Announcing our latest investment: Clio

At version one, we are big believers in the vertical SaaS opportunity. Small to mid-sized businesses have long been underusing technology. A mobile-first approach, combined with a laser-like focus on a specific vertical, can create the right toolset to help SMBs achieve huge productivity gains (I wrote about this nearly a year ago for TechCrunch).

That’s why I’m excited to announce our new investment. Clio is the leader in providing legal practice management software in the cloud. 80 percent of the legal market is made up of solo practitioners and small firms. These professionals have little support staff and no IT department…meaning they’re typically overwhelmed with all the administrative parts of their business.  That’s where Clio comes in. They’ve moved all of practice management to the cloud, including time tracking, invoicing, case management, client contact, etc.

Over the past two years, I’ve been sitting on Clio’s board for ActonCapital (who led Clio’s Series B). Over that time, I’ve been incredibly impressed with the ambition of the two founders, Jack Newton and Rian Gauvreau, as well as their amazing customer and product focus. While the legal industry has been slower to keep pace with technological advancements, it’s definitely ripe for disruption – and smaller firms are quicker to adopt new tools than larger ones. Clio now joins fellow vertical SaaS companies in the V1 portfolio, including Front Desk (scheduling/client management) and Jobber (field service).

Leading this round is Bessemer Venture Partners, with Trevor Oeschlig and Brian Feinstein joining Clio’s board. I’ll be remaining on Clio’s board for Acton and am looking forward to helping Jack and Rian build an even more impressive company and product.

Please join me in officially welcoming Jack, Rian, and their entire team to the version one community.

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New investment: Upverter, a cloud-based platform for the hardware revolution

Image representing Upverter as depicted in Cru...

Image via CrunchBase

Over the past few years, numerous innovations (Arduino, Raspberry Pi) have made it easier for anyone to develop hardware. Faster prototyping and cheaper manufacturing are empowering a new generation of hardware experts to gain hold in an industry once ruled by large corporations.

We are at the beginning of a new hardware revolution, and at Version One, we believe that platforms are key to accelerating this revolution by commoditizing and simplifying all the steps needed to take a product from prototype to mass production (Boris wrote about this topic earlier this year for GigaOm).

In the design phase, we believe that hardware engineering will follow a similar path as the open source software community that built GitHub. A platform that combines collaboration and data-sharing with a massive public repository and cloud-based design, is not only necessary as engineers continue to design more complex physical things, but it’s also inevitable.

That’s why we are thrilled to officially announce our investment in Toronto’s Upverter, a cloud-based platform for sharing hardware design. Specifically, Upverter is a collaborative schematic capture and printed circuit board layout platform that lives entirely in the cloud and is aimed at companies, hobbyists, students, and the open source hardware community.

A good analogy for Upverter is “GitHub for hardware,” as hundreds of thousands of hours of engineering design are stored in, worked on, and discoverable through Upverter making it easier for individuals and teams to design better hardware, faster. Intel, ARM, Oracle, Facebook, Quirky, and Texas Instruments are all on the platform.

Founded in 2010, Upverter is led by Zak Homuth, Michael Woodworth and Stephen Hamer, who met at the University of Waterloo and are also alumni of the Winter 2011 Y Combinator batch.

Version One is co-leading this investment with Golden Venture Partners, and joined by several angel investors. We are really excited to be a part of Upverter’s growth going forward as they help millions of makers, hardware engineers, and entrepreneurs launch their companies and fuel the radical innovations of tomorrow.

 To learn more about Upverter, visit https://upverter.com/ or follow @upverter on Twitter.

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The programmable web and the future of platforms

Virtually every start-up dreams of becoming a platform at some stage. After all, it is the most powerful position in the ecosystem. What has been the one rule to becoming a platform? Develop a killer app that gets you to scale: and then open up the platform once your reach is attractive enough for other developers to develop specific apps for your platform. This game plan has worked for consumer (Facebook, Twitter) and enterprise (Salesforce, Shopify) apps alike.

But recently, we have seen a new breed of platform emerging: platforms that are targeted at developers. Their mission is simple: solve the pain of integrating all the cumbersome and fragmented legacy systems, by providing an easy-to-integrate-with and easy-to-manage frontend for developers.

For example, we see horizontal platforms like Twilio that replaces all the telecom hardware with an API for phone, VoIP, and messaging. There’s Stripe and Braintree for payment processing, and Lob for printing. This is what Garry Tan has called the API-ization of everything: “Where there is paper to push, a call to answer, or a purchase to approve, there is an API coming to replace it.”

In addition to these horizontal platforms, there are also very interesting vertical players emerging: Spout for finance, Rets.ly for real estate, and Clever for education. While horizontal developer platforms are usually built around features, vertical platforms are usually built around data.

The traditional platform approach (i.e. Facebook, Salesforce) is still alive and well, but it feels like we are on the cusp of tremendous innovation in the field of developer platforms as the web is evolving into being entirely programmable.

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The investor’s role in a founder’s three key priorities

It’s often said that a CEO should focus on three key things: Do I have the right people on the team? Are those people working on the right thing? And is there enough cash in the bank to keep the lights on?

The right investor should help a founder with all three of those questions:

1. Do I have the right people on the team?

The best investors are instrumental in helping founders recruit the perfect team. For key positions, they should jump in and pitch a candidate to join a portfolio company. Secondly, investors should spend enough time discussing hiring priorities with the CEO, as well as help craft target profiles for senior-level hires.

2. Is the team working on the right things?

An investor should serve as a critical sounding board during strategy discussions…Do we have the right strategy, are we focusing on the right priorities, are we growing fast enough (or maybe too fast), and when should we expand into other verticals or geographic territories? In those discussions, the best investors are great listeners and rather ask the right questions than provide all of the answers.

3.  Is there enough cash to keep the lights on?

Making important early introductions to follow-on investors is one of the best ways to make sure that a portfolio company will be in a good position to rase the next round of financing. Great investors have a large network to pull from and make very specific introductions.

When I first started out as an investor fresh from operating my own start-up (AbeBooks), I often focused on helping founders figure out operational details and processes. I’m sure I was somewhat helpful in these cases. But after years of experience, I’ve come to realize that I would have provided more value and my time would have been better spent by serving as the best possible sparring partner in these strategic matters.

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Does free/freemium work in the enterprise?

When developing a business model, every software and app start-up eventually faces the same core question: Should we focus on monetizing customers or driving usage?

For consumer apps, this question has been answered (or mostly answered): the best approach is to offer a free service to help attract and retain users. As Fred Wilson put it: “When scale matters, when network effects matter, when your users are creating the content and the value, free is the business model of choice.”

After you reach enough scale, you can start monetizing in such a way that won’t introduce too much friction to the user experience. For example, one could argue that native advertising like Google Adsense or Twitter’s sponsored tweets actually add value to the service. Consumer apps can also choose the freemium path to monetization and upsell customers to premium subscriptions – Spotify, Skype, Ancestry.com, and Dropbox are some good examples.

Likewise, free is the way to go for mobile apps. As this chart shows, paid mobile apps are virtually dead – your mobile app will either need to be ad-supported or have in-app payments.

But what about enterprise apps?

The monetization question is much tougher for enterprise products. While free rules the consumer world, it can be a different story in the enterprise…

  • Offering an app/service for free can send the wrong message. Here, free can be equated with low quality. Business users and managers might worry a free product isn’t sophisticated enough for their needs or they might not like to have ads in their enterprise product.
  • While viral growth and network effects exist in certain enterprise settings (for example, communication and file-sharing products and in industries like legal), network effects are typically more limited in a B2B environment compared with B2C. That means that a free strategy won’t deliver the same payback in terms of ramping up your user base as it would with consumer products.
  • Free isn’t necessarily sustainable with B2B. Acquiring business users may prove too costly, forcing start-ups to raise incredible amounts of money to finance aggressive sales and marketing efforts for a free app.

In the enterprise, freemium models generally work in two situations:

  1. You target a large enough user base
  2. The product becomes more valuable over time…either through a network effect like with Skype or Dropbox or because of data lock-in as with Evernote.

When free won’t work: How to implement paid subscriptions in the enterprise

If you’ve determined that a freemium model just won’t work for your product and users, there are a few things to keep in mind to maximize your chances of success with a paid subscription:

  • The most popular strategy is to offer a free trial in order to encourage sign-up. The exact length of the trial period varies, although 30 days is the most common. Just make sure you give the customer enough time to adopt, get used to, and hopefully come to depend on the product. Also, be flexible in terms of extending the period if it will lead to a more successful evaluation and sale.
  • Choose a pricing model that encourages usage within the company. For example, if you have one core feature that drives usage and adoption, then make that free or include it in the base package. Likewise, if you need a certain number of people to adopt your software, be flexible around the number of seats that represent the threshold for each tiered pricing level.
  • Make sure that your “paywall” doesn’t create any friction when it comes to sharing data with other players in the industry or within the organization. Enabling collaboration will not only make the tool more useful but might also generate viral growth. So make sure your service offers some kind of easy sharing and a free read-only option.

While free services dominate the consumer world, that model is not necessarily going to work for enterprise apps. Make sure to evaluate monetization strategies within the context of your specific product, and not someone else’s.

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