Based in the heart of the world’s advertising industry (NYC) and having backed numerous advertising businesses (i.e., Massive (sold to Microsoft), Ingenio (sold to AT&T), ContextWeb, IZEA, and Searchandise), DFJ Gotham is sought out by founders of the newest and most innovative
advertising companies. As a result, I have had the opportunity to learn from many of the brilliant entrepreneurs that have entered this space. Through those numerous meetings I have developed a framework for evaluating the strategic positioning of ad networks.
The framework is relatively straight forward. Aside from all of the usual considerations
associated with an investment, ad networks are generally differentiated in three ways: inventory, product and targeting.
Inventory: Ad companies can be differentiated by where they place their advertisements. As an investor I am always interested in companies that pursue non-traditional inventory – meaning inventory that is not currently considered a location where advertisements should be integrated.
As one entrepreneur informed me, radio, magazines and the Internet where at one point places where pundits believed advertisements should not be placed – clearly our culture has evolved. Where will ads be next?
Product: By offering unique products that are technically difficult to create, ad companies can
offer advertisers a differentiated value proposition. New products are constantly being invented to
meet the changing media landscape of the web.
Targeting: Ad companies can differentiate themselves by the manner in which they pair their
advertisements with available inventory. Within the worlds of contextual, behavioral and other more nascent types of targeting there is room for lots of differentiation, as strategies within
these categories may vary by types of media and device.
While this isn’t a complicated framework, it does help me:
determine what I am ultimately betting on by investing in a given ad network, and
advise entrepreneurs on how to further differentiate their business.
If you’re starting an ad company be sure to figure out which of these three characteristics is really your secret sauce, then think about how you can differentiate your company in the other categories.
Option pools are common shares that are set aside to compensate and incentivize future employees of the
company. The most sophisticated entrepreneurs create option pools before seeking investment from VCs. However whether or not you have created an option pool before seeking investment, the cap table proposed by a VC will include an option pool.
Option pools are created at or before the time of investment for a few reasons:
First, option pools ensure that the company has sufficient shares to compensate new hires, avoiding any future politicking of stakeholders to protect their investments at the expense of the company’s growth.
Second, creating new shares in the future can be costly (legal and accounting fees) and time consuming (as the board is required to meet and approve the creation of new shares).
Third, by allocating the option pool up front, it is easier for the VC to evaluate the dilutive effect that these shares might have on stakeholders, enabling VCs to ensure that the cap table is appropriately balanced for the near future.
Depending on how many employees the company needs to hire in the future, their seniority in the
company and the value of the company, the size of the option pool may vary. However, at the series A round the option pool is typically sized as 10% to 20% of the cap table.
Options pools are a standard component of the cap table – something that entrepreneurs should be
aware of when considering the future structuring of the company.
On Wednesday I attended the Sandbox Summit here in New York, which is a conference about the intersection between technology, toys, play, and learning. For someone deeply embedded in the software development world, but also deeply troubled by the state of education in America, the event seemed fascinating and also pregnant with possibility. And it did not disappoint.
And while many of the speakers had lots of really interesting stuff to say, one statement by Nancy Schulman, Director, 92nd Street Y Nursery School really got my attention. She said “kindergarten is becoming more like regular school, but I think regular school and life should become more like kindergarten.”
For those that may miss the nuance, what she was suggesting is that joyful playful exploration is critical to learning. Rote learning and memorization is less effective. As I sat, I realized how much the ideas I was hearing relate to how we make products. Much of this way of thinking I believe is already embedded in my thought processes, but there is something different and crucially important about codifying it, and expressing it concisely. What Schulman was saying got me immediately thinking about Apple.
I believe that a big part of the reason that Apple has been successful is that they figured out long ago that their products had to have the elements of joyful exploration that are the hallmarks of great toys. The concept of play is generally something associated with children, but I believe that that desire and that need never die. It is just muted by the expectations of adulthood.
The best example of this is my mother’s excitement about her new iPhone. My mother loves her iPhone because it is the best toy she has had since childhood. No, she has not said this to me, but I can see it clear as day. When she played her first YouTube video, she could not wait to tell me. For her, the iPhone is hard enough to still present challenges, and yet easy enough that she can overcome them. And the payoffs are joyous. The sound, the animation, the smooth virtual physics are incredibly compelling and toy-like. But of course it is not a “toy” it is a phone. It has a real function so she could never be accused of “playing.”
And so, the real question here is what does Apple, and what does the Sandbox Summit teach us about our way forward. First, I think that Apple sets a great example of what is possible, and it should inspire us to make our products more playful, accessible and exploratory.
But the second and more important lesson is that adulthood, and teen-hood are not demarcation points for a reduced interest in play – in fact the converse may be the case, meaning play may in fact become *more* important as we get older. And with our high school graduation rates at 50% in our 20 largest cities, something is obviously and seriously wrong with our current process. With that said I suggest that perhaps our educational system could use a serious injection of not so serious exploration and play. It seems to work for Apple.
We initially covered Muxtape back in April and provided a video from founder Justin Ouellette. Muxtape is a MP3 sharing application that allows you to put together playlists and then share them with your friends. Last month Muxtape closed and everyone wondered if the RIAA was behind the closing.
This afternoon Ouellette has posted a lengthy article explaining the background of Muxtape, where the idea came from, the technology, his dealings with the major record labels, the RIAA, Amazon S3 and where Muxtape goes from here. Ouellette notes that they had 100,000 registered users in the first month and over a million unique visitors in that first month.
If you are considering creating any business related to music, you need to read the entire post. Ouellette concludes with the info on the next version of Muxtape:
"Muxtape is relaunching as a service exclusively for bands, offering an extremely powerful platform with unheard-of simplicity for artists to thrive on the internet. Musicians in 2008 without access to a full time web developer have few options when it comes to establishing themselves online, but their needs often revolve around a common set of problems. The new Muxtape will allow bands to upload their own music and offer an embeddable player that works anywhere on the web, in addition to the original muxtape format. Bands will be able to assemble an attractive profile with simple modules that enable optional functionality such as a calendar, photos, comments, downloads and sales, or anything else they need. The system has been built from the ground up to be extended infinitely and is wrapped in a template system that will be open to CSS designers. There will be more details soon. The beta is still private at the moment, but that will change in the coming weeks."
I think a partnership between NY-based Muxtape and NY-based AmieStreet could be a good win for both companies.
Wednesday, September 24th, 2008
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By Allen Stern at CenterNetworks -
The NYSIA monthly meeting for September consisted of a boot camp for startups. I was able to capture each of the segments on video and this session discussed tips for a technology plan for a new business. Topics include: SaaS as a business model, the realization that you may need to do things again in the beginning to find the perfect model, the importance of staying focused, and a number of pitfalls to avoid. The pitfalls slide is a must-read for any new startup (about 13 minutes in). The pitfalls include: not documenting your work, doing it the second/third time before finishing the first time, staying away from consultants, deadend architecture and finding the right balance of equity for employees. Also discussed is management and when/how to split out all of the tasks when you are a founder.
I'd suggest hitting the "fullscreen" button to view the slides clearly.
Wednesday, September 24th, 2008
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By Allen Stern at CenterNetworks -
NY-based KickApps has announced the launch of a new video player product that allows Web publishers to inject advertising into the video stream. The "KickApps Widget & Video Player Studio" takes your videos from anywhere on the Web, packages them with an ad and generates a widget that can be embedded anywhere. The widgets can be used on sites powered by KickApps or any other hosting provider.
KickApps Marketing SVP Michael Chin took me through a variety of examples yesterday and it's a very impressive system. Basically you create a design for your video player. Next you select the content for the video player, either a search, premade combination or add in any RSS 2.0 feed. Next you select the type of ads you'd like to display including Google AdSense for Video, ScanScout, adap.tv or 24/7 Real Media. There's also an option to include your own pre-roll or post-roll ads.
For example, I could take the RSS feed generated by Viddler for CN videos, insert it into the KickApps video player and then ads will be displayed as I select. I've been asking Viddler for this type of revenue customization for a long time. The video players that you create can be syndicated to other sites allowing you to generate revenue no matter where the player is viewed.
Chin tells me that KickApps will generate revenue by displaying their own Google AdSense for Video ads randomly. For customers that use the ad buyout option, KickApps won't display any ads. Last month KickApps partnered with Akamai for video hosting.
Note: KickApps is a sponsor of our sister site HTMLCenter.
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