broadstuff

3 major points i plan to cover in this post:

1) Angel List Fucking Rocks. Period. it's the single greatest innovation in our industry in the last 5 years (aside from LinkedIn, Facebook, Twitter, & Quora) and it's great for almost all participants. and while social proof can be abused / misused, so can gasoline... doesn't mean you shouldn't fill up your gas tank and go back to riding horses. if you want to effect change, either Engage Fully, or Compete. inaction/boycotts are rarely useful & should be largely be ignored.

2) on average, "Spray & Pray" investing -- aka a High-Volume, Diversified & Quantitative Investment Strategy -- is not just "ok", it's actually BETTER than "Focused" investing (at least w/o insider or hidden knowledge). in fact, it is incredibly hypocritical and patently FALSE for the VC industry -- which has NEGATIVE IRR over the past 10 years, and historically poor performance -- to criticize high-volume strategies as being somehow crazy. if anything, their inaction and lack of innovation in the face of poor performance is the Insanity, and most of them (& their LPs) should be ashamed for lack of stewardship.

3) in the future, "Value-Added" investing will come more & more from domain-specific knowledge (engineering, product, design, marketing, customers) and less & less from investors with large networks & rolodexes who make "introductions", as their value is disrupted & marginalized by social platforms like LinkedIn, Quora, and Angel List.

- Firstly, too much money chasing the few decent "hot" assets, pushing their values far above any rational number

- Secondly, as the market abhors a vacuum, there is a rush to produce/find new assets for this money to chase.

- Thirdly, a need to find new layers of Greater Fool money to get into the system to keep it inflating (and pay out the first layers in the pyramid)

My biggest fear is that people confuse the “social proof” of other prominent investors on AngelList for real insight. Indeed, in a bubble people generally chase what other people are chasing leading to group think. The most innovative ideas are the ones that other people aren’t doing yet. How’s that for irony?

The lesson here is that just because innovations in communications technology happen does not mean that they matter; or, to put it another way, in order for an innovation to make a real difference, it has to solve a problem that was actually a problem in the first place. This is the question that I kept wondering about throughout Shirky's essay-and that had motivated my New Yorker article on social media, to which Shirky refers: What evidence is there that social revolutions in the pre-Internet era suffered from a lack of cutting-edge communications and organizational tools? In other words, did social media solve a problem that actually needed solving? Shirky does a good job of showing how some recent protests have used the tools of social media. But for his [Shirky's] argument to be anything close to persuasive, he has to convince readers that in the absence of social media, those uprisings would not have been possible.

The competitive landscape gets altered because the Internet allows insurgents to play by different rules than incumbents. (Curiously, the importance of this difference is best explained by Gladwell himself, in his 2009 New Yorker essay "How David Beats Goliath.") So I would break Gladwell's question of whether social media solved a problem that actually needed solving into two parts: Do social media allow insurgents to adopt new strategies? And have those strategies ever been crucial? Here, the historical record of the last decade is unambiguous: yes, and yes.

Digital networks have acted as a massive positive supply shock to the cost and spread of information, to the ease and range of public speech by citizens, and to the speed and scale of group coordination. As Gladwell has noted elsewhere, these changes do not allow otherwise uncommitted groups to take effective political action. They do, however, allow committed groups to play by new rules.

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Even the increased sophistication and force of state reaction, however, underline the basic point: these tools alter the dynamics of the public sphere. Where the state prevails, it is only by reacting to citizens' ability to be more publicly vocal and to coordinate more rapidly and on a larger scale than before these tools existed.

He notes that the technology's primacy is measured in longer time scales. Its importance lies in lowering the cost of communication and coordination. The argument goes like this: enabling people to communicate among themselves strengthens civil society. This in turn exposes the contradictions between what the authorities say and what truly exists—creating what Mr Shirky calls a "conservative dilemma" (employing a term from media studies). Thus the groundwork is set for reform. The technology simply helped it happen.

It isn't binary. There is a third case; advances we would not ever give up or reverse are not always pressaged by a clear identified problem to be solved. It may seem like a mundane example, but I still remember clearly how years ago, when the company I worked for were considering implementing email, as difficult to understand as it might sound today, no business case could be made. The IT manager responsible didn't know what to put on the form under the section "Business Case" for justifying the purchase. But that didn't mean everyone, execs included didn't just know it would make anything other than a huge difference to the business. Some improvements are huge, profound, even sometimes critical for, practically speaking, X, Y, or Z are to occur but may be difficult to measure nevertheless. A profound / big impact advance doesn't have to have a big problem To solve before it can rank as such. This kind of advance is much more rare, but not unprecedented and usually seems to involve enhanced communication.

The social psychology by which e.g. Hitler came to power has been much studied and is still not fully understood. To think the volume of communications and comparative instantaneity of social networking might not have a substantial and profound effect on an area involving mass social psychololgy, for me, shows a distinct lack of vision. On the other hand to make unfounded statements lacks academic rigour, so it's clear this will be a thesis rich topic, I'm not sure it is one that will result in a provable, verifiable conclusion. The debate is surely set to continue for some time yet.

A very experienced and successful entrepreneur came into our office a week ago to pitch his latest company. At the end of his pitch he showed us some numbers. Normally for a raw startup we see almost all product and engineering expenses (headcount). But his plan had a monthly budget for customer acquisition. After he left, we talked about his plan and my partners focused on the customer acquisition number. It bugged us. It felt wrong.

So a few days later, I called him. We talked about what we liked about his plan and pitch and what we didn't like. I brought up the customer acquisition line item at one point in that call. He said "every company needs a marketing budget." It seemed like a strong reply but in truth not one of our top performing companies had a marketing budget in their initial business plan.

Zynga has spent millions on customer acquisition and continues to do so. But in the beginning, when Zynga was three or four people and they launched Texas Hold'em on the brand new Facebook Platform, they didn't spend any marketing dollars. That was the beauty of that time and that plan. The Facebook Platform was free distribution. Zynga rode that free distribution to millions of users, profits, and additional games. Only then did they start marketing.

1. There is a New New Thing that trancends the Old Economics, and you cannot value It the Old Way. This Time It will Be Different. Dumb Money companies start paying over the odds for New Thing acquisitions.

2. Smart people who have been there before start calling it a Bubble (or at least a "Frothy Market"), New New Thing apostles make ever more glowing claims of the dizzy heights available, while "Startup Networking Events" start to proliferate.

3. Companies with founders deemed to have "rubbed off the right stuff" (ie sons of, ex employees of, etc etc) get funded straight off at eye watering valuations for next to no product proof or traction.

4. There is a flurry of new incubators and funds started by (newly minted) VCs

5. Companies start getting funded "off the slide deck" with no actual product

6. MBAs start leaving banks to start up companies

7. The "Big IPO" happens (Netscape et al)

8. The big Investment Banks start to make a market in the New New Thing, punting in your pension money, and have "entrepreneurial" options and divisions to retain les autres MBAs

9. Your Taxi Driver gives you advice on what stock to buy - you punt in your own pension money

10. A New New Thing darling buys an Olde Industry thing at Stupid $$$. This is the Top Of The Bubble.

New Change Impacts 12% Of US Results

The new algorithm — Google’s “recipe” for how to rank web pages — starting going live yesterday, the company told me in an interview today.

Google changes its algorithm on a regular basis, but most changes are so subtle that few notice. This is different. Google says the change impacts 12% (11.8% is the unrounded figure) of its search results in the US , a far higher impact on results than most of its algorithm changes. The change only impacts results in the US. It may be rolled out worldwide in the future.

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Officially, Google isn’t saying the algorithm change is targeting content farms. The company specifically declined to confirm that, when I asked. However, Matt Cutts — who heads Google’s spam fighting team — told me, “I think people will get the idea of the types of sites we’re talking about.”

The Broadstuff Bubble Curve, the role of J P Morgan et al is to jump that gap

J.P. Morgan Chase & Co. has quickly rounded up $1.2 billion for a new digital-growth fund, furthering Wall Street’s bold push to capture stakes in fast-growing private tech companies such as Facebook Inc. and Twitter Inc.

According to a regulatory filing, J.P. Morgan’s asset management unit raised $1.22 billion for a fund called J.P. Morgan Digital Growth Fund LP. That’s about double the amount reported last week by The Wall Street Journal, which, citing anonymous sources, stated the firm planned to raise between $500 million and $750 million for a digital-media fund to invest in Internet and digital-media companies.

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The new fund shows that Wall Street is placing a premium on hot Internet companies. Last month, Goldman Sachs Group Inc. raised $1 billion from its foreign clients to invest in Facebook at a $50 billion valuation.

And as it broke on Friday, there was a mixture of real-time commentary, news and updates from the companies themselves (namely Twitter / @Support and Bill Gross).

Whether in real-time or as a digest, Techmeme was the best way to follow. Why? Because Techmeme had figured out how to appropriately (and immediately) combine the different news sources and formats… most of which was blurred between news and tweets.

(i) There is a hell of a lot more stuff there now to wade through, and that real estate is precious - I want to read the blogs I like and trust, and scanning through the longer twts (some of which look like txt speak) is more jarring than blog post headings in my opinion

(ii) Personally, I don't find the twts high value, as they all tend to say roughly the same thing, which typically I've already seen on Twitter or wherever - there are only so many ways you can say "ZOMFG Twitter kicked off UberTwitter go here [link]." in 140 characters, and there is precious little analysis in a twt after you've read 2 or 3

(i) You sort of just get the same news review you have just read on Techmeme again (especially as many of the Quora participants have typically made a Twitter post that has already been picked up on Techmeme), and then you have to go scanning the Quora page to see something new and its just sloppy seconds of the same stuff (in this case anyway, maybe other discussions are better).

(ii) I prefer different aggregators for news - Hacker News, Slashdot for example - to me Quora is just FriendFeed 2.0 - same people (who are everywhere anyway), same conversations, and with the interconnected twts and often blog posts from the same people all linking to their other posts in different media it all became a bit like a "mini link farm" around this story in my opinion (I should draw the lines between the items that are interlinked on the above page)

(i) Twitter feed is useful when Ryan saw it - on the sidebar as an early warning. less so when I saw it later, spamming the picture. IMO Twitter's value is speed, not content. I wonder if there is some way of killing tweets after they have been on a while, or showing them as a separate grouping / having a "show no tweets" filter option?

(ii) Quora is both easier - I can ignore it - and harder: I really question the use of another aggregator as a major news source, because the screen real estate and my attention are the limited resources. I would probably prefer to see it as a another link to the main story in the commentary section (like Slashdot sometimes is) rather than a destination in its own right.

Bubbledynamics adapted from Geoffrey Moore's Technology Adoption Curve (Broadstuff Analysis)

Over the last three months alone, Facebook’s roughly $33 billion valuation has roughly doubled, to an estimated $60 billion. Zynga’s reported valuation has jumped to upwards of $9 billion from $4 billion last May. And both pale in comparison to Twitter, which generated an estimated $150 million in revenue in 2010 yet has reportedly received overtures that peg its worth at between $8 billion and $10 billion. (Just two months ago, when Kleiner Perkins led a $200 million investment in Twitter, its valuation was $3.7 billion.)

Fueling the fire are firms like Andreessen Horowitz, which last week sunk $80 million into secondary shares of Twitter, and Kleiner Perkins, which this week threw $38 million at Facebook shareholders to (finally) add the company to its portfolio. But they’re certainly not alone. According to the secondary shares marketplace SecondMarket, VCs have represented the majority of SecondMarket’s buyers since the third quarter of 2010 and they accounted for more than 40 percent of its transactions in the fourth quarter.

Maybe the VCs truly believe that Facebook, Twitter, Groupon and Zynga are on the cusp of becoming among the most valuable companies in the world. But it may also be true that they believe they can sell their shares to a greater fool. (JPMorgan’s planned social media fund jumps to mind.)

Either way, when the chain ultimately ends, few, including Cuban, will feel terribly sorry for those left holding empty envelopes.

“When the market has a correction, stock prices will correct dramatically, and that sound you’ll hear from the Valley?” says Cuban. “[It] will be of a fund manager screaming, ‘Sh_t!’ as he turns out the light on his fund.”

Americans LOVE to speculate. Read my pal Michael Bigger’s post and don’t forget it!

I am too happy to be cynical right now. I will save the cynicism for when it’s trendy again. Right now, dumb is winning.

This bull run is very real and very liquidity driven and the gains in my portfolio are shockingly real. They would be more real if the cynic in me had just died a horrible death in 2010.

If your cousin is pitching you startups, heed Mark’s advice. If your cousin is telling you the market is a scam, thank him and buy some more $aapl .

Twitter is not yet evenly distributed: some fields, like technology and science, have very large communities of fans; others, like literature or art, have more incipient Twitter communities – but are none the less plainly influential. So we also searched specifically (further down the rankings) for people who had particular resonance in certain fields; and further refined our list by focusing on those who were especially trusted by other experts. This was where the advice of our expert panel came in.

Our five-person panel comprised Azeem Azhar, founder of PeerIndex; Ian Burrell, media editor of The Independent; Julia Hobsbawm, founder of Julia Hobsbawm Consulting and the media networking business Editorial Intelligence; Steve Moore, director of the Big Society Network; and Stefan Stern, cultural commentator and director of strategy at the Edelman PR agency. They analysed the initial results of PeerIndex's calculations, made recommendations and disqualifications, and argued for extra weighting for certain key tweeters whose significance to the medium is, in their expert judgement, greater than the numbers imply. Such interventions were kept to a minimum but give our final list the crucial virtue of having been assembled through the prism of human intelligence.

(i) The Mainstream media is sleb-obsessed, but its mainly because slebs are walking advertising billboards, whereas said media have no tight feedback mechanism for measuring (a) what their readers really think of said slebs and (b) how influential they are (For example some slebs are influential insofar as their lives are total train wrecks - but no one would actually buy anything on their say so)

(ii) Twitter is (largely) still ABC1 demographic - people of wit, discernment and taste - or at any rate, they expect to see interesting interaction with their favourite famous ones. Going from Mass to Social Media is a bit like the jump from Silent to Talkie movies - suddenly one finds some of the stars of the silent screens sound ridiculous, and the 'Net effect is people run away from them.

Media Value chain during Epyptian Revolution

Through this, an even greater underlying principle emerged: Social media is built and designed to support social movements. The social media framework itself is a powerful underlying force that allows the momentum of movements to surge uncontrollably and organically. A revolution, a movement, or any major social cause nourishes on unity, “people power,” advocacy, connectivity, grassroots mobilization, free expression and shared aspirations… all of which are inherently embedded within the social media skeleton and system. (Best example lies within Facebook). It is almost as if social media perfectly fits as a layer within a movement’s structure.

If anyone wants to challenge a status quo, energize and mobilize their network towards a cause…

- Where do you think they will go first?
- What will help them gather supporters and resources faster and more efficiently?
- What will allow them to connect, notify, and engage their base?
- What will help them easily organize events, rallies and get donations?
- What will help them recruit other activists and get their voices across?

I’m talking on behalf of Egypt. This revolution started online. This revolution started on Facebook. This revolution started in June 2010 when hundreds of thousands of Egyptians started collaborating content. We would post a video on Facebook that would be shared by 60,000 people on their walls within a few hours. I always said that if you want to liberate a society just give them the Internet…. The reason why is the Internet will help you fight a media war, which is something the Egyptian government regime played very well in 1970, 1980, 1990, and when the Internet came along they couldn’t play it. I plan to write a book called Revolution 2.0… that will highlight the role of social media.

Twitter is a very important tool for protesters, as evidenced by the fact it and Facebook were repeatedly blocked in Egypt as the protests flared up. We use it to campaign and spread the word about protests/stands–hashtags are invaluable in that respect, and to share news quickly and efficiently, with our own 140-char commentary on them, and subsequently have conversations with random people/complete strangers. But most importantly, it allows us to share on the ground info like police brutality, things to watch out for, activists getting arrested, etc.

As in many authoritarian countries, Egypt’s Internet must connect to the outside world through a tiny number of international portals that are tightly in the grip of the government. In a lightning strike, technicians first cut off nearly all international traffic through those portals.

In theory, the domestic Internet should have survived that strike. But the cutoff also revealed how dependent Egypt’s internal networks are on moment-to-moment information from systems that exist only outside the country — including e-mail servers at companies like Google, Microsoft and Yahoo; data centers in the United States; and the Internet directories called domain name servers, which can be physically located anywhere from Australia to Germany.

The government’s attack left Egypt not only cut off from the outside world, but also with its internal systems in a sort of comatose state: servers, cables and fiber-optic lines were largely up and running, but too confused or crippled to carry information save a dribble of local e-mail traffic and domestic Web sites whose Internet circuitry somehow remained accessible.

“I think it’s been incredibly condescending to diminish, if you will, what was an incredibly popular revolution the likes of which the Arab world has not seen, perhaps the whole world has not seen, and just to say that it was a Facebook event or a Twitter event.” — Parvez Sharma, filmmaker and writer

- a good way to create and aggregate "Seditous Content" before the actual "Street Phase" of a revolution, however, the reasons for dissatisfaction have to exist already
- a way of building up "weak ties" into a point where "strong ties" may be possible. However, it does not (yet) seem to promote the spark of actual open revolt
- is probably overstated by Westen proponents as a force in Egypt as (i) penetration is low, (ii) western (especially US) observers are getting a disproportionate amount of their data via this source and (iii) there is quite a bit of self interest in advancing the cause (and opposing it, for that matter) so claims tend to be over-optimisitc
- not as useful once people are on the streets as before
- is more prone to shutdown as most 'Net distribution assets are "in country" than "out country" and can be blocked - Foreign assets like satellites, or unjammable assets like paper, word of mouth, etc are more reliable. Rely on teh 'Net at your peril
- is a useful component of the data fed back to Western peoples, to rapidly dissuade their governments from propping up the Old Regimes

Alyouka also notes how the Egyptian authorities themselves were trying to use Twitter to spread propaganda and misinformation in a “painfully awkward” manner (the fake accounts are always easy to spot, aren’t they?). The tell-tale signs: always repeating the same Tweets, word-for-word, over different accounts about how bad the protests were for the country or praising Mubarak with few followers and very few tweets per account.