million deals to customers.  In just a couple of years, the company has skyrocketed to 230 employees and a valuation over $1 billion.  Some say Groupon is cheap at $1 billion.  But I’m suspicious.  The typical bull argument looks at their revenues and projects growth.  I don’ t think the growth is sustainable.

Key points:

  • Groupon has no top notch repeat business customers
  • Groupon has few exclusive deals
  • Groupon is benefiting from a reversible economic trend
  • Groupon’s inside investors are selling
  • Groupon’s main assets are an email list and brand, which aren’t worth $1 Billion

Groupon has no top notch, repeat business customers.
I was talking with a successful venture capitalist today about what he looks for when evaluating a revenue source.  He said they don’t just look for companies that have had a single success with a revenue source.  They like to see repeat revenue from the same buyers.  This explains why I’ve heard that DailyCandy was valued at $60/subscriber — Microsoft kept buying with them, and Microsoft is a very data driven advertiser.  At the early stages of proving their business model, Google had Amazon and eBay as repeat advertisers, while also getting ads from the long tail.    Yet, Groupon is too new to have repeat buyers—in fact, they discourage companies from appearing often on their site.  And the marquis local companies they have worked with were rarely for standard deals—you can’t build a $1 billion business helping chains like Legal Seafood with their one off events.   Local businesses have  expressed experiencing mixed results.  Anecdotally, it feels that Groupon gets local businesses at their weakest and not the strong, new restaurants I want to try.

Many Groupon deals are not exclusive.
Groupon drives people to share and act because they have limited time offers.  However, you can deals similar deals to those offered via Groupon through other websites every day of the week.  I hypothesize this is how they source their deals.  So, Groupon is really just a filter for, like Thrillist or Woot!. These are profitable businesses, but not billion dollar businesses.  They don’t have a unique way of source local advertisers.  Here are some recent New York City Groupons you can replicate on most days:

Groupon deals not exclusive

Get better-than-Groupon deals at NYC restaurants Essex and The Elephant by following the previous links and using code “Feast”.

Groupon is playing into an economic trend. So, if Groupon doesn’t have great deals, maybe their value is their email list.  And it’s an email list of people who like to share on Facebook and Twitter. But more than anything else, I think this email list is only valuable in a recession.  Groupon markets themselves to businesses as popular among “young professionals”.  These consumers are part of the trends saving money.   For the first time in 10 years, personal income declined in 2009.

U.S. Annual Personal Income - U.S. Department of Commerce

As a result, people are more often looking for, and more socially comfortable using, coupons.  Multiple sources say that for 17 years coupon usage was flat or declining, and just saw an uptick in 2009. The new investors want Groupon to exit for greater than $1 billion in 1 to 3 years, which is not going to be possible if coupon interest and revenues fall off in different economic circumstances.

Groupon has insider investors selling.
It’s being reported that some of Groupon’s early investors sold a portion of their stock in the company [Update:  insider sales may exceed $160 million].  I understand that the founder wants to diversify his holdings, but I’m surprised that investors are taking money out of the company.  If these insider investors have a track record of being right about when to sell, watch out.

So, Groupon has built a valuable email list and is appreciated for it’s editorial voice (they do some funny stunts).  Starts have aligned to give them one-time wins in a time of economic fear among small businesses and consumers.  But this business is not delivering returns to late investors.

What do you think?  Is Groupon easily worth more than $1 billion?

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Raising Angel Funds in NYC: 5 Lessons Learned

About halfway through KartMe‘s angel raise, I took a second to jot down some lessons learned.  This post originally appeared on’s blog. Without further ado, here are the lessons:

1. Angels want to see you making measurable progress.  To get to the next level, you’re going to need to show measurable results.  Whether it’s revenue per customer, user growth, or a viral coefficent, something measurable is required to either raise money or pay your bills. Start measuring something now.  It could be retention, content creation, unique visitors, bounce rates, something.  Should you get investors, they’ll be following progress in monthly updates…which will mostly include numbers.  So start measuring, and start showing improvements to investors.  Investors know your ideas are going to change, and all they’re going to have to judge success on is numbers, so you might as well start executing and improving based on more than just your gut.  A big mistake I made was showing investors new “designs”, thinking that qualified as measurable progress.  No one cared. In fact, they just wondered why the designs weren’t live and doubted my ability to execute quickly. To summarize, get to know angels a few months before you want to raise funds, and start showing measurable improvements.

2. Angels like simple ideas.  Investors are busy.  Angels are even busier as investing is often a side project for them.  They’re not all going to sign up for your product.  They’re not all going to read your business plan.  Give them a simple explanation that they can remember and explain to their colleagues, spouse and child.  When I explain KartMe now, it’s:  we help people share lists and we monetize with commissions.

3. Angels like teams.  Ideally, your team with have 2 technical co founders and one business person.  It seemed that every investor had a story about a technical person who became unintereseted in the company, leaving the business person floundering.  They like to see long standing relationships between teammates located in the same location, so flight is unlikely.  They like to see that the business person can “attract talent”.  They like the idea of 3 people working until midnight for what amounts to a very low hourly cash wage.

4. Angels are sophisticated investors. Nearly all angels I spoke to throughout the process knew everything I’d learned in business school about fundraising.  They all wanted price protections, participation opportunities, “caps” on convertible notes, etc.  Once you get beyond friends, family, and supportive entrepreneurs, assumes angels willl know more than you about investment terms.  The investors committed to KartMe have probably done over 100 deals as angels, VCs, and private equity investors.  They’ve gone through every term in our agreement, thinking about good and bad outcomes. They thought to set aside funds in case things go bad (and they can buy more of KartMe at a discounted price) or good (and they can preserve their share).  With the new  angel funds, like Founders Collective and IA Capital Partners, I’d assume the sophistication of angels is ever increasing.

5. Closing takes momentum, which you can generate. There were at least 5 different “mini-events” I’ve used during the last couple weeks to get commitments.  A PR hit let to an investor putting an offer a on the table.  One party putting an offer on the tabe gave me something to get another party in.  One resume of an investor got another investor excited.  One parties cash in the bank account helped me get another party to commit.  Getting over half the money I wanted committed enabled me to get another party to commit.  As you approach your fundraise, try to have as many exciting, momentum generating events as you can ready.

Fundraising has been a great experience.  I’ve been able to refine the marketing pitch and have a better sense of what metrics matter.  These are just 5 of the many lessons learned.  More about the experience of raising capital is coming.  Stay in the loop by following KartMe on Twitter.


Kart:   Best Startup Reading – Articles

Blog:  Pitching without PowerPoint: 8 Tips for a First Meeting

Page: The Best of 2,000 Karts

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Build a business, not a feature

Are you afraid a competitor could quickly replicate your web application?  If you’re not, you should be.  For better or for worse, intellectual property rights appear to not mean much on the web.  And as a web application provider, you’re offering is up there for everyone to see.

Recently, Google launched two products that may have immediately put competitors out of business.  Its “to do” list list is a direct threat to Remember the Milk and its Latitude product is a direct threat to Loopt.  Whether fair or not, Google, Facebook, Amazon, Apple and Microsoft have virtually free distribution through their “installed base” of search, social, ecommerce, music, and browser/os users.  And those firms have the technology talent to copy many web application’s features.  So, how can you build a business that is not a feature big firms can replicate and distribute?

1) Target a profitable niche: Most big companies only look at big markets.  They need to increase the value of a multi billion dollar business.  Only Amazon seems to go after tiny markets, given its decentralized operating structure.

2) Create switching costs with users: If a user has to invest time to learn your application, and placed data in your application in a proprietary format (think: photoshop and their file system), then a user is likely to remain with your service even if someone releases the same features.  But be careful.  Data in a proprietary format that exists elsewhere (e.g., my friendgraph is known by Facebook and Google/gmail) or data with a high decay rate (e.g.,  last week’s “to do” list)  does not create a switching cost.  Sharing sensitive data, like financial information pushed to, could reduce the likelihood of switching, as users tend to stick with partners with whom they trust with their important data.

3) Build supplier and distributor partnerships: Unlike features, businesses have suppliers and distributors.  If you’ve negotiated exclusive partnerships with a low cost or unique supplier or distribution partner, then you have an unfair advantage that can’t be replicated.

What else do you think differentiates a business from a feature?

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The front page isn’t where the advertising revenue is (or was)

Reddit had a catchy tagline. They were going to be your “front page of the web”. After getting an audience, and selling to CondeNast, they quickly changed business models to focus on providing a technology that can go after verticals, like cosmetics with, now  Why wasn’t Reddit bought to be a front page?

Some things in media don’t change too much. One is that the front page isn’t where the money is. Back in 2001, I was given a case interview from a global consulting firm on why newspapers revenues were declining. The answer was that websites like Monster, eBay and Craigslist were taking away the profit centers of newspapers. The lesson was that newspapers used their front page to draw readers into verticals that they could monetize. And the web was doing a better job in serving consumers in those verticals with functionality like search instead of getting ink on your hands.

Mozilla’s FireFox has an interesting in their approach to this problem. By providing you a browser or entry point to the web, they’re essentially a frontpage, if only the outside border of your page. And they’ve monetized this space by selling ‘default’ positioning in the search bar. iGoogle and MyYahoo have a similar approach to monetization. Front pages can serve as lead generation for search businesses.

This is why Digg is going to have trouble delivering returns for investors with an advertising based business model. They can’t grow the value of their ad inventory unless they can steer users to a profit center. Of course, Digg can try other things.

Can Digg provide a myDigg to users that serves as a front page, allowing them to tap into this search revenue? Is that where they are heading with their recommendation engine and your data made available through Facebook Connect? Time will tell.

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