And on the Lighter Side of Things...

I need a little break from writing about such heavy topics such as billions for bailouts, bumbling bureaucrats and balance-sheet blow-ups. So here a few topics on the lighter side of life.

Congratulations to the Soren, Howard and the StockTwits team on closing its angel round. I am very excited to be working with these guys, along with my Betaworks friends Andrew Weissman and John Borthwick and my MyTrade (now thinkorswim) pals Andy and Landon Swan. Simple. Elegant. Lightweight. Yet powerful. I've never been quite so close to a consumer-facing Web 2.0 application, so I am super excited to be learning from such successful entrepreneurs and investors and hopefully adding some value along the way.

Congratulations to Alan Levy, founder of BlogTalkRadio, on his massive lead in the Silicon Alley 100 voting. I am both an investor in and Board Member of BTR, and have seen Alan's passion and brains first-hand. In short, he is a force of nature. Alan's rock-star status pales in comparison to my lowly 72 ranking. He's the real deal. I guess our relative rankings prove that those who can't do - invest (I know that doesn't apply to many but it certainly does to me).

Congratulations to the entire Silicon Alley ecosystem. Even in the face of an absolutely horrendous financial environment, I continue to see plenty of interesting and worthwhile business plans sponsored by bright, passionate, hard-driving entrepreneurs. Regardless of what is happening on Wall Street, I can't help but feel that Silicon Alley's momentum simply can't be stopped. There are too many industries to disrupt and fix, too many ads to serve, too many trends to be spotted. And it's all happening right here. In NYC, baby. Even if Yankee Stadium is dead and gone Silicon Alley is just getting started.

That's all for now. I feel much better.

Does NYC Need Another Early-Stage Investment Fund?

This is a question I've been pondering for quite some time. I've gotten pretty involved in the early-stage investment scene over the past three years, having done, wow, 22 investments. It is hard to believe there have been so many really good entrepreneurs, ideas and business models that warranted funding, and that could benefit by having me as an investor, Board member and/or adviser. I have learned a lot, built some great personal and professional relationships and made a few bucks in the process. But I have been doing this as a long ranger with my own money, acting in the capacity of a "super angel" somewhere between the world of straight-angel investors and venture capitalists. And I feel that maybe I'm not really maximizing my impact due to my limited resources and limited bandwidth.

My question is: does it make sense to institutionalize, to raise outside money and to build a real business out of this? Would real value be created by my stepping up, raising money and getting serious about the early-stage investment business? Do Silicon Alley and Silicon Valley really need another guy like me? I am deeply conflicted, partially because I already know a lot of really good early-stage investors in NYC and elsewhere but also because being a "VC" has a somewhat pejorative ring to it. I don't consider myself a VC; I tend to take more risk, invest earlier and leverage the hell out of my fairly robust and diverse rolodex. I guess in this way I am an angel, but a very active and connected angel who would like to put a lot more money to work than I have in the past. The deal flow is there; I would simply step up my deal size and be able to more significantly participate in follow-on rounds.

Anyway, from time to time I muse about career stuff on this blog, and this is one of those times. Trading, hedge fund management and early-stage investing. My three work passions. It is a pity that I can't do them all, simultaneously. Wouldn't that be a cool trick...

Those Who Live in Glass Houses (MSFT) Shouldn't Throw Stones (at GOOG)

There has been more chest-thumping over the past month among big tech companies that it is beginning to feel like a gorilla convention. Microsoft beating its chest over Yahoo. Yahoo thumping right back and acting all tough to News Corp. and Time Warner. Microsoft again going gorilla with Bill Gates saying "Google does not understand business needs," while a Google executive tosses a coconut right back and dumps on Microsoft SharePoint. But the law of the jungle is: beat your chest and scream from high trees, but only if you're the best and you've got the goods. Because if you don't, you'll get pounded.

Microsoft's got enough going on without getting into PR fisticuffs with Google. Did Bill really need to go after Google Apps at a recent SharePoint conference? Because the company has so much to be proud of these days? Consider these undiplomatic words:

Answering a question about Google's competitive threat to SharePoint, Gates said that, "Its [Google's] productivity tools do not have the features and responsiveness of ours. In terms of Google tools, the day they announced them was their best day, really. Remember Google Talk? I can hardly remember its name? It was going to change the world," Gates said to much laughter and applause.

In contrast, SharePoint was about end-users and the ability to get things done, he said.

Bill's comments are sort of, well duh. I don't think Google believes it has the holy grail today in Google Apps, but it is iterating rapidly to develop a suite of products and services that are still lightweight but with greater functionality than the current offerings. Needless to say, Google is in this for the long run, and it is a logical offshoot of their core business. Here are a few words from Scott Johnston, product manager for Google Sites:

Johnston noted that competing collaboration software products like Microsoft's SharePoint are expensive and hard to implement. "They have a ton of features but in the end, because of the complexity, you rarely get the value you need out of those features. It's a huge burden to IT. The projects to implement such solutions are unbelievable."

Interesting though that Bill and Microsoft feel sufficiently threatened to compare their heavy-weight offerings to Google's new and lightweight tools. Why else would he be getting so horsey and aggressive? Think about Microsoft's approach. They've invested $25 billion+ in Home & Entertainment. Not at all related to their core business. Look at the Zune. A direct competitor to the iPod, right? So Apple should be getting aggressive and talking garbage about Microsoft's lame offering, right? Hardly. Apple is focused on innovating, building brand extensions and linking together their communications and media platforms. They don't have the time to talk trash. They do their talking in the market, where they speak very loudly. Microsoft is doing a lot of their talking at conferences. But conferences don't pay the bills.

That said, Microsoft is taking a page out of the Apple play book but leveraging similar marketing strategies to create a "halo effect" around brands they wish to push:

Microsoft is working to consolidate all of its consumer-focused marketing in its Platforms and Services division. The ultimate, anticipated result: Microsoft will have a more cohesive branding story and sales approach across for PCs, phones and the Web.

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Microsoft execs have been studying how one of the masters of consumer marketing, Apple, has been able to parlay sales of iPhones and iPods into new Mac sales — a phenomenon often referred to as the halo effect. Microsoft is hoping to capitalize on similar cross-product momentum with Windows Mobile phones, Zunes and Windows PCs. To kick-start its cross-brand campaign, Microsoft recently launched a $300 million consumer-focused advertising program.

Imitation is and always has been the highest form of flattery. This makes sense, and this approach has propelled Apple to unheard-of heights in both the marketplace and in customer satisfaction. Microsoft's posture on this front: study, learn, shut up and execute. This is an approach that I recommend across all their business lines. It is exactly the same thing I tell my 10-year old son when playing sports: study the game, think, think, think, keep your mouth shut and play hard, all the time. This is what gets results. Because throwing stones seldom works, especially if you've got a pop-gun of an arm.

Ad Inventory: Separating the Theoretical from the Monetizable

Disclaimer #1: I'm not an online ad expert. Disclaimer #2: I'm not an online ad expert. That said, I'm not a dummy, either, and do have a direct view into the area through my investment in Buddy Media. And I am also an active Facebook user, blogger and blog consumer, so I think I get the big picture. And what mystifies me about the big picture is this: why are so many so amped up about things like downloads (applications) and users (Facebook) without a clear discussion of their ability to be monetized?

I mean, I know people are aware that at some point, far far away, such things (apps and social networks themselves) will need to generate revenue bearing some relationship to their (astounding) valuations (Slide at $500mm pre and Facebook at 30x that - nice), but what is observe is an over-focus on the headline numbers (downloads and users, and therefore theoretical "inventory" for advertising) and an under-focus on what inventory is, shall we say, real. And as an investor and as a pragmatist I truly don't get it.

Isn't the point of investing in social networks and application development firms to make money? And if this is the case, and given the valuations we've seen, what are the metrics being used to justify such enormous numbers? I'd gather that the analysis revolves around a calculation of theoretical ad inventory, which is then subject to a massive discount for converting that into a number that is truly monetizable. But how? What are the metrics being used? Because I haven't heard or read anything that bridges the gap for me between the headline inventory number and the real inventory number. And as an investor in such things I really, really want to know.

Buddy Media's business model is different, in its young life is already generating very healthy revenues (so much greater than we could ever have imagined, in fact) and has built brand and reputation for a company focused on monetizing inventory, not simply creating it. But that is not the point. The point is that I see what appears to be a lack of investing discipline of things in and around social networks. And as bullish as I am on the early-stage investment space in general, this is an area ripe for some fresh thinking.

Some More Thoughts on Collective Intelligence

To me the whole social networks "thing" is massively overblown. It is kind of like saying "xxx.com" in the late 1990s that drove valuations to absurd heights. Today calling something either a play on social networks or a social network itself seems to elicit the same frenzied response. And it is totally missing the point.

Here are a few more thoughts I've had on the topic of Collective Intelligence (CI):

• CI is not a function of who you know, but what you know.

• It is particularly potent within vertical communities, where experts and influencers rise to the top and help shape the CI of that community.

• It is often markedly different than simply the sum of a pool of autonomous actors; it takes into account the reflexive relationship among members of the community that helps shape opinion and, therefore, CI.

• It is important to differentiate between objective and subjective questions. Where the matter is factual, having access to a large pool of potential experts is valuable for getting the correct answer. Where the matter is subjective, there is no right answer and the community's CI will be driven by a handful of thought-leaders and influencers who are able to shape the dialog.

• Bonds within social networks are not nearly as impactful on CI as implied bonds with experts and thought-leaders. While these bonds are devoid of a social element, they are based on tastes, preferences and authority, not simply friendship.

• Prediction markets are an incredibly valuable and useful tool for determining group opinion. However, this is only one facet of CI that needs to be explored as part of a more comprehensive discussion of the topic.

I've got to run to catch a plane but I am eager to spend more time thinking about these and other ideas.

Collective Intelligence: Going Deep

Collective Intelligence (CI). Hmmm. It is a concept oft-bandied about but I'm not really sure what it means. According to my first-stop reference resource of choice, Wikipedia, it says the following:

Collective intelligence is a form of intelligence that emerges from the collaboration and competition of many individuals. Collective intelligence appears in a wide variety of forms of consensus decision making in bacteria, animals, humans, and computers. The study of collective intelligence may properly be considered a subfield of sociology, of business, of computer science, and of mass behavior — a field that studies collective behavior from the level of quarks to the level of bacterial, plant, animal, and human societies.

My desire to develop a more concrete understanding of CI is the direct result of being invited to attend CI Foo Camp at Googleplex tomorrow through Saturday. Pretty cool. After looking at the list of attendees, I truly feel like a pretender in their midst. That said, I'll do my best to contribute to the proceedings. Per the CI Foo Wiki, here is their operating definition of CI:

While "collective intelligence" can be defined quite broadly, we're using it to describe instances of networked computers and humans working together to solve interesting problems.CI Foo attendees are working on various projects and products that leverage collective intelligence.

If you look at the tag clouds relating to topics of interest, topics people want to hear about and topics to which people can contribute, the big winner in each of the three categories is "prediction markets." That's fine, I get it. But to me there is a big piece missing, a piece I think about all the time: how does influence ripple across social networks? Because I don't personally conceive of CI as akin to "wisdom of the crowds," where in effect CI is simply an extension of polling. This is part of it. But where does the wisdom come from? Does it simply spring forth from a large number of autonomous entities operating in a vacuum and expressing their own opinions? Or are there influences that play upon people before they vote, before they act with their feet or their wallet? Clearly it is the latter; this is akin to comparing microeconomics to macroeconomics, where one field is predicated upon a raft of simplifying assumptions (the "rational man") while the other seeks to understand the larger world for what it is - complex, interdependent and ever-changing.

Going into CI Foo my operating thesis is that collective intelligence is a direct result of a smaller number of influencers that help catalyze the dialog, around which discussion and debate takes place that eventually yields a collective and reflective result. But the difference between groupthink and my conception of CI is that the influencers change all the time depending upon the topic, the context, the timing and their network status (or reputation), and that the topics get thoroughly debated, tested and argued within and across communities. And this is the way it should be.

So one of my goals is to really dig into this area and to further gel my thoughts around expert networks, how they can best be built and operated for fun and profit. Gerson Lehrman has had it going for quite some time. LinkedIn is on the cusp of leveraging their millions of nodes to a similar end. But even with these two behemoths going at it my sense is that there is much, much more to be done. I will bounce some ideas around with my brilliant and erudite co-campers this weekend and report back next week.

Clear Asset's New ETF Contest: School Support Brings Opportunity

The first Clear Asset Management ETF contest was a huge success. Over 100 entries. Dozens of great ideas. One big winner with ten other winners. It was so successful that Clear Asset is going to do another contest starting February 25th, but wants to broaden the schools from which to draw ideas. The first contest involved Columbia, Lehigh and NYU. Three great schools. Clear Asset would like other schools to submit their interest in participating, particularly those committed to getting professors as well as students involved. The contest provides tremendous real-world experience, something around which a project might be designed or where mentoring could be an invaluable teaching tool. In any event, if you are a student and interested in entering you should speak to your professors, your investment club and your administration about getting behind the contest and securing your school's participation. Then you're off to the races. It should be a fun ride.

Monitor110 has a New CEO

So it's official: Monitor110, the company I have helped build and lead over the past three years, has announced the hiring of a true world-class financial technology leader, Brennan Carley. His hiring is the result of a thorough search process that yielded several impressive candidates, but none possessing his unusual and powerful balance of technology expertise, strategic thinking, Wall Street experience and leadership. As a Wall Street deal-maker and trading manager, I could only take the company so far, and together with our strong Board recruited Brennan out of NYFIX. Prior to that Brennan had been an Entrepreneur-in-Residence at Warburg Pincus, and spent most of his career at the likes of Radianz (where he was a co-founder), Reuters, Instinet and IBM. So now Monitor110 has the technology and business leadership it needs to fully take advantage of the massive market opportunity at the intersection of online data and computational finance, and I couldn't be more happy for both Brennan, the Monitor110 organization and its hedge fund and Wall Street clients. They are all winners in this trade; congratulations to all.

So what about me? I am moving into the role of Chairman, helping Brennan transition and then to be available to him and the entire Board as a trusted advisor. As was the case when I co-founded and joined the company, I am deeply passionate about its mission, its clients and its ability to help change the face of financial intelligence:  helping institutional investors gather, analyze and make money from unstructured data. I also have a pretty healthy rolodex that I will continue to leverage for the benefit of the company and potential clients. I have had a great experience helping to build a world-class early stage company, raising money from and working with leading institutional investors like Draper Fisher Jurvetson and DFJ Gotham Ventures, recruiting top-notch professionals in the fields of computational finance, technology, strategy and research, and, finally, bringing Brennan on board. Throughout my career I have always sought to surround myself with people better than me, with the goal of making myself replaceable at a certain point. And I have finally reached this point at Monitor110.

What will I do with my time? In the near-term I will continue to be an active early-stage investor through IA Capital Partners, having made 10 investments and achieved three exits during 2007. I also have three new deals closing in the next two weeks, and find myself squarely in the middle of high-quality deal flow from both coasts. I enjoy working with strong management teams with big ideas and sound business models, and will continue to do deals as long as I continue to see great young companies to back. I am also doing some work with a group that is taking a public company out of bankruptcy and using the public vehicle in almost a SPAC-type fashion, working to do small and medium-sized buyouts of companies in a select group of verticals in need of consolidation and scale efficiencies. Needless to say, I will continue to write my blog and use the Monitor110 product suite for finding interesting and investable data when I write stock-specific posts. I am also deeply involved in non-profit work associated with my kids' school, Little Red School House/Elisabeth Irwin High School, as well as the Pier 40 Partnership. All this stuff is keeping me pretty busy right now.

In the intermediate term I am considering opportunities to either take a leadership role in the Alternatives business on Wall Street, helping to build and expand a hedge fund platform or to do larger transactions in the private equity world. In each case I want to keep my hand in the investing realm. I miss the markets and big deals; and after three years focusing on emerging growth companies I feel the need to re-visit my roots. I am meeting with business leaders and mentors in each of these areas and will figure out what is the best fit given my background, skills and interests. The ticket to play is having fun and having a big impact. We'll see where it goes. Exciting times, to be sure.

If you want to talk early stage deals, buyouts or making money from alternative data, give me a shout. You know where to find me.

Leveraging the Collective Brain: The First Clear Asset ETF Contest is Done

And it was a big success. Clear Asset's CEO, Andrew Corn, wrote a detailed post on the contest and announced the winners on his blog. He received dozens of submissions, many of which were of extremely high quality. I know that selecting the first place winner was an extremely difficult task for Andrew and his portfolio management team. And this first test case was limited to three schools - Columbia, Lehigh and NYU. Clear will be expanding this universe in the next contest as they now understand how to manage, assimilate and analyze a large volume of ideas, and I can't imagine how many great ideas they'll garner the next time around.

I am eager to see which ETF distributors license the winning ideas; it will be the ultimate proof that the brainpower and creativity resident within our university communities is a vast and underutilized resource. I had written about Clear's innovative approach to soliciting commercially-viable ideas for their index business when the contest was first launched, and believe that their original thesis was validated through the contests' success. Congratulations to the first place winner, James Baker of NYU, the other contest winners and the entire Clear Asset team. You've broken some new ground here in the financial services realm. We'll see if others follow your lead.

We'll Always Have 2007

I'm checking out until the second week in January. Blackberry yes. Computer no. And a forced break from blogging. So I just wanted to take this opportunity to thank each and every one of you for participating in the online conversation, and sharing a little bit of yourselves with me. I have certainly tried to share some of myself with you. I'd guess you'd have a pretty good feel for me after 18 months of being out there. Hard to believe that 2007 is only my first full year of  blogging from wire to wire. It feels like it has been years. It is now such a part of me.

To those who read IA and maybe commented whom I either pissed off, inadequately stated or defended my positions or just plain disappointed, thanks for taking the time to read my stuff. I try my best and am true to myself, but I can certainly understand why not everyone might agree with me. To those who generally get me and where I am coming from, and are pretty happy with my output in 2007, I appreciate you as well. The private notes of support I've gotten throughout the year have been amazing, and I've tried to answer each and every one. I apologize if I've missed a few or haven't been as timely as I might have liked, but I was somewhat overextended in my for-profit and not-for-profit activities. I'll hopefully get that more under control during 2008, but I doubt it.

2007 has been a great year for me and for this blog. I did lots of fun stuff at work, met dozens of amazing people, continued to learn every day, saw my kids grow a year older and continue to wow me with their passion, intensity and beauty, and further deepen my relationship with my closest and best friend, my wife. More of you read me this year than in 2006, when I was really just a newbie. And apparently some people in mainstream media read me as well, as their kind notes and requests for comments and perspectives were welcome diversions throughout the year. But most importantly the sense of community I've gotten from blogging continued to grow, and I've developed real relationships with several readers of this blog who are bloggers and businesspeople themselves. I never could have imagined how blogging would serve to build my community and web of relationships in such a powerful way. And every day I continue to be surprised and impressed by the power of this medium.

Anyway, thanks again and I'll see you next year. Feel free to send me a note, as always. And all the best to you and your families for a fantastic 2008.