Bitcoin, a digital payment system, allows a user to pay another without Bitcoin parent system having knowledge of who is paying whom. The trick to this kind of network is keeping the both the list of transactions and the list of accounts on users’ computers, instead of in Bitcoin’s cloud. When a user wants to make a payment, she clicks on a name and money is sent to the recipient via the internet, not through a Bitcoin payment network.

The only roles the Bitcoin system serves is to verify user accounts and provide new users with a secure transaction key as well as maintaining the local application logic that accepts and records transactions.

What if a social network did the same? In other words, what if Facebook didn’t manage and store all your photos and communication, but instead built a client app that did this as a peer-to-peer service like Napster did for music?

One could argue Skype is the closest. After all it is mostly peer-to-peer. But Skype keeps a global address book and sometimes offloads calls to its cloud to ensure quality when peer-to-peer connections are weak. Clearly, a social network without a global address book would suffer much slower growth.

The result would be a more anonymous, potentially more secure system, that would likely be much less valuable a company. Other ramifications are harder to think through but I think targeted ads would be a near impossibility because the service would know far less about its users. A gaming platform might be feasible. Payments may work. But it all depends on the implementation of the client app.

What do you think an anonymous social network might look like? Have you seen any others?

Web services want/need deep user data to (i) provide better experiences to their users (ii) generate more money from their users. Most of the time, we’re willing to trade one for the other. Relevant ads are much better than irrelevant ones. Compare GroupOn deals (for pole dancing lessons) to Facebook ads for example. Aside from apathy/laziness, I think this is why most users remain with errant web services.

But the ecosystem gets into trouble when data leaks. One tension exists between short-term growth and long-term data security. As web services seek growth and quick time to market, short term investments in user data security don’t make sense. After all, who knows whether SHA encryption matters if we only have a few hundred users. Don’t hash the db yet.

By the time web services reach scale, there tends to be huge technical security debt. Compounding the challenge, exploits are becoming increasingly sophisticated. Lastly, most users aren’t trained to handle sensitive data, copying files to their laptops in unencrypted form and shortly thereafter, misplacing the laptop.  The result: wide-spread data leaks even at the world’s largest institutions. More than 867TB of data was stolen in 2010 alone by foreign actors.

We’ve all been impacted, to such an extent that we even become blasé about it. I suffered 2 data leaks last year at the hands of Citibank and Stanford Hospitals. I bet much more of my data leaked without my knowledge. Think of all the data syndicated through FB apps, GMail oAuth, Chrome extensions, mobile phone apps, and Twitter.

The problem is a huge because of the potential to destroy credit, steal identities or worse. At the heart of this challenge is complexity of these systems. Very few people understand these systems through and through (despite FB app permission dialog boxes and 40 page EULAs), much less the average user or Congressman.

The Internet has blossomed and released a huge amount of data. Over the next decade, data security will be a fundamental challenge.  And there are no easy answers because of the scale of the problem: the number of users, web services, companies, petabytes of data and cooperation needed between public and private entities. But ensuring we protect our data is critical to the continued growth of the web because trust underpins all transactions, even those on the web.

Alibaba is raising $3B in loans to take the company private after negotiations to acquire Yahoo’s stake in the company fell apart.

Apple announced Messages, a cross platform messaging client to be made available in the next release of the MacOS, called Mountain Lion, which is due in summer. Messages will support synchronous and asynchronous communications, the use cases for IM and SMS. Apple also announced iCloud has 100M users, growing from 85M in 3 weeks.

American Express has partnered with Twitter to facilitate their 4M SMBs to advertise on Twitter.

Identified, a Facebook based professional network, has announced 1.5M MAU and 202M profiles compared to Branchout’s 4M DAU and 300M profiles. Both companies are growing quickly.

Kayak has partnered with TripAdvisor to integrate TripAdvisor reviews into Kayak Hotel Search.

New search engine contender, DuckDuckGo, announces 1M daily searches up from less than 100,000 in January.

Mobile

Amazon’s Kindle has garnered 14% of the US tablet market according to research firm iSuppli, which estimates Amazon sold 3.8M Kindle Fires in Q4.

Americans spend 23% of their time with mobile devices but only 1% of ad dollars are allocated to mobile, according to a study by Flurry.

Zynga announces 15M daily mobile gaming users, or about 10% of the company’s 153M monthly uniques.

Liquidity

GroupOn has acquired HyperPublic and Kima Labs for undisclosed prices. HyperPublic aggregated high quality location data and Kima Labs provided location aware mobile shopping cart technology

Fab.com has acquired Casacanda, a German competitor, to combat the Samwer brother copycat called Bamarang.

BrightCove shares rose 30% in first day trading giving the company a market cap of $400M on revenues of $64M.

Financings

The hardest part of starting a company is spotting the opportunity. The hardest part of driving a company to success is finding the angle.

The angle is the essence of the go-to-market strategy – what you get when you ask the five whys starting with “Why should I use this company’s product?” It’s the reason your company wins in a market.

For consumer products, the angle can be design (Tumblr), user acquisition skill (Branchout), partnerships (Zynga), market timing (Plastic Jungle), community understanding (Pinterest) or key relationships like stars (Shoedazzle). For ecommerce companies, the angle can be building a market place for a particular community (etsy), market segment insight (ThredUp), inventory acquisition efficiency (Gilt) or pricing power through scale (Amazon). For software companies, the angle can be new forms of distribution (expensify), solving a new problem for companies because of new technology challenges (Datameer) or bringing new technology to market (MapR).

Underpinning every successful angle is:

• market place / value chain understanding
• customer needs insights
• the right timing

The end result is the angle – a competitive advantage that wins your startup disproportionate share. The angle is the most important thing I look for in pitches.

What are some of the best angles you’ve seen?

I was on the crew team in college. It was a team in the purest sense – whoever rowed the fastest, made the boat. We all knew our scores and where we stood relative to each other. We were friends and competitors. For some it was a great place; for others the culture and the demands were too much (like a startup might be) and we saw 93% attrition over the first year (only 7 of the original 100 stayed for freshman year).  But the culture set the tone for every decision we made, how we approached each practice and how we worked together.

I think about the crew team when I ask other companies about their culture. Culture tells you a lot about the leadership of a company – what they value and how they express those values to their teams.

Each startup needs a different kind of culture – etsy’s whimsy resonates with their community of makers. Expensify’s straightforwardness attracts sales people and accountants. The culture of a team not a family is one that rewards performance, while still building a community. It’s great for sales driven organizations.

Building a culture, defining your values and hiring people who thrive in such an environment is a key to success. Take the time to think through it.

What cultures have you seen that should be emulated?

Pinterest has 10.4M users, 9M of which are active monthly and 2M daily, according to AppStats.

Two projects reached $1M raised last week on Kickstarter, the first time such a mark has been achieved.

Video game sales fell 34% y/y in January to $751M from $1.14B, according to NPD. Hardware and software sales fell 38% while accessories only fell 18%.

Amazon has licensed Viacom content increasing its streaming library to 15,000 titles. The service is free to Amazon Prime subscribers ($79 annual subscription). Separately, Verizon has partnered with Redbox to offer a video service which will provide DVDs by mail and video streaming via joint venture.

Three weeks after launching a live TV dongle that accepts a coaxial cable feed, Boxee is facing litigation from Time Warner and Comcast. Currently basic cable channels are unencrypted and large cable companies would like the FCC to change rules preventing channel data encryption.

Nginx, a web server, has reached about 10% market share reaching nearly 40M domains, according to Netcraft,

Spark hired Nabeel Hyatt, former general manager of Zynga Boston, as venture partner. Foundation Capital hired Zynga’s chief marketer, Padma Rao, as EIR.

Mobile

Google released Chrome Browser for Android. The browser is an optional download today but will likely be bundled with future updates to Android. Android’s Chrome browser syncs with the PC/Mac version of Chrome and is a fully featured HTML5 browser – though Flash is not supported.

Honeywell has sued Nest, the smart thermostat company, for patent infringement.

Tencent’s mobile gaming platform reaches 200M mobile users compared with Facebook’s 425M mobile users, 60M of whom access Facebook connected apps about 5 times per month on average using smart phones.

Earnings

LinkedIn reported revenue of $168M (+105% y/y) with net income of $6.9M (+30% y/y)

Jive announced $22.5M (+53% y/y) of revenue and posted a loss of $12.7M (-86% y/y).

GroupOn announced $505M (+182% y/y) and a net loss of $35M (up from a loss of $379M last year.)

Liquidity

Oracle acquired Taleo, a SaaS talent management software maker, for $1.9B in response to SAP’s $3.4B acquisition of SuccessFactors.

Appcelerator, maker of mobile developer tools and platforms, acquires Cocoafish, a mobile backend service provider, to provide full stack service to mobile developers. Cocoafish competes with Parse, StackMob and others.

Dassault Systems acquires Netvibes for $26M.

Groupon has acquired Adku, a Founder’s Den company, that provided product recommendation technology.

Financings

The availability of all kinds of new data will change the way most people do their jobs in the next ten years. The NYTime has a report on Big Data that points to the fundamental reason for this change: the capacity to measure many more things.

To grasp the potential impact of Big Data, look to the microscope, says Erik Brynjolfsson, an economist at Massachusetts Institute of Technology’s Sloan School of Management. The microscope, invented four centuries ago, allowed people to see and measure things as never before — at the cellular level. It was a revolution in measurement.

Data measurement, Professor Brynjolfsson explains, is the modern equivalent of the microscope. Google searches, Facebook posts and Twitter messages, for example, make it possible to measure behavior and sentiment in fine detail and as it happens.

In business, economics and other fields, Professor Brynjolfsson says, decisions will increasingly be based on data and analysis rather than on experience and intuition. “We can start being a lot more scientific,” he observes.

A report last year by the McKinsey Global Institute, the research arm of the consulting firm, projected that the United States needs 140,000 to 190,000 more workers with “deep analytical” expertise and 1.5 million more data-literate managers, whether retrained or hired.

The NYTimes report on the “Age of Big Data“

Measuring the way consumers feel about a movie before its released with Twitter data analysis, evaluating a patients vital signs over the past six months using mobile phones and passive sensors, or evaluating where to stay when traveling abroad using friends anecdotes and aggregated data from the web each use new measurements to make better decisions.

The last thing any entrepreneur wants to do is shut a company down – but sometimes things don’t work out. Over the past 2 years, I’ve been working on closing one of our portfolio companies. It’s been more painful than I would have guessed.

I’m the CEO/President/Chairman of this company. There are no employees and the company hasn’t been operational in 3 years. I’m moving our company into a state called Assignment for the Benefit of Creditors or ABC. The company isn’t operating and now it’s time to settle debts and shut the thing down. Closing the company means we won’t have to pay fees to keep the company registered in Delaware, state and federal income taxes, and directors’ insurance

Here are the lessons I’ve learnt the hard way.

1. Paper everything. Keep every record: payroll, contracts, share purchases, agreements (consulting and otherwise), tax returns. You’re going to need it all. My company has many agreements with other companies that are partnerships and joint ventures. There are all kinds of provisions for revenue sharing, control of the entity and insurance risks.
2. Hire someone to manage your finances, part-time, as soon as you can. You have to keep your house in order. When you shut the company down, it’s critical to know who owes you money (employees, vendors, others) and who owes you money (customers).  Plus, if you play your cards right, there are some great tax benefits you can use or sell.
3. Hire an attorney you trust to ensure that all your contracts and agreements protect you and the shareholders of the company (employees and investors).
4. Make sure you have a drag along clause in your term sheet that allows either a board majority or a shareholder majority to force the company to be sold or be shut. Drag along clauses are important if you have lots of shareholders. In my case, there are lots of small (< 1%) shareholders. Getting a hold of them 10 years after their first investment and encouraging to sign a document for a company they have long since forgotten about is a waste of everybody’s time.
5. Shut the company down as soon as possible – when everything is fresh in people’s minds.
6. Hire a reputable experienced firm. I hired two firms – the first, less expensive, didn’t move the process forward at all. The second, better known, but 3x more expensive, has things tied up in just a few weeks.

The faster you can shut the company down, the faster you can move onto the next thing. I’d love to hear any stories about shutting companies down and if others have tips/tricks.

Apple, Google, Facebook and Microsoft are aggressively competing in mobile by acquiring UI technology (Siri), patents (Motorola, IBM, et al). In the next few months, I expect acquisitions in mobile ad technology, mobile cross platform development technology (HTML5), payments and potentially ecommerce. Additionally, startups serving these sectors will  likely be approached by financial services companies, carriers, OEMs and others who want a bite of the same pie.

Oracle, Salesforce and SAP are competing in software-as-a-service and starting from their core strengths (database, CRM and BI respectively) and branching out to provide suites of solutions that now include talent management (Taleo, SuccessFactors), commerce (Endeca, Art, DemandTec) and many others. Smaller SaaS companies like Concur, ConstantContact must also respond with acquisitions to win share.

I think 2012 will be a huge year for M&A. With lots of cash to bandy about, lots of market share and growth to changing hands through disruptive change, fireworks are bound to be lit. And champagne bottles opened. Which companies do you think are most likely to be acquired?

Do you know this expression? I’ve heard this expression quite a bit recently. I’ve even been told there’s a movie of the same title.

In fact, an investor in Redpoint’s funds told me last night about his process of researching venture funds to invest in: he looks for investors who pay it forward. He asks entrepreneurs which VCs helped companies despite not having invested in the company by providing feedback, checking in or helping out in other ways. At Google, we called this value “googliness.” Saying the word makes me smile.

But, he’s exactly right. The best members of an ecosystem prioritize the healthcare of that ecosystem. I could argue that paying it forward is the mantra of Silicon Valley and its essential to the health of its ecosystem.

New entrepreneurs, new VCs, new members of all kinds are introduced around and most are willing to take those meetings. In a way, we’re all working together to make sure that Silicon Valley is successful – that tech is successful because it’s what we love to do. We love to invent, to destroy, to recreate.

This is the magic of Silicon Valley. Let’s keep it going.

What are the best ways of paying it forward you have seen?