Tag Archives: Venture Capital

Growing Excitement Around Product Recommendation Software

9 Apr

Richrelevance Logo

When you are shopping, a sales person who can quickly understand your needs, preferences, and budget and make a reasonable, logical recommendation is invaluable. While shopping online has typically required that customers already know what they were looking for, or that they conduct extensive research online in advance of a purchase, software is increasing playing the role of the sales person. While approaches to providing customer shopping recommendations have evolved with time, however, today’s software leaves considerable room for improvement. The recent funding of a Bay Area startup focused on customer recommendation demonstrates that venture capitalists have started to wake up to the potential this technology could hold.

Consumer recommendation tools online initially began by mirroring something that already existed in the print world: editor’s reviews and “product of the year” comparisons. Later came “Buyer’s Guides” which followed a simplistic logic to evaluate a few short responses to an online survey to provide a customer recommendation. Then came Amazon‘s product recommendations, based upon the analysis of other customer decisions (“others who purchased this item also purchased…”). This basic methodology has since been implemented in a number of different places around the web, with varying success. I would argue that NetFlix has been the most successful – the one site where I have significant confidence in the accuracy of the recommendations I receive, and act upon them with little or no knowledge of the film recommended. NetFlix, unlike today’s iTunes or Amazon stores, however, does this by not only considered what I have purchased (or viewed) before, but also how much I liked it.

If other online stores were able to earn my trust to a similar level without requiring the lengthy initial interview NetFlix used to gauge my movie taste, and were able to more deeply understand my shopping parameters, tastes, and the reason I arrived at their site, they would stand to gain a greater share of my wallet. If Amazon had been able to successfully recommend a book to me which I enjoyed (rather than assuming the South American literature textbooks I bought for college courses indicate a passion for Spanish authors), I would be far more likely to trust their recommendations a second time, and to begin to rely upon this functionality, visiting their store on a consistent and regular basis.

Baynote, a software firm located in Cupertino, raised $10.75 million in a second round of funding last year from Steamboat Ventures.  Its software attempts to understand customer intent by observing their actions on a website, and groups him or her into one of several customer archetypes to best deliver their anticipated needs.  The challenge, however, is that a customer’s visit may be so short as to fail to give enough evidence of intent for the software to accurately predict their intent.

Richrelevance, a San Francisco based technology startup which yesterday announced it had closed a Series B round of investment valued at $4.2 million dollars backed by Greylock Partners and Tugboat Ventures, is attempting to deliver this kind of next-generation product recommendation software. Built by David Selinger, a leader from Amazon’s recommendations team, richrelevance promises the ability to enhance a web store by personalizing the shopping experience and providing relevant, high quality product recommendations. Unfortunately, however, its technology doesn’t appear to make any massive improvements upon the flawed system in place at Amazon.

Perhaps this shouldn’t be surprising, however. It turns out the challenge of substantially improving recommendation algorithms and technology is a very considerable one. Even NetFlix, which posed a large cash reward to the tune of $1 million for any person or team which could improve the accuracy of its prediction software by 10%, has been unable to meet this seemingly modest goal after over a year and a half.

I will watch with curiosity as other companies tackle this challenge. I believe it is a field with significant growth potential, and one where I would be excited to see more innovation and expansion.  In the meantime, reasonably talented retail sales people need not worry about losing their jobs… just yet.

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VC Wisdom for SeedHive: A Conversation with Kurt Hawks

6 Aug

Monitor Ventures

In order to determine whether my business concept, SeedHive (a social network for entrepreneurs), really has the potential to be successful, I must start with the question “what does this site provide for each of [my] target audiences?” This was the simple, but sage advice of Kurt Hawks, a former colleague from Monitor Group, working at Monitor Ventures, and now VP of Operations at Greystripe.

About two weeks ago, Kurt generously agreed to speak with me about the SeedHive concept, providing critique and advice from the perspective of a venture capitalist. He was, in effect, the first of my three target audiences with whom I would need to test the idea: entrepreneurs, venture capitalists, and service providers offering goods and services tailored to these businesses.

From our conversation, I believe SeedHive would benefit venture capitalists in three significant ways:

  • Information: The aggregation of news, data, and trends which are today disparate and inconsistent, into an intelligent, reliable news source
  • Sourcing: Simplifying the identification of both new business ideas which might be attractive investments and entrepreneurs with whom they would like to do business
  • Networking: Facilitating the face-to-face networking that is the mainstay method of interaction within the world of entrepreneurship, and providing a viable (if ultimately less desirable) alternative

He validated each of these needs, and helped me better understand how VCs work and think.

Concerns:

Kurt did, however, bring up some concerns about SeedHive which reiterated critique I have received from other thought partners. Will people really be willing to share a significant amount of detail on the business plans they are developing? How will the site attract the critical first adopters who will begin to create content for the site?

One of the areas where Kurt helped push my thinking was related to the integration of a provider network into the site, particularly one which has users voting and rating each vendor’s quality. First off, he confirmed that the real need (which he has already experienced at Greystripe) is for entrepreneurs to be able to find pre-qualified vendors and providers they can trust without being able to call upon the long experience or deep pockets of larger firms. The more information potential buyers have about a vendor, the better.

Nevertheless, in order to get providers to engage with the site and pay to list their services and products in any sort of SeedHive marketplace, providers will need to be comfortable that the reviews they might receive would be honest and fair. Just like eBay, where a merchant score is crucial to winning business, providers will recognize that a few unfair reviews could seriously hurt their ability to do business. He pointed to LinkedIn as an example of a site which has attempted to balance vendor control with user ratings.

What Now?

Coming out of the conversation with Kurt, I felt both energized and appropriately hesitant. There are clearly a number of other organizations working in very similar, related areas, and in many cases, their business models are much clearer and more focused than that of SeedHive. PartnerUp, for instance, is an intelligent solution to the need for entrepreneurs to find potential business partners with appropriate skills and experience. The Go Big Network has created a showroom for investors to easy find businesses looking to raise capital.

The next steps will be to continue to investigate the other businesses and individuals who are playing in this same space, continue refining the business idea, and most importantly, creating a financial model. Kurt posed the question quite simply as “how many people do you need to generate a profit?” How many users? How many advertisers? Paying how much? They are simple questions, but ones which I must answer honestly before I move too far ahead with the idea.

Will a Debt Crunch Drive Smart Minds Away from VC, Entrepreneurship?

2 Aug

Roger McNamee The stumbling of the debt market in the United States and internationally within the last couple weeks is an issue of concern not just for banks and big businesses, but for entrepreneurs and venture capitalists as well.

Roger McNamee, the Managing Director and co-founder of Elevation Partners and author of The New Normal, spoke yesterday at the Stanford Summit about the “Long Shadow of Debt” facing Silicon Valley.

If you’re an entrepreneur, do the things you need to make the company more valuable — and be prepared to do it for awhile… We are going to vaporize a ton of private equity, venture capital, and public market capital, and when that’s done, we’re going to have a bull market like no one has ever seen.

He did not deny, however, that these will be hard times for entrepreneurs, who will have to cope with a tightening of the purse strings of venture capitalists, and reduced opportunity of an exit by being acquired by a private equity shop.

As Epicenter paraphrases from McNamee, “The lesson? Hard times are coming as the amount of liquidity available dries up. But it won’t disappear forever, because the underlying opportunities are still there.” McNamee continues, “If you’re an entrepreneur, don’t run out of money — and be prepared to do it for a long time. But the market potential is huge. I think this is a great time to be an entrepreneur.”

The question that leaves in my mind, is how this emerging shift should shape the decisions of someone who is considering entering the ventures world. Will opportunities be fewer and further between? Will that drive smart minds back into bigger business and industry?