Following the news that Yahoo will acquire social sharing platform Tumblr for a massive $1.1 billion in cash, it’s becoming clear that two of these investing svengalis are Bijan Sabet of Spark Capital, and Fred Wilson of Union Square Ventures. They’re the venture capital rockstars of the social web as their jaw-dropping track records shows — they have been very early investors in companies like Twitter, Tumblr and Foursquare. Wilson was also early to Zynga, Etsy and Kickstarter.

David Karp, Founder and CEO, Tumblr paidContent Live 2013 Albert Chau / itsmebert.com

We’ve seen this pattern before. During the networking boom of the late 1990s, it was Vinod Khosla and Promod Haque of Norwest Venture Partners who scored many of the top deals. Khosla was early to the table with companies like Cerent, Siara and Juniper Networks.

For the first wave of the consumer Internet it was John Doerr who owned it all, and later during the search boom, he and Sequoia Capital’s Mike Moritz led the charge by investing in Google. Similarly, the shift to the social web (or post Web 2.0) has been a happy hunting ground for Wilson and Sabet.

While there are others such as David Sze of Greylock and Jim Breyer of Accel Partners who have found success in social with Facebook, the Sabet and Wilson team has a better on-base percentage. And one of the reasons why these two guys have found gold faster than others is because they are active participants in the social web and invest in what they know.

Sabet, who moved up to number 51 on Forbes’ Midas List in 2013, was described by Tumblr’s founder and CEO David Karp as someone who “lives and breathes,” social media, and as Karp’s “mentor, friend and partner from day zero.” Sabet said in a post this morning that he met Karp when he was 19 and “was immediately taken with his passion and drive to create wonderful things.” His other investments include Twitter, Foursquare, OMGPOP (sold to Zynga for $180 million), and thePlatform (acquired by Comcast), as well as RunKeeper, Boxee, Jelly, Lyft and Stack Exchange.

Wilson, who writes the popular blog AVC, is one of the most winning venture investors thus far in the new century. He rose to number 16 on Forbes’ Midas List in 2013. In addition to Tumblr, Wilson has backed Twitter, Zynga, Etsy, Kickstarter, FeedBurner, Lending Club, Zemanta, ComScore and Tacoda (sold to AOL in 2007).

In a sign of the new power of the New York startup ecosystem, Tumblr is run out of New York, and both Wilson and Sabet are East Coasters — Wilson in New York, Sabet in Boston — but of course spend a lot of time in Silicon Valley. It’s through these two investors, who live across the country from Sand Hill Road, that a major chunk of the web’s leading social brands have emerged.

Pulling out lessons from these master’s investing practices, would be a good topic for a book. But I’ll run through just a couple I see that are obvious. Sabet clearly has an eye for finding the passionate creator founder early, and has an ability to see the future. Wilson has long practiced what he has preached, is utterly immersed in social and has a unique way with words. He writes this morning on his blog about one of the cliches of VC investing: “success has a thousand fathers.”

Clearly Sabet and Wilson are two of the main fathers of this morning’s success story.

Updated at 1:20 PM on May 20, with comment from Fred Wilson. Wilson attributed some of the deals to his Union Square venture partners and says that “investment syndicates are a team.”

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Spark Capital was founded in 2005 in Boston by Todd Dagres, Santo Politi and Paul Conway, and has invested in some well-known tech companies like Twitter, Tumblr, OMGPOP, and Warby Parker. An oversubscribed fund is one where the size of the fund is smaller than interest from potential investors.

General partner Bijan Sabet said the firm plans to continue its current investment strategy for the new fund, looking at mostly early stage deals but some larger growth stage deals as well. A recent report looking at venture capital trends overall for 2012 found that a good number of firms were moving more toward early stage investing.

“We like early-stage investing in companies that we can then be supportive of over time,” Sabet said. “And we’re going to stay with this strategy.”

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Nabeel Hyatt, a venture partner with Spark Capital, is in a unique position to understand game design as a VC, because he began his career as a developer himself. Founder of Conduit Labs, a game studio acquired by Zynga in 2010, Hyatt then became a General Manager at the social game giant, where he led development of Adventure World.

Create games with great retention—and understand why they’re succeeding

Hyatt’s number one metric for games that interest him as investment prospects: Day-one retention, i.e. whether new users come back the next day to play. This is an especially important way for Hyatt to evaluate games he might not personally “get” himself. His rule of thumb: Anything below 13 percent day-one retention is bad, while a great target is toward the 60-percent range. (If a game remains below 13 percent after a couple months despite attempts to grow retention, it may be time to kill it.)

Hyatt also looks for teams to invest in who understand why their game is succeeding—for instance, why players are rating the game highly, why day-one retention is strong, or even something as simple as why people smile while playing the game. “That tells me a lot about their thought process,” Hyatt says. “The games companies in this new ecosystem that are doing better and better are the ones asking why.” It used to be that games would evolve every few years with the launch of a new console; now, however, game evolution cycles are happening on a near quarterly cycle. For that reason, Hyatt says, “It doesn’t matter how analytical you are or how cutthroat you are; it comes down to measuring those results to figure out how to get better.”

Pitch games that give players long-term aspirations

Hyatt puts a lot of stock in the long-term goals a game creates for a player: “What’s the aspiration of a player? What’s the thing they’re trying to build in the future? How would they imagine themselves playing the game in a year? What’s the moment-to-moment experience in order to meet the aspiration?” This isn’t just a high-minded design goal, but good business sense. After all his firm invests in games as a recurring service, not games enjoyed for a day or two then discarded.

For the company pitching Hyatt, they need to answer two key questions: Why now? Why you? “We invest in areas where there might be an opportunity for explosive growth,” he says. Most companies aren’t likely to realize such growth, so the developer must explain to him why they’re the exception.

Name your strengths as a startup—and your weaknesses

“What I want to see is an entrepreneur who understands their biggest strength and their biggest weakness and be able to talk about both honestly,” says Hyatt. Understandably, some developers in search of funding may hope to obscure their shortcomings, but Hyatt insists he would prefer if they instead face them head on, saying something like: “If yo’’re not going to invest, this is the number one reason you’re not going to invest.” Not only does this demonstrate that the developer truly understands his or her business, it also opens up an opportunity for the VC to offer suggestions and help the start-up.

There’s a corollary to this advice: The developer should know what they’re best at, and be able to explain why and how. “A small company can’t be good at one hundred things,” Hyatt says. “They can only afford to be number one in one area.”

* * *

A managing director with Lightspeed Venture Partners,  Jeremy Liew has invested in a number of successful gaming companies, including Playdom (acquired by Disney), Serious Business (bought by Zynga), and KIXEYE.

Have a plan that demonstrates repeatability and discoverability

As Liew puts it: “How do you build a hit factory?” While not every game will be a hit, a startup should have some kind of native advantage which makes their games more likely to be a hit. That could be due to a built-in audience created by a series of sequels, or a hit niche game genre with real complexity and a passionate playerbase. As an example of that, he cites KIXEYE, which focuses on core gamers who are under-served by Facebook games.

For discoverability, Liew describes the current playing field this way: Whereas in the past, game distribution used to be the bottleneck (i.e., selling games in boxes on shelves), now most games are available online, so distribution is free and easy and democratic, and development on the larger platforms is relatively inexpensive. However, this very fact makes discoverability quite crucial. “In a world where there’s tons and tons of games, how do you get to be the one people try and our talking about?” Liew says. As he notes, it’s just simply not enough to create a great game, unfortunately. “There are [already] so many great games that are sitting out there, languishing,” he notes.

Don’t just talk about how good your game is—prove it with user data

Liew says this is a common mistake, with developers insisting in the face of his skeptical questions, “Yeah, but the game is going to be awesome… that’s why it’s definitely going to work.” The hard user data shows that prediction, however, is almost always wrong. Instead, show Liew the data. He adds an adage that may be hard for developers to swallow: “Game design is not predictive… user engagement is predictive.

Wagner James Au is a game-development consultant and writes the gaming/virtual culture blog New World Notes. Follow him on Twitter @SLHamlet.

Excerpted with permission from the publisher (Wiley) from “Game Design Secrets” by Wagner James Au, copyright © 2012.  Now available in paperback and e-book (use code “GDS12″ for a 40 percent discount at checkout).

Photo courtesy of Shutterstock.

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In particular, I love one of their weekly features: Playlist, where they ask some of their favorite people (designers and cool creatives) what they listen to when they work.

I thought, wouldn’t it be cool if we asked people in the tech industry to share the apps they use, their favorite gadgets and most importantly, the songs that inspire them?

Many of them have great and eclectic taste in music, so I thought I would ask them to share what they listen to and how they listen to. And I thought why not ask them about their favorite music blogs and apps and even Spotify/Rdio playlists– after all we all need help with discovery in this age of plenty.

So, with a full tip of the hat and extreme gratitude to folks at Herman Miller, here is our first musical bouquet. Our first candidate is Bijan Sabet, general partner at Spark Capital whose investments include Twitter and Tumblr, not to mention a whole bunch of other cool startups. He is often tweeting about music and blogs his favorite tunes on his tumblr.

What kind of music do you listen to when you work?

Usually new stuff but there are times when you just need to put on The Clash.

How do you listen to the music? (Tell us about the gear you use)

In the office i’ve got my iMac with external speakers I discovered on Svpply. When on the go, my iPhone with my new Bose IE2 headphones. At home we use Sonos all the time.

What are your favorite music apps/services?

ex-fm (social + curation); Soundcloud for new artists are constantly uploading their new stuff to Soundcloud and Rdio, especially if i just want to listen to an album from front to back.

What are your favorite music blogs?

We All Want Someone To Shout For: The founder Will Oliver has awesome taste and is a huge Arctic Monkeys fan. Today he’s got Beirut. I love that blog.

David Noel’s Tumblr always has great tunes and so does Fred Wilson’s Tumblr. And of course, Andy (Weismann) although today he’s got a Bee Gees cover which I’m not sure about. :)

What are you listening to right now?

I’ve got Ben Kweller’s new album “Go Fly A Kite” and the debut Of Monsters and Men’s on heavy rotation.

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Earlier this morning Kim Mai Cutler first reported that OMGPOP was being pursued by San Francisco-based Zynga and was being valued between $150 million to $250 million.  Cutler reports that Japanese gaming companies DeNA and GREE are also in the bidding for the hit-game maker.

The company saw total downloads for Draw Something blast past 30 million. My colleague Ryan Kim in a post earlier this month chronicled the rise of Draw Something:

The app has generated about 2 billion drawings and is still being played daily by more than half of its users, who are exchanging pictures at a rate of 2,000 to 3,000 a second. And Draw Something, which is adding more than 1 million users a day, is pulling in low six figures in revenue a day, (CEO Dan) Porter said, mostly from upgrades but also in-app purchases and advertising.

Zynga bought Words with Friends maker New Toy in December 2010 for just north of $50 million. The company behind Draw Something is being valued nearly four times that. The OMGPOP acquisition would be in sync with Mark Pincus’ (Zynga’s founder and CEO) views on mobile gaming and how it can actually compete with television for attention.

With every week’s delay, the value of OMGPOP increases, closely tracking its user and engagement growth, which in turn is catalyzing revenues. The company which was initially funded by Betaworks has raised a total of $17 million from investors such as Spark Capital.

OMGPOP is the newest incarnation of Iminlikewithyou, which was co-founded by Charles Forman and Dan Albritton and came out of YCombinator. When it launched in early 2007, I was quite addicted to the web-mobile service and dubbed it “love in the time of Facebook.” The company hit an air pocket. The company switched gears to making browser-based games, then shifted focus to Facebook games, before eventually settling on mobile games. They found success with Draw Something. Of course, by now both founders are gone.

Regardless of what comes of the acquisition offer, it is hard not to feel amazed by the turn of events for this five-year-old company that has been trying and losing and trying again to find its groove. As for the final bids – stay tuned.

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Skillshare CEO and co-founder Michael Karnjanaprakorn

Skillshare, the peer-to-peer learning start-up I profiled recently, has raised $3.1 million from Union Square Ventures and Spark Capital. I reported in my profile that the two VC firms were close to funding Skillshare’s Series A round and now it looks like it’s official.

I like New York City-based Skillshare because it’s a simple platform that helps turn anyone into a teacher. Users can offer their own offline classes based on their skills or expertise and Skillshare takes 15 percent of the revenues. Since launching in April, Skillshare has helped organize about 500 classes in New York with 2,500 students and many more users who have browsed the site.

The new money will help the company as it expands its scope beyond New York. This week, it branched out to San Francisco and Philadelphia with plans to hit Boston, New Orleans, Portland, Seattle and Los Angeles later this year. CEO and co-founder Michael Karnjanaprakorn told me earlier that he thinks Skillshare can continue to grow and ultimately create physical schools and online classes.

Union Square’s Fred Wilson said he was so taken with the idea of Skillshare, he is planning on offering his MBA Mondays classes on the site this fall. His partner Albert Wenger recently conducted a course through Skillshare and said he thoroughly enjoyed the experience.

Skillshare, which previously raised $550,000 in a seed round from Founder Collective, SV Angel and other angels, is part of a larger movement in education 2.0 and is adding to the growing momentum in what Om calls the P2P or person-to-person economy. Take a look at this video interview I conducted with Karnjanaprakorn.

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Blogging platform Tumblr has raised another round of financing from its existing venture backers, Spark Capital and Union Square Ventures, putting additional pressure on the 3-year-old company to start generating some revenue — something Union Square partner Fred Wilson says the startup is now focusing all of its attention on. The $5 million in funding was what’s known as an “inside round,” in that no new investors joined the financing group, and brings the total raised by the startup to $10 million. Generating revenue could be a tall order, however, given that Co-founder and CEO David Karp has said that the company is “opposed to advertising.”

Karp, who is 23, made the comments to the Los Angeles Times last week, adding that the idea of putting ads on Tumblr pages company “turns our stomachs.” Instead of relying on ads, which many other publishing companies depend on for revenue, Tumblr has been experimenting with charging users for add-ons, including professional-quality themes and other features. The site considered a premium version of its service called Tumblr Plus that would have incorporated some of these features and enhancements, but rejected that idea based on feedback from investors, according to the LA Times. Tumblr competes with other blogging platforms such as Posterous and WordPress.com (see disclosure below).

Meanwhile, Fred Wilson suggested in comments on a blog belonging to entrepreneur Scott Rafer that the latest financing round will be Tumblr’s last for a while, and that the company is now focused on maximizing revenue. After Rafer suggested that multiple rounds from the same group of investors tends to put pressure on startups to “optimize for growth, not cash flow,” Wilson responded sarcastically that this “sure didn’t work out very well for jack, ev, and biz — nor did it work for zuckerberg or pincus either,” referring to the founders of Twitter, Facebook and Zynga, respectively. Wilson added that “some businesses should be allowed to scale and that takes capital — going for revenues and profits too early in some businesses is a mistake.” Tumblr has grown fairly rapidly over the past year, and now brings in more than one billion page views a month.

Rafer also said that while the founders of Tumblr might want to “dream the big dream,” funding such a company beyond two rounds requires that it be “super hot for revenue not to matter” and that the founders were “playing it way too risky.” But Wilson responded that “revenue is coming in nicely now” and that the recent financing “will be it, given the focus on revenues.” Now all Karp and his team have to do is come up with some.

Disclosure: Automattic, maker of WordPress.com, is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.”

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gdgt co-founder Ryan Block

Peter Rojas and Ryan Block, who used to rule the world of gadget blogs at Gizmodo and Engadget, have raised $3.2 million in financing for what they see as the future of gadget reviews online: a site simply called gdgt — so hip and futuristic it apparently needs no vowels whatsoever — where users talk about and review gadgets they either want to buy or have already bought. The financing round, which closed last month, was led by Spark Capital and True Ventures (see disclosure below) and also included funding from Betaworks, AOL Ventures, Lerer Media Ventures and a number of private individuals, including Betaworks partner Ron Conway, John Josephson and Gillian Munson of Allen & Co., Jason Calacanis and SB Nation CEO Jim Bankoff.

Unlike traditional review sites, such as the ones that the founders used to work for, gdgt has no paid reviewers who hold forth on the benefits or flaws of new devices or leak product photos before they are launched. Instead, it has what Rojas and Block say are hundreds of thousands of registered users who come to the site to talk about and learn about the devices they want to buy, and to comment on products that others are interested in buying. When you set up a profile at the site, you are presented with three options: 1) say something, 2) ask a question and 3) get support. You can also set up a list of products you want to buy or have recently bought, so you can track conversations about them.

In many ways, gdgt feels like a more modern version of a site like Epinions (now owned by eBay), where buyers talk about and rate things they have purchased, or like an updated and enhanced version of Amazon user reviews. According to recent posts there by Block and Rojas, the site is trying to come up with ways to give users “reputation capital” in return for providing good content, and to highlight their contributions based on how much capital they have within the system. Rojas also told the Wall Street Journal that the company is looking at forming relationships with marketers and distributors of the kinds of products its members are looking to buy, so that they can be shown relevant content while they are browsing or using the site.

Disclosure: gdgt is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

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Post and thumbnail photos courtesy Flickr user Thomas Hawk

Twitter doesn’t generate revenue — and hasn’t yet hammered out a business model — but the aforementioned investors are valuing it at around $1 billion, the Journal reports. Twitter has raised $55 million thus far.

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They just sold me a renewal. Worse, they sent lots of solicitations to buy Clear cards as gifts (!) That must border on fraud since presumably they knew when they were selling me and doing those solicitations that they were “in the zone of insolvency” or whatever that legal term is.

I couldn’t agree more. Any company that is about to go belly-up should know not to be actively solicit new business from unsuspecting consumers. I have also heard they were pushing “Clear cards” as Father’s Day gifts. Now imagine if you gave one of those cards to someone!

Original Post: It was one of those logical ideas that couldn’t go wrong. Tightened security at the airports meant that one had to spend extra hours going through security checks, something that wasn’t convenient for busy executives, who didn’t want to waste hours standing around in lines. From that inconvenience came the idea — what if you got registered as a traveler, got approvals from all the right authorities, and received a special Clear card that would allow you to get through a special security check line called the Clear Lane?

In 2004, founder & media magnate Steven Brill started the company, Verified Identity Pass, and over its lifetime convinced a stellar line-up of investors such as Lockhead Martin and Spark Capital to pump as much as $54 million into it. Today the company shut down — as much a victim of the economic downturn as it was of its perceived value. The downturn has led to travel budgets shrinking drastically and with it the number of executives in need of a Clear-type service. Many of the everyday travelers actually cared about the service that cost about $200 a year. The company managed to sign up just over 250,000 subscribers.

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