The Birth of Riya.com

Well, Munjal has finally taken the covers off of riya.com. This is very exciting. He has been blogging about the birthing process for some time. And it makes fascinating reading. Now that it’s official (though still in alpha), I thought might be appropriate to discuss another part of the process -- conception, not birth.

I am not going to discuss the who-gets-credit-for-what issue. That’s pretty banal and self-serving if re-hashed. But I do think it is important to share with you how we collaborated in the process, particularly from the VC point of view.

We at Leapfrog met Munjal several years ago. I think the attraction and respect was mutual almost immediately. Consciously, or not, we developed an ongoing dialog about his prior business, issues he was facing and choices he had. This gave us a chance to really understand Munjal’s values, motivations, and business judgment. And he developed the same with us. But the conversations were really just “pings”, nothing formal or really intentional. What’s the point so far? This is a relationship business, and relationships take time.

When he came to us “to kick around some ideas” we began by identifying as many “megatrends” that we could. The first principle of venture investing is catch a wave – catch two, if you can. So digital media explosion, cell phones explosion, gigapixel explosion, bandwidth explosion, grass roots content explosion, etc., were all ingredients in the mix. (We had others as well.) Everything we considered was always tested against the ‘waves’.

Second, we obsessed about barriers to entry or replicability of whatever we were considering. We both know from first hand experience that good ideas are shared memes. Rarely do people have original thoughts that have no predecessors. In the connected world of the Internet, there are lots of smart people who see the same dots and can create the same picture with a little open source and hard work.

Third, there had to be passion – because passion generates vision and vision is the essence of leadership. Munjal has blogged about how he digitized his entire life even before starting Riya.com. Clearly he had the passion about organizing digital media in an automated fashion. Being older (and a photographer who still shoots film by choice), I was sometimes skeptical about the consumer pain that he said was out there. But between the analytical data about digital media explosion and observing behaviors of less computer-savvy and/or more digipix-savvy people, I was able to see my bias was wrong.

Fourth, we had to have a sound business model. There is no “we’ll figure it out later” in our practice at Leapfrog. And Munjal knew first-hand the mortality rate of dot-coms (and more recent social networking and photo sites) that preceded him. We have one and it will be apparent in due course.

Fifth, we had to be able to recruit the key people who would partner with Munjal as co-founders before investing. Both of us wanted to know that it was a great idea and that we had to have a great team to execute it. He found that in Azhar and Burak.

Sixth, we needed to have a business that was capital efficient. Here we are totally aligned with the founders. We are a relatively small fund, by choice. This means that we don’t use capital as a barrier. We rely on intellectual property. It is a much higher ROE (return on equity) way to invest. And since founders have nothing but E, it aligns us with them. One implication is that Munjal could have raised much more money at a higher valuation than he did. But all of us (the founders, Leapfrog and our co-investor John Malloy at Blue Run) felt less capital at non-inflated valuation would serve everyone better in the long run. (If it not clear as to why, perhaps I’ll expand on this in a later blog entry).

So we labored together for several months. We had several cycles of elation and depression as we found ideas we liked, only to convince ourselves they didn’t meet these six criteria. But this one stuck. Now we are on the cusp of bringing it to market. I am not concerned about our premises or our process. They remain sound.

I have to admit I am a little worried that the blogosphere has unrealistic expectations of Riya 1.0. It ain’t perfect. Far from it. The cool factor is there for sure, and it’s really useful. But there is a ‘conservation of karma’ principle in startups. Rising expectations lead to falling realizations. Munjal took a risk in sharing the process of the startup as it was being built. He has tried to share the pain and the joy. Please remember this if you try Riya.com over the next few months. You, too, are likely to feel some of his pain, and hopefully some of the joy.

Comments

[Tejas Patel]

Nice post Peter. Yes, reading Munjal's post all this while has been a good experience. Waiting to start using Riya now :).

[Munjal Shah]

Peter your memory is quite good but you should take more credit for Riya and steering me away from some really bad ideas...;-)

[Daniel Nerezov]

I think I speak for most people, in saying;

Whoaaa, Nelly! Now THAT's a start-up.

I've thought about, and compared to online calendars and dvd trading websites, I don't see how rija.com is not a phenomenal success story in eight quarters.

Awesome. Finally, something to look forward too.

Good on you guys!

[Dorrian]

Definitely expand on your point on funds/valuation later (you know, this idea that inflated valuations for founders are a bad idea). Worthy area of investigation & thought.

I do worry that the "consumer pain" needs some refinement. I asked my wife tonight and things like date, subject matter and context are more powerful than searching by name among a closed set of friends and family. The powerful success statement that Riya has put out there tells me that they are committed to things beyond faces. Auto-tagging of places (beach, inside), context (laughing, sports) and objects (dog, car) would be much more helpful. In other words, having the computer describe the photo to assist future searching.

[Cashmore]

Peter,

Great post. I think that "replicability" is an important aspect, and Riya is clearly a company powered by technology, not just good ideas. It's a bit like comparing Google to eBay: Google has patented technology which is tough to replicate, while eBay really only has its large user base to keep it ahead. And with all this talk of Google Base, it may turn out that Google took the better path.

[Megan Cunningham]

Prior to reading this post, I just blogged on Riya 2.0: Visual Search, 4 reasons Why It's Huge. Your analysis from the VC side here sheds even more light on this story, and is a gift to the community of entrepreneurs. As someone who is running a very busy production company (2 studios 24/7), and who used to work at Getty (where this technology would save them millions), I cannot WAIT until the Riya technology really takes hold and is applicable to video.

There are at least 2 or 3 "killer apps" for you in the media and entertainment industry vertical that our enterprise accounts would die for. Let me know if you ever want to chat about this.