Fred Wilson: 5 Essential Tips for Start-up Success
Fred Wilson likes to call his first venture firm, Flatiron Partners, his “Web 1.0 start-up” and his current firm, Union Square Ventures, his “Web 2.0 start-up.” Speaking at Ad:Tech New York on Wednesday, the venture capitalist and frequent blogger expanded his thoughts on a number of topics from branding and advertising to Facebook and Twitter.
Check out these five takeways from the hour-long chat with one of the leading voices of the New York City start-up scene:
1. Content should function as advertising units.
If you're a start-up built on content, Wilson said the best way to advertise is not on top of that content but into it.
“If you have a native monetization system where the atomic unit of content is the ad unit, that scales down all the way to a small screen experience,” Wilson explained. “That’s why Twitter is performing so well on mobile.” To add to his point, Wilson compared Tumblr with Web 1.0 hosting site GeoCities: “GeoCities slapped ads everywhere,” said Wilson. “At Tumblr, the business model (of native advertising) is quite elegant.”
2. Scale up, then monetize.
Facebook may have lost billions in value in the public market, but Wilson said that he will continue to invest in start-ups that achieve a strong consumer base first before generating revenue.
“Facebook is worth $40 billion today and they make $5 billion in revenue a year, that is not a failure that is a success,” Wilson said. “I am becoming more confident every day that that is the right strategy.”
3. Social media analytics matters.
Attention start-ups: it’s probably a good idea to monitor the impact of your social initiatives because Fred Wilson will before he invests.
“When we consider making an investment, we run a bunch of social analytics reports on the company,” Wilson said. Wilson isn’t investing in analytics at the moment but said he believes they can be very good businesses that can help marketers structure campaigns and target audiences.
4. The cost of attracting a large audience is extremely low.
These days, it doesn’t take many engineers and servers to build a large audience. Wilson said Tumblr is a great story because its two co-founders, David Karp and Marco Arment, were able to attract tens of millions of users before hiring anyone else.
“It’s a pretty radical idea that you can build an audience that large with only two people,” Wilson said. “Where you end up spending a lot of money are server and bandwidth costs at scale, trust and safety, managing spam and abusive behavior, enforcing your terms of service and then monetization.”
5. Crowdfunding is a good thing.
Last month, secondary trading marketplace SecondMarket partnered with AngelList to allow investors to take individual stakes as small as $5,000 in start-up companies. Wilson said that he thinks the effort and others like it are worthwhile. Noting that 20 to 30 venture capital firms control more than 60% of industry funds, Wilson said that crowdfunding could help decrease the contraction in venture investing.
“It’s upsetting to me that you have to be a millionaire to invest in your friend’s start-up,” Wilson said. “The more entrepreneurs in the world that are getting their ideas financed, the more great companies there are going to be that we can all invest in.”