Posts from December 2010

Twelve Days In The Middle East

We are flying back to NYC today, we’ll be in the air all day. I’m wishing we would have chosen to take the overnight flight last night and skipped the last dinner/evening in Tel Aviv, but that’s not the call we made six months ago.

It has been a fantastic family trip. Here’s the basic outline of what we did, courtesy of foursquare and google maps. If you click on that link, you’ll get the details on all 57 checkins I did on this trip, in reverse chronological order.

Middle east trip

The Gotham Gal has blogged the entire trip, twenty-two blogs posts in all, two and a half pages worth of blog posts full of pictures and descriptions.

Twelve days, breakfast to dinner every day, is a lot of face time with three young adults who value their time alone and independence. We had a few moments on this trip like we always do, but all in all we seem to have survived it.

We’ve been meaning to do this trip for years and I’m glad we finally did it. I suspect that all of our kids will be back in Tel Aviv soon enough. And the Gotham Gal and I are certain we will be back soon too. Given how much technology stuff is going in here, it’s hard to ignore Israel as a center for technology innovation and venture capital investing. If only the flight was shorter and they had in air wifi. I’ll be back on the grid in the new year.

Happy new year everyone.



Mobile Economics Will Trend Toward Web Economics

I've been saying for a while now that I think mobile economics will trend toward web economics as the mobile web goes mainstream. In other words, the business models that work best on the web will ultimately work best in mobile.The corollary to that is that the business models that don't work well on the web will not work well in mobile in the long run.

And that includes tablets. There is some discussion in the tech blogs today about why iPad magazine sales have been disappointing. I don't understand why anyone would ever think that adding a presentation layer on top of web based content would make it something people would want to purchase when they are not willing to purchase the same content directly on the web.

A central issue with the Internet, no matter what device and presentation layer you use to access it, is that there is an unlimited amount of content available. Evan Williams calls it "a web of infinite information" in this chat with Om Malik. What is valuable is filtering and curation. Restricting access to content doesn't work. Someone else's content will get filtered and curated instead of yours. Scarcity is not a viable business model on the Internet.

For a while Apple has provided something that has looked like exclusivity and scarcity. They force everyone through their app store and they provide a transaction engine in that app store. Some have chosen to execute a paid content or a paid app business model in that app store. A few have buit interesting businesses with that model. Most have not.

But the mobile web is going mainstream in a big way in the next year. And other devices and presentation layers will develop that will have different models and transaction systems. I suspect that, like the web, we will see a plethora of marketplaces and transaction systems develop across multiple platforms and devices. Developers who want to access users on those devices will have to use different approaches. This interview with the developer of Angry Birds is a good discussion of these issues in real time. Angry Birds uses Getjar on Android instead of the Android marketplace. We will see more of that kind of thing, not less.

I do not believe that Apple's model is going away. And I think Apple will remain an important and leading mobile platform for a long long time. But their period of being "the mobile platform" is ending and it is important to understand what that means.

I think it means the mobile is slowly but surely moving to a web model. And as that happens, it is important to think of it as one big web and lots of devices and software accessing it. Lots of devices means billions of devices accessing largely free content and applications with advertising and freemium and commerce and virtual goods and many other business models generating trillions of dollars for developers. Just like the web, but even bigger and more exciting.



The Public Filing “Announcement”

When you close a private financing, there are filings that should be made and in some cases must be made. A week or two after you make the filing, the information becomes public and you have announced your financing.

There are ways to keep a financing quiet and avoid these filings and we have been involved in financings where that was done successfuly. But unless you specifically request that your lawyers keep the financing quiet, you are most likley going to have your fundraising effort in the public record.

And this can catch you off guard. If you want to control the message and announce the financing to your employees first so they don't read about it in the tech blogs, you need to be aware that the clock is ticking and you need to get the word out fairly promptly.

This issue got us yesterday. We had a public filing disclosed. And due to legal issues we can't comment on it until next month sometime.

This is not ideal. So when you are getting close to finalizing a funding transaction, be sure to talk this issue through with your lawyers so that you are in control of the substance and timing of the message.

In short, do as I say, not as I do ;)

Good Summary Of The FCC’s Open Internet Rules

Barbara van Schewick, Director of Stanford Law School’s Center for Internet and Society, and a leading academic voice in the Net Neutrality debate, has a good blog post about the FCC's adoption of Open Internet Rules last week. I've been traveling and out of the country since the FCC adopted these rules and have been meaning to get updated on what was finally adopted. I'm pleased to see that the final order was worded in a way that deals with some of our concerns.

In particular;

- Non discrimination: This is the key net neutrality provision for entrepreneurs and investors in internet based businesses. We need protection that those who control the last mile of internet access will not discriminate against certain services and favor others. We believe the ideal approach is an application agnostic standard. In the words of Commissioner Copps:

“In discussing the “no unreasonable discrimination” standard, we put particular emphasis on keeping control in the hands of users and preserving an application-blind network—a key part of making the Internet the innovative platform it is today.”

- Access fees: We believe that Internet access providers charging application providers for access to their customers should be prohibited. The order comes very close to doing so:

The text of the order clearly prohibits network providers from charging application and content providers for access to the network providers’ Internet service customers

However, it does provide the possibility of "paid prioritization" with a very high hurdle.

as a general matter,” arrangements of this kind [paid prioritization] are “unlikely” to be considered reasonable

- Wireless: We believe that the Open Internet Rules should be applied to both wireline and wireless networks. That didn't happen leading many to interpret it as the end of net neutrality for wireless networks. I am optimistic that the FCC will remain vigilant regarding open wireless networks and may push for wireless net neutrality in the future.

We emphasize that our decision to proceed incrementally with respect to mobile broadband at this time should not suggest that we implicitly approve of any provider behavior that runs counter to general open Internet principles.

Nothing is perfect that comes out of a political process and when you add in a negotiation between carriers and service providers, it is amazing we got anything of value. I think Chairman Genachowski, who is a friend of mine, did a terrific job on this and we thank him and his staff at the FCC for pushing these rules forward in a very difficult political climate.



Selling Your Company

It is Monday so it is time for another MBA Mondays post. We are a few weeks into a series on mergers and acquisitions. The first week we covered the basics of mergers and acquisitions. Last week we talked about asset sales.

This week we are going to start a conversation about selling your company. I will kick off the conversation by laying out the key issues in a company sale. Then we are going to do something new on MBA Mondays; case studies. I will invite a few guest posts from entrepreneurs who have sold their companies. That will hopefully start next week.

I think the key issues for you, your investors, and your Board to consider when you are selling your company are:

Price
Consideration
Reps, Warranties, and Escrow
Integration plan
Stay packages
Governmental approvals
Breakup fees
Timing

Price is the amount the buyer will pay for the business. It is the most important issue and also the simplest.

Consideration is the mechanism the buyer will use to deliver the purchase price. The simplest form of consideration is cash in your local currency. That is also the most common form of consideration. Another common form of consideration is the acquirer's stock. That could be publicly traded liquid stock or it could be illiquid private company stock. Buyers can also pay with debt obligations, earn out plans, and a host of other esoteric and less common forms of consideration.

Reps and Warranties are the legal promises and obligations you will take on as a seller. A portion of the purchase price is usually held back and escrowed for some period of time to backstop the reps and warranties. The escrow is usually a percentage of the purchase price. Ten percent is common but I've seen as little as 5% and as high as 25%.

The integration plan is the way the buyer plans to operate your business post acquisition. Many sellers don't think this matters too much but I think it is critical. If you think about the interests of all the stakeholders in the business, not just the shareholders, then the integration plan becomes a very important part of the overall deal.

Stay packages are compensation plans put together by the buyer for your team. There may even be a stay package for you if the buyer wants you to stick around and most of the time they should. These packages are a combination of cash and stock that vests over a stay period. It is common that some of the consideration may be applied to stay packages, particularly unvested employee stock in your company.

The government, and not just your country's government, may be required to approve the sale. This is not common for small deals. Anything sub $100mm would be very unlikely to require governmental approvals. Really big deals, like billion dollar plus transactions, often run into these issues. Big powerful companies that the government worries may have monopolistic properties will usually face governmental approvals for their acquisitions.

If your business will face negative consequences if the sale is announced and then does not close, you will want to ask the buyer to pay a breakup fee if the transaction does not close. Most buyers will resist agreeing to breakup fees but they do exist in many deals, particularly very large deals.

Timing is another important issue that many sellers don't focus on. Sale transactions are very distracting for the senior team and often for the entire team. A long protracted sale transaction can be very harmful to the business and its stakeholders. You can put time commitments into the letter of intent to sell the company and you can expect the buyer to live up to them.

These are the most important issues in my experience when selling a business. For the next few Mondays we will focus on some real world case studies that will highlight many of these issues.

The Smartphone Explosion

I've been dipping around the edges of this story with recent blog posts, but Seth Weintraub takes it a step further in this post in Fortune. Next year is likely to be the year that smartphones emerge as the default mobile device platform around the world and probably the default internet access device in terms of numbers of users and devices.

Here are some quotes from Seth's post which you should go read:

In 2011, we might see half a billion smartphones sold worldwide.  Smartphones will likely blow by traditional computers next year as the way most of the world gains access to the Internet.

Cheaper hardware will eliminate the need for subsidies and therefore will improve competition between carriers, and spur them to improve their networks.

next year, Broadcom says it will release a follow-up chip that will allow WVGA displays and as much power as today's high-end Smartphones at the same $75-$100 prices.  That Nexus S that costs $530 now off contract will cost just a fraction of that in just one year.

To be clear, that sub $100 price is not the cost of materials, it is the suggested retail price after the manufacturers (and carriers) have taken their profits.

if you thought Android going from 30,000 activations a day to 300,000 activations/day was impressive, 2011 might be an even bigger growth year for Android.

If you haven't put all the pieces of the story together, let me do it for you. Smartphones prices are about to plunge and the result will be hundreds of millions of people all over the world starting to use them. And many of these devices will be running Android, not iOS. And wireless data prices will likely come down too.

That's a big macro theme that entrepreneurs and VCs need to get in front of. We are working on it and you should be too.



Swimming In The Cross Currents Of Religion

Western wall It's Christmas Eve, Friday Prayers, and Shabbat all on a single day today in Jerusalem. And I'm here with our family to soak it all in. We spent the day in and around the Old City and it was a special experience.

I'm not much for organized religion. I was raised a Catholic and we have raised our family Jewish. I'm not a believer but I do have an appreciation for the practice of religion. I've witnessed the joy and solace that my mom's faith gives her every day. And I've experienced the pride of watching my three children reading from the torah on their bar and bat mitzvahs. And I've seen the comfort that rabbis and priests have given to greiving families in their moments of pain and suffering. I understand and appreciate the role of religion in the world and am thankful for all the good it does for so many. I also abhor all the bad it does in so many places.

We got a tour of the Old City last night from a wonderful guide who was deeply spritual and he said this about religion, "it is the practice that counts, not how they practice." I buy into that line of thinking and am still trying to figure out how I practice. Writing every day is certainly part of my practice. But not all of it.

Although Jerusalem is certainly the place that comes to mind when one thinks of a religious melting pot, living in New York City has done a lot to introduce me to many forms of religion. The Muslims we met in Egypt and Jordan and their culture and dress and food are familiar to me because of their brethren in NYC. The orthodox Jews that are all over Jerusalem and their culture and dress and food are familiar to me because of their brethren in NYC. And we also get to experience all that Hinduism offers to the world in NYC.

I enjoy swimming in the cross currents of religion. I don't buy into any one orthodoxy. In fact I think ortohodoxy is dangerous. But I have taken particular note of certain aspects of each of the religions I have come into contact with and appreciate them and maybe even practice them from time to time.

So I found today in Jerusalem very moving and enjoyed it very much.

Merry Christmas to everyone who will be celebrating Christmas tonight and tomorrow, including my mom, dad, and brothers and their family.



The MBA Mondays Curriculum

I've gotten a number of suggestions about turning MBA Mondays (including the amazing comments from all of you) into a textbook. That's not going to happen. I don't want to publish these MBA posts in yesterday's technology. I want to publish them in tomorrow's technology. And I want them to be free and available forever to anyone with an internet connection.

So I am thinking outloud about how best to do that. I am thinking of publishing them in mediawiki or maybe something like Moodle. I want to use open source software that is hosted in the cloud. I am happy to pay for the hosting and probably will do that to insure the content stays online. I want a content/learning management system that can handle the comments which are supplemental to the original posts and that recognizes the supplemental material. I want the comments to include attribution as they do now.

I want the content to be easily, quickly, and tightly searchable. I want it available on any device that contains a web browser. I'd like the content to be optimized for browser based reading devices like android tablets and iPads. And I want the content to be discoverable by any search engine that crawls the web.

I may want to make the content available as an app in the major mobile and web app stores so it can be discovered via those search and discovery mechanisms too.

I think those are my basic requirements. I'd love to get everyone's suggestions and opinions on how I should do this. Please leave them in the comments so I have a single place to browse all of your suggestions.



NYC Big Apps Version 2.0

Last year NYC ran a mobile and web app developer contest called NYC Big Apps. I posted about it and was one of a number of judges. The city and the participating developers thought it was a successful effort and so NYC Big Apps is back for a second time.

Software developers will compete for $20,000 in cash prizes. The details are here. The application deadline is a month away on January 26th.

I'm hoping to see more mobile apps and especially more android apps. I'd also love to see mobile developers build apps that combine public data from the NYC.gov datamine and commercial APIs like those from our portfolio companies Foursquare, Outside.in, and Twilio (and many others in and out of our portfolio like this one from Hunch).

In the past year, we've seen a lot happen in mobile apps and the open government movement. It will be interesting to see how all of these developments impact the apps that are submitted for judging next month. I'll post about this again once I see all the apps.