I'm looking to withdraw a little from my Karma bank here. My son just led his high school team to the Illinois State golf championship. This is big deal for his small school (60 kids per class). It is the first state title in any sport in the school's 60 year history. He also finished second at Regionals and second at Sectionals. He's worked incredibly hard over the past years for this.

The Chicago Tribune has nominated him as one of six athletes to possibly win High School Player of the Month. He is second right now against others from much larger schools who are getting out the vote across their schools. I'm clearly biased but you can decide for yourself who to vote for. I would love to see as many of you as possible go to the Tribune HS Player of the Month site and vote for Nicholas McCall and help send him past the larger schools (plus his is the only State Championship in the group:). Thanks in advance!!!

In 2000-2001, I remember reading negative article after negative article on Amazon. It was burning money quickly, e-tailers were going under left and right and brick & mortar stores were re-asserting themselves. People kept a diligent death watch for it after the demise of Webvans ($1b) and others. In reality, what was going on was a rationalization of the e-commerce space, a pruning of the weak. As scale effects kicked in and they offered new services, suddenly the company swung to profitability and the rest is history. Using Google, I can't even find articles from those days. 

I have a similar feeling about Groupon. I have been amazed by the manic swings in public opinion on Groupon that we have seen over the past year. Lately, it has all been gloom and doom. The company goes public at $20/share ($2 above targeted range and trades up 30-50%. First headline I see: "Groupon gets a pop–but not the 1999 kind". Come on guys…enough with the dramatic trash talking.

I'll be the first to admit that I have no crystal ball about the future of Groupon nor an in-depth knowledge of its solvency. However, $700m will certain give them a nice runway to work things out. There are several high level factors that people seem to be ignoring about the company.

1) like all e-commerce spaces, when they rationalize, everyone suffers and, in the end, it is usually the top 2-3 companies that come out dominant. The number of daily deal sites has already dropped from 300 to 180 and continues to fall rapidly. There is scale advantage to being large in everything from online acquisition costs to logistics to call center efficiencies to branding.  These grow with time.

2) everyone wrote off Amazon around 2000 and 2001. Eventually, the company fully leveraged its economies of scale, tightened its cost structure, got to break even and then rolled out new products/services. You now have everything from Amazon stores to Amazon private labeling online service & fulfillment for other large retailers to all of its cloud infrastructure (AWS). Groupon will follow a similar path. It will grow, it will get to breakeven and it will innovate. We have not even seen the services yet that will eventually drive profitable growth for the business in the future.

3) why has no one been commenting on the incredible talent in the firm. First, if you give Eric, Brad and Andrew opportunity to iterate, they will figure out solutions. They are quintessential entrepreneurs. $700m buys a good amount of runway for them. Second, they have hired folks like senior data experts from Netflix to figure out preferential targeting and a former Amazon finance exec as CFO. There is a lot of top talent there.

4) does the world expect 10-15 of the largest, most connected venture firms in the world (as well as the two top investment banks) to allow anything to happen to this company? I think it is safe to say that Groupon is well buffered.

So, enough Groupon bashing and enough Groupon hyperbole on the other side. Let this team innovate, grow and take full advantage of the $700m they just raised. I can't guarantee that things won't end in tears here but I can say that they have a lot more going for them than the press/analysts have been willing to admit. 

When you've been in the venture business as long as I have, you have seen your share of dysfunctional, poisonious board/management situations. None of these needed to occur. They all fall into the "life's too short" category. Understanding, alignment and unification (leave your ego at the door) are the key elements of avoiding this. 

For those of you that have read my favorite book, the Tao of Pooh, this may seem familiar…Pooh is the Uncarved Block and just is. It talks a lot about misalignment occurring when we fail to see things as they really are but as we would like them to be.  I'm a novice here but seems also common with Buddha's core philosophy around how desiring things (versus seeing/accepting what is) leads to pain and suffering.

People, places and events come into our lives for a reason. We rarely fully appreciate or even notice them. Often we'll observe a confluence of them and comment on what a "coincidence" we've experienced. Well, after 15 years in the venture industry, I strongly believe that there are no coincidences but rather synchronicity in our everyday lives. There are invisible webs that hold them together and it is our responsibility to be curious enough to examine and enjoy them.

We race around, head down, failing to observe the greater picture. Great entrepreneurs, successful authors, wise everyday people all seem to have a gift of standing back and seeing this activity in the periphery.  They see connections between apparently unrelated events or trends and create/uncover new realities. They see, connected to a set back, a lesson and a message to head in a different direction (rather bemoan their poor "luck"). If you ever catch your self commenting on something being "ironic" or "quite the coincidence", stop and look around. There is usually something bigger going on and you should be more curious and open to what that new reality is.

"Jung believed the traditional notions of causality were incapable of explaining some of the more improbable forms of coincidence. Where it is plain, felt Jung, that no causal connection can be demonstrated between two events, but where a meaningful relationship nevertheless exists between them, a wholly different type of principle is likely to be operating. Jung called this principle "synchronicity."

In The Structure and Dynamics of the Psyche, Jung describes how, during his research into the phenomenon of the collective unconscious, he began to observe coincidences that were connected in such a meaningful way that their occurrence seemed to defy the calculations of probability. He provided numerous examples from his own psychiatric case-studies, many now legendary.

"A young woman I was treating had, at a critical moment, a dream in which she was given a golden scarab. While she was telling me her dream, I sat with my back to the closed window. Suddenly I heard a noise behind me, like a gentle tapping. I turned round and saw a flying insect knocking against the window-pane from outside. I opened the window and caught the creature in the air as it flew in. It was the nearest analogy to the golden scarab that one finds in our latitudes, a scarabaeid beetle, the common rose-chafer (Cetoaia urata) which contrary to its usual habits had evidently felt an urge to get into a dark room at this particular moment. I must admit that nothing like it ever happened to me before or since, and that the dream of the patient has remained unique in my experience." The Scarab represented Self-Generation, Resurrection and Renewal.

We live in a non-linear world that defies our linear thinking (just look at weather). We are focused on getting Jimmy to soccer or the project done at work or the report done for class. We can go through entire periods of our lives, jumping from one fire drill to the next and never tuning into the bigger symphony and the inter-related flows around us. This could be the random person on your plane, an article that catches your eye or an event you witness but move on. Life's best experiences and lessons come from these synchronistic encounters.

If you want to be a good entrepreneur, a good parent, friend or partner, look around and try to see the forest from the trees. Introduce yourself to complete strangers, do random acts of kindness and force yourself to do things outside of your normal routine. Life is unpredictable and as the Rolling Stones said, "You don't get what you want but, sometimes, you get what you need."

Everyone watching the mobile OS wars has been expecting Android to become the dominant OS by powering a lot of the non-Apple hardware. The most recent Comscore numbers indicate that the torch (no BB pun) has been passed to Android in Q4, 2010. Below are the share numbers of mobile handsets and OS share. Android is powering much of the key handset players' devices (Samsung, Motorola, etc) and the Android market share just passed Apple's. The iPhone still has legacy stickiness due to the App store, iTunes, desktops, etc so it is not likely going to be a repeat of the Mac/Windows wars but it'll rhyme. Below is an excerpt from the Comscore Report (link here)

OEM Market Share
For the three month average period ending in November, 234 million Americans ages 13 and older used mobile devices. Device manufacturer Samsung ranked as the top OEM with 24.5 percent of U.S. mobile subscribers, up 0.9 percentage points from the three month period ending in August. LG ranked second with 20.9 percent share, followed by Motorola (17.0 percent), RIM (8.8 percent) and Nokia (7.2 percent).

________________________________________________________________
Top Mobile OEMs
3 Month Avg. Ending Nov. 2010 vs. 3 Month Avg. Ending Aug. 2010
Total U.S. Mobile Subscribers Ages 13+
Source: comScore MobiLens                                       .
                            Share (%) of Mobile Subscribers
                                            Aug-10    Nov-10    Point Change
Total Mobile Subscribers    100.0%    100.0%        N/A
Samsung                              23.6%     24.5%        0.9
LG                                        21.2%     20.9%       -0.3
Motorola                               18.8%     17.0%       -1.8
RIM                                        9.0%      8.8%       -0.2
Nokia                                     7.6%      7.2%       -0.4
________________________________________________________________

Smartphone Platform Market Share
61.5 million people in the U.S. owned smartphones during the three months ending in November, up 10 percent from the preceding three-month period, as RIM led with 33.5 percent market share of smartphones. After several months of strong growth, Google Android captured the #2 ranking among smartphone platforms in November with 26.0 percent of U.S. smartphone subscribers. Apple accounted for 25.0 percent of smartphone subscribers (up 0.8 percentage points), followed by Microsoft with 9.0 percent and Palm with 3.9 percent.

____________________________________________________________________
Top Smartphone Platforms
3 Month Avg. Ending Nov. 2010 vs. 3 Month Avg. Ending Aug. 2010
Total U.S. Smartphone Subscribers Ages 13+
Source: comScore MobiLens                                           .
                                Share (%) of Smartphone Subscribers
                                                    Aug-10    Nov-10    Point Change
Total Smartphone Subscribers    100.0%    100.0%        N/A
RIM                                                37.6%     33.5%       -4.1
Google                                           19.6%     26.0%        6.4
Apple                                             24.2%     25.0%        0.8
Microsoft                                        10.8%      9.0%       -1.8
Palm                                                4.6%      3.9%       -0.7

I don't want to pile onto or repeat some of the great posts of the current market conditions. Fred Wilson's post, Storm Clouds, was one of the better initial snippets on what is going on. One of the advantages of being in Chicago is that we are the first to lose liquidity and the last to get it. So, we track the number of term sheets from the Valley hitting Chicago as an indication of froth. When it goes up, we know that the Valley has so messed up its ecosystem that they are willing to fly in Winter to Chicago. The planes have been flying in with significant frequency, some driven by the Groupon halo and some driven by a hunger for deals at 50% the price of the Valley. I made the call in June 2008 that the cycle had ended and to buckle up:  Rough Ride Ahead.  I am not prognosticator but rather a risk handicapper. I still believe the next 5 years will produce some amazing wins but we will have a rough interim period here in the next year or so.

Having survived three VC cycles, the pattern is usually the same.

In Stage One, fear sets into the market when the public markets pull back and VC's grow concerned that they won't get exits. They stop feeding the funnel. Valuations fall in the Valley and they pull back their activities to their "two hour radius".  The markets eventually stabilize and VC's come out with a more cautious approach, often looking hard at core fundamentals, take extended periods of time on diligence and price deals somewhat conservatively. Recruiting of talent is rational and effective.

Stage two, the market starts to heat up, companies start to ramp, revenue grows and VC's start to pick up their activity. They have moved from fear to semi-greed.

Eventually, in stage three, a couple of deals pop in a big way (Groupon, Facebook, Playdom, Zynga, etc). Suddenly the VC's begin to get greed and fearful that they are going to miss the next big win. They start pricing deals not at core fundamentals today but at expect or hoped for revenue in the future. If the deals inflect they look like heros and if not, they have a portfolio of destroyed cap tables.

Indicators of Stage Three are:

— frequent "pre-emptive" rounds at 50-100% the expected valuation to "take the deal off the market"

— high valuations in excess of historical norms ($5m revenue, $50m pre-$, $20m revenue-$200m pre-$)

— general sense of anxiety and envy in the Valley with fear of missing the next Facebook dominates partner discussions on Monday's

— talent wars with pricing on salary, tenure shrinks

Well, guess what, we have a lot of term sheets hitting Chicago, talent wars are resulting in Google engineers getting paid $3m+ not to leave, valuations are insane and momentum investing in vogue (term sheets after 2-3 days). My suggestion to VC's is to wait for you pitch and it may be a bit of time before things come back around. My belief is the leading indicator will be an increasing rate of IPO efforts and perhaps a market pull back. Be smart and be ware…  That said the revolution is still alive and strong!

On September 20th, I gave a talk about the Chicago entrepreneurial ecosystem at the nominees dinner of the Chicago Innovation Awards. To see the presentation click here on Download 2010 09Chi Innovation Dinner

I’m at the Kellogg Innovation Network Global Summit which is the creation of of Rob and Stephanie Wolcott. It is a global group of CEO’s and heads of R&D from Fortune 500’s.

Kimmie Weeks from Liberia, founder of Youth Action International, which focuses on raising global philanthropy in youths, kicked off the event with a wonderful talk. He discussed a program they launched giving women in Sierra Leone looms to make clothes and drive self-sufficiency.

One quote that stuck with me was “when you have people who get by on a dollar a day, imagine what they can do with small amounts of money you give them? They are resourceful and not to be only pitied.” It reinforces how one needs to see the positives tied to all negatives.

You see this resourcefulness in the entrepreneurial world with both bootstrapped companies and some of the small grants given by accelerators. I found that this Spartan DNA is the number one predictor of success in portfolio companies. It shows both their respect/understanding of dilution and their innovativeness & resourcefulness.

Well, I got a very pleasant surprise last night in my email. Tony Perkins notified me that I had made the Top 100 VC list in their inaugural year of the list. I don’t usually like to self-promote but this was a particular recognition for me. PE Hub just did a piece on this list which is expected to replace the Forbes Midas Touch list. Many thanks to all of the guys at FeedBurner, Lefthand Networks, TicketsNow, Everdream and others that did all the hard work and deserve the credit!

PE Hub Article: Always On’s Top 100 Venture Capitalists

Copy of VC100 List Final

Don Wood sent this over today. It says a lot about how we all go about our daily lives and what we miss or overlook, especially as we have our heads down in the New Normal.

..something to think about…



Washington, DC Metro Station on a cold January morning in 2007. The man with a violin played six Bach pieces for about 45 minutes. During that time approx. 2 thousand people went through the station, most of them on their way to work. After 3 minutes a middle aged man noticed there was a musician playing. He slowed his pace and stopped for a few seconds and then hurried to meet his schedule.
4 minutes later:
the violinist received his first dollar: a woman threw the money in the hat and, without stopping, continued to walk.
6 minutes:
A young man leaned against the wall to listen to him, then looked at his watch and started to walk again.

10 minutes:
A 3-year old boy stopped but his mother tugged him along hurriedly. The kid stopped to look at the violinist again, but the mother pushed hard and the child continued to walk, turning his head all the time. This action was repeated by several other children. Every parent, without exception, forced their children to move on quickly.
45 minutes:
The musician played continuously.  Only 6 people stopped and listened for a short while. About 20 gave money but continued to walk at their normal pace.  The man collected a total of $32.
1 hour:
He finished playing and silence took over. No one noticed. No one applauded, nor was there any recognition.

No one knew this, but the violinist was Joshua Bell, one of the greatest musicians in the world. He played one of the most intricate pieces ever written, with a violin worth $3.5 million dollars. Two days before Joshua Bell sold out a theater in Boston where the seats averaged $100.

This is a true story. Joshua Bell playing incognito in the metro station was organized by the Washington Post as part of a social experiment about perception, taste and people's priorities. The questions raised: in a common place environment at an inappropriate hour, do we perceive beauty? Do we stop to appreciate it? Do we recognize talent in an unexpected context?

One possible conclusion reached from this experiment could be this:  If we do not have a moment to stop and listen to one of the best musicians in the world, playing some of the finest music ever written, with one of the most beautiful instruments ever made…. How many other things are we missing?