What lies ahead for angels and startups

Ron Conway on chemistry, the value of user interface, and spotting the next big thing.

Web 2.0 Summit 2010Ron Conway has been variously described as the “Godfather of Silicon Valley” and a “super angel.” He certainly was in on the ground floor of an impressive portfolio of high tech giants, including Google and PayPal.

Conway, who will speak at the upcoming Web 2.0 Summit, recently talked to me about how he approaches investing and what he expects to see in the near-term startup environment.

Our interview follows.

The investment model seemed to change after the dotcom bust. Has the most recent downturn had a similar effect?

Ron Conway: I would say no. After the bubble burst, there was a line drawn in the sand that any company that gets funded has to have either a great plan for traction with consumers — i.e. lots of eyeballs — or an actual revenue model. But if you look at Google, Facebook, and Twitter, none of them monetized before four years after startup. But they did get traction with faithful users who loved the product.

What do you look for in a company?

RC: We are much more into the vision and the chemistry that we have with the entrepreneurs themselves. The idea morphs so much, in some cases hundreds of percents, that the idea itself isn’t the idea that you’re going to end up with. But the team is constant.

How has the current intellectual property (IP) landscape changed startup investments?

Ron ConwayRC: I would never invest in a company that was a basket of patents and then made a business of litigating with people. I think that is … I want to say “slimy,” but I don’t want to be that bad. I just think that’s a really difficult way to think you’re going to add value and make a return on investment.

I see litigation reducing, not increasing, because so much of the success of these companies now is not based on algorithms as much as it’s based on creative user interface. The value of a good, easy-to-use interface that’s consumer-friendly is now as valuable as Larry Page and Sergey Brin’s algorithms were 13 years ago. I see the IP landscape changing a lot.

It used to be that an IPO was the brass ring for a startup. Has that been replaced by acquisition?

RC: Yes, for better or for worse. For 85 percent of our companies that have a liquidity event, it’s an M&A event. It is a very desirable liquidity path for entrepreneurs. It’s mainly because IPOs have become so difficult. The appetite doesn’t seem to be there, and Sarbanes-Oxley makes it completely onerous.

Ron Conway will look at the future of innovation and technology during his Web 2.0 Summit session. Request an invitation.

Many companies in the Web 2.0 space have at least a North American hub. Is that going to change?

RC: I think the technology ecosystems in the Bay area and in New York are just conducive to innovation. It’s very difficult to produce that ecosystem elsewhere.

If you look how long it took to build the tech startup ecosystem in New York — it’s been the last 10 years — the flywheel is now spinning and significant new startups are being created in New York everyday. To create another center of innovation like the Bay area and New York, it’s going to take 10 years for that to blossom.

What do you have planned for Web 2.0 Summit?

RC: I’m going to have 10 of our portfolio companies do a 30-second elevator pitch. This will give the audience a snapshot of the crystal ball of the future of innovation and technology. It’s the companies that I believe will be the Twitters and Facebooks in four years.


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