Live from XMediaLab: Tim Chang, Principal, Norwest Venture Partners

From the program: Tim Chang is a Principal at Norwest Venture Partners, focusing on investments in wireless and digital media, and business development initiatives in Asia-Pacific. Tim led NVP's investments in and joined the Board of Directors of 3Jam (a multiparty mobile text messaging platform and service), Brite Semiconductor (a fabless semiconductor design and production services firm based in Shanghai) and Lumos Labs (a web-based provider of scientifically-tested brain training games). Tim also works with the boards of some of the world’s leading digital media companies, including deCarta (a geospatial software platform for LBS applications), Double Fusion (world-leading independent in-game advertising network and technology platform) and Veveo (a video search engine for mobiles)

He's going to share his crystal ball for where the markets are headed. If you’re trying to commercialize ideas, hopefully this will give you some understanding of the landscape you’re heading into.

Norwest Venture Partners, founded in 1961, manage more than $2.5B in venture capital. Global VC firm, top quartile in investor management firms. He went through a bit more of their background -- I can sum it up by saying they're heavy hitters!

The short-term view: 1-2 years out
He's jadedly optimistic. In general, he has a very sober view of the world. He’s got more case studies on what doesn’t work rather than on what does.

So is this 2002 all over again? Or is it more systemic nuclear winter? You’ll get views that argue both sides of the fence.

Dance (collision?) of the elephants?
Large established companies like Sysco, Google, Nokia, all trying to get everywhere (into the living room, into mobile, etc.) They’re also starting to swallow each other. He even dares to say that Yahoo won’t be a going concern in less than three years.

Survival is the new growth & the Barbell Response
Right now, your business model needs to be about survival: cutting your burn rate, doing what it takes to stay alive. So, even though you might be going for a platform play, you might take work for hire. This has led to the "Barbell Response" for investors: either you’re going for late stage, or you’re going for very early stage. It's a tough time for companies in B & C stage funding.

VCs are turning into Vulture Capitalists
There are so many startups now in desperate need of capital and they’re at the mercy of the VCs. Why should a VC go for a really early-stage company when you can have a company that's much further along the development track who's willing to take the same valuation?

Key themes
Focus on bottom half of the P&L. Instead of things that fuel new growth and new revenue, look for what cuts out costs, what increases profitability. Look for painkillers, not vitamins.

Ad model = fast track to the recycle bin
It used to be every new business model claimed ‘advertising’! We're going to make big bucks through advertising! But these days, when he sees 'advertising', he just hits delete and doesn’t even take a second look. Virtual goods are where it’s at!

Good enough vs. bigger better faster
In a recession, the wheels tend to slow down from a go-to-market perspective, and then everyone is scrambling for good enough. The Chinese are the kings of good enough. In the next couple of years, your message of innovation might be drowned out in a sea of ‘good enough’.

Shift towards capital efficiency… and smaller scale outcomes. Can you do more with less? And can you find a compelling exit if you’ve got a smaller scale outcome? You can’t build a capital-efficient semiconductor company, but there aren’t that many investors playing in that capital-intensive space any more.

Social Media Framework
Vertical communities + rich media widgets. There are all sorts of vertical communities:

Dogster --> CafeMom --> Bridester --> PC Modster --> Anime/UGC myth vs true sweetspot in social media.
1-9-90 curve: the breakdown for user-generated activity. 1% of your users will be curators – they will care for it and fix it and want to make it better. 9% of your users will be active contributors, and 90% are lazy buggers. So for an MMO, you’ll have 1% who spend ridiculous amounts of money and buy virtual goods, and then you’ll have 90% who just play the free part.

Go on YouTube – the top hundred videos – 95% are music. The other 5% are exotic, erotic or tragic.

The midtail is the new sweet spot, with a mix of produced content and UGC. Widget-based social syndication. The endgoal is not always entering the short head!

Lessons from Web 2.0 / Social Media

• Facebook is the new marketing/trailerware channel
• Celebrity is the new PR
• Twitter is the “Push Digg of the 5 Ps” (promoters, performers, pundits, etc)
• The new split-screen experience: “social/media” (1/2 professional content, 1/2 UGC)
• Social media is not a market. It’s a two-way feedback channel from the audience.

Why gaming will rescue us all
Gaming is great because it offers a multilayer advertising/revenue cake. Don’t do just ads; don’t do just subscription. Do free-to-play, monetize through some some advertising, sell some virtual goods, and a small percent will upsell to subscription. It's just like nightclub: the dancefloor is free to play, the bar has the micropayments, and the VIP area is subscription only!

The mid-term view

• $1B + exits are coming from new regions (China, India) and new fields (Cleantech, genetic engineering)
• Key themes: HW Companies --> SW companies
• SW Companies --> Service companies
• Service companies --> Data mining / analytics companies
• Media companies --> Gaming & affinity marketing
• Virtualization: Vertical Clouds + multiple clients
• Anti-social networking, social and reputational engineering
• Locative computing
• Contextual computing
• Holy Grail assets in the landgrab for content + engagement + commerce:
  • Wallet billing relationship
  • Connected addressbook / social graph / metaprofile
  • (I missed the last few)

The long-term view: Approaching the Singularity?
We're looking towards the creation of entire new industries and value chains, towards the creation of new $1B+ industry leaders. For key themes in the long-term view, see TED.com, X-Prize. (Note: I had the chance to see Anousheh Ansari, founder of the X-Prize, speak at an academic conference in Las Vegas last year -- she was inspiring.)

Themes

• Human 2.0
• Robotics
• Sustainability

And finally, a dirty secret about VCs: it is always about the team. The team is so important that a good team will get a check even if they have no idea. It’s like high school when there were three people everyone wanted to date -- everyone is chasing the team. If you have no history, look for a consumer-focused model where you can build enough traction for the VCs to chase you.