MediaMemo » Union Square Ventures

Early Twitter Backer Union Square Sits This One Out

Peter Kafka — Fri, 25 Sep 2009 21:56:05 +0000

Twitter CEO Evan Williams thanked a long list of investors in his blog post today formally announcing his newest funding round. Not included: New York’s Union Square Ventures, which has been one of the messaging service’s most prominent backers, but which didn’t reinvest in the company this time.

Union Square was the lead investor in Twitter’s first funding round in July 2007, and participated in subsequent rounds in May 2008 and February of this year. In that last round, Union Square said it was re-upping “to maintain our ownership position.”

What happened this round?

Union Square partner Fred Wilson, who is a Twitter board member and a tireless Twitter advocate (and Twitterer) declined to comment. So I’ll hazard an Occam’s Razor guess: The $1 billion valuation that Twitter achieved in this round priced out Wilson’s fund.

If that’s the case, it’s a high-class problem to have. Union Square is a relatively small venture player (the two funds it manages have a total commitment of $281 million). It specializes in early-round investing in which the bets are comparatively low stakes–a few million dollars here and there. If things go well, those bets are enough to get the company to an exit–in the old days, that meant an IPO, these days, a sale to Microsoft (MSFT), Yahoo (YHOO) or Google (GOOG).

But as the valuations increase, so do the amounts a start-up’s investors need to pay to keep their ownership stake, which is why angels and other early investors usually drop away. A player Union Square’s size can play up to a point, but then has to step aside or it would end up with most of its portfolio invested in a single company.

In order to re-up at this level, Union Square would have needed to make a much larger bet than it is used to making, and perhaps more than it is able to make. The new round, which raised $100 million, is nearly twice as much as the $55 million Twitter had raised to date. Which means Union Square’s bet would likely have to double as well.

[Image credit: Steve Jurvetson]

What, Exactly, Is Foursquare? And Why Are Investors Clamoring for It?

Peter Kafka — Tue, 08 Sep 2009 10:00:17 +0000

Many digerati had this reaction to last week’s news that mobile start-up Foursquare had closed its first financing round: About time.

And many also had this reaction: Why, exactly, should I care about Foursquare?

The first reaction makes sense. Foursquare is just a few months old, but it has received an extraordinary amount of buzz and press since its debut at South by Southwest in March. That seemed to reach a fever pitch this summer when Twitter investor Fred Wilson started blogging about it.

And sure enough, Wilson’s Union Square Ventures did indeed end up betting on the company. The $1.35 million round was actually led by O’Reilly AlphaTech Ventures, and by all accounts investors were clamoring to throw money at the revenue-free start-up, which may have all of 50,000 users. I know of at least one high-profile VC firm that wanted into the deal but got shut out.

But the befuddled reaction some people have to Foursquare also makes sense. Foursquare is a “location-based” app for your iPhone (or Android-based phone, or even your BlackBerry) that sort of combines elements of Twitter and Yelp and “social” Web/mobile games like Zynga’s Mafia Wars. But even if you’ve used it, it’s not exactly clear what you’re supposed to do with it. You tell your pals that you’re visiting this bar or that restaurant and then…what?

At least, that was my reaction when I played with Foursquare at South by Southwest in Austin: I couldn’t figure out how it was more useful than Twitter at broadcasting my location and/or finding my friends.

And once I got back to Brooklyn, there didn’t seem to be any point to the service at all for me. No point in telling anyone where I am because it’s almost always the same place: My apartment in Brooklyn. Nothing to see here.

But my nightlife problems aside, there are a bunch of people who think co-founders Dennis Crowley and Naveen Selvadurai are on to something. Even if they’re not sure exactly what it may be.

A more cynical take: Crowley sold Dodgeball, his last buzzy mobile start-up, to Google in 2005. And even if Crowley was unhappy about the way things turned out after that–he left in 2007, and Google (GOOG) pulled the plug on Dodgeball (along with a host of other nonstarters) this year–it’s always good to bet on a guy who’s already had one successful exit.

But why not listen to Dennis Crowley explain what he’s up to in his own words? Here’s an interview I taped with him last month, a couple days before he closed his funding round.

[ See post to watch video ]

Web Video Darling Boxee Gets Another $6 Million: Are Zero Revenue and Big Plans Worth $25 Million?

Peter Kafka — Wed, 12 Aug 2009 15:46:07 +0000

Yet another sign that revenue-free start-ups can still attract investors, given the right pitch: Boxee, the software company that makes it easy to get Web video onto your TV, has raised a $6 million B round led by General Catalyst. I’m told the new round pegs the company’s value in the $25 million to $30 million range.

Boxee has a small but passionate following of some 600,000 users, and it’s gotten a lot of attention this year, much of it via a fight with Hulu, which doesn’t want its video showing up on Boxee browsers.

But Boxee doesn’t have any revenue, or much of a concrete plan to generate any in the near term: The software is free for consumers, and while CEO Avner Ronen thinks there could be some rev-share possibilities with Web video providers down the road, they’re…down the road.

So what’s the appeal for company’s backers, which also include Union Square Ventures and Spark Capital, which put $4 million into the company eight months ago and participated in this round as well? It’s pretty straightforward: The $70 billion TV business is in the first steps of a massive reordering, and perhaps Boxee can play a role in it.

The chief appeal is that Boxee can function as an “over the top” alternative to cable TV, giving users the ability to get their favorite programs on a big screen without having to pony up to the likes of Comcast (CMCSA). Ronen wants to use some of his money to ramp up efforts to strike deals with consumer electronics companies like Sony (SNE) and LG, which are pushing Internet-connected TVs, and Microsoft (MSFT), whose Xbox game console is increasingly functioning as an entertainment hub.

But there are plenty of other players jockeying for similar positions, from services like ZillionTV to device makers like Roku, and even Apple (AAPL). And Boxee’s status as a potential disruptor has a downside as well: It’s the reason that Hulu, backed at the time by News Corp.’s (NWS) Fox and GE’s (GE) NBC, sought to prevent the service from accessing its shows earlier this year.

That said, there hasn’t been much saber-rattling from either side in recent months. Perhaps this has to do with Disney’s (DIS) ABC, which had previously enjoyed friendly relations with Boxee, coming aboard the joint venture.

Here are a couple interviews I’ve conducted with Ronen this year: The first one was taped at the Consumer Electronics Show show in January, when his start-up was soaking up the first wave of attention from the TV industry; the second was taped in March, after Boxee had attracted Hulu’s ire.

[ See post to watch video ]

The Twitterhack Is Cloud Computing's Wake-Up Call: Time for Security That Works

Peter Kafka — Wed, 15 Jul 2009 12:51:35 +0000

One downside of being the world’s most talked-about start-up: You become an irresistible target for hackers.

Now Twitter, which has suffered multiple security breaches in the past, has been punctured again. Someone has gotten into the personal Web services accounts of co-founder Evan Williams, his wife and at least one other Twitter employee, and used that access to make off with a pile of confidential company documents. He’s now distributing them on the Web, and TechCrunch promises to publish many of them.

The media ethics colloquy is well underway and will go on for a while (Boomtown’s Kara Swisher is holding her session, appropriately enough, via Twitter). Beyond that, I’m pretty sure Twitter is going to be okay when this dies down.

Based on Williams’s description of the attack (see the bottom of this post), as well as both TechCrunch’s and the hacker’s descriptions of what got pilfered, this looks roughly akin to having your underwear drawer rifled: Embarrassing, but no one’s really going to be surprised about what’s in there.

The hack certainly will be worrisome for people who are using, or thinking about using, any kind of “cloud computing,” whereby work data/documents are stored on servers accessed via the Web. Google (GOOG) in particular is going to get some scrutiny, both because it’s Google and because it appears that a lot of this stuff was stolen after the hacker used Google’s “password recovery” system to root around. UPDATE: Twitter is now going out of its way to say that the attack isn’t Google’s fault, but Twitter’s fault for using passwords that are easy to guess.

Albert Wenger, a partner at Twitter investor Union Square Ventures, says in a post that his shop is currently considering moving its systems to Gmail and Google Docs, but notes the big problem: “The threat of access by a third party increases exponentially with the move to the cloud, because the machines that now contain the documents and the links to those documents (as sent by email) are accessible to the Internet at large.”

But cloud computing isn’t going away, so someone’s going to need to figure out how to make security better, yet still practical. There’s a reason no one follows the standard advice about having a different, impossible-to-remember password for every account you have. Wenger takes a stab at it in post–he suggests something tethered to a mobile phone. But whoever figures it out is going to have a lot of fans.

Williams’s description of the hack, via TechCrunch:

Yes, we did suffer an attack a few weeks ago and are familiar with this list of stuff. This is unrelated to the hack of twitter where someone gained access to user’s accounts. This had nothing to do with the security of twitter.com, and there were no user accounts compromised here.

Some notes:

- He did not actually gain access to my @ev Twitter account (or any Twitter accounts) nor any administrative functions of the site.
- There is also no evidence that he gained access to my email. There was one administrative employee who’s email was compromised, as was my wife’s Gmail account, which is where he got access to some of my credit cards and other information.
- He also successfully targeted a couple other employees personal accounts (Amazon, AT&T, Paypal…)

In general, most of the sensitive information was personal rather than company-related. Obviously, this was highly distressing to myself, my wife, and other Twitter employees who were attacked. It was a good lesson for us that we are being targeted because we work for Twitter. We have taken extra steps to increase our security, but we know we can never be entirely comfortable with what we share via email.

[Image credit: Wikimedia Commons]

Hulu Brushes Off Boxee, and Boxee Comes Back for More

Peter Kafka — Sat, 07 Mar 2009 02:00:43 +0000

Just in case anyone was wondering: Hulu, the Web video service that lets you watch Fox and NBC shows on your computer, really doesn’t want you to plug that computer into your TV.

And Boxee, a start-up that makes it easy for you to plug your computer into your TV so you can watch Web video, doesn’t care.

Got it?

Here’s where we are: Early this morning, Boxee rolled out a workaround that let Boxee users watch Hulu shows again, which they haven’t been able to do since last month when Hulu pulled its shows off Boxee’s browser. Late this afternoon, Hulu squelched that workaround.

And as of now (8:51 p.m. EST), Boxee CEO Avner Ronen tells me, his team has made another series of tweaks that will let you watch Hulu shows on Boxee yet again. Ronen says he’s not quite sure about the technical details, but argues that his service has every right to let you watch Hulu on your television, since Hulu is a free Web service that anyone (in the U.S.) can access.

But he is sorry that he’s now playing cat-and-mouse with Hulu, a joint venture between GE’s (GE) NBC and News Corp.’s (NWS) Fox. “It’s not a very productive way to spend our time,” Ronen says. (News Corp is the owner of Dow Jones, which owns this Web site.)

Confused? There’s more background here and here . But the important takeaway is that Hulu, or more accurately, Hulu’s TV progammer owners, are signaling to their partners–the big cable companies–that they’re willing to pull back on Web access to their shows. And Boxee, which has $4 million in financing from Union Square Ventures and Spark Capital, is signaling that it’s willing to dig in and fight.

[Image credit: Library of Congress via Flickr]

A Web Ad Guy's Third Act: Better TV Ads for TV Shows

Peter Kafka — Fri, 06 Mar 2009 11:00:34 +0000

Dave Morgan made his reputation, and fortune, by building RealMedia and Tacoda–two pioneering Web advertising technology companies. So it’s no surprise to see him launch another ad start-up.

But this time, Morgan has abandoned the Web for TV.

And Morgan’s Simulmedia, which just announced a $4 million funding round led by Union Square Ventures and Avalon Ventures, isn’t even going after the TV of the future.

Instead, it’s chasing an odd niche that exists today: television commercials for television shows–e.g., the ads NBC runs during “The Office” to try to get you to watch “30 Rock.”

Morgan says this is a $10 billion business, and argues that most of the money spent on it is wasted. He says his company can solve that with software that swaps

This sounds similar to lots of other efforts to make TV advertising more Web-like by serving up different ads to different viewers based on who they are and what they watch. Basically, a variant of the behavioral targeting technology that made Tacoda worth $275 million to Time Warner’s (TWX) AOL, which bought the Morgan’s company in 2007.

But Morgan, who spent less than five months at AOL as an EVP before bolting, says his start-up is chasing a different market, using different techniques. He explains why in this interview:

[ See post to watch video ]

Who Said Web 2.0 Was R.I.P.? Microblog Tumblr Raises $4.5 Million, Expectations

Peter Kafka — Thu, 11 Dec 2008 11:00:52 +0000

Tumblr is exactly the kind of start-up that’s supposed to be gasping for air in today’s dismal economy: A trendy but niche Web service with a prominent founder and exactly zero revenue.

Instead, the New York-based company has just raised a $4.5 million Series B round that its CEO, 22-year-old David Karp, says will fund it for two and a half years. Union Square Ventures and Spark Capital, which led the company’s first $750,000 round a year ago, also led this financing. My educated guess is that its investors now value Tumblr at around $15 million.

Tumblr is a “microblog” platform that is supposed to let its users quickly create nice-looking posts with a minimum of effort; it sits somewhere between Twitter and full-fledged blogs like Blogger and TypePad. It is popular with a relatively small but prolific user base: Its 500,000 users have created pages that draw 15 million unique visitors and 61 million page views a month, Karp says.

Money? Nope. Tumblr is free–and has no ads cluttering up its hipster vibe.

Way back in 2007, those kinds of numbers would have been catnip for the likes of Google (GOOG) or Yahoo (YHOO). Now, though, even deep-pocketed buyers aren’t racing to snap up revenue-free start-ups. But Karp says raising money from his previous investors was easy: “These guys came to us with a deal that made us incredibly comfortable.”

Karp says he’s going to start generating money in early 2009. Not by selling ads on his members pages–Karp thinks the site will eventually incorporate ads in some way, but not yet–but by selling users “premium” services, most of which he’s not ready to describe. He does promise they will be “really sexy.”

More practically, Karp points out that other Web services, like the WordPress blogging platform and Yahoo’s Flickr photo service, have been able to upsell many of their users with goodies like extra storage. He figures many of his users will pay up, too.

The new money means he’ll have time to prove his thesis. Karp has just doubled his staff–which means there are now all of six people on payroll. One of them, hired in September, is John Maloney, Karp’s former boss at Urban Baby, where he started his Web career. Maloney is now in charge of business operations.

The money also means there are heightened expectations. Karp has done much more than people twice his age (and has the press clips to prove it). But the newest funding round means his investors think the company will be worth as much as $50 million by the time he sells it or raises more cash. In order to prove them right, he’s got a lot of work ahead of him.

[Image Credit: David's Log]