The Silicon Valley VC Disease

Yesterday at the Mobile Web Wars event (here’s video of that), held right before the TechCrunch party, David Hornik, partner at August Capital (he’s the host of the TechCrunch party) told the audience that he would not invest in pure iPhone apps because the iPhone had too small a market share and that anyone who wanted to get big in the mobile space should go after all phones, not just the iPhone, which, while it’s hot with early-adopter types and is seeing people waiting in lines to buy around the world, hasn’t yet made a dent in, say, Nokia’s market share of cell phones overall.

Let’s call this the Silicon Valley VC Disease. This disease has been going on for a long time. Seagate’s CEO Bill Watkins told me a few months ago that Seagate almost didn’t get started because they couldn’t get funding from VCs who didn’t see a potential market for hard drives. UPDATE: See the comments below where I learned that August Capital is one of those who funded Seagate.

It’s a corrosive disease, too, and is why we get tons of stupid Facebook apps and tons of easy-to-make and likely-to-go-viral iPhone apps. Quick: explain why we don’t yet have a really brilliant travel app or even a single political app for the iPhone, despite lots of interest in those topics (especially in this political year). Not to mention many brilliant apps like Evernote (my favorite app so far)?

What is the disease? That you must make bucketloads of money (or at least have a shot at doing that) in the first two years of business.

If you have a plan to make just a reasonable amount of money, or if it will take decades to make a big amount of money, don’t come to Silicon Valley.

Walmart would NEVER have gotten funded by Sand Hill Road. It took decades to make bucketloads of money. That kind of business plan would never fit in here.

Why? We have the Silicon Valley VC disease.

I imagine that if we went back in time to 1977. Imagine a small group of geeks wanted to get funding to build apps for the Apple II. It didn’t have much market share yet. But imagine those developers wanted to build just Apple II apps. Would they have gotten funded? Probably not. And types like David Hornick would have told them “you gotta build apps for mainframes and DEC’s, because that’s where the market is, not in that Apple II toy.”

So, is Hornik wrong? No, he’s exactly right. The much bigger market is with regular-old-single-chip-cell phones. You know the type. They are the kinds of phones that make phone calls and maybe do SMS texting. If they have a Web browser it’s a small tiny black and white one that can only look at WAP-style text-centric sites, not the full-blown Web that the iPhone has.

But while Hornik is right, he also has the Silicon Valley Disease. He forgets that the small, seemingly unimportant platform today that gets early adopters excited will become the large, dominant platform of tomorrow. It might take 10 years, though, which is too long for VCs to care about. How long did it take Visicalc to happen on the Apple II? Or Aldus Pagemaker to happen on the Mac? A few years at minimum. iPhone is only one year old.

But already we’re seeing the writing on the wall. If you can get past your Silicon Valley VC Disease.

First, our society’s most valuable audiences are getting iPhones. Last week when I was in Los Angeles, both of the famous architects I interviewed already had 3G iPhones.

Those two guys are HUGELY valuable for advertisers. They are representative. They aren’t the only ones.

But even better than the demographics that the iPhone is getting is the usage patterns.

See, I have two Nokia phones and a Microsoft Windows Mobile phone too. They all suck for using the Web. Fine for email and for texting, but really suck for using the Web.

Go see Google’s Vic Gundotra (he’s Vice President and runs a bunch of the teams that build things for mobile phones). He told me that usage on the iPhone is “off the scale” when compared to other phones.

Simply translated: people who have non-iPhone phones simply aren’t using them for anything other than email. This is easily verified. Sit next to a Blackberry user and watch what they do. I do that all the time. All you see them doing is email and light Web use. Now sit next to an iPhone user and watch what they do. Much more heavily used on photos, maps, Web, and video.

An iPhone user is easier to reach and is easier to get to try new things. Plus, the iPhone app store makes it very easy for an app to be tried out and loaded.

But back to the Silicon Valley VC disease. It’s the same disease that Microsoft execs have. Or, really, most big company execs, or worse yet, our government workers, have truth be told.

They won’t adopt anything until “it’s safe” and until there’s a HUGE business reason to do it. It’s why huge parts of our government are still run on paper. Why there isn’t a database anywhere of all of our elected officials in the United States. Why Microsoft didn’t compete with Google until too late. Why General Motors won’t build great all-electric cars until after Tesla or Toyota beats them to the punch. Etc. Etc.

Luckily the Silicon Valley VC Disease is having less and less effect lately.

You can startup a company with very little cash, because you can build it on cloud-based services like Amazon’s S3, which let you get started and show the world you’re getting adoption even before you go for VC money.

And, luckily, not every VC has the Silicon Valley VC Disease. Lots invest in stupid, small, weird, ideas for platforms that only have a percent or two of market share. Go see Jeff Clavier, for instance. He’s been doing that a lot lately. I met him in the office of Tapulous last week, which makes iPhone apps.

Why shouldn’t you listen to Hornik and others who have Silicon Valley VC disease?

  1. It’s easier to start a company on new platforms. Why? Because the big money probably hasn’t moved in yet, or at least they haven’t become established.
  2. People who buy new things are FAR EASIER to convince to buy other new things than people who have had the same stuff for years.
  3. It’s easier to build a brand on a new technology than it is to do that on an older, more established one (hey, everyone has a radio in their cars, but you don’t see VC’s funding new radio stations, do you? Why is that?)
  4. The best, most transactional and monetizeable audiences are those that pick up new things. Think about it, would you rather have a customer like Dan Meis, one of the world’s best architects or someone like my dad who still uses the same TV that he bought from me in the mid-1980s?  My dad is a nice guy and very smart, but he’s a horrible customer to have and is going to be very expensive to get to adopt something new.
  5. It’s a lot cheaper to get adoption when influencers (read bloggers and journalists and Twitterers and FriendFeeders) are talking about you. What are they talking about right now? iPhone apps. Look at Summize, the search engine Twitter just bought. What’s one of the trending topics on the home page? iPhone. Get over it. They ain’t talking about Nokia or Microsoft.

Anyway, I just find it interesting when VCs start telling people not to support a platform when there’s lines around the world waiting to buy that platform. If everyone listened to that sentiment we’d never see any innovation in the world.

So, who is working to prove Hornik wrong? Drop me a line.

Oh, and David’s a nice guy and throws great parties. Thanks David for letting me in last night and for giving me something interesting to blog about today. :-)

UPDATE: As usual lately a much more interesting conversation about this post is happening over on FriendFeed.

112 thoughts on “The Silicon Valley VC Disease

  1. I am with you to a certain extent, but why should any of this surprise you? VCs are backed by large institutions (for the most part) and those institutions are going to demand certain returns over a certain timeline. Using your example of MSFT and government agencies as “stodgy” entitties looking for things to invest in only when “safe”, then why would you expect them to become suddenly risk-seeking when they invest in venture capital funds? Fund sizes have grown larger, which means a fund really needs to see home runs if it is going to move the needle in terms of returns…and if they can’t demonstrate big returns every 2-3 years–which is when they usually go out for a follow-on fund–they won’t be able to raise another fund. Then, those cushy management fees go away and so does the cushy VC lifestyle. Soon enough, a lot of those VCs will need to go out and — EGADS! — actually get real jobs like the rest of us.
    Fortunately, there are still some good and active VCs that swing for the fences and invest in big opportunities when those opportunities are still very early and fraught with risk. Go see Tim Draper at DFJ…or Jonathan Tower at Citron Capital….or Band of Angels…or Peter Thiel at Founders Fund…These guys are still backing “big plays” in undefined spaces. Let the other VCs piggy-back on their guts. There are still many risk-seeking investors in Silicon Valley, you just need to know how to find them and appeal to what they are looking for in a great investment idea.

  2. Great post. I completely agree that we have an issue when it comes to VC funding. Funds are waiting until an idea is fully baked (and market-validated) before investing. Also funds are getting bigger and want to write bigger checks at the same time as startups are getting more capital efficient and actually need less$.

    I posted on this topic last week:
    http://startupcfo.ca/2008/07/early-stage-funding-gap.html

    Silicon alley insider also covered it:
    http://www.alleyinsider.com/2008/7/vcs-have-it-wrong-no-elevator-pitch-no-problem-

    Mark

  3. Great post. I completely agree that we have an issue when it comes to VC funding. Funds are waiting until an idea is fully baked (and market-validated) before investing. Also funds are getting bigger and want to write bigger checks at the same time as startups are getting more capital efficient and actually need less$.

    I posted on this topic last week:
    http://startupcfo.ca/2008/07/early-stage-funding-gap.html

    Silicon alley insider also covered it:
    http://www.alleyinsider.com/2008/7/vcs-have-it-wrong-no-elevator-pitch-no-problem-

    Mark

  4. > The best, most transactional and monetizeable audiences are those that pick up new things

    Do you have any evidence for that claim?

    In my experience, the best, most transactional and monetizable audiences are the “early majority” who will happily pay for something that the “new things” crowd have debugged.

    It may be the case that iPhones win… but at the moment, I see 40 Nokias and 5 Blackberries for every iPhone I see… and the Blackberry crowd in particularly have a lot more money (corporate IT budgets) to play with.

    For the record, I’ve raised £1.5m in funding for startups in the last couple of years – in neither case was there a focus on simply a 2 year horizon… but I am in London, not the Valley :-)

  5. > The best, most transactional and monetizeable audiences are those that pick up new things

    Do you have any evidence for that claim?

    In my experience, the best, most transactional and monetizable audiences are the “early majority” who will happily pay for something that the “new things” crowd have debugged.

    It may be the case that iPhones win… but at the moment, I see 40 Nokias and 5 Blackberries for every iPhone I see… and the Blackberry crowd in particularly have a lot more money (corporate IT budgets) to play with.

    For the record, I’ve raised £1.5m in funding for startups in the last couple of years – in neither case was there a focus on simply a 2 year horizon… but I am in London, not the Valley :-)

  6. Android plans to be the default OS for all devices, it is the Google Linux OS we have been waiting for. Google is making it so that devices become data-centric and they are making the first OS that is not made for the manufacturer or the content provider to control their own walled gardens. Even Symbian have acknowledged it, that there needs to be one totally open-source open standard for the OS, so Symbian will try to be totally compatible with anything Android does. This basically means that all Nokia, RIM, Samsung, Motorola, LG, Sony-Ericsson and all other brands are all going to be making exclusively Android compatible devices, and all are going to be concentrating OS development in one direction. This is basically inevitable.

  7. Android plans to be the default OS for all devices, it is the Google Linux OS we have been waiting for. Google is making it so that devices become data-centric and they are making the first OS that is not made for the manufacturer or the content provider to control their own walled gardens. Even Symbian have acknowledged it, that there needs to be one totally open-source open standard for the OS, so Symbian will try to be totally compatible with anything Android does. This basically means that all Nokia, RIM, Samsung, Motorola, LG, Sony-Ericsson and all other brands are all going to be making exclusively Android compatible devices, and all are going to be concentrating OS development in one direction. This is basically inevitable.

  8. VCs by definition are in the risk business. A guarantee of any VC is that they WILL lose money on various projects. Period. Of course they want to make money overall–this isn’t outright philanthropy–but the kind of short-sighted “make money now” is totally against the way almost every famous empire-builder made their fortunes. Fast food is fast food; good food takes time to prepare. Tough problems, like tough meat & veg become much more digestible with time and simmering.

    VCs have an inherent responsibility to fund some % of their investments on things that are just “interesting.” Obviously these things need to have the _potential_ to make money or they’d simply be charity/donations, but a well-established VC needs to have some % of projects just because they have something really cool about them, like “This is a kick-ass hammer–maybe I’ll pocket it and we’ll see what comes along…the right type of nail just HAS to come along because this hammer just FEELS right.” Any VC using that as a core business model would be a foolish dreamer, but if the people with the money can’t invest in some dreams-with-potential for their own sake without respect to profit, who the hell else can?

  9. VCs by definition are in the risk business. A guarantee of any VC is that they WILL lose money on various projects. Period. Of course they want to make money overall–this isn’t outright philanthropy–but the kind of short-sighted “make money now” is totally against the way almost every famous empire-builder made their fortunes. Fast food is fast food; good food takes time to prepare. Tough problems, like tough meat & veg become much more digestible with time and simmering.

    VCs have an inherent responsibility to fund some % of their investments on things that are just “interesting.” Obviously these things need to have the _potential_ to make money or they’d simply be charity/donations, but a well-established VC needs to have some % of projects just because they have something really cool about them, like “This is a kick-ass hammer–maybe I’ll pocket it and we’ll see what comes along…the right type of nail just HAS to come along because this hammer just FEELS right.” Any VC using that as a core business model would be a foolish dreamer, but if the people with the money can’t invest in some dreams-with-potential for their own sake without respect to profit, who the hell else can?

  10. @charbax Even if Google does fantastically with Android, it will only have a couple of percent of the total handset market, within in a couple of years. All these things are important, iphone, Android; but the continued disjointed nature of the mobile platforms around the world may define the mobile internet as a browser based medium into the future. HTML5 and other initiatives such as Google Gears and Yahoos Blue will ensure hooks (hopefully!) into all the major phones from all the major browsers, so that we developers and startups dont have to recode everything 50 times on buggy platforms….. We can but hope.

  11. @charbax Even if Google does fantastically with Android, it will only have a couple of percent of the total handset market, within in a couple of years. All these things are important, iphone, Android; but the continued disjointed nature of the mobile platforms around the world may define the mobile internet as a browser based medium into the future. HTML5 and other initiatives such as Google Gears and Yahoos Blue will ensure hooks (hopefully!) into all the major phones from all the major browsers, so that we developers and startups dont have to recode everything 50 times on buggy platforms….. We can but hope.

  12. I was going to write a retort, but many people have covered most my points.

    I have been frustrated, as many before me, that VCs have the particulars they do about investing in certain types of businesses and have the expectations they do for success – which in turn demand a big market and big ideas which can make big money; but I understand, because that is the game they are in. If you have to make your money back on your fund from only 5% of your portfolio, you have to make sure that probably 100% of your portfolio has atleast the probable chance of making it big – i.e. a 20 or 50 times return.

    The iphone is without question, a game changer for mobile internet. Its woken up not only VCs to the mobile internet, but given the often arrogant and lacklustre stakeholders of the entrenched mobile industry a serious kick up the arse. I think the iphone is great; but you cannot get away from the fact it will remain a tiny percentage of the mobile market for many years to come.

    What I read from the event was that they might not invest in an iphone-ONLY startup. Im not suprised. They estimate 10 million units by early next year? Thats very small numbers if you’re going to ONLY serve those customers. It’s less than 10% of Facebooks user base. Infact, name one company which has sold for big bucks which has only 10 million users? That would mean a startup would have to reach 100% user takeup for their app to be highly valuable.

    We are developing an iphone app for Rummble. Why? because we know we can deliver a compelling user experience, that it will work when users install it and that iphone users are typically early adopters or gadget lovers who embrace new technology. They are IT literate and are heavy web users. With an iphone, they take that mobile.

    However, we’re also launching a Java app, to serve a vast block of the mobile user base out there, who have phones which will run Java apps.

    What would be good, is to encourage startups to invest their development resources VERY carefully; for example, Google Gears will be supporting many platforms – I guess including iphone – and if they deliver on their promise, provide standardised hooks into the hardware, from the browsers, to access location api, camera, filesystem, etc, from the phone web browser.

    Lastly, as a European, the valley – and many of its bloggers – are notoriously U.S. or atleast Western centric. The iphone IS FANTASTIC! I agree it is! But look outside your own back yard – Japan has been doing amazing stuff on mobile, without Apple, for a long time. India is skipping fixed line internet and doing all sorts of stuff from their non-Apple mobile phones. I’ve been using the mobile web on my Blackberry and before that on my other phones, for years.

    The point is that people talk as is the mobile internet didnt exist before the iphone; and maybe for those people as individuals it didnt. But for millions of people it has – and although without question the iphone provides a fantastic user experience (its main reason for its success IMHO), it is expensive, proprietary and has a small install base. That said, I’m waiting for my upgrade to the 3G version :-)

    The mobile internet will, in the future, dwarf the fixed line internet and become the norm. It will make the fixed line internet, and laptops, seem like the quaint anomalies of history – where the internet began.

    Those startups keen on building a global – or even U.S. – dominating consumer brand for their service, would be wise to look at what is going on in the rest of the world, where in some places the mobile internet is already ahead of both the U.S. and Europe.

  13. I was going to write a retort, but many people have covered most my points.

    I have been frustrated, as many before me, that VCs have the particulars they do about investing in certain types of businesses and have the expectations they do for success – which in turn demand a big market and big ideas which can make big money; but I understand, because that is the game they are in. If you have to make your money back on your fund from only 5% of your portfolio, you have to make sure that probably 100% of your portfolio has atleast the probable chance of making it big – i.e. a 20 or 50 times return.

    The iphone is without question, a game changer for mobile internet. Its woken up not only VCs to the mobile internet, but given the often arrogant and lacklustre stakeholders of the entrenched mobile industry a serious kick up the arse. I think the iphone is great; but you cannot get away from the fact it will remain a tiny percentage of the mobile market for many years to come.

    What I read from the event was that they might not invest in an iphone-ONLY startup. Im not suprised. They estimate 10 million units by early next year? Thats very small numbers if you’re going to ONLY serve those customers. It’s less than 10% of Facebooks user base. Infact, name one company which has sold for big bucks which has only 10 million users? That would mean a startup would have to reach 100% user takeup for their app to be highly valuable.

    We are developing an iphone app for Rummble. Why? because we know we can deliver a compelling user experience, that it will work when users install it and that iphone users are typically early adopters or gadget lovers who embrace new technology. They are IT literate and are heavy web users. With an iphone, they take that mobile.

    However, we’re also launching a Java app, to serve a vast block of the mobile user base out there, who have phones which will run Java apps.

    What would be good, is to encourage startups to invest their development resources VERY carefully; for example, Google Gears will be supporting many platforms – I guess including iphone – and if they deliver on their promise, provide standardised hooks into the hardware, from the browsers, to access location api, camera, filesystem, etc, from the phone web browser.

    Lastly, as a European, the valley – and many of its bloggers – are notoriously U.S. or atleast Western centric. The iphone IS FANTASTIC! I agree it is! But look outside your own back yard – Japan has been doing amazing stuff on mobile, without Apple, for a long time. India is skipping fixed line internet and doing all sorts of stuff from their non-Apple mobile phones. I’ve been using the mobile web on my Blackberry and before that on my other phones, for years.

    The point is that people talk as is the mobile internet didnt exist before the iphone; and maybe for those people as individuals it didnt. But for millions of people it has – and although without question the iphone provides a fantastic user experience (its main reason for its success IMHO), it is expensive, proprietary and has a small install base. That said, I’m waiting for my upgrade to the 3G version :-)

    The mobile internet will, in the future, dwarf the fixed line internet and become the norm. It will make the fixed line internet, and laptops, seem like the quaint anomalies of history – where the internet began.

    Those startups keen on building a global – or even U.S. – dominating consumer brand for their service, would be wise to look at what is going on in the rest of the world, where in some places the mobile internet is already ahead of both the U.S. and Europe.

  14. Wishful thinking: “Better yet, if Nokia can figure out how to make Symbian more like the iPhone platform…”
    Fact: Nokia had over a decade to come up with something like the iPhone, they didn’t. A year and a half after the introduction of the iPhone, they are not even in the same ballpark.

    Wishful thinking: “(and make it simple to port iPhone apps to the Symbian platform)…”
    Fact: Native iPhone apps are written in Obj-C; we don’t have a “simple” way of “porting” them to the Symbian platform. Pretty much every hardware and software constraint is known by developers *before* their apps get on the iPhone. Not so with Symbian, or Android for that matter. That’s what makes iPhone a superior platform that’s consistent and predictable. Even Microsoft has finally understood this: uncontrolled collection of OS + apps + hardware do not result in superior user experience. Read Steve’s latest memo to MS employees.

    Wishful thinking: “there will be a monstrous market for mobile apps and there will be big winners in the space.”
    Fact: Shipping tens of millions of cheap, limited cellphones at razor-thin margins, as Nokia does, isn’t a “market” for third party developers. It really is obscene to hype “monstrous markets” when the vast majority of these devices are nowhere capable of running any of the apps on the iPhone with any semblance of efficiency or pleasure.

    So it takes more than wishful thinking to bet against the iPhone (and that’s really what Mr. Hornik is doing when his argument is exposed). I examined just what it takes in:

    Who can beat iPhone 2.0?
    http://counternotions.com/2008/03/10/iphone2-competitors/

  15. Wishful thinking: “Better yet, if Nokia can figure out how to make Symbian more like the iPhone platform…”
    Fact: Nokia had over a decade to come up with something like the iPhone, they didn’t. A year and a half after the introduction of the iPhone, they are not even in the same ballpark.

    Wishful thinking: “(and make it simple to port iPhone apps to the Symbian platform)…”
    Fact: Native iPhone apps are written in Obj-C; we don’t have a “simple” way of “porting” them to the Symbian platform. Pretty much every hardware and software constraint is known by developers *before* their apps get on the iPhone. Not so with Symbian, or Android for that matter. That’s what makes iPhone a superior platform that’s consistent and predictable. Even Microsoft has finally understood this: uncontrolled collection of OS + apps + hardware do not result in superior user experience. Read Steve’s latest memo to MS employees.

    Wishful thinking: “there will be a monstrous market for mobile apps and there will be big winners in the space.”
    Fact: Shipping tens of millions of cheap, limited cellphones at razor-thin margins, as Nokia does, isn’t a “market” for third party developers. It really is obscene to hype “monstrous markets” when the vast majority of these devices are nowhere capable of running any of the apps on the iPhone with any semblance of efficiency or pleasure.

    So it takes more than wishful thinking to bet against the iPhone (and that’s really what Mr. Hornik is doing when his argument is exposed). I examined just what it takes in:

    Who can beat iPhone 2.0?
    http://counternotions.com/2008/03/10/iphone2-competitors/

  16. The iPhone is indeed great. But the Apollo was cooler than the Sun, and the Mac was (and still is) cooler than the PC. Sometimes the competitors catch up to the point of getting something that’s not as good, but is more or less good enough, and then win on other points than product quality: We’re bigger, we’re using X standard, we sell a whole line of related products, etc. Whether the iPhone will maintain a good market share or be pushed into a small market share is very hard to tell, at this point.

    Porting is a real problem. For example, VisiCalc was originally written for the Apple II. Then it had to be completely recoded for the TRS-80. Then lots of other “micros” came out, and Software Arts worked on technology to make the code easier to port. But then the IBM PC appeared, and soon it was the one and only platform. Lotus 1-2-3 was written directly for the PC with no portability technology at all and that was the right decision for that particular time. It’s hard to foresee how many platforms there will be, and what the relative market shares will be, even a few years out. Software developers have to be nimble, balancing doing some portability vs getting the product out fast and using the best features of each platform. That’s very hard, but who said startups were supposed to be easy?

  17. The iPhone is indeed great. But the Apollo was cooler than the Sun, and the Mac was (and still is) cooler than the PC. Sometimes the competitors catch up to the point of getting something that’s not as good, but is more or less good enough, and then win on other points than product quality: We’re bigger, we’re using X standard, we sell a whole line of related products, etc. Whether the iPhone will maintain a good market share or be pushed into a small market share is very hard to tell, at this point.

    Porting is a real problem. For example, VisiCalc was originally written for the Apple II. Then it had to be completely recoded for the TRS-80. Then lots of other “micros” came out, and Software Arts worked on technology to make the code easier to port. But then the IBM PC appeared, and soon it was the one and only platform. Lotus 1-2-3 was written directly for the PC with no portability technology at all and that was the right decision for that particular time. It’s hard to foresee how many platforms there will be, and what the relative market shares will be, even a few years out. Software developers have to be nimble, balancing doing some portability vs getting the product out fast and using the best features of each platform. That’s very hard, but who said startups were supposed to be easy?

  18. Making software for Apple hardware is mostly a waste of money. People have never made a lot of money doing any kind of development for Apple products. Apple only cares about their own profits, not the profits of third party software developpers.

    If you want to make money, develop of Google Android, that platform is free and open, it will be used by all the manufacturers, it will be used by all the carriers and Google really wants all the participants to make money and develop the platform.

  19. Making software for Apple hardware is mostly a waste of money. People have never made a lot of money doing any kind of development for Apple products. Apple only cares about their own profits, not the profits of third party software developpers.

    If you want to make money, develop of Google Android, that platform is free and open, it will be used by all the manufacturers, it will be used by all the carriers and Google really wants all the participants to make money and develop the platform.

  20. Check out tunewiki (www.tunewiki.com) and that only works on jailbroken iphones! I am not sure your point is about iPhones but rather about iphones and then from there attack smart phones and high end phones after iphone.

  21. Check out tunewiki (www.tunewiki.com) and that only works on jailbroken iphones! I am not sure your point is about iPhones but rather about iphones and then from there attack smart phones and high end phones after iphone.

  22. Different people play different roles in this ecosystem. And Vcs are not in the business of making the world a better place, but in the business of making money with sells / exits.

    ‘Normal’ companies are in the business of having a business modell and making money. Web 2.0 companies to me have the desease in that their business modell is the exit instead of having a real business modell.

    The iphone is not the platform to concentrate on because of just the iphone it is because of the ecosystem. Up until the release of Apple running windows, the platform was doomed to be a niche market, now it is accessible to everyone and I think sales numbers show how much that worked out well.

    The iphone takes that even further. Seamless integration with flatrates for mobile usage without pain, hooking up and syncing to the computer, as well as one central easy payment system for apps. Mobileme, once it is working, will be another fatal blow to all other plattforms and services who had time enough to make that happen.

    In that, concentrating on the iphone from the dev side can be a good choice. But I rather ask if you as a company want to lock yourself into this one vendor controlling and milking you. The expertise you build up will most likely be iphone centric only. Iphone ecosystem only. Limited to the rules of the market as Apple sets and change them.

    That is what you should be aware of when you commit yourself to iphone only.

  23. Different people play different roles in this ecosystem. And Vcs are not in the business of making the world a better place, but in the business of making money with sells / exits.

    ‘Normal’ companies are in the business of having a business modell and making money. Web 2.0 companies to me have the desease in that their business modell is the exit instead of having a real business modell.

    The iphone is not the platform to concentrate on because of just the iphone it is because of the ecosystem. Up until the release of Apple running windows, the platform was doomed to be a niche market, now it is accessible to everyone and I think sales numbers show how much that worked out well.

    The iphone takes that even further. Seamless integration with flatrates for mobile usage without pain, hooking up and syncing to the computer, as well as one central easy payment system for apps. Mobileme, once it is working, will be another fatal blow to all other plattforms and services who had time enough to make that happen.

    In that, concentrating on the iphone from the dev side can be a good choice. But I rather ask if you as a company want to lock yourself into this one vendor controlling and milking you. The expertise you build up will most likely be iphone centric only. Iphone ecosystem only. Limited to the rules of the market as Apple sets and change them.

    That is what you should be aware of when you commit yourself to iphone only.

  24. *user-experience* is too difficult to objectively measure as “10Xs faster, cheaper or bigger” … time & again it is best for VCs to focus on the folks who put the enterprise together and not dismiss entire classes of products or services or even specific problems … but I think the funding space is now fairly democratic & VCVs are hardly gatekeepers anymore … that growth & acceptance rate is so high (even starting with a low base) also indicates the potential for entirely new classes of products or a new industry is forming (which, of course, others have commented with regards to iPhone & it’s ecosystem) … all that being said … this is precisely why inventors need not produce anything in seeking patent protection … different subject different issue & irrelevant to the process of invention … this is also why venture capitalists is not for 99% of all entrepreneurs and innovators who should actively & aggressively understand and pursue intellectual property protection of all forms during the course of “starting-up” – solid employment agreements, corporate structure reflecting the agreement of the parties and a whole lot of propensity to hear the word “no” before getting to “yes” … i never saw a VC fund a rock band but ohh the number of music-related start-ups … another story

  25. *user-experience* is too difficult to objectively measure as “10Xs faster, cheaper or bigger” … time & again it is best for VCs to focus on the folks who put the enterprise together and not dismiss entire classes of products or services or even specific problems … but I think the funding space is now fairly democratic & VCVs are hardly gatekeepers anymore … that growth & acceptance rate is so high (even starting with a low base) also indicates the potential for entirely new classes of products or a new industry is forming (which, of course, others have commented with regards to iPhone & it’s ecosystem) … all that being said … this is precisely why inventors need not produce anything in seeking patent protection … different subject different issue & irrelevant to the process of invention … this is also why venture capitalists is not for 99% of all entrepreneurs and innovators who should actively & aggressively understand and pursue intellectual property protection of all forms during the course of “starting-up” – solid employment agreements, corporate structure reflecting the agreement of the parties and a whole lot of propensity to hear the word “no” before getting to “yes” … i never saw a VC fund a rock band but ohh the number of music-related start-ups … another story

  26. This is the reason I wanted to stay out of VC funding in the early stages of business. I believe in starting small (started with zero capital) and has been profitable from day 1. However starting without VC money means it is harder in the initial years (but more fulfilling and being in control of your vision) and slower growth path in comparison with VC funded company. Having said that I am happy in the way it is going. We expect to make a major splash (hopefully enough to make big guns like you or Mike Arrington interested in covering) before the end of the year.

  27. This is the reason I wanted to stay out of VC funding in the early stages of business. I believe in starting small (started with zero capital) and has been profitable from day 1. However starting without VC money means it is harder in the initial years (but more fulfilling and being in control of your vision) and slower growth path in comparison with VC funded company. Having said that I am happy in the way it is going. We expect to make a major splash (hopefully enough to make big guns like you or Mike Arrington interested in covering) before the end of the year.

  28. Scoble, if users don’t care about option but rather experiences, why the existence of the AppStore? Why the existence of Firefox and Opera? Why are the software shelves at Fry’s, Best Buy and the like filled with multiple photo editing software packages? Financial packages, anti-virus solutions, etc. If users only cared about experience, there would be fewer options, not more. Didn’t you pay attention to anything when you were at MS?

  29. Scoble, if users don’t care about option but rather experiences, why the existence of the AppStore? Why the existence of Firefox and Opera? Why are the software shelves at Fry’s, Best Buy and the like filled with multiple photo editing software packages? Financial packages, anti-virus solutions, etc. If users only cared about experience, there would be fewer options, not more. Didn’t you pay attention to anything when you were at MS?

  30. @Liam : almost 25-yrs after the introduction of the Mac platform, tell me how many companies are really competing against Apple on the user-experience / whole product solution side. Same will happen with the iPhone platform : nobody’s going to match the overall experience – again, from the user’s perspective – as the one offered by Apple with its iPhone/iTunes/AppStore solution (please note that there’s no “Mac” in there…).

  31. @Liam : almost 25-yrs after the introduction of the Mac platform, tell me how many companies are really competing against Apple on the user-experience / whole product solution side. Same will happen with the iPhone platform : nobody’s going to match the overall experience – again, from the user’s perspective – as the one offered by Apple with its iPhone/iTunes/AppStore solution (please note that there’s no “Mac” in there…).

  32. Robert –

    First, let me be clear about what I said on the TechCrunch Mobile panel. I did not say that I would not invest in iPhone apps. I said that in order to invest in iPhone apps you need to make certain assumptions about the growth of the platform. Or, more importantly, you have to make certain assumptions about other platforms opening up (on more than one occasion during the panel I compared the iPhone platform to F8 and talked about the opening up of other platforms like Bebo, MySpace, LinkedIn, etc. which provided greater reach for apps that had originally only been applicable to the F8 platform).

    One of the biggest challenges that VCs face is determining when a platform or technology will reach an inflection point. Sometimes we get it right. Sometimes we don’t. But that is clearly the challenge VCs will face investing in the iPhone platform. I don’t for a second question that the iPhone platform is beautifully designed and implemented (I said so at the TechCrunch event). And it is clear that the iPhone drives orders of magnitude more engagement. So assuming that the iPhone reaches tens of millions of users in a reasonable time frame, there may well be interesting opportunities in the mobile app space. Better yet, if Nokia can figure out how to make Symbian more like the iPhone platform (and make it simple to port iPhone apps to the Symbian platform), there will be a monstrous market for mobile apps and there will be big winners in the space.

    As for your description of what you call “Silicon Valley VC Disease,” I think you are wildly misinformed in suggesting that either I or August Capital have such an ailment. There is nothing we like better than exciting startups that will drive tectonic shifts in the technology landscape. And we are more than happy to be patient as those technologies and markets develop. Using you own example, my partner Dave Marquardt, the founder of August Capital, was the very first investor in Seagate when others did not see the opportunity. He was also the first investor in Microsoft and Sun when their markets were at best unclear. My partner Andy Rappaport funded a pair of signal processing experts who proposed to move data wirelessly when there was yet no wifi standard — a decade later, Atheros is a $2 Billion company powering the wifi in millions of laptops and other devices. A few years back I funded three smart entrepreneurs who proposed a better way to manage the data center by creating a search engine atop system log files — Splunk is now in thousands of enterprises and changing the way enterprises manage performance, compliance, security, etc. The list goes on (Compaq, Intuit, Symantec, Sybase, Adaptec, Cobalt, Rhapsody, Evite, Postini, etc. etc.), in each case the ideas were early, the markets unclear, and the teams were fantastic.

    I am thrilled to talk with entrepreneurs working on “weird ideas for platforms that only have a percent or two of market share” and at August we have funded more than our share of them. On the other hand, I will not likely find them interesting if the are “small” as you describe them. But “small” is in the eye of the beholder. If we believe that small markets today will be huge tomorrow, we find them all the more compelling — that’s a lot of wind at the backs of the early adopters. That may well be the case with the iPhone platform. Time will tell. But if you are working on interesting applications for the mobile web, I certainly want to hear about it, no matter what platform you are building on.

    In any event, Glad you enjoyed the party. It was great fun and I met a number of really smart entrepreneurs working on the sorts of things you think I am not interested in funding. I have no doubt I’ll be funding some of them, or other great entrepreneurs like them, soon.

  33. Robert –

    First, let me be clear about what I said on the TechCrunch Mobile panel. I did not say that I would not invest in iPhone apps. I said that in order to invest in iPhone apps you need to make certain assumptions about the growth of the platform. Or, more importantly, you have to make certain assumptions about other platforms opening up (on more than one occasion during the panel I compared the iPhone platform to F8 and talked about the opening up of other platforms like Bebo, MySpace, LinkedIn, etc. which provided greater reach for apps that had originally only been applicable to the F8 platform).

    One of the biggest challenges that VCs face is determining when a platform or technology will reach an inflection point. Sometimes we get it right. Sometimes we don’t. But that is clearly the challenge VCs will face investing in the iPhone platform. I don’t for a second question that the iPhone platform is beautifully designed and implemented (I said so at the TechCrunch event). And it is clear that the iPhone drives orders of magnitude more engagement. So assuming that the iPhone reaches tens of millions of users in a reasonable time frame, there may well be interesting opportunities in the mobile app space. Better yet, if Nokia can figure out how to make Symbian more like the iPhone platform (and make it simple to port iPhone apps to the Symbian platform), there will be a monstrous market for mobile apps and there will be big winners in the space.

    As for your description of what you call “Silicon Valley VC Disease,” I think you are wildly misinformed in suggesting that either I or August Capital have such an ailment. There is nothing we like better than exciting startups that will drive tectonic shifts in the technology landscape. And we are more than happy to be patient as those technologies and markets develop. Using you own example, my partner Dave Marquardt, the founder of August Capital, was the very first investor in Seagate when others did not see the opportunity. He was also the first investor in Microsoft and Sun when their markets were at best unclear. My partner Andy Rappaport funded a pair of signal processing experts who proposed to move data wirelessly when there was yet no wifi standard — a decade later, Atheros is a $2 Billion company powering the wifi in millions of laptops and other devices. A few years back I funded three smart entrepreneurs who proposed a better way to manage the data center by creating a search engine atop system log files — Splunk is now in thousands of enterprises and changing the way enterprises manage performance, compliance, security, etc. The list goes on (Compaq, Intuit, Symantec, Sybase, Adaptec, Cobalt, Rhapsody, Evite, Postini, etc. etc.), in each case the ideas were early, the markets unclear, and the teams were fantastic.

    I am thrilled to talk with entrepreneurs working on “weird ideas for platforms that only have a percent or two of market share” and at August we have funded more than our share of them. On the other hand, I will not likely find them interesting if the are “small” as you describe them. But “small” is in the eye of the beholder. If we believe that small markets today will be huge tomorrow, we find them all the more compelling — that’s a lot of wind at the backs of the early adopters. That may well be the case with the iPhone platform. Time will tell. But if you are working on interesting applications for the mobile web, I certainly want to hear about it, no matter what platform you are building on.

    In any event, Glad you enjoyed the party. It was great fun and I met a number of really smart entrepreneurs working on the sorts of things you think I am not interested in funding. I have no doubt I’ll be funding some of them, or other great entrepreneurs like them, soon.

  34. Robert, i agree with you that VCs are always looking for big opportunities, but you also seem to forget to mention that many alternatives way of financing the type of apps you are searching for have been rising from the Valley (or close to it also). Namely Ycombinator, Techstars not even mentionning the bunch of great private angels ex googlers/paypalers…who are able to finance those new models until they either prove relevant, profitable, buyable or even fundable by VCs. I have no doubt that today all types of good ideas can be financed through the right channel

  35. Robert, i agree with you that VCs are always looking for big opportunities, but you also seem to forget to mention that many alternatives way of financing the type of apps you are searching for have been rising from the Valley (or close to it also). Namely Ycombinator, Techstars not even mentionning the bunch of great private angels ex googlers/paypalers…who are able to finance those new models until they either prove relevant, profitable, buyable or even fundable by VCs. I have no doubt that today all types of good ideas can be financed through the right channel

  36. 1) VC’s are like trustfunders-turned hollywood casting directors with MBA’s.

    2) Money and image are supporting roles, ideas and team perspiration take the lead.

    3) If VC’s were 20-something females, they’d never find a date and wonder why. Risk-aversion / pickiness becomes perfectionism paralysis. The problem might be too many choice. There’s that book “the paradox of choice” by schwart

  37. 1) VC’s are like trustfunders-turned hollywood casting directors with MBA’s.

    2) Money and image are supporting roles, ideas and team perspiration take the lead.

    3) If VC’s were 20-something females, they’d never find a date and wonder why. Risk-aversion / pickiness becomes perfectionism paralysis. The problem might be too many choice. There’s that book “the paradox of choice” by schwart

  38. Liam, I’m not impressed by other companies attempts to compete with the iPhone. Honestly, I really expected more, sooner.

    When (if?) they catch up, I can imagine that they’ll be suitable platforms for mobile web apps. To the extent that native apps are important though, I have my doubts that they’ll be able to catch up with Apple.

    The other smartphones were around before the iPhone, and their sales were growing at a healthy rate, and yet mobile application sales were stagnating. How are they going to turn that around?

    They might be able to turn that around by taking a page out of Apple’s book, but they are already at a disadvantage. They’ll have to negotiate with the carriers if they want to make application acquisition as seamless as it is with the iPhone. They don’t have the presence on end-user desktops that Apple has with Macs and iTunes to use as both a lever for dealing with the carriers, and to provide a desktop compliment to the mobile user experience.

    Let’s face it, developers may want options so they don’t become too dependent on a given platform, but they don’t want too many options. The personal computer world used to have and incompatible Apple, Atari, Commodore & Tandy, not to mention various CP/M systems, before the IBM PC (and MS-DOS) came along and provided the critical mass to create a virtuous circle that lead to mainstream adoption.

    We can quibble whether we’ve hit that inflection point in the mobile space yet, but I think most will agree, it’s not far off. So, is there anyone with ambitions in the space who isn’t going to bet on Apple? My guess, almost everyone bets on Apple, but their other bets are split among multiple contenders.

  39. Liam, I’m not impressed by other companies attempts to compete with the iPhone. Honestly, I really expected more, sooner.

    When (if?) they catch up, I can imagine that they’ll be suitable platforms for mobile web apps. To the extent that native apps are important though, I have my doubts that they’ll be able to catch up with Apple.

    The other smartphones were around before the iPhone, and their sales were growing at a healthy rate, and yet mobile application sales were stagnating. How are they going to turn that around?

    They might be able to turn that around by taking a page out of Apple’s book, but they are already at a disadvantage. They’ll have to negotiate with the carriers if they want to make application acquisition as seamless as it is with the iPhone. They don’t have the presence on end-user desktops that Apple has with Macs and iTunes to use as both a lever for dealing with the carriers, and to provide a desktop compliment to the mobile user experience.

    Let’s face it, developers may want options so they don’t become too dependent on a given platform, but they don’t want too many options. The personal computer world used to have and incompatible Apple, Atari, Commodore & Tandy, not to mention various CP/M systems, before the IBM PC (and MS-DOS) came along and provided the critical mass to create a virtuous circle that lead to mainstream adoption.

    We can quibble whether we’ve hit that inflection point in the mobile space yet, but I think most will agree, it’s not far off. So, is there anyone with ambitions in the space who isn’t going to bet on Apple? My guess, almost everyone bets on Apple, but their other bets are split among multiple contenders.

  40. Hey Robert – I know this isn’t quite the point, but you mentioned Bill Watkins of Seagate and his funding woes back in the day. Turns out August Capital was an early investor with them, and it all turned out pretty good for everyone, eventually. This is just to say that I don’t perceive Silicon Valley VCs to just be interested in the quick turnaround. The big turnaround? Absolutely. Single-platform developers are more in the Angel type of funding model (or of anomalous set-ups a la Kleiner’s iPhone Fund, which is a whole different animal than a standard VC fund.)

    Great post, though. I also appreciate the thoughtful comments…

  41. Hey Robert – I know this isn’t quite the point, but you mentioned Bill Watkins of Seagate and his funding woes back in the day. Turns out August Capital was an early investor with them, and it all turned out pretty good for everyone, eventually. This is just to say that I don’t perceive Silicon Valley VCs to just be interested in the quick turnaround. The big turnaround? Absolutely. Single-platform developers are more in the Angel type of funding model (or of anomalous set-ups a la Kleiner’s iPhone Fund, which is a whole different animal than a standard VC fund.)

    Great post, though. I also appreciate the thoughtful comments…

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