Posts from September 2011

In the 10 Golden Principles For Web Apps presentation I do, number three is "voice." That one stumps some people. Yesterday we got a great example of voice at work.

Tumblr saw its 10 billionth post yesterday. To celebrate, they threw confetti all over the dashboard when you logged in.

thanks to artnstuff for the image.

When I saw the confetti flying all over my dashboard, I immediately thought "that's David and his team having fun". Google does this kind of thing with their search page from time to time. Users love it. I love it. That's voice.

I brought this subject up a while back. It's a big one that doesn't get enough attention.

And yesterday we got some stats from Twitter that I'd like to talk about. Dick Costolo gave a "state of Twitter" press conference yesterday at Twitter HQ. Danny Sullivan was there and live blogged it. Here's the part of Danny's live blog that I'd like to focus on:

100 million active users.

over 400 million monthly uniques just to Twitter.com, according to Google Analytics

An active user is a Twitter user that logs into the service. So that means that 75% of Twitter's users don't log in every month.

The press in the audience asked the right question, "why do people behave that way?" and Dick used my mom in his reply:

Fred Wilson’s mom … checks Fred’s twitter stream.

We also got some stats on what the logged in users do.

40% of our active users now don’t tweet, way up from beginning of year. “We’re excited about that. I think that’s super healthy"

And the press asked the same question "why do people behave that way? and again Dick used my family in his reply:

His (fred's) son uses Twitter each day on iPhone and just follows NBA players. “For him, that’s Twitter.” Just reading what people say.

There's a reason why Dick used my mom and my son in his examples. I've been bending his ear about this behavior for years. I see so many people around me who either don't have a Twitter account and just read profiles and search results like they read blogs or people who have accounts and just follow certain people, create lists, and who login to Twitter to use it like an RSS reader.

Let's remember one of the cardinal rules of social media. Out of 100 people, 1% will create the content, 10% will curate the content, and the other 90% will simply consume it. That plays out on this blog, that plays out in Twitter, and that plays out in most of the services we are invested in.

Twitter has 400mm active users a month, 100mm of them are engaged enough to log in, but only 60mm tweet. For years people have made it out like this is a bad thing. It's not a bad thing. It is an amazing thing. Let people use the service the way they want and you'll get more users. Logged out users are users just like logged in users. We should focus more on them, build services for them, and treat them like users, not second class citizens.

The media has had a lot of fun over the past week watching AOL, Huffington Post, TechCrunch, and Mike Arrington figure out how to move on. I feel badly for the TechCrunch crew including MG, Erick, Sarah, and many others. They are awesome at what they do and I feel that they've been left dangling as this soap opera has played out.

I do not feel badly for Mike. He's a bigtime player in silicon valley and he will be fine. Contrary to what many in the media say, he does not need TechCrunch as a platform to be influential. He is influential becuase of who he is, not where he writes. His reputation is made and as long as he finds his next platform, be it a venture fund, a blog, or both (how can anyone have both a blog and a venture fund????), he will remain a hugely influential force in silicon valley and tech.

But TechCrunch is a big question mark. If AOL can keep the rest of the team together, then TechCrunch has a bright future. No company is so reliant on one person that they can't survive that person's departure. But if others move on, including the people I mentioned above, then TechCrunch could lose its swag, as my son would put it. Yes TechCrunch gets scoops. That happens because it has a huge audience of the right readers and people in tech choose to leak to TechCrunch to reach that audience. But TechCrunch also has a voice, a swagger, a "fuck you" attitude that comes from Mike. That can also live on without Mike if AOL allows it. They need to keep the remaining team, the voice, and that attitude if they want to remain at the top of the world of tech media.

There's also a super awesome asset inside TechCrunch that doesn't get much attention. It is Crunchbase. There have been many attempts to build premium databases for the venture capital and startup world. All of them suck. But Crunchbase, which is free, almost open, almost peer produced like Wikipedia, is fantastic. Whatever happens to TechCrunch AOL, please don't mess up Crunchbase. It is the premier data asset on the tech/startup world and an incredible example of how free beats paid in the online world we live in.

If AOL can't retain the TechCrunch team, can't maintain its voice and swagger, then TechCrunch will cease to be relevant and the audience will move on. Most likely to a new media property which most likely will be started by some number of ex TechCrunch employees. That's how it goes in media these days. Big companies don't control media assets as strongly as they used to. It doesn't cost much to publish news these days once you know what the news is. See Dan Frommer's Splatf for a great example of what can be done by one person working part time.

So I'm hoping that TechCrunch remains vital and the remaining team stays on. But I'm not terribly worried about it. The TechCrunch audience, including me, will find new sources of news, information, and entertainment elsewhere if that's what needs to happen.

I posted about Canv.as here once before. And I'm certain that a number of readers checked it out. But getting into Canv.as required a login until yesterday. And that kept things more or less under the covers. That's all over now. Canv.as is wide open. Let the fun begin.

And because I just spent the past 90 minutes reading and replying to the 462 comments (and counting) on yesterday's post, I'm short for time today. But this thread on canv.as says it a lot about yesterday's post. Nice karma.

I talked to my mom yesterday. She was upset about the jobs situation and worried that Obama will not have any solutions when he addresses Congress on the issue this week. I'm worried about all of this too. But I have no illusions that Obama or anyone in government (including those who want Obama's job) can do much about it.

The most interesting piece in the New York Times yesterday was not David Carr's hatchet job on Mike Arrington. It was the piece about problems at the US Postal Service:

The post office’s problems stem from one hard reality: it is being squeezed on both revenue and costs. As any computer user knows, the Internet revolution has led to people and businesses sending far less conventional mail. At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.

Right there you have in a microcosm the issue facing most developed economies, particularly western europe and the US. We are undergoing a big time technological revolution that is disrupting big industries and big companies all over the place. And many of these big companies (and societies) have in place huge entitlements that make it impossible to operate them profitably.

The US Postal Service story is not a unique situation. It is the situation. And we are going to be living with this situation for many years to come. We are crossing a huge chasm from an industrial society to an information society. And there is immense pain in that transformation. Obama can't solve the problem nor can any of his opponents. Time will solve this problem as new industries get built, people learn new skills and new jobs, and we dismantle entitlement systems that are not sustainable.

That is what is going on. I'd love to hear Obama tell the country that. But I doubt he will. But someone should.

Last week on MBA Mondays, I talked about valuing an internet marketplace business. In that post, I talked about using 1x gross marketplace transactions and 20x EBITDA as multiples to determine value. In the comments, I was asked about multiples for other sectors. That's a good question so I figured I'd show how to calculate multiples for various sectors. 

For this exercise we will focus on the software as a services (SAAS) sector. The first thing you need to do is find a universe of publicly traded companies to use for your model. I found this blog post and used a subset of the companies on the list.

The next thing you do is create a spreadsheet with a bunch of companies on it. I decided to use five SAAS companies in my model; Salesforce, NetSuite, Constant Contact, Taleo, and RightNow. The spreadsheet with these five companies is here.

Please don't get too caught up in the numbers in the spreadsheet. I believe they are accurate but I did this work in about twenty minutes this morning and there could well be errors in it. The point is to show you how to do this work, not to build the absolutely most accurate valuation model.

For each company, I collected revenues and EBITDA for 2011 and 2012 and current values for market cap, cash and debt. I used two free services to get these numbers. I used Google Finance to get market caps and current cash and debt levels. Here is the Google Finance page for RightNow, for example. To get revenues and EBITDA, I used a combination of Google Finance and Yahoo Analyst Estimates. Here is the Yahoo Analyst Estimates page for Right Now.

I then put all the numbers down and used formulas in the spreadsheet to calculate enterprise value which is market value minus cash plus debt. This normalizes the market caps for companies with high cash levels or high debt levels. Then I divided enterprise value by revenues to get to enterprise value/revenue multiples for 2011 and 2012. And I divided enterprise value by EBITDA to get enterprise value/EBITDA multiples for 2011 and 2012. Please take a look at the spreadsheet to see how all of this was done.

The results of this exercise are as follows:

SAAS Price/Rev 2011: 4.8x

SAAS Price/Rev 2012: 3.9x

SAAS Price/EBITDA 2011: 66x

SAAS Price/EBITDA 2012: 31x

The EBITDA multiples are based on a smaller sample size (the 2011 sample size is one!) so they should be understood in that context. It is also true that most of the companies in this sample seem to be investing heavily in sales and marketing to grow revenues at the expense of profits and the public markets seem to be accepting of that approach (given the valuations they are carrying).

The price/revenue multiples seem about right given my cursory understanding of the SAAS world. If you have a SAAS business, then your company's valuation should roughly be 5x this year's revenues and 4x next year's revenues. These are for public companies. Investors will typically take a 20-25% discount for private company valuations because private company investments are not liquid. So maybe 4x this year's revenues and 3x next year's revenues is an appropriate multiple for a privately held SAAS business.

We led a follow-on in one of our most mature portfolio companies last month. It is a SAAS business and these multiples are almost exactly what we paid. That makes me feel good. It means we got a fair deal and so did the company. And that is why this kind of exercise is valuable. 

I've had the pleasure of serving on a Board with Scott Weiss for the past six years. Scott is one of the best entrepreneurs/executives I know. Sadly, he's given up being a CEO to become a VC. That's the kind of competition I do not need.

Scott wrote a post on his partner Ben Horowitz' blog on Friday. I got around to reading it this morning. It's about the way Scott's company IronPort used a very high level of transparency with the employee base as a competitive advantage and the challenges they faced with that transparency as they approached an IPO. It's a really good post.

The part that really got my attention is the value of being super transparent on the company, its culture, and its productivity. Scott writes:

Over time, the benefits of transparency coupled with an emerging cultural norm of speaking up became more apparent:

I thought we would surface creative answers faster. When everyone had a clear understanding of the hard problems, their collective brains were on the table for parallel processing. The best information rarely sat with the senior executives but with the employees that were closest to the product and closest to the customers. And the best answers would often come from the most unlikely of places. For example, some of our most innovative features came from customer support reps identifying customers trying to use the product in ways it wasn’t intended.

I really like that image of everyone's collective brains engaged in parallel processing. It makes perfect sense that everyone needs to have a clear understanding of what is going on to be able to do that effectively. Over the past fifteen years, I've noticed a very strong trend toward more transparency in our portfolio companies. Many of them share their board presentations with the entire team. Many of them talk openly about the cash position, the challenges and opportunities in front of the business. Many of them encourage everyone on the team to ask questions and speak up. I believe that being "ridiculously transparent" as Scott calls it in the title of his post, is becoming best practice in managing a business. 

And speaking of transparency, I'm really glad to see Scott blogging, even if its as a guest on Ben's blog. I've heard so many great stories from Scott over the years. I hope he'll be sharing them with all of us frequently.

Cory Doctorow has written a fantastic post on the subject of online identities and the forced use of real names in Google+.  I've been blogging a fair bit on this topic lately. I'm annoyed that Google has adopted such a wrongheaded approach to identity in Google+ and I've been having a hard time articulating why. Fortunely there are others who are saying what I am feeling. Cory nails it with these closing paragraphs:

The first duty of social software is to improve its users' social experience. Facebook's longstanding demand that its users should only have one identity is either a toweringly arrogant willingness to harm people's social experience in service to doctrine; or it is a miniature figleaf covering a huge, throbbing passion for making it easier to sell our identities to advertisers.

Google has adopted the Facebook doctrine at the very moment in which the figleaf slipped, when people all over the world are noticing that remaking ancient patterns of social interaction to conform to advertising-driven dogma exposes you to everything from humiliation at school to torture in the cells of a Middle Eastern despot. There could be no stupider moment for Google to subscribe to the gospel of Zuckerberg, and there is no better time for Google to show us an alternative.

Our community here at AVC welcomes real names, pseudonyms, and anonyms. And we have one of the most civil and intelligent communities on the world wide web. If anyone wants to understand identity and social software, I suggest they spend some time hanging out with the AVC community. They could learn a lot.

AVC regulars have probably noticed that the Donors Choose widget is gone from the right sidebar. That's because the month of August 2011 has come and gone and the Fifty For Fifty campaign is over.

It was a smashing success.

365 people donated a total of $54,028 (as of right now) and helped over 10,000 students by funding programs that connect these students' families to their classrooms.

10,000 students is a lot of kids. And these are mostly kids who need some help. Their teachers thank you, I thank you, the Gotham Gal thanks you, and I sure hope their families thank you.

There's a meetup for everyone (all 365 people) who gave to this campaign as well as me and The Gotham Gal and some folks from Donors Choose on November 9th, from 6pm to 8pm, at the USV Event Space. The Meetup page is here if you'd like to attend.

Finally, I promised to post a list of all donors along with their Twitter handles. I will do that once I get the list from the Donors Choose team.

In closing, I just want to say that the outpouring of support on this campaign is deeply appreciated by The Gotham Gal and me. We could not have asked for a better 50th birthday present. Thank you.