cdixon.org - chris dixon's blog home contents about me

starting up • Why you shouldn't keep your startup idea secret "Most people will probably think your idea is stupid. This does not mean your idea is stupid. In fact, if everyone loves your idea, I might be worried that it's not forward thinking enough." • Developing new startup ideas "Be the opposite of secretive." • The myth of the Eureka moment "I have always found idea development to be a wrenching and often meandering process that is guided mostly by instinct." • Founder vesting "I can’t tell you how many companies I've seen where a random former founder who was long gone owned some big chunk of the company. " • Dividing equity between founders "Way too many founders divide things evenly just to avoid a difficult conversation. Most likely, this will lead to a difficult conversation down the road (or worse)." • The next big thing will start out looking like a toy "Startups with sustaining technologies are very unlikely to be the new ones we see on top lists in 2020. Those will be disruptive technologies – the ones that sneak by because people dismiss them as toys." • Don't be creative about the wrong things "When founding a tech startup, there are certain areas where you should spend time trying to be creative/innovative. Generally these should be: product, recruiting, marketing." • Is now a good time to start a company? "Make something weighty – try to build an empire – and you’ll be far less vulnerable to the ups and downs of the market." raising money • Ideal first round funding terms "Having been part of or observed about 50 early stage deals, I have come to believe there is a clearly dominant set of deal terms." • What's the right amount of seed money to raise? "Short answer: enough to get your startup to an accretive milestone plus some fudge factor." • Why seed investors don't like convertible notes "Most importantly, they split the entrepreneur’s and investors’ incentives – for the subsequent round, the entrepreneur benefits from a higher valuation, the investor from a low one. " • The problem with taking seed money from big VCs "When you take any money at all from a big VC in a seed round, you are effectively giving them an option on the next round, even though that option isn’t contractual." • The most important question to ask before taking seed money "A lot of young entrepreneurs are getting an unpleasant introduction to the rough-and-tumble world of venture capital." • Pitch yourself, not your idea "There is a widespread myth that the most important part of building a great company is coming up with a great idea." • VCs care about the upside, not the mean "Don't argue your startup is likely to succeed... argue there is a small probability your startup could be a billion dollar or greater exit." • Pitching the VC partnership "The current early-stage VC process is optimized to favor people who are good at pitching partnerships, not necessarily people good at creating successful startups." • How to select your angel investors "A startup is a long trip — what you should care about is whether, through the ups and downs and after the buzz dies down, the investors will actually roll up their sleeves and help you." • Information is the (other) currency of venture capital "A VC eagerly wants to meet with you. You have what seems like a very good meeting, and yet the VCs excitement level drops noticeably in follow up conversations. What just happened?" • The problem with tranched VC investments "In theory, tranching gives the VC’s a way to mitigate risk and the entrepreneur comfort. In practice, tranching is a really bad idea." • The importance of signaling in venture pricing "What makes venture pricing special is that there are so few hard metrics to rely on, hence one of the primary valuation inputs is what other investors think about the company." • It's the partner, not the firm "A large financial institution with access to virtually all venture capital returns data once did a study that determined that the vast majority of profits at each firm are generated by 1 or 2 partners." • Does a VCs brand matter? "Too many entrepreneurs get seduced into thinking they’ve accomplished something significant by raising money from a name brand VC." • Don't shop your term sheet "The VC/startup community is extremely small and this will usually come back to bite you." • Backing out of a term sheet "There is a well-established norm that VCs don’t back out of signed term sheets unless they discover something really, really bad – fraud, criminal backgrounds of founders etc." • Inside versus outside financings: the nightclub effect "At some point there typically arises a choice between doing an inside round or an outside round... interesting game-theoretic dynamics arise among management, existing investors, and prospective new investors." • Size markets using narratives, not numbers "For early-stage companies, you should never rely on quantitative analysis to estimate market size. Venture-style startups are bets on broad, secular trends." startup marketing / sales • The challenge of creating a new category "Bloggers and press have a natural tendency to 'pigeonhole' – to group startups into cleanly delineated categories, and then do side-by-side comparisons, comment on the “horserace” between them, and so forth." • Techies and normals "Techies are enthusiastic evangelists and can therefore give you lots of free marketing. Normals, on the other hand, are what you need to create a large company." • Selling to enterprises "Getting an enterprise to cough up $100K+ requires the 'buy in' of many people... only if your product is a top priority can you get powerful 'champions' to cut through the red tape." • Some thoughts on SEO "Think of search engines as information marketplaces – matchmakers between users 'demanding' information and websites 'supplying' it." • Understanding your market "You need to figure out two things: 1) how information and influence flows in your market, and 2) when and where people use and/or purchase your product." • Underhyping your startup "The first time the VC community / tech press gets excited about the company, they are already so successful that it's hard for competitors to jump in." startup product / strategy • Incumbents "If what you are doing is strategic for the incumbents, be prepared for them to enter the market at some point." • The next big thing will start out looking like a toy "The first telephone could only carry voices a mile or two. The leading telco of the time, Western Union, passed on acquiring the phone because they didn’t see how it could possibly be useful to their primary customers." • Why did Skype succeed and Joost fail? "Skype didn’t have significant dependencies on other companies – its content, like its technology, was truly peer to peer." • The inevitable showdown between Twitter and Twitter apps "In the technology sector, some of the most brutal competition has occurred between 'complements'." • Dividing free and paid features in “freemium” products "The ideal division allows the free product to be an independently useful, non-annoying, non-expiring standalone product, while still leaving room for the paid version to offer sufficient additional value that some acceptable percentage of your users will upgrade." • Six strategies for overcoming chicken and egg problems "Network effects can be your friend or your enemy depending on whether your product has reached critical mass. " • Naming your startup "Naming is so important and so incredibly hard, especially for consumer internet companies that not only have to find a good name but also get the URL." • Facebook, Zynga, and buyer-supplier hold up "The biggest mistake platforms make isn't charging fees (Facebook) or competing with complements (Twitter), it's being inconsistent." • The trade off between open and closed " I think it's reasonable to question whether moves by large industry players are good or bad for the industry. Unfortunately most of the debate I've seen so far seems driven by ideology and name calling." startup operations • Entrepreneurs need to learn some law "You can’t outsource the understanding of key financing and other legal documents to lawyers." • The importance of institutional redundancy "Every system built by a single institution has points of failure that can bring the entire system down." • Things startups do and don't need My highly subjective list. • What to look for in hiring a VP Engineering for your internet startup Guest post by Tom Pinckney, my cofounder at SiteAdvisor and Hunch. startups as career • Climbing the wrong hill "Learn from computer science: meander some in your walk (especially early on), randomly drop yourself into new parts of the terrain, and when you find the highest hill, don’t waste any more time on the current hill no matter how much better the next step up might appear.." • Joining a startup is far less risk than most people think "I would bet that people who join startups have greater job security than people who join large companies, and certainly have better risk-adjusted returns." • The ideal startup career path "You shouldn’t think of joining a startup as just joining a company. You should think of it as joining the startup career path. " • Everytime an engineer joins Google, a startup dies "The reality is 99% of our top talent doesn’t seriously contemplate starting companies." • The one number you should know about your equity grant "The only thing that matters in terms of your equity when you join a startup is what percent of the company they are giving you. If management won't tell you – don’t join the company!" • The only college major that matters "It’s a shame that student enrollment in computer science is in decline... you don’t need to be a professional coder all your life to find computer science an incredibly valuable major." • The worst time to join a startup is right after it gets initial VC financing "Series A financings usually de-risks the company far less than equity grants drop." • Twelve months notice "If you are an employee working at a startup where the managers are honest, inclusive and fair, you should disregard everything you’ve learned about proper behavior from people outside of the startup world." • Shutting Down "Shutting down is an incredibly hard thing to do. It takes great maturity and intellectual honesty to realize things aren’t going the way you hoped and that it might be better to just close shop and do something else." web as business • Why the web economy will continue growing rapidly "Advertisers have no choice but to eventually go where the consumers are." • The new economy A brief walk through of social games and virtual goods. • What if online business model innovation is slowing down? "History suggests that business model innovation is rapid right after the advent of a new medium and then slows down considerably." • Software patents should be abolished "If we got rid of software patents tomorrow, innovation wouldn’t be reduced at all, and the only losers would be lawyers and patent trolls." online advertising • Online advertising is all about purchasing intent "Nextag will have revenues this year in the ballpark of Facebook’s, even though Nextag gets a fraction of the user visits." • Why content sites are getting ripped off "Content sites have no way to track their role in generating purchasing intent." • A massive misallocation of online advertising dollars "Even among sites that monetize via sponsored links there is a large overallocation of advertising spending on links that are near the 'end of the funnel'." • The problem with online "local" businesses "The problem is that local business either don’t think of the web as an important medium or don’t understand how to use it." • Facebook is about to try to dominate display ads the way Google dominates text ads "The holy grail for targeting intent generating ads is taste data – which basically means what the user likes." • Stickiness is bad for business "Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything." google • What's strategic for Google? "A project is strategic for Google if it affects what sits between the person clicking on an ad and the company paying for the ad." • News is a lousy business for Google too "News queries are loss leaders for Google." • Google should open source what actually matter: their search ranking algorithm "Google talks a lot about openness and their commitment to open source software. What they are really doing is practicing a classic business strategy known as 'commoditizing the complement'." • Anatomy of a bad search result "When you have a multibillion dollar economy built around keywords and links, the ultimate 'products' optimize for just that: keywords and links. The incentive to create quality content diminishes." • Google's feature creep "Google has been adding so many new features to its results page, they are starting to feel like the new Microsoft." • Search and the social graph "But most likely [links shared on social networks] will be valuable as critical inputs to better search-ranking algorithms ." • While Google fights on the edges, Amazon is attacking their core "The key risk for Google is that they are heavily dependent on online purchasing being a two-stage process: the user does a search on Google, and then clicks on an ad to buy something on another site." social graph / facebook / twitter • Search and the social graph "Most likely [links shared on social networks] will be valuable as critical inputs to better search-ranking algorithms ." • Twitter killed RSS (and that's a bad thing) "I’ve used Google Reader religiously since it launched. I’m a few days away from quitting it forever. " • Why does it matter that Twitter is supplanting RSS "Having one company control a core internet service hinders competition and therefore innovation." • Facebook is about to try to dominate display ads the way Google dominates text ads "The holy grail for targeting intent generating ads is taste data – which basically means what the user likes." • Twitter and third-party Twitter developers "Until Twitter has a successful business model, they can't have a consistent strategy and third parties should expect erratic behavior and even complete and sudden shifts in strategy." • Stickiness is bad for business "Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything." tech business / big companies • Should Apple be more open? "The key difference today between desktop computers and mobile devices is that mobile devices still have a long way to go before customers don't want more speed, more features, better battery life, smaller size, etc." • Institutional failure "Individuals with good intentions are stymied by large institutions... the winners here are the people who understand the system and play it cynically." • Incumbents "Ask is whether your product is disruptive or sustaining ... If it’s disruptive, you most likely will go unnoticed by the incumbents (because it will look like a toy to them)... If it is sustaining and you get noticed early." • How to disrupt Wall Street "The best way to try to disrupt Wall Street is to look at how it currently makes money and attack it there." • What carries you up will also bring you down "In the chess game of competitive strategy, you can usually bet that incumbents won’t make moves that undermine their core strengths – until it’s too late." • Man and superman "Life is unfair: there are geniuses and then there are the rest of us. When great leaders go away, so does the greatness of their companies." • Yahoo should invest in products, not advertising "Yahoo is coasting on inertia... As we saw with AOL and countless other tech companies before them, that inertia will be lost if they fail to innovate." • WSJ’s factually challenged argument against net neutrality "Use-based pricing by ISPs would be disastrous for internet innovation, and especially for internet startups." media business • Will people pay for the New York Times online? "If the Times creates content that is scare and valuable... it can have the same success online as the Journal." • News is a lousy business for Google too "The internet exposed hard news for what it is: a lousy standalone business." • Why content sites are getting ripped off "Content sites have no way to track their role in generating purchasing intent." • Google and newspapers: the false choice of opting out "The power dynamics between Google and the newspapers has the same dynamics of any buyer-supplier market." new york city • New York City is poised for a tech revival "New York City has many of the same strengths as Silicon Valley – merit-driven capitalism, the embrace of newcomers and particularly immigrants, and a consistent willingness to reinvent itself." • The NYC tech scene is exploding "The one thing we really need to complete the ecosystem is a couple of runaway succesesses." • It’s not East Coast vs West Coast, it’s about making more places like the Valley "Investors and founders in NYC should try to make things that change the world." • There are roughly three New Yorks From Here is New York, E. B. White, 1949 mobile / geo • Some thoughts on the “geo stack” "There remains a huge opportunity to supplant the yellow pages as the default advertising platform in local business owners’ minds." • Are people more willing to pay for digital goods on mobile devices? "As the supply of mobile digital goods grows, consumers’ willingness-to-pay will drop and either advertising will emerge as the key driver of mobile economic growth or the mobile economy will disappoint." • The problem with online "local" businesses "The problem is that local business either don’t think of the web as an important medium or don’t understand how to use it." • Steve Jobs single-handedly restructured the mobile industry "With the introduction of the iPhone, Steve Jobs achieved something that might be unique in the history of business: he single-handedly upended the power structure of a major industry." economics / finance • The non-linearity of technology adoption "Be wary of analysts who draw lines to extrapolate technology trends... instead think about complements, network effects, and how technology markets have evolved in the past." • Six strategies for overcoming chicken and egg problems "Network effects can be your friend or your enemy depending on whether your product has reached critical mass. " • Dow 10,000 and economic reflexivity "As George Soros has argued for decades, all economic systems are profoundly circular, a property that he calls reflexivity." • What's the relationship between cost and price? "There are two ways people get confused about cost and price – a rudimentary way and a more advanced way. " • Software patents should be abolished "If we got rid of software patents tomorrow, innovation wouldn’t be reduced at all, and the only losers would be lawyers and patent trolls." venture capital industry • The other problem with venture capital: management fees "VC’s seem to be a big fan of performance-based compensation when it comes to startups. They should adopt it for themselves as well." • Getting a job in venture capital "There are a lot of really smart, well qualified, eager people who want to work in VC, and very few jobs. And it’s likely to only get harder as the industry contracts." • Everytime an engineer joins Google, a startup dies "I don’t see any reason we should assume venture-backed innovation can’t be dramatically increased." • Being friendly has become a competitive advantage in VC "The supply of venture capital dollars has increased at the same time as the cost of building tech startups has sharply decreased... the balance of power between capital and startups has shifted dramatically." • Incubators "Every successful startup requires a great entrepreneur focused solely on that company’s success. You can’t take a great idea and pass it off to a mediocre entrepreneur." • Options on early stage companies "So-called financial innovation in venture capital has been all about creating new kinds of options for investors, each one more obfuscatory than the last." • Money managers should pay the same tax rates as everyone else "A fireman who runs into burning buildings shouldn’t pay a higher tax rate than a financier sunbathing on a yacht eating $400 crabs." • Old VC firms: get ready to be disrupted "If you want to understand a VCs brand and abilities don’t look at their track record in the 90s – ask today's entrepreneurs. The answer will likely surprise you." me / hunch / founder collective • Presenting Founder Collective "Think of it as peer-to-peer venture capital." • Howard Lindzon interview Howard Lindzon interviewing me on Hunch, angel investing, etc. • 20x200: democratizing art "20×200 envisions creating a vast middle market, where anyone with an interest and a reasonable budget can become an art collector." • The inevitable showdown between Twitter and Twitter apps "In the technology sector, some of the most brutal competition has occurred between 'complements'." • Which VC firm should I pitch? Use Hunch to find the right VCs to pitch. computer science / security • To make systems smarter, it's all about the data "Significant AI breakthroughs come from identifying or creating new sources of data, not inventing new algorithms." • Machine learning is really good at partially solving just about any problem "Modern ML algorithms are the product of thousands of academics and billions of dollars of R+D and are generally only improved upon at the margins by individual companies." • Collective knowledge systems "I think you could make a strong argument that the most important technologies developed over the last decade are a set of systems that are sometimes called 'collective knowledge systems'." • Security through diversity "The same factors that frustrate you when you try to transfer your medical records between doctors or network the devices in your house are also what help keep us safe." • The cloud is a powderkeg "We have gone from a world where everyone hid money under their mattress... to a world where all the money is in just a few places..."