One of the most common criticisms of VC investors making seed investments is something that has become known as “the signaling problem.”  The explanation of this problem is that VCs create a “negative perception” about a company if they make a seed investment but then don’t follow through and make a next round investment.  Another way to say this is that a VC creates a “signaling situation” with their seed investment – if they don’t follow on in the next round they are “sending a signal” that something is wrong with the company (hence the label “signaling problem.”)

Last week I spoke with a partner at a large VC firm whose firm has been around for a long time.  They have a new seed program (as of a few years ago) after eschewing seed investments from 2002 to 2008.  The partner that I talked to told me that they are doing 30 seed investments out of their newest fund.

I was surprised on two levels – the first is that they have a very visible anti-seed reputation.  I pointed out that their market reputation was that they didn’t do seed investments nor did they do many Series A investments.  He said “we changed that a few years ago.”  I suggested that their web site didn’t talk about their seed program; he responded “yeah, we need to work on our web site.”

The second, more important thing, was that I couldn’t make the math work on their fund.  I asked them how many of the seed investments they expected to follow with regular first round investments.  He said “half of them”.  So – 15 of their investments in the fund would come from their seed program.  I asked how many other investments they’d have in the fund.  He said 30.  So they’ll end up with 45 active investments in the fund (high for their fund size) of which 33% came from seed investments.

I then asked how they were going to deal with the “signaling problem” for seed investments they didn’t follow on with.  Here he said something that made me pause: “We’ll sell them back to the founders, the company, or the angels at somewhere between $1 and our cost.”  I probed on this (as in “seriously, can you give me some examples?”)  Without naming names he explained three situations in the past two years where they’ve done this.  And, in each case, his firm had decided not to follow on, took themselves out of the cap table, and the three companies were able to raise additional financing (in one case from a different VC firm.)

I thought this was a pretty clever way to deal with this issue.  While it doesn’t eliminate the problem created by the signaling issue, it addresses part of it.  I don’t know if this firm will follow through on unwinding their positions in 15 of the 30 seed investments they make. I also don’t know how they’ll feel when one of the 15 they decided not to follow goes on to be massively successful and their seed piece, if they had kept it, would have returned a meaningful amount of money to them.  But if they do take this approach it seems like they should shout it from the rooftops as part of their VC / seed positioning statement.

I’m not a fan of this “spray and pray” seed investing strategy for VCs.  Instead, when we make a seed investment, we don’t treat it any differently than our non-seed investments.  Rather than repeat our approach here, take a look at the post How I Think About Seed Investing As A VC that I wrote a month ago.  That said, I found the approach of selling back the seed investment at $1 to be an interesting way to address part of the signaling problem.

Now that my Apple and Google experiments have been huge successes, I thought I’d try an Android phone one more time.  I like my iPhone 4, but it’s pretty weak with all the Google apps.  Specifically, I badly want better contact integration, clean email sync, and Google voice.  Plus, AT&T still blows in Boulder.

Any suggestions out there for the “best Android out there today.”  I was using a Sprint EVO for a while (and liked it a lot) until it was stolen by my assistant Kelly.  So, I open to any choice – suggest away.

TechStars is coming to New York City.  The first program runs from 1/10/11 to 4/8/11.  Applications are open now.  The NY mentor list is stunning and includes the following:

Phin Barnes (First Round Capital), Alex Blum (KickApps), Matt Blumberg (Return Path), Brad Burnham (USV), Jeff Clavier, Dennis Crowley (FourSquare), Chris Dixon (Founder Collective), Roger Ehrenberg, Darren Herman (The Media Kitchen), Jennifer Hyman (Rent The Runway), Alex Iskold (Adaptive Blue), David Karp (Tumblr), Zach Klein (Boxee, Vimeo), Evan Korth (NYU/HackNY), Mike Lazerow (Buddy Media), Ben Lerer (ThrillList), Sam Lessin (Drop.io), Joey Levin (MindSpark, IAC), Howard Lindzon (StockTwits), Eric Litman (Medialets), John Maloney (Tumblr), Dave McClure, Hilary Mason (Bit.ly/HackNY), Jeremie Miller (Telehash), Howard Morgan (First Round Capital), Charlie O’Donnell (First Round Capital), Eric Paley (Founder Collective), Raphael Poplock (ESPN), Alex Rainert (FourSquare), Avner Ronen (Boxee), Naveen Selvadurai (FourSquare), Justin Shaffer (HotPotato), Tim Shey (NextNewNetworks), Andy Smith (Daily Burn), Rex Sorgatz (Kinda Sorta Media), Jon Steinberg (BuzzFeed), Vinicius Vacanti (YipIt), Albert Wenger (USV), Fred Wilson (USV)

David Cohen, who is relocating to NY for January to March of next year, and David Tisch (I’m encouraging him to change his name to just Tisch to save me the brain damage of “which David”) will be running the program.  When we went about setting up the NY program, we evolved our funding model to be as inclusive of the local VC / angel community as we could.  We’ve created a long term funding model, which I expect David Cohen will write about at some point, that we implemented in TechStars Seattle and will be rolling out to Boulder and Boston this year.  As a result, the investors in TechStars NY include many local financial investors such as:

AOL Ventures, DFJ Gotham Ventures, FirstMark Capital, First Round Capital, Foundry Group, IA Ventures, Jove Ventures, Lerer Ventures, RRE Ventures, Social Leverage, Village Ventures, Zelkova Ventures, Peter Hershberg, Josh Stylman, David Tisch, Nate Westheimer, and Kal Vepuri.

When David first talked to me about his idea for TechStars in 2006, if you had asked me if we’d have Boulder, Boston, Seattle, and NY programs up and running by 2010 I would have chuckled (a real chuckle, not my evil laugh chuckle.)  The Seattle program is crushing it already and I’m excited to go spend time up there.  And I can’t wait to see the NY program start cranking.

We’ve got a few other interesting pieces of TechStars news coming over the next month – look out for them!  And, if you are an entrepreneur interested in the TechStars NY program, apply now so you can come to TechStars for a Day on 11/20/10.

Amy and I created a tradition about a decade ago we call “four minutes in the morning.”  We try to – fully clothed – spend four minutes together every morning 100% focused on each other.

I’m an early bird – usually getting up around 5am regardless of the time zone I’m in (except on the weekends – then I sleep until I wake up – sometimes 1pm.)  Amy sleeps a little later (usually 6:30am).  So – I often have around 90 minutes alone every morning, which I treasure.  I have a well defined morning routine that includes a cup of coffee and 85 or so minutes in front of my computer.

When Amy gets up, I try to remember to jump up from my computer and start our four minutes.  Sometimes I forget and notice it when she thumps me on my head or clears her throat loudly.  But I eventually remember.  We then leave the office area, go to our living room, or outside on our porch, and spend our “four minutes” together.

Of course, the “four minutes” is metaphorical.  Sometimes it’s 15 minutes.  A few times a year it turns into an hour when we end up in a discussion about something.  But it’s always 100% bi-directional attention, except for our dogs who often want in on the discussion.

I travel a lot so this often translates into a phone call in the morning.  We recently started using Skype instead and it makes an amazing difference.  This morning, as Amy was in Keystone and I was in Boulder, we caught up with each other in our un-showered goodness.  Now, if we only had smell-o-vision, the experience would have been complete.

I miss Amy a lot whenever we aren’t together.  We’re lucky that we get to travel together a lot and that each of our work experiences have lots of location flexibility.  Skype has helped in a surprisingly nice way with one of our routines.

My recommendation to all my guy friends out there – try the “four minutes in the morning” routine with your significant other.  It’ll pay many dividends.

Following is a post on super angels I wrote yesterday for PEHub.

In the beginning, there were angel investors. And it was good. As individual angel investors made more and more investments, they became super angels. One day a super angel woke up and thought to himself, “Gosh, I could do a lot more investments if I had a fund.” And so the super angels became micro-VCs (or “institutionalized super angels”). Everyone was excited and on the seventh day they did another deal instead of resting.

I’m a huge fan of the super angel movement. Some of my best friends are super angels and I’ve put my own money where my mouth is in funds like Chris Sacca’s, Dave McClure’s, Jeff Clavier’s, Roger Ehrenberg’s, and David Cohen’s. Not only am I an investor in these super angels, I love to have them on board with our investments at Foundry Group. And whenever they bring me something they’ve been working on, I always pay attention–as I know they know what I like to invest in.

But recently the super angel mantra of “traditional VCs suck” has reached a fevered pitch. What started out in Silicon Valley as a new wave of angel investors has evolved into a belief that “VCs are lousy seed investors” and “no one needs a VC–just raise your money from super angels and go to town.”

Fred Wilson from Union Square Ventures recently wrote an excellent blog post titled “The Expanding Birthrate of Web Startups.” As with many of Fred’s posts, the comment section was as useful as the post, and early-stage investors such as Mark Suster, Charlie O’Donnell, Roger Ehrenberg, and Anonymous Coward weighed in. The comments ranged from the now cliche-ish “VCs suck” to “What happens when super angel-backed companies need a new round” to “Companies will never need more capital. It’s a new world out there.” As I read through the comments, I kept pondering the same thought: “What happens in five years?”

Let’s consider a few situations. Take a typical super angel. Assume success. Investors (LPs and individuals like me) want to invest money with the super angel. The super angel probably creates a fund and raises a lot more money. Now the super angel is a micro-VC. Continue to assume success. More money is able to be raised. Now the micro-VC is a mini-VC. Does this keep scaling, or does the mini-VC succumb to the same challenges that $200 million funds ran into when they turned into $1 billion funds?

Now, take a super angel with a 20-company portfolio. The super angel is hyper-connected and works closely with the entrepreneurs he/she invests in. Suddenly he/she has 100 investments. Are the entrepreneurs getting the same attention from that angel–especially when they enter year three of their life, hit a bunch of speed bumps and need a lot of help? Or does this super angel just turn his/her back and say, “Well, that’s the breaks.”

Finally, take a super angel who is used to making $25,000 to $100,000 per investment. He/she becomes a micro-VC, raises a bigger fund, and now invests $500,000 per deal. Is there a difference in his/her behavior with regard to the $25,000 investments vs. the $500,000 investments?

I think the super angel movement is awesome, but the generalization that all VCs suck at seed investing doesn’t make sense to me. Correspondingly, the idea that entrepreneurs only need super angels doesn’t make sense either. There’s a renewed focus and interest in early-stage investing going on in the United States, and it’s being stimulated by a lot of factors. It’s a powerful thing that will continue to evolve, change and challenge all of the participants.

We’ve shifted into a new zone in the world of software patent stupidity.  A few weeks ago, Oracle sued Google over a series of Java-related patents they got when they acquired Sun.  Last week, Paul Allen sued 11 major software companies, including Google, over four patents that were granted to his now defunct Interval Research think tank.

Much of the early commentary has already been said.  And, from what I’ve read, it’s not very generous to either Oracle or Paul Allen.  One of the best lines is from James Gosling, the authors of RE38.104 (Method and apparatus for resolving data references in generated code) in his post The shit finally hits the fan.  There has been plenty of speculation about the motivation of the Oracle patents and the speculation as to Paul Allen’s motivation is just beginning.  Regardless, there are lots of lawyers in the mix advising their clients and devising strategies around these patents.

My own opinion will be no surprise to regular readers of this blog.  I think this behavior is an absurd abuse of the patent system.  I think it’s a massive tax on innovation.  I think it’s an insult to anyone who is a real innovator.

As I was reading through some of the Paul Allen commentary this morning, it occurred to me that this might finally be a tipping point.  Last week, Microsoft asked the supreme court to hear their appeal of the I4i patent suit.  I hope Google steps up and really takes a stand here given that they are on the receiving end of both the Oracle and Allen suits.

Maybe we’ve reached a tipping point.  If you want a little more perspective, go read the book review of Lewis Hyde’s Common as Air.  Or better yet, read Common as Air.

Every major software or web company I’ve ever been involved in has had a catastrophic outage of some sort.  I view it as a rite of passage – when this happens when your company is young and no one notices, it gives you a chance to get better.  But eventually you’ll have one when you are big enough for people to notice.  How you handle it and what you learn from speaks volumes about your future.

Last week, two companies that we are investors in had shitty experiences.  SendGrid‘s was short – it only lasted a few hours – and was quickly diagnosed.  BigDoor‘s was longer and took several days to repair and get things back to a stable state.  Both companies handled their problems with grace and transparency – announcing that all was back to normal with a blog post describing in detail what happened.

• BigDoor: Recovery Retrospect
• SendGrid: Postmortem: Aug. 25 2010 Delivery Delays

While you never ever want something like this to happen, it’s inevitable.  I’m very proud of how both BigDoor and SendGrid handled their respective outages and know that they’ve each learned a lot – both in how to communicate about what happened as well as insuring that this particular type of outage won’t happen again.

In both cases, they ended up with 100% system recovery.  In addition, each company took responsibility for the problem and didn’t shift the blame to a particular person.  I’m especially impressed how my friends at BigDoor processed this as the root cause of the problem was caused by a new employee.  They explain this in detail in their post and end with the following:

“Yes, this employee is still with us, and here’s why: when exceptions like this occur, what’s important is how we react to the crisis, accountability, and how hard we drive to quickly resolve things in the best way possible for our customers.   I’m incredibly impressed with how this individual reacted throughout, and my theory is that they’ll become one of our legendary stars in years to come.”

I still remember the first time I was ever involved in a catastrophic data loss.  I was 17 and working at Petcom, my first real programming job.  It was late on a Friday night and I got a call from a Petcom customer.  I was the only person around so I answered the phone.  The person was panicked – their hard drive had lost all of its data (it was an Apple III ProFile hard drive – probably 5 MB).  The person was the accounting manager and they were trying to run some process but couldn’t get anything to work.  I remember discerning that it seemed like the hard drive was fine but she had deleted all of her data.  Fortunately, Petcom was obsessive about backups and made all of their clients buy a tape drive – in this case, one from Tallgrass (I vaguely remember that they were in Overland Park, KS – I can’t figure out why I remember that.)

After determining the tape drive software was working and was available, I started walking the person through restoring her data.  She was talking out loud as she brought up the tape drive menu and starting clicking on keys before I had a chance to say anything at which point she pressed the key to format the tape that was in the drive.  I sat in shock for a second and asked her if she had another backup tape.  She told me that she didn’t – this was the only one she ever used.  I asked her what it said on the screen.  She said something like “formatting tape.”  I asked again if there was another backup tape.  Nope.  I told her that I thought she had just overwritten her only backup.  Now, in addition to having deleted all of her data, she had wiped out her backup.  We spent a little more time trying to figure this out, at which point she started crying.  I doubt she realized she was talking to a 17 year old.  She eventually calmed down but neither of knew what to do next.  Eventually the call ended and I went into the bathroom and threw up.

I eventually got in touch with the owner of Petcom (Chris) at his house who told me to go home and not to worry about it, they’d figure it out over the weekend.  I can’t remember the resolution, but I think Chris had a backup for the client from the previous month so they only lost a month or so worth of data.  But that evening made an incredible impression on me.  Yes, I finished the evening with at least one illegal drink (since the drinking age at the time in Texas was 18.)

It’s 28 years later and computers still crash, backups are still not 100% failsafe, and the stress of massive system failure still causes people to go in the bathroom and throw up.  It’s just part of how this works.  So, before you end up in pain, I encourage you to think hard about your existing backup, failover, and disaster recovery approaches.  And, when the unexpected, not anticipated, not accounted for thing happens, make sure you communicate continually and clearly what is going on, no matter how painful it might be.

Entrepreneurial communities grow up around smart people.  Whenever someone in state or local government asks me what they can do to accelerate entrepreneurship, I always tell them to put as much money and energy as they can into education.  If you build a broad base of smart, inquisitive, curious people that are long term members of your community (e.g. they don’t move somewhere else), you’ll be delighted with the results over a long period of time (think 20+ years).

Richard Florida, one of the most thoughtful writers and thinkers about entrepreneurial communities, recently identified Boulder as the “brainiest city in the US.”  Richard Florida’s first book, The Rise of the Creative Class, is a must read for anyone that cares about entrepreneurship and entrepreneurial communities.  It forms the basis for his body of work around the notion of a creative class and has influenced plenty of my thinking in this area.

To get a feel for the data and description that names Boulder as the Brainiest City in the US, there’s a quick slide show (that I can’t embed) that has the following data on it.

• Computer Math Degree Recipients: 7.84 percent
• Science Degree Recipients: 3.15 percent
• Graduate and Professional Degree Recipients: 24.22 percent

This reflects nicely on my post about Entrepreneurial Density from a week ago.  25% of the population in Boulder has a graduate or professional degree.  Don’t forget that about 20% of the population of Boulder are undergraduate students.  That’s a remarkable number.

I’m heading to Chicago early tomorrow morning to participate in a two day event around this years Excelerate program.  Monday is Angel Excelerator 2010 and Tuesday is the Excelerate Demo / Investor Day.  David Cohen and I are doing a talk together and we get to watch our friend Dave McClure juggle 500 hats.  There are plenty of smart people in Chicago – I look forward to spending a couple of days hanging out with some of them.

The blogo-twitter-sphere erupted this weekend in response to an article in the WSJ on Friday titled Addressing The Lack Of Women Leading Tech Start-ups. I missed most of it as I was pretty heads down this weekend going through the final page proofs of the upcoming book “Do More Faster.”

TechCrunch / Arrington wrote a post Too Few Women In Tech? Stop Blaming The Men. Fred Wilson followed with Women In Tech and Women Entrepreneurs Discussion. My partner Jason Mendelson did a video interview on the subject with EZebis.

Lots of controversy but lots of useful discussion.  Which is good.

Well, I’ve learned a lot about how a bill becomes a law on my journey to try to turn the Startup Visa idea into a law.  And yes – it’s a lot like how I learned about it on Schoolhouse Rock about 35 years ago.

It’s been a little less than a year since I wrote the post on 9/10/09 titled The Founders Visa Movement.  This evolved into the Startup Visa initiative, resulted in a bill in the House (HR 4259 sponsored by Polis (D-CO)) and a bill in the Senate (S. 3029 co-sponsored by Kerry (D-MA) and Lugar (R-IN)).  We’ve made steady progress building support and have numerous endorsements, including most recently the American Bar Association and the Silicon Valley Leadership Group.  In addition, the co-sponsors for the various bills are starting to appear: for example, Udall (D-CO) recently signed on to co-sponsor S. 3029, Jackson-Lee (D-TX), Owens (D-NY), and Wu (D-OR) have co-sponsored HR 4259.  I’m also aware of a few more that are about to announce.

In the mean time, I regularly get asked by readers of this blog and supporters of The Startup Visa “what can I do?”  At this point, it’s straightforward (but not necessarily easy) – get your Congressperson to sign on as a co-sponsor.  At the stage we are at, it’s apparently the most impactful thing we can do get our little bill friend in the Schoolhouse Rock video up off the steps and moving toward law.

Last night I printed, signed, scanned, and emailed two signature pages.  As is my custom of not keeping anything around, I tore up and tossed the sig pages and then deleted the files.  This morning I woke up to an email saying “We didn’t get your signature pages.  Can you please send them.”  I just went through the same print, sign, scan, and email process again.

This is so profoundly stupid.  I sent a note yesterday afternoon in reply to the email thread asking if I was all set to go that said “I’m all set to go.”  A bunch of lawyers were on the email thread (mine and the company’s.)  We are wiring the money today.  Now they have some pretty scanned sig pages also.

There has got to be a better way.  Over the last decade, there have been lots of “electronic signature” companies pop up.  None have seemed to take root in the corporate world.  In the past year, I sold a house and bought a house.  In both cases, there was some goofy online thing that I signed with my mouse (my signature looked like a messy “X”) for the offers (to make / accept) but I still had to go to the title company and sit and sign 37 documents to close.  Every time I go to the grocery store I swipe my credit card through a little electronic checkout machine and when it’s time to sign, I put a big “X” on the sig line.

When I think about the number of places my actual signature is at this point, it’s a pretty useless mark.  But for some reason it’s still important in the legal closing process.  This now seems more like a tradition, instead of a useful thing.

While I’m not interested in funding something in this arena (it’s outside our focus), it seems like there’s finally an opportunity to solve for this, at least in the corporate world.  I’m not talking about biometrics or retina scanning – just a valid electronic signature that becomes a standard.  Maybe someday.  Wouldn’t it be cool if they lawyers took this on and tried to solve it?

There are two positions that I find difficult to fill in Boulder in the various companies we are investors in. The first is a real product manager (PM).  We’ve got a bunch of great ones in Boulder, but there appears to be 100% employment for them and I don’t poach from myself as that seems counterproductive.  The other difficult person to find is a UX design guru.

Now, there are a number of strong web design and development firms in Boulder, such as our friends at Slice of Lime, and we use them regularly throughout our portfolio.  They are also plenty of strong UI developers.  However, in some companies we really need a full time UX person, especially those that are software dev heavy.  We’ve managed to solve this in most cases, but it’s hard and the pool of gurus is small.

So, I’m looking for one UX person that can also handle the UI development who is off the charts that wants to move to Boulder.  I’ve got a well funded company with an awesome technical team for you to join that is working on some really interesting and difficult stuff.  It’s going to market in Q4 with a unique product that has the potential to really shake up a particular segment.  I’m not looking for a UI person that thinks he can do UX; rather I’m looking for an amazing UX person who specialized in web services and is comfortable crossing over the UI development.

If you are this person, email me right now.

Today I concluded that my Gmail experiment is working nicely.  In addition, we figured out (thanks to Dave Michels) how to wire up feld.com to Google Apps without breaking all the other feld.com users that are being served of an Exchange server.  So, breaking rule #1 of all migrations, Ross and I flipped the switch at the end of the day to have my mail end up in my Google Apps account (via feld.com) rather than my Gmail account (via brad.feld@gmail.com).

All of my mail flows nicely.  You can send email to brad@feld.com and it shows up in the right place.  That was good.

But, I hadn’t thought through all my other Google services that are tied to brad.feld@gmail.com.  Contacts was “so-so” – Export/Import but it still feels a little messed up and I can’t figure out why.  But Docs seems like a totally parallel universe, as does Profiles.  And I’ve got a bunch of other services that I use (e.g. Bookmarks, YouTube) that I don’t really feel like having two accounts for.

I searched around for an easy way to “move my brad.feld@gmail.com account over to brad@feld.com in Google Apps.”  There are some mediocre help suggestions about migrating individual services, but nothing that just solved it.

Am I missing something obvious, or is this a non-trivial thing to do.

Sometimes Colbert is priceless.  Well – most of the time.  This one had Amy and I laughing hard today.  Enjoy your five minute break from monitoring your social media and email to see if something important is going on.  Matt Galligan reminded me that this is oddly reminiscent of SocialThing’s TechStars Demo Day.

I’m banging away on a bunch of new things these days.  I’ve happily switched to a Mac, am halfway through my week of Gmail, and am contemplating what new thing to try next week.

I’ve always been a tech junky and love to play with new stuff.  I’m quick to set up an account on a new web service and try it.  It’s the best way for me to understand something – much better than an executive summary or a presentation.

I found that my switch to a Mac took two weeks to get really comfortable, but once I crossed the line I was all in.  Gmail feels similar – after a few days of it I’m loving it but now running into a few issues (that I’m quickly resolving – such as the email send rate limiting thing that I mentioned last night.)  I haven’t yet tried to move my calendar fully over, and I know that moving feld.com to Google Apps is going to be hairy because of all my family members using accounts on feld.com (currently an Exchange server) in a variety of different configs, but that’s part of the fun of this stuff.  Well – maybe not.

While it’s obvious to say that “just trying something out” is much simpler than actually incorporating that new thing into your work flow, it occurred to me today that there isn’t enough focus on this on the part of most startups.

I’ve learned the incredible power of focusing on “daily active users” from my investment in Zynga.  While I’ve been obsessed with DAU’s for a while now, I haven’t been paying enough attention to the specific DAU’s that come back day after day (rDAU’s – recurring DAUs).  While I encourage everyone to measure the number of them, I haven’t been encouraging people to “measure what they actually do.”  As I ponder my own behavior, I’m seeing a huge difference in my (a) fly by and try, (b) try and use periodically, and (c) become an rDAU behavior.

Note to everyone I work with – start measuring what your rDAUs actually do.  It might surprise you.