Category Archives: Insights

Running Through Walls: The Doctor is Online

Hill Ferguson joined Doctor on Demand as CEO in 2016. Venrock’s Bob Kocher talks to Ferguson about his first day on the job and hallmarks of a successful founder to CEO transition, including the delicate balance of fixing problems while preserving what’s already great with the company. Ferguson was on the employee side of this transition in previous roles, and learned the importance of creating an environment where all employees, regardless of position, feel comfortable asking questions. They also discuss Ferguson’s product expertise, and how he views all products as solutions to problems. What products inspire him? Those that help humanity and create economic value while improving people’s lives. Hint: not foie gras delivery. Ferguson also shares the nuances of recruiting doctors for telemedicine and what a good day looks like for Doctor on Demand’s physicians.

Running Through Walls: Talk About (Your) Mistakes

Steven Aldrich, Chief Product Officer at GoDaddy, has thrived professionally at both large companies and startups, something Brian Ascher of Venrock notes is unusual during this interview. Aldrich shares lessons startups can learn from more established companies and vice versa, noting that startups often try to be scrappy and do things internally regardless of expertise, while hiring someone with expertise would save them time and money. Conversely, big companies need to encourage experimentation and find ways to maintain the sense of urgency that energizes a team around problem solving. Aldrich says having a growth mindset (Carol Dweck, Mindset) is at the bedrock of how he hires and manages, while fixed mindset folks have no place in Aldrich’s organization. Aldrich also talks about GoDaddy’s famous Super Bowl commercials and what impact they had on the company then and today. Spoiler alert: you will see a new GoDaddy commercial during the upcoming Super Bowl.

The Anticipation of a Journey

We closed Venrock 8 today. It is a(nother) $450 million fund which feels, for us, a bit like the littlest bear’s bowl of porridge—not too big and not too small, but just about right. We expect to follow a similar strategy as we have for the last several funds—finding great people addressing substantial needs in ways that most of the world thinks will not work. These investments will end up being made in a likely surprising variety of companies across technology and healthcare. We have nearly always invested in first time CEOs – people like John Stuelpnagel of Illumina, Jonathan Bush of Athenahealth and Matthew Prince of Cloudflare; and backed them pre product-market fit, when the likelihood, timing and scale of success is hard to pin down. We expect these traits will continue in Venrock 8.

We continue to believe that there are some really interesting problems to tackle, and therefore some very large businesses to build, but that is all in the future. Thus far, we have only taken on the responsibility of a large sum of money from people who are counting on us to return multiples of it, so that they can continue their work supporting a wide array of wonderful programs and causes.

As a result, I have to confess to being a somewhat reluctant blogger on this topic, as we are really at the beginning of an arduous journey towards a tenuous goal, more so than at an end, worthy of celebration. Given the current low return environment across most asset classes globally, recent venture performance has attracted a substantial oversupply of capital. For us and many others, this makes fund raising a reasonably efficient process, but does nothing to decrease the weight of responsibility placed on the firm. And, it means that we have to be even more insightful or early or proprietary with investment opportunities. Appropriately, our close-knit team feels more of the anticipation and nervousness of embarking on an all-consuming effort— to improve ourselves, focus on long term company success, and do our best for entrepreneurs 24×7— than the joy of successful completion.

As a team, we know how fortunate we are to sit in these seats, bearing witness to the formation of so many companies, led by extraordinary people with noble ambitions. We take the responsibility seriously, both as stewards of others’ hard-earned capital and as hopeful catalysts of a better world.

Running Through Walls: Apple Intern to Entrepreneur

Matt Rogers, co-founder of Nest, started his career as an intern at Apple and it was during that first week on the job when he met his co-founder Tony Fadell. While speaking with David Pakman of Venrock, Rogers talks about stretching people to help them grow, why he and Fadell chose to reinvent the thermostat, and why Apple is a breeding ground for entrepreneurs. Nest was going after a market dominated by well-entrenched players, but Rogers says they were prepared for a fight and ultimately these older companies have made it easy for Nest to stay one step ahead. Rogers also recalls a low point in the company’s growth – a product recall – and how they navigated that situation with transparency and continued focus on the whole customer experience. Now a part of Alphabet, Rogers says it’s hard to know what to expect when your company is acquired, but building a good relationship with the acquirer is key. Roger’s kryptonite? Large crowds!

Five Lessons From The +$15B Virtual Goods Economy

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While it’s tempting to dismiss virtual goods as a niche product category limited to online role-playing games or emoji “stickers,” the impact of this market is actually much bigger than you might think. Dating back to the earliest social networks, virtual goods have played a critical role in shaping the behaviors and business models behind major trends in online engagement. Here are five ways developers and entrepreneurs can directly benefit from those learnings.

Lesson #1: Maintain Flexibility In Your Business Model
Like many online publishers, some of the earliest social game developers focused on monetization opportunities via digital advertising. Launched in 2001, one of the first to gain traction with this approach was a massive multiplayer online (MMO) role-playing game called Runescape.
The game was set in a medieval fantasy world, and featured an inventory of hundreds of virtual items which players could use to level-up their characters — attainable by completing missions or bartering with each other.

Even in the earliest days, some of the most active players expressed a willingness to pay for these items in order to enhance their experience. In fact, three surveys conducted between 2005 and 2009 suggested that at least one in five MMO players already traded game goods for real money.
Unfortunately, a sizeable portion of this trading was taking place in “black markets.”
The developers behind Runescape had certainly taken note of the behavior, but chose to clamp down on it in order to preserve the “sanctity” of their game. The official policy was to actively prohibit the buying of gold, items, or any other products linked with the game, for real world cash.
As a result, players found ways to build their own secondary markets — effectively achieving a hacked-together style of freemium economics.

Today’s modern startups have learned that ignoring the behaviors of their most engaged customers comes at a great risk. While Runescape earned its developer a respectable $30M in advertising revenue in 2008, that figure paled in comparison to an overall virtual goods market that was already valued at over a billion dollars annually (based primarily on the gaming market).
Quite a missed opportunity for a game that Guinness World Records crowned the “World’s Most Popular Free MMORPG” (2008) that same year!

Lesson #2: Fringe Behaviors Can Open Up New Markets
Runescape may have been one of the first major MMOs to fuel a “black market,” but it certainly wasn’t the last. With the rise of games like World of Warcraft, the unofficial market for virtual goods transactions grew considerably.
Among the most notable outgrowths of this trend was the practice of gold farming, whereby some players focused their time solely on accumulating in-game currency for resale. In effect, these players approached the game as their primary employment, with a relatively predictable minimum wage.

To get a sense of scale, it was estimated that the gold farming market was already worth nearly two billion non-virtual dollars globally by 2009. One article in the New York Times from 2007 estimated that 100,000 people were employed in this practice in China, with worker salaries ranging from $40 to $200 per month.
Often these operations were run as small businesses, with “bosses” earning a profit of nearly 200% on top of worker costs. In fact, this practice became so lucrative that at one point prison inmates in China were forced to play World of Warcraft in lieu of manual labor.
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In addition to gold farmers, the demand for illicit virtual goods also gave rise to third-party platforms focused solely on facilitating exchanges between players. In a testament to how mainstream this market was as far back as a decade ago, a significant portion of this industry initially migrated to eBay.
However, citing a violation of its terms of service, the auction site began cracking down on virtual goods sales in 2007. This move pushed virtual goods transactions towards less transparent destinations such as Internet Gaming Entertainment (IGE).
Today there are hundreds of platforms offering “secure” opportunities to buy and sell everything from in-game currency to entire player accounts. We’re even witnessing the emergence of these transactions for casual mobile games. Days after the launch of Pokemon Go, there were already a bevy of leveled-up accounts for sale across dozens of sites. Although sales of mobile game accounts are still a small component of the secondary market, they will likely take on far more significance in years to come.

Lesson #3: Adapt To New Platforms
Over the past several years, it has become clear that smartphone screens have become the most important battleground for consumer attention. As of 2014, the number of mobile users officially surpassed the number of desktop users, and the gap continues to widen.
Mobile gaming has become a strong beneficiary of this trend. Not only have mobile games already surpassed console games in terms of total revenue, but they’re also growing at nearly five times the rate.
In fact, mobile gaming currently represent a staggering 85% of all app revenues, in any form.
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According to a recent study by Slice Intelligence, the average paying player on mobile spends $86.50 per year on in-app (virtual goods) purchases. Some games far exceed that, with Game of War: Fire Age bringing in a whopping $549.69 per paying user, and over $2M in total revenue per day at its peak.
With those kinds of economics, it’s no wonder the game’s developer, Machine Zone, could afford to drop $40M on an ad campaign featuring Kate Upton.
The rapid acceleration of this market is evidence that the appeal of virtual goods has successfully made the jump from desktop experiences to the casual smartphone market. In fact, it’s no coincidence that the same freemium model of gameplay demanded by early MMO players has emerged as the dominant framework among mobile games.
By tweaking the same model for games with shorter duration, developers successfully leveraged virtual goods in opening up an entirely new base of casual users.

Lesson #4: Engage Your Community of Makers
While developers dictate the structure of a game, users dictate its culture. Following the patterns of social engagement across the web, there is often a small subset of highly engaged players who create the customs, quirks and content that imbue a game with its lasting appeal and sense of community.
When given the tools to make things and earn recognition, this subset of users can unlock creative new experiences for all players.
One great example of this trend comes from the world of Second Life, which grew to over 1M monthly active users since its launch in 2003. Much like earlier social networks and immersive worlds, it was free to create an avatar on the platform and engage with other users. The twist came in the form of the company’s revenue model.
Second Life charged users for the purchase and rental of virtual real estate, on which landowners could build businesses (such as nightclubs and fashion outlets) and potentially earn a profit from other players. In addition, users were given the opportunity to create and sell unique virtual goods to each other.

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Empowering the creativity and entrepreneurial spirit of the platform’s makers gave rise to a massive market for virtual goods. In 2009, the total size of the Second Life economy reached $567M, and by the platform’s 10 year anniversary, Linden Labs estimated that approximately $3.2 billion dollars (USD) worth of transactions had taken place. A handful of top users were reportedly cashing out over $1M in earnings per year from virtual businesses in real estate, fashion, and events management.
More recently, Valve has benefited from this phenomenon within its Steam platform for PC gaming. As of January 2015, the company announced cumulative payouts of $57 million to community members that had made in-game items, with average earnings of $38,000 per contributor. As an additional signal of market potential, Steam even announced it would facilitate the sale of virtual items for third-party games outside of its ecosystem.
Both examples demonstrate that by allowing a subset of creative users to take greater control of product experience, developers can exponentially increased both the scope of their products and community engagement.

Lesson #5: Social Capital Is An Effective Motivator
Following on the success of Second Life, Minecraft rode a similar wave into mainstream popularity after its launch in 2009. Often referred to as a “sandbox game,” Minecraft is a virtual environment where users can create their own maps and experiences using building blocks, resources discovered on the site and their own creativity.
Since launch, the game has reached 100M registered users, of which about 60M use a paid version.
Like Second Life, much of the content that makes Minecraft unique comes from its players. However, the two worlds differ in terms of the nature of incentives those players are offered. While some have managed to charge other players to engage with their content, Minecraft’s developers actually started discouraging the practice. Instead, Minecraft’s appeal was in the robustness of its creation tools, the ability to co-create with other community members, and the recognition for building something truly amazing.

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Another unique attribute of the Minecraft community was that makers took their engagement beyond the virtual world itself. According to Newzoo, Minecraft-related YouTube videos were watched 4B times in May of 2015 alone. The community even crowdsourced support for an official Minecraft LEGO set, which sold out almost immediately upon release.
While Minecraft may not have directly pushed users to create external content, it acknowledged their passion for self-expression, collaboration and even bragging rights. In doing so, the game touched off a broader movement among makers that exponentially improved the experience for everyone involved.
A Look Ahead
Since their initial adoption nearly two decades ago, virtual goods have come to represent a core part of our engagement on the web. From in-game items to full-blown currency, they have been adapted by online communities to promote an ever-expanding set of experiences. By continuing to monitor their evolution, we’ll undoubtedly gain valuable insight into the changing rulebook for building lasting digital products.

Running Through Walls: Fail Quickly

Founded as Microbia to explore and develop antifungal and antibacterial drugs, Ironwood Pharmaceuticals now has two drugs on the market helping patients with IBS and Gout. After nearly 20 years and many different approaches and targets, founder and CEO Peter Hecht tells Venrock’s Bryan Roberts that he is proud of the failures along the way as the end goal was always to build an enduring pharmaceutical company. The key is to kill programs that aren’t working early and not let them go too long – research is cheap, development is hard. Hecht also talks about managing people when you have a moving target. You have to have great people with the right skill sets and you have to help people who don’t have the right experience move on to a new challenge. Hecht’s superpower? Knowing what he doesn’t know. Though Roberts thinks it is Hecht’s ability to attract a variety of assets – people, ideas, capital…

Running Through Walls: Priority One: People Matters

Gio Colella, co-founder of RelayHealth and Castlight Health, speaks with Bryan Roberts at Venrock about starting companies and the importance of surrounding yourself with amazing people. Colella advises other entrepreneurs to find partners you can trust, who are very different from you, and who are aligned with the vision for the company. Colella and Roberts also talk about the early days of Castlight and the iterative process that revealed the foundation of the company, as well as the challenges related to managing through the highs and lows as a public company. They also talk about what made RelayHealth’s acquisition by McKesson so successful, in a world where M&A horror stories are rampant. Colella immigrated to the US from Italy and left his psychiatry practice to answer the call of entrepreneurship.

Amino’s Next Phase

Last year, we announced our Series A investment in Amino, a network of mobile-only communities focused on passion and interest verticals. The team has done a great job executing on the first phase of the business, which was to create standalone apps for communities. The communities range from large fandoms that many of us already know such as fans of Star Wars, Anime, and Pokemon to more niche communities like fans of nail art, Furry, or Undertale. Many of these communities started to grow rapidly and becoming strong self-sustaining communities, which led to the beginning of the second phase of Amino.

In July, they launched a mobile app that allows anyone to create and manage their own community. This gives everyone the power to create and build communities around the passions or interest that they care most about and find others around the world who share those same passions. As individual communities reach meaningful scale, they get spun out of the Amino app and become their own stand-alone app in the App Store. In just the first 60 days, 150,000 new communities were created. Today they are announcing that their users have created more than 250,000 communities on the platform. In addition Amino already operates a portfolio of more than 250 stand-alone apps, with hundreds or even thousands more expected in the future, created and moderated solely by their users.

The growth over the last few months has been quite impressive, but even more impressive has been the level of engagement among the Amino community members. The average user is spending over 60 minutes per day in their community or communities of choice. In comparison the average time spent per day on Facebook, Instagram, and Facebook Messenger combined is 50 minutes per day. This amazing level of engagement, coupled with the tremendous growth got other investors also excited and today Amino is also announcing their $19M Series B raise.

I’ve been continuously excited by what Ben, Yin and the team have accomplished in the last 15 months and am even more excited by what’s to come. I’m sure you have your own passion or interest that you would like to dive into so feel free to download Amino and find your community and if it doesn’t exist create it!

The Future Of Mobile Communities at Amino

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Last September, we were excited to announce our investment in Amino, a network of mobile-only communities focused on passion verticals. The company has made some great progress since then and today is announcing a new Series B fundraising and revealing updated metrics.
Amino’s belief, led by founders Ben Anderson and Yin Wang, is that every passion vertical deserves a dedicated and vibrant mobile community. They started by releasing stand-alone apps for many teen-specific topics, like anime, cartoons, and Minecraft. Those individual communities took off and quickly became healthy communities.
This summer, they launched a mobile app that allows anyone to create their own community. In just the first 60 days, 150,000 new communities were created. Today they are announcing that their users have created more than 250,000 communities on the platform, from Walking Dead and Vegan to Marilyn Manson and Five Nights at Freddy’s.
As each of these new communities reaches a particular scale, they get spun out of the Amino app and become their own stand-alone app in the App Store. Already, Amino operates a portfolio of more than 250 stand-alone apps, with hundreds or even thousands more expected in the future, created and moderated by their users.
As you would expect to see with vibrant communities, the engagement and usage time is very high — individual users join an average of six communities and spend an average of 60 minutes per day on the platform. As a comparison, users spend around 85 minutes per day on Reddit, an average of 50 minutes per day on Facebook, Instagram and Messenger combined, about 30 minutes per day on Snapchat and somewhere between 14 and 30 minutes per day on Tumblr.

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Today, Amino is announcing a $19 million Series B fundraise led by our friends at GV (M.G. Siegler). We are welcoming Goodwater Capital (Chi-Hua Chien) and Time Warner Investments (Allison Goldberg) as new investors, and of course USV and Venrock were thrilled to participate in the round again.
We are all thrilled with Ben, Yin and the team’s substantial progress and are excited to help them realize their dream of tens of thousands of mobile communities — one for every interest and passion you can think of.

Running Through Walls: Data Driven Healthcare

Farzad Mostashari, founder and CEO of Aledade, speaks with Bob Kocher at Venrock about bringing a data-driven approach to solving problems and the importance of knowing the question you want to answer, so you can apply the appropriate analysis. Mostashari, who went to medical school, knew quickly that he would not pursue a traditional career as a physician. In medical school he was an outlier, asking questions about population/public health, and then during his residency was mostly curious about the systems, so it’s no surprise that Mostashari went on to hold positions with the Centers for Disease Control and Prevention, New York City Department of Health and U.S. Department of Health and Human Services. Despite loving government service, Mostashari saw an opportunity to improve healthcare through Accountable Care Organizations, that would be better for patients, better for doctors and better for society. And in 2014 Aledade was born.