Saturday, February 19, 2011

Declaring "crowdfunding" now an official compound word, no hyphen needed

While the English grammar rules for hyphenation can be tricky, the general evolution of compound words like crowdfunding goes like this.  They may start in the open form (e.g. "fire fly"), are then joined by a hyphen ("fire-fly") and over time by forces of adoption, become merged into their own word ("firefly").

A recent Google search for "crowdfunding" had 1,080,000 results, and "crowd-funding" (which was identical to a search for "crowd funding") had 113,000 results.  In fact, when searching for the latter, Google reported,
Did you mean: "crowdfunding"
We have now entered the realm of an order of magnitude difference, favoring crowdfunding as an official compound word, as curated by the crowd.  Let's stop using the hyphenated and open forms.  They are so yester-day.

Friday, February 11, 2011

Kevin @ LAUNCH conference, San Francisco, Feb 23-24

The LAUNCH conference, conceived by Jason Calacanis, picks up where he left off with the TechCrunch50 conference.  Previous events launched companies like Mint, PowerSet, Yammer, FitBit, TripIt, Dropbox and Red Beacon.  LAUNCH is picking up even more steam this year, and will be rife with entrepreneurs, techies, VCs, angels and more.  If you want to say hello, drop me a note and I'll see if we can hook up at the conference.

Tuesday, February 8, 2011

Microsoft move portends a future for crowdfunding

According to this recent Businessweek piece, Microsoft plans to shake up senior product management, and put in some people with engineering backgrounds.  Who would have thought that people with backgrounds in making products, would be the best fit to manage those products?  Just kidding, of course.  The farce that is generic MBA wielding management types running around making decisions in fields that they have no clue about, is unraveling by the minute.

And I submit, that the same phenomena is occurring in investing.  Out go the generic investment management posers, and incoming are a new crop of investors who are steeped in their fields.  In the VC world, that means a firm better be stacked with people of deep experience.  And it means that the crowdfunding thesis has never been stronger.  There is nothing better than being invested in by those who understand and love the idea.  People who know, were always the ones who should have been making decisions.  It can't come too soon, the day when we return to investment sanity.

Tuesday, February 1, 2011

46% IRR, crowd-enhanced angel returns and the future of crowdfunding

I had a hunch some time ago, that failure in startups could be predicted with certain quantitative measures.  You get a form of "failure ESP" after you've been in enough of them.  But are there bits of information that an algorithm can digest to predict startup failure?  Apparently so.

After creating some script magic, I ran my thesis against the CrunchBase database (kind of a crowdsourced wikipedia for startup information).  The run showed a promising correlation between the failure predictor (I call it the f factor) and startups which hit the "dead pool".  It was suggested to me to run a logistical regression, to find the correlation between my failure predictor f, and the binary outputs of fail/win.  The correlation results in hand, one can then plug the predictive advantage into the Angel Investor Performance Project (AIPP) data, and simulate the returns using a healthy sized portfolio.  The improvement takes the returns from an average 2.4x payout multiple and IRR of 30% to a multiple of 3.8x and a 46% IRR!

Now that makes a bucket of assumptions, e.g. how the predictability of f is distributed across investments, holding times, etc.  At any rate, the bigger point to make here, is that even using a crowdsourced database can enhance returns.  Adding in prediction markets in a crowdfunding environment, where all the players are involved, could increase this even further.  As I mentioned in the epiologue of the book:
"Human versus the machine: will we create algorithms to make early picks of winning startups, which are better than many humans (like has been done in chess)?"