A discussion about funding models in current cash starved times.
Boot strapping, Angel money, VC funding, micro funds, ramen profitability- when, why and how you should choose each. How are companies, entrepreneurs and investors evolving after the lessons learned in the past decade? Are social platforms, outsourcing , App stores and new distribution models enabling startups to reach critical mass without major venture capital and changing the funding game as we know it?
Jonathan Abrams — Founder, Socializr
Igor Shoifot – COO, Fotki
Kent Goldman — Principal, First Round Capital
Ping Li – Partner, Accel Ventures
Here are notes on key points I took away from each speaker's presentation.
Jonathan Abrams — Founder, Socializr
Jonathan has been the founder of 3 startups, including Friendster and Socializr. He started Friendster in 2002, out of an apartment writing code by himself. It started with no funding, then had small angel funding. The site had revenue and millions of users before there was more funding. He said things changed after the venture money, specifically that the cost structure of the company change "drastically". His current startup, Socializr, is in lean and mean mode and is venture backed but by a small amount.
It's a cheap time for startups
Too much of a premium is placed on raising venture capital
Avoid raising too much money too soon
A lean startup can use: open source, cloud computing, agile product development, developing the minimal viable product
The lean startup may become the mainstream way of doing things
It's common for startups to raise money early and then find out they didn't have the right product
There are dynamics involved with investments - understand the numbers, math, structure
Igor is one of 3 founders of fotki.com, a profitable self-funded photo site. It was started in 1998 and now has 1.4 million members. They did not take any angel or venture investments.
One approach: build technology cheap, scalable, reliable; then build apps, community, viral growth; finally think sales, marketing, distribution channels
If / when becoming VC funded, certain things could become a lot more important
Typical VC approach would focus on hypergrowth, while a business model could be a distraction from growth
Create a low cost foundation
Follow power users and $
Let users play, pay
Focus on growth that brings $
Fight where you can win
Don't put all eggs in one basket
Don't let big opportunities slip away
Be ready to scale
Close fisted but open minded
They were reasonably open minded when approached about licensing their platform
Kent Goldman — Principal, First Round Capital
Challenge existing / traditional funding models
Traditional model: small seed round, followed by Series A and Series B rounds, then go long for big exit (multi-million dollar M&A, or IPO)
Financing rounds approximate value creation by company
Gaps are dilution and loss of optionality caused by over-funding
First Round Capital's philosophy: validate hypothesis, de-risk the hypothesis, or disprove it (that's OK, nothing to be ashamed of, it's almost celebrated in Silicon Valley)
Fail fast (less time and money)
If your company is going well, generally you will be able to find funding; if not, sometimes best to figure out what to do next
When you raise money, you should know how to use the dollars
VCs expand scope of professional help around your company (act as recruiter, business development, kick open doors)
Cost of building a company has fallen greatly
Question how capital efficient you are being
Validity of assumptions may be as important as idea itself
Raise as little capital as possible
Ping Li – Partner, Accel Ventures
Have to take long term view of VC industry - roughly 11 year cycle
Companies are getting built with real value, seeing customer needs
Now is the early part of the phase, preparing for time when there are exits
It's a trade-off between enterprise and consumer drivers, the trend goes back and forth
"Technology constipation" - so much creation in the 90s, took a long time to absorb it all
The challenge is not investments, it's exits
This is the best time to be investing - can be patient, it's time of real R&D
Historically, companies built in darkest of times have eventually been rewarded
There is finally consolidation in VC industry, but top firms still aggressive
A negative of VC industry is over-funding of a particular category, chasing one category is not good for anyone
Venture capital is not a sign of success, not every company should do it
Business model drives funding strategy, never the other way around
Putting money in is easiest part of job, you can get capital anywhere - not as important as finding a partner to extend capabilities of the company
Get to know firm, partners over period of time - develop a relationship, ask hard questions
VC industry in period of transition: time to exit was 4-5 years, now it is 8-9 years
Hire to the critical path, hire less than you think you need
Startups are fantastic at overachieving
Overall the event provided great insight into the current state of the VC industry, different approaches for funding, and what's important when starting a company. The speakers provided some really good different perspectives, bringing various backgrounds on the financial approaches to launching and growing a startup.
Google announced plans to create their own operating system, called Google Chrome OS. In a previous blog post, I listed my Thoughts on Google's Chrome OS.
North Korea was the suspected source of cyber attacks on web sites in the U.S. and South Korea. Targets included government, stock exchange, and news media sites. In a separate unrelated incident, Twitter was flooded with fake accounts posting with the tag "#gorillapenis". Nothing particularly new with these activities, really. If you run a site, not only do you have to worry about keeping it up as much as possible, but about securing data and filtering out spam.
Facebook Adding More Privacy Control Options
Finally! This is a welcome change for me, I would really prefer posting messages to select groups of people instead of blasting everything to a wide audience - that's what this blog is for! The ability to make posts totally public will be a welcome feature for me too, since a number of people I know are (still) not of Facebook (yet).
Apple App Store Turns One
Wow, I can't believe it's only been one year! Apple really took it to Microsoft, Nokia, RIM, and Google. Of course it's the entire cohesive ecosystem with the iPhone, iPod Touch, and iTunes that contributed to its success. Nevertheless, a store that has amassed a collection over 50,000 apps and over a billion downloads is nothing to sneeze at.
Dell is rumored to be developing a mobile device based on Android OS to compete against the iPod Touch. I'm really interested to see whether it will offer 3g data connectivity.
There is speculation that the next model of the iPod Touch will feature a video camera, like the iPhone. Personally I'm all for it. As an iPod Touch user, having matching capabilities of the iPhone (minus the actual phone) is at the top of my tech wishlist.
Last month, the HTC Hero was the latest Android phone to be announced. Engadget posted photos of it side-by-side with the myTouch 3G, which was officially announced just prior. Both of them use service on carrier T-Mobile.
Sony enters the Netbook market with the Vaio W. They are a latecomer to the Netbook party, joining a now-long list of computer makers who compete at the small and cheap range of laptops. It comes with typical specs, with the only differentiating factor (in my mind) being an HD-resolution screen (1366 x 768). As of now, Dell and HP are the only other manufacturers who offer that level of resolution over the common 1024 x 600 screen.
VideoLAN released version 1.0 of VLC, an excellent free media player. The version number is a complete misnomer, though, as VLC has been around for years and has had numerous previous releases. I haven't put it through its paces yet, but on initial usage it sure feels smooth, polished, and stable. It's always been known for having good support for various media formats.
Exit Strategy / Liquidation Events
LogMeIn went IPO, rising %28 in its first day of trading over the initial offering price of $16 a share. The company, who makes software to enable remote access to computers, raised $107 million with the share priced at the top of the expected range. It was one of the very few Internet / software companies to go IPO this year.
The bidding war for Data Domain, a data storage management company, finally ended with EMC winning with a higher offer over NetApp. It's nice to have a sign of life in this bad economy.
What Went Wrong With Joost and Joost’s Last Hope describe the company's fall. Technically, Joost is not dead. However, such a big shift in direction plus layoffs and the departure of its CEO form a really big disappointment. Definitely a cautionary tale for aspiring startups.
Mozilla launched a useful catalog for software developers: the Open Web Tools Directory. Right now it's just a simple list, but there is obvious potential for the directory to get filled out and made more useful. I would love to see some discussion forums, where people can post questions and requests for information/recommendations. I can imagine developers posting reviews, and voting on which tools they prefer. It could really save me a lot of time from Googling around to find available tools and researching to decide which one to use.
Google launched allforgood.org, a site for finding volunteering activities. I know it just launched, but it would be really nice to have finer grained filtering by location, date, and type of activity - also the ability to sort by date and distance.
ItemNotAsDescribed.com highlights funny postings in Craigslist's "free" posting section. Hey, I have plenty of junk to get rid of, there must be something funny for me to post a free listing for...
The Lying Down Game: "A group for all those who enjoy the sport of lying down in random public places to confuse people". I think this is totally hilarious! It's such a simple concept, but there are thousands of various creative and unexpected/unpredictable deviations.
Google announced plans to create their own operating system, called Google Chrome OS. It will leverage the Chrome browser, and intends to offer a simplified experience to get on the web and use web applications. It will initially be targeted towards netbooks, though there are questions around potential overlap with Android considering Acer is working on an Android netbook.
Potential Advantages Here are some areas where I see opportunities for Google to take an advantage over other operating systems:
Speed: With the Chrome browser, Google demonstrated how they can compete at the client software level in performance (not just in web applications). Particularly with startup time, if they can make a noticeable difference, people will take note.
Simplicity: Again, with Chrome browser they provided a simple, elegant, easy to use interface. In the Netbook area, people are typically doing more frequent simple tasks as opposed to complicated ones.
Integration with Google web applications and services: Probably Google's biggest competitive advantage is their ability to tightly integrate the operating system with their numerous web sites and applications: search, email, calendar, address book, Picasa for photos, YouTube for videos, and more. They could potentially use Gears to sync copies of data on the local computer with information stored online.
Security: Microsoft is notorious for having frequent security related patches for Windows. Of course, by having the largest market share they are the largest target for hackers.
Maintenance: Software updates are a hassle, they could make this a more streamlined, seamless experience.
Open Source: Google plans to make Chrome OS open source, like Android. This could create a great opportunity for third-party developers to build extensions to the OS or to easily integrate their own applications.
Price: Unless you pay people to use it, you can't really beat free. However, there can be a price other than a monetary one, namely being privacy, which leads me to...
Potential Concerns There are some areas where I am concerned Google will be limiting or tightly constrained:
Privacy: Google's mission is to organize the world's information. They also seek to learn more about their users, in order to improve the experience but also in order to better target ads that they sell. Confidentiality of users' behavior is important. Tracking what terms people enter in to a search engine is one thing, but the ability to track everything they do on their computer is another.
Customizeability/extensibility: Chrome browser is notably behind Firefox in the ability to install extensions and themes to customize the appearance. Firefox also has several more settings that can be changed to tweak the functionality.
Full features/functionality: Gmail is probably the biggest example of an application where Google does not offer the common, conventionally offered set of features and functionality. One infamous example is the inability to sort messages in any other order than the default. Messages are always sorted in reverse chronological order in Gmail, while most other email clients support sorting by sender, recipient, subject, date, and size.
Position Against Competitors Here's how I think Google will stand against the other major operating system makers:
Microsoft Windows: Speed, usability, and security are areas where Windows has weaknesses Google can target. Boot up time has been an issue people have been unhappy with, although supposedly Windows 7 has improved upon that a great deal. There is, however, the well-known "Windows rot" problem of the system getting progressively slower over time with more usage. Apple has always touted the Mac as being simpler and easier to use than Windows. Security issues make up a big headache for Windows, and keeping a Windows system secure requires frequent software updates and multiple software applications to install to defend against and check for malware.
Apple Mac OS: Price, hardware selection, and the open source community are advantages Google could leverage to compete against the Mac. Apple doesn't offer a Netbook yet, but even if they do, users can have their choice of hardware models to choose from to run Chrome OS. Meanwhile Mac OS is restricted to only run (legally) on Apple hardware. Apple computers are generally sold at a premium level, hence the term "Apple tax". Obviously, Chrome OS will not carry a premium price, as it will be free. Apple is notorious for keeping a tight rein on what third-party developers can access and provide (most notably with the iPhone and app store), but Google will make Chrome OS open source, meaning developers will not be limited.
Linux, specifically Ubuntu: Simplicity is the key for Chrome OS against Linux. Even though Chrome OS will be based on the Linux kernel, the front-end user interface will be different. Linux has not really reached mainstream adoption. What is great about Linux and yet frustratingly overwhelming about it at the same time is the multitude of options, settings, applications, and configurations. It's like the Swiss army knife of operating systems. With the emergence and accceptance of Ubuntu there has been a great deal of consolidation, but there are still major variations - like with the different window managers Gnome, KDE, and XFCE. It's great for the mechanically minded and tinkering types, but it's challenging for casual users.
Google's ace in the hole is their ability to tightly integrate Chrome OS with their existing web applications and services. The other major operating system makers can compete in other areas, some more or less, but none will have a chance like this. Microsoft and Apple offer some integration with their online services, but those are not as ubiquitously used as Google's. It will certainly be an interesting competition, and hopefully it will spark innovation from all of them.
In the past month, events outside the technology world dominated the news, however technology had a strong influence on the "real" world and vice versa.
Turmoil in Iran In a controversial presidential election in Iran, incumbent Mahmoud Ahmadinejad defeated reform candidate Mir-Hossein Mousavi. Following results of the election, protests broke out due to suspicions of voter fraud. As the protests grew in intensity, violence erupted and the government conducted raids, made arrests, and filtered or blocked various communication channels: TV broadcasts, internet access, and mobile phone services.
The tag #IranElection was used to communicate on Twitter and immediately became one of the top topics, remaining there since.
Immediately after events started to unfurl, CNN was criticized for not reporting on events in Iran more. The tag #CNNFail became a trending topic and people turned to Twitter as a better source for information.
Many users showed support for protesters by changing their Twitter avatar icon to a shade of green (Mousavi's campaign color) by overlaying the color over their existing image. Many also changed their location and timezone to match Tehran to make it difficult for censors to identify and target protesters.
More people than probably ever before learned what a proxy server is, as proxies were put up to help citizens of Iran circumvent censorship of their Internet access.
Statistical analysis showed that it was highly unlikely that election results happened as a normal occurrence, due to the distribution of digits in the vote counts. The numbers were skewed toward those that psychologically people choose more often, suggesting the likelihood of fraud.
Celebrity Deaths Shock The World The world was shocked by the sudden deaths of Michael Jackson, David Carradine, and Billy Mays, as well as the passing of Farrah Fawcett and Ed McMahon. As news of Michael Jackson's death spread, people flocked online to learn more and discuss. Internet traffic spiked, causing some web sites to slow down or become unresponsive. Some companies, like Google, initially thought the spike in traffic was an attack on their servers.
iPhone 3GS: Apple launched a new version of the iPhone, the iPhone 3G S. At $199 for the 16GB model and $299 for the 32GB model, with contract, it was very competitively priced against the recently announced Palm Pre. Compared to the previous iPhone, the new 3GS features a faster CPU, a better camera, longer battery life, video recording, voice recognition software, a built-in compass, and the ability to be tethered as a modem. Many speculated that the new video recording feature and ability to upload recordings directly to web sites will be a boon for video sharing sites like YouTube.
Palm Pre: Palm released the highly anticipated Pre smartphone, considered one of the best competitors to the iPhone. The Pre runs a new operating system called WebOS, the long awaited Linux-based replacement for the old Palm OS.
Android: T-Mobile announced the MyTouch 3G, the second smartphone to use Google's Android operating system. Unlike the G1, it does not have a physical keyboard, resulting in a slimmer and sleeker profile.
Flash: Adobe announced that a new version of Flash will be supported on various smartphone operations systems: Android, Palm WebOS, Windows Mobile, and Nokia's Symbian. Notably absent are iPhone and BlackBerry.
Social Networking Anti-Climaxes
Facebook added support for vanity URLs. There were some squatters, but for the most part it seemed like people chose their names without many issues.
North Korea vs. Euna Lee & Laura Ling Asian-American journalists Euna Lee and Laura Ling were sentenced to 12 years in hard labor prison in North Korea, for allegedly entering the country illegally and supposed "hostilities". The sentencing appears to be highly politically motivated, as it happened at the same time that several countries are attempting to block North Korea from obtaining materials for nuclear weapons. People created Facebook groups, Twitter accounts and hash tags, blog posts, and online petitions to support their release.
Microsoft launched Bing, a revamped search engine poised to compete against Google. Pricing was announced for Windows 7, set to be released in October. Probably as well known as the product announcements themselves were the marketing and advertising campaigns that Microsoft launched for Bing and IE8.
TweetDeck and Seesmic both released new versions of their Twitter desktop clients. TweetDeck also released a version for the iPhone.
Sun released VirtualBox 3.0. I wonder how VirtualBox will fare after Oracle completes the Sun acquisition.
Fail of the Month Club
The city of Bozeman, Montana was criticized and ridiculed (deservedly so) for requiring job applicants to disclose login credentials for online accounts. Responding to the media backlash, they subsequently eliminated the requirement. Not only was the policy a major privacy infringement, it would have been a major security violation. What if online accounts fell in to the hands of a malignant hacker, terrorist, sexual predator?
Congressman Pete Hoekstra, Republican Representative from Michigan, made a buffoon out of himself for comparing the aftermath of the Iran election with Republican results from their last election. The site hoekstraisameme.com was quickly launched (by the same people who brought us ICanHasCheezburger.com) for people to post equally outlandish comparisons, but in a humorous and facetious manner.
The RIAA was awarded $1.9 million in damages against Jammie Thomas, the defendant in the first significant file-sharing copyright infringement case. Although she was originally accused of illegally sharing over 1700 songs, the verdict was based on only 24 songs, coming out to over $80,000 per song. Ironically, she was only fined $222,000 in the previous trial which ended in 2007.
Notorious file-sharing site The Pirate Bay agreed to be acquired by Swedish company Global Gaming Factory for 60 million Swedish kronor ($7.8 million). Some fans of the site branded them as "sellouts", while others acknowledged that it was a predictable fate.
MySpace layoffs: MySpace announced that it would lay off over 400 employees, or about 30% of its staff, leaving it with 1,000 employees.
Yahoo kills acquisition after only 17 months: Yahoo decided to shut down Maven Networks, despite acquiring it only in January of last year.
Clear, the program for expedited access through airport security, shut down operations.
News came out about Steve Jobs' his liver transplant, and his subsequent return to work at Apple