MattMaroon.com

There’s been a lot of discussion lately about whether or not we’re in a yet another tech bubble. It’s a complicated question because what exactly is a bubble? Clearly we all agree it involves “irrational exuberance” but to what degree?

Mark Cuban says it’s not a bubble, it’s a pyramid scheme. I think his logic is flawed. It assumes that later investors are paying back the former, which is quite atypical. Most of the action these days is coming from seed and angel investors, who rarely get paid anything before an IPO or acquisition. If anything, convincing later investors to follow on only increases an early angel’s variance, as it raises the figure needed for an acquisition. The public markets, I think, aren’t going to be as easily fooled as last time around and I don’t think anyone’s counting on them being the suckers at the bottom of a pyramid.

Currently there isn’t much bubble-like activity in the public markets. In the first go around I was asked questions like “I just bought 1,000 shares of Cisco, what do they do?”. Back then anything even remotely computer-related had a stratospheric P/E ratio. Most publicly traded tech stocks are trading at reasonable levels now. Even Apple is at 20, compared to an S&P 500 average of 24. There are a couple exceptions (most notably Netflix) but on the whole tech stocks are not out of line with what we’re seeing in other industries.

There are a few big differences this time around. For one there are real revenues and even profits. Groupon will likely top $1 billion this year, and their margins are probably pretty high. Facebook’s may have topped $1 billion last year already. Zynga is pulling in somewhere in the 9 digits. Last time the problem wasn’t that people were giving a company a $50 billion valuation despite it only having $1 billion in revenue, it was that they were giving a multibillion dollar valuation to a company that might not even have a feasible business model. When it comes to P/E ratios, there’s a huge difference between fifty and infinity. Fifty means the company has a proven revenue stream and a high chance of increasing profits through improving operations or scale. Infinity means they might be trying to sell something nobody wants.

I have no doubt that startup valuations are overly high. It’s just to good of a fundraising climate for founders. Even though Y Combinator alone is pumping out 80+ startups a year, the relatively low capital needs have too many investors chasing after two few startups. Even if you assume there are another 80 startups worth funding in the valley every year (and we’re at the point where I’m not sure that’s a safe assumption anymore, at least at the angel level) that’s still not that many opportunities to do an early deal with a team of founders.

So what’s going to happen in the long term? Well, I expect investors are going to see a lot of middling returns. This time around companies, with a few exceptions, aren’t going to crash and burn like last. Even Twitter will probably find a way to make decent revenue. The amount of money that can be made selling ads alone is now substantial thanks to targeting. During the original bubble products like AdSense and virtual goods and freemium services weren’t yet widely understood, and if they had been I think we would have at least seen fewer wipeouts. People know a lot more about making money on the net now than they did a decade ago and that will help a lot when the inevitable correction comes.

Paul Graham wrote an article not too far back called What Startups Are Really Like that mentioned a number of things the people he had funded were surprised to learn over the years. Lots of good stuff there, and I wholeheartedly agree with most. (Especially #12, It’s Hard to Get Users. You grow up hearing that if you build a better mousetrap, the world will beat a path to your door. That, it turns out, is sadly untrue, as the fact that Apple spending a few hundred million dollars a year marketing the iPod proves empirically. In fact I think that if I were running one of the many startup funding groups using Y Combinator’s model, I’d start by putting together a team of people with experience in user acquisition to run it. That would be about the only way to compete.)

I’ve recently come to realize there’s one thing I’d add to the list, which is that a startup is hard when it’s not yet succeeding (either because it’s too early or it’s just struggling) and then once you start doing well, it gets even harder. That’s unintuitive I think, and if you’d have told me that when my startup was struggling I might not have believed it. The hard part is transitioning.

When you first start off, it’s you and one or two other people and you’re doing everything. All of the high-level work. All of the grunt work. Everything in between. You’re a lawyer, accountant, designer, programmer, customer support person, and whatever else you need that day. You hopefully communicate well with your cofounders in order to divide up labor, and then you each go out and do everything that needs to be done because there isn’t anyone else to do it.

However if you think about Google, you’ll realize quickly that Larry and Sergey aren’t doing that. I’m not sure what exactly they do (though I’ll bet they do a lot of whatever it is) but you can be pretty sure they aren’t trying to tweak the colors on the main page or iterate the Page Rank algorithm anymore. In fact even at a startup of 50 people, that’s clearly not going to fly.

So among software companies that succeed, the founders probably start off doing one thing and end up doing something else. I can’t say for sure what the end-point is like because I haven’t gotten there yet, though I promise to share if I do. But I can tell you what comes in that transitional period right after the early stages and it’s pretty hard.

At first you’re working part-time on hiring (probably a totally new skill set for you) and the rest of the time you’re still getting things done. Then you hire a couple people, and you’re working on hiring, getting things done, and managing the people you hired (another new skill set, and one that often does not come easily to people who get things done well themselves) to make sure they’re not only getting things done, and done well, but getting the most things done well that they possibly can.

That in and of itself, when it comes to programming, business, and other mainly mental tasks, is a chore so onerous that many books have been written about it. In fact large businesses have multiple layers of people in their org chart dedicated entirely to that, but you’ve got to do that yourself and hire new people (because the work keeps on piling up) and keep the servers running, all at the same time.

So you keep on trying to juggle the three but you realize more and more that you just can’t do it. One or two of them get done well, and one or two of them get totally neglected, and its almost certainly the new and hard tasks like management that get pushed to the side.

Then maybe you wake up one day to find that when you were hiring, you hired people who didn’t have the same skill sets as you because you were hiring them to compliment you. You were figuring you’d keep doing what you’d been doing, and they’d do these other new tasks. But now you really can’t do what you’ve done for the last couple years because you have other responsibilities and you need new people to step up and do what you did, and you maybe don’t have them because that wasn’t what you were hiring for.

Even if not though, you’re still in a pretty tough spot because your natural inclination is to minimize the other crap and keep getting things done. That’s what got you where you are, and you’re in a good place, so you tend to keep on doing it. You’ve spent months or maybe even years doing what needed to be done when it needed to be done but now you’ve got to not only trust the people you hired (the end results of the hiring process you totally pulled out of your ass because you had no experience hiring and maybe even had no experience being hired before) to get things done when needed, but also monitor how they do it and help them do it better.

The next step, which is where we’re getting to now, is where you transition entirely to managing and hiring, and your employees get everything done. This is a letting go process, I imagine, much like sending your kids off to college, except in this case if your kids party too much and fail Calc II you just lost the business you spent years building. In business, though, you adopted your children and can send them right back to the shelter at any point, so its your fault if they do not succeed, which doesn’t make it easier when you’re nervously trying to determine whether or not to write up that job offer letter or can the employee who might be underperforming.

And then after that I suppose you’re hiring and promoting other people to do the hiring and promoting, and focusing on higher-level stuff. And after that I guess you’re sitting next to your Gulfstream V on a beach acquiring a taste for Mai Tais or something, who knows.

But during the ugly duckling phase, where you’re not quite a General yet but not quite a Private First Class anymore, transitioning is extremely tough. It’s a great problem to have, but it’s perhaps the most stressful thing you’ll deal with in the early life of a startup.

TechCrunch wrote an article this weekend entitled Scamville: The Social Gaming Ecosystem of Hell that’s stirred up a lot of controversy, and even some changes, in the social gaming industry. This is an area I know a little something about so I thought I’d comment.

Arrington’s not entirely off-base here, but he’s not entirely on either. For one, he’s probably off by an order of magnitude as to how much of the money flowing through these platforms comes from scams. In our time running games, we’ve generally seen direct payments make up somewhere between 50-60% of total revenues. That’s counting banner ads (which are low, maybe 5%) and offers. This is pretty typical from what I’ve gathered in talking to other developers.

Of the offers, most of the money comes in from the legitimate pay ones like Netflix and Blockbuster (the two biggest), Free Credit Reports, Credit Cards, DirectTV, Gamefly, etc. Customers may be scamming those a bit, but that will just cause them to reduce payouts a proportional amount, ensuring developers get paid about the same regardless.

And then of the free offers, many are legitimate, albeit very low-paying. There definitely are some that will get you on the hook for $10 per month on your cell-phone bill if you’re not careful, but there aren’t that many of them and they haven’t paid out excessively well for months now, so as an overall percentage of platform revenues they’re not very significant. Trust me, there aren’t many offers me and my coworkers have not tried, and only once has one of us fallen for that. I’ve seen a couple pop up myself but was smart enough not to receive a code in a text message and then type it in, or to give a real phone number.

Mike also seems to be confused about who does what in the whole ecosystem. He says “Game developers, desperate to monetize, then search for ever more questionable offers to make up the difference.” Game developers don’t ever search out offers as far as I know. Rumor has it that one big developer is testing their own offer platform, but that’s the only case of it I’ve heard of.

Offer providers search for new and better offers, game developers simply display an iframe. And offer providers, like any sane business, don’t look to replace revenue, they look to maximize. They’re not like “hey Netflix dropped from $25 CPA to $20 CPA, we better find something scammy that’s $25.” They simply look for what pays the most and put that at the top at all times. It’s a state-based effect, and having Netflix’s rate change doesn’t make them any more or less hungry to find other high-performance offers.

“And recent moves by Facebook to shut down application spam only make the problem worse in some way – game developers have to spend more money on advertisers to get users now that the viral channels are shut down. That means the games have to monetize even better. Which means more scams.”

Yes and no. Yes the new changes may impact virality, which may in turn drive Facebook’s ad sales, which as I mentioned in my last post is probably not an unintended consequence. But no amount of ringtone hucksters are going to make up for that. The new platform will be all about engagement. Game developers will strive to get higher RPUs not by doubling their revenue from adding more bullshit PC Doctor DVDs, which aren’t doing that much for us anyway, but by making games that customers want to play more frequently for longer. Also new Facebook ad rules (along with Arrington’s post)have prompted many offer providers to remove hundreds of low quality ads.

On the other hand, I agree with Arrington in that the number of scammy free offers is still far too high, in that it is not zero. We personally use two offer providers. One of them (Peanut Labs) I use largely because they have the most reliable free offers, and scams are almost nonexistent. The other one allows me to block offers I don’t like, and I do this whenever we get complaints about specific ones. That’s not easy because often the customer doesn’t even remember the name of the offer that sucked them in, but I do my best to hunt them down and make sure they’re never seen on our games again.

We as game developers hate the idea of someone scamming our customers. Even discounting the ethical issues, which we do not, it’s just plain not good for us. The scammy offers are a low percentage of revenue, but a high percentage of support requests, and are probably why a lot of people quit playing our games, and therefore quit paying us money. The math just doesn’t work out. Even if we really didn’t care if our customers got ripped off (which they always blame us for, by the way, even to the point of threatening lawsuits) it still just wouldn’t make sense on our part to knowingly sponsor these.

Since my company, Blue Frog Gaming, shifted focus to developing Facebook apps nearly a year ago, we’ve seen a lot of changes to the platform. Some of them have probably been for the better, some for the worse, and one in particular has been disastrous: the rise of gifting. In the last few months it has fundamentally broken the platform.

In the early days of the Facebook platform there arose a bit of a spam problem. Developers incentivized customers to send invites to their friends, often even paying them in-app currency to do so. It quickly became obvious that apps employing such tactics could grow to millions of users almost overnight and, in the process, create tremendous volumes of invites that hampered the Facebook user’s experience.

Facebook reacted by doing a couple things. First they banned rewarding users for sending invites (or using other similar platform integration points) and they limited the amount of invites a user could send from any one app to 20 per day. The limit made it impossible to spam your entire list in just a couple clicks and the new incentive rules made users much less apt to spam over time. The idea was that if people were so constricted, and rewarded only when their friends actually signed up rather than when they sent the invite, people would be more considerate, invite only friends who might actually be interested, and the number of unwanted invites being sent out would decrease dramatically.

Those changes helped, but still they wanted to do better, so they later changed the allocations such that the “better” apps got more invites per day (up to 60) and the worst offenders were choked off entirely. Invites are the lifeblood of almost all Facebook apps, so it worked. That seemed to be an improvement until a few months ago when developers figured out how to game the system.

The problem is in how Facebook determines which apps are “better”. They do that mainly by looking at the app’s invite acceptance rate, as well as the rate at which those invites are blocked or ignored. An app’s allocations are based on how their rates compare to the median. When we first started developing about a year ago, the median hovered somewhere around 20-25%.

This method is, it turns out, easily gamed. The original solution, used by Mob Wars and the like, was to create in-game “buddies” that come from an invite and give you in-game benefits. Want to run a job in Mob Wars? You’re only allowed to if you have enough friends in your mob. Want to attack people? Your success in battle will be almost entirely dependent on your mob size. You may need 20 buddies to do a mid-level job and 500 to attack another player with any shot of success. At some point the buddy requirements get so high that the only realistic way to get them is to send buddy invites (via Facebook invites) to large numbers of people who already have the app, which you found on some large “Add Me” lists.

This of course boosted Mob Wars’s invite acceptance rate. When you install the app, you might invite your real friends for a week until you run out. Let’s say you send 100 invites to actual friends, and 10% sign up. Not bad, but you need 20 to do that next job. So you join an add-me list.

Next thing you know you’ve got 400 new friends, all of whom were on the list, and almost all of whom are sure to accept your invite request. So you invite them over the next couple weeks and they almost all accept. Despite the fact that only 10 out of the 100 new people you sent an invite accepted (not a particularly high rate) your total invites were accepted by 400 out of 500, making for an average of 80%. The acceptance rate didn’t go up because the developers made the game better, they just hacked the platform to make sure the people who already used it sent and accepted more invites.

This still wasn’t that big of a problem because most people never got that far, the needed number of friends wasn’t too high, and the active players really didn’t need to send out the full 20 invites per day for very long. It pushed the median invite acceptance rate up as RPGs grew, but not ridiculously so. Then came gifts and the rise of Farm Town.

As far as I can tell, in-game gifting as a platform hack was first figured out by MyFarm, and then later put to spectacular use by Farm Town. The idea is to have one app send many invites to people who play the game every day for as long as they play the game. Combine this with an engaging game and you’ve got an invite acceptance machine.

When you first log into Farm Town, you are taken to the gifting screen, where you can easily choose an item (such as a pig or an orange tree) and then send it to all of your friends. Each gift is a Facebook Invite that has to be accepted in Facebook (not in the Farm Town app) from your requests page. So you click the accept button, go to the app, are given the gift, then have to hit the back button and do it again for every gift you have.

Now just about everyone who plays the game is sending out the full amount of gifts per day. And what happens is that their friends who play accept nearly 100% of them. The ones who don’t click ignore once, and the ones who do click accept 100 times. As a result, the median invite rate for the entire platform has since shot to near 60%, and it isn’t because spam has been reduced, it’s because it’s been increased but the non-spam invites have been increased many times more.

Imagine if your email provider, instead of blocking spam, somehow made you receive twice as much of it but then somehow made half of their customers (of which you may or may not be one) receive 100 times as much non-spam email. Your overall user experience suffers, and in fact even the people who are getting more non-spam are suffering, but the overall % of emails that are spam just decreased by a wide margin.

That’s exactly what has happened on Facebook. Even the people who play the farm games don’t want that many invites. They want the gifts, and that’s fine, but surely nobody wants to log into Facebook, see 20 Farm Town gift invites, and have to accept them one at a time by clicking accept, loading the app, then clicking back to the requests page. It’s slow and painful. From a usability standpoint gifts should be given in-game and not even require acceptance (who would ever not want a free chicken?) but the developers get a tremendous advantage from the acceptance rate so the user has to suffer in order to help them game the platform.

Another problem this creates is that you simply cannot have a top app without gifting, no matter how nonsensical its existence in your game is, or how much it detracts from the user experience or game mechanics. Your game could be the most engaging on the platform, but without a solid gifting system your invites are going to get choked off. Take a look at Restaurant City, which is maybe the most engaging game ever launched on the platform. It’s also a great platform citizen, attempting to get new users largely by making a game so engaging people want to tell their friends about it, rather than by giving them large rewards for spamming friends.

Restaurant City’s invites per day are down to 12 and it’s a Verified App. Being Verified means it gets boosted 2 buckets in the allocations. To put that another way, if it were not Verified it would be getting 6 per day.

Scroll down through the top games on the Facebook platform and install them all, as I have, and you’ll see a trend appear very quickly. Almost all of them dump you immediately onto a gifts page every time you log in. This is no coincidence. It’s because it’s the only way to keep reasonable allocations.

The solution is simple: only count requests sent to someone for the first time when determining the median. Or better yet, switch to a better metric entirely like engagement. Facebook knows how much time my users spend on my apps (or at least they could if they so desired). Why not base my allocations on that rather than forcing me to beg my customers to send a dozen gifts with every login?

I wrote 90% of this post over a month ago, and was prompted to write it today by the fact that the platform is probably changing in about an hour and a half. I’ll admit, I’m somewhat dreading it. It’s been a long time since Facebook made a change that made me think more highly about developing on their platform, and with each knock to developers’ allocations they’re going to push more and more people off. I worry that if trends continue, at some point we’ll be left with just Playfish making new games and Zynga cloning them and then marketing them to the top. Our new game on Facebook is doing very well, and we’re already thinking about how to parlay that into a standalone web success. I know we’re not the only app developers thinking along those lines these days, and Facebook should take that seriously, if for no other reason than to give Zynga someone’s games to copy.

I’ve mentioned previously that when you’re developing on somebody else’s platform “you have to be ever-mindful of the fact that you’re playing in somebody else’s back yard”. Never has this been more apparent than when Facebook announced their new Verified Apps program going live yesterday. Apparently one of the dangers of working on someone else’s platform is outright blackmail.

Facebook really couldn’t have done a better job with this rollout, if their intention was to piss off developers. Basically here’s the way it happened. Many months ago, they announced their intention to create a Verified Apps program, wherein app developers would submit their applications for verification. We were told we’d receive various benefits, though they were murky. The only thing clear was the cost: $375 per year.

Registrations opened about 6 months ago, at which point many people paid their fee, and until today little more was said. And almost immediately app developers’ allocations (basically the amount of things Facebook lets your app do) started dropping. Apps like ours, which maintained a relatively constant invite acceptance rate, and even lowered the amount of spam reports and the like, went from being able to send out 20 invites per user per day to 16, then to 12, and sometimes even as low as 8.

This is more significant than it may sound. Many apps on Facebook spread primarily through invites, and senders seem to act in an almost binary manner, either sending out 0 on a given day, or sending out whatever the maximum allowable number is. So knocking an app from 20 invites per day down to 12 might not be exactly a 40% reduction, but it’s not very far off. Facebook was slowly but steadily choking off apps.

Games, which are the only apps on Facebook with any lasting value, were among the ones hardest hit. Meanwhile the new home page rewarded other apps that spread mainly through wall posts and feed messaging. Facebook made the already easy-to-ignore app invites even less noticeable, and hammered users with a barrage of “What Golden Girl Are You?” type garbage. Junky quiz apps that before struggled to survive rocketed to the top of the directory, while a lot of the mid-level (but growing) games saw their traffic turn into an upside down V.

With a little creativity, many of us have been able to turn it around, at least a little, but for most game developers the platform’s glory days are over, or so it seemed. But now you can get them back for the low, low price of $375! Facebook’s Verified Apps program seems to do little of any use except bump your allocations back to where they were before it was ever announced.

On one hand, I’m not as angry about it as I might sound. It’s their platform, why should they not do what they can to monetize it? $375 per year is a joke for a successful app. It’s a small fraction of what even a mid-level app makes in a day there. It’s clear that their ad platform is never going to amount to anything, so even though our apps give them a few million extra impressions per day, that’s not going to pay the bills.

On the other hand, it’s just shady how it was rolled out. It feels too much like extortion. Sell me on the benefits of Verified Apps by making it a good program. I feel like someone smashed me on the head with a baseball bat and then said “hey, I’m a doctor, you better pay me to check and see if you have a concussion.”

But, once again, it’s their house and it’s their rules, so there’s little I can do but pay my $375 and just be thankful. It could be worse, they could be Apple.

I saw this article today about platforms. While I agree with some of its points, the overall conclusion that "Building a business exclusively on top of another service is irresponsible and naïve." is flat out wrong. I always laugh when I hear stuff like that and think "tell it to the guy who made Mob Wars." He’s making (irresponsibly and naively I guess) millions per year exclusively on top of another service.

Being in the Facebook App business now, I sort of know what the author is talking about. You do have to be ever-mindful of the fact that you’re playing in somebody else’s back yard. You’re playing by their rules, and are totally at their mercy.

Still, it can be worth it because there are a few mitigating factors. For one, their interest and yours are usually at least somewhat aligned. Facebook’s success is in no small part due to their platform. It’s expanded the utility of what would otherwise be little more than a place to cyberstalk people (which granted, is popular in its own right) into what is now a place to cyberstalk people and play games. It’s doubled in usefulness.

An application platform doesn’t want to run off all of its developers. Even though they sometimes seem capricious and arbitrary, you can be reasonably certain they’re not going to screw you for no good reason. They can, of course, or they can screw you for a good reason, so it’s a risk factor you certainly should be mindful of. But it’s not as bad as it sounds.

And that risk factor, in the case of some of the more popular platforms, is made up for overwhelmingly by the platform itself. With Facebook or Myspace, you have the ability to grow rapidly and virally, much more easily than you would on the net. Our most recent game, Football Tycoon, has grown to over 50,000 users in about two months, and is gaining a significant chunk of new ones each day. That’s something that just wouldn’t have been doable as a standalone website due to the lack of a compelling invite system.

An iPhone app can take advantage of the app store’s distribution network to sell or give away millions of copies in no time. A Twitter app can leverage the intense engagement users have with the service to quickly build a product that thousands of people will love.

It’s just a matter of risk and reward. You’re taking the risk of your overlord making changes that aversely affect you, but you’re gaining the reward of virality, distribution, or engagement. It’s a tradeoff to be sure, but not one that isn’t sometimes worth making, or that is patently irresponsible or naïve, so long as you’re mindful of it.

One of the things every startup worries about is getting plugged on TechCrunch. I know we did. Will they cover us? Are we ready for the exposure yet? Can our server handle the traffic? We had the first one covered since we were part of Y Combinator, but the rest were concerns.

Everyone wants that TechCrunch bump, and wants it to go smoothly, but what nobody told us was all of the crap that happens as a result of the coverage. I don’t blame any of it on TechCrunch, it’s just a side-effect of their success. Once you get listed on their site, if you have contact information available you’re bombarded by a stream of annoying bullshit.

The worst was a Dell salesman. I think his name was Matthew Lamm. He emailed pitching hardware, which would have been fine if that were the end of it. We weren’t interested in buying their stuff and told them so. Then he put me on some sort of list, to which he sent out every out of office notification. Every time there was a holiday I got email notifications about his being away. A salesman I don’t know whose product I was not interested in buying was telling me he was away for Christmas. It was just frequent enough to annoy me, but not quite enough for me to take time out of a busy day to filter them out. Worse yet, I finally sent him a terse email, got off the list, only to wind up back on it when he left Dell and a new salesman took over his accounts.

As annoying as that was, though, at least he had some sort of email software that sent them all individually. A few of the CrunchLeeches (what I call them since they feed off of the blood of startups covered) just send out one giant email with everyone CC’ed, meaning that everyone who replies is emailing you too. Limelight Networks is the most recent offender. (I’ve had this problem with RockYou too but not due to TechCrunch.) Just this week I got a Season’s Greetings from Limelight, which I think is a CDN (way to pitch static file hosting services to a fantasy sports startup there buddy) and surely enough in came the replies. I am willing to sell the list of a few dozen emails found therein to any competitor who wants them. It’s not very nice, but then neither is Limelight blasting my email to a bunch of people I don’t know or care about, and adding more garbage to the giant pile of emails that greets me every afternoon when I wake up.

Then there are the slightly less odious but many times more voluminous headhunters. Every single one in the entire country at this point has cold-emailed me to tell me about a candidate they have who would be great for us. Of course, we use Ruby on Rails and Flash, while all of the candidates are .Net or Java guys. I suppose Rails and Flash devs are too in-demand at the moment to waste time with headhunters, but still, it would be nice if they at least tried to match up technologies, rather than just spamming me every programmer they get who likes sports. Or, you know, didn’t bother me at all.

All of which is not to say that it’s not worth being on TechCrunch. It is, especially if you’re the right kind of startup. It’s just that your junk folder is going to be bursting afterward.

Someone asked me recently what the most interesting thing I’ve learned from doing a startup was. I couldn’t think of one specifically that stood out, but here are my top two.

#1: It’s probably easier to raise $5 million in funding than it is $500,000.

That’s not what you’d expect. I would have guessed difficulty in raising funds would be linear, but it isn’t.

The primary reason is that there are two typical investors: angels and VCs. Angels are just wealthy people who typically sums of between $10 and $100k, with $50k probably being a good average.

VCs are institutional investors who raise funds often totaling in the hundreds of millions, and are paid in such a way that they are incentivized to deploy the entire amount into investments. So, VCs like to make bigger investments because then they can make fewer. That means less due diligence, fewer board meetings, etc.

Not many VCs make it their business to invest amounts of money that small. It happens, but it’s often just something they do to lock up right of first refusal on future rounds. A lot of companies would much rather raise $500k than $5m, so they’ll do it if they like you enough, but it’s relatively uncommon.

Raising $500k from angels means convincing somewhere between 5 and 20 different people, all with their own habits and goals, to invest in you at the same valuation and terms. That happens too actually, even outside of the few syndicates that exist, but again, it’s hard to pull off.

#2 Our patent system is deeply flawed, but it works pretty damn well in spite of itself.

Before starting up, my view of patents was pretty simple. You invent something, submit a patent, and if approved you’ve now earned the right to make it exclusively. Sounds easy, right?

In reality it’s anything but. An actual patent does little beyond give you the basis with which to sue someone. And when you do, you’re not on very firm footing, as patents are overturned possibly more often than not.

It turns out they’re anything but ironclad rights to a monopoly on your invention. They’re really just ammo. They seem to function, in the real world, much the way nuclear weapons did during the Cold War, to create a sort of mutually assured destruction with each company’s arsenal preventing their opposition from pushing the launch button. The legal fees involved most often wouldn’t be worth it for either party.

Also there are the patent trolls (more akin to terrorists with roadside IEDs in the war analogy) which I think are an integral part of a working system. Most people dislike them (hence the name) but they serve a valuable purpose, which is to create a secondary market for IP, further incentivizing innovation.

Trolls don’t just pull patents out of their ass and start suing. They buy their IP from companies, often ones in bankruptcy, which gives a little back to investors who might otherwise have lost it all, encouraging them to try again. Or they buy them directly from inventors, freeing people to create without having to worry about executing their innovations as a business. A lot of brilliant inventors don’t have the slightest interest in the process of manufacturing a product or getting it onto store shelves.

Certainly the trolls go too far sometimes, but on the whole it’s a respectable business model, and one that I think encourages, rather than stifles, technological progress.

(Note that I’m not necessarily talking about software patents here, which I think are the biggest blight on the system, just patents in general.)

When we first started writing the Football Survivor Pool app for Facebook, we looked into the various football apps in their directory to see if there was already anything like it. Interestingly, I found that despite Facebook’s sizeable American user base, almost everything I came across with the term in it was soccer. Real football was nowhere to be found.

Our Survivor app did pretty well for the short time it was open for registration. The nature of a survivor pool requires it to not be open to new members indefinitely, and since we had the idea so late in the summer we were only able to register people for a couple weeks. Still, we were happy with the response.

We quickly realized that Survivor Pool had somewhat limited viral potential. We decided to give away the same prize to the person who referred the winner as we were to the winner himself, so that definitely incentivized people to tell their friends. But, they pretty much installed the app, made their pick for the first week, invited some friends once, and that was it. There wasn’t much reason for them to come back to the app on a daily basis, and by the time they had to come back to it, registrations had closed.

Still, we were growing at a pretty decent clip, since giving away a free 50″ plasma screen seemed to get a higher than average acceptance rate. We also used feed items to remind people to invite a bit. Overall it was well worth the effort, and we’ll probably expand on that app in the future.

Earlier in the summer I had started playing Mob Wars, which is a tremendously popular social game, and I’d become rather enamored of the genre. It reminded me of some of the elements of RTS and RPG games, but at a slower, more casual pace. It kept me coming back a few times a day, each for a relatively short amount of time. So I was able to keep up with the game, enjoy it, and yet not waste hours a day. My time is valuable to me, as is true of most people, so I really appreciated that.

I became convinced (and still am) that this is one of the next big things in gaming. Mob Wars isn’t the last word though. It’s a great start, and a great app, but it’s still early. It’s more Karate Champ than Street Fighter 2.

So when, in my search for football apps, I stumbled across a soccer-based social game called Premier Football, I was pretty excited. Even when I found out that by football they meant soccer, I thought a sports-based social game was a pretty sweet idea. So despite the mediocre reviews, I signed up.

What I found was a very good idea with very poor execution. The app was slow and buggy. The UI was confusing at best, in many places borderline unusable. The graphic design made me throw up in my mouth a little.

Still, the app had a couple million installs and a couple hundred thousand monthly active users, so I pushed on to find out why. And I did. Buried deep down below all the garbage were a couple pretty nifty ideas.

So I took them and ran with them, mixed in some concepts from other social games, changed the sport to real football (or as Euros call it, American football) and formulated what I felt was a great game. With a whole lot of coding on Chad’s part, and some help with the mechanics and UI from both of my cofounders and a few beta testers, we’ve got what we think is a pretty spectacular early version. Introducing Football Franchise.

The idea is pretty simple. You have a football team and your goal is to make it the best. You can train your players (and name them after friends which is more fun than it sounds like) and play matches against other teams. With the money you make from those, you train more players, and buy certain upgrades and licensing deals that make you even more money. As your team wins games you gain experience and level up, unlocking new upgrades.

From the response we’ve gotten from early beta testers and users, I think this one might just be a hit. I look forward to improving it over time. Game design is something I’m fairly new to, but I’ve been playing them avidly for as long as I can remember, even one professionally for a few years, so I think I can learn it.

Give it a shot and let me know what you think. I’d love to hear how I could make it better.