Theme Focus: Curated IP Generation

By David Cremin (Originally posted July, 2014)

Comic books?  Seriously?  That’s a good business?  Well, yes, and, well, yes!  It can be.  My Frontier co-founder and awesomely literary partner Scott Lenet grew up reading comics and graphic novels (which are longer comprehensive collections of comic books).  He also majored in comparative literature at Princeton, so don’t judge too quickly on what may seem like idle time reading silly comics.  BTW, when I say comics, some immediately think of Archie and Superman.  But there are a LOT of comic books, which actually tell great stories about compelling characters, not just about superheroes and generic teenagers.  Such great stories make valuable intellectual property (“IP”). 

We all know IP can come in many forms.  Technology companies patent their code or hardware, and this is their IP.  Hollywood has IP.  Companies like Sony, Fox and Universal own lots of great movie titles, and exploit these titles across media globally.  At Frontier, we believe that we should be backing founders with transformative IP.  But since we believe IP can include not only technology companies, but also certain types of content, we are open to expertly curated content generation companies, which drive an engine to create valuable content portfolios. 

I bet you didn’t know that when you went to see the blood spattering, action-packed movie 300, that you were seeing a movie adapted from a graphic novel?  I bet when you enjoyed Angelina Jolie in Wanted, that you were seeing a movie adapted from a graphic novel.  How about Walking Dead, on TV?  Yup, graphic novel.  Blade Runner.  Heck, why not Harry Potter or Twilight?  A great story is a great story.  [Is there a game example?]

At Frontier, we invested in a company called Boom Entertainment, because we were intrigued by their stories, their writers and their artists.  We also realized that Boom was having great conversations with the creative folks in Hollywood.  The founder had a history in comic book publishing, but also understood the production of movies and television.  We liked that the team drove a fiscally sound book publishing business, but that this success provided the company with lots of shots on goal to translate its IP into other, potentially more valuable media.  Recently, the company’s first translation from a comic book to a movie, Two Guns, starred Mark Wahlberg and Denzel Washington and was an important creative and financial success. 

Another portfolio company, Seismic Games, was founded by video game industry veterans Greg Borrud and Giz Gewirtz.  Mobile and virtual reality are driving new gaming experiences, and the founders were busy assembling the best engineering teams to build games on a contract basis.  But these teams were nimble, and the company is also building its own games at the same time.  Like Boom, the company had a fiscally sound game development business, giving it time to be creative with some of its own innovative IP.  If you are at Disneyland, and you choose to check out the Millennium Falcon, the experience was created by Seismic Games. 

We’re continuing to seek new companies that have a unique engine for valuable IP creation and long term value like Boom Entertainment and Seismic Games.    

Darth Venture - The Force Awakens

By David Cremin (Originally published on March 30, 2003)

Quick, entrepreneurs, use the force because Darth Venture is after you.  How do I know this?  I recently attended an MIT forum, at which entrepreneurs, venture capital providers and service providers met to discuss technology, business and capital.  The MIT forum, along with the Central Coast Venture Forum, TechBrew and the Center for Engineering Entrepreneurship Management at UCSB, are vital, growing organizations that prove this is a fertile and exciting region.  (If you have not attended any of these events, and this is an area of interest, then I strongly urge you to do so). 

At DFJ Frontier, a seed and early stage venture capital firm and the newest fund in the Draper Fisher Jurvetson network, we see a tremendous opportunity in this central coast region.  From Westlake all the way up to Santa Cruz, you’ve got top-notch educational infrastructure, smart workforce, models for success and great places to live.  The only thing missing to date has been efficient access to capital.  What did Silicon Valley look like 25 years ago?  I was there - prune orchards, horse fields, Stanford and HP - and a few venture capital companies.  Here on the coast today, you’ve got all kinds of orchards and horses, UCSB, Cal Poly, and models for success like Green Hills Software, Xylan (now Alcatel), United Online and many more.

That’s why we’re here.  Venture capital catalyzes business, creates jobs and wealth, and as we still see in Silicon Valley today, promotes additional venture capital dollars.  This will continue, and in fact has, save for two or three strange years that most of us would like to forget.  Those years were the anomaly; we should be back on track shortly. 

At the MIT forum, we heard from an inspiring local entrepreneur, Dan O’Dowd about his terrific history as founder and CEO of Green Hills Software.  Dan is one of the guys doing it right in my opinion.  He referenced other entrepreneurs who are doing it right, guys like Bill Gates, Michael Dell, etc.  What are they doing right?  They started their companies with a small amount of venture capital, and proceeded to run their businesses well and never looked back.  These heroes are examples for today’s entrepreneurs and just the types of women and men we venture capitalists like to support.

Dan stressed that making more money than you spend means you do well.  Spending more money than you make is a bad thing.  While moronically simple, he is dead on in pointing this out and questioning why others don’t use this simple business model more often.  Use the force Luke!  Heck, my immigrant grandparents taught that one to us many years ago.  That’s how they built a business teaching twenty-five cent music lessons into a chain of fourteen music schools.  Remember: don’t spend more money than you make…you won’t do well and Darth Venture will come calling for more of your company. 

Dan cautioned that when entrepreneurs raise progressive rounds of venture capital to drive faster growth, this capital comes with a cost.  An entrepreneur sells a little bit (or sometimes a lot of bit) of the company in each venture round.  Why does Dan think this is bad?  Because if capital and growth are not used wisely, one can lose control of employee training, product development, and ultimately the company, as venture capitalists can own as much as over 50% of the company at the time of an IPO.  Again, entrepreneurs like Dan, Bill and Michael each used very little venture capital, and then succeeded by making more money than they spent.  They used the force to keep Darth Venture under control. 

After Dan spoke, we then listened to a terrific young Santa Barbara-based company called Warp 9 tell its story, after which Dan joined me and Sumant Mandal from Clearstone Venture Partners (Darth Venture was in the house) on a panel to talk about Warp 9 specifically, and venture-backed companies in general.  I give Jon Lei, the CEO of Warp 9 a lot of credit for his courage and poise during our questions, challenges and recommendations.  The audience chimed in too, asking tough questions and helping mold a better battle plan for this new startup.  One audience member asked Darth Venture why we don’t wait long enough for Warp 9’s market opportunity to dwindle, and then exploit such market timing to rush in for a better-timed venture capital kill.  Wow.

I guess Darth Venture’s reputation preceeds him.  Wait.  Dan used venture capital.  So did Bill, and Michael, and a host of other successful entrepreneurs.  But they used it the right way.  They used the force, Luke: they got a small venture kick-start and then made more money than they spent.  Salient message in tough times.  Salient message in boom times too in Darth Venture’s humble opinion. 

Dan argued vehemently that the recession is at its nadir, and good times are ahead.  I agree.  Darth Venture isn’t always on the dark side.  Darth Venture has helped Dan and many others use the force with terrific results. 

We’re excited about the huge growth potential in this region.  We want to help more local entrepreneurs become heroes, and catalyze job and wealth creation.  Catalyzing this success will drive more venture investment in the region.  Luke, get in the game, Darth Venture isn’t such a bad guy, and may the force be with you.

“It’s a Trap!” Or, the Myth of the Mid-Stage Round

By Scott Lenet

Nearly half of Series C rounds were flat or down in the third quarter of 2016, prompting the industry refrain that “flat is the new up” and implying that entrepreneurs should be happy with the current state of affairs. Happy or not, entrepreneurs seem to recognize the new reality, with two-thirds of CEOs admitting that they believe the balance of power is shifting from entrepreneurs to VCs, according to the State of Startups survey from First Round.

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Interview with Robert Blatt, CEO of MomentFeed

By David Cremin

When we invest in startups, often we also serve on the company’s board of directors.  As directors and/or fiduciaries of early stage companies, sometimes we recognize that a founding team needs operational assistance.  The vision is there, but sometimes the steps to realize that dream are not clear.  Based on the pattern recognition gleaned through investments in over 100 startups, we can help identify and articulate the need. 

We always talk to the founders and discuss the problem.  Working together we try and find a solution by adding missing ingredients to the team, sometimes even a new CEO.  Though more art than science, and sometimes fraught with real human emotion or ego, in our experience this kind of collaborative change should end up working out really well for all shareholders, especially the founders.  In one company, Momentfeed, the founder Rob Reed built the company to a certain level and then, as an example to so many founding teams, helped lead a successful search for a new CEO.   

Under new CEO Robert Blatt’s direction, Momentfeed has since more than doubled in size four years in a row and just landed significant incremental financing from our colleagues at Level Equity to expand the business.  I give HUGE credit to Reed for managing this process with such integrity – I’m sure it wasn’t always easy. But the outcome is undeniable.  Here is an interview with CEO Robert Blatt, in which he discusses the transition, the company’s evolution and the his mission and vision for the future.

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