Wednesday, July 27, 2005
He recently launched a podcast and joined the blogosphere. Check out his music and his podcast, which is a great mix of original music and his favorite artists.
Finally, if you know of artists who are setting the standard wrt leveraging web 2.0 tools to share their music, please let him know. Email him at firstname.lastname@example.org.
I know you will love Rich - please check him out.
The author, Jack Weatherford, outlines Khan's amazing life story and rise from outcast/orphaned Mongol nomad to ruler of the world's largest ever empire. The book serves as a major rehabilitation of Khan's legacy and transforms the traditional view of Ghenghis Khan from brutal tyrant to transformative ruler who spread the rise of free trade, religious freedom, science, standards, paper currency, postal services and communications, and national identities in lieu of tribalism, religious persecution, and autarky.
Khan's genius lies in his ability to transcend his circumstances and envision completely novel means of organizing armies, ruling empires, and structuring society (merit vs hereditary and tribal). An Indian friend of mine and admirer of Khan's describes him as being "self-born," a force in history with no precedent and a man of ideas and achievement completely non-linear to his context and roots.
The reviews on AMZN are excellent and for the Western reader, the author challenges long-held stereotypes and reintroduces a familiar historical figure in a new, influential light.
Monday, July 25, 2005
BTW, Feedburner's "Content Item Stats" are a great way to track what people are reading on your blog.
Search: The Rise of Specialization
The Golden Age of IT Buying and What Does it Mean for Investors
IBM: Standards, Customer Alignment, and Ecosystem-based Competition
The Cost of Optimism
Friday, July 22, 2005
Seeking Alpha is a blog focused on investment strategy, portfolio management, and alternative assets (hedge fund, venture capital, etc).
The site is a useful aggregation of information pertinent to those interested in alternative asset management. For example, the blog's most recent section deals with the investment ramifications of the yuan's revaluation and easing of peg to the US $.
Check it out.
Thursday, July 21, 2005
He asked me a very good question, "why is it that VCs call our customers during the investment process but rarely call/meet with our customers once they have made the investment?"
He went on to say, "in all the start-ups I have worked with, my investors did not make it a priority to get in the field, go on sales calls with me, and meet the customers on their premises to better understand our products, the sales process, and the market need. "
Along those lines....I recently had an experience that changed my strategy and perspective on the due diligence. As many of you know, when considering an investment, we always arrange to speak with the company's customers, management references, and key prospects. I have made hundreds of calls over my 3.5 years in VC, with the operative word being CALLS.
WRT the deal in question, I called their largest customer and spoke to the end-user. I went through a traditional set of questions...deal status, contract size and terms, other solutions considered, perceived product differentiation, installation and integration process, concerns or suggestions, rating of company and product, etc.
The caller provided me a glowing report. Right before I hung up, however, I realized I would be in San Jose the next day and offered to buy the customer lunch as a thank you. He readily agreed.
Over lunch, an amazing thing happened. In person, the conversation became much less structured and much, much more nuanced and free-flowing. In person, I picked up on visual cues, body language, and began to get a much less positive view on the company and its prospects. The lunch proved to be the defining moment in the diligence process and led to our passing.
Why were the interactions so different? In-person meetings provide verbal and physical cues and a level of connection that phone calls cannot match. Scheduled conference calls somehow limit non-linear discussions and tend to follow a more formal script or call and response protocol that restricts authentic communication. On a scheduled customer call, the customer tends to be less expressive and revealing. In person, however, I discover much more about their business, problems, context for evaluation of technology, and in-depth perspective on the company/product in-question.
Over lunch, I decided that when making material investment decisions that I will always, when possible, drive to the customer's premises and conduct the diligence session face-to-face. So far, very good.
Finally, I am taking Mike's advice and counsel to heart. I am going on sales calls with both prospective and current portfolio companies. While perhaps no surprise to many of you, the focus on "live meetings" and post-investment field sales calls is making me a better investor with much better insight into the companies, customers, and markets that I work in.
Quick post-script to my original post here - another very good reason for in-person diligence calls is the following...developing friendships and great relationships...for every deal that I have diligenced, I develop a relationship with at least one great technologist whose input and perspective helps shape my thinking and direction long after the deal in question is completed.
Tuesday, July 12, 2005
The key issue for executives and venture capitalists is the following: one needs to determine what information may prove critical to the decision at hand, and, therefore is worth waiting for, and what information is unlikely to affect (and thus need not delay) the decision at hand. The authors note that "people often arrive at a decision problem not with well-established preferences and clearly ranked preferences, but rather with the need to determine their preference as a result of having to decide, and they often look for additional information in hopes that it may facilitate the choice."
The venture capital process is a class example of this phenomena.
Investors often do not have a priori preferences with respect to an investment decision and need to determine their preference to fund a company and do indeed, as all entrepreneurs know well, seek additional information with which to make their decision. The central issue is clearly identify which information is instrumental, "information that can alter what decision is made," versus which information is noninstrumental, "information which will not impact the decision at hand if it were available."
Given people like to obtain information and base their decisions on compelling reasons for one option versus another, research finds that, given the option, people will wait for noninstrumental information. Worse yet, once the noninstrumental information is gathered, people alter their choice based on this noninstrumental information. The cost is not only delayed decision making but also poor decision making as noninstrumental information impacts the final choice.
The key take-away is that all of us, when making a decision, need to carefully think through what we absolutely need to know in order to make a good decision, rather than delaying decision making and leaning on the crutch of more time to gather non-essiential data that may contribute to a poorer decision.
Monday, July 11, 2005
PartyGaming.com, an on-line site best known for poker, raised $1.4bn dollars in an IPO. All $1.4bn went to the founders, who retain material stakes in the company, and the IPO raised no new money for the company. The IPO's success comes despite the fact that the US government bans on-line gaming, that the founders will be arrested if they ever come back the US, and that the founders previously ran on-line porn businesses.
The company's financials tell a remarkable story of growth and profitability.
Revenues grew from $30m in 2002 to $600m in 2004. Annualized first quarter revenues were $890m. The company is not only growing rapidly (30x in three years) but is also delivering profit margins in in excess of 50%. Click here for more detail on financials. The company's PE ratio remains in the low teens, despite the growth and profitability delivered to date. Clearly, a regulatory overhang impacts the valuation, however, the fundamentals and prospects of the business are remarkable.
Is this an anomaly? Is the company and IPO a freak event?
In my mind, Partygaming represents a wealth creation vehicle that validates the power of consumer Internet applications and the marginal profits possible in electronic content. Partygaming's backend supports up to 70,000 simultaneous users, with the marginal cost of another user/player close to zero. Growth will drive increased profits as largely fixed IT costs are amortized across a larger universe of players. The demand for on-line gaming is exploding as broadband penetrates households and multi-player games attract off-line enthusiasts.
Google, Yahoo, Partygaming, and a myriad of emerging companies are validating that Web 2.0 business models can be cash-flow machines. The return of the consumer Internet investment is an increasingly common story. When I first got into the VC business, in fact when I tried to raise money as a consumer Internet service CEO, consumer investments were an anathema. Investors associated all Internet deals with webvan and pets.com. Three years after the crash, it is fascinating to see the Internet's hype instantiated in 50% net margins and I am confident that PartyGaming is a herald of more interesting consumer applications and innovation to come.
PartyGaming's IPO is true testament to profitability and growth possible in Internet services and a good reminder to all of us that contrarian investing (think about backing this in 2001)leveraging pretty clear market characteristics (gaming is big, web access is growing, etc) drives healthy returns.
Thursday, July 07, 2005
The blog is a great way to stay abreast of the latest and greatest on the web. As an example, the site recently profiled Skype's Outlook plug-in.
Check it out.
Wednesday, July 06, 2005
This post is an effort to consolidate my advice into an actionable list of suggestions to help people who want to enter the start-up world.
First the good news; new companies are being created and funded at a rapid clip. New companies drive new innovation, and innovation (see my post on the MS CTO Summit) creates new jobs and opportunities.
In 2005 Q1, VCs funded 290 IT deals with $2.9 bn of investment. 52% of the $2.9bn went into A and B rounds, which implies that over $1.45bn of capital sits on the balance sheet of young IT companies looking to ramp headcount as they scale from product development into sales and marketing. In 2004, the VC industry invested $11.8bn into 1,303 IT companies.
The key take-away is that there is a large pool of new companies who will be adding headcount in the months ahead and are funded to grow.
With respect to a process for looking for the right next gig...I suggest the following steps:
The web offers a variety of very useful tools and sites that help discover companies of interest. Before beginning a search process, I encourage job seekers to avail themselves to resources that can help map out areas of interest, representative companies, and funding events.
I recommend subscribing to VentureWire, VentureWire's events (see which companies are attending relevant conferences), reading The 451, AlwaysOn, VC blogs and tech news sites, and venture capital firms' portfolio listings.
Start-up's cost of capital is high. Accordingly, BOD members and CEOs are focused on maximizing the return on every dollar invested. Given that HR costs represent over 70% of a start-up's burn rate, CEOs need to hire carefully and prudently in order to ensure that capital is invested wisely in reaching key company milestones. Therefore, I strongly encourage people to leverage their prior track record of expertise and achievement in looking for a start-up role. Specifically, start-ups can ill afford to experiment with an engineer interested in a move into marketing, or a consumer electronics product manager looking to move into the financial services vertical. When a req is open, the company needs to feel very confident that the prospective hire brings the skills and experience necessary to do the job. The cost of failure is too high.
If you are looking to move industries and/or career functions, I suggest the chances of securing a position are very low. Rather, try to leverage the expertise developed to date in a given market or function.
Do not send email to email@example.com. This is a recipe for frustration. Given the high cost of a bad hire, start-ups like to hire known commodities. What if you don't know lots of start-up CEOs directly? Don't worry.
These relationships/touch points can be more than one degree of freedom away and still be very effective - referrals are the best source of qualified leads. Accordingly, once research uncovers a sector and set of companies of interest it helps to look carefully at the backgrounds of key management team and board of director members. Also see if the VC firms backing the company employ a full-time recruiter; VC HR resources are a wealth of information and access regarding opportunities across large numbers of young companies.
Remember, that personal references are vital and leveraging a network of relationships to secure access to the hiring manager is key to traction in a job process. If you use LinkedIn, you can search for a given target's name and see if your personal networks overlap. As an example, on LinkedIn I have 74 direct connections, 16,100 connections two degrees of freedom away, and 372,000 three degrees of freedom away. Amazing. Other useful networks to tap into include school alumni boards and company alumni groups.
Once the companies and a contact are identified, prepare diligently with respect to how you can help the company and play the game of numbers. To be successful, you will need a pool of targets to help yield one strong offer.
Plan on a six month process. Split the process into manageable parts - 1) identify markets and companies of interest, 2) identify access points, and 3) leverage your background, preparation, and network to get an audience and opportunity to compete for a position.
In summary, start-ups continue to be created and funded at a very healthy rate. Life is too short to work in a job that you find unfulfilling, or for a company that is in decline. The start-up world will need to recruit hundreds of qualified senior managers to fill positions as young companies grow and scale. To be successful, however, I believe it will pay to focus on education and awareness of what is happening in the market, leverage prior track records of success and achievement, secure access to opportunity via trusted network connections, and prepare diligently for a lengthy process.