Wednesday, September 23, 2020

Blogging now at

I've moved my blogging over to my own I figured it was high time and I had some frustrations embedding non-standard content. Not sure that I won't have the same frustrations with Wordpress, but at least it will be New Problems.

Follow me over there. You'll be redirected in a few seconds.

Friday, June 27, 2014

Kayaking or Standup Paddleboarding

If you're interested in getting out in a kayak or standup paddleboard in the New York City area, Hoboken specifically, check out Resilience Paddle Sports. It's a quick ferry ride from Manhattan.

I know this is a blatant plug, but you shouldn't be reading it anyway, since I've moved my blog to

Thursday, September 5, 2013

Adtech Investing Activity

My friend Jonathan Mendez of Yieldbot asked me a question about the pace of adtech investing so I pulled together some numbers. I also posted some of them in response to a question on Quibb, so I figured I might as well throw the numbers into Datahero and explore.

I used my own list of ~500 adtech companies that have received venture funding and pulled data from Crunchbase on them. The usual caveat: Crunchbase data is not 100% accurate, it is missing data, it has wrong data, it has doublecounted data, etc. But it's well worth the price. (If someone with a better dataset wants to give me free API access, I'll plug your data in my posts.)

I did some cursory data cleaning and then hand-coded the companies by region and 'type.' Note that the SV region includes both Silicon Valley and San Francisco. The types I used are Buy-side, Sell-side, Ad nets and exchanges, Analytics, Data, Tech (includes ad servers and general adtech tech providers like The Trade Desk and AppNexus), Mobile, Video, and Social. I did not include any search-oriented firms, this is just display.

1. Number of Companies by Category and Region

The regions are broken out a little more in this one. London, as the largest international region, is broken out from the rest of Non-US here and Mid-Atlantic and the Pacific Northwest are also broken out from Other. The only interesting thing here is that SV and NYC are each twice as big as any other region. SoCal is the third biggest region; they've always been a player in adtech, probably due to their loose morals*.

2. Investment by Category by Year

This one is more interesting. I don't really trust the 2005 amount because Crunchbase is especially sketchy in 2005. And note that the 2013 amount (as in all the graphs) is year to date as of end of August, so it is not really comparable to the others.

In any case, you can see the ramp up to 2008 and then the wintry 2009 you all remember. Then the ramp back up to 2011 and a fall in 2012. No surprises. If I annualized 2013 year-to-date (which would be bad practice given investing seasonality, but whatever) you would see that 2013 is on track to be slightly smaller than 2012 (about 1% smaller.) But if you believe, like I do, that the weakest fund-raising climate was second half of 2012 and first quarter of 2013 then 2013 should come in larger than 2012.

3. Allocation of Investment by Type by Year

This one is more interesting, because it's not immediately obvious to the naked eye without seeing the data. It shows how the investment dollars are allocated across types over time. In 2005 most of the money went into ad networks/ad exchanges: the rest of the ecosystem was just getting started. Mobile and Video ate into that in a big way in 2006. Then the buy-side (DSPs, AMPs, retargeters, etc.) became the largest category, starting in 2007 and with the exception of 2011. The importance of ad nets has declined pretty steadily over time. Mobile had a resurgence in 2011 and then fell back. Video, for some reason, has never been a huge share. Neither has social, although I think that this piece will continue to grow**.

4. Investment by Region

This next graph holds no surprises: the amount of money invested in adtech by region. Note that this is the region of the company being invested in, not the investor. NYC and SV lead, of course.

This graph drills down on those two, and is a bit more interesting. Seems like more money was invested in NYC in 2005 and 2006 than in SV but then Silicon Valley took the lead, until this year. You can see this as a percent of the total NYC+SV investment in the next graph. In 2012, companies in SV raised four times as much as those in NYC.

5. Investments by Round

What's up with Silicon Valley being the big recipient of investment in 2012? 2012 was not a great year to be an adtech entrepreneur in SV, after all. The answer reveals one of NYC's biggest weaknesses as a startup hub.

The graphs here are investments by round. Crunchbase is especially bad at identifying what kind of round each round is (make sense of this, for example) so I took only the companies founded in 2006 or after and numbered the raises sequentially. The first time a company raised money is the first round, the second time is the second round, etc. I assume the first round is seed, the second is A, etc., but I labelled them as I found them: first round, second round, etc. This could lead to some apples-to-oranges stuff, but it beats trying to figure out which is the earlier of the Convertible Friends and Family Thanksgiving Extension Bridge and the Exploding Accelerator Put-Call Straddle denominated in square feet of loft space***.

The first graph is just dollars by round. Since it's only companies founded 2006 and after, it makes sense that the later rounds only start in a few years after. You can see the first round in 2006 followed smoothly by some seconds in 2007, etc. Interesting points:
  • First round dollars gently peaked in 2008; this could be due to a couple of things: more companies founded, or that first rounds decreased in average size over the past five years.
  • The increase in total dollars invested in 2011 is largely due to the increase in the later rounds, fourth and after (so, probably Series C and later.) This makes sense, as later rounds are bigger.
  • This is offset by a shrinking not only of first rounds (seed) but also of second rounds (Series A) and of third rounds (Series B.) I'll come back to this.

Compare these next two graphs. The first is investment by round in NYC companies. The second is investment by round in SV companies. Their shape is very different, no? Here's my take on what is going on: NYC recognized the new adtech (real-time, data-driven) early and committed to it. SV came in later, but investors poured money in. This is one of New York's biggest weaknesses: we have deep industry knowledge, but we don't have deep pockets. In New York we understand our customers (there are like three major advertisers in all of SV compared to scores in NYC) but Silicon Valley is a fast follower willing to take big-money risks on technologies that are starting to prove themselves. When a New York company raises their first round bigger then $40 million, people usually say "what took so long?" When a Silicon Valley company does the same, people usually say "are those investors out of their minds?" It's not that there's a very different risk tolerance, it's just that Sand Hill Road is in the high-stakes room and New York is out on the floor. Except in this casino, if you win in the high-stakes room you get to take the chips from everyone on the floor. It's a problem.

6. Companies Founded

While I was writing this I realized I had assumed, given the industry talk of VCs funding a bunch of chaos in the ad industry, that adtech companies continued to be founded at a breakneck rate. That I personally was being pitched by fewer than I had been I attributed to the number of new investors who had familiarized themselves with the space since 2008, when I started investing in adtech. The graphs below disabused me of that.

There are just fewer companies being founded. In fact, according to these numbers, in Silicon Valley in 2012 and 2013 no adtech companies were founded, zero. Now this is where Crunchbase data could be particularly out of whack. I know I spoke to many adtech companies in SV/San Francisco that were raising over the past year. That I didn't invest in any of them did not cause me to consider that no one did (I was usually disinclined to from the start because of the concentration of adtech already in my portfolio, and I always let them know that in my first response to them.) It seems that, in fact, no one did invest, at least according to Crunchbase.

Maybe there are investments that are still in stealth, so the investment hasn't been disclosed; maybe there were companies where the investment was low-key or from an accelerator so it never made Techcrunch and thus never made Crunchbase; maybe the gap between founding and getting funding has gotten longer so these companies just haven't hit the press yet; maybe the companies are simply not describing themselves in a way that would pass my adtech filter because they don't want to be put in a box on the Lumascape with twenty other companies. I don't know. It seems implausible to me that barely anyone is starting adtech companies anymore.

But it's not implausible that far fewer adtech companies are starting, that's almost certainly true. To put a finer point on it, the second graph is NY and SV starts per year. Both SV and NYC have seen a pretty drastic boom and bust in foundings, although more pronounced in SV than NYC.

On Quibb I quibbled over Andrew Chen's comment that "adtech is definitely out of favor with VCs" by showing that investment in adtech is still high (as per graph 2, above.) Maybe what he meant is that funding new companies is out of favor, and that looks to be true.

To a contrarian like me, it looks like an opportunity.

* Ha! That was a joke. Well, not really.
** And, it could be that the companies that will be the social adtech cos did not all fall into my filter because they can look like something else, like publishers.

*** I'm still punchy from having to come home from vacation.

Monday, August 19, 2013

On Corporate VC

I know I'm a bit late to this, but I just ran across Fred Wilson's comments about corporate VC from two months ago. “I am never, ever, ever, ever, ever going to do that again," he said of investing with corp VCs, because "they suck." Why do they suck? "They are not interested in the company's success or the entrepreneur's success. Corporations exist to maximize their interests. They can never be menschy or magnanimous."

On his blog Wilson clarifies a bit: corporate VCs are of two types, passive or active. If they are passive, they can be good, because they act like VCs; if they are active they are bad, "The corporate strategic investor's objectives are generally at odds with the objectives of the entrepreneur, the company, and the financial investors." And, "I strongly advise against entering into these kinds of relationships."

There's certainly some truth here. I was an active corporate VC in the 90s and I've been a stand-alone investor for the past five years so I've seen both sides. And I agree with Wilson, pretty much everything he says except that last sentence*.

I ran Omnicom Group's venture division back in the 90s, a strategic corporate investor if ever there was one. For the first few years there I invested primarily in interactive agencies. The mid-90s were a good time for this and we got to seed-fund some great companies: Razorfish,, Organic, etc. Our strategy was to invest in the best people we could find, people doing amazing creative work and coming up with awesome customer solutions; a good product, in other words. We looked at pretty much everyone but made few investments, we were pretty picky. We did not think that professional services companies would go public--it was very rare and a bad idea for all but the largest--we thought that we could help build the businesses until they were profitable enough for us to buy out the interest owned by the founders**. We also knew that we could not acquire (or start) world-class companies at that time, but we needed agencies that were connected to Omnicom so we could bring clients looking for an interactive agency to someone in the family: we did not want another holding company to get a toe-hold at our clients. This was our strategic rationale and we did indeed try to maximize our own interests. But our interests included making our investments as successful as possible, and I did everything in my power to that end.

But I understood, and made sure my portfolio companies understood before I invested, what was in my power and what was not. I could not bring them clients, I had no clients, the clients belonged to the other agencies, who did not report to me. I could not bring them partnerships with the ad agencies, those agencies made their own decisions. All I could do was make qualified introductions and go reason with (and otherwise harass) the agency heads. I could also provide unparalleled benchmarking, access to best-in-class advice on how to run a client services organization, M&A, and Omnicom's brand name. This last was what convinced most of the portfolio companies: being associated in a client's mind with the company that already provides their advertising services, PR, etc. was enough to tip the RFP their way.

These investments did phenomenally well. Well enough to draw in VC firms to a space (professional services) that they traditionally avoided. One of the at-that-time well known venture capitalists invested in a second-rate company, one I had passed on. Mystified, I called up the VC and asked to have lunch. I think when he discovered that his lunch date was not the overture of a potential acquiror but a young whippersnapper asking for advice, he was somewhat displeased. It was a short lunch. As the lunch turned chilly I did get to ask him the question I wanted to know the answer to, though: "why did you invest in ____?" His answer, reasonable though curt, was "Because I expect to make money."

It's true that corporate VCs and VC firms should think twice before investing together. They have different goals. But let's understand this.

Strategic VCs invest because they want to make their own company stronger. As Wilson says, they exist to maximize their interests. Maximizing their interests, of course, usually means maximizing the success of their portfolio companies.

VC firms invest because they want to make money. They exist to maximize their interests. Maximizing their interests, of course, usually means maximizing the success of their portfolio companies.

These things are the same, no? Except they're not, because corporates and VC firms define success differently. For a VC firm success is selling their equity to someone else for a lot more money in a relatively short time frame. For a corporate VC success is having a company become powerful and entrenched so they can learn many things from them (and prevent competitors from dominating a market.)

You can see the reasons for frustration. Dominating an industry does not necessarily mean becoming extremely valuable. Most of the ad agency holding companies would have preferred owning a piece of, say, Donovan Data Systems to a piece of Yahoo! back in the 90s. Because, as an Omnicom exec said to me back in 1997 or so, "there's no amount of money you can make that would make any conceivable difference to our market cap."

But this cuts both ways. Because a corporate VC does not need to exit their investments in a relatively short time-frame, they can be more supportive than a VC firm. Since corporates are not necessarily in it to make money, they can put money and time into a company for strategic reasons, even if it doesn't increase the market value of the company in the short-term.

But we did make money on these investments. Quite a bit of it. Much more than the VCs who invested late in the bubble in companies whose sole purpose was to build something that could go public. Good VCs, of any stripe, know that the best way to avoid financial risk is to build an amazing company. I'm not saying that corporate VCs are always better at that, far from it. But they are not always worse.

When I was a corp VC we didn't want to invest with stand-alone VCs, for reasons analogous to Wilson's: their definition of success was different so we had disagreements, brickbats were thrown***, and we had suboptimal outcomes. Whose fault was that? Both sides blamed the other.

Now, knowing what I do about both sides, I invest with corporate VCs, but carefully. The passive VCs are great for filling out rounds, but I don't ever rely on them being around three years from now: because they have no corporate rationale (neither strategic nor profit) they are arbitrarily shut down when VC stops being fashionable, late in any boom. Passive corporate VCs are classic buy high, sell low players. The active VCs can be extraordinarily helpful (one corp VC I've coinvested with has brought some of the first customers to pretty much all of its portfolio, and you know how important getting those first customers is) but I wouldn't put money into a deal that a corporate VC is leading because I recognize that our interest diverge, especially around exiting.

But entrepreneurs should take Wilson's complaints--the tension between two very different types of venture investing--with a grain of salt. I agree that if you take money from strategic investors you need to be careful what kind of control they have over your company. You need to retain reasonable control of the exit, certainly, and of raising more money. The corp VC can have very different ideas about what you should do here, what is best for them. You should also be realistic about what you can expect the corp VC to bring you in terms of strategic advantage. In the end they can't bring you much more than money, advice and some intros. They will rarely bring you customers or tactical help.

But note that all of these caveats hold true for VC firms as well. You should be careful about how much control they have over your company and be realistic about the help they can give you.

Razorfish took Omnicom's money not because they thought Omnicom would bring them clients but because they knew that being backed by the world's largest marketing services firm would enhance their own brand. No venture capital firm would have had this effect with Razorfish's clients. Every company is different and needs different things to succeed. Pick your investors wisely, always, but if a strategic investor is going to bring you more success than a VC, and all else being equal, take their money.

* And the last sentence of the first paragraph. Wilson can be menschy and magnanimous beyond what's solely in his firm's best interests because he's had so much success already. Kind of like how Neil Young could experiment with Trans in the early 80s. Most VCs do not have the leeway to be menschy or magnanimous, corporate or not.  Also, I'm going to ignore the passive corporate VCs because they are, in fact, simply stand-alone VCs that have been conglomerated; much like GE makes jet engines and refrigerators, Intel makes chips and does venture capital. There are lots of reasons to criticize this sort of conglomeration, Sarah Lacy has all of them--and a few more--here.

** Because of the way Omnicom was managed--acquisitions were always accretive to earnings--and the disconnect between a business' earnings and value during the steep part of the s-curve, we could not acquire the whole thing up front. We also thought that buying out the entrepreneurs when there was still substantial growth ahead would not motivate them as much as letting them profit more directly and substantially from realizing that growth.

*** I once had a very, very well-known West coast VC tell me on a conference call "You will never invest in California again." The other corp VCs on the call bought me lunch for months for that out of pure glee. The West coast VC in question followed-on into my first angel deal. To be fair, it wasn't in California.

Thursday, August 15, 2013

Art for Computers

I was reading with interest the New York Times piece on The School for Poetic Computation (via an @aweissman tweet). The idea of the school is worth thinking about: the idea that art, culture, and work subvert each other. That they play off each other. That, indeed, using the tools of progress for play instead of for work is in itself an important component of progress. As Hank Tennekes observed in The Simple Science of Flight:

Among the redeeming qualities of our species is that we play. Indeed, we surround ourselves with toys, and we remain preoccupied with them throughout life… We display almost inconceivable creativity as we tinker with our playthings. The force of imagination and the passion for experimenting propel us toward outrageous designs and technological achievements.
This post isn't about that. But it reminded me of something I wrote a year ago and didn't publish. It's about neo-Luddism, the idea that progress will not just put people out of jobs in the short-term, but that progress will permanently reduce the number of jobs that can exist. I didn't publish it because any learned person who believes this has already demonstrated that they will not believe rational economic arguments, so spouting off even more rational economic arguments is preaching to the choir (I'm trying to do less of that in my life.) But book-ending the very long rational economic argument that I wrote (and ended up using elsewhere) is a different, humanistic one. It might sound a little strange, but it's Summer, so maybe you'll be a little patient with me. Here it is.


A question that's been on my mind constantly over the last few weeks: if machines made art for other machines, what would that art be like? Let's make it a bit easier to think about: if computers made art for other computers, what would that art be like?

No, seriously, I have thought about this every day for at least three weeks*.

Computers don't have the same sense organs we do, they have different in-built biases towards the 'beautiful', they don't have idealized physical forms, they don't have the same perception of time and decay, they don't have the same emotional reactions towards colors or combinations of colors, they don't--in the sense we understand them--have emotions at all.

Would there be an analogue of Hopper, creating moody images of low-traffic URIs whose structure was scanned but not parsed. Or of Mondrian, Fourier-transforming novel time-domain ping patterns. Perhaps of Wyeth, with an idealized but enigmatic snapshot of the L4 cache. Of Duchamp, with partially overlaid, closely-spaced bubble-sort heap dumps. An existentially minimalized kernel panic. An idealized object repeated in a random but predictable way. A real, and carefully chosen for its generalizable realism, record of a SYN flood DoS attack. A program which seems as if it should, but in reality would never, work. An extremely large, but carefully counted, number of zeros in a row.

This is the kind of thing people don't think about. Computer art for the benefit of computers and nobody cares what benefits computers. That is not what machines are to us. We build machines to do things for us. We use them as an extension of ourselves, to achieve what we want but faster or better, more efficiently. Machines make us, as a species, more productive. They help us make more of the things we want, so we can have more of them or more people can have them. Machines are not ends, they are tools.

[Insert long, pointlessly duplicative of centuries of economic thought rational argument here.]

Neo-Luddites believe that machines exist for themselves. They confuse subject and object. They believe that there is some extrinsic mechanism that creates jobs and we are simply the dopey beneficiaries. The political dialog heightens this, making it sound like our government can create jobs and give them to us, like birds feeding their helpless young. That, in fact, that's where the jobs all come from, as if the government were the stork and jobs were babies. The Neo-Luddites believe that if you empty the tub of water faster than the faucet fills it, then you only have half a bath, for the rest of time.

But we are not the bather. There is no bather. We are the water. And no matter how you move around the water in the tub, it remains full.

People lose their jobs because of improvements in the means of production. So, in that sense, progress destroys jobs. The prevailing wisdom has it that progress also creates jobs, and that these forces have balanced each other out in the long-run. Neo-Luddites say this is no longer true and most economists seem to argue with them on their terms. But arguing on these terms is ridiculous: there is no aloof god Progress. People create tools to make jobs more efficient, and then fewer people are needed to do them. And the people who might previously have done those jobs find other things to do, and those 'other things to do' is the job creation we also call progress. Progress is something we make, not something made for us. Economics has generally become more human-centered over the past few decades, but this particular subsector of growth theory has not.

The reductio ad absurdum of the Neo-Luddite argument is a singularity where machines end up doing all the jobs, leaving humans doing nothing. This is absurd in two ways: (1) if machines were not simply tools, they would not care to do the things we direct them to do, they would do the things they care about themselves (make art, perhaps); and (2) if they did continue to serve us, then the things they provide would be effectively free (the machines would not care to be 'paid' in any coin we have) and we humans would be free to create value in other ways without worrying that our needs would not be covered--what else, indeed, would the machines do with all the food and clothing they produced except give it to us?

At any point on the spectrum between now and this singularity, we can make a similar argument. Between when 80% of Americans were farmers and now, when some 3% are, we did not structurally lose 77% of all possible jobs. When each farmer could produce food for many more people than they used to, they did not hoard that food and let the non-farmers starve. They found some other good that they wanted that the non-farmers could produce, and traded food for it**. The non-farmers found ways to create things the farmers wanted but that they previously could not have because there was no one to produce it. And, indeed, what else would the farmers do with all that extra food except find things to trade it for?

To believe that there are no more jobs to be created you have to believe one of two things: that there is nothing else we as a species could use, that we already have everything; or that people are simply too unimaginative to create these things. If you believe the first then you should take a look at our healthcare system or our educational systems, among other places that have a crying need for more attention. If it's the latter, then you need to have more faith in us humans.

Is the question of what art machines would care about interesting? Only in that it forces us to think about why we as people find art interesting. The machines themselves are not interesting, except in how they mediate interactions between people. The only thing that is really interesting in the end is that interaction between people.

* No, I'm not obsessive. Shut up.
** Through the intermediary of money, yes, but don't let that obfuscate things.

Thursday, June 27, 2013

The Seed Round is Dead

[Edit: Wow, I totally missed this piece by Jeff Jordan a couple of weeks ago--The Series A Round is the New Series B Round. Different responses to the same underlying phenomenon, but since the title is echoed here--both being cliche references to the "new black" thing--I want to point to it.]

This morning I talked to three experienced early-stage investors I ran into at demo-day and they all said the same thing: the bar for a Series A has been raised substantially. Companies without significant traction--a product in market, real customers paying real money, exponential user growth, something--can't raise an A. When talking recently about a company I had seeded to a Series A VC the partner said: "We're only looking at companies that have real revenue; there are a lot to choose from, so we're being picky."

"So what?" you say. "That's as it should be." Perhaps. But consider this: when I started in this business the Series A was the first money into a company. There was no revenue, there usually wasn't even a product. When you had revenue you were a Series B company.

This didn't change overnight. Even last year Series As were being raised for companies that only had a beta. Now, Series A is the new Series B.

So who does Series A now? By process of elimination the seed investors do. There has been a huge increase in the number of Seed-2 deals and seed extensions and bridge rounds, all basically second seed rounds. Companies do these instead of a Series A. And when the original seed investors won't re-up into the new seed round it's a red flag, making it very hard to bring new investors into the seed extension.

For entrepreneurs this means you take a lot more dilution. You raise twice as much "seed" money and then raise your A with what used to be Series B traction, but at Series A valuations. Because VCs have backed away from taking risk, valuations have de facto come down drastically even though it doesn't look like it on paper.

For seed investors this means you need to reserve some money for the Seed-2. At least 1x the original investment. Or you need to have syndicate partners with deep pockets who can fund a bridge. If you don't, you might be signalling to new investors that the seed extension is not a good bet. That means every dollar you invest in a new company actually requires two dollars. You should manage your cash on hand accordingly.

For the past several years seed investors have been investing enough to get startups to having a beta product being tested by potential customers (plus three months to raise an A.) Now we need to fund these companies to a further place. The Seed Round is now the Series A--Series A money, Series A goals. Accept it, or even your good companies will starve.

Thursday, June 6, 2013

Letter to my Senator re US Government domestic spying

I was saddened to find out the US government is spying on all of us, all the time. I guess some cynical part of me always believed that, but actual confirmation of it still felt like a kick in the teeth.

I just sent my Senator this email. You can find out how to contact your Senator here. Feel free to use this text, or your own.


It did not surprise me when the opposition party misused its powers to spy on United States citizens. I was shocked to learn that a Democratic administration would do the same. In both cases I am appalled.

If my own government feels the need to spy on all of us, all the time, I would appreciate you at least being open and honest about it. The fact that the current administration felt that it needed to keep the program top secret seems to me more a reflection on its awareness of the immorality of this spying rather than any efficacy such secrecy would bring.

I would appreciate you:
1. Censuring the Obama administration for misuse of its powers;
2. Forcing the administration to reveal all surveillance being conducted on US citizens without probable cause;
3. Modifying the so-called "Patriot" Act to forbid my government from spying on me in my country unless it has probable cause for believing I have done or will presently do something to endanger my fellow citizens.

This kind of action is not what I was brought up as an American citizen to expect of my government. I understand that the exigencies of politics forces compromise, but I believe that you would not have taken on the difficult job of governing unless you firmly believed in the ideals enshrined in our Constitution and our proud history. I urge you to step back from immediate political concerns and reaffirm the basic democratic freedoms on which we built our great country.

Thank you,

Gerard Neumann
Hoboken, New Jersey