Well, in light of the past few weeks in the financial markets and all the doom and gloom being reported and pontificated upon, 2008 just may well go into the history books as the vintage year for the “Mattress Fund”.  What do I mean?  Let’s put it this way, when one of the hottest selling items at Walmart the past couple of weeks has been home safes…something is going on.  So, is this the year of the Mattress Fund???  I honestly don’t know.  What I do know, however, is that all capital markets are cyclical and what goes down will eventually go up and that time can reward patient investors.  One of my long-held beliefs is that fear and greed drive all capital markets, be they public or private, and understanding where the market is on such spectrum facilitates good investment decisions.  I also tend to subscribe to Warren Buffet’s adage of being fearful when others are greedy and greedy when others are fearful so I’m actively looking for good investments as we are clearly in “fear mode”.  There are 2 weeks left until the elections and 10 weeks left in 2008 so I don’t see much changing for the time being, but I guess that’s why they say patience is a virtue…  Until next time, happy venturing.

Wow, time sure does fly when you’re having fun…  It’s been almost a month since my last post and I’m just getting caught up from a whirlwind last few weeks that included making a new investment in the mobile sector (stay tuned), a half-dozen board meetings, a mini-vacation, and some fund administration matters.  I’ve been thinking through a few topics for my next post so I’ll get back to you when I have something worthwhile to post here.  In the interim, enjoy the summer.

For those few brave souls who check my blog daily and have been wondering where I’ve been… No, I’ve not been away on a surfari (I wish).  I’ve simply been more buried than usual on the work front, but all of the work being VERY GOOD.  Not to fear, I’ve had a fair amount of “in between time” to think through a few things so stay tuned for a more meaningful post.

A lot of you have contacted me asking about the progress of my shoulder, if you’re not one of them you can stop reading now as this post is just about my shoulder.

I suffered a level 3 AC separation of my right shoulder (see pictures below from the “slopeside ER”) on February 8th and was told the injury is one of “3s”. Specifically, 3 days before the pain becomes tolerable, 3 weeks before I can start to use that arm, and 3 months before I return to any sense of normalcy. Well, I’m happy to report that I’m ahead of schedule. I went to physical therapy for a few weeks until they “released me” to proceed on my own with the exercises they gave me to do at home. The swelling has completely gone down now such that my clavicle is significantly more pronounced, but I’m able to work through the shoulder exercises daily and have even begun to swim again (albeit, MUCH shorter distances and at a MUCH slower pace). My goal is to be back on my surfboard in time for the warmer water this summer. Until then, aloha.

After the 1st round of the NCAA basketball tournament was all said and done, turns out I was “toasted in Tampa”.  I went 0 for 4 in the games played there.  I guess I better just stick with my day-job and “pick” start-ups instead — at least I have some control over their outcomes.  Enjoy the rest of March madness.

I thought I’d share a couple thoughts with you this Friday. First, I spent a lot of time with VCs prior to becoming one myself and two “pearls of wisdom” seem to constantly come to the forefront in this industry. The first maxim is “don’t be greedy”. Venerable VCs will tell you that any time you get greedy bad things happen. The second maxim is “don’t be stupid”. This latter advice is easier said than done, to be sure, but a fair amount of this industry is predicated upon old fashion common sense. My second thought this Friday afternoon is about a different common sense — Common Sense the band. They are one of my favorite bands and, it just so happens, Rob Barnett has a nice post about them (and me) that you can check out here. While you’re visiting My Damn Channel, make sure to vote for them for this year’s YouTube awards by visiting The Night Feed and following the instructions. Until next time, exercise and listen to Common Sense.

A fellow VC just informed me that the OC Metro has an article on me/OC VC in their latest edition. You can read the article here. Not sure what it all means, but I find the media attention interesting. Enjoy!

I took a couple of weeks “off” to spend some time with my family and friends and am now just getting back in the saddle.  So, what did I do while away from the office?  It turns out that I’m never truly away from the office.  I had a number of calls and traded a fair amount of emails with my portfolio companies despite being “out”.  I guess old habits truly do die hard.  I spent the bulk of the time with my family just enjoying the holidays.  It gives them a whole new meaning when you’re able to do so through the eyes of a child…  I also managed to read a few books recommended by friends (Done Deals, The Zookeeper’s Wife, and A Look Over My Shoulder: A Life in the Central Intelligence Agency) and even played wiffle ball yesterday for the first time in twenty something years.  In any event, I hope your holidays were happy too.

Season’s Greetings to all you OC VC “fans” out there. Thanks for reading and catch ya next year.

Today was supposed to be the day that I broke my 141 day streak of no surfing. I was supposed to be in L.A. all day in meetings, but they were canceled yesterday and I found myself with a “free” day all of a sudden. I’d been following the reports on Surfline and Wetsand for a week or so and both had been predicting “epic” surf for South Orange County with wave heights in the 7-15 ft range today. In fact, so much attention had been given to the “monster swell” that was rolling in by the experts and my friends that I ultimately decided to take my son to one of my local breaks and watch from the sand rather than put my relative inexperience to the test in DOH (double-over-head) surf all by myself. Turns out, I psyched myself out for nothing. The picture below was taken at Doheny around 9am this morning and raises two points I’d like to discuss. First, I’ll address one of the age-old questions: “Does size matter?”. Finally, I’ll briefly delve into “how big is big enough?” Before you either tune out or turn on, you should remind yourself that I’m writing from a VC’s perspective in The OC and get your mind out of the gutter.

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So, does size really matter? If you’re talking about markets, then the answer is unequivocally yes. What do I mean.? I mean that the size of the market (as measured by total available revenue realistically achievable per year) a particular start-up is attempting to sell its product or service to matters a lot for several basic reasons from a VC’s perspective: 1) The targeted market’s margins for operational errata are much bigger (and, therefore, more forgiving) the larger the market is; 2) The larger the market is the more room for competition there is (which will inevitably occur in today’s age); 3) The larger the market is the more revenue any one particular company can aspire towards; and 4) The “law of large numbers”. Why does all of this matter to a VC? Simply put, most VCs are looking for very large returns on their investments (e.g. 10x+) and companies targeting “monster markets” are more apt to realize such returns (all else being equal). To quote a legendary “patriarch of private equity”, Don Valentine, “It’s better to invest in a company in a large market with great demand than to invest in a company that has to create it.”

Okay, okay, so size really does matter for targeted markets…but how big is big enough? It has been my experience that the answer to this question depends on a few primary factors: 1) the size of the VC fund from which you are seeking an investment; 2) the targeted market’s rate of change (in terms of growth / erosion); and 3) the background of the team attempting to penetrate the targeted market. Clarification, please. Sure, since you asked. Generally, the larger the fund the larger the liquidity event needs to be on a per deal basis to achieve the returns most LPs expect (e.g., 2x-3x cash-on-cash) given historical statistics. As an extreme example, and all other things being equal, it is arguably much harder to turn $500M into $1.5B than it is to turn $10M into $30M. Additionally, a “small” market that is growing like wildfire may generally be preferable to a “bigger” market that is quickly shrinking. As an entrepreneur, you should research the size of your intended market and understand not only it’s absolute size, but its underlying growth/erosion dynamics as well. Finally, the less seasoned the team is the greater the margin of error generally required.

A couple of final, parting thoughts come to mind as I stare at the picture… First, don’t generalize size — do your homework and truly understand how big the total addressable market is rather than that of the market generally available. Finally, understand that size is relative. For those of you who know Doheny, you appreciate the fact that while the waves weren’t DOH this morning, the 4′-6′ footers were much nicer than the typical 1′-3′ footers found there. I guess I should have gone surfing afterall…