Venture Capital Thoughts and Reflections

Power.com in Revista Exame

The first time that I went to visit Power in Rio, I was amazed.

In six years of working in venture capital in Brazil, I had never seen a team like it.

Normally, engineers hire engineers, designers hire designers, business people hire business people, so you wind up with imbalanced, homogenous teams.

But Power was different.

Power had great engineers, designers, marketers, user interface experts, etc., and not only were they a well-balanced team, but every employee was at the top of his or her respective field.

Over the course of nearly two years, I had the pleasure of getting to know many of the Power team members and they became my friends.

And so, it was with a sense of happiness mixed with sadness that I greeted the publication of an article on Power last week in Revista Exame.

Happiness, in the sense that it appears that--after passing through an extremely difficult period--the company seems to be getting back on its feet--and sadness, in the sense that many people, including most of the ones that had so impressed me that first day in Rio, lost their jobs.

Was it the economy?  Government rules and regulations?  The board?  The investors? The management team? The employees?

One of the original ideas behind Power was to distinguish the company by treating its employees better than the typical Brazilian company, enabling Power to aggregate talent in a way that would be impossible to replicate elsewhere.

As the company emerges from its troubles to reclaim its rightful title as a global industry leader, lets hope that this painful lesson is never forgotten.

A Bahia de todos os sites

Filho de indianos, o canadense Steve Vachani escolheu Salvador para sediar a Power.com - empresa que reúne num só lugar o acesso a alguns dos maiores portais de relacionamento do mundo

Steve Vachani

Steve Vachani, fundador e presidente da Power.com

 

Por João Werner Grando | 16.04.2009 | 00h01

Revista EXAME -

Um recado recebido pelo Orkut mudou a vida do canadense Steve Vachani numa madrugada de maio de 2006. À primeira vista era apenas mais um convite para uma festa no Rio de Janeiro, onde ele morava havia três anos. Um detalhe, porém, chamou sua atenção: a marca "torperkut" no pé da mensagem e a indicação de que aquele mesmo convite havia sido enviado a centenas de usuários de uma só vez. Curioso para encontrar o dono da tecnologia, Vachani vasculhou o site de registro de domínios da internet até chegar ao engenheiro de software paulista Eric Santos, que morava em Salvador. Na semana seguinte os dois já acertavam os detalhes da formação de uma nova empresa, a Power.com, com a proposta de reunir num único lugar o acesso a várias redes sociais. Desde seu lançamento, em dezembro do ano passado, 6,5 milhões de pessoas se cadastraram na plataforma - brasileiros e indianos, principalmente. Trata-se de um universo equivalente a 9,5% dos usuários do Orkut em todo o mundo. Hoje, o site integra redes sociais como Orkut, LinkedIn, MySpace, Twitter e Hi5. Na prática, isso significa que um usuário pode enviar uma mensagem a seus contatos nas diferentes redes ou mudar a foto do perfil de todas de uma só vez - tudo isso acessando apenas uma tela em vez de entrar em cada site separadamente. "Queremos ser a primeira empresa de internet global com sede no Brasil", afirma Vachani.

Aos 34 anos, Vachani não é um empreendedor novato no mundo da internet. Tampouco lembra o estereótipo de um aficionado de tecnologia, a começar pela formação acadêmica - que não tem nada a ver com computação. Filho de indianos e nascido no Canadá, ele se formou em ciência política e administração em Berkeley, na Califórnia. A proximidade com o ambiente efervescente do Vale do Silício durante a graduação o estimulou a empreender. Em 1996, criou o Freelotto, site de loteria pela internet do qual ainda é um dos donos e que tem entre os sócios o banco BNP Paribas. Dois anos mais tarde, fundou a Qool Media, empresa de marketing online, que não resistiu ao estouro da bolha da internet e faliu, em 2003. Logo em seguida, Vachani se mudou para o Brasil. O que era para ser um ano sabático resultou em sua companhia mais promissora. Em 2007, a Power.com recebeu 6,5 milhões de dólares do fundo de venture capital americano Draper Fisher Jurvetson, o mesmo que apostou nas então iniciantes Hotmail, em 1996, e Skype, em 2004. No ano passado, a proposta da Power.com incomodou o Facebook, maior rede social do planeta, que ameaçou iniciar uma briga judicial para impedir o uso de sua base de usuários. A polêmica repercutiu em reportagens publicadas pelo jornal The New York Times e pela revista Business Week. "O modelo desenvolvido pela Power.com para interconexão entre sites é a próxima tendência da internet", diz o americano Simon Olson, sócio-diretor da Fircapital, venture capital brasileira responsável por conduzir as negociações com o fundo americano Draper.

Com o crescimento das redes sociais, especialistas preveem agora a proliferação de portais capazes de reunir o acesso ao conteúdo e os contatos desses vários sites num único lugar. O próximo passo, segundo Vachani, é expandir a conexão das redes sociais com outros tipos de site, como fóruns de discussão. Dessa forma, um usuário que entrar num portal de discussão, por exemplo, não precisará criar uma conta para se cadastrar - poderá simplesmente usar a senha de uma rede social e suas informações serão automaticamente reconhecidas. Por enquanto, o modelo de negócios prevê faturamento de publicidade online. "O faturamento ainda não é relevante", diz o empreendedor. Mas, nos próximos meses, Vachani quer tornar viável outra fonte de receitas: o licenciamento da mesma tecnologia usada para unificar dados de portais de relacionamento para que grandes empresas integrem suas próprias bases de dados de informações de clientes.

A nova empresa ainda depende de diversos fatores para vingar - e o lançamento em meio à crise já atrasou seus planos de expansão. Investimentos adicionais secaram e o quadro de pessoal foi reduzido de 89 para 27 funcionários. O corte poupou profissionais responsáveis pelo desenvolvimento de tecnologia. Parte da equipe trabalha em casa, no Rio de Janeiro - e os demais no escritório de 100 metros quadrados da Power.com, em Salvador. Mesmo assim, no início de abril, Vachani embarcou para os Estados Unidos para acertar a abertura de escritórios em Nova York e São Francisco. Nessas cidades ele já contratou cerca de dez profissionais, sobretudo para realizar vendas de anúncios. "Precisamos estar presentes nos principais mercados do mundo para captar recursos assim que o cenário melhorar", diz Vachani. Mesmo resolvendo o problema de escassez de recursos, a Power.com ainda terá pela frente o desafio de se impor entre empresas consolidadas no mercado. Google, Microsoft e Yahoo! também estão desenvolvendo mecanismos próprios de interconexão de sites. Vachani diz não temer ser esmagado pela reação de gigantes. "Não dá para impedir que os usuários tenham controle sobre suas próprias informações e queiram transferi-las para sites como o Power.com", afirma ele. O investidor Olson, da Fircapital, também tem seu palpite: "Ninguém imaginava que algo grande como o Skype pudesse ser criado por engenheiros num lugar como a Estônia. A queda das fronteiras geográficas permite que modelos inovadores apareçam quando e onde menos se espera."

http://portalexame.abril.com.br/revista/exame/edicoes/0941/tecnologia/bahia-todos-sites-449544.html

Lessig for Supreme Court

I just heard that Associate United States Supreme Court Justice David Souter is going to retire.

This means that President Obama will have the opportunity to appoint someone new.

I know who my first pick would be: Larry Lessig.

Those of you unfamiliar with the name can read more about him here.

I once had the pleasure of hearing Lessig speak at the Free Speech & Economic Power Symposium at Northwestern University School of Law.

He was on a panel with some of the nation's other eminent legal scholars and I watched him elegantly defeat them with his opening statement.

It wasn't that he dispatched their arguments head on, I don't even remember if he addressed them.

It was that his approach to the problem was so novel that it was literally, astounding.

He won by default.

It was obvious to everyone that the other scholars, titans in their own right, were completely outgunned.

His intelligence is supra-human.

Anyway, I don't know what his politics are, but at least we can be sure that he is smart.

How the World's Best Trader's Master Risk

Today I was flattered to learn that my friend and former business partner, Curtis Faith, included some of my thoughts in his latest book, Inside the Mind of the Turtles: How the World's Best Traders Master Risk.

Curtis is a former member of Richard Dennis and William Eckhardt's famous group of 'trend-follower" style traders, the Turtles, and his new book is about how great traders respond to risk.

I haven't seen the book yet, but according to Amazon.com's Editorial Review, "You'll find valuable advice not only from Faith, but from some of the greatest financial minds on the scene today, including fellow Turtle Jerry Parker, venture capitalist Simon Olson, and Howard Lindzon, founder of the popular Web site WallStrip."

While I wouldn't characterize myself as "one of the greatest financial minds on the scene today" (a phrase that I would reserve for Nicholas Nassim Taleb, Alan Howard, and a handful of others), I am definitely interested in the management of risk.

From what I can remember, my comments were related to the fact that you can't avoid risk, but that you can take definitive steps to skew the odds in your favor.

Anyway, if you are interested in learning more, buy a copy of Curtis' book! :)

Sustainability of the New Economy?

As the latest wave of irrational exuberance recedes, leaving in its wake issues that were, not so much unseen dangers lurking beneath the surface, as real assets artificially buoyed beyond all proportion to unreasonable heights, I had a particularly scary thought.

What if the growth in PC penetration, Internet usage, broadband adoption, ecommerce, mobile device usage, and other cornerstones of the "new economy" were, not the signs of progress and digital literacy that we congratulated ourselves on, but, like auto sales and sub-prime mortgages, manifestations of our artificially inflated, unsustainable, levels of consumption?

So, for example, we are now all painfully familiar with images of neighborhoods inundated with for-sale signs, parking lots filled with unsold cars, planes being stockpiled in the desert, and super tankers parked at sea.

What if the same phenomena will be true for "new economy" goods and services?

Were people's purchasing habits on Amazon and Ebay unsustainable?

How about their broadband subscriptions?  Purchases of computers and mobile devices?  Or, more close to home, their subscriptions to premium services on Web 2.0 sites?

There are compelling reasons to believe that many of these "new economy" goods and services were not artificially inflated, and may even increase during a downturn, but if they were over-inflated to a similar extent as their old economy brethren, we are in big trouble!

Survival Guide

I have been getting lots of requests for, and inquires about, the Survival Guide that I wrote, so I thought that I would post a little background about its origin.

On September 23rd, 2008, I sent the following email to the DFJ Network:

------ Forwarded Message

From: Simon Olson 

Date: Tue, 23 Sep 2008 18:57:31 -0200

To: DFJ Network

Conversation: DFJ Guide to Navigating a Challenging Environment?

Subject: DFJ Guide to Navigating a Challenging Environment?

Dear All,

In light of the recent instability in global financial markets, how about putting together a short guide for portfolio company CEOs on "Navigating a Challenging Environment" (or words to that effect)?

As you may know, some of our portfolio company CEOs were not active during the last downturn, hence they may not know all of the tricks to managing difficult times.

Rather than leaving them to their own devices or attempting to help them seriatim, compiling a collection of tips from around the Network and turning them into a short guide might be a scalable way of dealing with the situation.

Unless someone else wants to do it, I am willing to compile the tips, edit them into a document, and share the completed guide with all participating firms.

So, if anyone has any tips, please email them to me (I have included a few samples below).

As always, this is intended to be a group effort with value accruing to the Network, rather than any one individual or firm.

Thanks!

Kind regards,

Simon 

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

Sample observations:

- in a difficult environment, focus on clients that will spend money no matter what, ex. When the Dot Com bubble burst, IDEO shifted from doing projects for large corporations to assignments for NASA. 

- in an economic downturn, large public companies will normally only acquire companies that are profitable or breaking even.  As much as they may want market share, they don't want to dilute their numbers with someone else's losses.  So, if you plan to sell your company, do whatever you can to get to break-even.

- don't forget the second half of the demand question, i.e. The question is not just, "Does a customer need my product/service?", but also, "Do they have the money to pay for it?"

------ End of Forwarded Message

In response to my inquiry, I received about nine emails from DFJ Network members, five of which said essentially the same thing: lower the company's burn rate.

While the tips were excellent, they were not enough to produce a comprehensive document, so I started investigating the various ways of helping start-ups survive an economic crisis. 

In the meantime, Sequoia, Bill Gurley, and Ron Conway came out with their respective contributions, removing any sense of urgency.

Since their works did such an excellent job of explaining the crisis and outlining defensive measures for start-ups, I tried to take the survival guide in a slightly different direction.

Specifically, I tried to dig a little further beneath the surface--reiterating many of the defensive strategies that they suggested, while explaining how to actually put them into practice.

So, for example, instead of saying, "lower your burn rate by reducing your head count", the Survival Guide goes one step further, explaining how to figure out who to let go, and how to conduct the process.

I hope that the Survival Guide succeeds in helping entrepreneurs and CEOs execute.

If nothing else, at least people will learn how to survive a rip tide!

 

Links:

http://drop.io/survivalguide 

http://www.slideshare.net/simonolson/survival-guide-presentation

Collective Intelligence Meets Personalized Medicine

The falling cost of genetic screening, with its ability to uncover individual genetic information, has led to a rise in interest in personalized medicine.

Traditional medicine, as it is practiced today, relies on a one-size-fits-all approach.  

Typically, only half of the people receiving a particular medication actually benefit from it.

The idea behind personalized medicine is that, by knowing more about your genetic background, you will be able to receive treatment that benefits someone with your individual characteristics, yielding a higher quality outcome and avoiding unnecessary medicine and side effects.

One of the problems, however, lies in getting access to a large enough pool of personal, genetic data in order to be able to determine optimal treatment.

Specifically, people are reluctant to share their genetic information for fear that insurance companies will use the information to raise premiums or, worse yet, refuse coverage.

In order to have any real value, however, scientists need a large pool of genetic information in order to determine optimal treatment (i.e. the value of the community increases with the amount of data).

How do you aggregate individual genetic information, enabling researchers to draw necessary conclusions, while preserving anonymity?

Think Wesabe.

Wesabe is a money management tool/community/site that anonymously aggregates user's financial data, then harnesses the users' data to generate money saving tips and recommendations.

Perhaps people can do with their personal genetic information, what they do with their personal financial data?

Specifically, in order to unlock the power of personalized medicine, someone should create a Wesabe-type site which anonymously aggregates and analyzes personal genetic information, then automatically generates tips and recommendations that will benefit all of the site's users.

Career Advice for Coping with the Downturn

When I graduated from college, in the wake of the Drexel Burnham Lambert crisis, the economy was awful and I was unable to find a job.

Instead of readjusting my expectations, I tried to work on Wall Street and, while I eventually landed something, it was not a very pleasant experience.

So, if I could share three pieces of career advice for coping with the downturn, it would be:

(1) Reset your expectations: don’t attempt to chase after yesterday’s top career choices.

(2) Look for new areas of growth: instead of Web 2.0, private equity, or hedge funds, try to find a new growth area.

(3) If there are no strong growth areas, don’t beat yourself up trying to chase after something that isn’t there anymore, do something that will add to your skill set (ex. go teach English in China and learn Mandarin; work on an ethanol project in Colombia, etc.).  When the economy turns around, you can go back to chasing your dream and your newly earned skills will make you more attractive to potential employers.

Good luck!

Is there a silver lining lurking among the clouds?

Unquestionably, current market instability and the resulting economic slowdown are likely to make life more difficult for everyone.

Consumer spending will be radically lower, corporate spending will be curtailed, capital will become scarce, and liquidity events, if they occur at all, will be fewer and father between, at lower valuations.

But is there a silver lining lurking among the clouds?

A few thoughts:

Recruiting should become easier, since there will be fewer companies competing for a larger pool of applicants.

The quality of entrepreneur/venture capitalist relationships should improve, since the pace of decision-making is likely to be less frenetic, giving entrepreneurs and venture capitalists more time to get to know each other.

Competition should revert to normal levels with fewer duplicative companies likely to be funded, i.e. There won't be 100 video sites, 30 of which with upwards of US$25 million in funding.

Valuations are likely to be more rational, since there will be less money from non-traditional players, like hedge funds and private equity firms, artificially inflating valuations.  This will prevent companies from falling into the valuation trap and allow them to maintain flexibility.

So, while things will be bad, there will also be a positive side to the economic readjustment taking place.

Non-Correlation Myth

Before the recent market upheaval, it was common to hear people remark that, unlike past events such as the 1997 Asian financial crisis, which triggered a massive sell-off around the globe, markets would no longer fall in tandem due to an increasing sophistication among investors.

Unfortunately, while investors may have become more sophisticated in terms of their ability to distinguish between markets, the links between global economies have simultaneously grown stronger, linking them more closely than ever.

Take the current crisis in the United States.

The inability of US consumers to continue buying goods, means that production will slow in China, which in turn means that sales of natural resources in Brazil (purchased by the Chinese to manufacture the goods) will slow, dragging down the Chinese and Brazilian economies.

So, while investors may have grown more sophisticated in their reluctance to paint all emerging markets with the same brush, any gain in investor sophistication has been more than off-set by a strengthening of ties between economies. 

Draper Fisher Jurvetson In the News

On Tuesday, my DFJ colleagues and I were featured in an article that appeared in USA Today, the highest circulation daily in the United States (see below).

The author did a good job of explaining the DFJ Network concept, but did not, at least in my opinion, go far enough in explaining the logic behind the model.

Successful venture-backed companies such as Google, Skype, Baidu, and YouTube are the ‘rogue waves’ of venture capital.  

In order to capture these statistical outliers, you need to cast as wide a net as possible.  

One way of doing so is to create a global network of venture capital funds, hence the value of the DFJ network.  

If there is going to be a Skype or Baidu anywhere in the world, the odds are that DFJ, through its global fund network, will be an investor.

Antonio Regalado from the Wall Street Journal took me to task in the comments section of this blog the last time that I complained about press coverage, so this time I am going to keep quiet! ;)

Venture-capital firm transforms global start-ups

By Edward Iwata, USA TODAY

MENLO PARK, Calif. — A decade ago, skeptics scoffed at Draper Fisher Jurvetson's growing affair with entrepreneurs in faraway lands. The large venture-capital firm was pouring millions of dollars into start-ups abroad, and some rivals didn't get it. Why fly overseas when there were so many investment opportunities in Silicon Valley?

But the mavericks at DFJ saw powerful forces converging. The world's economy and financial markets kept growing. Technology was leaping across borders. Visionary entrepreneurs were emerging on all continents.

The long-run global bet by DFJ is paying off. Today, DFJ boasts a network of 20 "partner funds" in Asia, Europe, the Middle East and Latin America, with 160 professionals managing $6 billion in start-up investments.

"People are creating companies all over the world," says DFJ managing director Don Wood, a Stanford MBA who oversees the funds with director Elizabeth Clarkson, a Harvard MBA. "We're building a global brand, and we're doing it collectively."

Over the past half-century, venture capitalists and start-ups in Silicon Valley have revolutionized much of the U.S. economy by launching new technologies in the electronics, computer, software and Internet industries.

Now, DFJ is revolutionizing global start-up financing with what it calls its "federation of independent funds," a kind of United Nations of venture funds.

Early successes

As a global investor, DFJ has in recent years cashed in on two well-known start-ups: Skype, the European Internet phone firm bought by eBay for $2.5 billion in 2005, and Baidu.com, China's largest search engine company, which went public on Nasdaq three years ago and enjoys $9 billion in stock market value.

But since joining forces with its overseas partners, DFJ and its related funds rule the international venture scene. They've invested in more than 90 start-ups in 2007, according to Thomson Reuters and Dow Jones VentureOne, edging out Intel Capital, NEA and other U.S. rivals.

Their global push comes as the U.S. economy matures and as U.S. financial markets have dried up for start-up acquisitions and initial public offerings, or selling a start-up's shares on the stock market. At the same time, the economies and markets for IPOs and acquisitions in other countries are expected to grow at a faster pace than in the USA.

With investments in 26 countries from Brazil to South Africa, the DFJ funds focus on start-ups in clean energy, life sciences, semiconductors, information technology and nanotechnology.

One of the most promising funds is DFJ Athena in Seoul, run by managing director Perry Ha, a Harvard MBA and tae kwon do martial arts instructor. Ha founded a small fund in Silicon Valley before teaming last year with DFJ.

Ha, 45, is bullish on South Korea, whose 50 million consumers embraced the high-speed Internet and new mobile devices several years before the USA and Europe did. Ha says South Korean start-ups are well-positioned to work with Samsung, LG Electronics and other global South Korean corporate giants.

The DFJ Athena fund has invested $100 million mostly in South Korea-based start-ups such as Call Gate, which is developing technology that will let consumers call a company or person's telephone number and instantly see website-like features and online data on their mobile device screens.

"Technology applications cut across borders so much that you can't help but invest around the world," Ha says.

DFJ's partner funds were created a few years ago, when DFJ sought investments outside Silicon Valley and created independent venture funds that focused regionally on start-ups from Alaska to New York.

Then DFJ co-founder Tim Draper and his colleagues realized that the partner-fund model could work globally — with powerful benefits. Foreign venture capitalists use the well-known DFJ brand and resources to raise money from investors, while DFJ gains from the cross-cultural know-how and business and political contacts of their overseas partners. Often, a U.S.-style venture fund is the last missing piece to launch strong start-ups.

In Russia, for one, the DFJ-VTB Aurora fund sees a fast-growing entrepreneurial class, R&D centers, innovative technologies and ample financial resources.

"All the ingredients seem to be there," says managing director Alexandra Johnson in an e-mail. "The only factor missing is a venture fund structured similar to the best Silicon Valley funds. We plan to be that fund."

The overseas venture capitalists know their turfs better than DFJ does, so they choose and invest in start-ups without meddling from the mother ship.

"Each partnership has autonomy to build and manage their VC partnership in accordance with local needs, but also can provide global support," says Simon Cook, managing partner of DFJ Esprit in London, in an e-mail.

Flexibility's value

Simon Olson, a DFJ FIR Capital partner in São Paulo, Brazil, e-mails: "If you try to take the U.S. model and superimpose it on a foreign market, you will lose your shirt."

DFJ touts the power of its network, calling it a giant Rolodex or a LinkedIn for their industry. "You could introduce your entrepreneur to everybody and anybody around the world," Draper says.

The venture capitalists speak many languages, but business is conducted in English. They talk often during dinners, conference calls and a yearly gathering called MegaWeek. The next one is this fall at an ocean-view Ritz-Carlton hotel near Silicon Valley.

Among other cross-border business advantages, DFJ partners "can quickly check any prospective portfolio investment against comparable companies anywhere in the world through DFJ's global intelligence network," says managing director Andy Tang of DFJ DragonFund in Shanghai, in an e-mail.

Start-ups can take up to 10 years to go public or get sold, so it's too early to gauge the investment returns of DFJ-branded funds. DFJ executives say deal flow is strong, with the deals increasing for funds after they join DFJ.

Like other international investors, DFJ hunts for countries with rising economies and consumer markets, low political risk, good universities and a talent pool of entrepreneurs.

Fast results

At DFJ Tamir Fishman Ventures, a Tel Aviv, Israel-based firm with $200 million under management, partners landed several new deals and clients within months of joining DFJ's network.

Moshe Levin, managing general partner at the firm, says in an e-mail that DFJ partners share in-depth information on market and technology trends and business obstacles and opportunities.

To crack into the lucrative South Korean market, the Israeli venture capitalists and one of their start-ups, a chip manufacturer, worked recently with DFJ's South Korea fund to meet executives of a leading South Korean telecom firm for a potential project.

"So much for language and cultural barriers," Levin says.

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!