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June 08 2012

Publishing News: Wattpad raises $17.3 million in series B funding

Here are a few stories that caught my eye this week in the publishing space.

Wattpad raises $17.3 for its storytelling community

Wattpad LogoBookExpo America (BEA) took place this week in New York City. One of the big announcements made at the show was Wattpad's newly raised $17.3 million in financing in a series B funding round led by Khosla Ventures. Wattpad is a social ereading and storytelling platform that connects writers with readers, and according to a story at GigaOm, the company vision is to establish the platform as the YouTube of writing. Andrew Chung, a partner at Khosla Ventures and a new board member at Wattpad, told GigaOm in an interview:

"You're able to upload a story chapter by chapter, folks are able to comment on that chapter, and they can provide encouragement to the writer and actually signal where they'd like the story to go, which creates a type of engagement that's impossible in an offline context. There’s a very strong parallel to the way that YouTube was able to do that for amateur or user-generated video content."

Liz Gannes at All Things Digital took a look at Wattpad's explosive growth, reporting that the platform now hosts five million stories and has about 500,000 added each month. Gannes also highlights the popularity of the site with readers, noting that "a book by teen author Jordan Lynde (a.k.a. XxSkater2Girl16xX on Wattpad) about a relationship between a teacher and a student, has been read nearly 20 million times."

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Publishers are reducing themselves to book packagers

The BEA show this week also inspired insight. Brett Sandusky took a look at the notions swirling about digital publishing. He argues that publishers have been fooling themselves with the idea that "digital is free and easy," that you can take your existing content, simply change the format and rake in the money. He writes:

"While our processes have arguably improved and modernized, the fact remains: viable digital business models require more than afterthought. Simply converting content and making it available for sale is a recipe for disaster. This prevailing free and easy digital model is actually harmful to our businesses."

Sandusky says the real money in digital is in distribution. He called for a curated distribution experience and emphasized the importance of owning the customer experience:

"Right now, we take so much time to polish our content and our products, and then we just throw them away. All this content curation we're doing (or at the very least talking about) makes no sense at all if we simply hand over the UX ownership to retailers and their locked devices. In fact, not owning the whole customer experience with regards to digital has basically reduced us to little more than book packagers for our retail partners. And, we're not even getting paid for it."

The real take-away from BEA, he says, is that it's time to start focusing on the customer, to "[pay] attention to every touch point, every interaction, every experience and make sure we own it." His post is a must-read this week.

A look at the state we are in

Jeremy Greenfield over at the Wall Street Journal's MarketWatch put together a sort of State of the Publishing Industry post this week, looking at how ebooks are effecting change. He offers a nice roundup of the DOJ lawsuit, the B&N venture with Microsoft, trends in venture capital and important startup entrants to the publishing space, and a look at how children are responding to ebooks (PDF). Greenfield also talks about Pottermore and how J.K. Rowling's moves to set up her own store and sell the Harry Potter ebooks directly to consumers — without DRM — is affecting the industry. He highlights two important points:

  1. "In the first month, she sold $5 million worth of e-books through her own store, Pottermore. ... Pottermore's success has renewed speculation that it's possible for publishers to develop direct-sales channels."
  2. "When Pottermore opened, it sold its e-books without digital rights management (DRM) software that is meant to prevent piracy. This move ran counter to what most book publishers currently do. ... When Pottermore launched, piracy initially spiked, said [Pottermore Chief Executive Charlie Redmayne]. But a backlash from anti-DRM advocates as well as appreciative fans resulted in an overall 25% drop in piracy of Harry Potter e-books."

You can read Greenfield's entire roundup here.


December 12 2011

An angel who bets on women-led companies

Blogger, mother, foodie, and hardcore New Yorker Joanne Wilson (@TheGothamGal) is one of a few female angel investors. Her approach to investing is unabashedly women-centric. And as she explains in the following interview, she's a believer in the power of the startup ecosystem to influence the economies of New York and beyond.

What inspired you to move into the venture capital (VC) space?

Joanne Wilson: I call myself an angel rather than a VC because I'm doing this by myself. And I am a woman doing this by myself in this space, which I know is not the norm.

I've been involved in startup businesses throughout my whole life, and I had gotten off the train for a while. Being home with my kids, I started blogging in order to stay connected to the Internet industry and not lose my credibility. That was eight years ago.

I was closely watching all of the new companies in the space we began to call Web 2.0. One of them was Curbed, and I heard they were looking for funding. I was at a point in my life where I realized I was ready to do something, and I felt like I could add value there. So, I called Curbed founder Lockhart Steele and said I'd be very interested in funding his company. After that, the cat was out of the bag. Everyone came running in the door.

In the beginning, I was thinking of funding one, maybe two startups. But, as my husband [VC Fred Wilson] says, "Your problem is that you wouldn't want one lemonade stand; you'd want 1,000 of them."

What's the difference between an angel and a venture capitalist?

Joanne Wilson: There are three rounds as a company begins. The first is seed, where you have a wonderful idea and need to get things rolling. For that, you go to your family and friends. Then, as the idea gains traction — you build a website, a community, and realize you could really grow it — that's when angels like me come in. I invest in the round after seed, helping it get to the third round.

VCs are in the business of growing businesses. They bring in seasoned players with a different kind of skill set. A VC will be with a company through many iterations of investments. Angels, on the other hand, usually leave the space once the VCs get in. Angels become more of a friend and a consiglieri to the entrepreneur at that point.

Is an angel someone who gives as much advice as money?

Joanne Wilson: No. I'm not normal in that respect. I get really involved in these businesses. It's not like I call them, but if they want to call me every day, I am happy to answer any questions. If I don't know the answer, I'll find it out for them. I open up my Rolodex and think about the big picture. I'm pretty accessible, and I want them to reach out to me.

You called yourself a "chick magnet" at Web 2.0 Expo. Do you think your accessibility is one of the main reasons why women founders seek you out? How do you get "found"?

Joanne Wilson at Web 2.0 Expo 2011
Joanne Wilson (left) judging the Startup Showcase at Web 2.0 Expo NY 2011.

Joanne Wilson: One of the topics that I always come back to in my blog has to do with being a woman and how you can do it all, just not all at the same time, and the frustrations of balancing life and family. I think that topic resonates with a lot of women out there. I also have put the majority of my investments into women-led companies. I'm a big believer, but this whole nonsensical thing of not enough women in tech, not enough women CEOs, not enough women on the board — guess what? If we invest in women entrepreneurs, we'd change the game because they're all CEOs. It's pretty easy to do.

I also put on a conference called the Women's Entrepreneur Festival with Nancy Hechinger, a professor at NYU's Interactive Telecommunications Program. Ten businesses were started at that conference, and many connections were made. This year, we'll have about six panels, five people on each panel and a moderator for each panel, highlighting "the makers" — community makers, taste makers, art makers. What's fascinating is that only one man has signed up to come.

Do you have any advice for angels or VCs looking to invest in women-driven startups?

Joanne Wilson: It's no different than the advice I give to kids who graduate and want to work in a startup or be an entrepreneur. There are meetups all over the city every single night. Eventually, you meet people and hear what's going on. It's a very open, embracing industry. There's a lot out there and there are a lot of bloggers writing about what's going on and about new businesses. If you can't find women-led businesses, then you're not reading the right things and you're not looking in the right spots.

I would love to see more people who have created wealth for themselves and their families take a chunk of their change and invest in women-led companies. It would be better for the economy. And, again, better for women. By the way, it's not always about women — companies should be mixed. Women bring something to the table and so do men. It's about the best ideas.

Any advice for new founders?

Joanne Wilson: For first-time entrepreneurs moving forward and going up for more money, remember to use the people you have. Engage them in your business.

Second, consider how big you want to be. You don't have to be a $1 billion business. For instance, Dave McClure is doing a really cool thing: funding 500 new startups. He's giving a lot of people an opportunity to be entrepreneurs, but they won't all be $1 billion market cap companies. You could have a nice $4-million-a-year lifestyle business in the local community, something you love to do every day. That is an amazing thing. You're making enough money to live your life and do good at the same time. Create economies, hire people, and maybe have a family. That's okay. You've got to think big picture, and you've got to think reality.

What are some of the notable companies you're involved with?

Joanne Wilson: There's a void in the market for businesses in the $50-$60 million range, where investors exit at the second round. These are not niche businesses — $50 million is significant. But, they're not $1 billion market caps. Many of the businesses that I'm involved in, women-led businesses, are at that level and going out for their VC round, which indicates that they're successful.

One of the biggest successes is Daily Worth, Amanda Steinberg's company. She has created tremendous traction and sells advertising at lightning speed, to the point that we don't have any inventory. She's done an amazing job. If she pivoted in one direction, she could be a huge, huge business.

I'm also in Catchafire. Founder Rachael Chong is about to launch a product that I think is going to change her business. That could be a massive business, surpassing $100 million.

I also just invested in littleBits. We have yet to see where that goes, but Ayah Bdeir has created a really interesting product. She was just acknowledged as a TED2012 Fellow.

Have social media or other technologies changed the way you make investment decisions?

Joanne Wilson: No. I invest in the entrepreneur, and then the business. I have to love what they're doing. Think about it like a house: when you buy a house, you can renovate it, but you can never change the location.

What do you think of some of the recent studies pointing to women-led startups tending to be more successful?

Joanne Wilson: Women say "we." Men say "I." That's both a positive and a hindrance. Women say, "What's my role here? How is this going to work for all of us? Am I doing as well as I think I should be doing?" Men don't think that way. If you ask five men and five women to be mentors, men say "Yeah, sure." Women say, "What's expected of me? How many hours do I have to put into it? Does this make sense for me?" It's different. Women run families.

Do you think the different vocabulary and thought process is part of what's hindering women founders from getting investments from mostly or all-male angels and VCs?

Joanne Wilson: No, I don't. I'm sure people would smack me for this, but going to back to the void in the marketplace for $50-$60 million businesses, I think that many VCs invest only in businesses that they hope are life changing — the $1 billion market cap.

If you look at many women-led businesses, they tend to invest in things that fill needs in their lives. The women who started ZipCar probably figured it would be great to walk outside and have a car waiting. The Apgar test and Scotchgard — these were invented by women. Fire escapes, Liquid Paper, windshield wipers, life rafts, cleaning tools for the home — all created by women. They create what they need, which, incidentally, adds up to a much bigger economy.

I would rather invest in 100 startups that will become $50 million companies and will change economies, that will change communities, that will change families. The long-tail of the Internet revolution is that there are no longer companies with one president, seven vice presidents, and then all of these different levels of people underneath them. It's over.

Is the economy changing investment trends?

Joanne Wilson: The greatest thing about our country is that the people see what's happening before the government. There's a wave of entrepreneurialism, of returning to our communities — whether it's the local grocery store or butcher, customers are having conversations with their local shopkeepers. There's something really powerful about that. It was something we had right a long time ago, and there's nothing wrong with going back to that model.

Who inspires you?

Joanne Wilson: Hillary Clinton rocks. What she has done, from being the wife of the president to where she sits now — I think she's an amazing, incredibly inspirational human being. My husband inspires me. He's fantastic at what he does. We've been partners since we were 19 years old, and we've created everything together.

In general, I'm pretty inspired by the entrepreneurs that I meet every single day. I feel incredibly lucky that I get to meet people whose synapses are going so fast I can barely keep up, who think about ways to change the way we live and to change the economy that we're in now, who think about the world at large and are figuring out how to make money, and who want to get things done quickly and efficiently. To have those conversations every day is pretty damn inspiring.

This interview was edited and condensed. Photo by Pinar Ozger.


July 13 2011

What are the ideal conditions for tech startups?

When Thibauld Favre started talking about his startup at the reception following the first day of the eG8 Forum in Paris, he could have been any eager, bright young entrepreneur. He pitched the idea of a "Windows App Store" with great enthusiasm, noting that All My Apps already had more than 500,000 users, with a billion-plus potential Windows users to attract in the future. Favre said that the platform was in open beta and, with 15 employees, his startup was growing fast.

And then he said that his next step was to move to California to be closer to the ecosystem of developer networks and startups. When I asked Favre why he would leave France, which was offering generous subsidies for his fledgling tech company, his answer was straightforward: He wanted to tap into the culture of tech entrepreneurs in Silicon Valley.

During my trip to Paris for the eG8, the following concerns about the conditions for startups in France emerged in various discussions.

  • Lack of a mentorship culture — In Silicon Valley, established entrepreneurs mentor new ones.
  • A limited venture capital ecosystem — There's low tolerance for risk, or lack thereof, in investors. That concern goes for engineers as well, in terms of joining startups, big business, or government.
  • Hierarchical institutions — There's a resistance to the flattening effect of technology in enterprises and government. That culture can transfer to smaller concerns. (Think of "Gov 2.0 vs the beast of bureaucracy.)
  • Inability to fire people — When people don't perform as needed in startups, entrepreneurs have to bring in new talent or they'll lose to innovators in the market who can.
  • Low tolerance for flex time or casual attire — Talented software engineers have a global marketplace for their talents. Formal dress and rigid working hours are significant negatives.
  • Tax structure — Without being too specific about the codes in question, entrepreneurs said startup costs and red-tape were an issue.
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The Economist's briefing on Europe's tech entrepreneurs last year reflected these themes. There are young European technology companies in France, like Criteo, but from what I've heard there's a long way yet to go to attract more of them or catalyze their founding.

"I definitely agree with these arguments," said Internet entrepreneur Fabrice Grinda, founder of Aucland and co-CEO of OLX. Grinda was quite critical of the eG8 after its conclusion. "The inability to fire people and too much red tape are high on the list and can be addressed," he said. "A smaller domestic market and entrepreneurs looking only domestically is harder to address."

What do you think? Do you agree with this characterization of conditions in France? Do they exists elsewhere in Europe? If France could address these issues, would more venture capital move into the country and fund the technical talent coming out of its universities? Is there a universal set of conditions that a given city, state or country needs to meet in order to catalyze startup activity and job creation?

Please share your thoughts in the comments.

August 30 2010

The VC-free startup

A couple of items caught my eye in the notes from Paul Graham's Y-Combinator talk on trends for the future (circa 2009):

  • There should be an O'Reilly book for business. It would be really short. "Make something people want, charge them money for it. Advanced: charge more money."
  • B-school is West Point for industrial capitalism. It trains generals, not foot soldiers. Market now rewards people who can do stuff.

Much of the discussion about tech entrepreneurship focuses on the courting rituals of venture capital -- effectively pitching VCs for funding. The Silicon Valley startup model depends on VC money, and one might argue that entrepreneurs are judged more by their ability to raise money than to succeed in the business the money was raised for. I wonder if the Silicon Valley startup fits a narrow set of Facebook-sized opportunities -- high-growth businesses that demand a lot of capital in a short period of time. The big-bet model seems to work on occasion in Silicon Valley but it seldom works elsewhere. Yet a lot of energy goes into trying to figure out how to get the right conditions for a Silicon Valley model to emerge outside of Silicon Valley. Startups outside Silicon Valley wonder if there's any way for them to succeed. So I got to wondering about opportunities for VC-free startups.

How can you start a business that a) has low capital requirements; b) begins producing revenue quickly and c) becomes self-sustaining? Such businesses won't necessarily grow into great big, scalable businesses. However, they could provide the opportunity for small teams to work independently and for the founders to do something they care about. Such startups would be mission-driven, organizing around a core set of values. They don't need an exit strategy because the goal is to keep doing the work you want to do.

One idea is that these businesses should try to fit into an existing ecosystem; they don't have to create the ecosystem. If you develop an app for Facebook, Android, or iPhone, you can take advantage of an existing ecosystem for marketing and distribution. That ecosystem allows you to get pretty good feedback quickly on whether enough people like what you've made. You shouldn't require more than a small team of people to develop a product for these platforms. Mitch Waite's iBird app for the iPhone is an example.

The hype around Silicon Valley may distract us from the basic business idea that Graham emphasizes: make something other people wish they had. If you can do that and you can reach people who will buy, then you can have a successful business. I'm seeing makers who are creating products for other makers to buy. Limor Fried's Adafruit Industries is one example and so is Nathan Seidle's SparkFun Electronics, both businesses that were started without venture capital. Makers of physical goods have some advantage in that people seem to understand paying for them. Makers may also find good opportunities making things that businesses need rather than selling direct to consumers.

Paul Graham writes about the organic startup in much the same way I think of makers getting into business unexpectedly. He uses the example of Apple where Wozniak built a computer for himself, only to find out that there was a market for building computers for other people as well. He had intrinsic motivation to make something; he wasn't motivated by extrinsic goals such as money or status. Graham says that "organic startup ideas usually don't seem like startup ideas at first." It's because a lot of ideas seem like hacks, a quick and dirty solution to a problem. He also recommends that startups should focus mostly on developing the idea and worry less about being a startup.

O'Reilly has been an organically grown private company, starting as a technical writing company that morphed into a publishing company. Tim and I wrote our first book, "Unix Text Processing," because it grew out of our experience of using these tools for writing computer manuals. In many cases, we tried to write the book we wish we had when we were learning a new technology. What made me want to work with Tim over 25 years ago was that he wanted to create a new business, not just be a business. Over time, we succeeded not just by building products but by developing a network of customers who are our colleagues. It's amazing that we've been able to be self-sustaining and use the business as a platform to keep doing what we love doing. The business connects us to a lot of really interesting people -- inside and outside the company.

Today, there's a good degree of disillusionment with VC models and even more so with Wall Street's brand of few-take-all capitalism. I find there is a lot of interest in creating a business that looks more like O'Reilly than the Silicon Valley startup: building a business as a foundation for creating value and meaning. How can people pursue their own ideas and interests while developing a product or service for real customers? How can they maximize the value of their work and gain more control of their future? Perhaps the answer is to think small, as in small business. I'm reminded of the wonderful title of E.F. Schumacher's book: "Small is Beautiful: Economics as if People Mattered."

According to SCORE stats, there are almost 29 million small businesses in America. These small businesses "hire 40 percent of high tech workers, such as scientists, engineers and computer workers." A lot of consulting businesses fit this profile as well. Do something you're good at, provide a useful service to people you know and get them to pay for it. Programmers, sysadmins, graphic designers and others run their own firms, providing services to existing companies. Think of how web development and design firms flourished in all kinds of markets. Today, it's social media marketing and SEO firms.

Web-based business services can make running a small business easier, lowering administrative overhead and increasing collaboration. There are tools for project management, customer relationship management, billing, shipping, and more. Many of these lightweight services are much better than their enterprise equivalents. Being smart about social media allows you to develop and maintain your own network of potential customers, partners and clients. But none of this matters unless you have a good idea and you set out to do something about it.

If O'Reilly were to develop a business book, I'd like to see us explore new alternatives to creating and managing businesses, looking beyond business as usual.


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