This is my second post on "other things we look for".
I hesitated to use the title Traction because its certainly one of the most overused words in the venture capital vernacular. But it is also the "shorthand" peope use to talk about how much uptake a given project has gotten in the marketplace.
So the purpose of this post is to talk about how much "traction" we want to see in a given project before we will be comfortable investing in it.
We have two rules:
- don't invest in consumer facing web services without any consumers using them
- there is an exception to every rule
First, I'll explain our first rule and also discuss how it applies to "enterprise facing web services". Then I'll talk about when and how we break that rule.
The wonderful thing about the lightweight web services that are becoming the predominant form of software development these days is that they don't take a lot of time and money to build. That's why we see a new one launched every day (sometimes it seems every hour).
But the corrolary to that fact is that the nuances involved in designing and building these services are ciritical. I love to point to Ari Paparo's post on why delicious got it right and his service Blink.com, which was built years before, got it wrong. It was just three small design decisions that made the difference according to Ari. Regardless of whether you agree or disagree with Ari's analysis, it's pretty clear that little things make all the difference in this new software paradigm that we call lightweight web services and most everyone else calls "web 2.0".
So, we may love the idea but until we see the implementation in a live setting (closed beta isn't live enough for us) we do not feel like we can assess the social adoption issues that are so critical. We don't care if it's called beta or commercial code. As long as it has been in the market and we can use it, see how others are using it, look at internal weblogs, and external services like Comscore and Alexa, we can make a good assessment of the adoption curve.
We are happy to talk to entrepreneurs long before they launch. In fact we spend more time doing that than pretty much anything else these days. We want to be able to watch a team take an idea from concept to execution. We learn so much from being able to do that. But until its launched, with tens of thousands of users (ideally hundreds of thousands) using it, we are unlikely to invest.
Some venture firms look for revenues, even revenues above a certain amount, or in some cases, profits. Many want to understand the business model. We don't need any of that to pull the trigger. But we want to see the most imporant thing - uptake. We think that's the hardest nut to crack.
So what about enterprise facing web services? We think they are not that different than consumer facing web services these days. Most of the important services that have been brought into the enterprise in recent years (salesforce.com, AIM, etc) have been brought in by workers who adopted them as consumers would adopt them and then got the enterprise to buy in over time. So we might have different adoption metrics (hundreds of thousands of users might be too much to expect from an enterprise facing web service in the early days), but we generally look for the same kind of adoption before we'll pull the trigger and write a check.
So that's our general rule, show us the "traction" and we'll be able to make an investment decision. Until then, we are happy to talk, learn, watch, and if you'd like, provide advice and counsel.
So when do we break this rule? Generally only when we know an entrepreneur/team really well. In our current fund, we've done it twice. With Isaak Karaev and the rest of the Multex team in their new company, Instant Information. And Peter Semmelhack (aka the hacker) in Bug Labs. We still need to love the idea, but these are also bets on people. And we've learned that its best to bet on people you know really well.
I hope this helps. And I hope you won't wait to come see us or start a dialog with us in some other way (maybe a comment on this blog?) until you've got traction. But we think its best that everyone understand what it takes to get us to pull the trigger and say yes.