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June, 2010

  1. Duty & Failure

    June 29, 2010 by Matt Mireles

    I ran across this "shutting down" letter from a YC startup called NewsLabs. Here's the crux:

    As I'm sure you've noticed not much has been happening with the site recently. I'm very sorry to report that this is because NewsLabs is ending.

    As you know, founder Paul Biggar was on his honeymoon for most of May [company launched in April] so I was taking charge of direction. During this time I spoke to many of you on the phone and emailed the group to let you know that we were going through a difficult post-launch period where we were struggling to reach an audience for your work. It seemed like we had the right parts (your writing and our technology) but maybe we needed to be more directed (by getting the editors involved) to move out of the hole we were in.

    via www.poynter.org

    This is from their TechCrunch write up in April, when they operated as NewsTilt. 

    The site is currently accepting applications from journalists who want to start a news site on NewsTilt, and is being extremely selective with which journalists are accepted NewsTilt has assembled a seasoned editorial team in place to oversee the operation, headed by Jon Margolis, former chief National Political Correspondent for the Chicago Tribune. 

    So far, the startup has only selected 30 professional journalists out of 150 who’ve applied, and each applicant goes through a rigorous screening to ensure that any content they create is both well-written and has editorial quality. The accepted journalists will write from all over the world, including the U.S., China, and Turkey, and will be reporting on a number of niche topics including technology, news in Iran, business travel and more.

    To recap: In December 2009, NewsLabs is accepted into Y-Combinator. In April 2010, NewsLabs launches to the public. In May 2010, the Founder of NewsLabs goes on honeymoon for a month. In mid-June 2010, the Founder of NewsLabs quits. In late-June 2010, NewsLabs goes out of business.  

    Hmm.

    I guess my first question is this: How the hell did no one forsee this problem??? Honeymoons require planning, especially the month-long variety. And who the hell plans a honeymoon right after they launch a startup? How did anyone think this is OK? It just seems completely irresponsible and a betrayal of his co-founder(s), employees and investors.

    Now, I understand that people start companies all the time that aren't that serious about their missions, but these guys came out of YC. He took a slot that could have gone to an actual team of real founders who actually give a shit. To just throw an opportunity like that away out of pure laziness just makes me sick. 

    And not only that, they signed other people up to work for them! WTF?? I pray they didn't get investors. 

    It's one thing to try and fail. I'm cool with that. But to have others counting on you and not even try, well, that's just shameful. And it makes the rest of us––we who are working 16 hour days/7 days a week living in a co-founder's dining room, scraping to turn a vision into a reality––look bad too. It's like when startups scam their customers and employees; it's a PR blemish for the whole category. 

    Sometimes when you make promises, you have a duty––not to keep them, but to try. 

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  2. The Symbiosis Between Machine Learning & Crowdsourcing

    June 19, 2010 by Matt Mireles

    This is from Quora. My answer is below…
    When is machine learning better than crowdsourcing?

    While it depends on the complexity of the task and the desired quality of the results, if you need to guarantee high quality results, it is best to augment ML with crowdsourcing. 

    In fact, over the next few years, I think you can expect to see an increasingly symbiotic relationship between crowdsourcing and machine learning. 

    • Crowdsourcing is an infant industry, the inner dynamics of which are poorly understood and for which there is only the scantest academic research. The innovation that's happening at companies like Crowdflower (disclaimer: the CEO is an advisor to my company) and SpeakerText (disclaimer: this is my company) is just barely scratching the surface of what can be done by applying ML and advanced statistics to crowdsourcing processes. Expect this space to heat up in a massive way over the next five years. 
    • Crowdsourcing is the most cost efficient way to get labeled training data, and for certain kinds of ML problems––most notably speech-to-text––the size, quality and relevance of your training data set matters more than the algorithm itself. Historically, speech companies budgeted millions of dollars just to acquire a sufficient set of training data. Now, because of the internet and things like Mechanical Turk, you can easily tap into cheap, on demand labor and even turn what was once considered "work" into a game played by people across the globe.
    • ML + Crowdsourcing = Supervised Learning. Quite simply, if you first attempt to solve a problem with an ML algorithm––like say speech-to-text––and then assign a human to correct any errors, you can––if you do it right––not only reap huge short term efficiency gains (vs pure human effort), but also improve machine accuracy over the long term by adding more and more labeled training data into the system. The result: constantly increasing labor efficiency, lower costs, and smarter machines––coupled with extremely high quality results.

    These ideas are fundamental to the technology that we've built behind SpeakerText. If we're wrong, then the company is fucked. If we're right, well, I'll let you figure it out…and we'll see what happens.

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  3. My Mohawk and Being the SpeakerText CEO

    June 10, 2010 by Matt Mireles

    After seeing the constant pants-jizzing on Twitter by Keith Rabois about Quora, I finally signed up and started using the service. Today I got this question…

    Matt Mireles, As a CEO, do you find that your mohawk has a positive, negative or no impact on how you are received by peers and members of the funding community (VCs, Angels, Bankers)?
    The reason I ask is because I am in a VP position now and am looking to found a company and although I don't have a mohawk, I do have a very large imperial mustache, and I'm wondering what to expect.

    My response…

    It depends on who you are as a person, what kind of public persona you want to cultivate, and what kind of market you're pursuing. 

    Generally speaking, having an unorthodox/flamboyant persona is a strategic asset if you're selling to consumers. Remember, when you're a startup, any press is good press. And umm, yeah, you've got nothing, ergo you've got nothing to lose!

    That said, if you're selling to businesses, the flamboyant persona tends to be more of a liability––or at least it takes a lot more finesse and work to neutralize the liability aspects and magnify the asset value. 

    For me, the mohawk is and was a conscious choice and part of a broader branding strategy for both myself and SpeakerText. In my view, the "CEO with a mohawk" is just part of a larger decision to be known as a slightly crazy, shit talking, scrappy mofo of an entrepreneur with working class roots––despite an Ivy League pedigree. Similarly, I want SpeakerText to be known as a scrappy company filled with serious hackers who care about satisfying customers and achieving world domination WAY more than pleasing investors or adhering to uptight social norms.    

    Simply, I decided that I was going to be a high-profile person and create a high-profile company with a very strong and meaningful brand.The mohawk, the blog, the plentiful f-bombs, etc. are all just a part of who I am as a person, but I also choose to accentuate that part of my personality for strategic reasons. 

    The beauty of this approach, if you ask me, is that it creates a very useful selection effect with regards to potential employees and, to a lesser extent, investors. When you have a strong brand that's genuine and that you're proud of, especially one that seems "risky," it signals that you the founder are a person of principal, that you stand for something beyond making a quick buck, that you're passionate and you care. Some of the best people spend their whole lives searching for meaning, searching for a community of people with real values. And by being unafraid, by signaling that you in fact are willing to risk a suboptimal short term outcome by cutting a contrarian view, you become able (quite ironically) to attract some of the best people to join your crazy company at a discount, sometimes at a steep discount, versus the market rate, which is the key to long term success. 

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  4. The Importance of Reputation and Personal Brand

    June 7, 2010 by Matt Mireles

    In case you missed it, Saturday was fight night in NYC: VC-on-VC, Dixon vs. Robinson. Robinson as in Jim Robinson IV, managing partner at RRE Ventures. Dixon as in Chris Dixon, founder of Hunch and partner at Founder Collective. The sparks were flying…

    Chris Dixon: "A guy born a millionaire who never earned a thing in his life should be really careful throwing around 'populist blather.' Fuck you."

    Ouch! Chin check…

    Chris Dixon: "@jdrive: Heh, yeah, i bet you had a lot of long, profound thoughts about "populist blather" growing up as the son of AMEX's CEO."

    Jim Robinson IV, as it turns out, is the son of Jim Robinson III, former CEO of American Express. 

    "Jdrive" retorted: "@cdixon BTW my inheritance in life to date? $35k. Nothing more. Wish I got money :) Just got the name. U don't know me; u just think u do."

    In a way, I feel bad for Jdrive. What if his pa' didn't give him shit? And yet we give him shit as though he did. Maybe our assumptions are wrong (although I'm sure he got plenty of non-cash and non-monetary support along the way, especially access––the Robinson name itself is surely worth a lot in terms of doors opened and such). 

    But if I'm gonna be intellectually honest here, I gotta admit that hearing Chris Dixon shame the man for being a silver spoon triggered a dopamine squirt in my brain. Class warfare, it turns out, is fun. And just about every entrepreneur on Twitter who saw the exchange thought the same thing: "Yeah, fuck that guy!" 

    The next day, I got a series of DMs from a friend of his who spoke in his defense: "He actually is quiet. not trying to be a rock star blogging VC…so usually doesn't blog."

    Another: "anyways, assumption is there b/c of who his dad is. but it's actually a much diff story."

    To be clear, this post isn't about Jim Robinson IV per se––no, it's a post about personal branding. Jdrive is just a convenient (and tragically entertaining) example of what can happen when you neglect your personal brand. 

    To be clear, Jdrive is right: We (including me) don't know the man. 

    Everyone who actually knows the younger Robinson says great things about him. And RRE is consistently ranked in the top 5 VCs on The Funded by entrepreneurs. My only interaction with Jdrive was at an RRE sponsored happy hour in NYC. He mostly stood in the corner talking with other VCs. He didn't interact with us entrepreneurs much. At the time, I thought it was kind of stupid to throw an event for entrepreneurs and then spend the entire evening talking with your VC friends. Actually, I left the event thinking the guy was sort of a dick. Not for a particularly good reason, mind you, but it just seemed like he didn't care about or want to meet entrepreneurs. 

    But as suggested by his defenders, there's another entirely rational explanation: Perhaps he's just not an super outgoing guy. Maybe he is, as his friend suggested, actually kind of quiet. Not everyone loves to blog and meet strangers 24/7, after all. In fact, for most people, the whole constant pitching process can be quite tiring. And maybe he's just a normal dude who doesn't fixate on putting himself out there for the whole world to see…

    Define Your Brand, Lest Others Do It For You

    Ok, so let's see here, what happens when you Google "james robinson IV" ? First hit: a Wikipedia entry for James Robinson III, Jdrive's gazillionaire dad. Hmm. Not really the message I'd want to send if I was marketing myself to broke ass entrepreneurs piling up credit card debt and living on Ramen. Perhaps a little SEO is in order.

    Ok, so let's see the guy's profile on RRE.com…

    Team-jim_robinson_iv"Jim Robinson is a Co-Founder & Managing Partner of RRE Ventures. He has been active within the technology community for over twenty-five years as a venture capitalist, entrepreneur and banker."

    Hmm. Banker. Again, probably not a fact I'd want to highlight. Not really seeing the scrappiness here. 

    I can't ding the guy for dishonesty. But he's practically teeing himself up for Chris Dixon's charge of rich boy debutante-ism. 

    And then there was a blog post that made the rounds a while back: Everyone Deserves a Trophy? 

    "Sometime after my generation, everybody became a winner just for trying.  Everybody got an ice cream.  Everybody who participated got a trophy.  It wasn’t about winning or losing but about trying hard.

    "It sometimes feels like this attitude has crept into the psyche of some entrepreneurs.  I respect nothing more than someone who quits a safe job and takes a huge risk to start something new.  I did and I know how scary it can be.  But startups are a brutal business, where few make money and many lose."

    Now, I can't help but see some irony here: VC chastises entrepreneurs for demanding undue rewards; turns around and demands special lower tax rate for himself & fellow VCs. My gut reaction: Startups are a brutal business, bro. Few make money and many lose. Sorry man. Tough it out. And pay your fucking taxes, rich boy. 
     

    To be clear, there's nothing directly incompatible between opposing the new carried interest tax and this "startups are a brutal business" bit, but it does kind sound like the man is asking for a trophy. Just a little.
      

    Again, to be totally clear, I don't know Jdrive the actual human being beyond the most cursory meeting and what I've seen on the internet. In fact, I'm not really talking about Jdrive the man himself so much as I am his public image. 
     

    Ok, so I've busted the guy's balls enough–here's another possible (and more charitable) take on the man…
     

    Jdrive is the son of a very rich man who sought not to spoil his heir apparent and as a result, gave the young Jdrive jack shit as a child, forcing him to earn his position in life. And young Jdrive grew up to be a self-made man, at least as self-made as the namesake of an AMEX CEO could be. Jdrive lived in the shadow of his father, surrounded by wealth but never having it given to him. Unlike his ever-outgoing dad (I have no idea if this is actually true), he was quiet and reserved, not one to call much attention to himself. And yet he was smart and worked hard, insistent on adhering to the meritocracy that was forced upon him. He didn't pay much attention to his internet personality until one day…
     

    Again, this is all pure speculation loosely based on what others have told me. However, if his defenders are right, the truth seems closer to this latter description.
     

    So what's the point? 
     

    The point is that if you don't create a strong personal brand for yourself on the web, others will define it for you. And the outsider definition will not be charitable, especially if you are in a position of power. 


    Honestly, I think Chris Dixon went overboard last night in telling Jdrive to fuck off (my guess: he was drunk). It was a dick move. But he's Chris fuckin Dixon, the entrepreneur's VC, the man who fights for the little guy, the man whose tweets and blog posts we've been reading for months now. We know him. We have a relationship with him. He is our friend. We cut him slack. 
     

    And so we are unfair to Jim Robinson IV, a man we don't know. We think we know him––we think he's a spoiled rich boy––but we don't, and he may not be. And whose fault is that? His––and his alone, for he has not told his own story, but let others tell it for him.


    If the tables turn and you get a moment in the sun, what story will the world tell about you? And whose fault will that be?


    To be 100% clear, I don't pretend to know the real Jdrive one way or the other. From all reports, he is an awesome dude, which makes this weekend's kerfluffle all the more noteworthy. My critique is narrowly focused on how he's marketed himself to the entrepreneurial community and managed (or failed to manage) his personal brand. I hold no personal grudge or ill will against the man. But seriously, Chris Dixon told him to fuck off this weekend. How the hell that happened is worthy of analysis all by itself. Hence my focus on him and not some other random person.

    Category Uncategorized | Tags: | 52 Comments

  5. The VC Carried-Interest Tax Debate

    June 5, 2010 by Matt Mireles

    Today was an exciting day on Twitter. Huge debate/fight regarding the proposed "Carried Interest" tax treatment for private equity and venture capital fund managers. I mostly sat on the sidelines and retweeted the excitement (Chris Dixon told Jim Robinson IV of RRE to fuck off!). And in the middle of all this, my man Eric Wiesen, a newly appointed General Partner at RRE sent me this email…

    From: Eric Wiesen
    Subject:     Here's the problem
    Date: June 5, 2010 9:58:21 PM ED
    To:     Matt Mireles  
     
    It's a problem because this tax will come in taxing carried interest, a sort of quasi-principal investing structure that GPs and LPs came up with decades ago to create the 80/20 split on the fund's upside that everyone agreed to. Post this change, LPs will be taxed at 15% which GPs are taxed at 35 or 40 or 45% (or wherever the marginal income tax rate winds up). And that will be true for current funds. But those who think this is a steady state are probably naive. Some future funds will be set up in a way that will pass some, possibly much of this tax increase onto LPs. And that lowers returns. Lower returns yield lower allocations to the asset class.
     
    The alternative is actually more likely, in my view. GPs will simply come up with a different way to structure funds to simply avoid "carried interest" altogether. That's a structure that, as I said above, was merely convenient given the economics everyone wanted. Now it will be a shitty structure because despite risky, highly-uncertain returns that come many years after the original investment, GPs will be taxed as if it were "revenue". Most likely, everyone will simply get together and come up with another way to structure funds that avoids carried interest altogether. One way would be to simply say that GPs contribute "intangible assets" the way startup founders do as consideration for their founder shares. And for these intangible assets GPs will get a straight up 20% equity stake in the fund. And that will be fine for everyone (except Uncle Sam). But it's actually not as good for LPs because it's a lot harder to claw back a straight up equity ownership by GPs than it is for carried interest. 


    Eric Wiesen :: General Partner, RRE Ventures

    Eric is a man I know and respect. The added emphasis is mine, but the email is reprinted here with his permission. 

    Now I'm not a money manager and I don't claim to be an expert on the inner workings of venture capital, but this whole argument strikes me as wrong headed…

    Essentially, what the proposed law will do is recognize that money management is actually just a form of labor like any other, and tax the fees that money managers earn just like normal income as opposed to giving their management and "carry" fees capital gains treatment. Chris Dixon called this fair. VCs, acting according to their own self-interests, revolted. 

    Now, back to Eric's argument: 

    Future funds will be set up in a way that will pass some, possibly much of this tax increase onto LPs. And that lowers returns. Lower returns yield lower allocations to the asset class. 

    Sure, SOME future funds will be setup in a way that screw LPs, but who the hell is gonna want to invest in those funds? Changing the standard fund structure across the venture capital industry will require the formation of a VC cartel. And that ain't gonna happen. Huge collective action problem. 

    The reality is that VCs compete for LP money. And LPs are profit maximizers. I refuse to believe that they'll just passively accept shittier returns. I also refuse to believe that newer, younger VCs won't step up and say "Hey, I'll gladly take these management fees regardless of whether they're taxed as ordinary income or not. It's still good money!!"

    More realistically, any fund manager who tries to game the system in a way that screws LPs to avoid this tax treatment better either have the last name Khosla or have very rich and very stupid friends. 

    Honestly, I don't see this law affecting LPs one iota, nor do I see it diverting money from venture capital as a class. The only people I see this affecting are the VCs themselves. And really, they should pay their taxes just like everyone else. They ain't special. 

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