First let me clarify.  I believe mobile IS important and a huge emerging channel.  Source of traffic has shifted dramatically and I don’t have my head buried in the sand in that regard.  Across many of my companies, mobile origination (tablet included) comprises anywhere from 30-50%+ of traffic.  I recognize that access patterns have structurally changed.

When I say API first, I mean that an idealized service needs to start with a core infrastructure with robust APIs that is tapped into via any number of “front ends”:  web, mobile, and even 3rd party ecosystems.  If you look behind many “web first” companies today, including in our portfolio, you’ll see a very clean architectural split between the front end and the back end.  The back end exposes a range of services that allows the front end to innovate independently and be re-purposed in interesting ways depending on changing business needs.  The rate of change on the front end is usually a LOT higher than in the back; the scale and stability requirements on the back are far more demanding than on the front.

“Mobile first” companies really are just a front end selection accessing a solid API driven backend infrastructure.  The use case, the logic, and what the app is optimized for may be a subset or different than Web, and I think this is what Fred Wilson and others are focused on.

But as I look at the world, while point of entry may vary, I believe having all three elements of web, mobile and 3rd party are going to be table stakes in the future.  You CANNOT be one only.  Users want different experiences for their different point of engagement.  Mobile is about speed of access, much more transactional and timely, very much about getting something done.  The web is great for researching, deliberating, and exploring.  Both are different aspects of the same service, and I’d want both as a user depending.  Finally, enabling third parties is a realization of the web services and SOA manifests from the late 90s that allow for programmatic distribution and can launch powerful new economic models.

Facebook has already shown us the above and what a powerful, mature, winning service looks like.  They have their core site, their massively used mobile applications, and their various graphs 3rd parties access which gives them tremendous power, platform extension, and plata.  Instagram, normally cited as the poster child for “mobile first”, recently announced they intend to move consumption to their core web site.

So to wrap up, sure, there might be some apps that are best started purely in a mobile context.  But I’d bet 99% of the services out there will have to incorporate all three elements and that starts with building an incredibly solid foundation.  API first, front end second, all screens third.

He met Scott Wasserman, founder/CTO of AppRenaissance, and joined on as CEO.  It was a talented team of mobile developers building custom mobile apps for companies.  While the apps they built were really solid, to say it’s not an obvious venture investment was an understatement.  But we loved Bob and the great work he had done at Boomi (sold to DELL in November 2010), and were going to partner with him in whatever area he found interesting.  “Don’t worry, by working closely with customers we’ll find the product opportunity in here,” he said.  That was a few months ago.

Well, today I am thrilled to announce they found that product far more quickly than I anticipated.  Artisan aims to bring to the mobile app world the deep set of tools and infrastructure that exist on the web today.  The initial product is an A/B/n testing software, which allows companies to target specific users with a different look and feel, without requiring coding changes and resubmission to the app store.  Simple examples could be showing a Platinum color app for holders of an American Express Platinum card, while Gold for others, and Blue for those on that product.  One could test how button placements affect conversion.  Or explore user flows within an app.  Again, all areas marketers understand well, have done on the web, now available on mobile!

The best thing is that the platform will extend to a lot of different areas, ranging from advertising to personalization.  Lots more to come here, but I think Bob’s vision of building a large public software company out of Philadelphia is much closer to reality.  I’m delighted to partner with the team and sure as heck we took that journey into the unknown!

I’ve known the Schoology team for some time, having spent the last year getting to know them.  It’s a testament to the power of building enduring relationships.  We’ve had a clear set of mutual expectations of what we were driving towards and it all finally came together.  It is a fantastic team and I am amazed at the power and complexity of the system they have built in the short while they have been around.  The uptake has been tremendous for good reason.

Teachers can sign up for the platform in under a minute and have the best in modern technologies available to them, for free!  Teachers can easily invite students into the system using a unique access code.  From there, the sky is the limit.  Teachers can build a curriculum, create lesson plans, build tests and quizzes, have students submit homework into a dropbox, grade assignments, see classroom analytics, encourage students groups formation for peer learning, and much more.  In addition, teachers can collaborate with one another and share content.  Pushes us one step further towards the notion of Open Educational Resources.  Teachers can also add apps, such as plagiarism checks, directly into their workflow.  All this with a Facebook like interface that requires no training.

The best part of the system is that technology selection has been completely democratized to the actual users.  Schoology does not spend months and years convincing heads of a system as to whether the technology suits their needs.  Users simply adopt it.  Upon seeing users within a system grow naturally, Schoology has the privilege of notifying districts or universities about additional capabilities available to them with a few clicks of a button.  Schoology can also enable powerful integrations with existing legacy systems.  No more promises of what can be, no vaporware, no millions of dollars spent on configuration and changes.

The platform also has transformational capabilities.  Because it is social at its core, it benefits from powerful network effects.  With nearly 1 million users already on the platform across 18,000 K-20 and higher education schools, you can bring the power of a developer community to build on the platform.  Content can be built, shared and purchased directly from within.  Teachers can be given micro-credits to personalize the system for their needs.  Parents can be invited to participate in the educational process.  It is truly a radical shift.

And it’s not just schools that can leverage the technology.  Any institution that views training and learning critical is a potential customer.  In addition to schools, corporations have signed up to use it internally.  One of the largest corporate users is Groupon, which uses the platform for field sales training.  They have their proprietary materials that need to be mastered and tested and revisted regularly to ensure a well trained team.

The next generation of education will bring stark changes: transition to digital textbooks and content, movement towards adaptive learning, advancement of the flipped classroom.  But most powerful of all is potentially the technology platform that connects it and us all together.  Schoology represents just that.  We’re thrilled to be involved with the team.

StraighterLine is an online, low cost, subscription based provider of general education courses that many take in their  first two years of college (Algebra, Biology, Calculus, US History, etc). The courses are ACE Credit recommended and can be transferred for credit to various degree granting institutions (25+ automatically transfer today, over 200+ universities around the country that have accepted post review, and growing). What does that mean in lay terms? Well, you can flexibly and cheaply take a variety of high quality courses at a much lower cost than anywhere else, transfer into institutions that accept StraighterLine’s courses for credit, and bring your blended cost of a degree down dramatically.

The two charts below summarize well the drivers for an investment like StraighterLine:

Costs have skyrocketed faster than healthcare over the last few decades. Student debt has ballooned to over $1 trillion, surpassing credit card debt according to the Federal Reserve Board of New York. StraighterLine’s students pay $99/month and $39/course for their pay as you go service or $999 undiscounted for a Freshman Year equivalent. Against even public two year institutions, StraighterLine offers very significant savings for the student.

In addition to pricing, there are other issues lurking beneath the surface. Funding for public education is getting slashed. California’s 112 community colleges are having their budgets slashed by hundreds of millions of dollars. The system is having to turn away students because it is no longer able to find enough space to service them. The unfortunate incidents at Santa Monica College — where the school tried to create a higher priced system for the most in-demand courses in an attempt to balance with supply instead led to riots and maced students/children — underscore this point.

Taxpayer funding aside, the federal government is looking much more closely at graduation rates and successful job placements at institutions that accept students with federal aid.  As institutions begin to trim enrollments and focus on academic quality, their acceptance criteria will continue to grow more selective.  An institution like StraighterLine can be an effective partner in preparatory coursework to ease the transition and improve a student’s chances of success prior to formal enrollment.

Finally, as we think about structural unemployment challenges, the ability to easily access new learning, complete coursework in a flexible manner, and base competency on outcomes of learning and not on time spent in a course (ie, “credit hours”) will be a key part of solving the country’s labor issues.  The influx of non-traditional students (older, single mothers, workers retraining) is expected to grow at a much faster rate than traditional college students, and we will need institutions that can cater to this class.

StraighterLine offers a scalable solution to these challenges, where all parties benefit – easing the burden on taxpayers who fund institutions, saving money for students seeking to improve skills, improving student selection for institutions seeking to raise academic performance, and democratizing access to education for a newly mobile work force.  The ambitions of StraighterLine do not end there. Burck Smith, founder & CEO of StraighterLine, has been a passionate advocate and visionary in the education space for many years. His last company, SmartThinking, pioneered post secondary online tutoring and student support services and was acquired by Pearson.

With the round, we will invest heavily in building out a unique platform and set of services that innovate on behalf of students, embracing all of the things an online, data driven platform can do. We are working with a number of providers to build assessments to help the industry shift towards a competency based view of learning.  And we are also engaging the employer community, to create better linkages between the education students receive and the more tangible successful outcome of employment.

Stay tuned for more, but suffice to say there is a fantastic opportunity to use technology and innovation to leapfrog America once again to the head of the global class! We are delighted to play a small part and partner with a great team in doing so.

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1 [Source: New York Times, Lewin, Tamar.“Higher Education May Soon Become Unaffordable for Most in U.S.”]

2 [Source: LiveScience]

The CEO of appRenaissance is Bob Moul, whom I had backed in his last company Boomi in 2008. They were a pioneer in the cloud based integration market and Bob led the business to a great exit in 2010 to DELL. Bob left DELL a year later to jump back into the startup world. He eventually caught the mobile bug and joined appRenaissance as CEO earlier this year. When I got the call, it was a no-brainer and we were delighted to partner together again. It got me thinking, what changes the second time around?

1. Price and terms get figured out quickly. Seasoned entrepreneurs know the game; they know the pros and cons of too high/too low; they know the danger of running out too quickly or overcapitalizing; they don’t get sucked in by the hype in the echochamber; you don’t have to unwind all the misconceptions that exist out there. There is a tremendous clarity that allows us to virtually waste no time in coming to a handshake. Whether it was Bob Moul at appRenaissance or Chet Kanojia at Aereo, the conversation took a total of 10 minutes and we were onto building something great.
2. Don’t need proof because the trust is there. For first time entrepreneurs, generally people like to see some evidence of execution. We want to see what you’ve been able to accomplish, before and now. The relationship is so new that it’s hard to take people simply on their word. We want to see it in some numbers somewhere. The second time around, we already know what you can do and have done before. We’re glad to take early risks blindly because the trust is there.
3. Neither side worries about protecting outside case scenarios. You know the ones I mean… Spending a few weeks defining “Cause” and how to get a ladder of severance lengths based on that. Taking great pains to ensure you approve budget because someone might set one at zero and pay themselves insanely. Having to define exit thresholds and multiples because both sides worry about blocking (or not accepting) an exit because someone didn’t think they made enough money. In general, we never get hung up on the above, but they are real and these are the outside cases that strangers might try to protect. The second time around everyone focuses on the core issues, dealing with things that set up good governance and good mutual accountability, and knock them down easily.
4. It’s a lot more fun. If you’ve had a good outcome with someone, it’s likely the second time, an entrepreneur will be thinking bigger, focused more clearly and will want to build longer. Bob’s goal now is no less than to build a big public software company based in Philadelphia. We love BHAGs like that – it clarifies the mission and energizes all around.

Since starting FirstMark in 2008, I am getting my first wave of entrepreneurs coming back for our second time together, and it’s fantastic. We’ve made it a point to build early, deep and longstanding relationships that make us a place to go again and again. They serve as the best references for new entrepreneurs (first time or repeat) we endeavor to work with. And I look forward to doing so in the future with the many incredible first time entrepreneurs I’m so privileged to be involved with now.

For the last few decades, retail companies expanded by driving greater and greater geographic footprint.  Stores were the only point for transacting product and even today represent the preponderance of sales.  “Same store” numbers helped to gauge the productivity of a store but top line most of the time was driven by number of new stores.  Stores had P&Ls they were responsible for, and this system has created an entrenched infrastructure and KPI bias where many retailers measure and optimize around in-store traffic, rather than driving the “most efficient transaction” regardless of where they occur.

I believe this model has to change.  Consumers have a myriad of choices on how and where to transact today.  Online ordering with the very liberal return policies have made it far easier to buy something, try it, and send back than potentially taking a few hours to physically go somewhere.  Buying has bifurcated into two buckets: routine transactions and inspired transactions.  Routine transactions are things that we know we need, don’t require a lot of thinking, get replenished on a regular or reasonably regular basis, etc.  We either know what we want (new jeans) or we’re indifferent across a broad enough range and need to solve a functional task (toothbrush).  Inspired transactions are things that I’m not sure about, that I’d love to learn to fall in love with, that I am trying to discover.  I want a new look instead of just jeans; I want to understand the philosophy of the brand that I am going to wear as I view it as an expression who I am.

I’d argue that the entire domain of routine transactions is designed to go online.  It’s far more efficient and the best use of a consumers time.  Educate me online and let me transact.  Don’t make me spend hours to do a chore.  The second category is where offline shines.  I walk into the Apple store to engage with product.  I’ll go into the Apple store to experience an iPad or the MacBook Air to see if I really care about how thin it is.  I’ll subconsciously feel how “smart” the brand is in servicing me and differentiating.  If I go to the showrooms on 5^th Avenue, it’s to feel the luxury and curation of what Cartier or Saks represents.  And it is about entertainment as much as anything else.

Heineken Lounge at an Airport - A Brand Experience

What does this all mean?  Well, I see huge reductions in the number of points of presence for many retailers (not including same-day consumables like coffee or food).  Retailers have to align with consumers, liberate their time and allow them to transact in whatever manner provides the greatest utility.  Retailers should be in the business of selling things wherever that most efficiently occurs.  My partner Larry told me about one innovative retailer that uses their physical store to crowd source and showcase new products only – as soon as something sells in meaningful volume (indicative of a repetitive buyer in a “routine transaction”), it is moved to the online store and that shelf space is freed for a new product to experience.

Over time, I see stores being “owned” by marketing and viewed as a brand expense instead of the revenue bearing, full P&L today.  Should I penalize the store if you came in, had a great experience, and then bought online for convenience?  Or more likely believe that it served its purpose?  Controversial, maybe.  But 10 years from now I think the retailers that survive the transition to digital will look at it more that way than how they do today.  I also wouldn’t be surprised if 10 years from now, we see a flagship Gilt store on 5^th Avenue and major cities around the world.  It sounds crazy now, but that might be the most “efficient” way on a blended marketing basis to create mass awareness (like TV today).

The bottom line is that the role of the stores has to change.  It cannot be about the purchase.  Too much of buying is moving online.  It has to be about experience, education, and inspired serendipity!

Lot18 is a next generation wine e-commerce company, initially leveraging a membership driven engagement model.  What excited us in October 2010 when we first seeded the company was how Lot18 took an incredibly complicated category, and created a beautiful site where wineries’ products were showcased to consumers.  Though it leverages a membership driven model, this is not about distressed goods or deep discounting as is commonly confused with the space.

Wine has a complex distribution chain of wholesalers and distributors before getting to the retail store.  Lot18 allows wineries to bypass that distribution, while protecting their brand and introducing them to a much broader audience.  Value gets passed directly to the end customer, enabling outstanding prices on great wines.  Frankly, as a “non-wine” person, I find the discovery and education that Lot18 offers to be far superior to any in store retail experience.  I can buy a great wine at a great price (because it’s direct) and know that it’s a wonderful product to bring out while having guests over, give as a housewarming gift, or enjoy on a special occasion.  For people who love wine, you’ll find product that has never been released from cellars, or offers from wineries that have 3 year long wait lists, and benefit from their Select service, which calls our top buyers with offers that could make anything in their cellars blush.

The company has grown more rapidly than anything we could have predicted.  It helps that it is led by serial entrepreneurs Kevin Fortuna and Philip James, who have built some very large businesses in their past (and have a few unique experiences to boot).  They have executed extremely well.

We’ve had a long standing thesis in E-commerce, from Stubhub to Shopify to Lot18 to AHAlife and many more.  Retail is changing faster than we can imagine.  We’re delighted to invest behind this team, and look forward to working with our new partners in NEA.

If you’d like to become a member of Lot18, simply click here to get an invitation.

Bamboom was started by Chet Kanojia, an entrepreneur I had the great fortune to invest in and get to know for many years at Navic Networks.  Navic was an outstanding company bought by Microsoft in 2008 in a very successful outcome.  They were one of the few positive, large exits in the interactive television space, and Chet’s leadership was a big part of that.  Chet’s last round of capital came just after the bubble burst in 2001, and he managed it brilliantly until our ultimate exit.  Joining Chet at Bamboom as CTO is Joe Lipowski.  Joe is a brilliant technologist and RF engineer we’ve known for a long time as well.  We backed the spin out of Celiant from Lucent, and Joe was the CTO at Celiant (acquired by Andrew for $470MM).  When Chet began to talk to us about his idea, it was a no-brainer to put the two together.  The team around these guys is equally talented and truly best in class.

The idea is quite simple yet technically complex and brilliant.  Bamboom wants to enable customers to experience broadcast TV, over the Internet, to any device, without all of the headaches associated with accessing it today.  They have combined brilliant RF engineering with wonderful software design to create an incredible consumer experience.  More details will emerge as we roll out of closed beta, but suffice to say it looks fantastic.  This is what a next generation television experience should look like.  Fully integrated, portable, native social integration, rich interactivity.  As consumers shift television consumption online, we will see new content, commerce and advertising opportunities that we can only begin to imagine.

We are delighted to partner with Chet and our co-investors on the journey!

I believe every business today is going to be rewritten for the web, or “Internet optimized” as I call it.  This is not about putting up a website or selling online.  This is much more fundamental.  The Internet affects literally every part of a business system and makes it much more cost efficient than their legacy comparable.  Let’s take a few examples:

• Marketing – Paid, organic, display, affiliate and other channels are far more precise and cost effective to pin point your audiences than any blunt mass-market tool of the past.  You are connected to all your customers, it’s just a matter of finding them (and vice versa).
• Product – In an Internet optimized business, the product is instrumented to see real metrics on how people are logging into your application, which functions people are accessing, what breaks and doesn’t, etc.  Each of those tell you in real time what features to focus on or not, develop or discard, etc.  Customers participate in the product development process.
• Development – Multi-tenancy, single instancing, and SaaS makes development easier and faster than the complex install matrix of the past. Cloud services like AWS, Rackspace, Engine Yard and others are fully variable infrastructure available to build upon.  AGILE and other development methodologies create output on regular basis.

Any “new” company is doing things efficiently across virtually all departments from the ground up (and includes areas not mentioned like sales, hiring, finance, and more).  At scale, they will have a fundamentally better cost model than any legacy player possibly could.  The legacy company still has those very expensive relationship based sales reps, or the high touch TV-driven ad model, or the “divine from above”/ “decide by committees” product model.  These are all points of friction that makes them hard to change, slow to adopt new business models, and not innovative.  It also leaves them at a fundamental economic disadvantage.

If you think about it, this concept is true for almost all businesses.  We see retail in the Nordstrom/Hautelook example.  The same is true in traditional advertising versus ad networks; console based gaming versus virtual goods businesses; large media publishers versus blog aggregators/publishing platforms; stock fit retail brands versus custom manufacturers; etc.  The Web is as deflationary across the internals of a business as anything else!  This wholesale rewiring is happening now, creating a unique moment in time and a littany of new companies looking to lead the pack.

The most likely way for offline players to evolve is to buy these Internet optimized businesses, incent those organizations to grow as rapidly as they can, retain the talent for as long as it possibly can, in the hopes they can eventually re-make their overall business by being led by example.  Those that do nothing will not survive, and there will be many;  those that think aggressively have a shot, and I think we’ll see much more of these partnerships with traditional brands and Internet optimized companies going forward.

[Update 4/08 - Random House leads round of financing at Flat World Knowledge]

[Update: 4/25 - The Travel Channel announces $7.5MM investment in Oyster.com]

With this renaissance in e-tailing, we noticed most of the e-commerce platforms out there were significantly dated.  Many had not changed for over a decade, offered very little flexibility, and did not take advantage of the incredible advances in software we have seen in that period of time.  But we found one – Shopify – which we are extremely excited to announce as our latest investment. 

Shopify is a unique retail platform company that allows merchants to have an online store up and running in 20 minutes, but with a unique app store model that allows it to also service the highest end commerce providers.  There are some interesting applications on the platform today, but the goal is to rapidly build out the ecosystem so a retailer can find everything they need to run their business – online marketing, billing, inventory, logistics, supply chain, mobile, etc.  With this approach, we should satisfy any retailer from small to large with a consistent platform and a best of breed set of options.

Shopify was founded by Tobi Lutke several years ago as he and his friends wanted to launch their own snowboarding store.  They found most of the alternatives out there very kludgy.  Fortunately for the rest of us, they are renowned Ruby On Rails core contributors and developers, and so they decided to build their own store.  They opened the platform for others in 2006, and have surpassed $100MM in Gross Merchandise Value with over 10,000 active stores on the platform a few years later.  It’s a real business that is poised to power the next generation of retail.

We are excited to partner with Tobi, the Shopify team, Bessemer and Felicis on this investment.