The venture capital industry is so heavily skewed to Northern California, which the remains spilled over Boston, New York & Southern California. There are of course other outposts like Austin and Seattle. So it was wonderful to hear from a leading venture capital firm based in Washington DC. Revolution is a “stage agnostic” fund (means they invest early or late) funded entirely by Steve Case, the founder of AOL and co-founded by two other individuals, Tige Savage (yes, pronounced like the golfer, minus the “r”) and Donn Davis.
They are a national practice but “it would be hard to see a local media success that Revolution isn’t part of”.
Today’s interview was with Tige (interesting to follow on Twitter), who has been involved with funded and/or sitting on the boards of Revolution Money, Living Social, Flexcar (now ZipCar) and UberMedia.
We got to discuss a wide range of issues including: why the AOL / TimeWarner merger didn’t work and whether we will see similar impact on the Comcast / NBC merger (Tige believes these mergers are very different), what advantages LivingSocial & GroupOn have over the rest of the market, whether the AOL acquisition of HuffPo was a good idea, why ZipCar is an interesting market, what Startup America is all about. And we also talked about what it’s like to work with Steve Case.
1. Revolution, what is it?
We are a venture capital growth equity fund in Washington DC with about $500m invested. Our approach is a little unusual in that we try to back a team early, then continue to invest along the lifecycle of the company. Instead of picking a stage, say seed rounds and A rounds, and investing in a variety of companies as they pass through that stage, we take companies that we like and support them through each of those rounds.
In that way, you could say that we are stage agnostic. I run Revolution’s VC investments. We will invest pre-revenue and even pre-product if we have discovered the right team in the right kind of market. We look at huge markets where there are large incumbents that might not be incented to innovate or react to what they perceive as an insurgent.
Revolution is essentially Steve Case’s original money from AOL. It is very unique to have a single source of a fund that size. When Steve left AOL he wanted to be very involved with the next generation of entrepreneurs. Revolution, and the people behind it, are his way of institutionalizing that effort. It allows him the opportunity to do what he does best, finding and motivating entrepreneurs then thinking through market strategy. One of the benefits of investing our own capital is that we are not on a rigid investment schedule. We can be opportunistic and put money to work at whatever pace we want.
2. You had a very interesting perspective on the AOL/Time Warner merger. Can you talk about it?
Both AOL and Time Warner had existing VC operations. When the companies merged, those operations also merged. I was brought in as an outsider to run some of that organization. Much of our investment was around the market strategy of trying to defend the cable companies from the increased market presence of satellite providers.
That was a very interesting time for me, I was in a unique position of getting a chance to witness a merger (that I still believe was a good idea) go horribly wrong. At the time, half of all online traffic was going through their servers. They had the foresight to understand the trend of content moving online. With this strategic position, and their prescient understanding of where the industry was going, it is hard to argue with the concept of the merger.
Whether it was the execution of the merger or something else, the fact is that it went awry. Fundamentally, I think the potential was there. The last decade has seen our almost every aspect of our lifestyle move online. In a way, this merger predicted that shift and put the organization in a position to take advantage of it.
To understand the scale of this deal in today’s terms, AOL was as big and infallible-seeming at Facebook is today. To think about these gigantic forces (AOL and Time Warner) combining bordered on monopoly. In hindsight, the concept of this failed merger being monopolistic sounds almost ludicrous. Where exactly it missed the mark is hard to say. AOL had assets that could have evolved into the next big thing. AOL Instant Messenger for example; it could have been Twitter.
It had the audience, the people, the network, everything! One flaw could have been AOL acting like a big company. Big companies just don’t seem to innovate the same way. They had a hugely profitable business and had a hard time giving that up to move forward.
A contemporary analog to this type of vertical integration is Comcast/NBC-U. This potential merger is another example of media companies getting together in what seems like a monopolistic way that still might find itself as prey for market innovation of the future; like Hulu for example. Tige and I discuss an excellent blog post written by the CEO of Hulu (Jason Kilar) on the future of advertising
3. One thing that is abundantly clear is that we are consuming media in new, and changing, ways.
Monetizing content is going to be a moving target. The networks seem to be emphatic about monetization for the present. This focus on “right now” might run contrary to their best interests in the future. Netflix is a great example. The networks must be bewildered by the fact that one of their main competitors is a company that started with a mail-based DVD service. At the same time, they license the DVD rights over so they can have money “right now”.
The traditional 22-minute, ad-supported scheduled timeslot may not be able to stay around forever. People want more for free and people want to have more preference in how they are marketed to. Some people have more money than time and are willing to pay for the right to have interruption-free programming. Others have more time than money, and use services like SVnetwork to subject themselves to specific advertising to get access to the content they want.
4. Let’s talk about Revolution’s operation.
Revolution is looking to invest in companies that look to fundamentally change industries rather than incremental improvements. That’s why Revolution was so supportive of Revolution Money, which sought to break up the troika that controls consumer finance.
It’s also why we got involved in the model of “car rental as a service” that has become ZipCar. You look at an industry dominated by a few big rental car companies that haven’t innovated in years and we saw a market ripe for disruption. Zip car operates as a club and if you are a member you can rent a car by the hour. It operates well in urban environments and college towns. (ZipCar is discussed around minute 23:00).
We also spent some time talking about Steve Case’s (the founder of AOL) involvement. If you’re interested in heard about this check out minute 28:00.
5: LivingSocial is an example of the recent trend into group buying. Can you talk about it?
Revolution was the first investor in LivingSocial (30:00). It was founded by four guys we knew and had worked with. When Facebook was opening up their platform, these guys thought that it was an interesting way to do user acquisition and preference acquisition of individuals and that they would be able find a way to monetize it in commerce-oriented verticals.
We knew the guys and we liked how they were planning to use a social strategy to drive commerce. LivingSocial and Groupon are the two entities that seems to stand out in today’s group buying noise. We talk about barriers to entry, scale, and the social element as they pertain to evolution of group buying.
LivingSocial supported the largest social buying event yet. The “Amazon deal” was so large that, according to another Revolution portfolio company Clearspring , it materially changed sharing on the web that day. When a deal is good or when a story is special, “social” is what spreads it.
A critique of group buying is that it can generate non-loyal, and often non-profitable, customers for merchants that attempt to use it. They will come in for a big deal and quickly overwhelm a small company then, just as quickly, leave before the merchant has recouped those costs or retain them as continued customers. While I think that has taken place in the past, I think LivingSocial is doing a great job educating merchants on the nature of these deals, what they can do differently, and what to expect.
We have been very pleased with the way that merchants have come back for additional deals.
6. Tige and I have a conversation about controversial advertising (38:50) We discuss Groupon’s Super Bowl ad and GoDaddy’s historical success with extreme ads of this sort.
Tige was reluctant to say too much about GroupOn’s controversial Super Bowl ads. I surmised that the strategy very well may have been intentional despite the negative press. The amount of free media that one gets following being the most talked about Super Bowl ad is invaluable and they are able to recover by talking about all the money they are going to donate to these causes. I believe this because I had just heard the president of GoDaddy talking about the efficacy of their Super Bowl ads – specifically taking their market share from 16% to 25% of the domain hosting market directly correlated from their first ad.
In the rest of the chat, we discuss:
-Another Revolution investment, UberMedia (who just acquired TweetDeck)
-Facebook use cases and audience vs. Twitter
-Startup America, an Obama administration initiative headed up by Steve Case
-The Case Foundation
-The Startup Visa movement
-The recent, and highly publicized, AOL purchase of The Huffington Post
-A market trend in the VC and Angel world where valuations seem to have come a little unhinged compared to valuations in the past
(Cross-posted @ Both Sides of the Table)