The annual meeting of the National Venture Capital Association just wrapped up in Boston yesterday. As you can imagine in these economic times there was plenty for the group (which is the industry association representing the approximately 450 venture capital firms in the United States) to discuss.  If you’re interested, Jason has a post on his blog talking about the main news from the meeting – the NVCA’s view on how to fix the current crisis for venture backed companies in the capital markets.

For us, there was another important announcement at the meeting this week – that Jason has joined the board of the NVCA. This is a both an important and well deserved honor that puts Jason in a position to significantly effect our industry over the next four years of his term on the board. Jason has been involved with the NVCA for years, particularly founding and working actively with a group that put together the NVCA’s model financing docs (if you are a venture backed company that has closed a round in the last few years chances are pretty high that you benefited from this effort).

We’re extremely proud of Jason and the leadership he’s shown on a national level in our industry that led up to this significant honor. Please join us in congratulating him on this great achievement.

At Foundry we organize our thinking about investing into what we call “themes”. The themes we pursue are horizontal in nature and are driven by underlying technology protocols and standards or emerging market trends and customer needs. Examples of the investment themes we are currently pursuing include Human Computer Interaction, Implicit Web, Email, Glue, and Digital Life.

As part of this approach we look to meaningfully participate in the ongoing conversation taking place within these thematic areas. To that end we’ve teamed up with Eric Norlin to work on a few conferences that bring together thought leaders from across the technology industry.  Our first attempt at this is Defrag – a conference now in its third year that is focused on how technology has evolved to help people and organizations better organize, interpret and consume disparate information (thus the name "Defrag").  While the conference wasn’t theme specific, the conversation has tended to tie closely to our Implicit Web and Email themes.

In 2009 we’re introducing another conference to the mix that we’re calling "Glue".  If Defrag is a high level discussion about meta-information, Glue is a more nuts and bolts discussion around the actual technologies that we use to pull this information together.  As you can imagine, it also fits nicely with our Glue theme. Presuppose the notion of cloud computing/platform as a service; assume the web as a platform.  Now what?  Glue is going to bring together technologists to start to answer these questions. The discussion is generally going to be "below the browser" and if you check out the agenda you’ll see plenty of topic areas that relate to the details of the changing technology and architecture landscape. And while we’re still putting the final touches on the agenda, we can confirm that keynote speakers will include Mitch Kapor (long time software luminary and private investor) and David Heinemeier Hansson (creator of Ruby on Rails) along with many sessions that are designed to encourage meaningful interaction between conference attendees.

We hope you’ll join us at the Glue – May 12^th and 13^th at the Hyatt in Denver. Use the code "early1" to get $50 off the regular conference price of $395 (but there are a limited number of discounts available, so best to register right away).

Last summer, we invested in a company called EmSense, which has developed a technology to measure an audience’s emotional and cognitive response to a media experience. EmSense does this by capturing real-time biometric data from a large group of test subjects by measuring brainwaves (via dry EEG sensors), heart activity, breathing, blinking, temperature and motion. Our investment in EmSense falls squarely into our Human Computer Interaction (HCI) theme.

As we detailed in our original blog post about this investment, EmSense has a broad array of customers in the advertising, consumer products, retail and video game segments, each of which is using EmSense’s tools to refine and improve the quality and effectiveness of their media, be it a video, radio or print advertisement, product package or video game title.

Last October, Tim Hong, EmSense’s SVP of Product Development and Analytics and one of the company’s co-founders, penned an illuminating article for Game Developer Magazine, entitled Shoot to Thrill, which showcases the power of EmSense’s platform when applied to measuring players’ level of engagement, cognition, adrenaline and emotion in real-time while playing first and third person shooter games on the XBox360 and Playstation 3. EmSense gathered this player data for games like Battlefield 2142, Call of Duty 3, F.E.A.R., Gear of War, Ghost Recon AW 2, Resistance: Fall of Man, Halo 2 and Half-Life 2.

In his article, Tim goes in-depth in describing concrete examples of elements of gameplay that engage (or bore) players and draws five categories of conclusions about what goes into making a great shooter. I won’t list all the examples here, but will mention a few that caught my eye.

1.                    Tutorials must be integrated into combat: simple, non-combat, non-perilous “target practice” is a sure way to bore the player.

2.                    “Cut-scenes” in transitions between levels lead to decreased player engagement, particularly when they are used to inform/instruct a player rather than entertain and further the plot.

3.                    Ultra-powerful weapons lead to a spike in player engagement, but unless there is an increased risk to the player while they are enjoying their fantastic new weapon, they will quickly tire of their new-found destructive power.

One key conclusion that can be drawn across the board, according to Tim’s research, is that games that do not do a good job of varying the intensity and engagement level during the course of a game ultimately lose players, measuring what is essentially player attenuation if intensity never relents or plateaus. Put another way, a roller coaster is fun because of the uphills and the downhills, while a single hill climb or single descent may provide a one-time adrenaline hit, but won’t lead to repeat riders. While many of these conclusions sound obvious or intuitive) to game developers and game players, EmSense provides, for the first time, an ability to document and measure these things empirically. For a more in-depth discussion of each of the examples I provided above as well as several more, dig in to the original article.

When we invest in a company at Foundry Group, one of the things we look for is a differentiated technology with broad applicability, and EmSense certainly fits the bill. As mentioned previously, EmSense’s audience engagement analytics have proven useful in refining and improving the effectiveness of various sorts of media: video games, radio advertisements and television commercials.

For example, EmSense was used to test the effectiveness of political ads during the (seemingly endless) presidential campaign last year, while early in 2008, Coca-Cola used EmSense to winnow down a slate of a dozen candidate Super Bowl ads to the two they ultimately decided to run. More recently, EmSense has been pushing its technology into testing product packaging and retail environments where participants can actually walk around in-store while wearing the EmSense headset . The Company is also exploring the use of their experience testing as applied to motion pictures. Movie trailers, in particular, are an experience ideally suited for EmSense’s analysis, given trailers’ similarity to TV commercials and video-games, both of which EmSense is well-experienced in.

Needless to say, we are looking forward to participating in EmSense’s growth in 2009 and are encouraged by the reception they are seeing across diverse areas of application for their technology. Given the ever-growing costs associated with video game and movie development and the mandate (particularly in the present economy) to improve the efficacy of advertising and product packaging, we think EmSense has a great opportunity to become an important partner in the development, improvement and refinement of a broad spectrum of media.

Foundry Group attended the latest incarnation of CES this past week and thought we’d give some of our thoughts on the show. In no particular order, here is “What We Learned at CES.”

1. Don’t buy a television for the next 6 months. This is certainly counter to what retailers and producers would want us to say, especially given the current state of the economy, but all the major brands are introducing exciting technologies in the first half of 2009. The TVs are thinner (some less than 1mm!), brighter (LED backlighting rocks), faster (240mhz refresh rate) and offer superior contrast ratios (1,000,000 to 1 and even higher). Next to the best of today’s generation of panels, there is no comparison. Having been to CES a few years in a row, this year seemed to demonstrate the biggest improvements on imaging. If you don’t buy a TV in this generation, hold on a couple of years until OLED TVs are commonplace and then sit a back and look at the best displays we’ve ever seen. For now, we’ll geek out on LED backlit generation two screens.
2. Everyone is trying to make things easier on consumers. It only took 20 years or so, but consumer device manufactures, both large and small are finally focusing on the consumer experience. Maybe this is the effect of Apple’s entrance into the consumer device ecosystem, but this year, in particular, showed many instances of deep thinking about usability. What was of particular interest to us were some of the startups that attended the show and instead of presenting groundbreaking technology, rather have executed on current technologies to bring the consumer a needed digital solution with the ease of use never seen before at an unexpectedly low price.
3. 3D on TV. Full HD TVs and projectors that have incredible 3D-images (glasses needed) are now consumer available. Clearly the amount of content available will drive how popular these devices become, but the technology is really impressive to experience. We played a VW racing game in 3D and would have been happy to sit there all afternoon, or at least until the inevitable headaches set in. There was also a prototype of a 3D TV that didn’t require the viewer to wear glasses. It was pretty rough, but cool at the same time. We have our doubts that the entire universe of content will ever go 3D, given how different the production tools and processes are for live-action movies and television. However, for media like video games and CG animated content which are largely “3D native” already, there should be less of a hurdle to create appropriate 3D content, and probably better justification from a user-experience perspective as well.
4. SanDisk has a power marketing department. SanDisk had their usual large presence and this year the big announcement was a 2GB Rockband-branded SD card. All for the low price of 13 bucks. Yes, you can buy a regular SD card for about 4 bucks, but why not pay an extra $9 for a cool sticker? Well done, SanDisk. Also, similarly, one can now purchase a cool looking Godfather-branded USB thumb drive, (not from SanDisk) but it does contain some Godfather content, at least. Speaking of content, SanDisk also brought out a new MP3 player for lazy people called the slotRadio. The MP3 player comes with 1000 preloaded songs based on standardized genre playlists chosen by the company, not the user. Over time, a user can order new cards to put into the MP3 player’s slot, each card having a different genre of music pre installed. The only controls on the device are play and skip (i.e. no “back”). Call this the MP3 player for people who really don’t like music.
5. It was virtually empty at the show. Okay, that is a gross overstatement, but the hotel rooms were half the price of last year and it was definitely easier to navigate on the convention floor. The folks at CES claimed there was only an 8% drop in attendance, but it felt like a lot more. Our bet is that folks who registered beforehand didn’t buy plane tickets and hotel rooms and didn’t show up. CES probably included these folks in their numbers. After all, they have booths to sell based on attendance. Some reports have the attendance at 22% down.
6. Nobu is still excellent. Enough said. Guy Savoy was also scrumptious.
7. Human Computer Interaction. We were excited to see the continual refinement and presence of next generation human computer interactions. Frequent readers to our blog will note that we are huge fans of HCI. We wouldn’t say there was anything earth shattering, but it was nice to see multi-touch and other similar technologies progress.
8. Connectivity matters. Connecting more devices to more content in more places was a big theme. On the wireless front, there was a wealth of smart phones, LG’s new Dick Tracy-esque watch cell phone, lots of in-car connectivity (satellite TV, in-dash computers with mobile Internet, etc.), and a push to deliver more relevant content (traffic, weather, sports, etc.) via traditional GPS devices. And while the idea of accessing the Internet on a TV seems a bit passé (WebTV pioneered the idea about 14 years too early), 2009 just might go down in history as the year that this idea truly came to fruition. TV manufacturers seem to have embraced the idea—we think having this built into TVs is a big step forward when it comes to the average consumer—and the wealth of newly available content like NetFlix streaming movies and Yahoo’s widgets should make for a more compelling experience than WebTV’s original email-on-your-TV proposition.

We are pleased to announce our investment in Brightleaf. Brightleaf, located in Westwood, MA, is a legal process automation company dedicated to providing business and legal solutions to in-house legal departments and law firms. Brightleaf has developed a software platform that automates much of the creation process for the legal profession’s most commonly used documents. For law firms, automating this process allows for both faster and more consistent document creation – saving them time and money while increasing quality. For in-house legal groups, the company’s platform allows for unprecedented control and standardization of business documents which allows companies to more quickly meet their customers’ needs. The company brings together a deep understanding of how enterprises create, move, store, retrieve and derive information from their legal documents.

You’ll notice that this company does not neatly fall into one of our typical investment themes. In addition, it’s focused on a single vertical market, which is a characteristic that we usually avoid when investing. That being said, we were very comfortable with Brightleaf given our previous success with the legal-focused e-Discovery provider, Stratify, the large size of the legal market, as well as Jason Mendelson’s Law Firm 2.0 philosophy.

We believe there is a large market for on-demand business solutions directed at law firms and legal departments. Both law firms and legal departments are constantly seeking ways to lower costs without suffering a drop in the quality of work produced. Legal departments are finding themselves overly constrained with regulatory and corporate compliance tasks. These burdens have increased as a result of Sarbanes-Oxley and are likely to become heavier and more time intensive with the regulations almost certain to result from the current economic crisis. At the same time, law firms are under intense pressure to decrease billings to their clients, while the cost structures of these firms have continued to bloat .

Many legal tasks, while costly, are essentially repetitions of work done previously. Tasks such as venture financings, sales contracts, non-disclosure agreements, discovery requests and many others are currently handed down to junior associates costing $200-$400 dollars per hour for work that could be largely automated.

Despite this pricing pressure, law firms around the country continue to increase hourly rates; in some cases these rates are over $1200 an hour. The rates increase as competition for top lawyers increases. While this happens, however, clients either leave the firms or begin to farm out less sophisticated tasks to other service providers. In the end, the law firms are losing hours by increasing rates and at some point, this business model cannot continue. Brightleaf allows these law firms to automate many tasks, increase margins and work for lower hourly rates and / or provide fixed fee offerings to their clients.

In-house legal departments can use the Brightleaf solution to gain real control of their document creation and review processes. Many of the functions that require copious amounts of legal review can be largely automated such as NDAs, discovery requests and sales contracts. Furthermore, different authorities can be allocated to different individuals within an organization allowing for more or less flexibility, all the while maintaining good corporate governance hygiene.

Brightleaf initial product, Secure GC, version 1.0 has already been released to customers. Secure GC offers on-demand services that are fast, flexible, and extensible solutions to managing a transactional legal practice which supports the entire transactional process from document origination through expiration. It offers the authorship of structured and highly specified contracts and can assimilate litigation, M&A, and legacy document contents. Secure GC imports, interprets, and negotiates counterparty contracts.

We are excited to join the Brightleaf team and look forward to assisting them in the next phase of their journey.