From Where I Sit: Thoughts From the Beach

When afforded the opportunity to sit on a beach for a few days, I feel a certain sense of obligation to “think big thoughts”. We need big thoughts. Big ideas. Especially in digital media. Although these aren’t really “big ideas”, they are the ones that came to me with my toes in the sand. I wanted to share them for comment.

I put them into two categories – Incremental and Disruptive. The latter types are bigger than the former. This is just a start. More to come as I get them out of my head and onto the blog.

Incremental

Portable personal video chat
Clearly video ichat is a game-changer. When our iphones, blackberries and smartphones are video IMing with each other, the world gets smaller (or, flatter in Thomas Friedman speak). Our shared experiences become more potent and vivid. Video blogging, already on the rise, explodes with first-person dispatches from the four corners. We will consume this content on our mobile devices in near real-time, alerted to its presence by our video Facebook feed. A friend alerted me to an Apple patent filing which creates a camera as part of the pixels in an LCD screen; an electro-sensing display, truly allowing us to look directly into each others’ eyes, a million miles away. This further threatens the networks, especially when I embed Google video AdSense in my video blog streams. User-generated video, particularly conversational video, is going to become massively pervasive, and that triggers lots of other needs in the video ecosystem.

Personal video indexing
As we amass lots more UGC video, this time from people in our social graph and not just impersonally on YouTube, we’re gonna need to retrieve some of it quickly. While much of it will eventually reside in the cloud, a bunch won’t. Tagging alone won’t allow for easy enough retreival when I need to bring up the video chat session when my VP of marketing walked me through the October churn deep-dive. We’ll need desktop video indexing to transcribe the audio, create relevant video picons, and present it in a fresh video coverflow. iTunes’ spreadsheet presentation doesn’t work for video browsing and retrieval.

Disruptive

Personal compresensive health metering
Its happening. We are taking a more active role in the observation, maintenance and monitoring of our heath, nutrition and fitness. We need a combination of that new device which passively monitors our sleeping and exercise patterns (FitBit), a daily life event journal (what we ate, injuries), and our medical records. This potent combination, stored in the cloud and accessed and updated by whatever communication device we may be near, is a linchpin of bringing down costs in our over-burdened heath care system. Lots of IT is necessary to pull this off. Lots of APIs and data standards. Its a big idea. Its not my own, per se. Lots of smarter people are thinking about it and working on various pieces of it. But you can see lots of smaller pieces where entrepreneurs are needed; will we log-in on the web-connected treadmill before we start our workout?

What’s this all mean for entrepreneurs?

S&P 500 Last Week

So much has already been written about the forthcoming “nuclear winter” and what the current (and future) economic conditions mean for startups and entrepreneurs. I have a slightly different view and I’d like to share it.

Certainly we have entered a severely negative economic climate. With 70% of the GDP resulting from consumer spending, and consumers spending 1.4x their actual means (i.e. a 28% decrease in consumer spending is possible if credit remains tight), future earnings of consumer-focused businesses are likely to be impacted. In addition, with 18M of the 55M US mortgages now in negtaive equity (the mortgage is appraised at a value higher than the home is actually worth), we don’t know how homeowners will react and how that will also impact spending. So, even at a P/E of 13, the S&P 500 might still come down as earnings come down.

As others like Bill Gurley have written, the investors who fund VCs are unlikely to de-fund (redeem) their comittments to VC funds. So VC’s access to capital is not likely to immediately dry up. More likey, first-time funds and funds without positive historic track records will have difficultly rasing their next fund. This means, over the next few years, we are likely to see fewer funds around to invest in startups and lots of the “outsiders” like hedge funds and strategics are also likely to devote less capital to startups.

With less capital available, a few things will happen (actually, are already happening):

• Valuations will come down, commensurate with access to less capital and the liquidity windows being closed
• Terms will become more investor-friendly, meaning lots of downside protection for the investor
• Higher-quality deals will get funded, lower-quality will not

But, with continued work-force reductions as earnings decline, hopefully we’ll see more entrepreneurs with great ideas emerge. So, startups should focus on:

• Be frugal – require less capital, hire more slowly, pick cheaper office space, make money go farther
• Demonstrate traction – show evidence of business model traction before seeking first round funding
• Iterate until your idea is great – don’t bring something sub-standard to market
• Frame your concept by how it is complimentary to a challenged economic climate (reduced capital spending for target customers, etc.)

Remember, some of the best startups have emerged during post-bubble periods. These times force only solid ideas with outstanding teams focused on long-term success to rise to the top.

I’m Joining Venrock

I am excited to say that I am joining Venrock as a Partner in New York. I am a part of the recently enhanced Digital Media team, led by the venerable media investor and entrepreneur David Siminoff in Palo Alto. I am proud to also have as my partners Mike Tyrrell who runs Venrock’s Cambridge office and Brian Ascher who runs the Venrock Quarry in addition to his venture activities in Palo Alto.

Venrock, as many of you know, is a firm with a lot of history. It was founded in 1969 as a vehicle for the Rockefellers to invest in and nurture entrepreneur-backed companies. Since then it has grown into a top-tier firm with expertise and an undeniable track record in building lasting, ground-breaking companies in technology, biotech, and now energy and digital media. In a way, I am coming full circle from my Apple days, since Venrock was an early investor in Apple, as well as in Intel, Doubleclick, Check Point, and more recently Athenaheath (ticker: ATHN) among many others.

Venrock has been focused on building a substantial practice in digital media. A veritable juggernaut of venture and entrepreneurial experience has been assembled to take an existing powerful platform and add on top of it a highly-focused digital media practice. I am not the catalyst for this, but am lucky enough to be joining the effort.

The investment thesis is simple: the digitization of media creates disruption and massive change in the creation, consumption, distribution and monetization of media. We all bare witness to this every day. And Yahoo, Google, iTunes, TiVo, Facebook, and even eMusic are just a small example of the new value that can be created by this transformation. The exciting part is that this transformation has just begun. And the rate of change increases every year. So our mission is to invest in early stage companies in many verticals in the broad swath of digital media.

Why New York? Well, Venrock has been investing here since 1969. The financial services, IT and healthcare practices in the firm excel. With all of the activity in media happening in New York, Venrock and I want to be a part of it. And we have the resources to do so. Importantly, having a strong truly bi-coastal team, given the center of media buying still revolves around New York, distinguishes Venrock from its peers.

I’ll be at eMusic through December. New contact info at Venrock is forthcoming. If you are a digital media entrepreneur, please reach out.