The Industrialization of Mobile

I am on the board of Sitrion, who just released their latest version of Sitrion ONE, which allows enterprises to deliver mobile solutions in one single day.

Many companies travel a long and interesting journey. When we invested in NewsGator in 2004, RSS was just starting to emerge as a protocol and wire up much of the content on the web. At the time, it was impossible to anticipate how the web would evolve, as 2004 was a particularly low point in the evolution of venture capital and tech companies. Of course, it was also the year that Facebook was founded, which is an important thing to remember about the relationship between perception in the moment and long term reality.

A little over a decade later, mobile is dominating much of the growth of the web. Every company we are involved in is working on a mobile app. Every Fortune 1000 company I’m in touch with is focused on its mobile strategy and figuring out how to build and deploy mobile applications to its employees, many of them who are now engaging in BYOD where their personal mobile device and work mobile device is the same iPhone or Android phone.

A year and a half ago NewsGator acquired Sitrion to expand from their historical Microsoft SharePoint ecosystem product footprint to include SAP via Sitrion’s products. We decided to rebrand the company Sitrion as we liked the name better. As a hidden gem, we got the beginnings of an amazing mobile product that Sitrion had started working on.

NewsGator also had developed key mobile technology, especially for the enterprise, but with a tight dependency on SharePoint. Last year the combined product team stepped back, thought about what it had, and redefined the vision of the company around the notion of “the industrialization of mobile.”

Daniel Kraft, the CEO of Sitrion, has a very simple explanation of what the product and team addresses. Today, mobile apps are hand-crafted solutions for a specific use case. Accordingly enterprises make investments in very specific projects and just start to look for ways to mobilize their entire workforce.

Instead of building a new app for each use case, Sitrion provides the customer with one app for each platform (iOS, Android, Windows Phone) and pushes all the required services (micro-apps) to this app based on people’s roles, context or even behavior. As a result, you can create many custom apps, for specific use cases, without having to have a developer create multiple apps.

We think this will result in up to 90% reduction in development costs as you actually don’t need any OS developers. Time to market is correspondingly faster and TCO drops dramatically. Instead of an employee having 25 different company apps on their BYOD phone, they have one “container” app with 25 micro-apps.

What do you think? Are we in front of an industrialization of mobile, or are enterprises just slow and need to wait many more years for mobile being the main way things get done in large companies, just like how it’s playing out with consumer behavior?

The Rule of 40% For a Healthy SaaS Company

There are lots of blogs and anecdotes on (a) how to build a successful SaaS company and (b) what a successful SaaS company looks like. Yesterday’s post by Neeraj Agrawal from Battery Ventures titled The SaaS Adventure is another great one as he describes his (and presumably Battery’s) T2D3 approach.

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I was at a board meeting recently and heard something I’ve not heard before from a late stage investor. He described what his firm called the 40% rule for a healthy software company, including business SaaS companies. These are for SaaS companies at scale – assume at least $50 million in revenue – but my Illusion of Product/Market Fit for SaaS Companies correlates nicely with it once you hit about $1m of MRR.

The 40% rule is that your growth rate + your profit should add up to 40%. So, if you are growing at 20%, you should be generating a profit of 20%. If you are growing at 40%, you should be generating a 0% profit. If you are growing at 50%, you can lose 10%. If you are doing better than the 40% rule, that’s awesome.

Now, growth rate is easy in a SaaS-based business. Just do year-over-year growth rate of monthly MRR. You can do total revenue, but make sure you do MRR also to make sure you don’t have weird things going on in your GAAP accounting, especially if you have one time services revenue in the mix. It’s always worth backtesting this with YoY growth of gross margin just to make sure your COGS are scaling appropriately with your revenue growth, regardless of whether you are on AWS, another cloud provider, or running bare metal in data centers.

Profit is harder to define. Are we talking about EBITDA, Operating Income, Net Income, Free Cash Flow, Cash Flow or something else. I prefer to use EBITDA here as the baseline and then back test with the other percentages. If you are running on AWS or the cloud, this should be pretty simple and consistent. However, if you are running your own infrastructure, your EBITDA, Operating Income and Free Cash Flow will diverge from your Net Income and Cash Flow because of equipment purchases, debt to finance them, or lease expense. So you have to be precise here with which number you are using and “it’ll depend” based on how your SaaS infrastructure works.

While the punch line is that you can lose money if you are growing faster, the minimum point of happiness is 40% annual growth rate. Now, some people will focus on MRR growth rate, others ARR growth rate, and yet others on weird permutations of year of year growth rate by month. Others will focus on the same strange permutations for GAAP revenue to justify growth rate. Regardless, you need a baseline, and I’ve always found simply doing year-over-year MRR growth rate to be the easiest / cleanest, but I always make sure I know what is going on underneath this number by using the other calculations.

I often hear – from sub-scale SaaS companies, “we can get profitable right away if we slow down our growth rate.” And – that’s often a true statement, but you will end up being sub-scale for a much longer time when you end up with a 20% growth rate and a 20% profit. So – if you are going to raise VC money, get focused on the T2D3 approach to get to scale, then start focusing on the 40% rule.

Sunday Morning With the Wayback Machine

I’ve been reading a bunch of history lately. So I was psyched to see a long post titled Never trust a corporation to do a library’s job highlighting some of the amazing stuff that the Internet Archive has done with the Wayback Machine and its other properties including the Live Music Archive and their Software Collection.

So – I decided to go down a website memory lane trip for Intensity Ventures (my personal investment company), SOFTBANK Technology Ventures (my first VC firm), and Flatiron Partners (Fred Wilson and Jerry Colonna’s first VC firm, which was an affiliate of SOFTBANK). As a special bonus, I was the webmaster for Intensity Ventures and SOFTBANK Venture Capital (for at least the first few years.)

Let’s start with Intensity Ventures on 12/23/96 (the first entry in the Wayback Machine). The URL is www.feld.com (just like site for the page you are currently on) – I’ve owned the feld.com domain since 3/2/95, although apparently I have to get Seth Levine’s permission to change things now. Here’s the home page.

Intensity Ventures website

If you want to play around, just click on the image above and then start exploring from within the Wayback Machine. For example, take a look at the Companies page.

Intensity Ventures Company Page

Ok – time to move forward in time to 12/5/98, the first time the Wayback Machine grabbed a copy of the SOFTBANK Venture Capital page which at the time was called SOFTBANK Technology Ventures. Note the four partners and the various office addresses, including mine in Eldorado Springs, Colorado.

SOFTBANK Technology Ventures

If you want a little more SOFTBANK Technology Ventures, take a look at the Partners page.

SOFTBANK Technology Ventures Partners

You’ll note a few extra partners here. Ron Fisher, who at the time was Vice Chairman of SOFTBANK Holdings was responsible for watching over us for SOFTBANK. Ron is one of my favorite people on the planet and has been an incredible mentor for me. Any time he calls me about anything, I make sure I do everything I can to help make sure it happens.

You’ll also notice Flatiron Partners on the list. At the time, it was jointly funded by SOFTBANK and Chase. Fred Wilson and Jerry Colonna owned the firm but SOFTBANK and Chase were their LPs, they were an extended part of the SOFTBANK team, and we were an extended part of their team. There is a ton of history here that’s good basis for longer blog posts at some point, but for now I’ll leave you with the Flatiron Partners website from 3/29/98 along with a special bonus link to the Flatiron Partners 1996 Holiday Card.

Flatiron Partners

It’s always useful to remember that humans can modify their view of history, but the Internet never forgets.

How Does A Small Company Make A Big Company Successful?

tl;dr: As a small company, focus on two things with big companies: “1. What can we, the small company do, to make the big company successful? 2. What can I do, as a leader of a small company, do to help the people I’m working with at the big company be successful within the big company?”

I was on the phone yesterday with the head of corp dev for a very large tech company. He and I had never talked before so it was an intro meeting, although brokered by a long term colleague at that company. It’s a tech company we’ve had many interactions at many levels with over the years – some good, some bad, some complex, and some perplexing. Over a long period of time, these interactions, and many others that I’ve had with other big companies, have shaped my view on interacting with large tech companies.

When I started investing in 1994, I was involved with a few large companies. My first company (Feld Technologies) was one of the first Microsoft Solution Providers (Dwayne Walker, are you still out there somewhere?) At the beginning I was still working for AmeriData when I started investing. AmeriData was a public company, a voracious acquirer (we acquired 40 companies in three years), and a very fast growing business (they were less than $50 million in revenue when they acquired Feld Technologies and over $2 billion in revenue three years later when GE acquired them.) For a short time I was connected into GE via their acquisition of AmeriData (I still have my GE business card with the “meatball logo” on it.) During the same time, I started working as an affiliate to Softbank which was a large Japanese company acquiring minority and majority interests in lots of US companies. By the time I co-founded what became Mobius Venture Capital, Softbank (our sponsor – at the time we were called Softbank Venture Capital) was the key investor in Yahoo, E*trade, and a number of other large US-based Internet companies.

I used to think that these large companies had a clear view on how to help small companies. I was seduced by Microsoft’s Solution Provider program into thinking that Microsoft had the long-term interest of Feld Technologies (and then subsequent companies that I invested in, including ePartners, Gold Systems, and NewsGator) at heart. I participated in a number of meetings with Yahoo in the late 1990s as a member of the Softbank team and listened to the vision of what Yahoo wanted to do to help the ecosystem. I spouted all kinds of garbage and nonsense about what we were doing as part of the broader Softbank ecosystem to help advance the cause of Softbank while at the same time helping startups everywhere, especially the ones we had invested in. I had the notion that whenever I ended up in a meeting in GE, I could get GE to do something with one of the companies I was an investor in to help them out. When I invested in the Feld Group, we even set up an initiative to help startups getting connected into the very large Feld Group clients, which included companies like Southwest Airlines, Delta, Home Depot, First Data, and Burlington Northern.

For over a decade, I heard and made happy talk from two directions – that of the investor in a startup and that of the partner of a big company that was looking to work with startups. That we were building an ecosystem. That we’d do all kinds of vague and unspecified things together in the name of innovation. Many drinks were had, many conversations were enjoyed, and many plans were hatched. And very, very little got done.

Around 2004, after the dust on the mess that was my world post-Internet bubble settled and I shifted into a mode where I grinded it out at Mobius until we started Foundry Group in 2007,  I decided I was thinking about it completely wrong. I came to these conversations wondering what the big company could do. Sure, I considered the skills and capabilities of the startup, but I was always trying to figure out and anticipate how the big company could help the startup.

Wrong, wrong, wrong, wrong, wrong.

My first adjustment was realizing that whenever I counted on a big company to do something to help a startup, I generally was disappointed. Often, even if the big company wasn’t trying to harm or limit the small company, they often did. This is what causes so many VCs to be wary of corporate investors, especially ones who come to the table with strings attached to a financial investment. But I saw it in all of the partnership dynamics, product roadmaps, build vs. buy decisions, shifting leadership and goals, and conflicting big company product teams. It’s not that the big company couldn’t do something to help a startup, it is just that the startup shouldn’t count on it as a critical input into its success.

Then I realized that the big company has no fundamental obligation to the startup. For a while, I carried around a purist thought of mutual innovation. I got involved in huge investment efforts on small companies to try to satisfy the needs of a big company in the context of a partnership. I’m not talking about a sales situation – separate that out – but rather a long-term business partnership, joint development, or technology partnership. In these cases, the large company puts up no money, but people engage to work with the small company. And the small company puts huge effort into the project for free with the hope of a payoff at the end. The opportunity cost for the big company is tiny while the opportunity cost, and often the direct costs, for the small company is enormous. In hindsight this is a clear imbalance. It’s easy to fix and align the parties, either through money flowing from the big company to the small company, or via clear rules of engagement between the two, but if you assume the big company has no fundamental obligations to a startup, you can’t get hurt too badly.

The turning point for me was a specific time I experienced a large company totally fuck over a long-term partner that had gone all in on their relationship. This large company benefited enormously – both directly (via product sales) and indirectly (via market reputation and customer love) from the small company over a period of several years. But, one day, the large company decided to do something that drastically undermined the business of the small company, and no level of effort could generate a discussion between the two companies about it or a path forward that was supportive of the small company.

I realized that was a consistent pattern in my world. Large companies have whatever agenda they have. They have no responsibility to the small company beyond whatever legal contract exists, which often is heavily weighted in favor of the large company. Strategies change. Executives change. The macro changes. Exogenous forces, that the small company can do absolutely nothing about, regularly cause havoc for the large company.

Rather than be mad, hate the large company, feel like a victim, or behave like an abused spouse or child that sticks around and keeps coming back for more, accept that you are fully responsible for your own destiny. And that instead of expecting something from the big company, you should be focusing on doing specific things that help the big company while advancing your goal as a small company.

It was subtle to me at the time, but totally obvious to me now. In the conversation I had yesterday, I gave some direct, constructive feedback on situations where startups I’m an investor in had felt abused, mistreated, or deceived by the big company. But I was clear that none of these were fundamentally issues for the big company. They hadn’t done anything illegal, but they had damaged their reputation with me and with many VCs and entrepreneurs I knew. I was willing to give feedback from my perspective, but I had absolutely no expectation that the company would do anything about the past or behave differently in the future.

This corp dev leader was gracious. He listened, accepted the feedback constructively, suggested that the reputational dynamic mattered a lot to him and the company, and acknowledged that the only way to improve was to keep trying. I said I was always happy to start with a completely clean slate and try again. But for me, this doesn’t mean having false hopes and expectations that something magical will happen. Instead, I start from the focus with every engagement point of “what can we, the small company, do to help you, the big company, be successful.” If I can’t figure that out in an unambiguous way that we, the small company, can afford to try, then it’s not worth the engagement.

JFK’s words, “Ask not what your country can do for you – ask what you can do for your country” echo in my mind. Modify it slightly as startup: “Ask not what big company can do for you – ask what you can do for big company.

How To Raise A $150 Million VC Fund

One day in 2009 David Cohen and I were talking. Here’s what I remember the conversation being.

David: “I’m seeing so many seed deals from all the mentors and people I’m running into around Techstars but I’m not sure what to do with it.”

Brad: “Why don’t you raise an angel fund and just invest in them as a seed investor.”

David: “Do you really think I can do that?”

Brad: “Absolutely – you’re a great investor. Raise a small fund – $5 million. I’m in for $100,000 so you’ve got your first LP. I’ll help you get it done.”

David: “Ok – let’s go.”

And that’s how it started. Today, Techstars announced that it has raised its third fund, Techstars Ventures 2014, and closed it at $150 million. It follows two other funds, called Bullet Time Ventures, that were a $5 million fund raised in 2009 and a $25 million fund raised in 2011. The whole fund family is now being called Techstars Ventures going forward.

Shortly after that conversation (either the same day or the following day) my partners at Foundry Group (Seth, Jason, and Ryan) all committed to invest in the fund. We made a bunch of intros for David and he reached out to a number of the successful entrepreneurs and a few investors (as individuals) around the Techstars network that existed in 2009. Before he knew it David had $2.5 million lined up. He then did a first close and started investing. Within six months the balance of the $5 million was committed and he closed the fund.

By the time the dust settled on that fund, Bullet Time had made seed investments in about 50 companies, including GroupMe, SendGrid, Twilio, Orbotix, and Uber. Of the 45 other investments, some are zeros but six years later there are still 30-ish companies cranking away.

I’ve been an investor in a large number of VC funds dating back to 1996, including a bunch of the current generation of seed funds. Bullet Time 1 is one of the best performing funds I’ve ever invested in. It’s useful to remember that in 2009 there was some success starting in the current cycle, but we were on the tail end of the global financial crisis, the word “entrepreneur” hadn’t become part of the overall American lexicon (the White House still called things “small businesses”), and Uber was three guys and an idea.

In 2011, Techstars had begun to grow meaningfully as an organization. We had programs in Boulder, Seattle, Boston, and New York. We were starting to experiment with corporate partners through programs like Techstars Cloud, which we did with Rackspace. David was now visible as a highly desired angel investor across the country.

David: “How much do you think I should raise for my next fund?”

Brad: “At least $10 million but no more than $25 million.”

David: “Why those numbers?”

Brad: “You should be able to raise $10 million in a week from your existing investors – you’ve already given them back a bunch of their money. And it’s still just you so raising more than $25 million for a seed fund doesn’t really make sense.”

Bullet Time 2 closed at $25 million and David continued to invest.

On day around 2012 I got a call from Mark Solon. Mark’s a close friend, co-investor in a number of things, and a VC who has been involved as a Techstars mentor and investor in companies since the very beginning. About six months earlier Mark had very publicly decided not to raise a new VC fund with his existing partners for a variety of reasons, but continued to actively manage his firm.

Mark asked me if we could go for a walk. So we did. As we wandered down the Boulder Creek path, he told me he and David had been talking about him getting involved in Techstars more significantly, were both excited about it, but were having trouble figuring out exact roles.

Mark: “We don’t really have enough money in the VC fund for us to be partners it in.”

Brad: “Don’t think about it that way. Be partners now in the VC fund and ramp up to raise a much larger early stage fund, rather than just a seed fund.”

Mark: “Do you think we’d be good long term partners.”

Brad: “Fucking no-brainer. Just do it. Don’t think too hard about it. If it doesn’t feel right, you’ll know early while you are investing Bullet Time 2, well before you raise a new fund. And if it feels good, you’ll be off to the races.”

Mark went all in with David and Techstars and the result is not only Techstars Ventures and the $150 million fund, but incredible growth and progress with Techstars, in which Mark has been instrumental.

Along the way, I’ve watched my partner Jason help David and Mark structure and raise the fund. It’s been remarkable to work with Jason on it – I can play my special role and Jason can play his. All along the way our relationships with David, Mark, and the rest of the Techstars team continues to be magical. Sure, there are moments that are profoundly complex, frustrating, and disappointing, but watching the overall Techstars team, now led by David Brown, and the Techstars Ventures team, which includes not just Mark and David, but three other partners (Nicole Glaros, Jason Seats, and Ari Newman) has been pretty awesome.

It’s incredibly hard work that unfolds over time. Sometimes from the outside it looks like something just sprung to life. The “overnight success” dynamic of our world makes so many things feel like they just happened. Today, it’s nice for the Techstars team to relish their progress. But it’s super important to remember that it’s been hard won every step of the way, starting with a random day in 2006.

And it’s just beginning.