With this interview, we are again branching out. Naval Ravikant is not a traditional VC. He is an angel investor, a serial entrepreneur, and he writes the very entertaining and informative Venture Hacks blog, a must-read for entrepreneurs. Listen to the MP3 below if you want to learn more about how to get viral growth, how to think about native revenue models for social media, and why hackers are making serious money with virtual currencies.
Listen to the Interview
Download the MP3.
Our Questions and MP3 Guide
Question: You are focused on social media. One of the big issues with social media is getting a “native revenue model.” What is the equivalent of paid search for social media?
Skip to 1:30 of MP3
Insight summary: “If you don’t find it early on, it probably does not exist. There is probably not some magic native revenue model lurking out there.” But skip to 3:30 to hear about one sub-segment, virtual currencies. Fascinating stuff.
Question: Everybody is looking for viral growth, which seems like the closest thing to free money. What characteristics do you look for in a service to indicate whether it will go viral?
Skip to 6:15 of MP3
Insight summary: Your service needs to be “inherently viral” (basically, messaging services). You cannot tack virality onto a service. This is now increasingly a science, with viral analytics used to back decision-making.
Question: Are you focused only on ventures in Silicon Valley? Or would you look at deals from elsewhere?
Skip to 9:10 of MP3
Insight summary: Theoretically, anywhere. In practice, almost entirely in the Valley.
Question: What market segments excite you today?
Skip to 10:14 of MP3
Insight summary: Naval quoted Paul Bucheit (the guy who wrote Gmail and FriendFeed) in saying that he was excited by any venture that can be described as “[blank] that does not suck.” That means you can choose any market that has a lot of existing players, a mature market, but in which nobody is doing it right yet. You could describe Gmail that way: “webmail that does not suck”. When Google first did search, the market was very mature, but the offerings at the time still sucked. Naval mentioned travel booking; loads of attempts there, but ask anyone who uses them a lot, and they’ll say they mostly suck. These ventures are conceptually totally simple, but execution is tough.
Question: How does the 10 times reduction in cost to start a Web tech venture change the rules for VCs and angels?
Skip to 11:50 of MP3
Insight summary: This enables “super-developer lifestyle businesses” that never need to raise any money. It also means that all investors shift over, so that the earliest-stage guys now need to see a working service, even some traction; the Series A VCs need to see huge growth or revenue expansion; and the traditional late-stage VCs have basically exited the Web tech business.
Most Interesting Takeaway
Naval talked about virtual currencies as a real revenue model within social media. I had heard this before but was skeptical. Who would spend cold hard cash online in exchange for nothing but a virtual currency that cannot be converted back into cash in the real world? It sounds basically like people are spending real money online to impress other people online, which is no less odd than spending money on a fancy watch or car to impress people.
Self-financed hackers are making millions of dollars with virtual currency services today.
These are the services that Naval thought would be of most interest to entrepreneurs and early-stage developers who frequent ReadWriteWeb:
- Feedjit: real-time analytics for blogs.
- Kontagent: viral marketing analytics.
- Chatterous: multi-modal (email, SMS, IM) chat API.
- Jambool: payments and virtual currencies for games and social applications.
- Gambit: offers and monetization for social applications.
Listen to the Interview
Download the MP3.
