One of the most frequent questions I get from entrepreneurs is "what is market?" with regard to compensation, particularly for executives such as the Chief Technology Officer or VP of Sales.  It is such a frequent question that it was the topic of one of my first blog posts 7 years ago.

Talent is the most important ingredient at a young company, and so there is great energy put into trying to be thoughtful to pay a fair market rate for good talent, particularly in light of a very competitive market.

Fortunately, like most things in the land of startups, the world has gotten much more transparent in the last few years and there's a plethora of good data available to help answer this question.

One of the best is my Harvard Business School colleague Noam Wasserman's annual compensation study that he performs in partnership with J. Robert Scott and E&Y. Noam describes the study a bit in his blog post, but if you want a far more detailed view of "what is market" than my amateur summary – sliced and diced by industry, size of company, amount of capita and more – then this study is for you. It's a give-get model – if you give your data, you get the aggregated data back in all it's gory detail.

I highly recommend it. 

Mary Meeker's periodic review of the Internet industry is always a must-read presentation.  This year was no exception – chock full of data, insights and thought-provoking charts.

There is a theme that Mary espoused that I have become a big fan of ever since I read Marc Andresseen's article in the Wall Street Journal "Why software is eating the world."  She framed it as the "re-imagination of nearly everything."  The simple notion is that the confluence of broadband, mobile and globalization in combination with Moore's Law have allowed the technology industry to innovate almost everything in existence.  Facebook's IPO brought their "hack" culture to the forefront of the world's conscience.  Well it turns out, technologists are hacking everything – from advertising to media, from retail to health care, from education to banking.

Ah, banking.  This has not been a good few weeks for the banking industry.  The surprise $2 billion trading loss  at JP Morgan Chase has caused erstwhile superhero Jamie Dimon to appear fallable.  Many are pointing out that the crisis at JP Morgan is an example of a banking sector that is increasingly concentrated in the hands of a few and results in a systemic risk because the top 5 banks are simply "too big to fail."

I would argue, there is an even larger risk for the financial services industry, that in turn provides a larger opportunity.  I think banks are now simply too big to innovate.

Let's look at Meeker's slide 86 below:

She lists the industries that are ripe for "re-invention" sorted by their 2012 market capitalization.  Financials are on top at a leviathan-like $7 trillion.  There are 200,000 employees at JP Morgan Chase and Bank of America each and 350,000 at Citigroup.  Structurally speaking, these organizations are simpy too large to develop breakthrough, out-of-the-box, re-invent banking solutions.  That opportunity is left to entrepreneurs.

As a result, there are a slew of start-ups "hacking" banking.  We have invested in a number of them that are hacking away at pieces of the financial system.  ZestCash is hacking consumer lending.  SimpleTuition is hacking student loans and banking.  Cartera Commerce is hacking credit card marketing.  AccountNow is hacking checking accounts and debit cards.  Plastiq will soon be hacking large ticket purchasing.  There are hundreds, if not thousands, of others that other investors have backed as well.

So when I look at the innovative progress being made in payments, mobile banking and other major areas, it makes me smile.  Because while the major titans in the industry are caught up in looking backwards, the entrepreneurs are re-inventing the future of finance.  That's an exciting prospect.

This time of year is full of Commencement ceremonies across the country.  In honor of this year's crop of graduates, the class of 2012, I've been thinking about whether there is one pithy lesson that I might convey to them as they enter the adult world.  My inspiration in this thinking is a book I read recently called "This I Believe," a collection of essays from famous, and not so famous, people who summarize their life lessons in a brief vignette.  It was inspired by a radio program by Edward R. Murrow in the 1950s and was revived by PBS and recently compiled into a well-done book.

So, in that vein, here's my simple lesson to this year's crop of graduates:  push the boundaries.  Why?  Because they are there to be challenged.  Because conventional wisdom is just that, conventional.  And you don't want to settle for living a conventional life within a conventional world.

This lesson was hammered into me by my father, a Holocaust survivor who never saw a line he didn't try to skip, an inefficiency he couldn't stamp out, or a injustice he didn't try to undo.  One of his favorite phrases is"don't assume anything."  In other words, don't take for granted core assumptions – whether in tackling a math problem or life.  Instead, test them and try to stretch them to their limits, and beyond.  Further, he would rail against the injustice of those would seek to benefit from old rules in an unfair manner.  I still bump into residents of my home town who remember his repeated crusades against the local cable monopoly as a town meeting member in the 1970s and 1980s.  

My Dad was inspired to become an entrepreneur because of this life philosophy – as many entrepreneurs do.  Great entrepreneurs see boundaries as challenges.  They take great pleasure in tweaking the status quo and rethinking decades of assumptions.  And they incorporate this philosophy into their personal and professional narrative as they pursue new products and services that disrupt existing markets.

My 12 year old son lives this mantra to the hilt (I wonder if entrepreneurship has genetic roots?).  He questions every rule, every boundary with a probing, "Why?"  I love him for it, despite the fact that it makes parenting a challenge.  And I know someday, like this year's crops of graduates who push the boundaries, it will put him in a position to change the world.

So, dear graduates of your various institutions, remember this lesson.  A lesson that scores of entrepreneurs and world-changers have learned before you.  Ethically, morally, appropriately…push the boundaries.  We'll all be better for it.

"Any fool can make a rule, and every fool will mind it."

– Henry David Thoreau

"Tell me, what would you do if you had 1,000 times more data?"

I still remember reading this profound question on December 24, 2007 in BusinessWeek's cover article on Google and cloud computing like it was yesterday.  It was an interview question, posed by then senior Google engineer Christophe Bisciglia (later founder of red-hot cloud software company, Cloudera and more recently WibiData) to job applicants.

For the first time, I began to think through the practical implications of what the advent of the information explosion (now commonly referred to as “Big Data”) really meant to both individuals and corporations.  How would this onslaught of information effect decision-making across a range of industries, what were the practical implications to businesses and executives, and what were the resulting investment opportunities?

That spark nearly five years ago led to an investment thesis here at Flybridge, where we have looked to invest behind Big Data applications and uses across a number of vertical industries.  At the start of my career as an enterprise software product manager, I was trained to think about the impact of disruptive, horizontal technologies and innovation on vertical industries.  Hence, when Christina Cacioppo of Union Square Ventures wrote her excellent wrap-up of last year’s Techstars class ("What Comes Next"), my first thought was to wonder why more entrepreneurs aren’t going vertical – that is, why they aren’t more focused on solving business problems for large vertical industries?

Fortunately, we have been able to find some extraordinarily talented entrepreneurs who have thought deeply about this issue of Big Data’s impact on vertical industries.  For example, in the world of consumer lending, Douglas Merrill and Shawn Budde at ZestCash are using the vast array of signals across online and off-line data sources to determine whether an individual consumer should receive a loan. The young company was recently in the news for the release of their latest underwriting algorithm.  Since when does a company get big time TechCrunch coverage for releasing a new algorithm?

Another entrepreneurial team pursuing applications of Big Data is Mike Baker and Bill Simmons of DataXu.  The company uses a big data approach to determine what the particular advertisement should be for the particular user at that particular moment across all digital channels – display, mobile, video and social.  The company processes 20,000 third party data segments and evaluates billions of impressions each month. 

Most recently, we announced a new investment in a big data company out of Israel called tracx.  The company has been inhaling all of the social media data exhaust out of Twitter, Facebook and other sources to determine insight for brands about consumer sentiment and provide a platform for targeted engagement and campaign management. 

Finally, we have made an unannounced seed in the healthcare market that applies big data techniques to help payors reduce health care costs and more accurately account for revenue.

One of the common threads and underlying skills requried across these Big Data investments is Machine Learning.  This is a cool artificial intelligence-based technique for developing computer systems that learn and evolve based on experience. Each of these companies has based their intellectual property on sophisticated machine learning techniques developed by dozens of PhDs.  It's as if the machines have been in training all their lives to adapt and make use of the Big Data now being thrown at them – a combination of Moore's Law and the cloud mixed in with Machine Learning finally makes it all possible.  It probably has been a growth of 1000x the data available to each of us since Bisciglia's question – and another 1000x is coming for us all in the next few years.

So while McKinsey raises the alarm (in a very nice report) that the implications for Big Data is going to be a massive shortage of trained data scientists (they estimate the US alone will need 1.5 million more by 2018), I would argue that if you young graduates want to build a future in the Big Data Era, I have one word for you (OK, two):  "Machine Learning"

When I entered the VC business 10 years ago, I tried to keep thinking about venture capital as a business, where the key focus area was on meeting the needs of our target customers — entrepreneurs and limited partner investors.

In the case of entrepreneurs, those needs have changed radically in these last 10 years.  The surge in seed investing over the last few years has been well-reported and analyzed.  With advances in cloud computing, open source infrastructure, development tools and general "Lean Start-Up" techniques, entrepreneurs need less capital than ever before.  And when entrepreneurs' needs change (i.e., requiring less capital), smart investors adjust to meet those new needs.  Hence, the rise of angels, super-angels, incubators, accelerators, micro-VCs and VC-led seed programs.

But as the "Great Seed Experiment" (as my partner, Michael Greeley, calls it) matures, a new trend is emerging.  Entrepreneurs are beginning to learn the difference between what I'll call Passive Seeds and Activist Seeds.  And entrepreneurs are learning that the difference between the two, although somewhat subtle, matters greatly.

Passive Seeds are when a VC invests a small amount of money (for a $200-500M mid-sized fund, typically $250k or less, for a large $1B fund, perhaps $500k or less), to achieve a very small amount of ownership (typically less than 5%) to simply create an option to participate as a more meaningful investor in the future.  Passive seed programs get most of the press attention because of their sheer volume.  

When you ask venture capitalists about their seed programs, many will brag about how many seed investments they have made (20-40 per year is not uncommon) and how wonderful it is that so few of them "graduate" to become series A investments (perhaps 10-20%) because it shows how discriminating they are.  Other characteristics of passive seeds are that one or two of the partners can make the decision to invest, rather than requiring the entire partnership to approve, and the due diligence is very light.  Additionally, in a passive seed round, VCs don't mind if 3-5 firms participate, as opposed to more tyically 1-2, and each VC partner can juggle a dozen passive seeds at any given time.  Sometimes there are more VC investors than employees in a passive seed!

But entrepreneurs are starting to wise up.  The conventional wisdom has emerged that Passive Seeds from VC investors are bad for start-ups and entrepreneurs.  VCs who make passive seeds are not typically engaged enough in the business to add meaningful value.  Further, they send a bad signal to the funding market when they don't invest in the Series A, thus creating inappropriate leverage on the entrepreneur at the time of the Series A decision.  

Seed investor/venture capitalist/entrepreneur Chris Dixon has written extensively about this issue, and I couldn't agree with him more when he declares, based on his discussions with experienced founders, "there is no room for debate" on the issue.

Activist Seeds VC investors are a different story (which Chris acknowledges, although uses different language).  From the VCs perspective, an activist seed is when the firm commits the full time, resources, and energy into the investment that they would do with a Series A.  From the entrepreneur's perspective, they truly want to raise less capital because of all the positive Lean Start-Up trends noted below, but want the active involvement of a value-added VC firm.  

An activist seed from a VC is typically more like $250K-$1 million and the ownership is closer to 8-10%.  The full partnership approves an activist seed and the due diligence, although abbreviated, is thoughtful and serious.  The firm gets to know the business and the entrepreneur better and thus makes a deeper commitment in making the investment.  

The conversion rate of an activist seed into a larger Series A is more like 50-75% and each VC partner dedicates as much time to an activist seed as he/she does in a larger Series A.  In short, an activist seed is nearly identical to a Series A, just smaller, slightly more streamlined, and informal – all appropriate for the stage of the business and the requirements ahead.

So next time you are discussing a seed round with a VC firm, figure out if their firm's philosophy is activist or passive.  At Flybridge, we firmly believe in activist seeds (two nice examples recently in the news are Crashlytics and ZestCash).  Different firms have different approaches.  Make sure you find out which is which, and make sure it's a fit for your needs.  Here are a few questions you can ask yourself to distinguish between the two:

• Was the entire partnership engaged in the investment decision process?  Did I meet with and pitch to the entire firm?  This results in a greater sense of commitment and shared ownership. 
• Did the VC open up her network and make a few value-added introductions to prospective talent, customers and business development partners?  Again, this is an indication that the VC is willing to add value along the way and be more active than passive.
• Was the due diligence process rigorous? Do they seem to really understand my business and the subtelties around what it takes to win?  Did they ask tough questions, check my personal references to get to know me better, put me in front of prospective customers?

Absent these elements, you are at risk of taking money from a VC that views you as "an option" rather than "an investment" – not a place a hard-charging entrepreneur who needs as many friends on his/her side as possible wants to be!

When I first entered the venture capital business 10 years ago after being an entrepereneur, my partners warned me that "my bar" for new investments would get higher over time.  In other words, the criteria to make a new investment – clearing "the bar" – would get more strict with time as I developed more experience and saw more things.  I found this to be very true, and the notion that investors get wiser and more selective over time has become common wisdom in the industry.

But there's something very new going on in the last few years – something very striking.  Simply put, the collective bar of the investment community to fund young companies has recently gotten higher – much higher.  

The entrepreneurs I speak to are feeling it every day.  When they pitch their new idea to investors, they are told to build a prototype first.  When they build the prototype, they go get customers.  When they get customers, they are told to show engagement metrics.  When they show engagement metrics, they are told to run some monetization experiments.  When they run monetization experiments, they are challenged to prove scalability.  Maybe I have Passover on the brain this week, but it's like investors are putting entrepreneurs through a nightmarish version of Dayeinu, where no matter what they achieve, it's never enough (speaking of Passover, if you haven't seen this Jon Stewart clip of Passover vs. Easter, it's a must.  I'll wait.).

Why is the new investment bar so high today?  Isn't there plenty of euphoria and "animal spirits" to go around with the IPO market returning, marquee acquisitions (e.g., Instagram at $1 billion) and the impending, earth-shattering Facebook IPO?

I believe this new phenomenon of an extraordinarily high bar is an outgrowth of three related forces:  (1) the Lean Start Up movement, which has trained entrepreneurs on capital-efficient start-up techniques; (2) the plummeting cost of experimentation and the cloud, which allows entrepreneurs to rent infrastructure that allows them to develop prototypes and pilots much cheaply than ever before; and (3) the proliferation of social media, which allows entrepreneurs to read innumerable books and blogs to educate them on building start-ups and effective fundraising.

These three forces have led to a major increase in the collective "Start-Up IQ" of both entrepereneurs and VCs, while at the same time putting in their hands inexpensive tools to progress with their ideas.  Thus, if you are an entrepreneur, your competitors – not necessarily market-based competitors but simply other entrepreneurs who are pursuing capital – are that much more sophisticated and advanced than ever before.

A great example of this is Crashlytics, a compay we led a $1 million seed round along with Baseline last year and then a $5 million Series A, which was announced this week.  At the seed round, the two entrepreneurs (who are in their mid-20s and, like many young entrepereneurs today, wise beyond their years) had already both been successful serial entrepreneurs, had completed a customer discovery and development process with 20 application vendors and had built an alpha product.  In other words, before they had raised a nickel, they had made as much progress as a $10 million funded Series A start-up circa 1999 or even 2004.  They had achieved initial customer validation and identified a precise experiment they were going to run with the first $1 million – whether they could get broad adoption for their crash reporting tool.  Indeed, they crushed their milestones.  By the time they had spent half the $1 million and were ready for a Series A round, they had over 500 organizations using the product across tens of millions of devices.

Crashlytics is a special company run by special entrepreneurs, but their story isn't unique – it is playing out across the world as more start-ups are more sophisticated in their approaches and achieving more with less.  That's generally a good thing for everyone.  But it does mean the bar has gotten higher, much higher comparatively speaking, to raise money.

And in the spirit of sharing more information to help entrepreneurs raise their game, below is a presentation I gave as part of a Skillshare class I delivered at Harvard's i-Lab with a few tips on raising capital:

How To Raise Your First Round of Capital

Yesterday was a pretty special day.  Not only did I get to attend the White House ceremony at the Rose Garden for the passing of the JOBS Act, but I got to see one of our CEOs featured as an entrperneurial hero.

I have written in the past about the JOBS Act and its importance, so I won't repeat that here.  The president was on point in his remarks (see the video I took below), pointing out that his job is "Fighting every day to make sure America is the best place on earth to do business."

But the coolest thing for me was seeing our portfolio company CEO, John Belizaire of FirstBest, standing next to the president on he podium as exhibit A of the kind of entrepreneur we should be celebrating in this country.  John's parents were Haitian immigrants who arrived in America with nothing.  John worked hard as a kid, fell in love with technology and software, and after a stint at Intel decided to start his own software company at a young age with a few friends, called The Theory Center.  After a few years, he successfully sold it to BEA for over $160 million.  He stayed on as an executive at BEA for a few years and then started another company with his same team called FirstBest, which we invested in.  The company recently raised a $10 million growth round and is revolutionizing the front office of insurance companies.  I loved seeing John up there on stage and hearing his story of participating in a roundtable and meeting the president beforehand (see picture below):

John's story, like many others, is playing out all over this country and this world.  It makes me glad to be doing what my partners and I do – trying to help more John Belizaires achieve their dreams.

At one point, Naval Ravikant of AngelList and I were observing that we need to marshall the same energy and resources behind the JOBS Act for the next big agenda item for the entrepreneurial community:  immigration reform.  Stay tuned.     

In the very first year of a company, there are a few very tough, make-or-break decisions that founders need to make.  My colleague and friend, Professor Noam Wasserman, teaches a class called "Founder's Dilemmas" at Harvard Business School that delves into these decisions and has become a "must-take" session for aspiring entrepreneurs.

Noam has turned the materials and research from his class into a new book:  The Founder's Dilemmas, where he analyzes the fundamental trade-offs such as when to found a company, who to found it with (if anyone), how to determine roles and responsibilities, equity splits, choosing investors and many more sensitive issues.

This is a serious book for a serious endeavor: creating a company from scratch that can be a world-beater and life-changer.  Analytical, insightful and even a bit wonky at times, Wasserman's story arc is less about war stories – although the books is chock full of them, featuring the founders of Twitter, Pandora and others – and more about the decision tree every founder must climb.  Rather than having these decisions happen by chance, Wasserman's book is a towering guide to making these decisions thoughtfully and purposefully.

Every founder should read it – and take the time to digest its rich data and lessons.

These last few weeks have been about as encouraging as any that I can remember when it comes to economic news.  The US economy seems to be, finally, recovering nicely from the Great Recession (The Economist tongue-in-cheek headline this weekend:  "Can It Be…The Recovery?").  The Europeans have finally (it seems) renegotiated the Greek debt crisis to bondholders satisfaction.  Although they have alot of work left to tax and cut their way out of the secular debt morass, there appears to be enough progress to buoy the stock market, with the S&P 500 reaching its highest level in four years.  And, finally, finally, finally, we saw overwhelming bipartisan support from the House of Representatives in support of a bill that will help small businesses raise capital, called the JOBS Act, which passed 390-23 last week and is now being debated in the Senate.  When is the last time the House passed a major economic bill with that large a majority?

I have written about the need for structural reform to small business fundraising in the past.  With the JOBS Act, we finally have two, much-needed major reform elements:  (1) an "onramp" to make it less onerous for young companies with revenue less than $1 billion to go public; and (2) an ability for companies to raise up to $2 million in capital by soliciting small investments from many individuals.  Both of these are very important mechansims to encourage more capital to flow into young, innovative companies.

The Senate appears to be stuck, though, and needs to hear from the business and start-up community.  NVCA Past Chair and head of the IPO Task Force, Kate Mitchell, has done incredible work to help craft a bill that takes a balanced view to the IPO crisis.  HBS Professor Bill Sahlman has written eloquently in support of the bill, in the face of criticism from the NY Times' and even Bloomberg View (who appears to support the bill with a few tweaks).

Here's the call to action:  sign this petition on AngelList and show your support for the bill.  Email your senators and underscore your support.  This is an important battle – one worth fighting.  If you want to reach out to Senator Kerry or others, the NVCA has set up a page here.

There's a principal in signal processing regarding measuring the quality of information coming through a channel called the signal to noise ratio.  It is a measure of how much valuable information (signal) is included in a stream of data relative to the amount of useless information (noise).  The formula looks like this – the power of the signal as compared to the power of the noise:

My father was a PhD in information theory and has a theorem named after him (the Bussgang Theorem), so I've always found this area of study interesting.  I would observe that the start-up universe is a particularly noisy world to operate in professionally – in other words, there's a very low signal to noise ratio.

The SXSW conference is emblematic of this issue.  I wasn't able to attend, but when I ask my colleagues who are there, the first thing they talk about is the overwhelming amount of noise, or sheer volume of new start-ups, that are being worked on by entrepreneurs.  Online media blog DigiDay mused that SXSW has gotten so noisy that no one can stand out any more.  We are living in the "NewCo Era", where the combination of the plummeting in the cost to experiment and the explosion of entrepreneurship and disrupting technologies is causing a proliferation of new companies to be formed.  Rather than wring our collective hands about the dire implications of this trend in the start-up world, I'd simply observe that from the perspective of the entrepreneur, it is getting harder and harder to rise above the noise.

So how do the best entrepreneurs cut through the clutter and distinguish themselves and their companies?  How can they grab the attention of customers, partners and investors in an era of overwhelming, defocusing flow?  Here are the top five behaviors I have observed in entrepreneurs who seem to be unaffected by the amount of static around them and are able to stand out amidst the noise:

1. Put on your blinders.  I've noticed that many great entrepreneurs have the ability to ignore the inputs around them, even (gasp) to ignore their inbox.  Some of their friends may brag about achieving "zero inbox" nirvana (i.e., having read and processed every email that comes in), but the great entrepreneurs I work with actually actively strive to avoid having 
   a "zero inbox".  Instead, they consciously block out reacting to inputs and focus their proactive energy on their priorities.  Speaking of priorities…
2. Focus relentlessly on the customer value proposition.  The entrepreneurs I love working with wake up every morning thinking about their customer.  There are so many distractions when you are building a start-up, but if you solely focus on your customer and addressing their pain point every day, you will be in a strong position.  One of my portfolio company CEOs sometimes looks bored during our board meetings when we cover topics like finances, operating metrics and recruiting.  But when we get to the portion of the meeting where we talk about his customer, he totally lights up and is full of war stories and compelling ideas.  You obviously can't solely focus on the customer value proposition, because you also can't run out of cash, ignore competition and neglect to build a world-class team.  But that leads to the next characteristic…
3. Focus on very few things.  Great entrepreneurs are brilliant at keeping things very simple and focusing only on a few of the highest-priority, highest-impact items.  I learned this lesson from a mentor early in my professional career.  There is something to the "power of three" (keep your mind focused on only three goals at any given time) or even the "power of one".  I try to maintain the discipline of writing down my three summary goals for the year on one-page and keep it in my folder at all times, pulling it out every few weeks and reminding myself of them.  The priorities may change, but the discipline of focusing on very few things should never change.
4. Avoid bright, shiny objects.  A corollary to focusing on very few things is that you should actively avoid "bright shiny object syndrome".  This is the well-known start-up disease of entrepreneurs getting distracted by the latest interesting new idea or opportunity.  One of entrepreneur friend of mine is susceptible to this – his last three meetings were the most important ones in shaping his thinking and setting his priorities and he finds it hard to ignore the inevitable distractions that comes out of a positive partner conversation.
5. Be a contrarian.  Contrarian thinkers stand out from the crowd, plain and simple.  The start-up world tends to encourage a form of groupthink.  There emerges a conventional wisdom in the blogosphere that is propogated and validated thruogh the various social channels.  But great entrepreneurs relish the opportunity to challenge the status quo and conventional wisdom and go against the grain. The best ones develop that contrarian point of view so fully that, over time, it wins out and itself becomes the new conventional wisdom.

The Economist had an article this week called "Slaves to the Smartphone" that bemoaned the "horrors of hyperconnectivity".  Similarly, being a slave to your inbox isn't going to help you build a great company.  So don't be afraid to ignore it.