UPDATE NOTE: January 19, 2015:
The original post below was written in 2011. In that article I discussed the concept of venture production studios as a model — what are now being called “startup studios.”
I actively incubated 7 “ventures” starting in 2011 (not including a number of angel investments that I made but did not actively incubate to this degree), using my venture studio model.
Since that time there have been several developments of note:
- My Klout exit was definitely a giant homerun from an ROI perspective for me as an investor. Very pleased with the outcome there. The founding team did an amazing job getting that to an exit.
- Live Matrix was acquired by OVGuide, the leading independent video portal. The company is growing revenues and users steadily under (my Live Matrix co-founder) Sanjay Reddy’s guidance — and I’m optimistic about the future there.
2 Companies with Multiple Up Venture Rounds + Growth:
- Bottlenose has raised several significant funding rounds, most recently from KPMG Capital, and continues to grow into a potentially important company in the big data and analytics space. Because Bottlenose was directly in my wheelhouse I ended up taking an active role as CEO there.
- The Daily Dot, under the guidance of my co-founder and CEO, Nicholas White, raised significant venture funding rounds, and now reaches over 20M monthly readers: it is on track to hit 40M readers in 2015 – making it among the fastest growing online publications in history (beating historical 36-month audience growth of many top media brands like the Huffington Post and others).
- StreamGlider didn’t make it — in part due to the tragic loss of Bill McDaniel, the CEO/CTO of that project, who passed away in 2014 from a battle with cancer. It’s a sad loss for us, but Bill’s work and vision were groundbreaking and I’m proud of what the team built under his guidance. (Note: StreamGlider is looking for a buyer for the (still quite awesome) platform and app; if anyone is interested in that, please reach out to me).
1 Long-Term, R&D Science Project:
- “Project Nikola” (Energy Magnification Corporation) continues to do R&D on its potentially world-changing new electricity platform technology, but has not yet been ready for outside venture funding.
1 Pro-Bono Data Project:
- The Earth Dashboard continues as a non-profit.
So out of 7 projects that I seed-funded and helped to start, there were 2 exits so far, 2 successful ventures that continue to grow and raise further funding rounds, 1 that didn’t make it, 1 slow R&D effort, and 1 that continues as a non-profit. So that’s not a bad ratio in fact — still much better than the 1 in 10 ratio of big VC funds. )
Bottlenose became so all-consuming for me, that other than angel investing in a number of interesting companies and advising several others, I haven’t originated or co-founded anything new during this period.
Ultimately I think that it would certainly be possible to raise further funding to grow my “startup studio” further, and it’s been a dream of mine to do that eventually – but for the time being I think there’s still more work to do to bring the current portfolio to fruition. So that is still my current focus.
ORIGINAL POST IS BELOW THIS LINE
I’m writing this post since many of my friends and colleagues have gotten wind of some news and asked me what I’m up to. This is just the first in a series of articles I’ll be writing on this topic.
In a nutshell, I’ve been working behind the scenes for the last year to co-found and angel invest in a number of exciting new ventures. Several of these ventures will be launching soon, and so it’s time to begin telling the story of what they do, and the big idea behind them: a new approach to building startups that borrows from how Hollywood produces movies.
And in keeping with this, I’ve moved with my wife Kimberly Rubin (a TV producer with 11 movies to her credit), from San Francisco to Los Angeles, where Hollywood production studios began. I believe LA is a great place to build this concept out.
I call this new model of venture incubation the “production studio model” and in this approach I work as a producer of ventures, not merely a founder or angel investor.
As well as being a better fit for the needs of early stage startups than the typical angel investor or VC approach, the production studio model has enabled me to start a number of really excellent ventures, for less cost, in less time, than I ever thought possible.
But before I go into more detail about the model, here is the current portfolio of companies that I am actively producing. With the exception of Live Matrix and Klout (which were started earlier), all of these companies were started in the last year and will be launching soon:
- Live Matrix — The schedule of the Web. Live Matrix is the only guide to what’s happening, when, online – across all media types (video, audio, chat, gaming, shopping, and more). I co-founded and seed-funded this venture with CEO, Sanjay Reddy, and I continue to incubate it and actively participate, in the same way as I have since we began, by serving on the board and helping on product strategy, marketing and technology. Live Matrix is launched and busy making deals and launching new features. More news coming soon. (UPDATE: Sold to OVGuide)
- Klout — Klout is the standard for measuring influence. I discovered the company when I was a judge at the SXSW Accelerator in 2009. I was really impressed with the founders and soon became the company’s first outside investor. Since then I have served actively as an advisor to the company. They recently raised a terrific venture round with Kleiner Perkins and are off to the races. (UPDATE: Sold to Lithium)
- Bottlenose — You’ll be hearing a lot about this venture soon. I co-founded this company with Dominiek ter Heide. As well as seed-funding the company, I’m taking an increasingly active role in helping to build this company. (UPDATE: See company site for more info on funding and growth)
- The Daily Dot — The Daily Dot is a new online newspaper about the Web, for consumers. Most of the coverage of the Web today is targeted at the tech industry, a tiny fraction of the audience, but the Daily Dot will cover the Web for the majority of the audience: consumers who spend much of their day, every day, online. The Daily Dot hasn’t launched yet but it’s going to be an exciting company. I co-founded it with newspaper-industry CEO, Nicholas White and co-founder Josh Jones-Dilworth. More news will be coming out soon! (UPDATE: As of January 2015, The Daily Dot has more than 20 million monthly readers and is growing fast!)
- StreamGlider — StreamGlider is a new visual real-time dashboard for tracking interests across various types of devices, starting with the iPad. It’s got a gorgeous user-interface and some novel features that are especially suited to keeping up with streams of rich media. I co-founded this venture with two leading technologists in the information filtering and semantics space, Bill McDaniel and John Breslin. This will be launching soon as well. More news will be available at launch.(UPDATE: On hold, see notes above)
- “Project Nikola” This new venture has a breakthrough new energy technology and is totally in stealth. This isn’t even its real name; even that is a secret, for now. What I can say currently is that it really works, it’s mind-blowingly cool and just may disrupt the entire power grid someday. But there’s still a lot of R&D to do before we release it. (UPDATE: As of 2015, R&D continues actively; funded internally by the original investors and me)
- The Earth Dashboard. This is a not-for-profit initiative (yes, I sometimes help produce game-changing nonprofits too) that is working to create an interactive live dashboard about the state of the planet that brings together, and visualizes, all the key global indicators, in one place for the first time. This project is led by Medard Gabel, who worked with Buckminster Fuller, and the creative director is Mia Hanak and her accomplished museum exhibit design team. The Dashboard will be available online as well as in major physical public locations around the globe. (UPDATE: Continues as a non-profit; site is online)
Several of these companies have a common thread – and a common passion for me — they are focused on helping people filter the Web and big data in potentially disruptive ways. Some are using “Big Data” analytics, data mining and extraction, natural language processing, machine learning and semantics, to understand the Web. These are areas that I am deeply familiar with from my many years working around information filtering, AI and search. The Nikola project is an exception — it is outside of the Internet space but springs from a multi-decade interest I’ve had in radical alternative energy technologies.
A History of Incubation
Since 1994, I’ve been involved in starting companies as an entrepreneur, and since 2000 I’ve also been an angel investor. Through incubating numerous ventures (my own and those I’ve angel invested in), I’ve gained some experience into the art of incubating startups.
But one of the best experiences I had was starting one of the more successful incubators, nVention, at SRI, which I conceived of and co-founded with Norman Winarsky (now head of ventures at SRI) in 1999. nVention is now global and has launched more than 40 ventures.
Unlike many incubators, nVention acts in a very hands-on way. First of all, most of nVention’s work focuses around creating ventures to commercialize intellectual property that was originated at SRI. Secondly, nVention bring teams of internal and external experts together to help incubate its companies from concept stage through commercialization. In effect, nVention acts like a production studio, and the people who work there function like producers. It’s a model I’m emulating, albeit in a more grassroots and distributed way.
The Venture Production Model
As a producer, I work actively to develop new original intellectual property, or to source it from great innovators, and then I angel invest and/or bring funding to the deal, shape products and strategies, build teams, invent and develop products, and actively grow companies and take them to market. In many cases, the ventures I’m producing are originated by me, but I also have several ventures in my portfolio that were originated by others, or in partnership with others.
The key to this approach is that I usually get involved at or even before concept stage — even before there is a real team — and I actively work to shape it into a venture, from concept through commercialization.
To accomplish this, across more than one venture at a time, I partner with excellent people to co-produce these companies. In some cases I act as the startup CEO, in other cases my partners do, or we find and partner with the right person to be CEO. Often I find myself partnering with entrepreneurs and helping to coach them to be CEO’s. But in all of these cases, we focus on producing ventures together, as a team. And we’re all in it for the long-term. Because I’ve found excellent partners to work with, including excellent CEO’s where needed, I’m personally able to focus more intensively on helping each venture. This has worked very well so far.
The production approach to venture creation is quite different from the “fire and forget” or “spray and pay” (or “pay and pray”) model that many VC’s and angel investors are engaging in. Instead of spreading lots of fairly hands-off bets across dozens of companies, in the production model I really focus and get deeply hands-on with a pipeline of projects of various stages.
This the opposite of the index fund or hedge fund approach that some funds are taking in the Valley. And I think it is a much better fit for the needs of early stage companies.
The production approach is also different from what many incubators and start-up accelerators are doing these days. Incubators and accelerators play an important role in the startup ecosystem, but the key difference is that in the Hollywood-inspired production model I’m testing, I often start earlier in the process – before there is a concept, company, product, CEO or even a team. Many incubators and accelerators start later in the process.
Here’s how it works. My associates and I source candidate ideas both from our own stream of inventions, as well as from people in our network, and from other innovators we find or who find us. Next we “option” the best ideas with joint R&D agreements and/or with initial prototype funding to test them out. We then filter these prototypes and choose the best ones to produce.
We then form companies, build teams, develop business plans, branding and strategy, and bring additional funding together to develop the commercial offerings, launch, market, and grow them into full ventures. It’s a very hands-on process – and just like movie production, and we usually have a number of projects going on at each stage in our pipeline at once.
The process is similar to producing a film. With a film, first you have to create or find the story, then hire writers and a director, recruit talent, and build a production team, get the financing and early distribution deals in place, shoot the film, do post-production, get broader distribution, market the film and release it. In the early stages of companies, we all wear many hats, and as they grow, we specialize. In my own case, I assume different roles and levels of involvement according to the needs of the ventures as they grow.
The New Role of the Producer in Tech
A key to this process is really in understanding the new role of a producer in the venture world. It’s not exactly the same as the role of an angel or VC, or an EIR, or even a typical “superhero CEO.” It’s a new role that connects them all together.
Another key is having a model that is designed to attract excellent producers and talent to team up with. To do that, I’m working with a structure that gives my partners a better opportunity than they can find anywhere else. Whether it is an externally or internally originated venture, the model I’m working with is, by far, the most entrepreneur-friendly deal in the entire industry.
In most of my ventures today I take a minority, or at most, an equal partner position, with my cofounders – even in the ventures I originated and funded. In some of the ventures I have angel funded, I have continued to maintain the original equity split with my co-founders, even as the amount of funding I have contributed has increased over time. Where other angels and VC’s take the approach that money is everything, I take the exact opposite view. Talent is everything. Talent is rare, and it’s the lifeblood of ventures. I don’t believe it is healthy for any company to have the investors take control away from founders — too often that results in disaster. My model is all about cultivating and facilitating the founders.
Why do I do this? Because I believe that you get the best out of people when they really feel they own their venture, and when they feel respected and valued for their contributions. Part of this is because as an entrepreneur myself I have experienced life on the other side. I know intimately what it is to be an entrepreneur, and I know how some VC’s, and even some angels, take advantage of entrepreneurs and founders, suck the life out of companies, and destroy businesses by over-controlling them, and I vowed NOT to be like that.
The terms I offer are the same terms I always wanted for myself. No bullshit and no games. We all succeed or fail together. It’s a true partnership. I’m not betting the odds across dozens of companies and expecting only 1 or 2 to survive; I’m NOT doing shotgun investing like most angels out there, I’m making extremely careful, extremely deeply involved long-term commitments to build companies side-by-side with my partners. And I don’t just talk about this, I do it – my model reflects this.
At the same time, I also spend money in a different way than angels or VC’s. For example, in many of my projects I’ll start on spec with a developer and an idea. No money is initially invested. They work on the idea and prove they have the goods. Then if that works, there is a small grant to “option” it and we develop it further, much like a production studio options a story. I then work with the technical or product teams to see what they can deliver with this initial grant – usually a prototype. This is a test.
If the test goes well and progress is good, we make a production deal in which money, and time, are invested in stages, by myself and others in my network, as needed, rather than all at once. We’re not talking about huge dollar investments early-on, it’s frugal and careful, but it’s enough, and it’s extremely value-added. Later in the process, when the time is right, more money can be brought to work.
Building out the Production Studio
Another way I help my portfolio companies is by bringing pre-negotiated deals with handpicked best-of-breed vendors for many of the services they need. I bring the top law firms and patent teams, the best PR and marketing teams in the business, and accounting and HR services, from partners I know and trust. This saves ventures valuable time and money, and protects them from making early mistakes.
Once the ventures are aimed at a clear target and have something to show, we go together to other angels and venture funds in my network to raise the roll-out money. There’s no reason to give up equity until we need to. The result is that entrepreneurs who work with me end up owning bigger stakes of their ventures than they would if they worked with traditional angels and VC’s.
On the investment side, I’ve been meeting with interesting angel investors – some are pros and some are new to this – and we’re teaming up to jointly fund these ventures together. By working with a production team such as mine, angel investors can put their money to work with less hands-on effort on their parts – because we’re doing the production work for them. That doesn’t mean they aren’t involved – we consult with them as much as they want and we actively solicit their feedback and ideas at every step — but it means they can have confidence that an experienced team is doing the groundwork day-to-day. By working with producers like myself and my team, angels and funds can spread their bets without being spread too thin. If you’re an angel investor, or even a VC, and you’re curious about working with our network, drop me a line.
On my own side, of course, I have to be very picky about what ventures I get involved with, so that I and my team are not spread too thin as well. For that reason, we only allow for about 4 ventures in any stage (from concept stage, through R&D, to beta, and commercialization) of our pipeline at once. But this is a model that I think can scale as we add more producers and team members to the mix. Scaling this is an area that I am actively thinking about right now. If you’re an exceptional venture producer and you would like to be involved, get in touch. This is not about anyone being a superhero, it’s about creating an awesome and highly collaborative team, supported by an incredible network.
There’s so much more I could say about all this, and in time, I’ll write more about it.You will be hearing a lot more about this model, as well as all of the ventures we’re producing in coming months, as well as some new ventures not listed above that are in the pipeline and will become visible in the future.
In the meantime, I’ll be posting here and on my Twitter feed, about my thoughts and what we’re learning as this goes forward. I welcome your thoughts too — this is one of the reasons I’ve written this. So please don’t hesitate to ask questions, offer advice, or observations. Stay tuned, it’s going to be an adventure!
— Novaangel > angel investing > angel investor > bottleno.se > bottlenose > daily dot > dominiek ter heide > early stage venture > earth dashboard > incubator > josh jones-dilworth > klout > live matrix > nicholas white > nick white > nikola tesla > nova spivack > personalization > production studio > sanjay reddy > semantic > social media > social network > startup > startup ventures > streamglider > the daily dot > twitter > vc > venture > Venture Capital > Web 2.0 > Web 3.0