RRE Blog

Enterprise NYC

I recently read the article “17 Enterprise Startups to Bet Your Career On” http://read.bi/IIvpkh in Business Insider. As a longtime enterprise investor, I was happy to see more attention being paid to this major area of venture, but a little disappointed in one dimension of the article. For the last couple of years we’ve been paying an increasingly large share of attention to the enterprise and companies who sell to them.

While much of our industry has been quite focused on social media or local deals, I noticed what is happening in the enterprise markets. I look at some of the deals we did almost a decade ago and have seen what has happened to their valuation. Concur is trading at over $3 billion. Broadsoft went public last year and has been trading around the billion dollar mark. Proofpoint and Vocera just went public. Taleo was acquired for $1.9 billion by Oracle. These aren’t the world’s sexiest businesses (although Vocera’s product is reminiscent of Star Trek) but they make money and have been great investments.

Why are the large bulk of the enterprise startups highlighted in the article based in Silicon Valley? New York has become a startup phenomenon for a variety of reasons, all of which are applicable to enterprise startups.

Closer to Customers
If you are selling an enterprise solution to the Fortune 500, whether it is ERP, CRM or Security, . New York has 45 of the Fortune 500 companies located here, more than twice the number of our closest competitor, Houston. As a point of reference, San Francisco has 8. Being close to your customer means understanding what their needs are and, for the first few implementations, being available to fix and adjust the software.

Experienced CEOs Available
A big stumbling block used to be the number of battle tested startup CEOs available. After more than a decade of Silicon Alley startups, NY has a plethora of excellent startup CEO’s, many of whom have made it through two or more startup experiences. In addition, we also have IBM, CA and a number of other employers who have been known to sell a piece of enterprise software.

Tech Talent Available
Not a problem. With hundreds of thousands of programmers from Google, Microsoft, Facebook, Ebay plus all of the talent from the startups, Techstars, Betaworks, and the other incubators/accelerators, an enterprise startup is in good shape. In addition Columbia Engineering is doing a great job and Roosevelt Island will soon be filled up with Cornell/Technion students. There will be plenty to go around.

Cloud
Any old issues of not enough servers or hardware has been taken care of by the cloud. Nothing more needs to be said.

VC Available
It used to be that people started up companies in the valley because that is where the VC’s were. Not anymore. USV, IA, DFJ, Firstmark; a bunch of the Boston guys (Matrix, Polaris, Flybridge) and some from the valley (Accel and KP) are all here. We at RRE have always been here. And are investing aggressively out of our new fund. We welcome enterprise startups. I am happy to announce right here, if you are a NYC enterprise company, please send me the deal.

I am looking at some of the newest deals we have done in our Fund V. A bunch of them are selling to enterprises and growing rapidly, whether it’s Whiptail and solid state storage arrays, Sailthru’s personalized marketing technology or Yieldbot’s big data ad platform. So, let’s get Facebook public already. Then let’s see the IPO’s of Workday and Cloudera come out. Time to get back to business, enterprise business.

I Should Write More

I should write more often. I like doing it. It helps me crystalize my thoughts both about the venture and startup industry and the subject matter that permeates each work day. When I first started at RRE one of the insights I had (now pretty obvious) was that effective communication with a readership was actually a critically important bits of connective tissue that have been developed in connection with the opening up of the venture capital industry. Long before I invested for a living I was reading David Hornik’s blog and Bill Gurley’s, eventually I added Fred’s and Brad’s. When I was an entrepreneur and later while I was in business school these guys taught me the venture industry even though I’d never met most of them.

Yet as important as the conveyance of information is (not to assert that I have a ton of information that can’t be easily accessed through other sources, including the individuals listed above), I think there’s an even more important reason to keep writing and letting people know what one is thinking. Ours has become a rapid-paced and ultra-competitive business. It wasn’t always so. In some prior eras the basic modality of startup finance involved lengthy courtship periods between startups and investors and often by the time a financing is consummated there’d be a strong relationship in place. In today’s world of “looks neat, here’s a check”, a method that is widely lauded in some corners of the ecosystem, this simply isn’t happening.

Writing and sharing thoughts is more than just information – it’s a durable and long-standing expression of values that can be quickly accessed and assessed. If I meet a company and the process is moving swiftly, it’s of enormous help if both the founder(s) and I maintain a creative, substantive and active written presence on the web. Being able to see how someone thinks about events, trends, new products and ideas – all of that enables a richer and more nuanced view than what you can get in a few pitch-oriented meetings. If a founder is pitching me I know I’m getting very particular facet of that person. Similarly if a financing is competitive the founder knows he’s getting a facet of me. There are a lot of reasons for founders and investors to choose one another – I know that shared values and vision and core personality grain are all important reasons why I choose to back the founders I work with and why they chose me.

Over the past 30 days I’ve watched my wife go through a 30-day “challenge” of writing something public every day (here). Now – she’s a much better writer than I am, but it has inspired me to recommit to sharing such thoughts as I have with those who may choose to read them and hopefully share their thoughts back. There’s so much amazing stuff going on right now. The whole ecosystem (startups, the internet, NYC, down to my little family of three) is in the crucible. There is no shortage of things for us to talk about.

The iPad is the "First Screen"

Yesterday a couple of my colleagues and I met with a senior executive at one of the world’s biggest media companies to talk about what we’re seeing in the world and a few of our companies. As part of the general level setting she asked how we were seeing the development of the “second screen” as a media consumption device. And after pausing for a beat to make sure the answer wasn’t going to be obnoxious, I responded that of course we think it’s a hugely important media consumption device – that television has been important for decades and will continue to be important.

The release of the new iPad yesterday is a good opportunity to pause and pull back and reconsider how media is making its way into the living room (and into other rooms of the house). If you polled the average household in 1952, 1962, 1972, 1982 or 1992 what you’d have found is essentially the same thing – people got their media on a box with a CRT in it. The delivery mechanism shifted over time from OTA to cable or a dish, the picture got colorful, but for the most part over a 40 year period things didn’t change much. In 2002 you’d have found a few people with DVR’s and a small handful with HDTVs tuning what they could find over the air in 1080i or 720p. There were researchers and engineers building plasma displays but they weren’t commercialized. In 2002 people were still basically just “watching TV”.

Consider the evolution of television viewing over this past decade. The notion of buying a CRT box, bringing it home, plugging into a set top box and then coming home from work and just flipping around and watching programming that’s being shown at the time is almost unthinkably quaint, and not just to we in the tech community but to mainstream users.

DVR is ubiquitous
Most TVs are flat and display HD (many display 1080P)
VOD is widely deployed

But really, those are the incremental changes, not the big ones. People now watch services like Hulu on their non-television devices and consider that “watching TV”. We download content to our phones and watch when we’re on the move.

And when we sit in front of the big screen 10-15 feet away, we do with another device on our laps. And that’s the thought that went through my head as I was asked about the “second screen”. My media diet today still includes movies and the occasional television show (the new season of Game of Thrones starts in a few weeks…) but it also includes web content, social media destinations and games. And if I’m home and not at my desk, chances are it’s the iPad that delivers the majority of this to me, even if The Daily Show is playing (via DRV of course) on our bigger screen in the living room.

We’re less than two years into this experiment – the first generation iPad was released in April 2010. Much of the content delivery and infrastructure that will enable the transition to first screen-ness isn’t built yet, but this is happening incredibly quickly. The future vision of the big screen isn’t the multi-paneled screen showing nine programs at a time depicted in Back to the Future II, it’s each family member watching the programming they like on a screen they control. And that’s the first screen. The big, linear shared experience is the second screen.

The Inflected Right

You know how, like, pretty much everyone, like makes fun of teenage girls for like, always talking like this?

Have you noticed that people in tech do almost the exact same thing, but with a different linguistic crutch? Consider the following made-up exchange:

A: So you know, right, there’s no way that Google can catch us. They just don’t get product, right?

B: Yep! Think about Google Wave, right?

Over the past year or so I’ve noticed an extraordinary amount of “inflected right”popping up in the discussions among entrepreneurs, VC’s and other people in and around tech. People pepper their dialog with the word right, typically at the beginning or end of phrases. I’ve been in meetings where, like “um” with a person who struggles with articulation, it’s astonishingly common once you start listening for it. Pay attention during your next two or three conversations with people in tech who you don’t really know – I’ll bet at least one of them uses this crutch a few times and probably much more than that.

What’s the purpose of this? It’s essentially an “um” for tech. Valley girls (do they still have those?) started saying “like” instead of “um” – I have no idea why, really. But I think in tech the inflected right is a way to use the pauses inside of sentences as a way to sound self-confident (arrogant if you prefer), as if one is semi-implicitly coopting the listener into one’s point of view.

“Those guys are killing it, right?” – I assert that a company is doing well, and I assume that you agree with me and self-confirm with my inflected right. Now it is kind of difficult for you to disagree without it being awkward.

It’s clearly a relatively trivial quibble, but I think it actually foreshadows some of what’s happening in our ecosystem. Words matter and speech matters, and theinflected right is subtle evidence of groupthink and conclusory thinking. Also, it’s annoying.

Lastly, I know that I sometimes do it. So if you catch me using the inflected right, bust my chops for it. Because it’s annoying when I do it too.

The Revenue-Reality Gap

Today startups live in a world of “haves and have nots". The current capital efficient reality of company formation (dramatically reduced cost structures enabled by cloud infrastructure, free open source software and dramatically more efficent development environments), startups will typically raise between $700k and $1.5mm in a seed round to prove out the concept. This is most often done at a single digit valuation (between $3mm and $8mm).

If the company proves successful and starts to show traction, a series A of $5mm to $10mm gets raised, usually somewhere between $15mm and $35mm. This is where the “haves” and the “have nots” are now being separated. If a deal captures the imagination of the venture community, we see valuations skyrocketing into the $100mm range and even higher altitudes. Prices are even racheting up on deals that are pre-launch if they have some “buzz”.

It sounds great for the CEO’s of these hot startups. You have created huge equity value for yourselves and your early investors. You have plenty of cash in the bank. So what is the problem? In my view, a company should raise money at the right valuation, not the highest valuation. Otherwise it causes what I refer to as the "Revenue-Reality Gap". If you raise a round such that you are in this gap, you run the risk of waking up after raising a hot round and realizing that this $5mm revenue company now has a last round valuation of $140mm.

Now here is the problem. In order to have the next round of the company be a positive and momentum-continuing up round, the revenues (or whatever critical metric drives the value of the business) have to completely hockey stick for the next 12 months. The first 6 months of that growth will help the company grow into its last round valuation, the next 6 months will get it to attain a new one. I believe e-commerce companies in particular will have a hard time with this trajectory given the historical challenges seen with operational scale and margin compression in this sector.

E-commerce companies need to have people open their wallets and order on the sites. The first $5 to $25mm in revenues are always early adopters. These guys move quickly. The next $100mm are the mainstream adopters and they almost always take longer. The late adopters, longer still. Another problem happens with suppliers. When you are a tiny company, your suppliers may be willing to cut you a deal to get you going so that you can move more of their product. When you are a hot company with a high valuation, those suppliers may want some value back in the form of higher prices or fewer deals. Both of these add up to slower growth and lower margins than expected. This is not to say the companies will not ultimately be successful, many will, but it will not just be a hockey stick straight to the sky. If the company misses its hockey stick projections, it may be a flat or down round. Then all the shaudenfreude of the startup community will come out to mourn that company.

People will argue that this is not true. Companies like Facebook and Twitter raised money at high valuations and the companies blew through those valuations in little time. But, this is different with a social media company where they can simply go viral at little cost. They will not be fairly valued on revenues for a long time (Facebook) and maybe never (Twitter). They have value because of the networks, not just because of the revenue being derived from these networks. History in venture shows that revenues take longer and cost more than expected. Right now select companies are being valued as if this general rule is not true using social media as an excuse for a new paradigm. E-commerce companies and those valued on revenues, not networks, should be careful.

How to Make an Introduction

It wouldn’t have occurred to me to write about how to make introductions, but I’m surprised at how many people get it wrong. The most common error is making a connection between two people when at least one of them doesn’t actually want to be connected.

VC’s tend to receive a lot of introductions and we are often asked to make introductions on behalf of portfolio CEO’s, people looking for jobs or just folks trying to expand their networks. We spend much of our time seeing new companies and meeting people, so our willingness and ability to make these connections is an important part of the value we are able to deliver. And on the flip side, being someone to whom inbound introductions flow is part of our competitive positioning relative to others in our business.

When I’m asked to make an introduction to someone I usually ask one threshold question – am I sure this introduction is welcome and will it deliver value to the person I’m being asked to hit up. In the majority of cases I actually don’t know in advance.

This is why the key best practice in making introductions is to ask the person on the other end whether the introduction is welcome and of interest or not.

If your friend is starting a company and asks for an intro to RRE, the best practice is to ping me or one of my colleagues and ask if it’s ok to make the introduction. This isn’t because we’re so important – it’s because if you’re someone we respect and you introduce us to a company and cc the founder, we’re going to take the meeting largely to avoid being rude to you and to your friend even if we aren’t that interested. If the company is outside of our interest areas, tangentially competitive with an existing investment or obviously not a fit for other reasons, you’ll have wasted not just our time but your friend the entrepreneur’s time as well.

VC’s should follow this rule too. I know that one of the frustrations that sometimes accompanies having VC board members is the random (and often frequent) introductions that come in over the transom. The VC is trying to be helpful by connecting a company to a high level person in a big company, a strong-looking candidate seeking a new gig or a high-placed investment banker. But VC’s should heed this warning – if you aren’t sure your portfolio CEO wants to talk to someone, ask them first, otherwise you’re wasting their time. In an era of text messages, twitter DM’s or good old-fashioned IM, pinging them to check first is a much lighter touch than an email intro that obligates them to reply.

There are exceptions to this rule of course. If I know a company is actively recruiting people for a role, it’s not necessary to take this intermediate step. And there are people who I trust enough that if something clears their filter I’ll take the introduction no questions asked. But that understanding is pretty explicit.

Bottom line – for both founders and investors our most precious resource is our time. If you want to do someone a favor by connecting them with someone who has asked for an introduction, do both parties the courtesy of taking the time to ensure that it’s a welcome introduction.

The Content Problem

In my last blog post I wrote about how, in the world of online media, viral hits are inevitable. They arise organically on platforms like YouTube with no top-down intervention.

Today over at AVC.com, Fred wrote about how movie studios are on the wrong side of history:

"Restricting access to content is a bad business model in the age of a global network that costs practically nothing to distribute on."

I agree, but let's dig in a bit more. Scarcity is not only a "shitty business model," as Fred says, but also a necessary business model for the studios.

That's because most movies are bad and the studios simply don't know in advance which movies will be blockbusters and which will be duds. They have a content problem, and that leads to a distribution problem.

Unfortunately for them, bad movies cost the same to produce and market as good ones. This means studios will try to recoup costs primarily on opening weekend by combining a huge marketing spend with distribution to as many theaters as possible (the leading factor in opening weekend revenue is the number of screens it opens on). When a blockbuster hits it accrues huge profits under this model and makes up for the others.

If studios knew in advance that they could produce good films consistently, they would be more willing to change the distribution model. I think this is the underlying problem that, if solved, would create the most value. This, in part, is why I'm excited about the potential of viral platforms like Buzzfeed to help content producers figure it out in advance.

Ryan Kavanaugh's studio start-up Relativity Media has gotten closer to solving this problem than any of the big studios. Here's a must-read if you want to learn more about how he's doing it. Pixar's hit machine might have led to innovation around distribution if they hadn't been bought by Disney (recall that, because of Steve Jobs, they were one of the leaders in distributing movies via iTunes).

Of course, the counter-argument to all this is that the content is bad because the distribution model allows it to be bad. This is why Relativity, Pixar, and even YouTube have a distruptive opportunity.

Entrepreneurs are thinking a lot about distribution these days. But perhaps the bigger win is to be had solving the content problem.

Think Different?

Most of the younger guys at RRE wear the downtown uniform: skinny jeans, converse sneakers or funky shoes, untucked flannel shirt, and either scruff or a beard.    They looked at what I was wearing and rolled their eyes into the top of their head. When they saw me wearing a suit and tie to the office when coming from a non-profit meeting, I saw them cringe. Ditto for khakis and preppy shirts. Heaven help me if I actually wore pleats.   Suits are for Wall Street guys, khakis are for people from Silicon Valley and pleats just stink.

Wanting not to appear out of step, I changed my wardrobe when I lost weight and needed new clothes. All pleats went away. Khakis went into the donation bins. Slimmer jeans from J-Brand, AG, and Seven ended up in my closet with cashmere sweaters and better blazers. My 18 year old niece mocked me for trying to look too hip.   My hair was even getting cut with a razor close to the sides of my head. I was feeling good.

Then I went downtown for a board meeting with Recyclebank. The CEO we have down there, Jonathan Hsu, is one of the best. Brilliant, savvy, hard working, and analytical, Jon is fantastic. Then I looked at what he was wearing. The opposite of hip. He dresses in Brooks Brothers blue or grey suits, white button down collar shirts and boring ties. Don’t forget the black lace up shoes. And then it struck me, why does this matter?   I wouldn’t trade Jon for a van of Varvatos-wearing, vespa-riding dudes. So why does anyone care how I or anyone in technology dresses?

Steve Jobs’ brilliant campaign of “think different” comes to mind. Apple used to be hip and cool AND different. Now, everyone knows the Apple stuff is stylish and beautiful, but it is not different any more. When everyone is “different” then different becomes the status quo. And those that are not in the majority can get looked down upon. And this is antithetical to the startup culture. Bill Gates, Steve Jobs, and Steve Wozniak were hardcore geeks, not hip guys.

This is a business where success comes from great leaders entering new and unproven markets. And there is a lot of failure. I don’t care how they dress. And if they care what I am wearing, then they are focused on the wrong things. I bought two new pairs of khakis over the holiday break. I guess I am just comfortable with living dangerously.

Think Different?

The New York City tech scene has become hip and has integrated into our culture. This brings many positive factors into our fair city including an entrepreneurial spirit and a more risk taking culture. I love that. But, it has also brought a little bit of snobbery about what and who are “cool”. I guess I noticed this about something that is really meaningless; how people dress.

Most of the younger guys at RRE wear the downtown uniform: skinny jeans, converse sneakers or funky shoes, untucked flannel shirt, and either scruff or a beard.    They looked at what I was wearing and rolled their eyes into the top of their head. When they saw me wearing a suit and tie to the office when coming from a non-profit meeting, I saw them cringe. Ditto for khakis and preppy shirts. Heaven help me if I actually wore pleats.   Suits are for Wall Street guys, khakis are for people from Silicon Valley and pleats just stink.

Wanting not to appear out of step, I changed my wardrobe when I lost weight and needed new clothes. All pleats went away. Khakis went into the donation bins. Slimmer jeans from J-Brand, AG, and Seven ended up in my closet with cashmere sweaters and better blazers. My 18 year old niece mocked me for trying to look too hip.   My hair was even getting cut with a razor close to the sides of my head. I was feeling good.

Then I went downtown for a board meeting with Recyclebank. The CEO we have down there, Jonathan Hsu, is one of the best. Brilliant, savvy, hard working, and analytical, Jon is fantastic. Then I looked at what he was wearing. The opposite of hip. He dresses in Brooks Brothers blue or grey suits, white button down collar shirts and boring ties. Don’t forget the black lace up shoes. And then it struck me, why does this matter?   I wouldn’t trade Jon for a van of Varvatos-wearing, vespa-riding dudes. So why does anyone care how I or anyone in technology dresses?

Steve Jobs’ brilliant campaign of “think different” comes to mind. Apple used to be hip and cool AND different. Now, everyone knows the Apple stuff is stylish and beautiful, but it is not different any more. When everyone is “different” then different becomes the status quo. And those that are not in the majority can get looked down upon. And this is antithetical to the startup culture. Bill Gates, Steve Jobs, and Steve Wozniak were hardcore geeks, not hip guys.

This is a business where success comes from great leaders entering new and unproven markets. And there is a lot of failure. I don’t care how they dress. And if they care what I am wearing, then they are focused on the wrong things. I bought two new pairs of khakis over the holiday break. I guess I am just comfortable with living dangerously.

The Age of the Meme

tl;dr: everything is now a meme

Is there any doubt about the nature of the moment we live in? We are passing through a period of global disruption and fermentation. An age of volatility and risk. The bottoms-up, decentralized, and emergent is overtaking the top-down, centralized, and directed.

That much is probably obvious to anyone who’s awake (not to mention the 20% of Americans with anxiety disorders). What’s less clear is what to make of it all. How do we define exactly what is going on? Change is happening everywhere, all the time. It is disrupting industries, unsettling governments, and shaking markets. Even those on the vanguard of movements like OccupyWallSt and the Tea Party struggle to articulate their goals, or perhaps more to the point, struggle to direct them at any particular source.

That’s because the nature of this change is itself unprecedented. It is particular to our global, hyper-connected context. It is characterized by the inevitable and organic emergence of ideas at an incredibly high velocity that capture our collective imagination, take form, evolve, and remix in unexpected ways with the next idea.

In other words, we are entering the age of the meme.

You’ve probably seen funny image memes like LOLcats, rage comics, the Y U NO guy, Sad Keanu, or the Philosoraptor, especially if you frequent sites like Reddit, Buzzfeed, 9GAG, or Cheezburger, though they are now spreading like wildfire through Facebook, Twitter, and good old-fashioned email.

Like all memes, humor memes are organic phenomena that are never finished but mutate and live on in new memes. Their emergence is certain, yet their particular form is unknowable in advance. For example, there will be a new, hilarious meme next week on Reddit, and no one yet knows what it will be. But it will emerge. That’s why platforms like Cheezburger are so amazing: they facilitate the appearance of hits, but unlike Disney, they don’t have to invest in an idea and then hope that it works. It works first, which is why it emerges.

A particular meme gains prominence by beating out many other variations in a Darwinian battle for survival analogous to biological evolution. Richard Dawkins coined the term “meme,” in 1976, with this in mind. As he noted then, memes are as old as culture, and began as oral histories, proverbs, and learned skills. Human beings serve as replicators, passing memes from one person to another, a process that has been enhanced over time by new tools and higher levels of connectivity.

But what’s happening today is not simply an acceleration of an age-old cultural process. We have hit an inflection point. We are an always-on culture now. Social networks have reached critical mass. Inexpensive tools for creating and remixing content have been widely adopted. Our collective consciousness has come online. The intelligence in the system is now coming from below, not above. The sage on the stage is no more.

And our collective mind is pumping out memes that are shaping every conceivable domain. Humor is simply the tip of the spear.

Here are a few examples.

Fashion. The top-down, designer-led, runway-to-rack paradigm was perhaps captured most famously in The Devil Wears Prada where fashion editor Miranda Priestly explains to Andrea that the blue sweater she believes she “chose” was in fact “selected for [her] by the people in this room from a pile of stuff.”

This began to change when companies like Inditex (Zara) implemented demand-driven supply chains and bloggers like The Sartorialist started influencing brands with his street style photography featuring real people.

But that’s nothing compared to what’s beginning to happen. The best examples are found on Pinterest and Tumblr. Instead of simply serving to identify trends that inspire designers upstream, these platforms have achieved the velocity and volume necessary to bubble up entirely new ideas, or fashion memes. To be sure, a lot of the images on these sites today simply reflect and magnify designer choices from above, but an increasing share is of a different nature. For example, a meme might emerge when a girl in Stockholm finds a scarf in her grandmother’s attic and posts a photo of herself wearing it on Tumblr. From there, the scarf is re-blogged thousands of times, picked up on Pinterest and added to hundreds of style boards, and over time beats out thousands of other potential scarfs for prominence in the fashion zeitgeist.

I think there is a real opportunity to build new brands by identifying and producing apparel based on these fashion memes. The season-driven apparel cycle isn’t going away tomorrow, but the reign of the runway is waning.

Politics. Much has been written about the role of social networks in supporting movements like the Tea Party, OccupyWallSt, and the Arab Spring.

But these movements themselves can be understood as memes. As this New York Times article explains:

On July 13, [Kalle Lasn] and his colleagues created a new hash tag on Twitter: #OCCUPYWALLSTREET. For some people they were just words and images. For Mr. Lasn, they were tools to begin remodeling the “mental environment,” to create a new “meme.”

No one knew in advance just what form a modern, anti-corporate movement would take; although many, including Fred Wilson, predicted that such a movement was inevitable. As with all memes, the particular form and timing was unknown in advance, but it was clear something would emerge from below and would be sweeping when it did. More are sure to follow.

As we enter campaign season, it is worth remembering that the iconic Obama Hope poster was not created by the campaign, but by the artist Shepard Fairey to sell on the street. Only after it became a meme, because of the digital version that swirled around the web in various forms during the social network-driven campaign cycle of 2008, did the Obama campaign wisely commission an official version. What began as a street poster ended up in the Smithsonian’s National Portrait Gallery because of its influence as a political meme.

Music and Entertainment. As Kirby Ferguson explains so well in his fantastic series, Everything is a Remix, for decades artists have created popular music and movies by borrowing and remixing stories, sounds, and images.

But that process has been democratized thanks to YouTube. The result is one of the most prominent memes of all, the viral video: the Rick Roll, Diet Coke and Mentos, Leeroy Jenkins, and the Double Rainbow guy, to name just a few.

Celebrities like Justin Bieber and Andy Samberg (not to mention Rebecca Black) owe their careers to YouTube, which is nothing if not a brutally Darwinian platform where, like on Cheezburger, hits are inevitable and driven by the collective response of the whole, not the taste-predicting abilities of an A&R man or studio head.

Companies like Smule are pushing things further still, putting simple and fun music creation tools in the hands of all. I think there remains a huge opportunity to be the platform that facilitates not just the emergence of hits, but also their creation.

News and Information. A history professor of mine once remarked that if you divided the world in half and had one half of civilization live life as usual, and the other half write down everything they were witnessing, you would still struggle to adequately record every event.

Well, that was before Twitter. Twitter has become, among other things, a real-time record of the events unfolding in the world. What better example than @ReallyVirtual’s tweets about the Osama Bin Laden raid as it was happening.

Trending topics are the new headlines. Said another way, they are news memes.

And the information being harvested on platforms like Twitter is now being analyzed for insights by companies like Dataminr, which is building a platform for fund managers and traders to leverage the intelligence emerging from below. We are in the early innings of learning how to detect signal in the noise, but here again is a huge opportunity that will play out in fascinating ways.

Start-ups. As I wrote this past summer, most start-ups are not unique and it is common for similar companies to pitch me at the same time. This isn’t because people are stealing each other’s ideas, but because the conditions for their emergence are ripe. As Malcolm Gladwell wrote in the New Yorker a few years ago:

Scientific discoveries must, in some sense, be inevitable. They must be in the air, products of the intellectual climate of a specific time and place.

The marketplace itself acts as the meme-producing platform for start-ups. First, there is the emergence of similar looking companies, followed by a winnowing of the market as certain players out-execute others, and concluding with a subset of winners.

In an emergent start-up ecosystem, my job as a VC becomes principally one of immersion and observation. I do not need to predict the future, only put myself in the right place and watch carefully for early indications of market resonance. As with all other memes, start-ups work first and emerge second. This is what underlies the iterative lean-startup framework.

* * *

There are many more examples – in fact it’s hard for me to think of a domain where memes aren’t beginning to take hold. As I said above, this is the context for the historical moment we are entering. And there are big, investable opportunities (if you have one you want to discuss, I'd love to talk - adam@rre.com or follow @adamludwin).

But what if your livelihood depends on being a top-downer? What if you are in government, or a school administrator, or a brand manager for a cola beverage? How do you succeed in a world where the intelligence, tastes, and decision rights are shifting from above, concentrated in a few, to below, dispersed across all?

When we talk about “progressive schools” and “smart government” and even “viral marketing” I think we mean essentially the same thing. That these institutions become platforms to capture, disseminate, and build upon the best of what that comes from below. For schools, that means having students do the work at home and bring their best ideas to class the next day to debate and learn together, where the teacher plays role of facilitator. For government, it means figuring out how to create a democracy that is inclusive of the best ideas that emerge organically. And for marketers, the first step is learning how to let the brand become a meme (you’ll know it’s working if you feel like you’ve completely lost control, as happened with The Most Interesting Man). As Andy Weissman wrote recently, we may be entering a golden age of marketing, and I think that’s in large part because we’re entering the age of the memes.

Often the exception proves the rule, and if you’re still not convinced that memes are taking over, or that top-downers are going extinct, look no further than North Korea, the last bastion of isolation, cut off entirely from the world’s collective mind. The reason the video below is so damn funny (which is itself part of a larger Party Rock Anthem meme) is because of the absolute contrast between those seen in the video, who’s every action is directed from above, and the music, which they have surely never heard.