10 years ago today an historic event took place that changed most of our lives. As I watch the television coverage, I can’t help but think about where I was that day. I was a wide-eyed, recent college graduate and had started my first real job in technology at one of the investment banks a few weeks earlier. By that point my travel routine was set. I took NJ Transit into the World Trade Center, would grab a quick coffee and head to the office on Church Street about a block away. On 9/11, I took an earlier train to get some extra work done and got to my desk before 8am. In retrospect I was lucky that I did as many of my colleagues were stuck on other trains or had just arrived at WTC as the planes struck. When the first plane hit no one knew what happened. We heard a loud explosion and rushed to the windows. Staring up at the building we saw the other plane hit. At that instant we knew this was no accident and was an act of terrorism. A small group of us decided we wanted to not only get out of the building, but also the city. We started walking uptown toward the midtown ferry, which was still running. I vividly remember the surreal experience walking down the middle of Broadway with no cars on the road and thousands of people just standing around. While I got home safe that day after about 8 hours, a ferry, bus and train ride, I can’t help but think about those who didn’t. My heart goes out to all of those people who lost loved ones ten years ago. We can honor those lost by never forgetting.

Quora has been exploding. There’s a ton of valuable content and high quality contributors on the site, but it’s definitely getting harder to find the best threads. On that note, here are some of my favorite threads across venture capital and startups. This is by no means an exhaustive list so feel free to add suggestions in the comments.

Venture Capital / Financing

• How do you run a good board meeting? – This is an invaluable topic for young VCs. Many VCs contributed to this topic including Mark Suster who nails it.
• What are the top qualities to look for in angel investors? – Great commentary by Reid Hoffman, several entrepreneurs and VCs.
• What are the best ways to manage relationships with VC contacts prior to fundraising? – Balanced thread from both VCs and entrepreneurs on how to best engage before you are fundraising.

Startups

• Two must read posts on startup failure: why and #1 reason.
• Among your lessons learned as a young entrepreneur, which are the greatest? – Good practical advice from PayPal founder Max Levchin.
• What is the perfect startup team? – A very important topic as you are getting your company off the ground. Comments from Bill Gross, Saul Klein and a few other valley veterans.
• How focused should a startup be on being acquired? – Jeff Clavier, Paul English from Kayak and others weigh in on how *not* to focus on acquisitions while building a company.
• How big a factor is luck in startup success? – Nice thoughts on luck and startup success from Jim Breyer, Marc Andreessen and many other entrepreneurs.
• What are the most common mistakes 1st time entrepreneurs make? – Long thread with great suggestions from many experienced entrepreneurs.

Company Stories

• How did you arrive at the decision to sell the Loudcloud business to EDS and become Opsware the software company? – Ben Horowitz discusses some of the reasons why they shifted their business model.
• Why did Wesabe shut down while Mint did so well? – Good perspective from early Mint employees on why they were successful.

High frequency trading and proprietary trading have received quite a bit of media coverage as of late between the recent unexplained market plunge and of course the mortgage meltdown. Not to mention, there is a cloud of looming regulation over the industry. The senate passed a bill on Thursday that among other things aims to limit proprietary trading in banks and create more transparency in derivatives trading. Despite all of this, there’s a ton of innovation going on in trading from technology startups. For this week’s post let’s take a look at two companies in the space:

First up, a startup with a rather unique model in foreign exchange (FX) trading. The company is called Currensee and is a social network for FX traders. No new funding announcement, but the company recently announced its one millionth trade and claims approximately 5,000 registered members with 100 platform supported brokers. Total trading volume has reached more than $30 billion. That’s quite impressive for a company that launched only 6 months ago, but those who know the FX market know that it is an extremely large, fast-growing market with daily volumes pegged between $3 and 4 trillion and is fiercely competitive (disclosure: my firm has two investments in FX).

So what is a social network for traders? According to the company’s website, the platform allows “like-minded traders to connect with each other and share unique ideas, insights and data based on the actual trading activity of the community. Traders can collaborate using live trade data and can share trades and positions with their trading friends in real-time.” In terms revenue model, I read somewhere that the company charges for subscription services for advanced analytics, generates revenue from introducing broker relationships and transaction fees from its marketplace.

Currensee has raised a total of $12.8M from North Bridge Venture Partners, Egan Managed Capital and Vernon & Park. StockTwits is another company in the space that’s gaining traction. If you believe in the convergence of the real-time web and retail investing these are two startups to keep an eye on.

Switching gears to the world of low latency trading, startup Redline Trading recently raised $7.45M from five undisclosed investors. Generally speaking, Redline provides low latency market data solutions for trading applications. The company’s platform is called InRush. According to the company’s website, “InRush is an accelerated ticker plant that simultaneously manages user-supplied, direct-connected equity, futures, and option exchange feeds.” In the world of high speed trading every millisecond you are behind the competition could cost millions — the actual value of a millisecond has been debated, but it highly depends on your investment strategy. Market data volumes are increasing fast and not showing signs of slowing down any time soon. Liquidity is fragmented. Not to mention, supporting high speed trading usually requires significant hardware and support expenditures. These factors bode well for startups in the space. At the same time, the space is not without its challenges including possible future margin compression and differentiation. There is no lack of competition either. For example, earlier this year ACTIV Financial closed a $25M round from Bessemer Venture Partners. A few other players include Thomson Reuters, NYSE (Wombat), Interactive Data and Exegy.

While there is a high degree of regulatory uncertainty surrounding the space, one thing is for sure and that’s high speed trading is here to stay.

That’s it for this week. I welcome any comments and suggestions.

I’m starting a new weekly series called FinTech Roundup that will be dedicated to discussing technology startups in and around Financial Services. The series will highlight recent investments, M&A and trends across Payments, Capital Markets (Trading, Securities, etc), Banking and other related sectors such as Real Estate and Insurance. Okay, let’s get to it.

Payments is the theme for this week. There has been a ton of activity lately in the space in everything from mobile to e-commerce to prepaid so let’s take a look at a few recent investments:

First up, a European startup called Klarna. Klarna was founded in 2005 and is based in Sweden. The company recently closed an investment from Sequoia Capital and Mike Mortiz will be joining the board (his 1st European company). Klarna is reportedly one of the biggest providers in Europe of in-store credit and invoice based payment solutions for e-commerce. The company offers buyers flexible payment options — allowing payments after receiving the merchandise (up to 14 days in some cases) and small initial payment amounts. The company reminds me of alternative payments provider Bill Me Later. Online payments is a huge market and even behemoth Paypal’s market share is relatively small. Europe is also a large growing market for card payments, estimated at 1/3 of the US. Definitely one to watch.

Corduro is a stealthy mobile payments startup that Google Ventures recently invested in. It appears that Corduro is a payments platform for small businesses that want to accept credit card payments on the go. The service offers everything from e-checks and bill pay to recurring payment support to a branded payment gateway. Payment processing is a notoriously competitive space with many large incumbents (e.g. FirstData, Chase) and extreme pricing pressure so it will be interesting to see how the company’s offering differentiates. It sounds like there is an Android play here and that might be the spark behind Google’s strategic interest. Other newer competitors include Verifone’s PAYware Mobile and the high-profile Square from Twitter’s Jack Dorsey.

Last up, mobile payments provider Zong. The company spun out from its European parent earlier this year and recently raised a $15M round led by Matrix Partners. Zong let’s you pay for things (virtual goods mainly) via direct billing to your mobile phone and credit/debit card. The customer convenience factor is quite strong. No registration, bank account, or credit card is required. It’s been rumored that Zong’s payment conversion rates for merchants are up to ten times greater than traditional checkout payment methods. The company has been around a few years and has very good traction with Facebook — Zong’s platform powers mobile payments for Facebook Credits. Zong isn’t the only company with this approach. Direct competitor Boku also raised a $25M round a few months ago from Index, DAG, Benchmark and Khosla Ventures. With the incredible growth of social networking and virtual goods, this race will definitely be one worth watching.

That’s it for this week. Please send in your comments and suggestions.

This past weekend Fred Wilson wrote a timely post on VC and systemic risk. Aside from the topic, one comment particularly struck an accord with me. He said:

I believe entrepreneurs will use technology to reinvent the way financial services are provided to consumers this decade.

I agree and here’s why. First, if anything, the crisis has taught us that our nation’s financial system is utterly broken. From real estate to insurance to credit cards to banking to Wall Street, no area has been immune. It all needs a radical makeover. Second, consumer pain is incredibly high. Take financial advice as one example. Do you have a financial advisor? Most people don’t. Chances are unless you have minimum level of investable assets say $50K or $100K you will have a tough time finding one or at least a good one. Most brokers will turn you away because you are an unprofitable customer. Companies like FiLife and Financial Engines have recognized this gap. Last, the market opportunity is enormous. There are many billion dollar market opportunities in the sector. Online payments alone is pegged at $600B and PayPal has less than a tenth of the market.

Change is coming, but I think it’s going to require major disruption. Historically, companies in the sector have seemed to follow the adage: “He who has the gold, makes the rules.” Maybe a bit of an exaggeration, but the general principle applies. Banks get your deposits so they decide on fees and interest and can do whatever they like with your money (e.g. lend it out at a higher interest than they pay you). Legacy business models were set up to protect revenue streams. Monopolies are rampant. Look at the investment banks and credit card companies. The list goes on and on.

With all that being said, I’m optimistic and believe now is great time to be a tech entrepreneur in financial services. Incumbents aren’t going to change any time soon and many have massive cost structures to maintain. Their cash cows have plenty of milk left (look at inter-dealer brokers). That’s opportunity and a significant advantage for nimble startups. It’s up to entrepreneurs to re-define the rules and how we think about our finances. While it’s impossible to predict the future, I can guarantee you this: it will look very different than it does today.

I’m dedicating a series to this topic and we’ll take a closer look at new business models and startups in Payments, Banking, Capital Markets (Trading, Wealth Management, etc) and others like Insurance or Real Estate. Stay tuned.

Google launched its new social experiment called Buzz yesterday. It has been labeled a Twitter and Foursquare killer by some, and lame and boring by others. Most of the launch was media hype, but it got me thinking about how startups must feel when they see new product announcements by Google. Google is one of the few companies that’s constantly acquiring (59 companies) and launching new products. So, what do you do if you are a startup and Google releases a product that goes after your core business?

This sounds silly, but first try not to freak out. It’s doubtful that Google is targeting your business specifically and it’s not a zero sum game. Now, if you are Twitter or Foursquare that’s a different story. Twitter in particular is an interesting case to look at. There are low technology barriers to entry in its market, but Twitter has significant demand competitive advantages (one of the 3 sustainable according to Greenwald) in the form of customer captivity and network effects. I came across recent research that put Twitter at the 1B tweets per month level, 16X growth over the prior year, in January 2010. That’s a great head start against Buzz, but with Google’s distribution engine it’s going to be worth watching how this plays out.

In general, startups should play to their strengths so here are a few things to think about:

Be nimble. Google is a large corporation with thousands of employees across the globe. With that size comes processes, procedures and other “big company-isms.” Some would argue Google is even on Microsoft’s path to creative destruction. As a startup, you don’t have the resources (e.g. R&D, sales/marketing) and associated cost structure that Google has. You are lean and mean. You can innovate at the drop of a dime and release new code many times in a single day. You can get customer feedback early and often. You can also change direction or pivot if you need to. That’s a huge advantage in itself. Big companies have an incredibly hard time shifting direction after sinking considerable time and money into something — trust me I know, I started my career off at one.

Intense focus. Last time I checked I didn’t find many companies with as grand a plan as Google’s — search, email, smb, maps, video, shopping, blogging and mobile. It’s incredibly hard to be number one in all of your markets when you have such a broad focus. Be the opposite of Google. Focus on your core business and be the best at what you do. Hopefully, your market is big enough to build a sustainable business. Build credibility in your niche and then expand.

Be disruptive. Google is a strong company because it has disruptive roots. It’s business model was incredibly disruptive. It had great core search technology, but didn’t create a new market or category. There were plenty of other search engines before Google. If you create a disruptive technology and/or business model you can compete with anyone. Disruption changes the rules of the game. Easier said than done, but aim for it.

What would you do?

TechCrunch posted an article this past weekend on the startup Blippy and how Amazon is insisting that the company stop collecting user purchase data and erase all data that was previously collected. The article got me thinking about our personal data streams, the implicit web and ownership. Many investors and technorati have previously blogged and talked about the rise of platforms that capture data based on our implicit actions on the web, so no need to rehash that here.

A question worth discussing is who owns your data stream. Wait a minute, don’t I own my tweets on Twitter, status updates on Facebook, photos on Flickr, emails on Gmail, bookmarks on Delicious and reviews on Yelp? Not necessarily and define “own”. Well, does the ownership lie with the user who generated the data, the company that captured it or someone else? If it’s the company that captured it, does the user have rights to the data and can the user share the data without the company’s permission? These are all important questions that can affect future implicit web innovation and I’m not sure we have a good answer to any of them.

In the case of Blippy, if users gave permission to collect their data wouldn’t that suffice for Amazon? Well actually no, probably not. I haven’t read Amazon’s terms of service, but I could almost guarantee data generated by users is property of the company. This is particularly true of companies with advertising based revenue models. Google’s success shows how valuable data can be. Google is actually an interesting case to take a closer look at. In their terms of service, the company claims all content created by you is your property and not the company’s. Technically, Google is licensing the content from you. So, I own the videos that I upload to YouTube and emails that I send with Gmail, but Google monetizes my content, doesn’t share the revenue and restricts access to my data or some of my data?

I don’t see a good solution to this problem any time soon. Many would argue that data ownership isn’t a problem; it’s a byproduct of the implicit web. I disagree. It is a problem and with the proliferation of mobile devices, rise of the real-time web and explosion of implicit user data the problem will be exacerbated in years to come. As a user I can accept if I don’t own my data and companies are making money from it. My issue is when the playing field is not level and incumbents create walled gardens. My vote is open and free access to ALL of my data. I may not get to own my data in the long run, but I don’t have to support companies that are not open. Let innovation happen.

Most VCs have a standard protocol for evaluating investment opportunities, but entrepreneurs vary greatly in their evaluation of VCs. Experienced entrepreneurs have been through the fund raising process before and know what “potholes” to avoid. There a few questions that entrepreneurs should ask of their potential VCs and some do, but most don’t. (Note: I use the term champion below to represent the partner or other investment professional at the VC firm who is sponsoring your investment.)

Here is my list of top questions that entrepreneurs might want to consider asking when raising capital:

1. What is the firm’s decision process? Every VC has its own process for evaluating investments, getting to a term sheet and getting a transaction closed. Believe it or not, some firms close a good number of their investments from opportunities junior folks drummed up (so much for avoiding Associates). The point is that it is important to get to know your potential VC’s investment process and your champion’s role in that process so you can measure progress towards closing the transaction.
2. Who will serve on the board of directors post-investment? This seems like an obvious question, but the answer is not always straightforward. Some firms may staff the board with a different partner than the one who championed the investment. It could depend on anything from geography to operational experience to the number of boards your champion serves on. In fact, some firms may even change out their board member based on the stage of the company. There is also turnover in the VC ranks and partners do leave firms.
3. How much of the VC’s current fund is invested? This question will give you an idea of how much money your potential VC has left after the investment in your company. Most entrepreneurs are so focused on the current fund raise that they don’t think about future rounds, which arguably are more important. The reality is that this fund raise probably won’t be your last. I’m in no way implying your VC won’t be able to support you in the future. There are plenty of ways VCs can handle these situations such as raising new funds, raising annex funds or making crossover investments. Regardless, this is a good piece of information to know particularly in the current environment where further VC consolidation is expected.
4. How many investments will the VC firm make this year and how many is your VC champion evaluating? The goal of this question is two fold. One, it gives you guidance on how many investments your potential VC as a firm does in a given year. Second, and the harder one to gauge, it gives you an idea of where your company lies in your champion’s priority stack. Does he or she have three other companies with signed term sheets right now? How many investments does the champion look to do this year and out of those how many has he or she already done? Typically, most partners only make 1-2 investments per year. I truly believe the “cream rises to the top” and if you have a strong company you’ll be able to raise capital regardless, but it’s always good to gain insight on your funding competition.
5. What are the barriers to close the transaction after the term sheet is signed? This is probably more relevant to late stage companies where a significant amount of due diligence is conducted by the VC. Signing a term and closing a transaction are two different things. Due diligence is typically conducted after a term sheet is signed and basically verifies everything you’ve told the VC up until then — technology/product, financials, management team, etc. If things don’t add up there is a chance you will be re-negotiating that term sheet. Some VCs do this and feel strongly about it and some don’t. Either way, it’s good to be aware of the possibility of it happening.
6. How has your VC champion specifically added value to his or her portfolio companies? The key here is specifics. Don’t accept high level explanations. VCs almost exclusively operate at a high level and are mostly good at selling (they raised the fund after all). Just get the facts and verify with the VC’s portfolio companies.
7. What does the VC like and dislike about your company and market opportunity? This might be a difficult question to ask, but it’s important to get candid feedback as early as possible. If there are challenges and concerns for your potential VC you need to address them upfront. Also, find out what the VC likes about your company and play to your strengths.

I’d love to hear from entrepreneurs on this one. Comments, thoughts and suggestions are welcome.

Boy has the financial services landscape changed over the past year. Collapse and utter failure are the first words that come to mind. AIG, Lehman, Merrill Lynch the list goes on and on. At the same time, a few survivors like Goldman are thriving in this environment and getting ready to payout record bonuses. What does this mean to entrepreneurs in the sector? Is FinTech dead? I don’t think so and here’s why:

Inefficiencies are rampant across the entire supply chain: Voice trading is prevalent in the OTC markets. Real-time risk management is almost non-existent. Real-time settlement/clearing is non-existent. Clients don’t understand and sometimes don’t know what securities they hold and their risk exposure. Managing skyrocketing market data volumes is getting tougher and tougher. I can go on and on, but you get the point.

Talent and risk have flip flopped: This is an important one and good for all startups in the NYC area. In the past, most (not all) good programmers went to work on Wall Street to make a lot of money, working for hedge funds and large financial services firms. Startups weren’t really on the radar. Maybe it was cultural here on the East Coast, but pay wasn’t comparable and the perceived risk was high (not saying I agree). That is changing. For one, there hasn’t been this much high quality technology talent available in quite a long time. Many of the large banks significantly cut their tech teams. Great programmers and software product folks with strong domain experience are available. These folks are getting hired by fast growing tech startups. Second, what I’ll call startup risk is down. I’m in no way implying startups are less risky than in the past, but merely pointing out that perceived risk is down. Lower salaries with equity stakes and options in exciting venture-backed startups are looking better and better. The staying power of large financial services firms is very much so in question.

Diverse Sectors: Capital Markets is one slice of the FinTech pie. There are vibrant opportunities in other sectors like Banking, Insurance and Real Estate (who would have thought). Most of these sectors have under invested in technology for many years and replacement cycles are coming up. The cost of maintaining legacy technology is increasing rapidly. There are also broad financial management plays like electronic billing and payments gaining traction in sectors like Government and Healthcare.

Regulation and Reform: We all know regulation is coming at some point. The specific impact is unknown, but with that comes opportunity for nimble, disruptive startups. A few areas that I’m particularly excited about are risk management, real-time analytics, OTC derivatives automation, SaaS, settlement/clearing, anti-fraud, new marketplaces and consumer financial services.

FinTech is far from dead. I believe the crisis has strengthened the need for technology, automation and transparency and am confident entrepreneurs are the ones who can change things for the better.

Cleantech has been one of the few bright spots in terms of venture capital investment in 2008. According to The Cleantech Group, a market research and financial services firm, Q3 brought a record-level of $2.6B invested across 158 companies located in North America, Europe, China and India. That’s a 37% increase over the same period last year, and a 17% increase over Q2.

While the category is growing, cleantech investment has been dominated by capital-intensive projects like clean power generation and biofuels. With the economic downturn in full effect and funding being harder to come by, there is a significant opportunity for companies at the intersection of software and cleantech. Software is attractive due to its capital efficiency and scalability. Here are a few categories and companies that I have run across:

	Energy Management – Customers can save hard dollars by adopting solutions that help better manage and monitor energy consumption. Energy efficiency in data centers, PC power management, efficient HVAC systems, lighting management, smart homes, demand response and facilities management are all key areas primed for growth. Companies in this segment include Verdiem, 1E, BigFix, EnergyHub, Adura, Positive Energy and Faronics.
	Carbon Management – Measuring, managing and analyzing CO2 emissions are increasingly garnering customer attention and budgets. Compliance is at the forefront of spurring demand, but not far behind are reputation risk, reduced costs through automation and climate change leadership. This segment is getting crowded fast with north of 20 companies, including Clear Standards, Planet Metrics, Carbonetworks, Carbonops, Supply Chain Consulting, Enviance and Greenstone Carbon Management.
	Trading – The carbon trading opportunity is pegged as the world’s largest potential market. Early this year, New Carbon Finance, a market research firm, predicted that the *US* carbon trading market could be worth $1 trillion by 2020. The market is still in its infancy and riddled with regulatory challenges, but there is significant opportunity across the trading spectrum in everything from risk management to electronic trading to liquidity providers. Companies include CarbonFlow, which is working on a platform to help automate carbon credit creation, broker Cantor Fitzgerald (CantorCO2e ) and Australia-based Tradeslot. We also can’t forget about the US-based exchanges CCX and The Green Exchange. Definitely a segment worth keeping an eye on.
	Solar – Most solar startups are either hardware or services-centric and include installers and manufacturers. As adoption increases there is an opportunity to help consumers and businesses qualify their properties, analyze financial impact, automate permit processes and monitor usage. Companies include Sungevity and Energy Matters. I came across a blog post on this topic that has a good list of companies. See here for details.
	Water Conservation – The United Nations estimates that by 2025, two-thirds of the world’s population will face periodic and often severe water shortages. Software can help monitor and curb water consumption and better manage irrigation and sprinkler systems. An example is California-based HydroPoint Data Systems who builds smart irrigation systems for consumers and small businesses.
	Waste Management & E-waste Recycling – Even with the economic downturn consumers are still spending dollars on new computers, TVs, cameras, cell phones, DVD players and rapidly throwing out old ones. E-waste is one of the fastest-growing waste categories. Consumers in the US throw out roughly 100M cell phones per year and 130K computers per day. With e-waste piling up, there is an opportunity for software to help consumers and large enterprises be smart about recycling, waste management, health & safety, compliance and asset recovery. Companies include Kashless, Soft-Pak, AllMax, Solution Foundry and CellForCash.

This list is by no means exhaustive. The category itself is nascent and it is yet to be determined if these companies can build sustainable businesses over the long haul. It is an exciting time to be a startup tasked with the added mission of making the planet a better place. Feel free to send over additional categories, suggestions and/or companies that I have missed.