Venture Capital Thoughts and Reflections

Além da Web 2.0

A Web 2.0 está morta, vítima de seu próprio sucesso.

O conceito de site como um destino fixo não é mais suficiente.

O próximo passo foi dado e é distribuido.

O que nós vemos é uma separação de conteúdo e aplicações dos sites.

A Web 1.0 visava, em geral, atrair a população para a Internet, simbolizada por empresas como AOL (provedor), Netscape (navegador) e Yahoo (portal).

A Web 2.0 buscava, até um certo ponto, dar à população o que fazer uma vez que já têm acesso à Internet e tirar as dificuldades técnicas pra que isso acontecesse, como, por exemplo, para dividir suas fotos (Flickr), expressar seus pensamentos e opiniões (Blogger) ou postar seus vídeos (YouTube).

Mesmo sendo cedo demais para determinar os aspectos que irão compor a Web 3.0, algumas características já podem ser vistas, como:

(1) Um conhecimento mais abrangente da convergência entre criadores e consumidores de conteúdo;

(2) Um movimento de sites fixos para distribuídos, conteúdo e aplicativos livres;

(3) Um acompanhamento mais avançado do graficos socias dos usuários;

(4) Uma camada de sites em cima do outros sites, e;

(5) Uma tendência à interoperabilidade universal entre sites.

Como com qualquer mudança, algumas empresas ficarão entre os dois lados, o antigo e o novo, mas o principal é que algo diferente está aparecendo, além da Web 2.0.

Beyond Web 2.0

Web 2.0 is dead, a victim of its own success.

The concept of the "site" as a fixed destination is no longer sufficient.

The next evolutionary step has been reached and it is distributed.

What we are witnessing is an untethering of content and applications from the underlying sites.

Web 1.0 was, in large part, about getting the masses on the Internet, epitomized by companies such as AOL (ISP), Netscape (browser), and Yahoo (portal).

Web 2.0 was, to a certain extent, about giving the masses something to do once they got on the Internet and removing the technical hurdles to doing so, ex. share your photos (Flickr); express your thoughts and opinions (Blogger), post your videos (YouTube).

While it is still too early to determine exactly what traits will define Web 3.0, there are certain characteristics which are emerging, among them:
(1) A more widespread acknowledgement of the convergence between content creators and content consumers;
(2) A movement from fixed sites to distributed, free floating content and applications;
(3) A more advanced tapping of a user's social graph,
(4) A layering of sites on top of other sites, and
(4) A trend toward universal interoperability between sites.

As with any shift, there will be companies which straddle the line between both camps, but the point is that something different is beginning to emerge, beyond Web 2.0.

A Etica da Viralidade

Frequentemente é discutida a ética sobre privacidade de informação e portabilidade, mas e a ética de viralidade?

Especificamente, em sites como o Hi5 que usa táticas inescrupulosas para aumentar sua viralidade?

Eu amo técnicas para ganhar tempo como processo de registro por um click e portabilidade instantânea, por exemplo, sites que acessam automaticamente seu e-mail, messenger e redes socias, importando todos seus contatos do Hotmail, Gmail, Yahoo, Orkut e MSN.

Elas ajudam o usuário a ganhar o tempo que gastaria ao tentar descobrir como importar a informação, ou pior, o tédio de ter que colocar toda a informação manualmente.

De um ponto de vista de experiência para o usuário, isso é de grande valor.

Mas usar essa mesma técnica para mandar spam para toda a lista de contatos de um usuário, com o propósito de aumentar o tráfego do próprio site – é destruir qualquer crédito que o usuário deu ao site quando forneceu as ferramentas.

Se eu gosto de um produto ou serviço, eu recomendaria para meus amigos.

Mas sites como o Hi5 aparentemente não confiam muito em seus usuários.

Ao colocar “convidar todos” como configuração inicial e instantaneamente mandar e-mails indesejados para todo mundo da lista de contatos do usuário, antes de um usuário em potencial ter a chance de conhecer melhor o site, estarão destruindo qualquer boa impressão causada pela ajuda proporcionada e, mais importante, tornando-a uma má experiência.

Atenção empreendedores:

Quando tiver que escolher entre a experiência de usuário e viralidade, sempre escolha a experiência de usuário.

Eu recomendaria o Hi5 e outros sites que usem esta prática para terem mais confiança em seus usuários.

Se você criar um ótimo produto ou service e torná-lo fácil para os usuários contarem a seus amigos, eles contarão.

Mas usar ténicas inescrupulosas para se apropriar dos contatos do usuário resulta em má experiência e, pelo menos na minha opnião, é antiético.

The Ethics of Virality

You see a lot of discussion about the ethics of data privacy and portability, but what about the ethics of virality?

Specifically, what about sites like Hi5, that use heavy handed tactics to increase their virality?

I love time saving techniques such as one-click registration processes and instant portability, i.e. sites which port to your existing email, messenger, and social network accounts, automatically importing all of your Hotmail, Gmail, Yahoo, Orkut, and MSN contacts.

It saves the user the time of trying to figure out how to import the information, or worse yet, the tedium of having to enter the information manually.

From a user-experience standpoint, this adds a great deal of value.

But, to use these same techniques to spam a user's entire contact list, with an aim towards increasing the site's own membership--is to destroy any benefit to user-experience the site gained by providing the tools in the first place.

If I like a product or service, I will recommend it to my friends.

But sites like Hi5 apparently do not have much faith in their users.

By making 'invite all' the default setting and instantly sending unsolicited emails to everyone on a user's contact list, before a prospective user has even had the chance to explore a site, they are destroying any good will they engendered by providing the tools and, more importantly, making the overall user-experience a bad one.

Attention Entrepreneurs:

When faced with a choice between user-experience and virality, always choose user-experience!!!!

I would counsel Hi5 and other sites guilty of using such practices to have more faith in their users.

If you create a great product or service and make it easy for users to tell their friends about it, they will.

But using heavy handed techniques to hijack a user's social graph is bad user-experience and, at least in my opinion, unethical.

Economia Coasiana, Conteúdo criado por usuário e Mídia Social

Em seu trabalho de 1973, “A Natureza da Firma”, o economista ganhador de um prêmio Nobel, Ronald Coase, propõe que os custos de transação são os catalizadores da criação da "a firma".

Mais especificamente, quando os custos de transação são altos, os indivíduos se associam para criar firmas, combinando seus recursos para superar seu inimigo comum: custos de transação.

Com a queda de custos de transação trazido pela era da Internet/digital (por exemplo, a Internet reduz os custos de distribuição para quase zero, etc.), a necessidade pela firma em certas áreas foi substancialmente reduzida.

Veja, por exemplo, criação e distribuição de conteúdo.

Era extremamente caro para alguém criar e distribuir um filme. Agora, qualquer um com uma filmadora pode fazer um filme, colocar no YouTube e instantaneamente alcançar uma platéia mundial.

O mundo mudou de uma estrutura vertical e centralizada controlada por grandes companias dirigidas por pequenos grupos de profissionais para uma estrutura descentralizada que surge das massas populares.

Os usuários que eram relegados a simples consumidores de conteúdo, agora são consumidores, criadores e distribuidores.

O fenômeno da mídia social é, em diversos sentidos, uma consequência dessas mudanças.

Especificamente, quando você reduz os custos de transação, você reduz a necessidade de criar firmas, possibilitando usuários individuais a criar e distribuir seu próprio conteúdo.

Ao remover as limitações técnicas, e os custos de transação relacionados com a criação e distribuição de conteúdo, sites como Flickr (fotos), Blogger (texto), YouTube (vídeo) e Odeo (áudio), facilitaram a proliferação de conteúdo criado pelos próprios usuários e a criação da mídia social.

Mas o que há de tão especial sobre o conteúdo criado pelos usuários?

Por que a mídia social é importante?

Considere um país repentinamente mudando de uma monarquia absolutista para uma democracia constitucional.

O que está ocorrendo no setor de mídia não é uma transformação menos radical.

A mídia social se rompe da mídia tradicional no contexto que é participativa e interativa – o usuário pode tanto iniciar quanto participar do processo.

Do ponto de vista econômico, a mudança para a mídia social não é menos importante, em virtude dos seus profundos efeitos nas propagandas pela internet – um dos mecanismos que alimentam o crescimento de todo setor tecnológico.

Tradicionalmente, a verba publicitária era dividida entre os meios de comunicação então existentes como jornais, revistas, rádio, e televisão conforme seu “alcance”.

“Alcance” refere-se ao número de espectadores que veriam uma propaganda específica. Quanto maior o alcance, maior a concentração de verba publicitária destinada a determinado meio de comunicação.

Cada dia mais os espectadores estão abandonando os meios de comunicação tradicionais – jornais, revistas, rádio e televisão- migrando para a Internet. Assim, o alcance da Internet tem crescido em relação aos meios de comunicação tradicionais.

Simultaneamente, a natureza bilateral da Internet possibilita níveis de relevância, tempo e mensuração impossíveis com outros meios de mídia, atraindo ainda mais os anunciantes.

Mídia social é importante porque grandes quantidades de usuários estão passando muito tempo em sites de mídia social.

Sites de mídia social como Flickr, Blogger, YouTube e Odeo, bem como sites de rede social (que em sua essência são sites de mídia social híbridos) como o Orkut, MySpace e Facebook, têm obtido um alcance notável.

A partir de agora, sites de mídia social devem continuar ganhando importância enquanto os custos de transação ligados à criação e distribuição de conteúdo continuam diminuindo; verbas de publicidade continuam migrando para a Internet e as gastos das agencias de publicidade comecam a focar os sites de mídia social.

Coasian Economics, User Generated Content, and Social Media

In his 1937 work, The Nature of the Firm, Nobel Prize winning economist Ronald Coase proposes that transaction costs are the catalyst behind the creation of ‘the firm’.

More specifically, where transaction costs are high, individuals get together to form ‘firms’, pooling their resources to overcome their common enemy: transaction costs.

With the decrease in transaction costs brought on by the digital/Internet age, i.e. The Internet reduces distribution costs to almost zero, etc., the need for ‘the firm’, in certain areas, has been dramatically reduced.

Take, for example, content creation and distribution.

It used to be prohibitively expensive for someone to make a movie and distribute it. Now, anyone with a camcorder can make a movie, post it on YouTube, and instantly reach a planet-wide audience.

The world has changed: from a centralized top-down structure controlled by large companies, dictated by small groups of professionals, to a distributed, user-generated, structure which bubbles up from the masses.

Whereas users were once relegated to being solely consumers of content, they are now consumers, creators, and distributors of content.

The social media phenomena is, in many ways, a consequence of these changes.

Specifically, when you reduce transaction costs, you reduce the need to form firms, enabling individual users to create and distribute their own content.

By removing the technical hurdles and transaction costs associated with creating and distributing content, sites such as Flickr (photos), Blogger (text), YouTube (video), and Odeo (audio), facilitated the proliferation of user generated content and the creation of social media.

But what is so special about this user generated content?

Why is social media important?

Think about a country suddenly shifting from an absolute monarchy to a constitutional democracy.

What is occurring in the media sector is no less radical a transformation.

Social media marks a distinct break from traditional media in the sense that it is participatory and interactive--the user can both initiate, and take part in, the conversation.

From an economic standpoint, the shift to social media is no less important given its profound effect on Internet advertising--one of the engines fueling the growth of the entire technology sector.

Traditionally, advertising dollars were divided among existing forms of media such as newspapers, magazines, radio, and television according to “reach”.

“Reach” referred to the number of viewers who would see a particular advertisement. The greater the reach, the higher the concentration of advertising dollars allocated to a particular form of media.

Increasingly, viewers are abandoning traditional forms of media--newspapers, magazines, radio, and television--in favor of the Internet. The reach of the Internet has therefore been increasing relative to traditional forms of media.

Simultaneously, the two-way nature of the Internet enables levels of relevancy, timeliness, and measurability impossible with traditional forms of media, further increasing its attractiveness to advertisers.

Social media is important because large numbers of users are spending large amounts of time on social media websites.

Social media sites such as Flickr, Blogger, YouTube, and Odeo as well as social networking sites (which are essentially hybrid social media sites) such as Orkut, MySpace, and Facebook, are grabbing an inordinate amount of reach.

Going forward, social media sites should continue to grow in importance as: transaction costs associated with content creation and distribution continue to decline; advertising dollars continue to migrate to the Internet, and, allocations within the Internet segment begin to target social media.

O que os investidores de capital empreendedor estão realmente procurando?

[Nota aos leitores: este artigo destina-se a promover a transparência e preencher algumas lacunas que encontro diariamente sendo um "venture capitalist" que trabalha no Brasil. Especificamente, estou tentando melhorar a enorme desconexão entre o mistério em torno de como as empresas de capital empreendedor analisam os projetos. Espero ter a oportunidade de revisar cada uma dessas questões, de forma mais detalhada, no futuro. Embora existam muitas semelhanças, gostaria de previnir os leitores para terem cautela quanto à utilização das informações citadas neste artigo para os mercados além do Brasil, uma vez que os critérios, muitas vezes, diferem de mercado para mercado.]

Você escreveu seu resumo executivo ou criou sua apresentação e o enviou para a firma de capital empreendedor.

Como o investidor de capital empreendedor irá analisar o material enviado, mais precisamente, o que os investidores de capital empreendedor estão realmente procurando?

Para poder responder essa pergunta, olhar pelo ponto de vista do investidor de capital empreendedor ajuda.

O modelo tradicional do capital empreendedor é “invista em 20 e reze por 2”

Isso significa que vocë investe em 20 empresas, esperando ter 2 grandes sucessos.

Porque isso é necessário?

Probabilidade.

Apesar do esforço de todos envolvidos, um grande número de empresas serão mal-sucedidas, enquanto outras irão gerar apenas um lucro modesto.

Consequentemente, os investidores de capital empreendedor precisam dos grandes sucessos para compensar as empresas mal-sucedidas ou aquelas que geraram um lucro insignificante.

Com isso em mente, os investidores geralmente procuram por empresas que podem gerar grandes lucros.

O que significa “grandes lucros”?

Geralmente, os investidores de capital empreendedor querem a chance de obter um retorno de 10 vezes.

Isso significa que eles querem pelo menos 10 vezes o valor do investimento inicial.

Em alguns casos, os investidores de capital empreendedor até investiriam em empresas que oferecem lucros um pouco mais baixos em troca de uma probabilidade mais alta de sucesso, contudo, isso só ocorre quando o investidor quer equilibrar seu portfolio com apostas menos agressivas e normalmente querem tanto grandes lucros quanto baixos riscos!

Com isso em mente, podemos tirar duas conclusoões:

(1) Os investidores querem grandes lucros (10 vezes o investimento inicial ou mais), e

(2) Baixo risco.

Como esses fatores se apresentam durante a análise do seu projeto?

Basicamente, tudo que o investidor analisa é relacionado com a mensuração do potencial de lucro ou o de risco.

Mesmo que os critérios variam de firma para firma, os investidores de capital empreendedor geralmente analisam a combinação dos seguintes elementos:

(1) Empreendedor

(2) Equipe

(3) Tamanho do mercado

(4) Crescimento do Mercado

(5) Crescimento da empresa (ou evidência de demanda)

(6) Caminho à rentabilidade

(7) Probabilidade de saída

(8) Rentabilidade de saída

[Cada um desses critérios merece seu próprio post, mas por questão de tempo, eu só apresentarei uma breve descrição de cada. Existem, obviamente, muitas outras coisas que as empresas de capital empreendedor consideram, como por exemplo, concorrência, as barreiras à entrada, etc, no entanto, penso que esses fatores estão, normalmente, no topo da lista de todo mundo.]

Empreendedor –
Quanto melhor o empreendedor, maior a chance de sucesso, e consequentemente, menor o risco. Esse é o raciocínio atrás de apoiar empreendedores experientes. Basicamente, a lógica é que eles já passaram por esse processo, então eles sabem superar quaisquer dificuldades que inevitavelmente aparecem.

Equipe –
Quanto melhor a equipe, maior a chance de sucesso e, consequentemente, menor o risco. Um investidor de capital empreendedor preferiria investir numa equipe excelente com uma idéia razoavél do que em uma equipe razoável com uma idéia excelente. Isso porque a execução representa uma grande parte do sucesso da empresa.

Tamanho do Mercado –
Quanto maior o mercado, melhor. Se o mercado for pequeno demais, não vale a pena fazer o negócio pois o retourno em potencial não seria grande o suficiente para justificar o risco. Quanto maior o mercado, maior o espaco para mais do que um “player”, por ex. Em um grande Mercado, você não precisa ser o número 1 para ser bem sucedido, alguns mercados são grandes o suficiente para acomodar diversos players, etc.

Crescimento do Mercado-
A saúde do Mercado, medida pelas suas características de crescimento, é importante. Investidores querem investir em empresas que pertecencem a mercados em crescimento, então não queira estar em um mercado em queda. Por exemplo, o investidor aplicaria num mercado em ascenção como virtualização ou mídia social, ao invés de fazê-lo em um mercado em queda, como machinas de escrever.

Curva de crescimento da empresa –
Em uma empresa já existente, você quer ver um crescimento exponencial. Mais especificamente, quer ver as vendas da empresa dobrando ou triplicando a cada ano, ao invés de um crescimento mais demorado. Em uma nova empresa, você quer ver uma forte evidência de demanda pelo produto, clientes correndo à sua porta e com habilidade para pagar.

O caminho à rentabilidade –
Quanto mais curto o caminho, melhor. Você não quer uma empresa dedicada somente à pesquisa e que leverá uma eternidade para recuperar o investimento. “Timing” é tudo, mas é imprevisível. Como ninguém pode prever quanto tempo o mercado levará para amadurecer, por ex., open source (software livre), consumo de vídeo online etc., é essencial que você tenha um caminho curto rumo à rentabilidade para sobreviver caso leve mais tempo que o esperado.

Probabilidade de saída –
O capital investido deve ser retornado. Consequentemente, o investidor precisa de um jeito de sair do investimento. Quando avaliado um investimento em potencial, o investidor precisa saber que ele/ela chegará a uma saída por uma oferta pública inicial, fusão ou outro tipo de evento de liquidez.

Rentabilidade de saída –
Não só você precisa sair do investimento, mas precisa fazê-lo lucrando. Consequentemente, é essencial que o investidor determine os tipos de retorno para as empresas de um dado setor.

Por fim, algumas coisas importantes a serem lembradas:

(1) Uma ótima idéia por si só não é o suficiente.

Investidores de capital empreendedor escutam ótimas idéias o tempo todo. Para investir, o investidor precisa ter certeza da habilidade de execução sua e de sua equipe.

(2) Nem todos os negócios são apropriados para investimento capital empreendedor.

Existem vários mercados pequenos e rentáveis que são bons nichos, mas não são apropriados para investimento de capital empreendedor. Uma oportunidade precisa alcançar um certo patamar (geralmente determinado pelo tamanho do fundo de capital empreendedor) para justificar o recebimento de investimento.

(3) Não aborde o investidor prematuramente.

Mesmo que seu negócio seja apropriado para um investimento de capital empreendedor, você deve desenvolver a sua idéia antes de abordar um investidor de capital empreendedor, i.e. você deveria levantar um investimento inicial junto aos amigos e à família para criar um protótipo antes de contatar uma empresa de investimento de capital empreendor. De modo geral, quanto mais avançado o desenvolvimento da idéia, maiores suas chances de receber investimento.

(4) Empresas não vivem num vácuo.

Sua empresa é avaliada não só por alguns critérios neutros e objetivos, mas também em comparação com cada uma das empresas analisadas pelo investidor de capital empreendedor. Numa escala de 0 a 10, sua empresa talvez seja 8,5, mas se o investidor de capital empreendedor recebe projetos 9,5 e 10, então sua empresa pode não receber o investimento, apesar de ter grande chance de que no futuro seja bem-sucedida.

Obs. Eu queria agradecer Roberta, Andre, Aninha, e Mariana para a ajuda deles com algumas frases e palavras! :)

What are venture capitalists really looking for?

[Note to readers: this post is designed to promote transparency and fill in some of the gaps that I encounter on a daily basis as a venture capitalist working in Brazil. Specifically, I am trying to ameliorate the huge disconnect between venture capitalists and entrepreneurs by helping remove the mystery surrounding the way in which venture capitalists analyze projects. Hopefully, I will have the chance to revisit each of these issues, in more detail, in the future. While there are many similarities, I would caution readers against applying the information cited in this post to markets beyond Brazil as criteria often differ from market to market.]

You have written your executive summary or power point presentation and have submitted it to the venture capital firm.

How will the venture capitalist analyze the materials that you have submitted, specifically, what are venture capitalists really looking for?!

In order to answer this question, it is helpful to think about things from the venture capitalist's perspective.

The traditional venture capital model is to "invest in 20 and pray for 2."

This means that you invest in 20 companies, hoping to have two big successes.

Why is this necessary?

Probability.

Specifically, despite the best efforts of everyone involved, a large number of companies will fail, while others will generate only modest returns.

Accordingly, venture capitalists need big successes in order to make up for all of the companies that fail or generate insignificant returns.

Given this scenario, venture capitalists are typically looking for companies that can generate large returns.

What constitutes "large returns"?

Typically, venture capitalists want the chance to earn a 10x return.

That means, they want to make at least ten times the amount of their initial investment.

In some cases, venture capitalists are willing to invest in companies which offer slightly lower returns, in exchange for a greater likelihood of success, however, this usually only occurs when the venture capitalist wants to balance his or her portfolio with some less aggressive bets, and normally they want both higher returns and lower risk!

Given this scenario, we can draw two general conclusions:
(1) venture capitalists are looking for large returns (10x or more), and
(2) low risk.

How do these issues manifest themselves during a venture capitalist's analysis of your project?

Essentially, everything that the venture capitalist evaluates will relate to either quantifying the potential return, or gauging the potential risk.

Though investment criteria vary from firm to firm, venture capitalists generally analyze some combination of the following:
(1) Entrepreneur
(2) Team
(3) Market size
(4) Market growth
(5) Company growth (or, in the alternative, evidence of demand)
(6) Road to profitability
(7) Probability of exit
(8) Profitability of exit

[Each of these criteria deserve their own post but, in the interests of brevity, I will only give a brief description of each. There are, of course, many other things that venture capitalists look at, ex. competition, barriers to entry, etc., however, I think that the listed criteria are typically at the top of everyone's list.]

Entrepreneur -
The better the entrepreneur, the greater the likelihood of success, and, consequently, the lower the risk. That is the rationale behind backing experienced entrepreneurs. Essentially, the logic is that they have gone through the process before, so they know how to overcome the various challenges that inevitably arise.

Team -
The better the team, the greater the likelihood of success, and, consequently, the less the risk. A venture capitalist would much rather invest in an excellent team with an OK idea, than an excellent idea with an OK team. This is because execution accounts for a great percentage of a company's success.

Market size -
The larger the market, the better.
If the market is too small, then it isn't worth doing the deal because the potential return will not be large enough to justify the risk. The larger the market, the greater the leeway, i.e. in a large market, you don't need to be the number one player to still be hugely successful, some markets are large enough to accommodate multiple players, etc.

Market growth -
The health of a market, as measured by its growth characteristics, is important. Venture capitalists want to invest in companies which are in growing markets. You don't want to be in a dying market. So, for example, a venture capitalist would want to invest in a growing market like virtualization or social media, rather than a dying market, like word processors.

Company growth curve -
In an existing business, you want to see exponential growth. Specifically, you want to see a company's sales doubling or tripling each year, rather than growing slowly, arithmetically. In a new business, you want to see strong evidence of demand/need. You do not want a "build and they shall come" model, you want to see evidence of customers banging down the door for a product or service and an ability to pay.

Road to profitability -
The shorter the road, the better.
You don't want a pure research company that will take forever to break even.
Timing is everything, yet it is unpredictable. Since no one can predict how long it will take a market to materialize, ex. open source, online video consumption, etc., it is essential that you have a short road to profitability so that you can survive in the event that it takes longer than you expected.

Probability of exit -
Capital invested must be returned. Accordingly, the venture capitalist needs a way to exit the investment. In evaluating a potential investment, the venture capitalist needs to know that he or she will be able to achieve an exit at some point whether via an IPO, merger, or other type of liquidity event.

Profitability of exit -
Not only do you need to be able to exit an investment, but you need to be able to do so profitably. Accordingly, it is essential that the venture capitalist determine the types of multiples for companies in a given industry.

Finally, a few other important things to remember:

(1) An excellent idea alone is not sufficient.

Venture capitalists hear great ideas all of the time.
But having a great idea is not enough.
In order to invest, a venture capitalist needs to be confident in your (and your team's) ability to execute.

(2) Not all businesses are appropriate for venture capital.

There are many small, profitable markets that are good niche businesses, but are not appropriate for venture capital investment. An opportunity needs to meet a certain size threshold (usually determined by the size of the venture capital fund) in order to justify receiving venture capital.

(3) Don't approach a venture capitalist too early in the process.

Even if your business is appropriate for venture capital, you may have to develop your idea further before approaching a venture capitalist, i.e. You may wish to raise seed funding from friends and family in order to build a proof of concept before contacting a venture capital firm. Generally speaking, the further developed the idea, the better your chances of receiving funding.

(4) Companies do not exist in a vacuum.

Your company is evaluated, not just by some neutral objective criteria, but relative to every other company in a venture capital firm's pipeline. On a scale of one to ten, your company may be an 8.5, but if a firm is receiving all 9.5's and 10's, then your company may not get funded, even though there is a great chance that you will ultimately be successful.

Desmistificação do Capital Empreendedor

Nota aos leitores:

Conforme minha decisão de “experimentar”, a partir de hoje, eu postarei tanto em Inglês como em Português.

Essa decisão foi tomada devido à minha frustração perante a falta de informação sobre o Capital Empreendedor no Brasil, mesmo com tentativas do Governo Federal e instituições de ensino brasileiras.

O Brasil tem cientistas, engenheiros e empresários a par com os de outros paises, mas muitas vezes a relação é prejudicada por falta de acesso e entedimento sobre o capital empreendedor. Então, além de postar o de sempre, eu espero ajudar a preencher a lacuna escrevendo sobre o essencial do capital empreendedor.

Como funciona o processo de Capital Empreendedor?

Toda semana, empresários enviam por e-mail resumos, apresentações de powerpoint e planos de negócio para empresas de capital empreendedor. O material é geralmente coletado por um membro da área administrativa e repassado para membros do comitê de investimentos. O comitê de investimentos se reune uma vez a cada uma ou duas semanas, dependendo da quantidade de material recebido e da disponibilidade do pessoal. Os membros lêem o material antes das reuniões e depois os discutem juntos durante o encontro. Empresas que passam dessa primeira fase são geralmente requisitadas a mandar mais informações. Muitas vezes, os investidores convidam os empresários a visitar seus escritórios ou vice-versa.

Mas como chegar nessa primeira fase?

O primeiro passo é localizar empresas de capital empreendedor. Uma boa fonte de informação é a página de membros das Associação Brasileira de Capital de Risco, que contem uma lista de empresas de capital empreendedor ativas no Brasil.

Minha sugestão seria visitar os sites das empresas listadas para ter certeza que o perfil da empresa combina com o seu, uma vez que empresas de capital empreendedor variam dramaticamente de perfil.

Sobre o contato com as empresas, cada firma geralmente tem um e-mail de contato aonde você pode mandar o material descrevendo sua compania ou projeto. Ao contrário das empresas de capital empreendedor Americanas, as Brasileiras não só aceitam o material de uma empresa desconhecida, como realmente o lêem! A maioria das empresas Americanas geralmente só lêem material de conhecidos ou pessoas apresentadas por conhecidos. Eles têm um bom motivo para isso (tem a ver com ganhar tempo e filtrar muitas apresentações), mas porque o mercado é relativamente novo no Brasil, as empresas Brasileiras geralmente lêem tudo que recebem. Então, mesmo ajudando, a boa notícia é que você não precisa ter sido apresentado para o investidor.

Quais informações o empresário deverá mandar e como elas devem ser mandadas?

De um modo geral, existem três tipos de documentos que você pode mandar: um sumário executivo, uma apresentação de powerpoint, e um plano de negócio.

Um sumário executivo geralmente consiste em uma à quatro páginas (não mais que isso!) descrevendo vários aspectos da empresa e incluindo um ou dois gráficos ilustrando um aspecto importante dos negócios da empresa. Veja um exemplo de um sumário executivo aqui.

Apresentações de powerpoint normalmente consistem em não mais que vinte slides. Elas geralmente contêm texto descrevendo o produto ou serviço, o mercado etc., bem como gráficos que enfatizam os principais pontos. Veja um exemplo de apresentação aqui.

Planos de negócio são normalmente documentos longos, com mais de 40 páginas, que descrevem em detalhes todos os aspectos dos negócios da empresa. Eu não tenho muita certeza sobre eles. Por um lado, eu acho que o exercício de escrevê-lo é importante pois obriga você à encarar assuntos que não seriam observados normalmente. Por outro lado, eu acho uma perda de tempo pois os negócios da empresa geralmente mudam e o resultado final não se assemelha à descrição dada no plano de negócio. Por experiência própria, os melhores empresários geralmente não tem tempo de escrever um plano de negócio porque estão ocupados demais construindo a empresa. Os investidores quase nunca têm tempo de ler os longos textos, principalmente no início. Então, minha sugestão seria preparar um sumário executivo ou uma apresentação de power point, e esquecer o plano de negócio!

Tendo dado um link da lista de empresas brasileiras de capital empreendedor, dicas de contato, o processo de envio, e uma descrição dos tipos de materiais à serem enviados (bem como exemplos!), o meu próximo post irá focar nos critérios usados pelos investidores para avaliar uma oportunidade ou o que os investidores realmente procuram!

Demystifying the venture capital process

Note to readers:

Consistent with my decision to "start experimenting", beginning today, I am going to be posting in both English and Portuguese.

This decision is motivated by my frustration at the persistent lack of information about venture capital in Brazil despite several well meaning efforts by the Federal government and Brazilian academic institutions.

Brazil has scientists, engineers, and entrepreneurs on par with those of other nations, however, their efforts are often handicapped by a lack of access to, and understanding of, venture capital. So, in addition to my regular posts, I hope to help close the gap by writing posts that cover the basics of venture capital.

What is the venture capital process?

Every week, entrepreneurs email executive summaries, power point presentations, and business plans to venture capital firms. The materials are usually collected by a member of the firm's administrative staff and forwarded to members of the firm's investment committee. The investment committee meets once every week or two, depending on the amount of materials received and everyone's availability. Investment committee members read through the materials prior to the meetings and then discuss them together at the meeting. Companies that pass this first phase are then usually asked to submit further information. Frequently, venture capitalists schedule conference calls with the entrepreneurs involved, invite them to visit their offices, or arrange site visits at the companies' offices.

But how do you get to this first phase?

The first step is to locate the venture capital firms. One good source of information is the membership page of the Brazilian Venture Capital and Private Equity Association which contains a list of venture capital and private equity firms that are active in Brazil.

My suggestion would be to go through the list and visit each firm's website to make sure that there is a fit. Venture capital firms vary dramatically in their approaches and interests, so you are well advised to read up on each firm to make sure that there is a fit before contacting them.

In terms of contacting the firms, each firm usually has a general contact email address where you can submit materials describing your company or project. Unlike venture capital firms in the US, Brazilian venture capital firms not only accept unsolicited materials from people that they do not know, but actually read through them! Most firms in the US typically only review plans submitted by people that they know, or from people who are introduced to them by people that they know. There are good reasons for doing this (it has to do with maximizing ones time and efficiently screening vast numbers of presentations), but, due to the relatively early stage of the market in Brazil, Brazilian firms still typically read through everything that comes in the door. So, though it is helpful, the good news is that you don't need a personal introduction from someone who knows the venture capitalist.

But what information should an entrepreneur submit and how should it be submitted?

Generally speaking, there are three types of documents that you can submit: an executive summary, a power point presentation, and a business plan.

Executive summaries are typically one to four pages in length (no longer!). They usually include text describing various aspects of the business as well as a helpful graphic or two which illustrate an important aspect of the company's business. See a sample executive summary here.

Power point presentations are typically 20 slides in length (no longer!). They usually include text describing the product or service, management team, market, etc., as well as helpful graphics which emphasize key points. See a sample power point template here.

Business plans are typically long documents, 40 or more pages in length, which seek to describe, in great detail, every aspect of a company's business. I have mixed feelings about business plans. On one hand, I think that the exercise of writing a business plan is valuable in the sense that it forces you to think through issues that you might otherwise gloss over. On the other hand, I think that it is a waste of time in that, a company's business typically mutates and the end result often bears little or no resemblance to the company that was described in the business plan. In my experience, the best entrepreneurs usually don't have the time to write business plans because they are too busy building the business. Venture capitalists almost never have the time to read through long business plans, particularly at the outset. So, my suggestion would be to prepare an executive summary or a power point presentation and forget the business plan!

Having provided a link to a list of Brazilian venture capital firms, tips on how to contact them, an overview of the submission process, and a description of the types of materials to submit (as well as sample documents!), my next post will focus on the investment criteria which venture capitalists use to evaluate an opportunity, or, what venture capitalists are really looking for!

Time to start experimenting!

The last time that I was in the US, I picked up a copy of Tom Perkins' book, Valley Boy. Among other things, I was struck by how little venture capital has changed in the 20 or so years since Perkins et al pioneered many of the practices that we conceive of today as modern day venture capital.

Sure, there has been some experimentation around the edges, forced upon the industry by the capital efficiency of Web 2.0 companies, the flood of money chasing deals, the emergence of new entrants (hedge funds), corporate acquirers like Google buying companies earlier in their lifecycle, etc., etc., however, the overall model has remained the same.

Its time to change! Kleiner Perkins did not become the firm that it is by sticking to a well-trodden path. Perkins paints a portrait of risk taking and experimentation. Somewhere along the line, this pioneering ethos seems to have gotten lost. Are we to assume that everything there is to know about venture capital has already been discovered? That there are no remaining practices, structures, or techniques lurking out there which could dramatically increase returns?! Somehow, I doubt it.

I, for one, am going to start experimenting!

Special Event / Evento Especial

Dear Readers,

My apologies for the long delay in posting!

I have been very busy lately.

That said, I have been writing down my ideas and am looking forward to posting them sometime in the near future!

Below, please find information in Portuguese about a special event that I organized.

If any of you are going to be in the area, I would encourage you to attend.

----------------------------------

Amigos, Colegas, e Internautas,

Abaixo esta informacao sobre um evento especial.

Nao e todo dia que nos temos uma oportunidade de ter uma cientista deste nivel aqui, e espero que aproveitarem bastante!

Terca-feira, dia 26 do Fevereiro, 10h00 ate 12h00

Fundacao Biominas
Av. Jose Candido da Silveira, 2100
Barrio Horto (lado de Cidade Novo)
Belo Horizonte, MG

O evento e grátis e você não precisa um convite.
Pode levar o quem você quiser!

Eu escrevei o texto abaixo em Inglês explicar o trabalho da Daphne e depois o gente do Fundação Biominas traduzei para Portuguese.

Espero que faz sentido!

Eu sao responsável para qualquer defeito!

--------------------------

“Estão apenas começando as mudanças que terão efeitos comparáveis àquelas ocorridas na revolução industrial e na revolução da era da informática. A próxima grande era, a da revolução da genomia, encontra-se em sua fase inicial. Até agora, os potenciais farmacológicos da genomia já foram postos em evidência, mas o derradeiro impacto da genomia resultará da manipulação do DNA das plantas. Ao final, o mundo obterá a maior parte de seus alimentos, combustíveis, fibras, matérias-primas químicas bem como alguns de seus remédios a partir de vegetações e árvores geneticamente modificadas.”

-- ‘Uma Terceira Revolução Tecnológica’, Philip H. Abelson, Science 27 March 1998: Vol. 279. No. 5359, pp. 2019

Os projetos de sequenciamento de Genoma conduzidos tanto na esfera privada quando na pública vêm gerando uma enorme riqueza de genes benéficos. Infelizmente, as barreiras da entrega dos genes impediram quase todas as tentativas de introdução dos mesmos nas plantas.

Até agora.

Em um recente trabalho, entitulado, ‘Meiotic Transmission of an In Vitro–Assembled Autonomous Maize Minichromosome’ PLoS Genetics Vol. 3, No. 10, e179 doi:10.1371/journal.pgen.0030179, Daphne Preuss detalha uma inovadora técnica que promete a entrega eficiente em plantas de cromossomos modificados pela bio-engenharia.

Daphne Preuss

Foi Professora de Genética Molecular e Biologia Celular na Universidade de Chicago e Pesquisadora no Instituto Médico Howard Hughes. Possui Ph.D em Biologia pelo MIT (Massachusetts Institute of Technology) onde estudou com David Botstein; pós-doutora pela Universidade de Stanford onde trabalhou com Ronald Davis. Daphne também participou do Quadro de Conselheiros Científicos do Centro Nacional de Informações sobre Biotecnologia no NIH (National Institutes of Health), centro mundial para depósitos de seqüência de DNA, do Quadro de Governadores do Argonne National Laboratory e também dos Conselhos do Whitehead Institute for Biomedical Research e do Bauer Center for Genomics Research da Universidade de Harvard. Atualmente é a CEO da Chromatin, Inc., uma das empresas líderes em biotecnologia de plantas no mundo.

Histórico

O código genético de um organismo ou seu DNA é organizado em três unidades distintas: genes, cromossomos e o genoma. A menor unidade, o gene, é um pouco de DNA que instrui um organismo como fazer um único traço específico, por exemplo da cor dos olhos ou dos cabelos.

A próxima unidade, o cromossomo, é um grupo de genes múltiplos. A maior unidade, o genoma, é composto de múltiplos cromossomos. O genoma humano contém 23 cromossomos. Já o milho contém 10.

Os métodos tradicionais de modificação genética levam a uma integração aleatória de um gene em um cromossomo de uma planta hospedeira. Somente alguns genes podem ser entregues de uma só vez e estes genes frequentemente acabam parando em um ambiente que lhes é desfavorável à sua expressão; como resultado, as novas plantas criadas através destes métodos tipicamente requerem a separação de centenas de milhares de plantas modificadas para encontrar uma que seja adequada, e até sete anos de cruzamento intensivo para solucionar a genética para cada nova variedade comercial. Estas integrações aleatórias resultaram em um maior tempo de desenvolvimento e maiores obstáculos de natureza regulatória, aumentando consideravelmente o tempo e o custo de desenvolvimento de novas plantas.

Por outro lado, a técnica de Daphne, a qual não se baseia em uma integração, produz expressão previsível e herança sem danificar o genoma da planta hospedeira.

Cromossomos inteiros podem ser desenhados e construídos com composição genética conhecida e permanecerem separados dos cromossomos hospedeiros, aumentando significativamente tanto a precisão da transferência genética quanto a gama das possíveis manipulações.

Além de acelerar substancialmente o desenvolvimento de novas variedades de colheitas e reduzir custos, a tecnologia de Daphne permite a introdução de traços multi-genes, possibilitando pela primeira vez a introdução de caminhos metabólicos inteiros em um único evento de transformação, abrindo assim as portas para aplicações “bio-fábrica”

Eliminando o gargalo crucial até o nível de entrega de genes em plantas, a técnica de Daphne promete superar o último obstáculo para a realização da famosa visão de Philip Abelson de uma Terceira Revolução Tecnológica.

Mais informacao:
Evento
Artigo

From Plants to Plants: A New Manufacturing Platform Is Born

Ten years from now, when people look back, I believe that one of the great advances they will associate with our era will be the harnessing of plants and microbes for use as mini-factories.

The idea of using plants to manufacture products is not new.

For years, companies have been racing to identify and patent beneficial genes in hopes of one day using them in plants.

The bottleneck which has traditionally prevented them from using the genes has been the fact that there was no scalable method of gene delivery.

As companies stockpiled beneficial genes, scalable delivery of those genes remained as elusive as the Holy Grail.

On October 19th, 2007 Daphne Preuss and members of her team at Chromatin, Inc.* published a landmark paper in PLOS Genetics, which describes how they were able to deliver multiple genes in maize using mini-chromosomes.

This is significant because it marks the first time that anyone has developed a scalable method of gene delivery.

In addition to enabling the optimization of agricultural crops, through the addition of beneficial traits such as improved drought tolerance and disease resistance, Chromatin's technology opens the door to entire bioengineered products.

The industrial scale production enabled by Chromatin's technology will, in all likelihood, revolutionize dozens of multibillion dollar industries, biofuels, forest products, agribusiness, and pharmaceuticals to name a few.

*In the interests of full disclosure, I served as a consultant to Chromatin, Inc., and hold a small number of shares in the company.

**Those interested in microbial applications, should see Synthetic Genomics, which is to microbes, what Chromatin is to plants.

Time to dust off virtual reality?

I've been traveling non-stop for the last two months.

I've been to Sao Paulo, Rio de Janeiro, Recife, Salvador, Honolulu, Chicago, and San Francisco.

No matter where I went, the problems were always the same, overcrowded roads and skies.

Building new airports and expanding existing ones eases overcrowding, but it doesn't solve the emissions problem.

Similarly, buying carbon credits doesn't do anything to ease overcrowding.

I want a solution that solves both problems.

The easiest way seems to be to reduce car and air travel.

But how?

One way would be to improve video conferencing.

But I am going to suggest a different tactic.

I think that it is time to dust off virtual reality.

Historically, there have never been powerful drivers pushing the adoption of virtual reality.

Other than a handful of military and medical applications, virtual reality has been entirely the province of entertainment.

Unquestionably, there are many attractive entertainment applications, but I think that we have finally entered an era where there are compelling business drivers behind the use of virtual reality.

The UN released a report a few months ago that concluded that, for the first time in history, more people are living in urban areas than the country side.

This trend toward mega cities poses multiple problems, air and vehicle traffic/pollution being just the most obvious.

(As an interesting aside, if you ever want a bleak glimpse into the future, try visiting Sao Paulo!).

With a better virtual reality experience, however, people would be able to dramatically reduce the amount that they travel.

Carbon credits are great, but what could be greener than not burning the fuel at all?!

Think of all the time, energy, and money that could be saved if, rather than going to the airport, going through security, waiting for the plane, facing the inevitable delays, flying, etc., you could simply walk into a room within your own office and meet with the necessary parties virtually.

The cost of any necessary equipment would probably pay for itself after one or two "cancelled" trips.

Historically, there have been two problems with video conferencing which would also plague virtual reality: bandwidth and sound delay.

What I would like to see is a system where call participants create profiles prior to dialing in.

One can imagine users, in preparation for a virtual meeting, being filmed via web cam reading a sample text, which would be enough for a program to capture their facial expressions and mannerisms.

The program would then create a mock up, based on the raw data which would be stored centrally (thin client), but sent to a local area for storage immediately prior to a call (hosted locally at the time of the meeting).

The terminal would then be able to extrapolate users' expressions when speaking, via a predictive algorithm, without the need to transmit such information.

Background on a participant's physical environment could also be essentially blue screened in to avoid the need to transmit the data.

With business increasingly global, high transaction costs associated with travel, environmental demands, and worldwide infrastructure stretched to the breaking point, it is time to dust off virtual reality.

The Frustrating Side of Blogging

Fred Wilson had a provocative post on his blog today, raising the issue of whether venture capitalists should blog.

I posted a comment expressing my thoughts, a copy of which is appended below.

One issue that I did not get into is the frustrating side of blogging.

More specifically, I hate having to censor what I write.

It is like sitting in class and knowing the answer to a question, but having to keep quiet (something that those of you who studied with me know I was never very good at!). ;)

I have been involved with Synthetic Biology since 2003, but have never written a post about it.

Similarly, I am working with a company that is doing pioneering work related to the social graph.

We are making contributions to the field every day, but, for competitive reasons, I have to resist the urge to say anything substantive.

It is really torture!

Anyway, here is the text of my comment:

Though some can get by without it, blogging is definitely a great tool for venture capitalists.

In an era where entrepreneurs are increasingly consumers, blogs can help entrepreneurs differentiate between firms, and partners within firms.

This benefits both the entrepreneur and the venture capitalist.

It reminds me of that old slogan for Syms department store, "An educated consumer is our best customer."

The more the entrepreneur and venture capitalist know about each other, the better.

Then there is the value of the process.

Like asking an entrepreneur to draft a business plan, the exercise of blogging is helpful, in and of itself, because it forces the venture capitalist to organize his or her thoughts.

This applies even if, as is the case with me, nobody reads your blog! ;)

Another benefit of blogging, which Fred already described, is the ability to tap the network and collective knowledge of your readers.

Finally, to the extent that it demystifies the venture capital process, I think that blogging by venture capitalists is beneficial because it helps reduce the 'lost in translation' divide between venture capitalists and academics, which will hopefully facilitate the formation of new companies.

Hardware mash-ups

Bug Labs released more information about their product today.

It looks pretty interesting.

The big question for me is: to what extent will people mash up their own hardware?

I love mash-ups, whether it is a Quentin Tarentino film, a Bob Sinclair song, a special purpose organism created using Synthetic Biology, a map mash-up, or hardware created by Bug Labs, but, as strong as the desire for freedom is, there is a competing human interest--laziness!

So, while I have no doubt that the TechCrunch crowd wants to mash-up their own hardware, I wonder whether this will ever catch on with the general public.

Perhaps it will create a cottage industry of people who create hardware mash-ups for others for a living?

Social Graph (Mis)application

There is a rather heated exchange taking place between Robert Scoble and Danny Sullivan regarding the potential utility of using the social graph for improving the accuracy of search query results.

I haven't studied the matter enough to determine who is correct, but my general feeling is that there will be some applications that you will be able to improve dramatically using social graphs, and others where it will add little or no value.

Of course, this won't stop people from misapplying it.

It reminds me of when we got our first microwave oven and my mother tried to cook everything with it. As you know, microwaves are really good at cooking some kinds of food and terrible at cooking others. That didn't stop her. She tried it on everything.

There are a lot of people out there like my mother. They will try to use the social graph for everything, whether it makes sense or not.

Speaking of which, my apologies to those of you who read my quote in the Wall Street Journal yesterday.

Despite my best efforts to explain to the journalist that we were not investing in "social networks", he still characterized our "social graph" investment (which I was reluctant to describe in detail) as a social network.

It is embarrassing (Who is still investing in social networks?!), but I guess that I got away relatively unscathed!

Wall Street Journal

August 28, 2007

Brazil Propels Fotolog
Hi-Media Buys Into Action
By ANTONIO REGALADO
August 28, 2007; Page B9

Executives at Fotolog Inc. cheered in 2002 when they saw a surge in the number of people using their photo-sharing and social-networking Web site. Then they scratched their heads: The explosive growth was in Brazil.

Yesterday, New York-based Fotolog was acquired by Hi-Media Group, an Internet advertising firm based in Paris, for about $90 million, making it the latest acquisition of a social-networking Web site and the first one with a user base largely outside the U.S.

Social-networking sites, where users post profiles, chat or join communities, have become some of the hottest properties on the Internet, making up nearly half of the world's top 10 most-visited sites.

In the U.S., Facebook.com and Myspace.com are the best-known sites, drawing tens of millions of daily visitors. Now, with the U.S. market getting crowded, attention is turning overseas, particularly to emerging markets such as Latin America, where Internet use is increasing rapidly and competition is less intense.

The deal for Fotolog also is shedding light on Brazil's role as an arbiter of Internet success. With some of the world's most enthusiastic Internet users, the South American country is acting "as a leading indicator of future trends," said John Borthwick, Fotolog's chief executive officer and a former top technology executive at Time Warner Inc. and AOL.

Though little known in the U.S., Fotolog first took off in Brazil and has since become a hit in countries such as Chile and Argentina, where it ranks as the No. 1 or No. 2 Internet site, depending on the week. Users typically post only one picture a day but may spend several hours a month adding poems or commentary and leaving messages for friends.

Hi-Media yesterday said it would pay about $90 million, 75% of it in stock, to acquire Fotolog, which had previously raised $11 million from investors that included BV Capital and 3i Group PLC.

Other companies also are looking at Latin Internet users. This month, News Corp.'s Myspace launched Myspace Mexico, saying it was chasing the country's youth market. Two weeks ago, investors poured $30 million into Batanga, a social network for U.S. Latinos that centers on popular bands.

Interest in Latin America is being driven by favorable demographic trends. Only about 18% of the population has regular Internet access, but that figure is increasing quickly, spurred by the region's expanding middle class.

Surveys indicate that Brazil may have the world's most intensive Internet users. According to Neilsen/NetRatings, Brazilians with a home Internet connection use it 23.5 hours a month, more than any of the 10 countries in its survey, including the U.S. and Japan.

Many Internet services take off quickly in Brazil, giving the country an outsized influence. For instance, Microsoft Corp. recently said Brazilians account for 12% of the users of its MSN Messenger -- more than any other single country, including the U.S.

Yet Brazil also can present challenges. Google Inc.'s Orkut community is the top-rated site in Brazil, but it is hardly ever used in the U.S. Too many Brazilians may be part of the problem. "POSTS IN ENGLISH ONLY!!!" pleads one Orkut community for a niche Asian group.

Brazil's reputation as an Internet hotbed is beginning to draw an influx of capital. Venture-capital fund Draper Fisher Jurvetson recently started a satellite fund in Brazil, raising $40 million with a local group, FIR Capital Partners. Simon Olson, a manager at FIR, said the idea is to put Brazilian engineers to work with U.S. capital. The fund is backing a new social-network company, which it plans to unveil this fall, as well as biotechnology ventures.

Entrepreneurs interested in the region were encouraged this month by the initial public offering of shares of MercadoLibre Inc., a Buenos Aires company, which raised $333 million in an offering on the Nasdaq Stock Market and saw its stock almost double. The eBay-style company, founded by a graduate of Stanford's business school, is the top rated online auction site in Chile, Argentina and Brazil, where it generates most of its sales.

Still, it is difficult to make money from Web traffic in emerging markets. Not only is per-capita income low, but local advertisers still view the Web skeptically and prefer to advertise on television or billboards. Advertisers who do choose the Internet pay a fraction of the rates charged on U.S. sites.

The Fotolog site was launched in May 2002 by entrepreneurs Adam Seifer and Scott Heiferman and initially attracted a few users in New York and on the West Coast. But soon it caught the attention of Cora Rónai, a Brazilian journalist and blogger. Before long, the number of Brazilian users "just completely flooded" the site, said Mr. Seifer. At the time, Fotolog had only four employees in New York; the company didn't launch a Portuguese language version until this year.

Interest in Fotolog, which says it has spent nearly no money on marketing, continued to spread by word of mouth. In late 2003, it began taking off in Chile and later started expanding exponentially in Argentina and Mexico.

By early this year, the 25-person company's service had made the jump across the Atlantic to Spain and Portugal, where it has been expanding as much as 20% a month. Users also have been joining rapidly from Italy and Germany. That is when Hi-Media made an offer to buy the photo-sharing company.

Social Graph

We are well on our way towards making our first social graph investment.
Of course, we didn't call it that when we began the process six months ago.
Hopefully, I will be able to share details about this extraordinary company some time in the near future!

Why Bank Umbilical Cord Stem Cells?

In honor of Mother's Day, I thought that I would write a quick post on umbilical cord stem cells.

Stem cells, at their most basic level, are special cells which can be used to replace damaged cells in different parts of the body.

Generally speaking, when people talk about stem cells, they are usually talking about three different kinds of stem cells: embryonic, umbilical cord, and adult.

Some people object to the use of embryonic stem cells, but no one objects to the use of umbilical cord or adult stem cells.

Umbilical cord stem cells are harvested from umbilical cord blood at the time of birth. This usually yields enough stem cells to treat a child but not an adult.

Families with histories of certain genetic disorders which strike during infancy are encouraged to harvest and store their children's umbilical cord blood in hopes of having the stem cells available in the event of illness.

When you hear that an adult has been treated with stem cells, it is usually because doctors were able to find and aggregate enough matching stem cells from different donors to be able to treat them.

Due to the limited number of stem cells present, private banking of umbilical cord blood is really only effective if a disease strikes during childhood.

That said, it still makes sense to store your child's umbilical cord blood.

The reason is, that scientists are working on ways of increasing the number of stem cells harvested from umbilical cord blood. So, while umbilical cord blood does not typically yield enough stem cells to treat an adult today, it most probably will in the near future.

So, if any of you are pregnant or have friends who are, you might want to consider storing the babies' umbilical cord blood because there is a very real chance that, within the next few years, the technology will exist to treat the child, not only while he or she is young, but when they grow up, with stem cells harvested from their umbilical cords at the time of birth.

Happy Mother's Day! :)

UPDATE: Good news! On June 7th, the New York Times ran a story announcing that a Japanese scientist, Shinya Yamanaka of Kyoto University, has apparently figured out a way of reprogramming adult skin cells to create stem cells!!!! What this means is that, assuming they are able to replicate his techniques in humans, you will no longer need to store cord blood. It also means that those of us who were born before cord blood banking, will now be able to enjoy the benefits of stem cell therapy.

Draper Fisher Jurvetson Brazil

Dear Readers,

After months of hard work, we announced today our partnership with Draper Fisher Jurvetson!

I am really excited at the prospect of working with Tim, John, Steve, Andreas, Don, Nate and the rest of the DFJ team, as well as the various affiliate funds.

As my partner Guilherme mentions in the press release below, this marks the first time that a leading Silicon Valley venture capital firm has entered the Brazilian market.

It will be interesting to see whether other venture capital firms follow suit, entering Brazil as they did India and China.

Though I am going to save it for another post (which hopefully I will be able to do with more frequency now that the deal is closed), the fundamentals of the Brazilian venture capital market are particularly compelling.

From FIR Capital's perspective, DFJ's affiliate network model--seeking out and partnering with the strongest local partners worldwide--seemed like the right strategy.

If there is going to be another Skype or Baidu, the chances are that a member of the DFJ network will be involved.

Here is a copy of the press release:

Draper Fisher Jurvetson Launches Brazil-based Affiliate
May 10, 2007

Draper Fisher Jurvetson ("DFJ"), a leading international high-technology venture capital firm, announced today that they are opening a Brazil-based Affiliate in partnership with FIR Capital Partners, a pioneering early stage Brazilian venture capital firm.

This partnership is the newest addition to the DFJ Network. Over the past 16 years, DFJ has created a broad, collaborative network of venture capital partnerships. The DFJ Network is currently made up of more than 100 venture capital professionals, across 27 regions, with greater than 500 portfolio companies and over US$5 billion of capital under management. Recent DFJ Network successes include DivX, Skype, Mobile365 and Baidu.

The DFJ FIR Brazil Fund will enter the Brazilian market with an initial US$40 million fund, focused on funding extraordinary entrepreneurs with the vision to build leading global companies. "We are excited about this opportunity to create a strong presence in Brazil," said Tim Draper, Founder and Managing Director of DFJ. "Brazil is a leading emerging economy with favorable macroeconomics and a highly entrepreneurial culture that is creating a significant number of attractive high-tech investment opportunities. We are partnering with FIR Capital who has built the leading early stage venture capital fund in Brazil. The partnership with FIR Capital is key in our expansion into high growth, emerging markets."

"This marks the first time that a leading Silicon Valley venture capital firm has entered the Brazilian market," FIR Capital Partner Guilherme Emrich said.

"We believe that the partnership with DFJ will significantly expand our resources to assist Brazilian companies in accessing capital and business networks in the global market. DFJ's outstanding track record and extensive network will help us realize our vision of enhancing venture capital investing in Brazil", added FIR Capital Partner, Marcus Regueira.

The transaction, led by FIR Capital Partner Simon Olson, with the support of the entire FIR Capital team, took several months of intensive collaboration to close.

"This is a major victory for entrepreneurship in Brazil", an enthusiastic Olson remarked. "DFJ's entrance—consistent with their image as always being among the first to enter an emerging market—will go a long way toward helping Brazilian entrepreneurs access the world market."

As part of the agreement the two firms will launch a US$100 million fund, DFJ FIR Brazil Fund II, targeting offshore investors, which will invest in innovative Brazilian companies in high-growth industries.

About Draper Fisher Jurvetson

Draper Fisher Jurvetson is the leading venture capital firm with global presence through a network of affiliated funds, with offices in more than 30 cities around the world and more than $5 billion in capital commitments. DFJ's mission is to identify, serve and provide capital for extraordinary entrepreneurs anywhere who are determined to change the world. Over the past twenty years, DFJ has been proud to back approximately 500 companies across many sectors including such industry changing catalysts as Hotmail (acquired by MSFT), Baidu (BIDU), Skype (acquired by EBAY), United Online (UNTD), Overture (acquired by YHOO), Interwoven (IWOV), 411 (acquired by YHOO), Parametric (PMTC), and Digidesign (acquired by AVID). For more information, please visit: http://www.dfj.com

About FIR Capital Partners

Founded in 1999 by Marcus Regueira and Guilherme Emrich, FIR Capital Partners is a leading Brazil-based venture capital firm. FIR Capital’s flagship fund, Fundotec I, was one of the first venture capital funds in Brazil. FIR Capital’s successes include the sale of Akwan SA to Google (GOOG). For more information, please visit: http://www.fircapital.com