One of the recurring themes of dealing with VCs and boards is that we do not like surprises. In addition, tell us the facts, and if there are any negative surprises give us action steps on how you are going to remedy the situation. I have written about the VC/Entrepreneur relationship
before and due to its importance will continue to write about it in this blog. Yesterday was one of those days where these themes kept surfacing in my conversations and email and I thought I would share a couple of examples with you.
In one meeting yesterday a VP of Sales candidate for one of my portfolio companies walked me through one of the biggest lessons learned in his first start-up experience – lay out realistic numbers and hit them. That means that if you do not have 100% confidence that you will hit the quarter, don’t pad your sales pipeline and wait until the end of the quarter to tell us about a potential miss. You are not doing us a favor by letting us feel like we are going to hit the quarter. Tell us as soon as you know – yes, board members can read between the lines as sales is a numbers game. In addition, explain the action steps you will take to solve the problem so it doesn’t happen again. To say the least, he learned alot from that first board experience.
Later in the day, I got an email from another portfolio company’s CEO outlining a potential issue with a key partner. Not only did I like the fact that he communicated with the board right away, but I loved how he included a detailed action plan to resolve the issue. This included securing a meeting with the decision maker ASAP. While all of us were concerned about the news and shared our own thoughts on the action plan, we all felt like we were doing all that we could to overcome the partner’s issues. In the end, I am sure it will work itself out, but it would have been utterly inexcusable if we learned about this after the fact.
Anyway, I hope these stories continue to hammer home the importance of working with your board in an open and collaborative manner. Look, bad things happen, but what gets a VC and board upset is not knowing soon enough, soon enough to potentially take corrective action.
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If you ever wondered what it takes for a startup to succeed, please read the email below sent from the CEO of one of our portfolio companies to his whole staff. Sure, startups don’t have the cash, the people, the distribution channel, and brand to compete with the established players but passion, drive, and an insanely great product can take you a long way.
Dear team members:
I have always believed that the key reason for our continued success over the past few years has been, the contributions made by each and every one of you. Without your sincerity, commitment and hard work, we would not have become the #1 partner for Company X.
I want to share with all of you, an extremely powerful example of sincerity and commitment, shown by one of our fellow team members. I am sure that each one of you will feel proud of him after reading what he accomplished this week!
On Tuesday, July 13th, after finishing a bunch of very successful presentations in the Washington DC Area, John Smith (aka Mad Dog from his army days) took a flight for Memphis, TN where he had to do a presentation in the morning on Wednesday, July 14th. John had to change flights in Atlanta on the way to Memphis. Due to extremely bad weather on the east coast, his flight into Atlanta got delayed and he missed his connecting flight to Memphis. The next available flight to Memphis was the next day at noon, which would cause him to miss his morning presentation. So John asked the airline if they would reimburse him for a rental car to drive from Atlanta to Memphis, thinking that it would be a few hours drive. The airline agreed, so John rented a car and started driving to Memphis from Atlanta. John had been in touch with Dave when all this was going on, so after he started driving, Dave did a quick check on Mapquest and realized that it was a 400 mile, 7 hour drive and not a “few” hours drive as John had thought (it never hurts to be good at Geography!). But Mad Dog did not stop or turn around, he kept driving (with a few coffee breaks to help keep him awake at the driving wheel). He reached Memphis at 5:30 AM, rested for an hour at his hotel and went on to do his presentation – which was very well received. Folks, this story does not end here………..
John then took a flight from Memphis to Jackson, MS where he was scheduled to train 30 users for one of our major customers THROUGH THE NIGHT of Wednesday, July 14th! He Continue reading "How startups succeed"
If I were a startup, one great and cheap way to build buzz and excitement is through the blog community. I call this “influencing the influencers.” Think about it – many of the more well known bloggers are also well known tech journalists, industry pundits, VCs, and technology executives. Forget about using the traditional PR route – if you can get these influencers to write about you on their highly targeted blogs, others will hear about it, write about it, and generate links to it. There has been much discussion about measuring the value of blogs but at the end of the day it is all about being influenced by a trusted source. Each blogger has his own unique audience that trusts his/her opinion. Many of us try and buy products and services based on trust and recommendations. This is no different in the blog community. A number of web 2.0 companies
have already leveraged the blogosphere to generate buzz. Not that I am a big influencer by any stretch of the imagination but some of the new companies I have written about recently include Pluck
, and Onfolio
. And yes, there are many more influential people than I who wrote about these companies as well. I am quite sure all of these posts delivered significant name recognition, brand value, and traffic for the companies mentioned above. Once again, it is not about how many posts, but who posted that really counts because the word and links can spread quickly.
Along those lines, Om Malik is certainly a guy you want on your side. Here is a great post by Om
where he writes about getting quantifiable evidence for the first time on his influence regarding a post on a new startup, Blinkx:
The blog was posted on a Friday, and by the Monday there were 5,000 links to it and people were discussing it all over the world. Since then, there have been 130,000 direct downloads, and many more through users swapping files. This week, the site – which is only launched today – has been recording 6m links or hits a day solely from word-of-mouth publicity.
That is pretty damn cool! Let me repeat – 5,000 links, lots of discussion, 130,000 downloads, and 6m links/hits all generated for $0 – yes, no money!
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Ok, now for some boring accounting stuff. Red Hat (RHAT) recently restated its financials
. Its auditor, PWC, suggested that it change its revenue recognition policy. According to a CBS Marketwatch article
Under the accounting method used in the past, the company would recognize a full month’s revenue from a subscription agreement, even if a deal was sealed in the middle of the month, for example.
The effect of the accounting change is to defer a portion of the revenue that had previously been recorded during the month that the subscription started to the end of the contract.
So what it comes down to is a timing issue. In the example above, a full month of revenue gets recognized even only if the customer signed in the middle of the month. I don’t really think that this in and of itself caused such a huge selloff in the company. One could argue that the company is overvalued at a $2.8 billion market cap and a 20.5 TTM revenue multiple.
Anyway, I checked around with my portfolio companies which sell hosted software and it seems that we are taking a conservative approach by recognizing a set up fee in the month that we sign a deal and do the work and then begin recognizing the subscription revenue the following month. Anyway, while a boring and mundane issue, I believe this will impact a number of other companies in terms of revenue recognition. My general rule of thumb is to always have portfolio companies prepare for success – this also includes making sure our accounting is conservative and inline with best practices.
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If you ever wondered how Sun monetizes Java, I suggest reading Jonathan Schwartz’s (President of Sun) post on commoditization, standards, and Java
. The crux of his discussion is that standardization and commoditization is not terrible as it inevitably opens up new market opportunities for industry players (just look at the railroad industry as an example). On the tech side, Jonathan believes it is mainly bandwidth that has been commoditized as opposed to a broader trend in software.
So I’d like to answer once and for all the question, “how does Sun monetize Java?” with a historical reference: the same way GE and General Motors have monetized standard rails, Vodafone monetizes GSM, banks monetize ATM networks, and oil and gas companies monetize the fact that my car can use “gas.”
The Java community, which we steward, drives a broad array of platform standards, among an even broader array of industry participants. That activity levels a playing field, that just so happens to be the single biggest playing field the technology industry has ever seen. The network is a commodity. We should all be celebrating.
In some respects, one could view commoditization as a bad thing as it is difficult to differentiate one product from another as they are easily replaceable based on price alone. However, what Jonathan is saying and what I agree with is that it is what you do with the commodity bandwidth, standards, and platforms that separates the winners from the losers. Sure, companies are all on a level playing field due to advancing technology and platforms. For example, with standardization, building new software and technology products and integrating them with existing solutions takes much less time and costs way less than ever before. Despite that, we continue to see innovation and new business models. The value just resides in a different layer. While Jonathan would like to believe that the creation and promotion of Java would soley benefit Sun, his argument is that it makes the market bigger for everyone, including Sun, so that is a great thing.
The one thought that could cause worries is that if you buy into Jonathan’s story of commoditization, the inevitable result is that the industry will consolidate leaving only those with scale and monopoly power to survive. Just look at the examples from his post – GE, GM, Vodaphone, and banks have benefited from standardization. Well, those are all big guys. In my mind that’s ok, as consolidation will be a long time coming as we are in the very beginning of this commodity movement in the technology space. Sure certain markets are in more advanced stages, but overall as an entrepreneur and venture investor you will have Continue reading "On technology commoditization"
Another day, another politician or high profile executive launches a blog. This time it is FCC Chairman Michael Powell
and Sun’s Jonathan Schwartz
. According to Michael Powell, he decided to blog because he wants to interact direcly with his constituency, creating a dialogue and urging Silicon Valley to get involved. He goes on to say:
One reason I am participating in AlwaysOn Network’s blog is to hear from the tech community directly and to try to get beyond the traditional inside the Beltway Washington world where lobbyists filter the techies. I am looking forward to an open, transparent and meritocracy-based communication—attributes that bloggers are famous for! Regulated interests have about an 80 year head start on the entrepreneurial tech community when it comes to informing regulators what they want and need, but if anyone can make up for that, Silicon Valley can. This is important not just for Silicon Valley—it’s essential to insure that America has the best, most innovate communications infrastructure.
Both Jonathan and Michael are launching blogs to stay close to their community. What I find interesting about these blogs is that one chose to leave comments open and the other chose to not allow comments. As I have said before in an earlier post about Why I Blog as a VC
, it is the 2-way interaction and instant user feedback that makes blogging so valuable for me. I am curious to see how Michael Powell handles the comments on his blog and to understand whether or not he is truly trying to create an “open dialogue” or if he is just blogging for PR value. As for Jonathan, I really believe he is missing out by not opening his blog for comments and allowing his readers to turn his post into living, breathing ones.
Now that high profile executives and politicians have bought into blogs, I am still waiting for product companies to use citizen’s media (blogs, RSS, etc.) as Jeff Jarvis
calls it, to create true interaction with their customers. I am not just talking about using RSS to subscribe to a Top 10 list of products sold for the day or week or to update customers on an upcoming product release. What would be great is if product companies could figure out ways to use this new medium to build long-term relationships with its customers, to create ongoing focus groups for a product or service, and to collaborate with customers on product development. Another great way for product companies to leverage this medium would be by allowing me to create custom RSS feeds/stored searches on the fly for certain products or services. Sure, I can do that via email, but the interesting aspect Continue reading "Another day, another high profile blogger"
Everyone is talking about the slowdown of growth in the enterprise software sector as one of the main reasons driving consolidation talks at companies like Oracle/Peoplesoft and Microsoft/SAP. We all know that the enterprise software business characterized by large licenses and 20% annual maintenance revenue is lucrative but also hard as the big get bigger and the little guys disappear. Given the number of negative preannouncements this week from enterprise software companies, this Forrester graph from a CNET article
summarizes the market quite well.
Looking at this graph, it is no surprise that companies are looking to consolidate. Given that maintenance revenue is such a large percentage of overall revenue and growing and given that it is also highly profitable, why shouldn’t some larger players in the market consolidate the industry, keep the maintenance revenue and cash flow, and stop everything else? With that backdrop, I find it quite interesting to learn that CA’s ex-CEO, Sanjay Kumar (the master of these deals), advised Oracle on their Peoplesoft acquisition. According to a New York Newsday article
, here is what Sanjay had to say on Oracle’s strategy of buying Peoplesoft and gutting it:
At the same time, Phillips said Kumar advised “he would have the same plan post acquisition but just would not have said so up front. Everyone knows but you can’t say it and freak out the customers up front.”
As for which employees to keep and which to discard, Kumar, whose CA acquisitions were notorious for scuttling thousands of workers, offered clear advice.
“Don’t get rid of the presales folks; only the sales,” Phillips quoted him as saying. “The presales guys know the products and customers and they will get you easy add-on sales . . . and it would be crazy to forgo that revenue and those relationships . . . You don’t need the sales guy — those are for new account hunting.”
What does this mean for me from a venture perspective? Well, what I have believed for a long time is that it is hard for early stage companies to build direct sales models predicated on “elephant hunting” and going after huge deals. Each sale is incredibly long and expensive. In addition, as you can see from a number of large public software companies, revenue is lumpy and therefore less predictable as customers wait until the last day of the quarter to squeeze you for a larger discount. Despite this, we are still bullish on software companies selling to enterprises. In our mind it just requires a rethinking of what business models will work and why. Think seed and harvest – lower price points, more volume, lots of upsell over time. Think of software models with leverage – Continue reading "Thoughts on the enterprise software market"
Russell Beattie has a thorough post
on Jamdat Mobile’s IPO filing. This is significant because this is the first so-called “wireless application” play to hit the market. For those of you that don’t know, Jamdat is a provider of global wireless entertainment applications and enabling technologies that support multiple wireless platforms to wireless carriers, handset manufacturers, media companies, and independent content developers. Looking at Venturesource, I see that Jamdat was first funded in March 2000 precisely the time when VCs thought wireless was the next big thing. Many of these companies are no longer around, but it is nice to see Jamdat make it through such turbulent times, only with $33 million in VC funding.
As an investor, the difficult part of any consumer wireless play is that the wireless world is a walled garden and not an open network like the Internet. This means you are dependent on the carriers for deals and access. This is starting to change but even if you want to go to your own sites through your wireless phone, it is not easy. In addition, imagine the competition to get distribution from the carriers-there are lots of little guys knocking on the door. On the upside, if you are able to get the deals, you have an incredible ability to scale. Just look at Jamdat’s numbers: $90k revenue in 2001 with a $5mm loss and $7mm revenue in Q1 2004 with $740k profit which is an annualized revenue runrate of $28mm-not too bad in a few years. As Russell points out, I am sure a successful Jamdat offering will spur renewed interest in wireless companies. That being said, I just view wireless as another pipe, an increasingly important one that every software or web-based company will have to be aware of and leverage.
Speaking of wireless, there has been lots of talk about Time Warner launching
its own branded wireless service over someone else’s wireless network. Not only does this make a ton of sense in terms of the phone company/cable bundle packaged wars but also from a content and programming distribution perspective. If you believe that wireless devices and phones will continue to become an increasingly important way for end users to access data and eventually music, photos, and video, then what better way to control the economics of distribution then by reselling your own service.
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Like any active, early stage venture investor, I have spent a fair amount of time helping my portfolio companies build a management team. And like any venture investor, I wish I could boil hiring down to a more scientific method to make sure that each person we bring on to a company is better than the next. However, that does not always happen. The one constant in hiring, however, is the “A-Player Domino Effect” which basically says that when you hire an A-Player, they bring lots of other A-Players to the table. Think about it this way. Why do so many people want to play for the Yankees? Sure, it is the cash, but it is also the opportunity to work with other A-Players to win a pennant that lures A-talent to New York. Same with the Lakers-Gary Payton and Karl Malone took pay cuts to join the Lakers and Shaq and Kobe to win a championship. I am not saying that in order to have a successful company you have to have a lineup of proven all stars since team chemistry plays a huge role. In fact, every company may have a different definition of what an A-Player looks like. Look at the Detroit Pistons, full of chemistry and a solid bunch of hungry players, who took out the all-star laden Lakers in the NBA Finals.
However, in many of my successful companies, the first couple of VP hires made all of the difference in the world in terms of attracting strong talent and positioning the respective companies for success. For example, one of my companies just brought in an experienced VP Sales from a competitor in the market. Once he signed, he brought on 2 of his top sales performers from his prior company along with the former head of sales engineering. This was great as it helped us fill out the team below the VP-level and brought the company known quantities who had worked with the VP Sales successfully at other companies. Another portfolio company brought on a great VP Engineering who brought 3 of his top guys with him. In each case, both VPs had a few people willing to follow them to the next opportunity. It is obviously a great sign when this happens. It shows me that someone can build a team, engender loyalty, and perform at a high and successful level. Every company or investor may have a different definition of an A-Player but one thing I can say for sure is that hiring an A-Player does not necessarily mean you have to hire the “big name” or “proven all star” in the industry. Many times, I have found A-talent from up and Continue reading "The A-Player Domino Effect"
Jeff Jarvis has an updated post
on a “place for my stuff” furthering the “stuff as a service” paradigm. On my thought
about having a personal server in the home, Jeff goes on to say:
I still don’t agree because: (1) Consumers won’t understand why they should make a capital investment and it will be a hard sell — witness the trouble TiVo has had getting going. (2) Consumers hate installing anything. (3) A service is more efficient — it can offer you a terrabyte of storage but no one will use it all. (4) A service can constantly update itself with new software. (5) If the storage sits in the cloud, you can play your stuff on any device in the home — or anywhere else — without having to network anything; if you store your stuff on a home-based server in the den, it’s not going to be easy to get to yourself from the bedroom TV. (6) It’s possible — possible — that an in-the-cloud service can deal better with copyright issues. That is, you can store a legal copy of (or link to) a show or song among your stuff in the cloud and play it anytime anywhere and copy it onto limited devices (a la iPod) but not endlessly duplicate and distribute it.
Jeff makes a number of good points advocating the service over the personal server. I have no doubt that today the service is a better opportunity, and that there are a number of constraints such as what Jeff outlines above. However, in response to his points I believe that technology will continue to change rapidly, prices will continue to drive down, and ease of use will constantly improve (plug and play all-in-one devices will become a reality in a couple of years-just look at the growth of wifi in the home as an example of how fast a new technology can spread). As for the practicality of an in-home all-in-one device, having an IP address for your personal server would allow you to get it from anywhere including your bedroom TV (no different from getting it from the Internet, especially if your home network has a faster connection). So it is not an either or proposition-the personal server idea will take time but it will happen in the next couple of years and be yet another viable option for the consumer. As for what opportunity is bigger, sure the service side will be, but that does not mean a service and personal server are mutually exclusive business models. Why couldn’t Comcast give away Mirra personal servers, charge consumers a monthly fee, and have a cloud-based backup in addition to the backup on Continue reading "A personal server for everyone (continued)"
Jeff Jarvis writes
about having a place for all of his digital stuff. He goes on to say:
: I want a place on the Internet where I can store all my stuff so I can get to it from anywhere on any device to consume, modify, store, or share. This stuff could be anything — my movies, music, to-do lists, shopping lists (for the family to update), contacts, documents, search history, bookmarks, photos, preferences, voicemail, anything, everything. And it should come with the functionality necessary to execute all those verbs I listed (e.g., a nice little list-making ap).
I want the ultimate — in the words of George Carlin — place for my stuff.
Count on this: It will be a big consumer business. I said below, in the middle of another post, that this could come from phone or cable companies, from Google or Microsoft or Yahoo, or from a new company (VCs: pay attention!). A server for everyone and everyone on a server.
I totally agree with Jeff about having a place to store all of my stuff, but I am not sure if I want it all stored on the Internet. Rather I want it stored at home on my personal server but accessible through the Internet 24×7. As you know there is a battle that has begun over the ownership of the home networking market. Lots of companies are jockeying for position to be the digital entertainment hub for the home. Will the hub or personal server be the PC, your Tivo or cable box, or some other consumer electronic device? As more and more of my precious data is in digital format, I have become incredibly paranoid about backup and recovery. Currently I am using a Maxtor 250gb One Touch device to back up all of my files. This is nice, but wouldn’t it be great if I could put an IP address on it and layer some other applications to share this data with others? Why do I need it hosted at Yahoo or some other web-based service when I can easily plug in a device and have my stuff accessible at 54mb over my home network and remotely over the web? I used to believe that the hosted model was the way to go for the backup market, but increasingly I am of the belief that everyone will have their own personal server at home and through a broadband connection be able to access and share their files with anyone in their trusted network. This takes care of privacy and security issues for me while also allowing me to have my stuff accessible from anywhere. Take a look at Continue reading "A personal server for everyone"
I have always been a big believer of the hosted software or ASP (application service provider) model since we made our first investment in LivePerson in January 1999. One of our main competitors of that era was Kana, which at that time, did way better than LivePerson in terms of customers, revenue, and market capitalization. I wrote a post months ago
showing how far Kana had fallen, and how LivePerson stuck with its hosted software model and finally hit profitability. Back in those days, the sales people at LivePerson and Kana were not only fighting a product battle but also a religious war of enterprise licenses versus the hosted model. And back then, many large enterprise customers were not willing to have their data hosted with an early stage, private company. The world is changing. Recently Kana announced its new “on-demand” model
jumping on the hosted software bandwagon. Comments from the Kana release sound familiar-Siebel and others are increasingly talking about an “on-demand” model and customer flexibility. RightNow Technologies is another company in the CRM space that is delivering an “on-demand” solution, filing for an IPO last month. So why is the hosted or ASP model coming back strong from its near death experience during the Internet boom?
First and foremost, without customers there is no business. Today’s customers are increasingly getting over data hosting concerns and are warming to the pricing and flexibility of subscription pricing and “on-demand” software. They are tired of the traditional enterprise license model, the lengthy implementation costs, paying for site licenses instead of on usage, and failed projects. Secondly, the cost side of the equation has changed dramatically. Hosted software vendors have learned from their erroneous ways and no longer need to build a data center for unlimited demand. Additionally, the pure costs of building a data center and using bandwidth have decreased significantly. Finally, the “on-demand” model is proven as a number of companies are already profitable-look at Salesforce.com, RightNow, and a couple from my portfolio, LivePerson and Expertcity (GoToMyPC).
Given these trends and the success of some of the companies above, it is clear that the new “on-demand” wave is just starting, and we will continue to see enterprise software companies like Kana move in this direction.
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I met with Dave Panos and Andrew Busey of Pluck
yesterday to learn more about their product and their company. Rather than go into the software (which I really like btw, combination RSS reader, bookmark manager, and simple collaboration tool), I wanted to share some of our thoughts about consumer-based web businesses circa 2004. We had a nice discussion about why it was different to launch a web-based business in today’s world versus the bubble period. It was even more interesting considering that Dave and Andrew were on their third or fourth startups, depending on how you count. Our conclusion was that it is so much easier and cheaper to build a web-based business today than in the early days of the Internet. OK, I am being master of the obvious, but I am interested to see what else you can add to the list below.
- Critical Mass
During the bubble period, the promise and potential of the Internet was all around us. However, the critical mass was not there. Today, we have critical mass, a number of users that are experienced with the web. We have real broadband penetration (although not as high as Korea, for example). This obviously allows any new company to actually build a real business with real users that can throw off cash flow.
In the early years, people did not have off-the-shelf components and open standards like XML/SOAP to build web-based applications. If you wanted to build a chat program, you had to build the whole thing from scratch. In today’s world, you can pull an off-the-shelf component from an ISV or from the open source community, Jabber for example, and have chat instantly integrated in your product. Additionally, the developers 8 years ago were pioneering new applications and a new language. If you combine that same developer who is now seasoned with better technology, you get a great headstart in building new products. What used to take months now takes weeks to build. What used to cost millions now now costs a fraction of that. We have more capability built into the browser. Pluck and Onfolio, for example, are built and integrated into IE instead of being a separate application. We have toolbars galore built into IE. It works.
Andrew stressed the other main point which is that we know what business models work today versus yesterday. Paid search didn’t exist years ago. Today it is a multi-billion market. Portals were nowhere close to profitable and today they are. Companies like Yahoo, Google, Amazon, and EBay have become big enough to build a business around-they have an ecosystem-they are the gorillas of the web and entrepreneurs can Continue reading "Web-based businesses circa 2004"
Jerry Colonna has an insightful post
on what it’s like to be a CEO of a venture-backed company. Having worked with Jerry on a board before, I find his advice quite practical and thoughtful. One takeaway from his post is about being overcommunicative with your board meaning that VCs do not like surprises. I totally agree as I’ve written about this before
The post It’s tough being a CEO
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has a good overview of stock option expensing, and why we should get involved. While I agree for the need for complete transparency of stock options, I also do not believe that expensing all options at the grant date will get us closer to true economic reality. In addition, I believe the unfair burden of stock option expensing falls on private companies-FASB even recognizes this. As for public companies, the market will adjust and look at numbers with and without option expensing, converging on what all other investors use. So from a public market perspective, while hurting the perceived earnings of a number of companies, I do believe that expensing stock options will not make as big a negative impact as some think. We all know that investors will use a number of different proforma income statements to designate value anyway whether or not options are expensed.
Therefore, what concerns me is what happens to the non-executive employee at public companies and how stock option expensing affects private companies. Rather than go into a diatribe on the ineffectiveness of Black Scholes and the Binomial Pricing model, I want to focus my efforts on what happens when stock option expensing goes into effect. It will eliminate broad-based option pools for public companies and private companies. Why? It is easy for me to say that the market will be efficient and see through all of the numbers creating its own set of rules for valuation. However, companies will choose the path of least resistance which means keeping the income statement as clean as possible which means eliminating broad-based option plans and the variability that comes with it. If anything, companies may give restricted stock to executives and other key players but not to all employees. The bigger concern is that the extra reporting burden it creates for private companies will be quite costly and burdensome, possibly outweighing the positive effects of issuing broad-based options. Without options, this will make it harder for cash-starved private companies to attract talent as they will not be able to pay the cash compensation that larger companies can afford. Since I am in the business of funding private companies (a big engine for job growth) that use an ESOP as a competitive tool to attract talent, I am concerned by the FASB proposal. Therefore, I ask you to get involved while FASB is in its review period and write to them:
Go visit Jeff Nolan’s post
for links to articles to further educate yourself on the stock expensing issue and to learn how to get involved. As per his post:
– emails should be directed to firstname.lastname@example.org with a cc: to email@example.com – Continue reading "Stock option expensing"
It is on the newswire today-Cometa Networks
, the wi-fi service provider backed by IBM, AT&T, and Intel, is shutting down. There is much analysis out there discussing the merits of the business and what went wrong. In a recent News.com piece, analysts discuss how Cometa did not build critical mass quickly enough to make the economics work. Rather than focus on what went wrong, what strikes me about Cometa Networks is not the business or market it was going after, but the hype and attention it drew to itself way before its service was even in operation. It was all over the news (well done, by the way), but the problem is that it promised too much and never delivered. At the very least, if you are going to hype yourself, make sure you can deliver relatively quickly to capitalize on the buzz. When you have a grandiose launch you set high expectations for your company. As my colleague, Ben Tanen, put it, “they would have to be the next generation phone company” to deem their execution worthy of their launch. Anything short of that and they would be deemed a failure. Of course, this puts a ton of pressure on the team to deliver and exceed expectations. Along those lines, it even seems that the company was quite aggressive in its dealings with business partners, acting like a market leader even without a network (see Sky Dayton’s comments on wifinetnews
). Call me understated, but I prefer my companies to “underhype and overdeliver” rather than “overhype and underdeliver.” So whether Cometa was a victim of the market or not, the way it was launched, one could claim it was a victim of its overambitious start. Even if they succeeded bit by bit they would have been seen as an underperfomer as it would have taken them years and a ton of capital to meet the hype that they generated from the initial launch.
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As you all know, part of a VC’s job is to promote their portfolio companies. And yes, even though Expertcity is no longer a portfolio company since it was bought by Citrix, I would like all of you to know about the new collaboration service that the company is launching, GoToMeeting
, which will be FREE until July. At the end of the day, I love the service and product and that is why I thought you would like to try it out. Yes, it will be in a field competing with the likes of WebEx and Placeware. However, the company’s design philosophy since I invested in them 5 years ago is the KISS (Keep It Simple Stupid) method. This means simplicity in terms of usage and pricing. The service is designed to take advantage of the ad-hoc collaboration where an IM or email turns into a working session. Here is an article
talking more about the service.
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This month seems to be my month for CIO meetings. Part of a VC’s job besides helping management with strategy and hiring people is to help with customer introductions and strategic partnerships. In this tough market, my partners and I have been doing our best to help along these fronts. While being in New York can be a disadvantage in terms of finding new companies and hiring great industry people, it is great for our access to customers and the Fortune 500. In New York, we can keep a close ear to the ground and learn about spending priorities and other short and long term problems that CIOs need to solve. This is yet another data point we can use to help us place our bets. I met with another CIO yesterday in the financial services market and thought you would be interested in hearing a few tidbits from the meeting.
- IT Budgets are loosening up across the board for capital expenditures and people-lots to do, he is looking to hire people for the first time in a couple years, although he does not want to hire too many people if the market collapses in 6 months.
IT Priorities-one of the big areas of new spending will be for technology that supports revenue creation instead of cost cutting. For example, this includes making sure that the trading systems can keep pumping out transactions-there is alot more volume today with the market coming back and they have not upgraded their systems in a couple of years when they either overbought or were oversold too much technology. In addtion, his firm wants to upgrade existing applications (many run in old perl scripts and mainframes) and put them on a new application infrastructure like J2EE. Other high priority categories include business continuity/disaster recovery and security, which is not a surprise.
There was nothing earth shattering about this meeting except it does confirm my belief that spending is increasing and that CIOs are starting to look at expenditures that will help generate revenue for the first time in awhile. In addition, it seems that given his priorities, larger IT vendors like Dell, EMC, BEA, and Sun would benefit from his increased spend. As usual I spent some time pitching my companies and the first question he asked after each pitch was, “What other financial service customers do you have?” This is not unlike any other meeting with a CIO and just reminds me how hard it is for a startup to get its first, high-profile, referenceable customer as no one wants to be a guinea pig. Secondly, it shows how important it is to find the early adopters in a particular Continue reading "Insights from a recent CIO meeting"
In our weekly partner’s meeting yesterday, we ended up in a discussion about the progression of offshore development in a variety of portfolio companies. In the end, the companies that were doing the best job with development were the ones that had their own operations offshore. While a couple of our companies chose to use consulting partners to begin with due to lower upfront costs and better time to market, we found that over time (the last 2 years) that employee churn is becoming a huge problem in these consulting companies and making us less productive in the long run. For example, one portfolio company had 5 consultants from India trained for 3 months on the product. 6 months later only 2 are left. On the other hand, our companies that have their own people on the ground are better able to manage their teams and motivate offshore employees through competitive compensation and a career path. So while we are increasingly going to make sure we create our own teams in India versus use consultants, we will still not be immune to churn and the competitive nature of the economy.
The great aspect of doing business in India is that you have lots of talent. The problem is that offshore development has become so popular that the cost of doing business has increased since wages have been bid up and since employees have many job options. In the past year, SAP and Oracle and a number of other large companies have opened up offices in India or made larger commitments to developing products offshore. What does that mean for us in the future? While it is not as cost effective to do development in India today versus 2-3 years ago due to supply and demand factors, I still believe that having an offshore strategy is important as our portfolio companies still can do alot more with less. However, in the long run, given the competitiveness and cost increase of doing business in India, I am sure that many companies will increasingly look to other locales with strong talent and less competition like Belarus, Romania, Argentina, Russia, and China. I am already seeing that happen.
The post The increased cost of offshore development in India
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I was in a meeting with an executive at a large financial services company today discussing some of his technology problems and how my portfolio companies could address them. One of the big issues he mentioned was spam and stopping worms. Even though his company has spent real dollars in those areas, they are still problems which need to be solved. As Sasser
and other worms and blended threats spread rapidly around the Internet, it got me thinking about what needs to be done to make us more secure. Techdirt
has a great piece about taking a hyrbid strategy to stopping these threats, an approach I agree with wholeheartedly. I have always been a fan of a defense in depth strategy
where you have security devices at the network level and down to the desktop. Have you seen Cisco’s recent advertising campaign about self-defending networks? While it is a broad-based strategy which you can read more about on their site
, one aspect I like about the NAC initiative is that it does not allow anyone to access a network wirelessly or wired before a scan is done to make sure the device is virus and worm free and up-to-date with its patches and antivirus software. They currently have an enterprise focus, but the logic behind the initiative makes a ton of sense. Recently, Earthlink launched a deal with Symantec
where consumers could get antivirus and firewall software from Symantec on their monthly bill. While I like the direction Earthlink is taking, I think all ISPs should take this a step further and replicate the Cisco NAC initiative where no user can log on to a network until their system is scanned and updated with the latest patch and antivirus software. Charge consumers an extra $1 a month but make it a prerequisite to get on the Internet. On top of that ISPs are and should continue to apply a number of different security devices on the edge of the network to prevent attacks from reaching end users. Vendors sellling home networking equipment like Linksys and D-Link should figure out how to embed and price antivirus and antispam software in their boxes as well. For the most part this will only stop the vulnerabilities and attacks that we know about, but the reality is that many of these attacks take advantage of known vulnerabilities. Helping the naive consumer in a proactive way will help us take one big giant step in making the Internet a more secure place.
The post What needs to be done to make us more secure
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