Archive for the ‘Venture Capital’ Category

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Looking for Cash, and How to Grow in the Meantime

March 8, 2007

In an ideal world, Bessed would grow its human-powered search engine as follows: hire roughly 80-100 editors who churn out more and more search results pages each day in order to reach a critical mass that makes Bessed a trusted resource for the vast majority of searches that people do.  (To reach that critical mass would take about three years by my  estimates.)

One of the great things about having this many editors devoted to search would be that Bessed could be timely on searches that change often due to frequent news, while also fleshing out the “long tail” of searches—those thousands of searches done each day on topics/companies/people that do not need frequent updates.  The combination of the two would create a tremendous mass of search results that are spam-free, timely, and accurate.

Unfortunately, to do it right requires a lot of money, much more than we have.  And my casual talks with investor types thus far have basically led to the same conclusion—no money until you show some traction, meaning a certain traffic and/or revenue level.  This is especially true in that Bessed does not have a management team with a home run under its belt.  Hit a home run and investors are more likely to back you next time, because, of course, they’ve seen you hit a home run.

So, toward that end, we at Bessed are going to shift our focus a bit.  Instead of trying to be all Bessed could be if done on a wider scale, we are going to focus on the reality of what we can actually accomplish on a smaller scale, with the intention of going bigger once we’ve proven ourselves.

How does that play out?  Less of a focus on timely events.  Less focus on entertainment, politics, etc. and more focus on the long search of what people actually “need.”  In other words, you might “want” to read about Britney Spears, but you “need” information on finding a job or what the explanation might be for that pain in your left ear.

We are going to spend much less time on updating the daily ephemeral “events” and more time on the timeless searches that mean long-term traffic and, most important, higher revenue potential. We need to show more progress on a small scale, and I believe this is the way to accomplish that. We’ll see how it goes.

e-mail me: adam@bessed.com

Adam Jusko is founder and CEO of Bessed, a Web site promising “search without spam”, thanks to human-edited search results and ongoing visitor feedback. Do a search, offer your comments, submit your site–help create the “bessed” search site in the world.

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Ask the Wizard

February 20, 2007

I’ve already forgotten where I read about it, but I found the blog of Dick Costello, the founder of FeedBurner (which does something with blog feeds), and it’s really good. It’s especially good if you are a startup trying to understand the whole angel/venture capital game, so take a look if that’s you.

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Bessed Versus Wikiasari

December 28, 2006

So there’s been a big hubbub this week about Wikipedia founder Jimmy Wales getting ready to launch a new search engine, thus far dubbed Wikiasari, although that will not be its name in the end. It’s unclear exactly what Wales envisions for Wikiasari, in fact he doesn’t seem quite clear on it himself, but the obvious conclusion is that he wants to get volunteer users to help create search engine results in the same way that volunteers now create Wikipedia.

With Bessed having just begun and having a different but still-in-the-ballpark model, I thought I’d look at what we are doing in comparison to what Wikiasari may be doing, and the pros and cons of each.

Bessed is built on WordPress. We “seed” topics/keyword phrases with a few good sites and invite site visitors to add more sites, dis the listed sites, or just add their two cents via comments at the bottom of the search page. If we haven’t yet created a topic, the visitor can suggest it and we will go ahead and start the new topic. There is no charge to be listed.

Bessed is not a wiki; visitors can not physically make changes, but their comments are publicly made and publicly responded to. In the end, however, our editors make the final conclusion about what should be included and how the sites should be ranked.

Bessed editors are paid, either as employees or as freelancers. We feel this helps us maintain objectivity—no one is adding or not adding sites based on a personal interest in the search results.

On the plus side, Bessed offers: objective, human-powered search that encourages visitor participation but keeps spam out of results. Webmasters can get their sites listed free, and visitors can suggest additions, subtractions and modifications to the results, helping us improve the site continuously over time.

On the minus side, Bessed will have to deal with the issues of scalability. Simply put, a human-powered search site can not cover all the topics a robot-based search engine can, and it has the potential to be expensive to produce, especially in the ramping up phase. No one has been able to solve this challenge—Yahoo started with a Web directory and eventually gave it second-tier status while charging high inclusion fees. The Open Directory tried a volunteer-driven model, which has devolved to a state where no one can get a site listed and there are constant accusations of Dmoz editors holding topics hostage for their own personal gain.

For a startup like Bessed, the money/scalability issue is a huge challenge. Using paid editors versus volunteers is more expensive, even if it yields better results.

Now, on to Wikiasari.

Wikiasari will likely use a format in which visitors can manually make changes to search results, with the thought that this will help the cream rise to the top. This means that the site will rely on volunteers to create the vast majority of its service. As we have seen with Wikipedia, this can be done fairly well. And it completely solves the scalability issue, as you have thousands or even millions of people contributing to it. But can it be done as well with a search service as it has been done with an online encyclopedia?

Maybe, except for one thing that I believe is a huge factor. Wikiasari is a project of Jimmy Wales’ for-profit company Wikia. Wikipedia is non-profit. Are volunteers going to be interested in using their spare time to build a search engine that drives profits to Wikia, while they get nothing?

Jimmy Wales says that the recent cash infusion Wikia got from Amazon is not a factor here, but I have to wonder if Wikiasari is going to use some sort of mix of paid and unpaid editors to build the site out. After all, as a volunteer it’s a lot more interesting to help write an encyclopedia page about Lucille Ball (a la Wikipedia) than it is to make a list of Volvo dealerships in New Jersey (presumably a la Wikiasari). Trying to create a human-powered engine with unpaid volunteers who create and/or edit boring yet useful topics is going to be difficult, especially when it’s being done to build the revenue of a for-profit endeavor.

The hype this week has been about Wales building a competitor to Google. I don’t know if that is Wales’ goal or not, although he took some shots at Google in the original article discussing the launch of Wikiasari. At Bessed, our goal is not to compete with search engines but to complement them. We can’t do what a search engine does, but they can’t do what we’re doing, either. From where I’m sitting, Wales would be foolish to position a human-powered search service as competition to Google, but rather as a more intelligent yet less comprehensive alternative.

All in all, though, Wikiasari is a good thing from where I’m sitting because it gets more people talking about the possibilities of human-powered search, which gives me more opportunities to toot Bessed’s horn.

e-mail me: adam@bessed.com

Adam Jusko is founder and CEO of Bessed, a Web site promising “search without spam”, thanks to human-edited search results and ongoing visitor feedback. Do a search, offer your comments, submit your site–help create the “bessed” search site in the world.

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What Venture Capital Might Get You

December 19, 2006

Via Business Pundit I came upon this post by Matt Winn talking about how much a company founder might expect to come away with if he/she teams up with venture capitalists to build a business.

Winn quotes Tim Janke of the Inception Micro Angel Fund as saying first-time entrepreneurs might end up with only 7% or 8% of the company by the time it is sold or goes public. Those who’ve been through previous startups and presumably have more to offer in the way of seasoned management expertise might get 20% to 25%.

For the entrepreneur, that’s something to think about, because taking on venture capital really means that to get anything out of the company in the end it really has to sell big. After all, in order for you to get anything out of it, the VCs are going to demand that they at the very least get all of their money back in a sale, so you really have to grow that sucker.

On the other hand, I guess I’d offer a variation on a well-worn theme: Seven to eight percent of $25 million is a lot better than 100% of nothing.

Interestingly enough, while I was writing this, Matt Winn added a follow-up post to his earlier post, in essence agreeing that those who go the VC route are generally in it to win it, or, as he says, “Go big or go home.” So, for them, they’d rather give up the stake in the company in order to go for the jackpot and take their reduced share than bootstrap for years on a business that eventually might fail. This makes sense, too. I guess it depends on what type of entrepreneur you want to be (and of course the whole discussion is moot if no one is interested in funding you in the first place).

e-mail me: adam@bessed.com

Adam Jusko is founder and CEO of Bessed, a Web site promising “search without spam”, thanks to human-edited search results and ongoing visitor feedback. Do a search, offer your comments, submit your site–help create the “bessed” search site in the world.

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Venture Capital By The Spoonful

November 2, 2006

For those of us thinking about seeking investors now or in the future, there’s now a new possibility for the “seed stage.” For someone like me that doesn’t have a real handle on the VC thing, it’s pretty easy to understand, which right there makes it appealing.

Charles River Ventures is a VC firm that does big deals, but they’ve just launched CRV QuickStart,which does very small deals. If I understand correctly, you bring your idea to CRV, and if they like it, they will offer you a “loan” of up to $250,000 to help you get your startup off of the ground.

I put the term “loan” in quotes because they give you the money, but you’re only liable for it if your business makes it to the next round of funding, known as the “A” round, which is the round where the bigger VCs usually come into play. If your startup gets “A” funding, Charles River Ventures converts the “loan” they gave you into a piece of equity in your company.

In the example they used, they might “loan” you $100,000, which would then turn into $135,000 worth of shares in your company once it’s funded. Since the “A” round would generally mean you’ve secured at least a million in funding, it’s not difficult to pay them equity in exchange for their having ponied up some cash to get you started. CRV also gets the right to fund up to 50% of that A round. (This last part about the right to fund half the A round seems to concern some others who’ve written about this; doesn’t seem like a big deal to me.)

The big idea here from the VC end is that it takes less money to get ventures off the ground these days AND it’s difficult to find companies that are going to grow big enough to give VCs an exit route if the VCs are handing over gobs of money. (It’s easier to make some cash out of a 100K investment that becomes a multimillion-dollar business than it is to pour millions into a startup in hopes that it will become a billion-dollar business.)

There’s been reaction to this from various blogs, notably other blogs of “seed stage” VCs.

VentureBeat has a nice write-up on it, as does TechCrunch.

The two notable seed-stage VCs to weigh in are Fred Wilson of Union Square Ventures and Josh Kopelman of First Round Capital. Both are very complimentary of Charles River Ventures as a VC firm; their reservations center around whether this is a big VC firm making investments in companies without being particularly hands-on in lending expertise to those companies. Startups don’t just need cash, they can also use the business acumen that most VCs have to offer based on the VCs’ successful track records.

I don’t know if Bessed is an attractive property for the QuickStart program, as so much of these types of investments seem to revolve around companies that build software that is automated and can scale easily. But I think CRV has done the best job of any of these seed-stage firms of making it clear to the average entrepreneur what they have to offer and what they expect back. It takes away a lot of the mystery around how the VC process works, which is a good thing for those of us who aren’t in the know.

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What Startup Founders Want from VCs

October 19, 2006

See this post from VC Brad Feld that shares the thoughts of a CEO from one of the companies his Mobius Venture Capital funded, on what the startup needs from the VC.

That’s obviously a very smart CEO who has spent some time thinking about what the startup has to offer and what it doesn’t have the experience to pull off on its own. I bookmarked that one in case I’m in that position in the future.

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Learning Venture Capital from Venture Capitalists

October 19, 2006

Bessed is still far from seeking venture capital, if we go that route at all, but as someone who’s never been part of that world, I’m very happy to find the VCs who are willing to blog about the various issues companies face and what VCs look to fund (or not fund).

Fred Wilson and Brad Burnham at Union Square Ventures have one such blog that I’m keeping track of. I only recently found the site, so I have to go back through the archives, but I can already see this is a place I want to return to in order to confirm my ideas, have them shattered, or learn something that may be valuable down the road.

In particular, Fred Wilson’s post on “Traction” struck me—basically his message was that your company will have a much better chance of snagging investors if it can show some traction in the marketplace. This seems like common sense, but it’s easy to get entranced by your big idea and think you should go get huge amounts of money for it, even though it’s completely unproven and you can’t possibly predict how it will be received in the market.

(On the other hand, some of the companies I read about who get funded seem to have no traction and crazy business models. I assume they get their money due to a past track record or knowing the right people. I have neither of these advantages.)

Wilson’s latest post discusses why Union Square prefers to be the lead VC versus funding later rounds. For me it confirms my thoughts on what I’d want out of a VC. Not just money, but knowhow—someone who can help guide the business as it grows, and also help strategize new revenue sources. At Bessed, our main strategy right now is building the site, and building traffic—gaining traction—but once we have the traffic, we’ll need a team to help optimize profits from that traffic. It will take money to build out the team and more knowhow than I have to build the revenue stream.