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One of the most famous hackers in the world, Kevin Mitnick, published a book about his exploits — “The Art of Deception” — after he got out of prison. This guy broke into corporations, government agencies – even the FBI cell phone network to find out they they were closing in on him. Surprisingly, the most interesting “a-ha’s” of the book weren’t related to his prowess behind the keyboard but something much simpler — he was a master of “social-engineering.” Kevin would get unsuspecting staffers on the phone and trick them to reveal passwords, backdoor locations, and critical tidbits of information to enable his hacking. He used well-worn techniques like urgency, name-dropping, and a folksy familiarity that were popular in the Depression era and updated them for the modern times.

Kevin Mitnick was not alone.

Most of the largest online fraud hauls begin with a live telephone conversation. The existing caller ID infrastructure is useless as there are plenty of software options available for fraudsters to spin up millions of fake numbers and spoof the origin of the call. Quite honestly, there really isn’t a good way to authenticate who is on the other end of the line other than a series of painful security questions and even those are getting harder — my great aunt’s maiden name? There’s just got to be a better way…

While working on his PhD degree in 2009, Vijay Balasubramaniyan, had an unusual thought: could each phone call possibly have its own unique acoustic signature? Specifically, are there patterns in the sounds, packet loss and latency that could tell you the network, phone type and specific location the call was coming from? After some investigation, Vijay decided to focus his efforts on proving out the technology and the results became the core of his PhD thesis.

In 2011, Vijay completed his studies and hooked up with Paul Judge, a fellow Georgia Tech PhD alum and security industry veteran, to co-found Pindrop Security. The company’s technology is a commercialization of Vijay’s unique primary research and patents. Pindrop provides an enterprise solution that helps prevent phone-based fraud. Vijay’s pioneering acoustical fingerprinting technology detects fraudulent calls and authenticates legitimate callers, helping customers eliminate financial losses and reduce operational costs.

I’m very pleased to announce that Andreessen Horowitz will be leading Pindrop’s $11M Series A financing round. Our friends at Citi Ventures, will also be participating in the financing round. Here’s why we’re so excited to work with Vijay and Paul:

Founder/market fit. This is really our kind of opportunity — a very unique technology with virtually all the intellectual property invented by the founder. And it works! Vijay developed and patented the core technology while pursuing his doctorate at Georgia Tech, a school renowned for its cyber security and signal processing research.

Focus on voice fraud. As much as we talk about data overtaking voice — every customer we talk to has seen voice calls increase linearly with customers. And voice is becoming even more of an attractive alternative for fraudsters as the online channel is maturing and becoming more secure.

Very differentiated technology. It’s a very differentiated solution and the only one that isn’t purely fingerprint based so it detects zero-day attacks. Customers rave, “we are finding whole new fraud rings that had previously gone undetected…”

A track record of execution. Since we participated in Pindrop’s seed financing, Vijay and Paul have executed to plan in a remarkable way — they launched the product and had a stable of excited, apostle customers. The game film on their progress has been universally positive.

I’m super excited about joining Pindrop’s board of directors and look forward to helping Vijay and Paul bring this technology to everywhere people are answering phones and wondering who is on the other side of the line…

When I first met Logan Green and John Zimmer nearly a year ago, I was struck by the authenticity of Lyft’s founding. Originally called Zimride, everyone assumed the company was named after John but it’s actually a much better story: When Logan was traveling in Africa — Zimbabwe, to be exact — he noticed that despite the lack of infrastructure, people were able to get around efficiently thanks to a vibrant ridesharing movement. Every car, van and bus was full and people would literally stand on the side of the road waving money instead of sticking out their thumbs.

African Combi

At nearly the same time, John was sitting in a college course exploring the history of transportation: canals, trains, and then roads and planes. He wondered to himself, what would be the next big innovation in transportation? He thought, “I’ll bet it’s about using information to fill seats — especially all those empty seats in cars.”

I’m acutely aware of John and Logan’s observations when I’m sitting alone in my 7-passenger minivan on the 101 inching along while others are zooming past me in the High Occupancy Vehicle (HOV) lane. These are times when I really wish I had a few extra people in the car! But it’s just not that simple — I don’t want to go way out of my way and I want to feel comfortable picking up someone new.

With this unique vision in mind, John and Logan went about launching Zimride and Lyft. The information technology problem was essentially solved with the proliferation of GPS-enabled smartphones. If they could get a critical mass of people on the same network with information about when and where people wanted to go, it would be relatively easy to pair up drivers and riders that were headed in the same direction. But how to get it started? And what about safety?

The first incarnation, Zimride, launched in 2007, tackling these issues by targeting college students headed home on holiday. Logan and John’s big insight was that by using Facebook profile information via Facebook Connect, both the drivers and the riders could find out about each other to develop enough trust to get into a car together. As a driver, you’d post the where and when details of your trip and then passengers would apply for a ride with a predetermined chip-in. Over the years they have showed steady and solid growth and built a real community of people making friends and sharing rides.

Last June, they launched Lyft in San Francisco, a made-for-mobile, ridesharing app that was geared towards ridesharing within a city as opposed to between cities. Since its launch, Lyft has absolutely exploded and is now doing over 30,000 rides per week! Now active in four major cities and expanding at a blazing pace to meet demand, the key for Lyft has been the community. Lyft has a very different offering and experience than anything else in this space. To be specific:

–  Lyft is all about taking cars off the road via ridesharing. This is NOT merely a cool new use of technology to efficiently onboard and route more cars, cabs, towncars and limos. Lyft wants to use technology to get everyone who currently owns a car to join a trusted information network to share rides.

–  As such, the Lyft drivers are regular folks with underutilized cars. They are college students, engineers, entrepreneurs and retirees. As the founders like to say, a Lyft driver is “your friend with a car.”

–  As demonstrated by Airbnb, the person-to-person sharing economy is all about earning trust and establishing a good reputation. If I am going to rent my spare bedroom or get into the car with someone I don’t know, I have to find a way break the trust barrier. Lyft requires all drivers and riders to connect through Facebook. They have intentionally limited the potential market to people who have established social network identities as a way to improve trust and safety. The drivers and passengers also rate each other after each ride to further build their reputations.

–  Lyft screens their drivers with interviews and full background and DMV checks. They are looking for real people with great driving records and a knack for hospitality.

–  You also get to ride up front in a Lyft. As the car pulls up with its unique pink mustache on the front (as John says, “it always brings a smile!”), you jump in the front seat and do a ceremonial fistbump with the driver. You are offered a phone charger and the chance to play DJ for the ride. Many of the drivers I’ve ridden with even offer something unique and fun like Capri Suns or snacks for the road.

Lyft is a real community — with both the drivers and riders being inherently social —  making real friendships and saving money.

I am pleased to announce Andreessen Horowitz’s partnership with Logan and John. We will be leading Lyft’s Series C financing round of $60 million to propel the Lyft movement globally. I am honored to be joining the board of directors and excited to help the founders realize their dream of filling all of those empty seats!

Ben Milne has a special relationship with transaction fees.

An entrepreneur with a design and manufacturing business in Iowa, Ben found himself obsessed with one simple notion: transaction fees were eating into his profit margins. If you consider money as data, there had to be a better way with so much money sloshing around in the system when the marginal cost of actually transferring the money is practically zero. So why did it cost him $55,000 a year to access it? Why then did he have to wait seven days to get paid?

This is the frustration out of which Dwolla was born. Ben set out to redesign a much better, and radically cheaper, payment network.

But how in the world would he scale a new, two-sided payment network today?

The PayPal and Visa stories are well documented. Visa’s story is famous. A genius by the name of Dee Hock pioneered a brilliant strategy that empowered a loose association of affiliates to distribute the card all over the world, almost entirely manually. And while eBay was distracted building and scaling their marketplace, PayPal snuck in to become the defacto standard for eBay transactions between individuals. eBay bought a competitor and tried to unseat PayPal but the network effects were just too strong and they ended up having to buy PayPal for $1.5B.

So how would Ben do it then? This is the beauty of his approach at Dwolla. Ben began designing a system based on the impending ubiquity of the Internet; something consumers, banks, businesses, and developers had immediate access to on their phones and computers. This would give Dwolla the ability to bypass the traditional systems, hardware, and distribution costs associated with the card networks birthed in the 60s and 70s.

Dwolla moves money for only 25 cents and can do so instantly (versus two to seven days it takes other processors). Signing up is free and there are no other costs. Not counting the hardware, gateways, and hidden fees, businesses and consumers were paying three to eight percent per swipe, adding up to over $48B in 2009. Ever walk into a bar, buy a drink and been told, “there’s a $10 minimum to use a card?” Yeah, that’s why.

What’s astounding? In addition to payments only costing 25 cents, transactions under $10 are free — this opens up a huge opportunity for Dwolla to be the defacto standard for micropayments. This “flat fee or free” pricing model strategy is such a compelling value proposition that large players, like the state of Iowa, are signing up for Dwolla in droves.

What about checks? Small business owners and consumers know the pain points associated with manually processing checks all too well and all the problems with the slow, antiquated Automatic Clearing House (ACH) network. How much does it cost to do a wire? $50? $10? That depends on where you bank. But either way, ouch.

These slow-moving, expensive, fraud proliferating systems aren’t just the United States’ burden. In many countries around the world, the luxury of ATMs, having cash on hand, or retaining the value of money as it moves from one person to the next, just isn’t possible. In many developing areas, networks charge up to 30 percent of a transaction because of the way you paid for a particular good or service.

The world needs a better way to transfer value, the same way it needed a better way to transfer information before the Internet went mainstream.

Now here are the other wonderful parts: Dwolla has created straightforward APIs, simple user experiences, social integration, and one of the United States’ most sophisticated and advanced banking software, called FiSync. And whenever Dwolla signs up a new customer, those users now send out their payments via Dwolla. The payee is then highly motivated to activate and bank-enable their Dwolla account to claim their cash. It’s natural convenience.

I am pleased to announce Andreessen Horowitz has led a $16.5 million investment in Dwolla to help Ben and his team realize their vision of fixing the worldwide payment network. Here’s why we believe this is such an amazing opportunity:

  • Founder/market fit: Ben is one of the most determined and scrappy entrepreneurs we’ve met and has a deep knowledge of the entire payment network.
  • Ridiculous market size: Dwolla’s FiSync is taking on ACH and FedWire, a combined $730+ trillion market with real-time transactions, new revenue streams and incentives for key players in the payment process.
  • A snowball of traction: Its annual processing run rate has moved from the hundreds of millions to billions and its business development pipeline is chock full of opportunities.
  • The simple strategy of “natural convenience.” Especially as it pertains to ACH and payout needs, Dwolla offers an easy-to-use platform for payers and a free, low-cost platform for payees.
  • Radical innovations in anti-fraud and risk management technologies: For example, Dwolla removes much of the sensitive financial information, which is often exposed when someone uses a paper check or plastic card, from its transactions. This reduces liability for merchants and developers, and mitigates the threat of identity fraud for its consumers. Genius.
  • One of a kind technology: Underneath Dwolla’s beautiful front facing experience belies a complicated, intricate series of systems, technologies, and considerations that we’ve never seen before.
  • Our customer references came back over-the-top positive on responsiveness, customer/ developer friendly, and intuitive/ easy to navigate user interface.

Ben and his team are introducing an entirely new way to think, access, and use money. I am excited to be joining Dwolla’s board of directors and look forward to helping Ben build the next multi-billion dollar payment company!

It is now clear that App.net (ADN) is not just a for fee twitter clone but a full on platform for developers to build a whole new set of services on top of.

With the announcement and launch of a free tier, ADN is following in the footsteps of Evernote, Dropbox, and Github in providing a well-worn business model. And the media, including Fast Company, Forbes, Quartz, TechCrunch, the Verge, VentureBeat, plus many more – are taking notice.

According to Forbes, “Caldwell is part of a larger trend that is trying to apply the way developers think about the digital world to products that can be easily used by non-technical consumers. These attempts buck the more general trend in the app-o-verse of insulating users from any direct contact with their own data or any sense of how much control they could actually exert upon it, given the slightest effort.”

Exactly right. ADN gives developers the ability to build innovative products and solutions that users love and gives users the ability to choose which social experience is best for themselves.

One of my favorite quotes from the coverage is from the Quartz piece: “While Twitter is trying to provide the social-media equivalent of a fully fitted bathroom, App.net’s could best be described as just the plumbing.”

We couldn’t agree more. Some people like marble bathrooms with jeweled faucets and others like a bare bones outdoor shower, but both need running water. Just like plumbing, your social graph is an incredible tool and we support ADN’s vision to let developers design countless “bathrooms” and let users choose what works best for them.

TechCrunch points to the importance of timing in making a critical move like this. Dalton has been very thoughtful about the impact of freemium on the ADN community. And wanted to build out the broader developer ecosystem before attracting a broader audience. The invitation system is a prudent way to open the doors slowly.

I want to congratulate the ADN team for the work and preparation behind this freemium launch – the coverage has been uniformly positive and the users are responding!

We are excited about the possibilities of this new platform and can’t wait to see what the developer community builds using the power of this new model. Sign up here for instant access or get a hold of an invite to check out freemium!

I have so much respect for people who fought online criminals for eBay and PayPal. There hasn’t been a set of websites more highly targeted by cybercriminals and fraudsters.  The founders of Silver Tail, Mike Eynon and Laura Mather, were colleagues on the anti-fraud team at eBay/PayPal for three years and had a front row seat to the newest attack techniques and the most beguiling exploits. It stands to reason that the team pioneering security and anti-fraud techniques at the tip of the spear would come up with a breakthrough technology. This was the genesis of Silver Tail.

After testing with customers, it was clear that Mike and Laura were on to something special but desperately needed help to scale. The product needed many refinements and it was clear that they should bring in a seasoned executive to help them with sales, marketing, and building a team. Enter Tim Eades as their new CEO and partner. Tim had been a longtime sales and marketing executive at IBM and a CEO at Everyone.net. His aggressive, take-no-prisoners competitiveness, indomitable work ethic, and remarkable ability to enroll customers and recruits made him the perfect fit.

When Andreessen Horowitz first started looking at Silver Tail, they had just been named to the Gartner Magic Quadrant (MQ) as the furthest out on the “Visionary” or “X” axis. This MQ position fairly reflected the stage of the company and the founders’ technical breakthrough.

Source: Gartner (February 2011)

On the “Y” axis however, which measures “Execution,” Silver Tail was still in its infancy. They had a total of 15 customers using the product, with only a few paying, and the rest in beta. That said, customers were not on the fence with how they felt about it: “We’ve never seen anything like it!” and “They are charging too little…”

So, they had a proven technology and a few rabidly fanatical customers. At this point, the company’s future was going to revolve around it executing flawlessly to win the market. And they did that and more. The team’s accomplishments are exemplified by the most recent (May 2012) Gartner MQ:

Source: Gartner (May 2012)

It’s the story of how the team, driven by Tim, deployed the product, acquired customers, scaled the company, and accelerated into a tornado in merely 18 months:

  • Almost two thirds of the top US banks have deployed the product or are in the process of deploying.
  • A skeleton crew of 12 expanded to a global team of nearly 100, including top notch teams in Federal and European markets.
  • Three new, world-class executives joined the team to lead product and marketing, engineering and finance. Each one built a remarkable team of rock stars.
  • An irreverent, open-communication, and high-performing culture helped attract and retain top talent.
  • Huge success in ecommerce.
  • Customer responsiveness became a true market differentiator as the team overemphasized quality and support. In fact, existing customer referrals are Silver Tail’ s largest source of new leads.
  • The company was cash flow positive in the first half of their 2012 fiscal year.

This “hockey stick” ramp reflects the disruptive nature of Silver Tail’s Web Session Intelligence technology and the rapidly shifting frame of reference currently underway in the security space. Analyzing “snapshots in time” of network traffic and deploying “signatures” is not keeping up with the innovation of hackers and cybercriminals.

Silver Tail’s success in the market did not go unnoticed. We are announcing today that Silver Tail has signed a definitive agreement to be acquired by EMC/RSA. From the very beginning, Tim and the founders had a vision of helping to eliminate fraud and deploying their technology as widely as possible. With EMC’s worldwide presence and resources, they will achieve these goals much faster and integrate into a broader set of security and anti-fraud technologies.

Please join me in congratulating Tim, Laura, Mike and the rest of the incredible Silver Tail team in marrying the ultimate peanut butter-and-chocolate combo: A breakthrough technology innovation with near-flawless execution!

I would also like to thank my partners, Mark Cranney, Jeff Stump and the entire a16z team for all of their extra effort with Silver Tail – it made a meaningful difference…

SAP bought Business Objects for $6.78 billion dollars. Oracle bought Hyperion for $3.3 billion dollars. IBM bought Cognos for $4.9 billion dollars.

People were willing to pay a ton for old school business analytics… You’d collect business data with an extract, transform and load (ETL) software, carefully organize and fill a data warehouse, and then run specialized business intelligence (BI) reports against that structured database. Although it was a slow and expensive process, the results were totally worth it—crazy insights that drove revenue, cut costs and put bananas in every aisle in the grocery store!

However, in the world of big data, it looks like the old guard has been caught completely flatfooted. The continued success of super cheap, open source Hadoop has the $35 billion business analytics market scrambling to protect their cash cows in an era of free milk. This week you will see many of the old players rolling out strategies to remain relevant; creating “connectors” and hybrid Hadoop-SQL technologies to place Hadoop one step back in the pipeline behind their stuff. But all they have done is make things more complicated for IT and less accessible for the business user. Where is the promised disruption?

Platfora is launching today as a breakthrough BI product for getting insights from data in Hadoop. Instead of trying to replicate the old school stack, Platfora has reinvented the entire process. The Platfora magic is that it sits next to Hadoop and allows business users to interact with massive datasets to perform simple or complex queries in a sub-second instead of hours or days. No ETL or data warehouse is necessary, period. Platfora eliminates two steps of the old stack and makes businesses way more efficient. That’s disruptive. That changes the business analytics landscape.

The Platfora news is:

  • After 18 months in development, Platfora is unveiling their first-of-a-kind product to the world. Platfora is in full beta with 10 serious enterprise customers and they have the pipeline in place to expand to nearly 100 before GA in early Q1.
  • To build the product, the Platfora development team has amassed an arsenal of top talent in the database and interface design world. This launch is just the beginning and this platform will expand over time.
  • While in stealth, Ben added veteran leaders Peter Schlampp as VP of Products & Marketing and John Schuster as VP of Engineering. I’ve known both these guys for years from IronPort and they have a track record of building huge, successful businesses.

As a board member, I now have over a year of game footage on Ben Werther and John Eshleman as they’ve grown the company and hit all of their milestones. Since we’ve been involved, they’ve built a team of rockstars, engaged with over 150 customers and shipped an amazing product. Their urgency, cadence and customer-centric, methodical march have been absolutely textbook. In fact, I’ve been sending other portfolio companies to Ben to study how they’ve done what they’ve accomplished. As I said in an earlier blog post on Platfora, we have always been excited about Ben’s vision for Platfora and are now even more excited about his execution. Congratulations to Ben and the team!

Procter & Gamble, the $185 billion market-cap consumer products juggernaut, has a tried and true method for developing new products: extensive consumer research, including surveys and focus groups, product testing, name testing, ad/slogan/copy testing, iterate product design, line up manufacturing capacity and then, finally, concluding with in-store merchandising, final branding and ad buys for launch. Their “big bang” approach shoots out a new product globally with the hopes of propelling it to over $1 billion in sales in the first few years. This process usually takes about 18 to 24 months and results in about a 50 percent success rate for new products. That said, for every smashing success like Swiffer and Febreze, there are an equal number of expensive, high profile flameouts. Does anyone remember Dryel, the at-home dry cleaning solution? How about the Fit Fruit and Vegetable Wash? They were just some of the multi-million dollar write-offs.

P&G’s development process actually reminds me of how we used to develop on-premise enterprise software: long 18- to 24-month cycles, a handful of beta testers—almost like a focus group—and then a big launch to manufacturing and worldwide sales channels. The hit products were huge, but there were also many high-profile flops—for example, Groove Networks.

But things have changed so dramatically in software development… The rise of open source has ramped up productivity as thousands of people contribute features and bug fixes. Short, agile development cycles incorporate customer feedback and allow developers to iterate in weeks versus months. Finally, SaaS distribution models allow for more direct feedback as developers can now see every interaction the end users have with the software. Taken together, software is getting to market sooner, at a lower cost and with a much higher success rate at launch.

Is it possible that many of these learnings from software development can be applied to real-world consumer product development?

That’s exactly what Quirky has figured out and why they have the potential to disrupt the entire P&G business model. Ben Kaufman, Quirky’s founder and CEO, had the vision to democratize product development. He assembled a team of professionals across design, merchandising, legal, manufacturing and marketing to work with a worldwide community of participants who collaborate on every aspect of product development. The community contributes ideas, names and slogans, pricing input, marketing tips, manufacturability suggestions and will soon be able to offer in-store merchandising help.

So why do thousands of people help Quirky make products? They get paid! One of the more popular products, Pivot Power, a completely redesigned, flexible power strip, will pay nearly $500,000 to its inventor and another $500,000-600,000 to the more than 700 contributors who helped bring the product to life, including the person who came up with the “Flex Your Power” slogan. And that’s just this year’s expected earnings for one product! The inventor and influencers will make significantly more in the future: 10 percent of wholesale revenue and 30 percent of online/direct revenue. Now that’s a real incentive!

Is it possible that the collective brainpower of thousands of people can be more successful than the experts at P&G? We believe that Quirky has cracked this code and that’s why we are announcing today that Andreessen Horowitz has led Quirky’s $68 million expansion round. Here’s why we’ve invested:

  • Ben Kaufman is the epitome of what we call “founder-market fit”. At his previous company, Mophie, a maker of iPhone accessories, Ben ran into all of the problems small inventors have getting their ideas to market. It was through his real-world struggle with prototyping, manufacturing and merchandising through retailers that Ben decided there had to be a better way for everyone.
  • The vast majority of Quirky products require an investment of less than $50,000 along with one to four designers/engineers working with the community. As such, every single product that Quirky has launched to date is profitable—there have been no duds.
  • The average time from when a Quirky product idea is submitted to when the product appears on a store shelf is a remarkable 120 days. Quirky develops prototypes with a 3-D printer to quickly iterate designs and the crowd-sourced feedback de-risks the products before they hit the retail shelves.
  • References with Quirky’s network of major retailers (e.g. Target, Fab.com, Bed Bath and Beyond, etc.) were absolutely glowing. They love the newness, speed and innovation that allow Quirky products to command price premiums and more favorable in-store displays.
  • Quirky’s fast-paced culture attracts the world’s best consumer product designers. Each designer is typically working on five to 10 projects at a time, across a wide range of product types. If you want to build a large portfolio in a short time, you wouldn’t want to work anywhere else.
  • Quirky is testing a unique scan-based trading model that would leverage the community to manage in-store displays, merchandising and inventory management. This is a completely new innovation that has their retail partners excited: “Quirky is moving 10 times faster than their competition.”

Offline retail and product development are well overdue for innovation and Quirky is the most exciting new retail concept we’ve seen since the Apple store opened over a decade ago! I’m thrilled to be joining Quirky’s board of directors and look forward to helping Ben and the company expand dramatically.

I’d like to thank my partner, Connie Chan, for being such a passionate advocate for Quirky. If not for her early interest and dogged pursuit, we surely would have missed the innovative magic happening under the hood.