Boston VCs Grok Social Media—So Can We Please Not Tell That Facebook Story Anymore?

5/12/09Follow @bbuderi

The X Factor, which debuted last week without yet having a name, is a mostly weekly column featuring conversations with local innovators, entrepreneurs, and investors.

It’s a legendary story of doom here in Boston (folks around here kind of like gloomy stories)—how the local VCs passed on this idea called Facebook, the kids from Harvard moved west, and…the friggin’ Valley beat us again. It’s safe to say this story is trotted out dozens of times each year to show how Boston VCs don’t take risks, don’t do early stage, don’t understand consumer Internet businesses. In short, it’s the poster child for how New England missed the social media revolution.

But let me say here and now that this hackneyed story is passé, as old and behind the times as analog dialup.

I’ve felt this way for some time, but it was driven home to me during the recent Twitter craze. For one thing, although Twitter is based in San Francisco, its first venture investors were from the East Coast—and Bijan Sabet, a general partner at Boston-based Spark Capital, is nicely perched on its board.

But the presence of Boston-based VCs on the social Internet and new media scene hardly ends with Twitter. Depending on how you define the field, you can find Boston VCs behind a host of such investments, both in East Coast firms like Eons and Hunch (General Catalyst), and in West Coast companies such as social news site Digg (Highland led the Series C round last fall) or Metacafe (also Highland), and even Facebook (Greylock Partners, albeit out of its San Mateo office with partner David Sze, who also invested in Digg and LinkedIn). And that’s a quickly culled, very short list.

Mike Hirshland and Bijan SabetAmong local firms, Spark, Polaris Venture Partners, and (to a slightly lesser extent) General Catalyst Partners, which has just brought in Facebook co-founder Chris Hughes as entrepreneur-in-residence, are leading the way in social media. I profiled Hughes in his new role at GC in last week’s debut column. So this week I am going to look at Spark and Polaris (I promise Web/media investments are not the focus of this column—I just want to get us beyond this Facebook meme once and for all). Between them, the two have amassed an array of new media investments that run from tweeting to blogging to Internet TV. (See my still-incomplete lists at the end of this article.)

The two most prominent social media investments by these firms are Twitter, in Spark’s case, and, for Polaris, Automattic (the company behind WordPress, the leading blogging platform). So I sought out the partners who made these investments—Sabet and Polaris general partner Mike Hirshland—for their take on my premise that it’s time to put the Boston-Facebook story behind us. I also asked them how their social media/consumer Internet deals came about, where they think Boston stands now in this arena, and whether New England could ever hope to compete with California in grooming social media companies (there is some reason for optimism on this front—read on).

Here’s my report.

Both Sabet and Hirshland agree that the center of gravity for social media companies is clearly on the West Coast—no surprise there—and tell how it takes a concentrated effort on their parts to be part of that. (“I run into him on flights going out there,” Hirshland says of Sabet.) But both agree the climate for social media is getting far better in the Boston area—both in terms of VCs and entrepreneurs. In fact, Hirshland even said it might be time for a social media incubator here, like Polaris’ Dog Patch Lab in San Francisco (more below on Dog Patch, which isn’t widely associated with Polaris. “We don’t position it as a Polaris lab, but it is,” Hirshland told me.).

“I do think there is a breed or a generation of early-stage Web entrepreneurs and Web investment opportunities that we are seeing a lot more of on the West Coast, frankly,” says Hirshland. “We are pretty focused on making sure we are present in that ecosystem and knowing the people and the trends, so that we are positioned to be seeing [deals], but also appreciating when something potentially very compelling is bubbling up.”

In the case of Automattic, Hirshland met founder Matt Mullenweg back around Christmas of 2004—and cultivated their relationship over the next nine months or so, before taking the lead in a small ($1.1 million) Series A round in September 2005. Polaris also led the $29.5 million Series B round in January 2008—and you can find my full story of Mike and Matt here.

Sabet told a similar tale of getting to know the Twitter team ahead of West Coast VCs. He met two of the three founders (Evan Williams and Biz Stone) in early 2007, through a mutual friend at Google, where the two Twitterers had previously worked—some six months after Twitter’s public launch the previous summer. At the time, Williams was running Obvious Corp., which owned Twitter. And Twitter, says Sabet, “was a spinout out of Obvious.”

Twitter had already received some $5 million in funding from angels, including Netscape’s Marc Andreesen, as well as venture capitalist Fred Wilson of Union Square Ventures in New York, says Sabet. For his part, the Spark partner built a relationship with the Twitter team over a year or so. And in early 2008, when they were ready for a second round, “they asked us [Spark] to invest.” (This was a reported $15 million round, announced last June, that included Amazon founder Jeff Bezos, who invested through Bezos Expeditions, his personal venture firm. Sabet joined the Twitter board as part of Spark’s investment.)

So why did Spark get in ahead of Valley VCs? “I think we were much more enthusiastic about the company earlier on,” he says. “I was a user first.”

Sabet and Hirshland continue to spend a lot of time on the West Coast to cultivate the next generation of Web and social media entrepreneurs. About a year ago, Polaris formed Dog Patch Lab, a kind of incubator for young entrepreneurs located in the Pier 38 area. The lab has about 15 people percolating through it at any given time, and Polaris offers them what Hirshland describes as camaraderie, bandwidth, workspace, and electricity.

Already Dog Patch has helped spawn Plinky, a conversational Web startup that was founded in May 2008 by Jason Shellen, who worked with Ev Williams at Blogger and then continued on to Google after it purchased Blogger in 2003. Shellen later was founding product manager of Google Reader, “and we backed him to figure out how to make sense and money of the conversational web,” says Hirshland. (Each day, Plinky, in which Polaris took a seed position and where former Polaris partner Sim Simeonov is interim CTO, poses a question or challenge to try and spark a conversation—and people can contribute to the dialog in a number of ways, sharing answers on Facebook or Twitter, for instance.)

Also part of the Dog Patch litter is LOLapps, which provides applications that allow others to create custom Facebook apps such as quizzes and virtual gift-makers. LOLapps’ co-founder and chairman Ariel Poler (formerly of StumbleUpon, among other companies), was a Dog Patch denizen—and Polaris was the sole investor last September in the company’s $4.5 million Series A round. With some 44 million people using LOLapps’ Facebook applications, “We believe they are actually the largest Facebook apps company,” says Hirshland.

Hopes for Boston

What about Boston? Sabet’s theory is that when Boston VCs got into the consumer Internet during the Internet bubble, “they jumped in late and they got killed.” Many, he believes, said ‘never again.’ That, in turn, created a spiral where for a long time a lot of entrepreneurs felt that many Boston VCs weren’t interested in consumer Internet companies, creating a situation where they either moved to the West Coast or morphed their idea to something that was more infrastructure related.

Now, with a new crop of Boston area VCs “investing hundreds of millions of dollars a year in this space,” Sabet says he doesn’t think that attitude is as prevalent. Which led me to ask him whether he thinks more local social networking/new media entrepreneurs will be encouraged to start companies here—and keep them in New England.

“God, I hope so,” was his reply. “But we have some work to do.” (More on that last comment in a bit.)

That same hopeful sentiment came from Hirshland, who says there are definitely more entrepreneurs attuned to social media now in New England than in the past. “The vast majority are in their 20s, who just grew up on the Web,” he says. When they come out of local universities, “they’re not necessarily going to a telecom infrastructure company or an enterprise software company, or fill in the blank.”

Hirshland says that their success will feed upon itself. The Valley, he says, “had Yahoo and Google and eBay and Paypal,” and after a few years at those companies, key employees had made money and “wanted to try their own thing, just creating a whole wave of entrepreneurs.”

Similarly, in New England, he says, “What we need is for a couple of those [startups] to really take and become business and companies, and spawn the next generation…and that’s what I think we’ve been lacking.”

So now, back to that point from Sabet about having work to do to strengthen New England’s hand in all this. Both men, it turns out, are willing to take some extra steps to help social media entrepreneurs along. For instance, Hirshland says Polaris would be open to the idea of creating a Dog Patch Lab-like incubator here in the Boston area. “It’s a possibility,” he says. “If there’s enough interest.” (Anyone want to answer that challenge?)

Sabet and Spark, meanwhile, have already taken several strides in this regard. Sabet is well known for pressing for the elimination of non-compete clauses in Massachusetts, which would make it much easier for entrepreneurs to do what Hirshland referred to—leave an established company to start their own. That effort has gained a lot of momentum and a bill to ban non-competes in Massachusetts is scheduled for a hearing this spring.

Spark (through Sabet) is one of several local groups that is helping bring a branch of the Boulder, CO-based TechStars startup program to Cambridge, MA. And in March, Spark announced the launch of Start@Spark, a program that will offer seed-stage investments of up to $250,000 to promising early-stage startups in the Boston and New York regions.

“There’s not like one silver bullet—it’s going to be a lot of stuff,” says Sabet, when referring to what might ignite social media and consumer Internet companies in the Boston Area.

Which to me means a concerted, collaborative effort. The last time I saw Hirshland and Sabet, they were at an OpenCoffee meeting (yes, Sabet helped this group get started here as well) at Andala Coffee House in Central Square. That’s where I snapped the picture of them together.

A Sampling of Social Media/Consumer Internet Investments From Spark and Polaris

Spark

5min — Internet-based “How-To” videos
8D World — virtual world focused on teaching English as a second language
Boxee — open-source software platform to enable home social media centers
Eqal — the Los Angeles studio behind the cult Web video series Lonelygirl15
KickApps — hosted application service enabling social networking capabilities for major web publishing and corporate websites
Next New Networks — micro TV meets community Web casting
OMGPOP (formerly i’minlikewithyou) — combines online gaming with social networking
OneRiot — social search engine
Tumblr — mixed media, short form blogging
Veoh — Internet TV

See my interview last year with Spark managing director Todd Dagres about the company’s media strategy.

Polaris

Automattic — the company behind WordPress, the leading blogging platform
BlackArrow — ad management for viewer-controlled video
Heavy — online entertainment network for men 18-34
JibJab Media — online comedy network
Quantcast — new media measurement company
Sprout — widget makes it easy to add interactive content to blogs and other websites.

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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  • Luca

    That would be Fred Wilson of Union Square Ventures, not Fred Williams of Union Square Bank.

  • http://www.xconomy.com/author/bbuderi/ Robert Buderi

    Very sorry–fixed, thanks

  • http://www.dailygrommet.com/ Jules Pieri

    I am happy for any progress on advancing the Boston locus for social media and consumer internet enterprises. The list in the article is a good start but it’s still relatively anemic, considering that half of it is more social media infracture, and not consumer facing. At the end of the day, we are all consumers (politicians, policy makers, investors, employees, and entrepreneurs) and the best way to grab mindshare for social media innovation is to create meaningful consumer facing businesses. To build the kind of experiences to which people become deeply attached.

    Although it is not social media-based, Zipcar is one of our best local consumer internet examples. I like CarbonRally too, as a very young example of local social media-fueled innovating company too. Care.com and RunMyErr come to mind as well. We have to broaden our definition of social media to include the innovative use of those behaviors, tools, and technologies. Not just the creation of platforms and infrastructure/analytics around social media.

    Anyway we need more, more, more in Boston, and much of the onus and opportunity lies within the investor community–to get out of its comfort zone. So few investors have really done consumer and social media in their careers. It’s understandably hard for them to trust even deeply experienced teams in these areas…it’s such a scary black box to investors. Success in consumer facing-enterprises can’t be driven entirely with dials and levers–it takes insight and confidence too. Social media does, however, offer amazing customer engagement and acquisition tools to make consumer businesses profitably scale in very new ways. That’s the real opportunity in social media.

  • Jules Pieri

    Oops…typed too fast. Meant to type RunMyErrand.com I erred.