Archive for the ‘New Atlantic Ventures’ Category

April 5 2013
by Scott Johnson

5 Habits of Great Startup CEOs

Being CEO of a startup is quite similar to being the parent of a newborn.  The neighbors see a clean cooing newborn with smiling proud parents.  But we all know what goes on inside the house.  Sleepless nights, stress, no time to attend to other relationships.  You are a slave to the new creature.  It is ultimately incredibly rewarding, but parenting is very hard work and not at all glamourous.  And just the way not everyone handles parenting well, not everyone is a good candidate to run a startup.  As a matter of fact, a great startup CEO is as rare as a 70 degree day in March in Boston.

I have compiled the qualities that great startup CEOs share – you know – the CEOs that actually get multiple B-round term sheets in down markets and get that marquis exit at an unusually high multiple.  These are the ones that consistently surprise their board on the upside, investors love to back, and that acquirers pay up to bring in-house.  If you are a founder looking for a CEO to really grow your company, here are the five personal attributes you should look for:

1) Attracts Great Talent.  This is the best indicator of success, as it really encompasses all of the other attributes.  If A+ talent flocks to work for someone, that person has got something special.  Be careful though.  An orangutan could be CEO of super fast growing startup and attract great talent.  So, make sure it is the CEO who can attract talent, not someone riding the wave at a hot company.

2) Networking God.  A good CEO shortens sales cycles with contacts, shortens hiring time with contacts, and shortens fundraising time with contacts.  A CEO who networks well can hence shorten time to exit and massively reduce dilution to founders.  Give 8% to a great CEO, prevent 20-30% or more in downstream dilution.

3) High Intelligence.  The CEO is usually not the highest IQ in the room.  But he needs to be in the conversation.  At high tech startups, a certain acumen is needed to keep the respect of the troops, and gain the respect of customers and investors.

4) Strategic Thinker.  The trick with startups is to channel all of the companies limited resources in the optimal direction.  And to quickly alter course as markets dictate so not a single moment is wasted by indecision.  This requires strategic thinking, not tactical execution.  Many line executives from larger companies struggle as CEOs of startups because they  have not had the opportunity to deviate from a strategy that was handed down to them from above.

5) Stamina, Energy and Productivity.  This gets back to my point at the top about parenting a newborn.  The CEO needs to be all-in, and one of those productive people that doesn’t waste a second of his or her day.  The CEO sets the culture at a company, and that should be one of reward for achievement, productivity, hard work, and accountability.

So, there you go.  Every founder CEO should be very honest in his or her self assessment, and then when they see someone with the above profile, move quickly to hire them.  But do your diligence.  Hiring the wrong CEO can be every bit as costly as hiring the right one can be helpful.

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Spotflux: Finally, A Free VPN

Spotflux: Finally, A Free VPN

on March 22nd 2013

Cloak is a fantastic little VPN that protects your privacy and allows you to browse the Internet safely on your Mac. Unfortunately, you must pay a price for quality.

Or must you? The team at Spotflux doesn’t think you should pay for privacy, so they have developed a great little VPN that works on Mac, Windows, iOS, and soon Android. As with anything that’s free, there must be a downside, right? Let’s find out.

Bare Bones VPN

Spotflux is enabled upon launch.

Spotflux is enabled upon launch.

Spotflux has two main features: security and privacy. In other words, if you’re on a WiFi network that has no encryption, it’s the perfect way to ensure your sensitive information isn’t easy to access wirelessly. Any ill-doer could intercept your information if it’s being transferred over a public network. For the sake of your security, it’s worth using a VPN at the local coffee shop or library.

As with most companies these days, Spotflux says it’s using “the cloud” to protect your data. Since that’s now the generalized term for all computing on a remote server, this is indeed so, but it’s mainly a marketing technique. You can also run things through a proxy and then through Spotflux if you like using that additional server. However, the actual service is quite good on it’s own. You can choose between using it as just a VPN or with added functionality using filters.

Filters Block Ads, Malware, and Tracking Code

Spotflux has one very unique feature: filters. Instead of using an ad blocker like I do, you can just switch on the VPN and it will remove them from the pages for you. I didn’t find it as effective as some of the browser plugins out there, but it’s definitely useful when browsing the Net.

Use filters or keep them disabled.

Use filters or keep them disabled.

There are other filters, too. The service tries its best to stop malware from downloading to your computer. With a Mac, this isn’t as much of a problem, but it is nice to have that extra layer between the virus’ server and your computer. Lastly, the app blocks tracking code, or “cookies” as they’re more commonly known. I personally don’t need any of these “filters” — most people don’t, and they might even break some web apps — but they do act as an extra layer of security and not a whole lot of resources are used to have them running.

Regarding Reliability

For a free service, you can’t expect perpetual uptime. It’s good to want consistency, but never complete reliability. Spotflux, thankfully, is one of those services that maintains consistency. I did experience some random disconnects, but overall daily usage has been very smooth. My only complaint is that when I’m downloading a file, it stops and I’m unable to start it at that point. Since it takes a good 45 seconds for Spotflux to switch back on after a disconnect, things can sometimes become inconvenient.

What About This Whole “Free” Concept?

Lately, a lot of services have started out by being unconditionally free. From the perspective of a user, this is a great trait to see in an app or company. And it’s evident that, when the consuming party gets what it wants, all is well in the eyes of everyone else. Sadly, when you take time to look at the core, things are falling apart.

Apple's banner on an App Store promotion.

Apple’s banner on an App Store promotion.

As Michael Jurewitz explained in an editorial related to the matter, the free mindset that developers have can be harmful to the company, and even sometimes end user. The problem is that, while beginning well, the process of a free business model goes downhill due to one flaw: most companies don’t want to be non-profit. That’s why Twitter took the sponsorship approach, Facebook went crazy with advertisements, and App.net was born. It is possible to offer a service for free, but the price is one that users must pay.

Spotflux has it's money on mobile.

Spotflux has it’s money on mobile.

With Spotflux, I found it very hard to understand what the company would do for revenue. To help things along, I spoke with Chris Naegelin, co-founder of the service. Naegelin said that Spotflux is currently only free on the desktop; if you’re using a mobile device, the service is paid. “We also monetize during the install process if a user opts-in to one of our bundle partners such as Dashlane,” he noted.

Thankfully, the co-founder said that the company “[plans] to always have an unlimited free tier”. There will be a “premium” version available on the desktop later this year, but currently the free option is all that’s offered as a sort of starting point.

I asked Naegelin what the company’s plans for the future are and, while he said that most of them are confidential, he made it a point for users to know that there will be much more focus on safe and private browsing.

Simple and Functional

Spotflux is a great app. You won’t easily find another truly free VPN out there that’s the quality of this one. There’s not a lot in the app to go on about because it’s really quite simple. It’s not like the average user needs more in a VPN than what this one offers. The privacy features and malware protection are really nice and the servers have always been speedy enough for my needs. As for the moments of downtime, they’re not that bad — it just takes longer to enable the service.

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Find the Bubble – by John Backus, Partner New Atlantic Ventures

The NVCA released a new report today showing that half of all companies funded by VCs in 2011, and the first half of 2012, are early stage. This compares to an average of 38% or so funded companies being early stage over the last ten years. This is good news for entrepreneurs and angel funded companies. But angel funded companies continue to be born, and funded, at a rate that can’t be absorbed by institutional VC. Take a look at the last ten years of data. And find the bubble!

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May 30 2012
by John Backus

A New Golden Age of Venture Capital

co-authored by John Backus & Todd Hixon

The Venture Capital (“VC”) Model is dead (at least for LPs), proclaimed the Kauffman Foundation recently. Too much available money for the VC model to succeed added Union Square’s Fred Wilson. A blog out there details 25+ stories on why the VC model is broken. Sevin Rosen, a firm known for PC and telecom hardware investments in the 1990s, started this death watch in 2006, when it aborted closing a new fund.

Average VC returns for the last ten years do stink. Cambridge Associates made headlines when its 10-year cumulative U.S. VC return index went negative at (2.0%)/year in December 2010. The index popped up to 3.3%/year for the decade through December 2011. Over the same period the NASDAQ returned 2.9%/year. But, given the illiquid nature of VC investments, investors deserve a 3% – 5% premium, at least, over public markets.

First, a bit of perspective: these are rear-view-mirror analyses, informative but not predictive. In the ’98-‘00 burst of “irrational exuberance”, over $200 billion of capital flooded into the U.S. VC market which had previously absorbed $5-$10 billion per year. This money put a huge supply overhang on the market that has taken time to disappear.

Cambridge Associates, U.S. VC Fund Index Through 12/31/11.

As the chart above shows, over-supply of capital caused returns to plummet in 2002 and 2003. These two years of -20% returns are the main driver of poor returns for the decade. The other downward blip was the global financial crisis, which the VC community weathered easily (no systemic risk here!). For the rest of the decade, VC produced solid returns of 11%-17% net to investors. This is not yet stellar, but it is 4%-10% above the ~7% return most investors expect from public equity markets. And these are average returns; certain funds do much better.

A key lesson learned (or re-learned) from’98-’00 is: venture fund return is higher if the fund size is between $100 and $400 million. The big influx of capital created many $1 billion venture funds. They have not delivered big returns. Harvard Business School‘s Josh Lerner wrote in a recent paper:

“We find that LPs that have higher average IRRs also tend to invest in smaller and slower growing funds …”

Silicon Valley Bank analyzed the “small is better” phenomenon in 2009 and concluded that smaller funds are five times more likely to deliver a “venture return” (2X+ net to investors) compared to on larger funds . The Kauffman Foundation confirmed SVB’s finding with this analysis of its venture fund portfolio:

(“PME” is the return achieved by each fund divided by the return achieved if the same cash flows had been invested in the U.S. small cap index.)

Looking forward, we see five converging forces that will strengthen the venture capital ecosystem:
Disruption: social/local/mobile/web 2.0 is the greatest engine for disruption and innovation man has yet seen
Entrepreneurs: there has never been more energy for creating businesses
Angels: seed funding by angels has bloomed and will grow further
Reduced Supply of venture capital
Exits are way up, and the road is paved for growth

Disruption. Mobile, social networks, the cloud, and the “digital native” generation are changing everything. They are already growing faster, and will be much bigger than the PC wave. Hard goods retailing and media (movies, books, and music) have already been uprooted by this tsunami. Local commerce feels the storm rising now. Healthcare and education don’t believe it will hit them – just wait. Trillions of dollars of existing market value will be destroyed, and the disruptors will create even more value.

Entrepreneurs. One of our sons is going to college next year and wants to be a technology entrepreneur. That was not a mainstream choice when we went to college. But today role models are on IPO road shows dressed in hoodies, student-entrepreneurs have cred, and technology platform companies, like Facebook, Apple, and Google/Android, have dramatically lowered the hurdle for software-based businesses.

Angels Take Flight. In 2010 Angels invested $20.1B into 61,900 companies. When the crowdfunding provision of the JOBS Act goes live in January 2013, we think that number will grow dramatically – into the hundreds of thousands. The crowdfunding bill limits annual fundraising per company from the “crowd” to $1M. That’s enough money to prototype a company, but not enough to commercialize or scale it. There will be huge opportunity for VCs to carry the best companies and entrepreneurs forward.

Data via SVB Analytics & Dow Jones VentureSource

Reduced Supply Of Venture Capital. In contrast to the bountiful angels, the sources of venture capital are drying up. Both the dollars committed to VC funds and the number of active funds has declined by half in the last five years (chart above). In 2010 1,001 companies received initial funding from VC funds . This means that only ~2% of the 61,900 angel funded companies are likely to receive institutional venture capital. And crowdfunding will expand the pool of pre-VC companies. Early stage VCs will see a huge flow of opportunities, many of them high-quality (i.e., companies that have prototypes and meaningful market results when we meet them). That’s a very good thing for the early stage VCs that remain active.

More and Better Exits. The big breakthrough with the JOBS act is the “IPO On-Ramp”, which reduces cost and delay for smaller companies aiming to go public and makes analyst coverage of small-cap companies attractive. The benefit of these changes will emerge over the next five years, as a new generation of boutique investment banks, like Alex Brown and Robertson Stephens, grows up to serve smaller start-up companies that are largely ignored by the “too big to fail” banks.
Finally, timing seems to be on the side of a new golden age of VC. You can’t really time the venture market, because it takes too long to move in and out. But, fund investors can take confidence from the strong fundamentals noted above. Harbourvest founder Brooks Zug and Accel founder Arthur Patterson have both observed a long-term cycle in VC fund performance, and they both see the VC tide rising over the next five years. We’re coming off a period of retrenchment in U.S. VC following the late ‘90s boom and the early ‘00s bust. Now is the time to take a new look at venture capital.

First posted on Fortune/CNN/Money on May 21, 2012

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HuffPost Social Reading  by John Backus Managing Partner, New Atlantic Ventures 

Reclaiming Your Online Privacy Posted

Face it. Everything you do online is visible to someone and can be used without your approval or agreement. You leave details of your online activity in your browser, on your desktop, in your smartphone. All the while, companies, your employer, advertisers and the government are picking up those traces, and piecing them together to make a more perfect profile of – you!

If you aren’t scared now about what organizations know about you, you should be.

Companies have a voracious appetite for your information. The more they know about you, the more they can charge advertisers to micro-target you. The most recent and worrisome real world example is happening as you read this — Google! They just changed their privacy policy, under the faux auspices of “simplicity across sites” to be able to track the content of the emails you write and receive in Gmail, what you search for on Google, what you watch on YouTube, and where you are looking to go on Google Maps. And that goldmine of data wasn’t enough for them. In addition, they specifically and intentionally bypassed Safari’s private browsing mode on your iPhone and iPad to learn more about you.

And, Apple let application developers exploit a flaw in iOS to see all of the contacts in your address book.

Facebook settled with the FTC last fall over its own questionable privacy policies and is now rumored (though they deny it) to be tracking the contents of your text messages from their smart phone app. “Like” something on a website? Facebook knows exactly what you were looking at. Think of every “Like” button on a web page as a Facebook cookie. And remind your friends that “Like” is simply a sneaky way for you to give more personal, valuable information to Facebook.

Your employer knows everything you do at work. They archive your emails – and the court has ruled that company emails are company property — not personal property — and that employees should not have an expectation of privacy when using company resources. Employers also know every website you visit, what pages you see, and how long you spend on each site. You have no privacy when you are working in the office, out of the office but online on your company’s VPN, or doing anything on your company-provided smartphone, tablet or laptop. What you say and where you go belongs to your employer.

Advertisers have an insatiable appetite for user-specific information. Let me share my personal story (and you can try this yourself) Using Firefox, I went to preferences, privacy, and clicked on the underlined text that says “remove individual cookies.” I was taken to a box that showed all of the cookies on my machine. I had over 1000 cookies, most advertiser-related. AND, I use Adblockplus, Betterprivacy, and had checked the privacy box titled “Tell websites I do not want to be tracked.” The same thing happens with Internet Explorer, Chrome, and Safari. Scary. With much fanfare last month, the Government announced the “Do Not Track” browser button, which 400 companies have agreed to honor. Don’t be fooled. This provides limited privacy at best — and only from specific types of advertising, and only certain advertisers have agreed to use it.

Governments want to know more about you as well. The Electronic Frontier Foundation released a report entitled Patterns of Misconduct, which outlined the FBI’s ongoing violation of our Fourth Amendment rights. If not for an aggressive, last-minute online campaign by an unofficial coalition of Internet freedom fighters, Congress was about to pass the SOPA legislation (Stop Online Privacy Act), which would have allowed (and perhaps in some cases required) the government and ISPs to inspect the contents of every packet of information sent across their networks. And Europe isn’t far behind with SOPA’s ugly cousin, ACTA, (Anti-Counterfeiting Trade Agreement) which entrepreneurs in the EU have just started fighting against.

What can you do to reclaim your privacy? There is only one thing to do:

Go invisible. That’s why our venture firm invested in Spotflux. Started by two Internet freedom fighters that have more than a decade of experience solving large-scale security challenges, Spotflux is a free privacy application for consumers, which works by encrypting your Web connection. It downloads in less than a minute on any Windows or Mac computer, anywhere in the world. Spotflux ran a beta test and in less than a year, attracted 100,000 users in 121 countries. It launches globally today.

Spotflux encrypts everything that leaves your desktop, pushes the data through their privacy-scrubbing service, and sends it along. To a website, you are not you — you are Spotflux. And you are invisible unless you choose to login to a website, like your bank, Google, Twitter or Facebook. Even then, companies only know what you do on their site. When you log out, they don’t see where you are on other sites. Better yet, Spotflux’s HTTPS security means no one can eavesdrop on your conversation over a public Wi-Fi connection. And you can surf just as freely overseas as you do in the U.S. Want more? Spotflux also strips out annoying ads and injects real-time malware detection into your browser. Consumers, policy makers and activists are fighting the privacy issue hard but they often face a daunting and cumbersome process. It shouldn’t have to be this way, which is why we think Spotflux is on to something.

Weigh in here with your own privacy horror stories and what you think can be done to reclaim our lost privacy online. Follow John Backus on Twitter:


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