Week 1 summary

Thursday, April 2, 2009

As promised, I will be reporting all developments both good and bad at LiquidCap.

Slightly more than a week passed since I launched the idea and the following has been 'achieved':

  • Few blog posts
  • Twitter account with a handful of interested people and a 200+ people who are following me so I follow them back
  • Decision: we will build the Minimum Value Proposition of LiquidCap as a fist step
  • Proposal: Daniel Haran, a real Rails guru and wannabe chocolatier has offered to spec the MVP for LiquidCap
  • Partnership Scheme: Daniel gave me an excellent and intuitive idea for talent-funding compensation, I will blog about this later
  • A one-line description: "marketplace for sweat capital" coined by my other Ruby guru, James Golick
  • Lots of encouragement and informal offers of support both from entrepreneurs and talent

At this stage the concept is still purposely left vague so we can build as feed-back and ideas come in.

Our plans for the coming weeks are:

  1. Enlist a few ideas and talent the old fashioned way (email, blog, twitter, etc)
  2. Build and extremely simple interface interface (an MVP) to achive the above
  3. Solicit more feedback from yo
  4. Answer some fundamental questions about legal, compensation, etc
  5. Look for the following partners for LiquidCap:
  • Web Design
  • Social Media Marketing
  • Programming (Rails please)
  • Legal advisor
  • Startup guru

Twitter: the most powerful capitalist weapon

Friday, March 27, 2009

Now that I hopefully grabbed your attention, let me summarize what I would like to say:

  • Capitalism promise is that the free market is an excellent algorithm to optimize resource allocation.
  • Resources are exchanged by parties to improve their percieved well being.
  • Friction in the market causes lack of liquidity and reduces the efficiency of the market.
  • Lack of trust and asymetrical information is a major source of friction.
  • Twitter provides a method to establish a trust level with people we never met.
Adam Smith was fond of using a village analogy to demonstrate how markets work.  The butcher and the baker will happily exchange bread and meat for their mutual benefit.

What happens when the butcher is in Lima and the baker in Warsaw?

Apart from the problems of rotting meat and stale bread, an additional headache is how can they trust each other:
  • Legal system is different and costly to use
  • No personal contacts to vouch for them 
  • Transactions take time and are harder to verify
  • No direct contact to read body language
If they were in the village, the butcher would ask his neighbours and he would get a trust index for the baker, he would visit the baker's shop and see that it is really there, he will look the baker in he eye and know how trustworthy he is, and finally he can resort to the police or his buddies to teach the baker a lesson if he cheated him.

These luxuries are not available to our Lima butcher.

Until now, this kind of business transaction was mostly carried by large institutions at great expense:
  • Run credit report
  • Hire international lawyers
  • Open letters of credits, bills of landing, etc
  • A few number of capitalists act as if they were in a village as they know each other
The advent of blogs, social media and other new tools is quickly changing this formulae.  However nothing is as powerful as Twitter in creating a global trust system.

Twitter, by providing a public timeline of all its conversations that can be uniformally accessed and searched is the equivalent of a private chat with the village barber of every village in the world.

On Twitter a quick search will yield all past complaints about an individual.  This can be easily searched and with a little hashing (adding simple tags to trust conversations) can be aggregated to give us a quick feel of how trustworthy our counterpart is.

This mechanism acts both as reduction in information assymetry and an enforcement mechanism: we will be very motivated to give a good service since our universal reputation is on the line.

Those who invest in their reputation from an early age will reap great rewards and those who deviate will be quickly rejected from the market.  

Micro transactions can then occur with self-regulation (I know it a dirty word these days), and global capitalism will be able to operate in very similar ways to what Adam Smith envisioned.


Chickens Vs Butterflies: can we talent-fund a butterfly?

Tuesday, March 24, 2009

YXHD has an interesting post about Chickens Vs Butterflies: Raising Venture Capital in a Down Economy

He classifies companies as either:

- Chicken that can be raised organically (he intended no pun) through sweat capital and bootstrapping
- Butterflies that start as an ugly worm and need a lot of R&D to turn into a real product

Clearly chicken are the typical talent-funded companies where a few partners work together to get the venture operational.

Can we talent-fund a butterfly?

I think that although it is much harder, by growing talent funding from the small group of close partners who build a project to a full community of potential partners who through small contributions create the full project, it is possible.

There remains of course some capital expenditures that have to be incurred. But in certain knowledge heavy domains even butterflies can be talent-funded.

A keyhole into the startup garage

Brant Cooper gives us the activities week by week, of an early stage start-up.

"Week 1 Tasks:

  • Document Business Hypotheses - market segment, customers, pain, acquisition methods, etc.
  • Identify 100 potential users to interview.
  • Identify 50 potential partners to interview.
  • Create interview process and objectives.
  • Create MRD based on “vision.”
  • Identify key metrics for proving model.
  • Prepare blog launch using company domain"
Lean Start-up: Part 1 « Market By Numbers - Brant Cooper

I like the focus on identifying customers and talking to them as the first activity. I wish I had done this in the past.

As an added bonus, buzzword of the week: Freemium model.

Y Combinator: very early startup VC

Y Combinator: What We Do: "We make small investments (rarely more than $20,000) in return for small stakes in the companies we fund (usually 2-10%)."

They have a great funding/incubation/mentoring concept that is exactly what is required for very early startups.

What is the minimum viable product?

Venture Hacks discuss the concept of MVP ( minimum viable product) this is a great way to go about starting a venture:

- Define the minimum set of features that will allow early adopters to adopt the product early
- Rely on the imagination of early adopter to fill in the balnks and see the benefits
- Send it out, and see how the market responds

This made me think about the MVP of LiquidCapitalism.

The offer of LiquidCapitalism is:

- Allow entrepreneurs to find talent-funding to their venture.
- Allow talent to go in and review ventures to invest in

The MVP for LiquidCapitalism is:

A home page where ventures can register their idea and talent to view a list of ideas

We will create this and get back to you.

Heroic entrepreneurs | The Economist

A special report on entrepreneurship: Heroic entrepreneurs | Global heroes | The Economist: "Entrepreneurship also flourishes in clusters. A third of American venture capital flows into two places, Silicon Valley and Boston, and two-thirds into just six places, New York, Los Angeles, San Diego and Austin as well as the Valley and Boston. This is partly because entrepreneurship in such places is a way of life—coffee houses in Silicon Valley are full of young people loudly talking about their business plans—and partly because the infrastructure is already in place, which radically reduces the cost of starting a business."

The article is very interesting, but what struck me most is the importance of being in a "entrepreneurship cluster". What we need is to create a virtual entrepreneurship hub, so that entrepreneurs and talent can converse, compete, share and learn from each other. Ning?