Interesting hypothesis from Elias Bizannes about an emerging seed Investment bubble - he did the maths on Y Combinator:
Y Combinator for example has funded 206 companies to date. At an average $10k in capital as well as $600 in travel costs (applicant companies can get up to $600 in reimbursement costs), they've put at least $2m in seed capital and assuming 10-20% of companies get accepted (an assumption by us), then reimbursed travel costs are between $450-900k. (Note: this is extremely conservative to the point of unrealistic, as companies receives $10k per person so the cost is actually closer to double or $4m in seed investment -- but we're doing this to prove a point.)
And what's the return? According to Christiansen, of the 206 companies invested in Y Combinator there has been $89,008,000 in exist value generated. Y Combinator claims the average stake in each company is 6-7%, so the group made $5,340,480 on a 6% return. But we think the companies that actually exited would have been able to negotiate a lower rate, as well as the fact Y Combinator would have got diluted by some of the companies that took additional funding. If we use 4%, then the return is $3,560, 320.
After five years, that's a gross profit of between anywhere between 500k (assuming 900k travel costs, and 4% return) to $3m (assuming 450k travel costs and 6% return). That means on a conservative back-of-envelope guess, the operational side of Y-Combinator gets about $600k a year, which is what a fund manager would make.
I am looking at this article for 2 reasons, viz:
- I haven't done the maths he has, but judging by the number of articles (and people I have met recently) that are popping up around the "seed investor" ecosystem it makes me think of "Incubators 2.0" (remember them, they bombed in the Dotcom boom), and it just smells like there is a bubble coming.
- Elias links to a most amazing spreadsheet by Jed Christiansen, logging the progress of all thebetter known seed funds, that will be fascinating to keep track of.
Also, there is considerable turmoil in VC-land as its economics change, and one can see that one strategy a lot of newer companies are using is to charge into the "funding gap" where Angels (and VCs) have traditionally feared to tread. And, as Fred Wilson recently pointed out, the issue is not te $Xm investment that is key for the funder, its the 2-3 times $Xm follow up investment that really allows them to take value - if the Seed Funds have kept it, that is.
The WSJ had a go at the dearth of women in Tech (by which I think they mean ICT, as in my experience there are loads of women chemists and biologists) and asked why:
Only about 11% of U.S. firms with venture-capital backing in 2009 had current or former female CEOs or female founders, according to data from Dow Jones VentureSource. The prestigious start-up incubator Y Combinator has had just 14 female founders among the 208 firms it has funded.
The “where-are-all-the-women” meme is a familiar one, and not confined to the technology world. But in start-up land, where the good idea is supposed to trump social status and everything else, the lack of women in positions of authority stands out.
Various Tech worthies stepped in, none so much as TechCrunch, who points to quite a well known problem for conference organisers:
Every damn time we have a conference we fret over how we can find women to fill speaking slots. We ask our friends and contacts for suggestions. We beg women to come and speak. Where do we end up? With about 10% of our speakers as women.
We won’t put women on stage just because they’re women – that’s not fair to the audience who’ve paid thousands of dollars each to be there. But we do spend an extraordinary amount of time finding those qualified women and asking them to speak.
And you know what? A lot of the time they say no. Because they are literally hounded to speak at every single tech event in the world because they are all trying so hard to find qualified women to speak at their conference.
Unfortunately this is one of those areas where a lot of very "sensitive" people live, so it is virtually impossible to have a rational, fact based conversation (just try and imply that the science continually implies that male and female brains are different for example. ).
Also, people tend to neglect the simple maths. I did a BSc and an MSc in Engineering, and men outnumbered women at least 10:1 in both degrees. It starts there, with the basic ratios skewed like that. It won't get better until that ratio changes.
Also - for what its worth, my own experience from managing, working with and being managed by women is that:
(i) By and large women in any role are (usually) more competent than men in the same role - having a woman boss is usually a terrific experience. But these women don't seem able to see and believe it.
(ii) Women (and I am generalising here) have a different way of learning something. They like to master X before moving on to Y. Men career wildly across the whole piece (hence the use of "career"?), covering more ground initially, but making far more errors in the process. They tend to end up in the same place over time but women are often not given that time, because.....
(iii) Women are less confident in putting themselves forward, even though they are usually at least as competent as the men. I found more than once that I had to work hard to persuade very capable women to do something, whereas far less competent men were clamouring to persuade me they could do it.
And here is the rub - when it comes to the wire, and it's your *ss on the line too, you give the task to someone who has enough confidence and enough competence.
So the question is threefold:
- How does one attract more women into the overall field to start with? Assuming men and women are entrepreneuarial to roughly the same degree, 10: 1 is not a good starting ratio!
- How does one have a rational conversation about the strengths and weaknesses of women, and what sort of opportunities play to their strong suit?
- Why are women more backward about coming forward, and how can that be overcome ?
Until these issues can be honestly addressed, there will always be a problem with women entrepreneurs in IT.
Crank Handle 2.0 - did someone really grant a patent for this?
Paul Allen's company is suing all the websites with deep pockets because he has a patent on how a website is designed (see above) - NYT Digits
Microsoft co-founder Paul Allen’s Interval Licensing is suing 11 companies, including tech giants Apple and Google, alleging patent infringement. Below, a look at the patents in the lawsuit.
Browser for Use in Navigating a Body of Information, With Particular Application to Browsing Information Represented by Audiovisual Data
What It Is: Obviously, it’s a browser for use in navigating a body of information, with particular application for browsing information represented by audiovisual data. Duh.
Attention Manager for Occupying the Peripheral Attention of a Person in the Vicinity of a Display Device
What It Is: The patent describes a tool that gives people news, stock quotes, ads and other information, peripherally to their main activity. One version of the tool makes use of the “unused capacity” of the screen and specifically mentions screen savers and wallpaper as areas where information could be displayed. Another displays content even when the user is busy but does so in an unobtrusive way. There are two patents with the same title listed in the suit, and one is a continuation of the other application.
Alerting Users to Items of Current Interest
What It Is: The writers of this patent should be congratulated for coming up with a title that really does succinctly describe what the patent is for. Basically, it’s a system for sifting through information, evaluating what the user would want to see and then giving an alert when such information pops up.
This patent is the only one in the suit that all the companies are alleged to have violated.
The implications of these are fairly widespread, as these things really are going back to trying to patent crank handles (an abuse of the early days of patents in the UK, which forced early steam engine pioneers to use moon and sun gears). We've built examples of nearly of all these things over the last 5 years or so and knew nothing of Mr Allen's patents, coming up with them quite independently (along with many other people I'm sure) because - surprise, surprise - this is the only real way to do them.
I bet there are loads of people out there with circuit diagrams in powerpoint going back 15 years that look just like this, its just that - silly us - we never thought to patent anything so bloody obvious! In fact surely some of the pre internet systems would have prior art here, never mind the early push systems? As with Facebook trying to trademark English words that are 500 years old, sadly the US system all too often rewards deep pockets, not deep intelligence.
What is needed, apart from a radical shakeup of the US patenting system, is - in my opinion - in patents like these is for the next level down - how they do some of this to be patented, not this level.
Addendum - and that the plaintiffs actually be making something, not just amassing patents and handing out lawsuits
Question hit me this last week when I helped the No 1 son build hs first "hot" gaming machine. Research was done, budgets set, parts specced and ordered, the obligatory pilgrimage to Maplins made to pick up last minute stuff, and then Lo! inside an old PC Tower carcase there now throbs the multicored heart of a Beast.
You just can't do that with an Apple computer (probably can't get that sort of performance either...)
(Update to above - you can get similar Apple performance specs, but at c 4-5x the price - but you can't build your own machine, its Apple defined. Would The Woz have started off with Apple gear if he was a kid in a garage today?)
So the question is this - can you call yourself a real Geek if you can't build your own computer to spec? Or program in a "real" language? Or know your way round the operating system's arcana?
Putting it another way - has Geekdom moved up the layers from the infrastructure to the applications, or has it become revalued socially (its sexy to be geeky now) and devalued technically (we don't want those - eeeew - technical bits)?
(An aside - the root of the word "Geek" comes from the Old English/Dutch/German word Geck, or fool)
Anyway, I put the question out to the Twitterverse and Benjamin Ellis came back with an interesting response:
Geek 1.0: We build cool technology. Geek 2.0 we use cool technology.
....which seems to fit the semantic shift in Geekery - you no longer need to know how technology works anymore, its all about using it. To be fair, it was ever thus - each tricky new layer of technology becomes simplified, then commoditised and eventually just disappears into the infrastructure. Old PC hands will recall how "interesting" it once was just to set up printers properly.....
The good news about this is that one don't have to master the technical skills to get something else done.
The bad news is that one loses control of what can be a fairly major levers of performance.
But clearly trading off the former for the latter has made geekery more socially acceptable. Although I do worry that the next semantic shift will start to call the Geeks who can build their own stuff "Nerds", and then we have gone fulll circle again.....
Back to the original question re Apple, you do risk giving the term "Geek" a bad name when, as "Stuff White People like" puts it:
It is also important that white people are reminded of their creativity, and remember you need a Mac to creatively check email, creatively check websites, and creatively watch DVDs on planes.
So where to draw the line? I guess to me its comes down to "are you a creator or a consumer".
(Update - nice post leading the charge for the New Geeks from Ian Betteridge - killer line "the less people are required to learn programming in order to be creative with computers, the more creative work you get.")
(Another Update - it seems I wrote this on the day Apple announced its new 12 Core machines are ready for sale but, as many commentors in the Engadget article point out, its more expensive - though not 4x more expensive - than the similar PC)
Danah Boyd on the attraction of /b/ (aka 4chan) to intellectuals and digital pundits:
Journalists and academics are clamoring to discuss and analyze 4chan. At first, it was all about discussing whether or not this community of 9.5 million mostly young mostly male internet people was evil or brilliant. Lately, the obsession focuses on anonymity, signaling that Chris’ TED talk set the frame for public discourse about 4chan.
If one were a tad cynical one would reflect that its only since its recent mainstream popularity that there has been a clamour, its been going for at least 5 years to my knowledge .
In addition, by the way, the convention on the site is you do not talk about it - fat chance now that Time has featured it
Boyd's view is that 4Chan is hacking the attention economy like earlier generations of hackers hacked The Man of their days (phones, secure systems etc) - 4Chan just carries on the tradition of (mainly) young males left to their own infernal devices:
As with security hackers, the attention hackers that are popping up today are a mixed bag. It’s easy to love the cultural ethos and despise some of the individuals or the individual acts. In recognizing the cultural power of the community represented by 4chan, I don’t mean to justify some of the truly hateful things that some individuals have done. But I am willing to laugh off some of the stupidity and find humor in the antics while also rejecting certain acts. I’m willing to lament the fact that it’s been 20 years and underground hacking culture is still mostly white and mostly male while also being stoked to see a new underground subculture emerge. Of course, it doesn’t look like it’ll be underground for long… And I can’t say that I’m too thrilled for every mom and pop and average teen to know about 4chan (which is precisely why I haven’t blogged about it before). But I do think that there’s something important about those invested in hacking the attention economy. And I do hope that we always have people around us reminding us to never take the internets too seriously.
At the end of the day its just another geek countercultural outlet, like the altnet was in the days Before Web, like /. (slashdot) was in Web 1.0, but its been officially name as this generation's counterculture (Sez Time magazine) so no doubt there will soon be a raft of books and blogs written about it.....
But it has one very useful principle - it is arguing strongly for anomymity and non persistence on the 'Net, which is (in my view) a key componenet of privacy - and makes 4Chan well worth supporting. I have embedded the talk (by 4Chan founder "moot") from TED above.
Your local friendly Eurocrat, in trying to nail Hedge Fund buccaneers looks like they have accidently nailed the EU VC industry - TechCrunch:
The AIDM Directive is part of wider moves by the European Commission to regulate the ‘riskier’ end of the financial system. But in seeking to impose greater transparency and accountability on hedge funds and private equity firms, like a cod trawler killing dophins, this drag net could destroy the early stage investment scene in Europe.
This is “catch-all” regulation stretches across hedge funds to venture firms, with very little consideration of how these vehicles operate. The trouble is that VC has been lumped in with things which pose a “systemic risk” to the financial system, when that’s not the case at all.
Under the proposed Directive, VCs will be required to disclose a lot more information, which is likely to cost as much as €100,000 annually per investee company. The Directive also imposes much greater capital requirements on venture firms, even as funds are shrinking to reflect the ease of creating startups now. VCs will also have to use outside depositaries (i.e. custodians) and independent valuation agents, again, adding cost and complexity.
The result is that successful start-ups from Europe like Skype, MySQL and Playfish would be less inclined to take VC money from European investors, because it will cost more.
Apparently 500-odd EU VC's have already signed up to a protest petition, but my view is that the VC industry - c 3% of the total "risky money" industry in the EU - needs to be aware that the EU have to regulate the Hedge Funds etc after The Crunch. They therefore need to make a carve-out proposal in my view.
The obvious thing is to have a materiality test - to lodge €100,000 worth of cost you need to be doing deals of €10m and above at least, so that would be a good cutoff and should cover nearly all VC activity..
One of the main reasons why a hedge fund will always beat the Small Man is that up till now they have had the big computers and Maths PhD's and you have not. This may change - Reuters:
Backed by private equity, or armed with bonuses earned at banks, traders have been encouraged by an 80 percent or greater fall in the cost of setting up lightning-fast systems over the past five years, trading software provider Portware said.
"The numbers of these firms has exploded," Richard Balarkas, chief executive of broker Instinet Europe, said at the Reuters Global Exchanges and Trading Summit last week.
"I hear venture capitalists are giving money to guys coming straight out of MIT (Massachusetts Institute of Technology) and setting up desks," he said.
...................
Europe could see the biggest rise in high-frequency trading, being a less mature market. Ultra-fast trading accounts for 30-50 percent of equity market volumes, against 60-70 percent in the United States, the UK Financial Services Authority said.
I've always felt that a lot of what "the Cloud" is supposed to do so far - like knock off Microsoft Office and stick it on Google - is pretty small beer when you think of where most of people's wealth goes. And where the money counts, up till now, the Small Man gets screwed because they just don't have access to the heavy duty technology.
Most consumer fund managers underperform the market, and even if they overperform they have to do spectacularly well to cancel out the fund fees etc. (It has been statistically true since dotcom times that if you managed your own money by random selection you would, on average, out perform the average fund due to fee saving alone)
One of the big switched about a decade ago was the "tracker" fund, which used the automation of the last decade to allow you to buy into a fund that tracked the market anfd the fees were far lower. This is the "2.0" step. (3.0 is an AI that does what bankers do, but without $million bonuses - surely the economic case for that is worth a startup or two too!)
I've been interested in taking these sort of big iron resources and putting them "in the Cloud" as it were for quite a while. And as with VRM, which seeks to turn CRM around and put the buyer in control of their data, giving the average Joe access to trading supercomputers must be a Good Thing
This could all get very, very interesting in the next few years. Definitely a trend to watch
There is a rather useful article in the NYT about how New York is starting to pop up as a startup hub again, after Silicon Alley shut down in 2002. But what really struck me is how much of it could equally be said about London. The following are to my mind the key arguments:
Firstly, a thriving scene of mutual assistance:
THE two dozen or so people arranged around wooden tables, warming their hands and bellies with steaming mugs of coffee and plates of homemade biscuits, looked like just another Sunday brunch set in New York. But members of this group had braved knee-deep snow to gab about cutting-edge ideas and as they introduced themselves the roll call sounded like a Who’s Who of digital start-ups: Foursquare, Hot Potato, Six Apart, Flickr, Flavorpill, Trust Art, Vimeo.
The New York Tech Meet-Up is held monthly, and as many as 700 people attend, a sign of the revival of tech businesses in the city.
“There’s a lot happening right here in our ZIP code,” said Dorothy McGivney, a former Google employee who is a co-coordinator of this group, the North Brooklyn Breakfast Club, and runs Jauntsetter, a travel site for women. Like the others, she had come to the brunch to help foster the growth of her little local community of entrepreneurs.
The group had its inaugural meeting in January and is among a growing cluster of informal meet-and-greets for the local technology and media industries. A recent installment of another monthly event, called the New York Tech Meet-Up and held in Chelsea, drew 700 tech enthusiasts.
The London scene has been quite vibrant for about 3 years now, but I think what is missing is the emergence of some real category killer companies. New York has already given birth to a few, such as Etsy and DoubleClick. London doesn't really have this - yet.
As to where the London category killers may come from, London is more like New York than Silicon Valley - it's a hotbed of the more traditional Media industries which are helping drive New York startups:
Of course, services can be developed anywhere. But because so many industries now grappling with the Internet are based in New York, the city is finding surer footing among its peers as a thriving tech hub.
“Book publishing, advertising, media and even the fashion industry are all located in New York. These are the main industries that are being reshaped and redefined by technology and the Internet,” says AnnaLee Saxenian, a professor at the University of California, Berkeley, who studies regional economics and technology entrepreneurship.
And somewhere to work is key - there is a rise of incubators and workspaces again:
Some of the more interesting breeding grounds in the city are technology incubators that nurture and mentor young companies. One example is the new Manhattan arm of Dogpatch Labs, which is backed by Polaris Venture Partners, an investment firm in the Boston area.
Dogpatch, which opened in January, offers start-ups a place to work, rent-free, for several months, along with the possibility of securing an investment down the line.
Another critical factor is the input of the Universities in the area:
Colleges and universities have long helped fuel the dreams of entrepreneurs. An early pillar of Silicon Valley innovation was Stanford’s dean of engineering, Frederick Terman, who viewed the university as an incubator for the electronics industry. More recently, Facebook was born in a Harvard student’s dorm room and Google first percolated in the heads of two Stanford graduate students.
Hoping to replicate those kinds of successes, schools in New York are increasingly collaborating with local start-ups. Chris Wiggins, a professor of applied mathematics at Columbia University, regularly brings start-up founders to campus to speak to students about careers in technology and is establishing an internship program at the school.
NYC Seed works closely with the Polytechnic Institute of New York University to help students there translate promising ideas into profit-making ventures.
London has some of the best universities on the planet, so no excuses there - but more co-ordination and collaboration is required, for Cambridge to still be ahead of London is extraordinary given the assets at London's disposal. The reason for this is the main London scene-killer - funding. There is still a bigger (or at least more active) VC scene in Cambridge. New York is getting that right again, and the meltdown in teh financial sector (another thing it shares with London) is helping:
New York’s flashier industries, including big media and Wall Street, have long dwarfed the tech sector here. And the dot-com implosion only reinforced that reality. The fledgling tech scene that was just beginning to hum in the late 1990s flatlined as dozens of Internet companies folded, pink slips replaced party invitations and venture capital firms took their investments elsewhere.
During the dot-com boom, “venture capitalists were just throwing dollars at every Internet idea on every street corner,” says Owen Davis, a serial entrepreneur and managing director of NYC Seed, an early-stage technology investment fund. “There was little critical judgment about business models and ideas.”
Since then, Mr. Davis says, the New York technology industry has been steadily coming back on line and has managed to accelerate despite the economic turmoil besieging other industries.
To my mind this is still London's main weakness. All the other areas coild be done better, but are not on the critical path. But nearly every London startup I know of in the new mesia/web 2.0 space that has found funding has had to go Stateside to get it, or fairly soon after an initial round. That (and I know some of my London VC friends will disagree) to my mind is the main thing holding London back. Its not that there isn't any money here, its just that there is not enough of it, and I am concerned its not going to the right places. I think there is still too much of a tendency to give money to the "right" sort of people, rather than the sort of people who are right.
Nice post by Fred Wilson re who drove the sale of Mint to Intuit for $170m - Management or Investors:
Here are some rules that I've learned over the years:
1) When the founders and management want to sell, the VCs ought to go along (within reason) because blocking a sale and having angry and unhappy founders and management running the business is a bad outcome.
2) VCs often impact the price and terms of an exit but they rarely drive the exit itself when the founder is still actively running the business.
3) When a company is doing really well, the investors rarely want to sell. VCs make all of their money on a few investments per fund. When a company is in that group, they don't like to see an early exit.
4) When a founder owns a large stake in the business and is still running it, it is very likely that the founder drove the decision to sell and the sale process and was advised by the investors and board.
5) If the founders are no longer involved in the business and the management was hired by the VCs, and the VCs control the business, then it is likely that the investors drove the sale process and the decision to sell.
6) If the company is not doing well, then the decision to sell was likely forced by the VCs.
This leant itself to a little game theory truth table, which I've drawn up above. What it also shows is a case that is missing in Fred's analysis, ie where the company is doing badly but the Founders are still in control. In this case my observation is that the founders usually try and keep going, but as they take in more cash they get diluted until they lose control, at which time a sale is forced.
That Top Right Hand box may well explain why the investors let the Facebook guys sell and lock in some of the benefits - far better that than the Founders/s (I lose track of who exactly founded Facebook) force a sale. If the investors thought Mint was such a good company one assumes they could have followed suit?
I had to put this up once I saw it (twitpic via @ethan_anderson)
RedBeacon wins it, says TechCrunch, but its essentially just a service that matches local service providers:
Using the site will be easy for anyone who has used a local review service like Yelp. Simply type whatever service you’re looking for (be it plumber, gardener, or hair stylist), and the site will present a list of recommended service providers in your area. RedBeacon also employees natural language processing so it can figure out exactly what you’re looking for (for example, “Cupcake maker” would search for any bakers in the area). The site will then present a list of profiles for each match, featuring reviews and comments from other users, basic information like their hours, and star reviews imported from Yelp.
Good luck to them, but I wouldn't have thought this was a major online business play, there will be a huge amount of traditional "shoe leather" selling into local SMEs etc to get it to work. I wrote this in the comments section:
These sorts of businesses are already around in many local areas, we’ve had one like this where I live for years.
There is no competitive advantage, no unique technology, no barriers to entry, very hard time capturing a mass market, very difficult to scale….
I have no particular axe to grind re TC50, [or RedBeacon] but choosing this as a winning business seems daft. One wonders what the selection criteria were.
I really do wonder about those criteria. Still, the publicity should ensure a tidy sale to Yelp or similar in a year or so.
In my opinion there were better companies at TC50 and better ones not even selected to go. Maybe Paul Carr will have an idea if he is still employed there
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