Saturday, September 10, 2011

The 'next Facebook' will be a crowdfunding platform

The leading social network service is ... Facebook.
The leading micro-blogging service is ... Twitter.
What's the 800 lb gorilla in online services for startups? ... There isn't one.

There is no one place 'everybody' goes online for startups.  And thus:
  • You can't access a 3rd party app market and related APIs.
  • There is no 'search' for startups.
  • There is no central ecosystem for all the related players (office rentals, IP lawyers, accountants, benefits companies, employees, ...)
  • There is no way to apply deep quantitative models and trend analytics to startups.
  • And of course, as a consequence, much of the startup market remains opaque and difficult to access.
And yet, think about how huge the small business ecosystem is.  American "informal investors" put approximately $51 billion into early companies in 2010 alone (business angels, only $9.4 billion of that).  But it's the size of the entire ecosystem around small companies that really drives the value of being a "Facebook of startups" -- and that's going to be an order of magnitude bigger.

So what happens when across the global scene (or some fraction of it), trillions of dollars worth of ecosystem start focusing its time on one (or a few) winners in the online startup space?  And when players access related apps from a marketplace, find employees, employers, lawyers, administrative services, office space, designers, etc?  Investors will find a rich ecosystem equally valuable and transformational, given that large data sets of info will enable trend analytics and custom deal potential identification.  Do you suppose that will make a 'Facebook' of the space valuable?

I've had a conversation with a number of VCs about a crowdfunding platform being the next major investment potential.  Mostly they just politely change the subject, or even roll their eyes.  Reminds me of trying to get funded in the 90's for a virtualization startup (doh!).  Well, I'm going all-in on perhaps my biggest ever trend call.  The next Facebook-sized investment opportunity in software startups, is a crowdfunding platform.  And it's going to have an app market & APIs.  Roll your eyes all you want, sheople.  It's about to get interesting...

P.S. It's worth noting the momentum picking up in regulatory changes for crowdfunding.

Congressional hearing on crowdfunding, White House blog post on crowdfunding

Crowdfunding is really picking up steam in the U.S.:
  • Hearing #2 in a House of Representatives subcommittee (this time specifically about crowdfunding!) is scheduled for 9:30 a.m. on Thursday, September 15.  Btw, you can request that C-SPAN covers this hearing, by calling them the day before at 202-737-3220.
  • In a recent blog post from the White House Office of Science and Technology, point#1 makes the case for allowing crowdfunding as part of the Startup America initiative.
This is a great time to get the word out about the petition for crowdfunding at StartupExemption.com.  It's important to show support while this is a hot topic.

I keep track of related events in a dedicated page.

Monday, May 16, 2011

Kevin at Maker Faire (Bay Area) moderating crowdfunding panel

I'll be at Maker Faire (Bay Area / San Mateo) moderating the crowdfunding panel on Saturday May 21 (3pm).  Drop me a note if you want to meet up

Kevin at Crowdsortium Symposium

I'll be at the 1st Crowdsortium Symposium (Google HQ, Mountain View) on May 19-20.  Drop me a note if you want to meet up.

Tuesday, May 10, 2011

Congressional hearing on "The Future of Capital Formation" video available

The video from today's congressional hearing on "The Future of Capital Formation", which affects crowdfunding, is now available online.  Unfortunately, Woody was swapped out last minute to make room for former SEC Commissioner Roel Campos.

Sunday, May 8, 2011

Congressional committee hearing on crowdfunding exemption Tue May 10

A landmark U.S. congressional hearing relating to crowdfunding and small business capital formation, takes place on Tuesday May 10th, 2011!  Entrepreneur Sherwood "Woody" Neiss testifies in front of the House Committee on Oversight and Government Reform.  Woody is advocating SEC regulatory change which would enable small businesses to solicit funding from the general public.  And besides the ear of congress, Whoopie Goldberg has got behind him.

The implications of such needed change are monumental to the entrepreneur, to small businesses and to the economy -- all of which have been held back by lack of modern methods of capital formation.  Despite the commercialized Internet being over 15 years old, the general public has nearly no access to private companies as an asset class, outside of their immediate circle.  And yet, people of wealth (i.e. "accredited investors") can be readily solicited for funding, and thus have virtually unlimited access to potential private investments.

While this momentous event takes place at a U.S. congressional hearing, its significance is absolutely global.  The U.K. already has an exemption in place, and at least one equity-based crowdfunding platform (Crowdcube) is operational in the U.K.  Given the proliferation of other forms of crowdfunding throughout the entire world, it's a matter of time before other countries come on board.  And thus there is also a strong competitive element in allowing crowdfunding for investment.  In an Internet-based information economy, it will be virtually impossible to compete without bringing private investment into the Internet fray.

Please support Woody and the entire crowdfunding and entrepreneur community.  The hearing should be webcast live.  Also, C-SPAN decides on Monday, May 9, which programs it will broadcast for Tuesday.  Update: unfortunately, they don't take inputs from the public.

Tuesday, May 3, 2011

The community tool library, from books to drills

We tend to think of a library as a communal repository of books, magazines and other literature.  But why not a library of tools instead?  The same argument applies -- it's often not feasible to own all the tools a person needs over time, so why not borrow them from a communal repository?

The Northeast Portland Tool Library is an interesting community effort which answers these kinds of questions.  It makes home improvement and gardening tools available to residents of Northeast Portland, much like people check out books from a library, late fees included.  It's very community centric, and operated out of the basement of a church!

That makes me wonder, is this a model which will become popularized over time?  Now that ebooks and tablets are shredding the paper book markets, will the next community libraries store tools?

Btw, you might want to also check out my related post about TechShop, a new club model place to get access to cutting edge machining and design tools.

Update: There's a Wikipedia page listing a number of tools libraries.

Disclosure: no positions

Physical gadget VC funds coming, crowdfunding leading the way

Until recently, software gadgetry has taken up a lot of the limelight in the startup world: social networking, mobile apps, browser plugins, you name it.  But a new trend is emerging that will drive Venture Capital to create specific hardware gadget funds, analogous to the way that Kleiner Perkins' iFund targets iPhone/iPad apps.  This time though, crowdfunding is leading the way.

We've already seen the creation of a handful of really popular hardware gadgets, such as the credit card reader from Square (angel, VC, and corporate investors).  And the TikTok / LunaTik watch band which lets you snap or bolt in an iPod nano (Kickstarter).  And the incredible Satarii Star accessory for the iPhone which automatically swivels to track you while taking video (IndieGoGo).

But of course, one of the main drivers behind the proliferation of software startups are the relatively lower barriers.  Tinkering with hardware gadgets, while popular amongst the 'maker' crowd, has traditionally presented some steeper barriers.  CNC lathes, milling machines and 3D printers aren't things the average tinkerer buys at Fry's on a whim.  So the playing field for prototyping hardware gadgets has until now, been drastically restricted.  And when I say "until now", I mean TechShop.  This is a truly amazing new model, which will crack open the market for physical item startups.  Analogous to what gym memberships did for giving broad access to work-out equipment, TechShop is doing to bring access to all the dream tools a maker would need.  Molding, milling, drilling, welding, water-jet cutting, 3D printing, design software, etc.  Being modern, many of these tools are of course, CNC based.  TechShop provides training & mentorship, and of course a community of makers to interact with.

What was really interesting at a recent TechShop event at their San Francisco location, was that there was quite a bit of talk about crowdfunding!  People were really charged up about crowdfunding as a natural fit.  When I asked if there were VCs sniffing around, they said a few have, but they're waiting for enough deal flow to make it worth their while.  Well, have a look at the TechShop locations which are operational or coming soon.

Given the enormous latent innovation that this new model unleashes, if I were the VCs, I wouldn't wait long to make my brand name in the space.  Not just because TechShop startups like DODOcase are learning how to become successful without VC money.  And not just because of the explosive nature of the space.  But because this time around, there is significant competition.  Crowdfunding is already establishing a beach-head.

Note to avant-garde VCs, calling it the MakerFund would be a great way to dial into a whole culture of tinkerers...

Disclosure: no positions

Thursday, March 3, 2011

I'll be at Apps Go Global Conference, Ft Mason SF, March 8

Increasingly, I'm hearing from a number of investor types that they'd like to meet & talk shop about the future of venture capital and crowdfunding.  I'll be at Apps Go Global this coming Tuesday, March 8 at Fort Mason in San Francisco.  If you're going, drop me a note -- we can connect there.

Also, I tend to be an excellent startup scout -- I guess a combination of being a many time entrepreneur, a visionary type, and a passion for relentlessly talking to every startup that's willing, gives a person the edge.  If I have a relationship with you, I may send trip reports.  As an example, for LAUNCH, above all the noise of coverage and "best of" awards, here're some that you should be interested in.

Disclosure: no positions

Tuesday, March 1, 2011

Picks from LAUNCH exhibitors floor

I attended LAUNCH in San Francisco (conceived by Jason Calacanis and picks up where he left off with TechCrunch50).  Good show, Jason et al.  There were some really cool startups there.

While many of the suits (investors) were busy watching the entrepreneurs pitch on stage, I did what I love doing -- relentlessly chatting up the entrepreneurs.  Feels like I must have talked with 95% of the exhibitors over two days.  For the benefit of those who couldn't come, here're my picks of budding startups from the trenches (not ones which got a lot of press):

  • Either TopDish or SporkHub.  Dish-resolution Yelp.  It's about time!  Opens up many new possibilities -- I see much more dynamic menus coming, and new restaurants which chose their menus based on cherry-picking these sites.
  • TripBod.  Hook up with local curators/guides for your travels.  Oppty to disrupt the travel industry.  It takes a moment for the market space of this one to set in.  But then it hits you like a ton of bricks!  Those are the best kinds of ideas.  And this is my favorite from the entire conference.
For a fun pick:
  • Zazu.  Wake up to your relevant info aggregated, alarm clock app.
Happy investing.  Let me know if you want picks from future conferences...

Disclosure: no positions

Tuesday, February 1, 2011

46% IRR, crowd-enhanced angel returns and the future of crowdfunding

I had a hunch some time ago, that failure in startups could be predicted with certain quantitative measures.  You get a form of "failure ESP" after you've been in enough of them.  But are there bits of information that an algorithm can digest to predict startup failure?  Apparently so.

After creating some script magic, I ran my thesis against the CrunchBase database (kind of a crowdsourced wikipedia for startup information).  The run showed a promising correlation between the failure predictor (I call it the f factor) and startups which hit the "dead pool".  It was suggested to me to run a logistical regression, to find the correlation between my failure predictor f, and the binary outputs of fail/win.  The correlation results in hand, one can then plug the predictive advantage into the Angel Investor Performance Project (AIPP) data, and simulate the returns using a healthy sized portfolio.  The improvement takes the returns from an average 2.4x payout multiple and IRR of 30% to a multiple of 3.8x and a 46% IRR!

Now that makes a bucket of assumptions, e.g. how the predictability of f is distributed across investments, etc.  At any rate, the bigger point to make here, is that even using a crowdsourced database can enhance returns.  Adding in prediction markets in a crowdfunding environment, where all the players are involved, could increase this even further.  As I mentioned in the epiologue of the book:

"Human versus the machine: will we create algorithms to make early picks of winning startups, which are better than many humans (like has been done in chess)?"
Disclosure: no positions