While search marketing is already a huge business, more and more companies each day are discovering the advantages of advertising directly to customers through search engines. Companies like that they can directly measure the impact of their spending – from the clicks they are generating all the way through the products they are selling as a result of those site visits and that they can quickly and easily scale up their spending on what’s working in their search campaigns. With different ad groups, ad copy and landing pages, search marketers can customize their campaigns to fit their business needs.

If there’s a downside to search, however, it’s that effectively managing search campaigns is extremely difficult. Even if you confine your efforts solely to Google the complexities of creating ad groups, generating keywords, pricing each keyword, creating deep links into your product catalogue, managing spend variants by day, figuring out broad match vs. phrase match vs exact match vs negative match, etc are daunting.

One of the ironies of search is that while technology of search itself is in many ways disaggregating the relationship between marketers and consumers (and bringing them directly together), the business of search itself isn’t something that can easily be disaggregated by technology in the same way.  Search is simply not something that lends itself well to machine automation. And while there are a few software platforms available for managing search campaigns (mostly focused on the high end of the market spending > $100k/month on search) these packages are primarily designed for people who are already search experts. It’s almost impossible to take search knowledge and put it into an algorithm. As a result, companies that lack this expertise are at a huge disadvantage in the search game (this is true of many agencies as well who use search marketing as a lead-in to offer other more lucrative services).

Today we’re launching Trada. And fundamentally changing the game in search marketing.

Trada has been working in stealth mode for the last 18 months to build a system that harnesses the power of a “crowd” of search experts to work on behalf of advertisers. The Trada system easily allows advertisers to upload campaign information and connect with hundreds of search experts. It’s not a referral site – the Trada experts work together, through the Trada platform, to create the broadest possible campaign for each advertiser. These experts get paid only for generating clicks and/or conversions for Trada advertisers (depending on whether a campaign is in pay per click or pay per action mode). We work in the middle to enable these campaigns and make our margin based on our search experts’ ability to beat your pre-determined CPC or CPA rates.

The company opened its system to a small group of advertisers in January 2009 as it worked out the specifics of the platform. Trada has served over 70 customers in that time period. The average campaign in the Trada system has over 100 ads (most proposed by Trada optimizers), 6,200 keywords and an average of more than 20 optimizers working on behalf of each advertiser. If you’re working in search marketing, these numbers blow you away. Advertisers can currently run campaigns – through a single Trada interface – on Google, Yahoo and Bing.

This company is near and dear to my heart, as I’ve been with CEO Niel Robertson and the rest of the Trada team from the very start of the business (and together with them am a co-founder of the company; read Niel’s post launching the company on the Trada blog). I’ve known Niel for almost 10 years now and one of our goals with Trada has been to step away from the traditional VC/CEO relationship. We’ve done that over the last 18 months of the business and developed an unusually close partnership – the initial result of which you see today. There’s a ton more to come with Trada. Stay tuned!

Learn more about the search revolution at www.trada.com.

Lijit quietly released a very cool new widget for users of their service (that’s you, right?). The new Lijit Welcome Wijit greets site visitors who come to your site via a search term and gives them a relevant roadmap of your site as it relates to the search query that brought them there. It’s great for your site visitors who now have additional context for their interest in your content. It’s also great for publishers who can now create a more sticky experience for their users and expand the cross pollination of their content. From Greg Keller’s post on the Lijit blog, the Welcom Wijit is about:

• Welcoming new readers to your site when they’ve linked in from somewhere else…e.g. a search engine, blogroll that includes your site, etc. They land on your property and they get a true ‘greeting’ to say thanks for stopping by!
• Better content discovery: Readers landing on your site for the first time will have an initial experience right off the bat of mining your content. What is old to you is all new to your new readers! Welcome Wijit will help them find it easily.
• Tools tools tools for your readers: The Welcome Wijit by design is about improved loyalty and return visits. The Wijit offers features to quickly add your feed to RSS readers, My Yahoo and iGoogle home pages to ensure they have you earmarked for return visits.
• Pre-selected search results: When a reader is searching the web for something and they stumble upon your site, Welcome Wijit knows that search term and will provide a pre-selected list of the top 3 relevant items fitting that search on your blog, within your content and throughout your network…given them a true ‘feel’ of the Lijit search experience.
• Advertising opportunities: We’re committed to doing what we can to make you more money! Similar to your Search Engine Results Page advertising, Welcome Wijit provides Google Ads to ensure more relevant ads are seen and clicked through by your readers.

Below is an example from VC Adventure, which shows what you might see if you come to my blog after searching about how to get a job in venture capital:

You can see the Welcome Wijit under the main nav bar – set up with a welcome message, easy way to subscribe and a search box set to expand the search term the user arrived on to the entire blog. Readers can easily see my Lijit Network, view my RSS feed and search my site. The reader also has the option to expand the wijit view for even more information (the search is then populated with results from my blog and tabs to expand that to additional content I’ve generated elsewhere and my expanded network).

Installation is a breeze (it took me about 2 minutes) and can be done from your Lijit account (if you’re already using Lijit search there’s no new code to insert into your blog. Check out the Welcome Wijit page at Lijit for more info.

Brad has a lengthy post up describing how we think about seed investing at Foundry Group. In it, he describes our philosophy around seed investing and differentiates it from what others (but not everyone) in the market is doing. Importantly, he notes that:

our seed investments are not “options on the next round.”  We price our seed rounds as equity investments, always lead or co-lead … and treat them the same way we would a $10m investment… when we make a seed investment, it gets everyone’s attention.  We try hard not to smother it with love, but we recognize that we usually each have something unique to add to a seed investment and try to help accordingly.  As a result, we are all emotionally involved in the investment (a phrase you’ll see in later posts about this topic) which I believe is both beneficial to the entrepreneur and extremely important to the VC firm.

At the end of his post Brad lists out the companies in the Foundry portfolio that started as seed investments (AdMeld, Gnip, Lijit, Mandlebrot, Next Big Sound, Standing Cloud, and Trada). I thought it would be interesting (and illuminating) to describe the story of one or two of these investments as a way to put some color around how we think about seed investing.

With that pre-amble, let me describe the story of Trada – a company that helps businesses more effectively manage their search marketing campaigns via its marketplace through which paid search experts work collaboratively and competitively to maximize the effectiveness of Trada customers search marketing campaigns.

I’ve known the CEO of Trada, Niel Robertson, for almost 10 years. He’s founded several companies that our predecessor fund invested in (one of which was a huge success, one of which was not). The roots of Trada can be traced back to a series of conversations Niel and I started having months before the concept of Trada was born. They started with the idea that we wanted to work together on another company and some concepts about the operating philosophy of our relationship, the kind of company culture we wanted to build and the ideal pattern of communication that the two of us would have around the business. With the foundation of our operating philosophy intact we turned our attention to what this new business should do. I had been spending quite a bit of time looking at the online advertising market and suggested to Niel that, while the display market was large (and there were plenty of interesting businesses to be built there) I was particularly interested in trying to figure something out around search – which is a larger market than display and significantly concentrated with the search platforms (there were and are far fewer companies playing in the search ecosystem than in display). This mapped with some of the ideas Niel was thinking about as well and over a series of months we tossed around a number of different ideas in search marketing. Niel eloquently describes the birth of the idea behind Trada on the company’s blog (worth taking a look at and considering the varied genesis behind businesses).  To be clear, while there is a small group of us that are Trada founders, the idea of Trada is completely Niel’s. From the initial idea we worked together to validate the operating assumptions of the business – doing collaborative due diligence on the crowdsearch SEM marketplace that was the idea behind Trada.

Of course coming up with the idea is the easy part. Executing against that idea is another matter. In this case neither Niel (nor I) had any interest in creating a traditional syndicate to fund the company. Instead we quickly put our heads together about a financing (we like to say it was over beers, but the truth is more mundane – we hammered out the details in a 10 minute conversation in the conference room of the Foundry office). We decided that we wanted to bring in some experts to help us with the business and together flew around pitching the business to a small handful of strategic angel investors to pull together a small syndicate that became the initial Trada investor base. Niel and I hammered out a second financing in similar fashion (again around the Foundry conference table, this time without the need for an angel roadshow). It’s a great example of how we like to work with entrepreneurs – especially those that we have a long history with. We like to be involved early (in this case before an idea for a business even existed) and we think of our angel investments as a down payment on a subsequent investment in the business (we’ realize that we need to give early businesses some time to develop).

More recently in Trada’s history we announced that Google has joined us in investing in the company. It’s hard to imagine a more strategic investor in a search business than Google and we’re extremely happy to have Rich Minor and the Google Ventures team on board.

We’ve come a long way with the business and strongly believe that there’s no better platform for small and medium sized businesses to leverage the power of search. If you’re a business or PPC agency spending $3k – $100k per month on search marketing, I’d encourage you to give them a try.

I’ve written a few times about Trada – a business that vastly simplifies search marketing for advertisers through a platform upon which Trada’s crowd of SEM experts build and manage campaigns on behalf of advertisers. The results to far have been impressive. The company has been helping advertisers increase the effectiveness of their search marketing and lower the amount of time required to manage search campaigns. And they’ve done this for companies spending as little as a few thousand dollars a month on search to as much as $500,000 per month. The result has been a rapidly growing company that is increasingly looking to expand the reach of its platform.

Today Trada announced that it has expanded its marketplace to Facebook, allowing advertisers to leverage the Trada crowd of expert optimizers to manage Facebook campaigns. To do this they’ve also launched a creative marketplace that will allow designers to contribute to campaigns on a performance basis. More on that a bit later.

The Facebook opportunity is massive (Facebook generates somewhere around 25%-30% of all display advertising impressions on the internet), but relatively nascent – supported by a limited toolset, requiring very different strategies than search or traditional display marketing, and as a result to date much more difficult for advertisers to take advantage of. The beauty of the Trada model is that it uses humans to perform tasks that are uniquely human in nature. We’ve found this to be effective in search, and expect that the same will hold true for leveraging the unique, but often very disparate data that Facebook enables marketers to make use of. And while entire companies are being built to try to help marketers better take advantage of advertising on Facebook, Trada is using all of their learning in search to extend their marketing capabilities into Facebook – a distinct advantage.

A quick note on the creative marketplace. Trada CEO Niel Robertson and I have been talking about this idea for the better part of 2 years. We knew that we’d need something like this to extend the Trada platform to Facebook (and beyond). “Creative” in search involves the relatively straightforward creation of text ads. Creative on Facebook involves the greater complexity of images and additionally needs to be constantly refreshed (the decay curve of Facebook ads is extremely rapid). I’ve wondered if a business could have been built around this kind of creative marketplace – using performance incentives to reward the creation of various display ad types. Ultimately for Trada, they built their own system (the fact that it is closed loop within the Trada platform solves a number of key issues vs having built this as a stand-alone business). We’ve actually had a version of it up and running for our tests with Facebook for several months now and it works beautifully.

There was great coverage today of the Trada announcement, including mention in The New York Times, Techcrunch and MarketWatch.

I’d encourage you to check out Trada if you’re interested in extending your advertising to Facebook or looking for better performance out of your search campaigns.

I’ve been mulling over a few ideas in search advertising. Curious if anyone out there has come across any companies innovating in the search value chain (I’m thinking about things like Yield and Clickable). 

Everyone knows that Microsoft announced at this year’s Gnomedex their support for RSS in their Longhorn (now Vista) release. A quick search on Google or Technorati comes up with plenty of people who have already weighed in on the subject (I particularly like Nick Bradbury’s post here). Most of the talk, however has been around how RSS integrates into IE (see the IE blog post on RSS integration here) and the associated ease with which IE users will be able to subscribe to feeds, create feeds and some of the ways they are extending RSS to handle lists and a common data store, etc. The rest has been centered around Microsoft’s RSS effort for developers to enable them to more easily pull feeds from applications. All great stuff, but that’s not at all why I’m excited about Microsoft embracing RSS and since no one else was writing about it I thought I’d throw my 2c into the ring. Love it or hate it, the Microsoft Office suite is a critical part of most businesses (with apologies to Star Office . . . ). Unfortunately their organizational/search/storage/retrieva  paradigm is all wrong. While trying to ease users into the computer age, Microsoft has unfortunately created programs that attempt to mimic how people use and store information in the off-line world (i.e., in logical hierarchies, folders, etc) – which limited the power of the new computing medium. This is true both within applications and between them; in our file folder hierarchies and in how we store mail; in how we save bookmarks to the admin of an LDAP directory. Anyone who has ever tried to search in  Outlook for a contact for whom you had only limited information or for a file that you misplaced understands the limitation of this system – it works great for structured data, but not so great for unstructured data (i.e., if you know you’re looking for Joe Smith in your contacts you’re fine; if you remember meeting someone name Joe who was an investment banker and who you met sometime in the summer of 2003 you’re screwed). The current system is fine for storing basic information, but lacks the database like ability to assign attributes and then search on those attributes (there are some limited ways to do this both in outlook, in contacts and for files – i.e., you can create different categories of contacts or add certain information to file properties but neither is very powerful and neither is meaningfully searchable). Enter the Internet age and people have discovered the power of unstructured data. Google built an entire service around it in the form of Gmail (lots of storage is great, but their real innovation was the elimination of folders in favor of fast and easy search and what essentially amounts to the ‘tagging’ of conversations). Both Google and Microsoft recognize it in their efforts in desktop search. And companies like del.icio.us and social text really really get it in allowing us to control how we label and categorize information. Perhaps I’m stretching some or perhaps being a bit too hopeful, but I believe RSS can bring Office into the 21^st century. Imagine being able to tag a contact or a file with various attributes that you can later quickly and easily search on. Imagine being able to subscribe to a shared document folder to know when someone in a workgroup updates a file (enabling shared folders to function almost as a wiki). Imagine being able to stop placing files in work folders altogether but rather tagging then with the pertinent information which will enable you to much more easily find them later (and remember what they were for).

Great stuff – I hope MSFT is listening . . .

So it’s really come down to this? News Corp is thinking about inking a deal with Microsoft/Bing whereby not only will Bing get access to News Corp data (WSJ, Fox, etc.) but they’ll also prevent Google from indexing their sites. This sounds like a lose/lose/lose/lose proposition.

News Corp loses – fewer page views, less revenue for their online content, and to the 90% of Internet users who use Google for search their properties will effectively stop existing.

Google loses (sort of) to the extent people miss the data (not sure what will happen when you force a search on Google to a News Corp domain – will they simply return no results?).

The rest of us lose because universal search will cease to be universal (and if MSFT is willing to pay for an exclusive with News Corp others will follow).

And Microsoft likely loses as well by paying for content that they likely can’t monetize and pissing a bunch of people off in the process.

I’ve been playing around with Bing a bunch lately and actually really like it. But proprietary search arrangements isn’t the way to gain market share – better search is!

With the performance of the public markets looking like an EKG read-out, I’ve been asked frequently in the past two weeks what effect this will have on the venture financing market. How tied are private company valuations to the public markets? If you’re planning on raising money in a few months would it be better to go out now or better to keep your original plans? Should companies be altering their cash burn projections to become more capital efficient in the face of potential funding challenges?

Here are a few thoughts:

Generally it takes some time for public market declines to make their way down to the venture market. And while I’m sure you have an opinion about the current state of valuations in the private market (who doesn’t?), there’s not a direct correlation between public market valuations and private market ones (ie., when the Dow drops 10% it’s not like term sheets headed out the door that week do the same). That said, a prolonged period of decline in the public markets, eventually has some effect on private markets as I outline below. In addition, I’d note that in this case we’re not talking about a a shock to the system but rather the natural movements of the market (shocks – such as 9/11 – tend to have more immediate effects across all market segments both public and private).

Different firms will react differently based on where they are in their fund cycle, the perceived strength of their portfolio, how well funded that portfolio is, and their view of how deep and long a downturn is likely to be. It’s worth thinking about all of these potential effects on your fundraising.

A downturn of any length of time is likely to have some effect on the fundraising market for venture capitalists themselves. This market has already been relatively difficult (with a complete bifurcation of funds into a category of “haves” who appear to be able to raise funds at will, and “have nots” who just can’t seem to get any attention from LPs) and a down market will both exacerbate this existing trend as well as perhaps move a few firms from the “have” category to “have not”. And of course there’s the well discussed “denominator” problem (which is really a numerator problem) whereby the actual dollars allocated to alternative asset classes (i.e,. venture) by the large LPs shrinks as the overall value of their portfolio decreases (they tend to allocate based on a % of assets). None of this is likely to be of any immediate concern to a company raising money in the next number of months, and because a large number of funds have “fresh powder” (i.e, money to invest) this is likely only to effect the company fundraising market if the downturn is a sustained one vs. simply short term market volatility. But its a trend worth watching if “volatility” turns into a downturn of any real length or depth.

However the perceived strength of a firms portfolio and the relative capital efficiency of the companies in which they have investeded in (as well as thier current overall funding status) are likely to have some effects – even in the short term and especially if it becomes clear that we’re in a true down market. For starters, as the markets become more uncertain there is a tendency among venture capitalists to batten down the hatches a bit. This was famously done by Seqouia in 2008 with their widely publicized CEO meeting (and accompanying PowerPoint), but was and is done much more quietly by many firms. As funding becomes uncertain VCs tend to focus inward on their existing portfolios.

A derivative of this inward focus is a tendency of VCs in down markets to focus their new investment activities more locally. Over the past few years of relative market strength, VCs have ventured further and further from their respective home bases in search of new technologies and companies (especially right now given the heated state of the funding market in California). If the markets decline for any period of time, I’d expect to see this trend repeated. This perhaps won’t effect you if you’re in Silicon Valley, but for those entrepreneurs in smaller markets – especially those with relatively weak local funding environments – there may be a real effect to their fundraising prospects from this.

So what’s a start-up to do?

For starters, don’t panic! You’re probably not like all those other startups with shitty business ideas, so you’ll be fine.

More seriously, you should think about these trends as you consider both your own fundraising strategy (and timing) as well as your plans to increase cash burn. Down markets favor ideas that are truly capital efficient (and I don’t mean just because you run your business on AWS). Think about your spending plans – you’re probably burning too much cash – and think about taking incremental spending risk, not step function risk. Gauge your current investors. Where are they in their own funds? How likely are they going to be to support an inside round if that’s required for your next round? Ask them their opinion on the current market and its effect on your future fundraising plans. If you’re planning on being out in the market in the next 4-6 months, I’d consider going out now. Better to get market feedback now when you still have more time to react, then 2 months before you run out of cash.

For good or bad, the venture markets always pendulum. And while at Foundry we believe in time diversifying our investing (i.e,. investing at a relatively steady pace), the market as a whole doesn’t work that way. Ultimately the strong venture market that we’re currently in will wane and in the long term this will be good for the overall market (although not necessarily for your specific start-up) as the market swings itself back past what should be its equilibrium to the other side of the pendulum. And then we’ll start the last few years all over again. And while I’m not certain that the current market environment will force the pendulum backward in this way, I do know that something in the future will. It always does.

One of the most common questions I get asked from people outside the VC industry is “what’s a typical day like?” It’s a good question, but a hard one to answer – my days are extremely varied (this is one of the things I really like about my job, in fact). The type of work I do on any given day is very dependant on what’s going on with the companies that I work with (financing, m&a, planning, putting in place a bank line, rolling out new products, etc.), and every day (or hour) seems to bring something different. I’ve tried a few approaches to answering this question – typically some variant of “on average I spend x% of my time on sourcing new deals; y% on financings; z% working with portfolio companies on operations; etc.). The problem with this is that, while it may provide some insight into how I spend my time in a typical month (or quarter), it doesn’t really answer the question, nor give much of a real flavor of what Ido day to day. Since one of my goals with this blog is to write about the experience of being a VC I thought I’d try to do a better job of answering this question by writing about a couple of different days that I think typify the VC experience. The idea here is not to generalize, but rather to report on a couple of days that feel are ‘typical’. I had one recently (that inspired me to try to tackle this question) – it went something like this: Early Morning: Spent the morning working up a term sheet for an investment that had recently been approved by the firm. It actually wasn’t my deal, but the principal who had sponsored it was on a business trip and I was helping out by pulling the term sheet together. To do this I had to work up a version of the company’s cap table that I could play around with (I had one from the company, but the structure of it didn’t allow me to manipulate it in the way that I wanted to). I also spent quite a bit of time with the financing docs from their last round – Series A term sheets are much easier to write than term sheets for follow-on financings where I need to account for the existing cap structure as well as understand what terms I want to keep the same vs. change from previous rounds. The whole process took several hours, after which I sent it off to the partner involved in the deal and our general counsel to take a quick look before sending it to the company.

Late Morning: We were closing on an investment today as well. I had already reviewed the deal docs, but took a last look through the schedules this morning and double checked the numbers again. After a couple of points of clarification with the lawyers, all looked good, so we sent a note to our operations group to initiate the wire transfers.

I also spent about 45 minutes on the phone with the VP of BD of a public technology business that is in a space in which we’ve made several investments. I was interested in his impressions of trends in the industry and specifically his company’s key initiatives for 2005. The company is also a potential partner/acquirer of a few of our investments and I wanted to be sure he was aware of some of the companies in the portfolio.

Lunch: I had lunch with two entrepreneurs who were the founders of a business we invested in several years ago. Their company was sold relatively quickly and all involved (investors and founders) were pretty pleased with the outcome. After working for the acquirer for a while they were ready to get back to something more entrepreneurial and had been floating around some ideas together. They’d settled on something they wanted to pursue and wanted to bring me up to speed on their thoughts/get some feedback. We’re supporting them in their early efforts both by being a sounding board for ideas as well as by giving them some space in our office to use while they get started.

Afternoon: My afternoon was pretty open of meetings, so I returned a couple of phone calls (the most interesting of which was talking to one of the CEO’s I work with about his funding strategy – we’re looking to put a debt line in place at his business and needed to pull together some information before deciding exactly how much we wanted and how we were going to approach lenders). I also talked with an old friend of mine who works for a VC in Boston. We catch up periodically to get a pulse on what each of us is looking at, as well as to keep up personally (he and I worked together at Morgan Stanley back in the mid-90’s). I also had some time to sort through the day’s e-mail – something I hadn’t been able to do in the morning (I get about 200 e-mails a day, so keeping on top of incoming messages is important for staying current).

So there you have it. Not particularly glamorous, but pretty typical of what I spend my time doing. Term sheets, cap tables, financing docs, lots of time on the phone – all in all a relatively usual work day.

For another perspective on a typical VC day, see David Hornik’s post on the subject here.  His extremely funny follow up post to that is here (a copy of parody of VC life that became very well traveled in the VC and legal circles).

Here are a few links worth taking a look at: Google Trends – www.google.com/trends (thanks to Jason for the pointer).  I played around with this a while ago – they’ve improved it so you can compare search trends for different terms at the same time and also see what region the searches are coming from. Woot – Think you can’t make a business based on one product sale at a time? See www.woot.com. splunk’d – You may have heard that AOL released their search database (that actually had customer identifying information attached to the search terms – oops).  www.splunkd.com will let you search against this database to see what people were actually looking at – compare your searches to the population at large.

Enjoy!