San Francisco's Mission District

It’s been awhile since I last blogged, but I finally unpacked my last box from my cross-country move so I’ll now be able to prioritize writing here again. Don’t worry, my monthly intake of It’s-It ice cream sandwiches still roughly matches the monthly unique visitors to this site, but for the loyal few who actually read this stuff, you’re about to get a whole lot more material to help end your insomnia.

Anyway, lots has changed with me over the past few months. New job, new schedule, new city. It’s great. I also found an apartment in the Mission neighborhood of San Francisco which I liked when I moved in, but am appreciating more and more every day.

I decided to live here because the neighborhood felt like an interesting mix of New York’s Lower East Side and Spanish Harlem, but in a much better geographic location (it also didn’t hurt there’s easy access to the freeway I take to work). It’s certainly residential, but there are also scores of restaurants, shops, and other amenities that I had grown accustomed to after eight years in the Big Apple. Some call this part of town “seedy,” but I prefer my next door neighbor’s description of “gritty.”

What I didn’t expect to find in the Mission is a thriving technology entrepreneurial scene. Southern Silicon Valley (about 30 miles south of San Francisco and home to Google, Yahoo, Facebook and many others) has long been a hotbed for innovation. However, workspaces there tend to be office parks instead of airy lofts, and there isn’t exactly much going on in terms of night life for the budding entrepreneur. Consequently, a decade or so ago more and more startups began settling in the SoMa (short for “south of Market Street”) part of San Francisco. Real estate there was cheap and living in the city was exceedingly more attractive for most younger people. The city was also making a concerted effort to bring commerce to that part of town through the building of a new baseball stadium (Go Giants!), and construction of affordable housing for teachers and other civil servants.

Although SoMa is arguably still the center of San Francisco’s tech scene, the Mission is really heating up. What’s attractive to startups is that the Mission has many dynamics not found anywhere else in the Bay Area: true mixed use real estate, diverse socio-economic groups, and high population density (not to mention awesome burritos). SoMa has also gotten pretty pricey so it’s typically less expensive to rent office space in the Mission too. In concert, these factors make the Mission far more fertile than other parts of San Francisco if you’re building a mobile app or other consumer-facing product.

And don’t just take my word for it… i/o Ventures runs their incubator here, Yardsale (a YCombinator peer-to-peer community application used the Mission as its testing ground), Blockboard (a Battery Ventures portfolio company) is in beta on Valencia Street, and even other VCs like my friend Sarah Tavel from Bessemer call the Mission home.

I really like it here.  Let me know if you’re in the neighborhood; I’d love to show you around.

As Horace Greeley would say, "Go West, young man"

After eight wonderful years of living, working, and studying in New York City, this morning I officially moved back to my native California.  Subconsciously, this day has been coming for awhile (afterall, I never gave up my CA driver’s license despite having been gone since 1999), but it’s still very difficult to leave my amazing friends scattered throughout the Big Apple and all over the East Coast.

On Tuesday, I’ll start with Battery Ventures in their Menlo Park office.  I’ll write more about Battery and what I’ll be up to there in a future post, but I’m excited about the firm as well as returning to investing in and partnering with promising companies.

While filling boxes with winter clothes that I’ll likely never need again, I had plenty of time to reflect on everything that’s happened over the past eight years.  Since moving to New York immediately after college, I’ve lived in six different apartments with a total of ten different roommates (and eleven if you count me living solo).  I also estimate that I’ve jogged over 5,000 miles through the streets and parks of NYC, biked just under 2,500 miles, and walked more avenues than I could ever possibly recall.

I never made it to the Meadowlands (I suppose that’s New Jersey anyway) and wish I had taken better advantage of the theater scene (although I did see The Book of Mormon a few weeks ago and it was fantastic), but other than that I don’t have a single regret.  New York is an incredible place to live and I’m thankful I’ve had the opportunity to call it home for all of my professional life.  A big part of me will always be a New Yorker.

Well, New York City, we had a great run and I’ll miss you.  Save my stool at Old Town Bar because I’ll be back often, but in the meantime you can find me at The Old Pro cheering on the Giants and 49ers.  Eureka!

The best and worst of Columbia's Cluster D, respectively: Brian Hayes and me

Note: Brian’s text is indented below in grey.

Several weeks ago, Columbia Business School hosted a series of auctions to support the school’s Social Enterprise Program.  Some students donated ethnic cooking lessons, others offered tee times at exclusive golf courses, and a few even invited winning bidders to their beach homes or ski cabins.  However, lacking anything of real value to donate, I was pressured to jokingly add a “guest blog post” on MikeKatz.com to the list of auction items.

Whoa, that was a mistake.

By the time the dust settled, the right to embarrass me on my own website was the highest selling item, and Brian Hayes, the person with the most dirt on me in the entire room, had won the auction.  Oh crap.

Brian is one of the smartest people I know and I actually lost some sleep recently fretting over how he would skewer me with his 250 words.  However, somewhere in my worry I lost sight of the fact that Brian is the classiest of class acts.  Below is his unedited guest blog post, and I am very appreciative of his friendship and camaraderie over the past two years.  I’m also thrilled he’s moving to the West Coast after graduation.  Brian, I’ll save you a spot in line at the DMV to get our California driver’s licenses.

What New York loses on May 31st, by Brian J. Hayes

 

One of its most eligible bachelors. A Hoya Hoops Hysteric. Cluster D’s social glue. Business school’s funniest Wadhwa impression. The middleman in the picnic table triumvirate. Sarah McCue’s biggest competition. The instigator of all nights that go past 4am. The popularizer of the bow tie down look. A cluster cup representative with the right level of urgency and competitiveness for his constituency. One of the only non-bandwagon San Francisco Giants fans. A guy with a brilliant knack for having a video camera out at the right time. The President of the Boozy Book Club. A guy who can pull off seersucker in March. A non-rugby-playing Rugby Happy Hour devotee. Half of the Katzaghan beer pong team. One of the few guys who left Oktoberfest with his dignity. A “Step Brothers” aficionado. A wine class veteran. The creator of the “Dudes’ Baby Shower” concept. A self-proclaimed dance floor dominator. A man secure enough in his masculinity to rock pink pants. A brilliant venture capital mind. A proud wearer of all three D-shirts. A runner, cyclist, and swimmer. The leader of the “Blocked Out” PLS quartet. A founding member of the Steak Club. A future member of the Columbia Business School Board of Trustees. The most gracious party host ever. A Social Enterprise auction all-star. The holder of an inordinate number of reservations to top-notch restaurants. The inventor and most enthusiastic participant of Dude’s Night.

A true friend.

Good luck Mike Katz! Stay in touch!

By the way, Brian was elected by the members of the Class of 2011 to give the final speech at graduation.  The video of his remarks aren’t yet available online, but I will post them as soon as possible.  No hyperbole: it was the best commencement speech I have ever heard.

Dad (#346) and yours truly (#347) after finishing the Lillian Larson "Buzz" Marathon a few years ago

Today is my dad’s birthday so I’ve been thinking about him more than usual over the past week.  He isn’t on Facebook (although his dad is), and Dad’s generally weary of sharing any private information in public.  Suffice to say he definitely doesn’t blog, gives out his social security number more reluctantly than anyone I know, and is absolutely going to hate this post.

Growing up, my dad had an office at home so my brothers and I got to see the latest in corporate innovations in real time.  I vividly remember watching him receive his first fax (”you can instantly send a piece of PAPER thousands of miles?!  Magic!”), and one day he brought home a small – but very heavy – briefcase that housed a PORTABLE telephone.  Whoa.

Dad also has an uncanny ability to see the big picture.  For example, on a family vacation in the late ’80s, I vividly remember him claiming that some day we wouldn’t share one phone number for the whole family, but that everyone would have their own personal phone which we would carry around in our pocket wherever we went.  I genuinely thought he was telling a fairy tale.  Sure enough, within a decade I didn’t have a landline.

Today, Dad sends text messages with the enthusiasm of a teenage girl (okay, not quite – hold the emoticons), and he sends photos he’s snapped from his Blackberry as if he’s been doing it his whole life.  One thing he won’t advance with, however, is voicemail.  He loves it.  I think it’s a function of starting his career without email/IM/video chat/etc., but he’ll never give it up.  I’m certainly “my father’s son” in many ways, but for me, voicemail really stinks.  Here are my top reasons why:

• Searching is brutal.
• It’s hard to reply and even harder to forward.
• One can’t discretely sneak a look during a boring meeting in the same way they could an email.
• When the message actually happens to contain important info, it’s almost always left at the end and spoken quickly, forcing the receiver to listen all over again.
• Google Voice (and similar services) are a step in the right direction, but they never really work properly.
• The user has to listen at the speed the message was delivered.  No skipping through the rambling intro.
• It’s awkward to leave a voicemail during off hours (the caller might wake the receiver, for example).
• Most smart phone users need to have a strong cell signal to retrieve voicemail or they’re forced to proactively call into their own number and enter the passcode (which is hard to do without a strong cell signal).

I dislike voicemail so much that I actually just changed my outgoing message to “Hi, you’ve reached Mike Katz.  I do not check this voicemail.  The best way to reach me is to send a text message to this number or to send me an email.  Thanks.”  As an aside, I generally like video as a medium, but it has many of the same shortcomings as voicemail in terms of a communication format (in recruiting, it takes 4-5 times longer to watch someone tell their “story” in a video resume as opposed to scanning their LinkedIn profile).  More on that in another post, however.

Anyway, happy birthday, Dad.  If you’re reading this, I left you a voicemail earlier so give me a ring when you get a chance.  I figured on the anniversary of your birth I’d do it your way.

My nervous intro followed by Stuart Ellman's solid keynote (fun fact: this was the first time I've worn a tie at Columbia)

Yesterday was the 17th Annual Columbia Business School Private Equity & Venture Capital Club Conference.  We had a slew of fantastic speakers, a plethora of outstanding panelists, and the 750+ attendees were a who’s-who of the industry.  Part of my role as co-President of the club is getting credit for things I actually had very little to do with, and the PEVC Conference is certainly an example of this.  The event was great and Laura D’Antonio, Sean Karamchandani, Kunal Shah, Matt Wiener, and their army of AVPs and volunteers deserve all of the praise.

Our afternoon keynote speaker was Stuart Ellman, co-founder of RRE Ventures and a member of Columbia’s adjunct faculty (I’m also the teaching assistant for his course which he teaches with Will Porteous).  While Stuart was writing his speech in the weeks leading up to the conference, I was privy to the drafts he produced as well as several conversations he had with colleagues about key sections.

I won’t share the details here, but one thing I was previously oblivious to was how time-consuming the preparations are for these sorts of speeches.  Apparently, most speechwriters guess it takes one hour of writing, revising, and rehearsing for every minute of speech-giving.  Stuart spoke for about 30 minutes which is roughly in-line with the 25 hours he estimates it took to produce the final work.  I would highly recommend checking out his full speech (warning: my shaky intro is up first), but I transposed the last minute or so below.  His major theme was about challenging all players in the VC industry to be unconventional in their thinking in order to find the next big idea.  Here’s my favorite part:

So, what does all this mean for venture capitalists and limited partners, and what relevance, if any, does it have for entrepreneurs?

First, for Venture Capitalists, recognize that an overwhelming number of people and firms in our industry are trying to succeed conventionally and that an enormous amount of capital will flow to companies that represent what has recently come into fashion. If you are doing a deal, do you really KNOW that it is the best company in a given market space? Do you really understand the sheer number of competitors that already exist? What do your best entrepreneurs, particularly the young ones, think about this deal? Above all, do not fear the unconventional.

Secondly, for Limited Partners, recognize that success in the future will not necessarily look like success in the past. Outsized returns come from unusual risks. You want your general partners to invest in and build the next generation of great companies; recognize that those opportunities aren’t necessarily going to be in “hot” spaces when they do the deals. Instead, listen for the tension, listen for the controversy, listen for how your GP’s expect value to be created in non-standard ways.

Finally, for entrepreneurs: Be bold! Be original! See where the crowd is going. Understand the “new” conventional wisdom and the extraordinary flows of capital that gravitate toward it and do something different. Be determined and, most of all, do not fear failure.

In the end, it all comes down to how you think about failure. I tell my companies not to fear failure. I tell my students not to fear failure. I tell my children and myself not to fear failure. I would rather fund someone who has failed for the right reasons and is hungry than someone who was successful and either complacent or lucky. For venture capitalists, failing conventionally is not really taking a risk. It is just doing what the rest of the industry is doing and dying a slow death. The only way to really fail or succeed is to take big, unconventional risks. To do less is to condemn yourself to mediocrity.

From "Should I Work for Free?" (click to enlarge, or see www.shouldiworkforfree.com)

There’s a website going around aptly named “Should I Work for Free?” which features a flow chart to “help” users decide if they should work for free or not. Check it out – it’s clever and a little funny (especially considering the paths leading to “No” outnumber the paths leading to “Yes” by a score of 13 to 8).

Anyway, as co-President of the Private Equity & Venture Capital Club at Columbia Business School, I get a ton of questions from first-year students about summer and school-year internships. I love getting these questions because it’s interesting to see which industries and sectors are looking for extra help, and I get to be (potentially) beneficial to my classmates. With that said, I have also noticed a rise in the number of unpaid opportunities lately. I don’t know if this is actually true or if my anecdotal experience is simply an anomaly, but the concept of unpaid employment at a for-profit business has never felt right to me.  Irrespective of my opinion, however, unpaid internships are almost always illegal.

Yep, you read that right.

In April 2010, The New York Times published an article highlighting the individual internship experiences of a few students, but more importantly, the legal aspects of this facet of the labor market.  In short, an intern can only be unpaid if he or she is technically a “trainee” at the hiring company.  Further, to be a trainee, the form of the intern’s work must meet each of the following six points (note: the law is in bold italics followed by my commentary in plain text; red indicates points I routinely see violated):

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction. This is likely the most violated of the six points. In business school, I’ve NEVER heard of an unpaid internship that’s similar to “academic educational instruction.” In fact, isn’t it the separation from traditional classroom instruction that is attractive to interns?
2. The training is for the benefit of the trainees. This is typically in compliance.
3. The trainees do not displace regular employees, but work under their close observation. Although interns often work under the observation of regular employees, I’ve routinely heard of interns displacing regular employees (albeit in a small way).  For example, if an intern does ANYTHING that takes work off the plate of a regular employee, the regular employee has been partially “displaced” and would thus need to be paid for this work under the law.
4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded. Having any new employee temporarily impedes the operations of existing employees, but the vast majority of interns are ultimately helpful to the hiring firm (most often through the violation of #3 above).
5. The trainees are not necessarily entitled to a job at the conclusion of the training period. This is typically in compliance.
6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. This is typically in compliance.

That’s a lot red (especially when considering that ALL six requirements need to be satisfied for the unpaid internship to be legal). The good news is that this an easy problem to solve. The highest minimum wage in the country is in San Francisco at $9.92 per hour (see Wikipedia for the minimum wage by state). This equates to just $4,000 for a normal summer internship or $80 per day for a school-year internship (in New York the costs are 27% lower at$15,000 and $60, respectively). Considering the benefit companies get from interns, paying minimum wage is the least they can do. It also turns out it’s what they have to do.

Note: as a reminder, this is my personal blog and the opinions represented here are not necessarily shared by Columbia University or any other entity. I’m also not a lawyer and this post should not be construed as legal advice.

Benjamin Franklin Portrait, by Joseph Siffred Duplessis

I’ve been intending to write this post for a long time, but the malevolent and snarky comments following Alan Patricof’s piece on Business Insider earlier today reminded me how overdue I am in writing this.  In full disclosure, Alan is my old boss, I consider him a friend, and I largely agree with the content of his article.  However, that’s not the point of this blog post:

Dear Anyone Who Writes Malicious Anonymous Comments on the Web,

You are a coward.  A giant, pathetic, spineless coward.

Although I appreciate that the Internet provides tremendous anonymity for its users, too often this right is abused.   Perhaps some sites can figure out who we are through IP addresses and cookies, but for the most part this concealment of identity allows confidential, embarrassing, or otherwise inappropriate information from being publically revealed.   Simultaneously, I cherish that the United States values freedom of speech as one of our fundamental beliefs.  I don’t propose we make any legislative changes around privacy and/or the First Amendment, but rather, I’d like to see online communities stop accepting such blatant cowardice furnished through anonymous posts.

Even Benjamin Franklin, one of America’s most famous anonymous writers via Poor Richard’s Almanack, was never mean-spirited simply for the sake of his own entertainment.   However, one of the commenters to the Business Insider article (who refused to reveal their real name) told Alan to “go do something useful with [his] life” as well as a few other childish insults.

Not everyone has to like everyone else – I get that – but would you say something so nasty to a person you’ve never met if you were looking him in the eye?   I doubt it.  So why would you on the web?

Consequently, I pledge to never publically criticize another person without having the guts to put my name on the comment.   I hope you will do the same.

• David Lerner:  http://bit.ly/9n2V1C
• Mark Davis:  http://bit.ly/bjwjcd
• Tobin Schwaiger-Hastanan:  http://tob.in

With that said, I do give a little thank you in the final minute that will mortify my mother because I dropped an f-bomb and employed other foul language (although, in my defense, I was quoting Mark’s first words to me when we met this past summer).  Anyway, check out the full video:

Side note: this is my first-ever blog post from an airplane.  WordPress is pretty much as slow as it is on the ground, but at least I’ve got a better view from up here.

Yep, that really is Snooki from "Jersey Shore" featured in dots in The Wall Street Journal

An article I was interviewed for ran earlier today in The Wall Street Journal.  Check out the full text of Alex Hotz’s piece here: “Three Reasons Why Venture Capitalists Are Investing in New York Startups” (my quote is in the last paragraph of the “East/West Mentality” section).

The WSJ’s hedcut artists aren’t exactly asking to sketch my mug (although they did recently for the never classy Nicole “Snooki” Polizzi), but since I have the full transcript from the interview I figured I would publish it here for better context.

The WSJ’s questions are in bold and my answers are in italics.

First, do you think there’s a difference in the startup cultures in NYC and SV? If so what? How would you describe the differences?

There are absolutely differences – gigantic differences – but the nuisances seem more generational than fundamental. Specifically, today’s New Yorkers didn’t grow up in technology entrepreneurship and instead most “immigrated” into it. In other words, they haven’t always been tech people. This non-native “upbringing” means New York still has some learning to do about founding and growing startups. With that said, NYC’s naïveté is dissipating as an increasing percentage of New York’s workforce – especially in terms of engineering talent – has spent its entire career in tech entrepreneurship in NYC.

Do you think Valley VCs are more likely to accept an entrepreneur who has failed as long as their idea was new and interesting? Is New York less forgiving?

I don’t think there is any difference in how the two VC communities look at failed entrepreneurs, but there are profound differences socially. Friends and family in the Valley are more tolerant of a loved one whose startup just went under than New Yorkers are.

Are New York entrepreneurs and VCs more focused on the bottom line than SV? Is SV more invested in ideas…creating new platforms/products/etc?

I hear this a lot from my friends in Silicon Valley, but I don’t really understand their pejorative tone. I actually think the recession coupled with the decreased cost to get a business off the ground have pushed all VCs to be more focused on the bottom line. Consequently, this phenomenon is perhaps accentuated in New York because the city doesn’t have as long a history investing in ideas without fully baked business models.

Does NYC have the same sense of community as SF? Sure there’s the Ace Hotel and NY Tech Meetup, but is the scene as vibrant as SV?

The community in the Bay Area is more organic than in New York, but that doesn’t mean it’s more vibrant. NYC’s entrepreneurs and investors alike are double-booked almost every night between networking events, competitions, mentoring programs, and on and on. Additionally, the city government has focused on fostering the tech community here through NYC BigApps, a ~$20mm seed investing program, and other incentives for startups in terms of rent and taxes. Also, TechStars is opening an outlet in NYC, the TechCrunch Disrupt conference over the summer was a huge success, and our mayor is one of the most successful technology entrepreneurs of all time.

How does finance affect the startup ecosystem in NYC? Do you think Wall Street still poaches the best engineers? Are New York investors influenced by a Wall Street mentality?

Finance affects the entrepreneurial ecosystem in a variety of interesting ways. Sure, some engineers who are capable of creating new companies instead go write code for hedge funds, but the smartest and most intellectually curious engineers are joining or creating startups. Wall Street previously offered stability, but in the wake of what happened to Lehman Brothers, Bear Stearns, Merrill Lynch, etc., joining a startup is less risky than ever before.

Chris Dixon has written about creating a startup culture like SV in NYC…do you think that’s possible? What does NYC need that the Valley has? What should New York avoid….if anything?

The single largest thing the Valley has that NYC doesn’t is a dearth of technical talent. This is changing, however, as more and more college graduates realize commuting to a nondescript office park is a distant second place to the New York lifestyle.

In your blog post you suggested that New York needs some big exits to cement its ecosystem. What companies do you think stand the best chance of doing that?

Just to name a few: Buddy Media, Conductor, Etsy, FourSquare, Gilt Groupe, RecycleBank, and SecondMarket. The companies themselves are less important than having employees of those firms see a startup from creation to exit and then leverage this knowledge to do it again and again. In the Valley, Paypal, Google, and now Facebook all have former employees who have left to start exciting new businesses; this is what New York needs to cement the ecosystem.

Anything else you’d like to add?

There are two other noteworthy phenomena:

First, the prevalence of Boston investors seemingly spending half their time in NYC (and likely the other half on the Acela). Polaris set up a Dogpatch Labs outpost here, Matrix Partners has made several investments in NYC, and others such as Spark Capital and General Catalyst have been particularly active. I keep hearing rumors from the folks that track this sort of stuff that New York will soon pass Boston as the second largest recipient of VC investment dollars…

Second, media/marketing is a huge driver of NYC entrepreneurship (and an important differentiator from Silicon Valley). Most of the largest advertising agencies are based in New York and these folks are constantly exploring new ways to reach and engage with their end customer. This mindset is why companies like Buddy Media and Conductor (both mentioned above) thrive in NYC. To put it another way, everyone in New York may not understand tech entrepreneurship, but everyone certainly understands marketing and how important doing it well is to growing a company.

Contradicting CVR's 3%: seed deals (<$1mm) as reported by CrunchBase

Specifically, CrunchBase, the database maintained by TechCrunch (Silicon Valley’s most widely read technology and investing site), tells a slightly different story.  Sure, CrunchBase has some shortcomings because the data is user-reported, relies heavily on SEC Form D filings, and contains other systemic errors, but this source still tends to be directionally significant for what is happening within the investment community.

Unlike the CVR study which shows a 3% gain from 1H09 to 1H10, CrunchBase indicates an increase of a whopping 135%.  Additionally, the number of deals cataloged in CB climbed by 44% from 2H09 to 1H10.  Some of this discrepancy is explained by reporting biases, but this difference is so substantial that there are likely much deeper problems with one – or both – of the sources.  CrunchBase seems more consistent with the conventional “gut feeling” of those actively investing in technology startups, but the methodology employed by the Center for Venture Research is more statistically sound.

Maybe the bubble has indeed burst: seed deals (<$1mm) by quarter as reported by CrunchBase. Note that 3Q10 is -58% from 1Q10

Nonetheless, looking at more granular CrunchBase data seems to suggest that the overall theme of a slowing/contracting seed investing environment articulated in the CVR report is in fact accurate.  It’s difficult to measure this precisely (namely because of the issues mentioned above), but the chart to the right shows seed deals by quarter – as opposed to half – in CrunchBase.  Although Q1 of this year was particularly strong,  the fervor has seemingly died down and returned to near the historic average.

I’m confident strong founders with good ideas will always be able to find angels willing to back them in the most nascent stages of company formation.  However, the bubble-like environment of the past several quarters appears to have subsided even if disparate sources don’t agree on the timing and extent of the decline.

Note:  CrunchBase data is as of October 31, 2010 at 12:39pm EDT.  The analyzed portion of this database includes: (1) only U.S. based companies, (2) deals where investment amounts for the entire round were less than $1 million, and (3) companies with data for geographic location, investment date, and round size.  Black and orange colors are in support of the Giants trying to win their third game of the World Series later today (oh, and I guess for Halloween too).