Comments on: On VCs and Products and Services: Another very provisional post http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/ a blog about information Mon, 06 Feb 2012 01:37:12 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Stephen Smoliar http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/comment-page-1/#comment-23697 Stephen Smoliar Fri, 17 Nov 2006 22:23:54 +0000 http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/#comment-23697 bobby, you have been spending too much time listening to Gordon Gecko! The fundamental rule of investment is that what you get out in more than what you put in; otherwise, you would get a better tax break by giving the money to charity! What surprised me is that yours was the first to voice the ROI concept. Is everyone else out there naive enough to believe that VCs "do their thing" out of a passionate love of innovation? Wake up and smell the coffee! I have yet to meet a VC who did NOT invest in a new endeavor without first having a clear exit strategy! If only those guys had been in control of the funds for our adventures in Iraq ... bobby, you have been spending too much time listening to Gordon Gecko! The fundamental rule of investment is that what you get out in more than what you put in; otherwise, you would get a better tax break by giving the money to charity! What surprised me is that yours was the first to voice the ROI concept. Is everyone else out there naive enough to believe that VCs “do their thing” out of a passionate love of innovation? Wake up and smell the coffee! I have yet to meet a VC who did NOT invest in a new endeavor without first having a clear exit strategy! If only those guys had been in control of the funds for our adventures in Iraq …

]]> By: bobby http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/comment-page-1/#comment-23383 bobby Thu, 16 Nov 2006 20:43:39 +0000 http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/#comment-23383 you missed one ingredient in the VC game... VC's call it ROI, we call it GREED you missed one ingredient in the VC game… VC’s call it ROI, we call it GREED

]]> By: hugh macleod http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/comment-page-1/#comment-22768 hugh macleod Tue, 14 Nov 2006 21:05:05 +0000 http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/#comment-22768 "As we move towards realms where more and more things get commoditised, and more quickly at that, it is reasonable to assume that the only aspect of a service offer that differentiates one firm from another is the quality of the customer experience." Sounds like you've been hanging out with English Cut customers ;-) “As we move towards realms where more and more things get commoditised, and more quickly at that, it is reasonable to assume that the only aspect of a service offer that differentiates one firm from another is the quality of the customer experience.”

Sounds like you’ve been hanging out with English Cut customers ;-)

]]> By: Phil Boxer http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/comment-page-1/#comment-22735 Phil Boxer Tue, 14 Nov 2006 18:06:28 +0000 http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/#comment-22735 I wonder if VCs tend to use NPV models on their investment options - models that work best for product- or solution-based businesses, where the supplier can take up a symmetric relationship to demand. The quaternary-and-beyond sectors are experience-based businesses, necessarily treating demand as asymmetric, but nevertheless dependent on their enabling platform infrastructures. From the point of view of the investment in infrastructure, this would mean using an approach along the lines of real option pricing to consider the value of the range of possible uses for the platform. This would require a different kind of understanding of markets, closer to that required in the evaluation of credit risk. So perhaps there is a different kind of VC out there, more focused on investing in organizations of demand than of supply? I wonder if VCs tend to use NPV models on their investment options – models that work best for product- or solution-based businesses, where the supplier can take up a symmetric relationship to demand.
The quaternary-and-beyond sectors are experience-based businesses, necessarily treating demand as asymmetric, but nevertheless dependent on their enabling platform infrastructures.
From the point of view of the investment in infrastructure, this would mean using an approach along the lines of real option pricing to consider the value of the range of possible uses for the platform.
This would require a different kind of understanding of markets, closer to that required in the evaluation of credit risk. So perhaps there is a different kind of VC out there, more focused on investing in organizations of demand than of supply?

]]> By: The Equity Kicker » Blog Archive » Product investing and ‘because of’ rather than ‘with’ http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/comment-page-1/#comment-22688 The Equity Kicker » Blog Archive » Product investing and ‘because of’ rather than ‘with’ Tue, 14 Nov 2006 12:23:18 +0000 http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/#comment-22688 [...] In On VCs and Products and Services JP commented on this, wondering if VCs are missing the point somehow as we move into a ‘Because Of rather than With world’. [...] [...] In On VCs and Products and Services JP commented on this, wondering if VCs are missing the point somehow as we move into a ‘Because Of rather than With world’. [...]

]]> By: JP http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/comment-page-1/#comment-22635 JP Tue, 14 Nov 2006 06:18:58 +0000 http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/#comment-22635 Maybe it's not the industry I come from, but the culture. Microdebt? Grameen Angels? I wonder. Let's see what Sean has to say.more later. Maybe it’s not the industry I come from, but the culture. Microdebt?
Grameen Angels?

I wonder. Let’s see what Sean has to say.more later.

]]> By: Ross Mayfield http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/comment-page-1/#comment-22612 Ross Mayfield Tue, 14 Nov 2006 04:54:52 +0000 http://confusedofcalcutta.com/2006/11/14/on-vcs-and-products-and-services-another-very-provisional-post/#comment-22612 Oh, my, this is interesting. The VC model prefers product companies because their ideal is something where the product instills such demand that customers put up with crappy service. This is of course justified by the focus on gross margins. But you have to wonder how sustainable margins are without service. And without service, negative externalities arise, partially because the absence of service is a commitment to disregard relationships over profit. Over time, these relationships become _managed_ and spirals (an uphill snowball?) into crisis events. Whereupon the larger company's survival instincts kick in with a new commitment for service. The question is when this happens they fall into older models, false new ones (like self-service, which is good in theory, as some information might be difference that makes a difference), or venture into new ones (community service, where differences accrue). Unfortunately for a venture startup, the service-profit chain and word of mouth properties (you can't just claim legendary service, the little stories amount to a big one) take time to effect. And when they do, they command a premium, out of something akin to respect. Oh, and to your question, the funding of common infrastructure. Of pooling of risk. There is a need for new models. The promising ones in use you know already, where property is initially and perpetually made common to lower the barrier to contribution. Open Source licenses commoditize, but to the level of an individual. But in some cases, the initial contributions need to be high. I actually think the answer here is from within your last industry, and something that people like you and Sean know better than I. Think about Collateral Management in credit derivatives. Such a system pools risk and hedges against it by balancing each contribution. Unlike a full-fledged clearinghouse, an investment to cover the whole system isn't made up front. Each contribution is like an anti for a poker game, letting them snowball. But the difference is the spoils are shared and not stacked towards a house. There is no house. Oh, my, this is interesting.

The VC model prefers product companies because their ideal is something where the product instills such demand that customers put up with crappy service.

This is of course justified by the focus on gross margins. But you have to wonder how sustainable margins are without service. And without service, negative externalities arise, partially because the absence of service is a commitment to disregard relationships over profit. Over time, these relationships become _managed_ and spirals (an uphill snowball?) into crisis events. Whereupon the larger company’s survival instincts kick in with a new commitment for service.

The question is when this happens they fall into older models, false new ones (like self-service, which is good in theory, as some information might be difference that makes a difference), or venture into new ones (community service, where differences accrue).

Unfortunately for a venture startup, the service-profit chain and word of mouth properties (you can’t just claim legendary service, the little stories amount to a big one) take time to effect. And when they do, they command a premium, out of something akin to respect.

Oh, and to your question, the funding of common infrastructure. Of pooling of risk. There is a need for new models. The promising ones in use you know already, where property is initially and perpetually made common to lower the barrier to contribution. Open Source licenses commoditize, but to the level of an individual.

But in some cases, the initial contributions need to be high. I actually think the answer here is from within your last industry, and something that people like you and Sean know better than I.

Think about Collateral Management in credit derivatives. Such a system pools risk and hedges against it by balancing each contribution. Unlike a full-fledged clearinghouse, an investment to cover the whole system isn’t made up front. Each contribution is like an anti for a poker game, letting them snowball. But the difference is the spoils are shared and not stacked towards a house. There is no house.

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