May 25th, 2009
Larry Page says web users love “real-time” information. Television brainiacs see a future of all on-demand all the time. Even data mining is becoming more real-time.
People love new. New toys, new trends, new methods, new clothes. And the shift to a more real-time web plays into this well – it allows us to constantly quench our desire for “what’s new”.
Kevin Kelleher posits that the advantage of the real-time web is its ability to enable discovery as opposed to results. I agree – guided discovery is a totally awesome part of real-time applications. I worry though, that this constant reinforcement of the new marginalizes even further the opportunity to discover anything that’s *not* new.
Historical discovery was hard enough before the real-time web. When flipping through channels on television, I would stumble on old shows by chance and watch them. Now with all on-demand content consumption, I only watch what I want. I would read the encyclopedia yearbooks in my living room to learn about years before my time, though now, I barely touch websites that don’t add new content every single day.
Old content on the web gets buried WAY fast. Sure, chronological archiving helps, but the trend toward real-time content delivery has made it possible to avoid old content almost completely – one doesn’t stumble upon dated stuff in the same way.
I hope that the idea of discovery on the web doesn’t become synonymous with new, as often some of the most satisfying and interesting finds are the ones you missed the first time around.
May 21st, 2009
Thanks to Flybridge Capital, I was able to attend the AlwaysOn Venture Summit East today at the Mandarin Oriental in Boston.
I am not exactly a veteran of VC get-togethers, so I am subtitling this post “confessions of a VC conference newbie.”
Highlights:
1. Widespread and unabashed optimism. I watched probably 5-6 panels and despite the pervasive and hard-charging recession going on for everyone else, many panelists said they believe it’s a “great time to start a company.” I’ve heard that phrase now so many times at so many different events and conferences that I wonder why my friends haven’t quit their steady jobs to become cloud experts (see next topic!).
2. Love of the cloud. I had not heard the phrase “pay-by-the-drink” before (shame on me) to describe cloud computing – though apparently Bezos has been throwing it around since at least 2006 and probably way before. It makes sense and is catchy, so I am excited to welcome the phrase into my lexicon of buzzwords. For those of you not hip to cloud computing catch-phrases, “pay-by-the-drink” refers to one of the most compelling parts of the cloud business model: dynamic/horizontal scalability and the customer’s ability to pay for only what they use.
Example – server space. You could buy an entire server for your startup and use some of it or all of it. When you get that spike in traffic that you were hoping for (viral social media marketing success!) your server might crash, negating any benefit that might have come as a result of the traffic spike. OR, you could sign up with a nifty “cloud” service like Amazon Web Services (AWS), Rackspace or Mosso. They charge based on how much server space you use. When you need a lot, the capacity is there and they just charge your credit card – see the “SmugMug” case study for more info.
There’s a lot of momentum surrounding cloud computing and “software as a service” and additionally, these businesses generally fit the capital-efficient + huge upside potential model that VCs look for, so it’s not surprising that talk of “the cloud” was so pervasive.
3. Quality of deal-flow is better. One quote I wrote down: “There are a lot of people who want to start companies, but they’re not necessarily entrepreneurs.” When VC money was more free-flowing (ahem, 2000) many of these wantrepreneurs got funded and the “noise” level became unmanageable. Now, the combination of tighter VC wallets, folding funds and newly unemployed former entrepreneurs has resulted in an increased number of serial entrepreneurs getting back in the game and putting together quality early-stage companies.
4. The importance of angel networks. My favorite panel of the conference was about the state of Angel and Early-Stage investing moderated by Michael Greely from Flybridge. The panelists were John Landry (Lead Dog Ventures), Elon Bloms (LaunchCapital), Bijan Sabet (Spark Capital) and Paul Maeder (Highland Capital). A surprising amount of VC deal-flow comes from Angel networks. This shouldn’t be too shocking – how many people are there in any one city with piles of cash (their own or others’) to invest in startups? My point: it seems like many startups seek VC funding too early – take advantage of the Angel groups in your city first and if you’ve got a winner that will likely lead to VC anyway.
5. Changing the VC model. There was also much chatter around the idea that huge mega-funds are on the decline and the VC model will move toward smaller funds and continue to favor capital-efficient business models (ie it doesn’t cost you $1m a month to stay in business). YouTube-type exits simply are not the norm; average VC exits are around $70 million. One of the panelists on an afternoon panel suggested reading a memo about the formation of Valhalla Partners. I found it on the Valhalla website and although it’s dated May 2002 it’s surprisingly relevant to the current pains in the venture industry and definitely worth a read.
Overall – good energy at AlwaysOn. Now if you’ll excuse me, I’m going to get back to writing my world-changing cloud-computing business plan.
May 8th, 2009
One thing I’ve learned after serving as an organizer for the MIT $100K: great entrepreneurship competitions offer more than just prize money.
Sure, $100,000+ is an awesome carrot (and actually, the most any team could win in the 2009 $100K is actually $340,000), but startups need more than just cash to succeed. I now completely understand why VCs demand (and rightfully deserve) board seats – navigating how cash is spent and how to actually run a business is a different skill set from raising money or developing a cool technology.
As an MBA student, I get asked semi-frequently whether I believe entrepreneurship can be taught. Here’s my stance – you can’t teach passion, hustle, drive and attraction to risk. Entrepreneurship to me is like dancing – there’s the technical part and the “other”.
The technical part is teachable – financial statement analysis + accounting, basic business law and capital structure. I am NOT someone who believes it’s valuable to learn these lessons the hard way. It’s totally tragic when a perfectly viable and compelling business is driven into the ground because of accounting naivete, in-fighting or massive lawsuits over IP.
What I’ve learned after getting an insider’s look at the $100K is that the value for the teams comes in the lead-up to the final awards ceremony; all semi-finalist teams meet with industry, legal and VC mentors to refine their plans and attend workshops on negotiating term sheets, properly assessing market opportunities and refining their product.
One thing that surprised me was how many entrepreneurship competitions globally are modeled after the $100K. Now in its 20th year, the competition has produced companies like Akamai, Harmonix, Brontes Technologies and Visible Measures. And I don’t think any of these companies were $100K winners (they were either finalists or semifinalists) – just by participating in the process they were able to get their companies off the ground. It’s not about the winners – it’s about the ecosystem.
I am so excited for this year’s finale – this year’s ideas are kick-ass and it’s going to be a great show.
Hope you can join us –
The MIT $100K finale is next Wednesday, May 13th at Kresge Auditorium in Cambridge, MA. There will be a showcase at 6pm highlighting all the semifinalist teams and the awards show will start at 7pm. It is open to the public and no tickets are necessary – seats are first come, first serve.
May 3rd, 2009
My relationship with TV is starting to remind me a lot of my relationship with AOL around 1999. The applicable buzzword here is “walled garden” – after years of an insane love affair with AOL (because yes, we ALL had one) I found I was only using the browser + AIM and was sick of the other features that mostly served to slow down the browser. I quickly stopped using AOL altogether – though my parents continued to pay for it until 2007.
Lately, I have felt the same way about TV. Perhaps it’s the Social Television class I’m taking at the MIT Media Lab, but I find myself more and more frustrated with my TV. I’m annoyed that I have to settle for whatever is on and I find that the enjoyment I used to get from watching TV is nearly matched online. I say “nearly” because the internet still lacks the ability to replicate the “lean-back” experience that one gets from watching television.
The relationship between MSOs and content providers is what I like to call “cushy”. MSOs have deals with each network and pay the networks to carry their content. What I’m not quite sure about is if this number is a flat rate or a percentage based on the number of subscribers. If it’s a flat rate, then I think the MSOs will stick around a lot longer and deal with lower profits in exchange for continued market domination. If it’s a percentage of subscribers that’s a better sign for the rest of us – the content providers will start getting less and less cash as people unplug their cable and might choose to entertain options to provide content through other platforms.
I think about trends in technology the same way I think about neighborhood gentrification. There’s a very specific time-line with tangible indicators. Example: my mother, a fourth-generation Flatbush Brooklynite, told me that no one would ever want to live in “the dump” that was Williamsburg. Now it’s almost as expensive as Manhattan. The series of events went something like this: first the artists and musicians moved in because it was cheap, then the young just-graduated-but-still-poor yuppies came for the cool music, art, and coffee shops and they paved the way for the Booz Allen consultants who are now snapping up those fancy new condos.
I believe the same thing will happen with television. Early adopters are sick of the walled garden – they are unplugging their cable and buying Apple TVs, Rokus and are excited for Boxee to come out with its own set-top box.
Once Comcast, TW, Cox, etc. start to see enough of a drop in subscriptions they’ll pick fights with the content providers and some of the stronger content providers could start offering their content a la carte across multiple platforms (and I mean ALL their content – not just what’s currently online). Content providers with huge followings will be the big winners here – MTV, ESPN, HBO, Food Network, etc. Should they choose to offer their content directly to their customers these networks could potentially rake in even more money than they’re currently getting from the MSOs.
People will get to the point where they will be willing to pay for Hulu. Despite the fact that Gen. Y-ers love “free” we’re also pragmatic enough to know that one has to pay for quality.
For now, though, I am telling Comcast in September that I don’t want cable TV anymore. I’ll probably pay just as much for internet (gotta love bundling) but that’s not the point – it’s symbolic: I’m breaking out of yet another walled garden.
May 2nd, 2009
Fall class selection time – sweet.
There’s a certain art to putting together one’s class schedule. I try to make sure I have a few reasons to love every class I sign up for even before the semester starts (great prof, cool topic, endorsements from trusted sources, etc.) and I pay very little attention to the recommended classes that one “should” take while in business school.
I’m bummed because there are 4 classes I was WAY excited about and all 4 are scheduled in 2 time slots. Boo.
Here’s what I’m taking in the fall:
1. New Enterprises – Think of an idea and spend the entire semester writing a business plan, then present to VCs and get feedback.
2. Early Stage Capital – Strategies for raising capital, valuation, market norms
3. M + A – Valuation as it related to mergers and acquisitions
4. Power and Negotiation – Simulation-based class on negotiation techniques, BATNAs, etc.
I have heard great things about the class “Economics of Information” taught by Erik Brynjolfsson, the director of MIT’s Center for Digital Business, but it doesn’t fit in my schedule. Still looking for a 5th class, but I’m sure I will find something before September.
April 25th, 2009
I’m taking a class at Sloan called “Evolution to Web 3.0 and the Emergence of Management 3.0″ about what exactly “Web 3.0″ will look like. We’re tracing back historically through the evolution of web technologies and we’ll use that knowledge to sketch out what we believe web 3.0 will look like. Perhaps more importantly, we’re also exploring how changes in the web will affect the future of mangement.
The professor has not directly equated “Web 3.0″ to the “Semantic Web” (which many people do) and since our class started in January, the Web 3.0 entry on wikipedia has been deleted. Most credit Tim Berners-Lee with defining the “semantic web” in a 2001 issue of Scientific American – he’s coming to speak to our class on Monday (4/27), and I’m very excited to hear his take on how his vision has evolved over the past 8 years.
I don’t think “web 3.0″ is just some buzzword – there will be very tangible changes in search in the next few years that adopt more semantic, contextual principles. In an interview with Charlie Rose in March, Google’s Marissa Mayer pointed out that the future of search will address the difference between an “answer” and a “result” (first 2 mins of the video).
That idea – the shift from “results” to “answers” – will be central to web 3.0, should it ever move away from buzzword-only status.
April 24th, 2009
I have been to several presentations in the last few months given by lawyers that work with startups. Last night, the firm was Goodwin Proctor and the topic was “8 ‘Great’ Mistakes Entrepreneurs Make”. To me there’s one HUGE common thread that comes up over and over again at these presentations: PROTECT YOUR IP (or as they phrased it last night “Mistake #8: Failing to Adequately Protect Your Intellectual Property Assets”).
If these lawyers push and belabor the IP issue in presentation after presentation, I’m guessing it’s because they see tons of startups that have had IP issues of some sort – and this is their attempt to head them off at the beginning.
Here’s the problem: founder equity debates (who gets what percentage of the company) are awkward enough, but trying to break down IP ownership is EVEN MORE awkward. I sometimes think of it as trying to divide up a check at a large group dinner when it’s someone’s birthday. You don’t want to pay more than what you believe you owe, but you don’t want to be the one to speak up either.
Yet the stories of IP disasters keep coming. The guys from Goodwin pointed out that it’s not just the co-founders that could have a claim to your IP – you also need to think about former employers, 3rd party developers, and consultants.
The lesson here – take some steps early on to protect your IP. Don’t be sheepish about discussing IP ownership and know that you might need to ask your employees to sign NDAs (though don’t try to ask a VC to sign an NDA, it will just show them how naive you are). Be vigilant about your IP – your lawyers will thank you.
April 20th, 2009
I have been thinking a lot about bit.ly’s funding round that was announced a few weeks ago. There has been a lot of attention lately on URL shortening, especially with the explosion of Twitter (Twitter on Oprah!) and the introduction of the Digg bar.
Why did bit.ly get money? There are a ton of URL shorteners out there – and my initial thought was that if Twitter ever introduced the ability to hyperlink I would stop using services like bit.ly completely.
But bit.ly’s appeal to investors rests not in its URL shortening, but rather its tracking system and analytics. By using a bit.ly link one can tell how many clicks his/her links are getting and where the clicks are coming from – even inside of social networks like Twitter and Facebook. Bit.ly can get where Google Analytics cannot, which is great for bloggers/content creators.
If the original Google search algorithm was constructed based on a system of hyperlinks/pagerank, there is potential in the data collected by bit.ly to create a collection of “live hyperlinks” where you can track how a link is passed among people/websites. This would dovetail nicely with the [somewhat] burgeoning “semantic web” (ok, burgeoning since 2001, but still) in that it would provide more human, dynamic, and real-time input on hyperlinking.
That type of data, if presented right, has huge potential for online advertising.
OK, I’m convinced.
April 13th, 2009
Company valuations.
Now that I’ve been staring at pro-formas for weeks and have officially re-kindled my love affair with my TI-83, I am sort of in love. What’s great about MIT is they don’t spoon-feed material – we got a packet of financial statements and just had go at it. Mk, on to the good stuff.
Apparently there are 20+ ways to do valuations, but they all fall into five general buckets.
For the uninitiated, here is my attempt at a breakdown:
1. Earnings Multiples (PE, EBIT, EBIAT): Methods that employ an industry-based multiple to the earnings of a firm. If a firm has no income (ahem, Twitter), its valuation using this method would be effectively zero. The most popular earnings multiples valuation uses a company’s price:earnings (PE) ratio — if you multiply the PE ratio and the company’s net income it will give you a general idea of the value of the business.
2. Asset Multiples (Liquidation Value as Percentage of BV, Replacement Values): This is when you liquidate the assets of the company, pay off your liabilities, and see how much is left.
3. Discounted Cash Flow (DCF): You use future free cash flow predictions, then discount them back to adjust for the time value of money. The most popular method of discounting uses the weighted average cost of capital – or “WACC”. There are a lot of WACC jokes in business school, and aren’t they just so hilarious? (You wonder why the MBA has taken such a reputational hit lately).
4. Comparables: Exactly what it sounds like. Use the valuation of similar (ahem “comparable”) companies to arrive at a valuation. Simple comparables worksheet: here.
5. Contingent Claims: This type of valuation involves derivatives (options). And that’s all I’m going to say about that.
So how are early-stage tech companies valued? If you have little to no revenue, earnings multiples and dcfs are sort of useless, and trying to ascribe value to site traffic and “intangible assets” is an onerous process.
This paper written by Cogent Valuation lays out what they call the “Early-Stage Technology Company Valuation Paradigm” – it’s a fairly straightforward explanation of their valuation process for these types of companies (though I sort of loathe excessive use of the word “paradigm” especially in reference to already hard-to-grasp topics like valuation).
This is a new topic for me, but I’m hoping by the end of my time at school I can produce the following post: “HotorNot: An Analysis of Valuation Methods for Early-Stage Technology Companies”. Stay tuned…
April 12th, 2009
Looking for brunch in Boston before 11am? Good luck. Seems like this city has no interest in taking money from people who eat before 11am or after 2pm on Sundays. So me + friend Ann “I want my internet presense to be net-zero, so don’t use my last name” [redacted] were strolling around the South End at 10am, and found Stephi’s on Tremont (571 Tremont Street, South End) which was miraculously open.
I have never before been in a restaurant that so reeked of “restaurant consultant”. The menu was trend central: short ribs, serrano ham, chorizo, ahi tuna, eggs benedict plus another *fancy* eggs benedict option, and arepas. My usual experience with these places is that the restaurant consultants are great with details – orchids placed in just the right spots, excellent choice of glassware, perfectly rehearsed dialog from the waiters, “jam of the day” gimmicks, etc, but the food never actually tastes that great (example: Daedalus in Harvard Square – one of the few places that does brunch on Saturday). This is why I usually stick to greasy-spoon diners. At least when you say runny yolks at places like Sunny’s or Brookline Lunch (both in Central Square), that’s what you get.
I went with the arepas with chorizo and fried eggs, and MAN it was tasty. Artfully done, too, but not the sort of plating where you feel bad stabbing the egg yolks and soaking your entire meal in delicious cholesterol. I am now officially re-considering my stance on restaurant consultants (please note: I have zero proof that Stephi’s actually employed a restaurant consultant. I am merely postulating that their setup, menu, and decor is exactly what any good consultant would put in place if given the opportunity).
So congrats, Stephi’s – your brunch is rock-star. You might want to make your coffee a lil hotter though.