SocialStartups.com

Screenshots of the app coming next.

1. 22M reviews of 19M businesses, averaging 100 words per review.
2. 529k businesses have "claimed" their page.
3. 19k local businesses pay for advertising, spending an average of $234/mo.
4. Yelp made $40M in local advertising revenue so far this year, and $58M overall.
5. That said, Yelp lost $7.6M in revenue so far this year, mostly due to spending $38.5M on sales & marketing.
6. Yelp admits that a substantial amount of their traffic comes from search engines, with Google representing 50% of that traffic, and if they were to lose their rank in unpaid search results, they are screwed. I mean, it would have a "substantial negative effect."
7. The top categories for reviews are "Shopping" and "Restaurants", each representing 23% of all reviews. I'm surprised, as I've never looked at a "Shopping" review. I would have guessed "Restaurants" would be 50%.

The biggest takeaway here is that Yelp is actually have a HUGE problem getting businesses to engage with them. Only 2.78% of businesses have claimed their Yelp page, and only 0.1% of businesses are advertisers. That's despite what you'd imagine to be a strong brand that a lot of people know. I wonder how Foursquare feels…

Back in 2008, David Karp and John Maloney visited me and my friend Bre Pettis at the Etsy offices to discuss an idea we had*. David shared with us this idea that Tumblr could be a new kind of search engine for the internet.. a search engine whose index only contained content a human had deemed valuable.

Anthony (soupsoup) has clearly understood that potential from the beginning, both in how he uses his Tumblr dashboard to curate news and how he manages Neighborhoodr.

Anyway, yesterday I finally got to meet Christina Cacioppo, Union Square Venture's newest associate, and she told me that she's been seeing a lot of pitches lately trying to tackle the relevancy problem through personalization (something I know a lot about having been the product manager for that team at Amazon.com). This is both relevancy as it relates to news, e-commerce, or otherwise (art, music, relationships). Our conversation reminded me of what David Karp said and what Anthony does… and given Tumblr's latest round of funding I've been thinking a lot about what I think Tumblr could do to create $500M in value (which is what I think their exit would need to be given their latest round and valuation).

So where is the real value? I don't have it all figured out yet. My intuition is applying the tumblr human filter network to long tail categories – fashion, news, humor, art, music – as a way to extract the diamonds from the rough. Is that monetizable? Maybe it is, in the context of e-commerce, where people pay to purchase those fashionable objects, artistic pieces, digital albums, or concert tickets.

Tumblr currently has 47.8M uniques a month, according to Quantcast. For the purposes of easy math, let's say they get to 100M uniques in 12-18 months, and 3% of all users buy something via Tumblr post. Furthermore, let's say the average item price is $15 (way less for music, way more for clothing / tickets / art) and Tumblr takes a 5% transaction fee. 100M * 3% * $15 * 5% = $2.25M / mo or $27M / year. Add on a couple other revenue streams (premium themes, sponsored posts in your dash, sponsored Radar items, sponsored Tumblrs you might want to follow) and I could see them getting to the $40-50M / year range. Not sure that gets you acquired for $500M, but it's in the ballpark.

What do you think?

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*Basically, give every Etsy user a tumblog, and populate it with all of the items they "favorited". Then, you could follow the tumblogs of people who's tastes you loved. The motivation was to solve the "I can't find anything on Etsy" problem, plus increase user engagement. We both left Etsy before we could make it happen. Hopefully SVPPLY can fill the gap we saw.

quoted from Micro VCs Are all BFFs… Forever?

Micro VCs are notorious for building large and friendly syndicates.  One or two players decide (sometimes rather quickly) to make a seed-stage investment in a new startup, and as a round comes together they invite in a number of their Micro VC and angel cohorts.  What’s the reasoning for all of this chummy behavior?  While traditional VCs sometimes have a love/hate relationship with their syndicate partners (often depending on how well their mutual portfolio companies are performing), it seems as though in the Micro VC arena all of the players speak and act like best friends.  Can this friendship last forever?

Just like traditional VCs, Micro VCs syndicate to pool their risk and their (tangible and intangible) resources in maximizing the upside of the investment while hedging the downside.   Therefore, the most obvious reason for Micro VCs to syndicate more prevalently is due to capital constraints.  When a Micro VC is working from a relatively smaller pool of capital (usually less than $25M per partner), it would prefer to spread risk out further.  Plus, unlike traditional VCs which have capacity to invest over the life-cycle of the startup, Micro VCs can usually only afford to play for a round or two.  Or not even a full round in many cases.  By definition MicroVCs need each other.

However, the friendly nature of syndicates is not just dictated by capital constraint, but deal sourcing and velocity as well.  Perhaps implicit in Micro VC model is the aim to potentially maximize the number of good deals to deploy capital, as opposed to maximizing the amount of capital deployed into a number of potentially good deals.  Given the number of deals that they do each year, Micro VCs more actively turn to their peers for deal sourcing.  This situation is further exaggerated by the smaller funds they manage which result in less management fees.  Without additional cash flow coming into the firm, Micro VCs lack the ability to hire associates or other support to provide leverage on deal sourcing, so they instinctively turn to their fellow firms.

This reliance on outsider syndicates for deal flow does present risks for Micro VCs.  Outsourced deal sourcing shouldn’t be confused as outsourced deal diligence – a potential fatal flaw which does certainly happen.  Playing nicely in syndicates is not reliable due diligence, period.  This group-think effect also fosters a negative situation for entrepreneurs as well.  With Micro VCs building syndicates in familiar packs, a cursory investment decision by one group-member can spread quickly.  Somebody passes in a clique, and soon an entrepreneur is receiving an automatic “no” from the rest of the network of informal ties.

The third reason Micro VCs travel in overly-friendly packs is that the Micro VC space is relatively immature, so the supply of good investment opportunities is still outweighed by the demand.  Almost all of the firms or quasi-firms are just a couple years old.  As the Micro VC space matures and there are additional entrants in the market, potential competition for getting into deals and more capital in each will increase.  This evolution will drive up the “price” of getting into good deals and the chumminess will be dampened.  

Moreover, as some Micro VCs experience success and decide to change strategies by “growing up” into traditional VCs, their capital constraint goes away.  So players who were friendly originally may be less so down the road.  Yet just as traditional VCs are face their peer firms as coopetition, this situation will endure in the Micro VC segment as well.  As the space matures some of the over-enthusiastic pupply-love will be lost.  And if Mirco VCs lose their defining characteristics and become the pigs at the end of Animal Farm, they’ll lose the overtly syndicate friendliness.

But as long as these Micro VC players remain capital constrained and seek a higher deal velocity, they’ll remain good friends forever.  A critical mass of high quality friendly syndicates creates an activation energy for an ecosystem.  Having more smart people giving their time and their resources into a startup market creates a ripple effect of new companies, better performing companies, and ambitious entrepreneurs.  Afterall, it’s good to have friends.

This is a dynamic I'm in the midst of and watching very closely. I wrote about this in detail in my latest letter.ly mailing (sign up here!), but I predict "spray and pray" angels who put in $10-50k will get investing fatigue, Micro-VCs will beat out VCs for the new Series A ($750k-2M on $3-5M pre), and the first VC only rounds will look a bit like Series B rounds ($3-6M on $8-12M pre).

quoted from Why Japan Isn't the U.S., or the Reverse.

Lots of people continue to make over-strict comparisons between Japan's debt-engorged situation and that of the U.S. There is a new Credit Suisse report out arguing that such comparisons are way overdone. Here are the main bullets:

• The US has had far more proactive fiscal/monetary policy (Japanese monetary conditions were tight until 1995 unlike the US today, Japan fiscal easing was small);
• Japan had falling wages since 1997 and negative inflation expectations since 1993 (US wage growth and inflation expectations are >2%). Falling wages create sustained deflation;
• Asset deflation was more acute in Japan, with house prices declining by almost 80% in the big cities;
• The US moved to recapitalise banks quickly and have already written down 85% of their estimated losses (Japan needed 13 years to do that);
• Japan was very slow to de-regulate (and hence the price of labour fell as oppose to the quantity) with companies having little incentive to maximise RoE, the return on capital is a third of the US;
• Deflation became economically and politically acceptable because Japanese households have net financial assets of 41% of GDP so they benefit from deflation.

I don't disagree, but keep in mind that it's early. Japan has had more time to sink deeply into its mess than the U.S. has.

I'd like to think that the various US government bailouts have helped us avoid a decade of deflation, but I strongly believe there has been a structural shift in employment that will leave a lot of blue collar / lower middle class people out of work for a long time.