Monthly Archives: August 2006

Sprint EVDO Revision A Card (also, plea for help!)

I am a satisified Sprint EVDO customer, but today I learned that Sprint will be releasing the faster EVDO Revision A card later this year.  Here is the news:

Designed for operation with compatible laptops as well as the soon-to-be-available Linksys Wireless G-Router for Mobile Broadband, the Merlin S720 will allow customers to connect to the Sprint Power Vision Network and remotely access audio, video and data applications at DSL-like speeds. The card operates on the current Sprint Power Vision Network and will support faster average download and upload speeds (450 -850 kbps and 300 – 400 kbps, respectively) of Sprint’s upgraded network when it becomes available. Sprint plans to begin its roll out of EV-DO Revision A during the fourth quarter of 2006 with coverage expected to reach more than 40 million people by year end. Ultimately, Sprint plans to reach more than 200 million people in the United States with mobile broadband data services in 220 major metropolitan areas by the end of 2006.

One note to Sprint (if you are listening): I need a driver for my Mac!  I am using a Verizon driver to make my current card work, but I am scared the new Revision A card won’t have a Verizon driver as they are lagging behind you on the new release.  PLEASE RELEASE A MAC Driver!!!!  PLEASE!!!

Kiko’s Web 2.0 Failure Nets $258,100 Cash!

For those of you living under a rock, Kiko was put up for sale on eBay. Kiko was touted by many as a failure, but for those in the know it was built for $50,000 in convertible debt (guess how much the banker got? $3800 – i.e. eBay was the intermediary) creating around $200,000 in wealth for the founders/investors. Not bad for a failure (if I could get $200,000 for my failures…). Here is a play-by-play:

Ogijun made the first bid on August 23rd for $50,101.00. Later that day Powerjoe1998 made the second bid of $54,042.00 soon to be outbid by Ogijun with a bid of $54,151.00. Dvdy98 then bid $55,643.00. Wswire got in the game on August 25th and bid $55,843.00. Eladsr57 thought it was worth more and bid $60,000.00 that same day. Al_uminum figured it would be worth $61,500.00. Jactao88 (unverified) then bid $63,000.00. Next Robbkni got in the game and bid $64,800.00. Ogijun raised the bar to $69,371.00. Powerjoe1998 then took the bidding into six digit territory with a bid of $113,118.00. Ogijin, Powerjoe1998, Eladsr57, Macrhino and Wswire all made bids over $114,000.00 throughout the day on the 26th.

It came down to a head to head bidding war between Powerjoe1998 and Wswire. Wswire bid $258,000.00, but was outbid by $100 by Powerjoe1998. I wonder if Wswire is kicking himself for losing the auction by $100? Who is Powerjoe1998? Turns out he has bought three other items on eBay. The first two back in February 2002 and the most recent in April 2005.  I am not sure what he bought, but I sure hope he likes his new purchase.  Now will he use PayPal to complete the purchase?

Web 2.0 Failures: Less Painful

Dallas IT SupportFred Wilson and Paul Kedrosky are blogging about Web 2.0® failures.  Paul is talking about the lack of failures to date and Fred is suggest we wait, they’ll come.  Fred explains that it takes time to fail, perhaps 12 to 18 months just to run out of cash.  John Battelle notes that Web 2.0® companies can operate for long periods without much cash, most with rates less than $1MM per year.

What would constitute a failure?  For companies in the creation phase, i.e. pre-VC, failure is almost impossible.  Entrepreneurs trade their time for experience – for technology geeks a failed idea is always better than time spent playing WoW or hanging out in Second Life.  My advice?  Don’t worry about the failures, instead embrace the people who make the effort – hire them if you can.

The impact to VCs is not very different than for entreprenuers.  Most of the Web 2.0® investments have been very small (under $5MM) and the resulting losses will be relatively painless.  Fred points out a few exceptions including Jobster ($20MM) and Zillow ($50MM), but I think that is the point.  I keep hearing there is a bubble, but to what extent?  I have not seen ten VCs sinkings tens of millions of dollars in copies of Zillow and Jobster.  There is room for a Zillow or a Jobster, there isn’t room for ten of each right now.  Until we start seeing copy-cat investment I don’t think we will see a painful set of Web 2.0® failures.  Fred leaves us with this note:

I think if we all keep our heads screwed on straight and keep the funding amounts to reasonable levels, keep the burn rates down until we have demonstrated viable business models, and focus on building sustainable businesses instead of companies than can be flipped, we’ll all be fine.

Global Warming = More Glaciers!

According to researchers global warming is causing glaciers to grow. Researchers studied the western Himalaya

Researchers at Newcastle University looked at temperature trends in the western Himalaya over the past century.  They found warmer winters and cooler summers, combined with more snow and rainfall, could be causing some mountain glaciers to increase in size.  The findings are significant, because temperature and rain and snow trends in the area impact on water availability for more than 50 million Pakistanis.

Utility Computing Delivery Model

According to TechCrunch, Amazon is jumping into the utility computing space. We have been working on our own clustering/grid offering and the question of “how to price” computing capacity has been a hot topic. We have been focusing on the 50% the price of the other guys model, but that will only work for a limited time. The Amazon news starts to define the market. Their pricing is as follows:

  • 10 cents per instance hour
  • 20 cents per GB of bandwidth used
  • 15 cents per GB of storage

Amazon calls their new service the Elastic Compute Cloud (EC2). Here is how they define it:

Elastic: Amazon EC2 enables you to increase or decrease capacity within minutes, not hours or days. You can commission one, hundreds or even thousands of server instances simultaneously. Of course, because this is all controlled with web service APIs, your application can automatically scale itself up and down depending on its needs.”

The terms and conditions of the service have some interesting limits including: a) no more than 1 call per second per IP address, b) may not send files bigger than 40K and c) you cannot hold Amazon accountable for service delivery (i.e. you release them from any liability for service that you pay for).

Sun has a competing “pay as you go” computing offering starting at $1 per hour. They charge $1 per central processing unit hour and charge $1 per gigabyte per month. IBM offers similar pay-per-use computing at 50 cents per hour.

http://hilbert.math.uni-mannheim.de/~seiler/cray.jpg

Cool Cray supercomputer on display (note: this has nothing to do with the post, just thought it looked cool). The equivalent computing power doesn’t look half as good as it used to!

BarCamp Venue Change

Note that the location of BarCamp Texas has changed.  The new location is: Elysium, check the Barcamp wiki for more information.

BarCamp Texas

Whurley’s BarCamp Texas is being held between 8.26.06 & 8.27.06 Thistle Cafe ,300 W. 6th Street, Austin, Texas. I won’t be there (I will be in Legoland istead), but Alex Leverington will be there (hopefully) showing off the new version of SimpleTicket.

Attracting private investors

In this post we will continue the discussion about private investors.  Last post’s primary takeaway was that there are significant differences among private investors and it is incumbent upon the first-time entrepreneur to understand that, first, and then use it to his advantage to conduct a successful fund raising effort on reasonable terms.

This time I will share with you a way to divide potential investors into different categories and how to use those categories in the fund raising process.

PERCEIVED RISK
Revisiting some of the issues from last week, different classes of outsiders will look at the risk of your enterprise differently.

  • A bank will want to see profitable operations, positive cash flow, and sufficient assets to provide collateral for any loan it is going to provide.  As such, banks may fund your growth, but they won’t fund your start up. According to this method of evaluating risk, your start up is “too risky.â€?
  • Alternatively, venture capitalists may not be put off by your company’s financial performance to date.  In fact, they would probably be surprised if you satisfied any of the bank’s criteria. They will want to evaluate the financial return potential of your enterprise and the inherent risk associated with your ability to realize that potential.  They will do this evaluation in the context of their experience, their existing portfolio, other deals they are looking at and the investment criteria of the fund. The net of all this will be to come to a decision about the risk-adjusted return expectations of your venture.

These two examples represent the two poles of the financial sources scale.  They share the characteristics that they are reasonably predictable with regard to their requirements for your ability to access their capital. The same could be said for other identifiable sources, economic development funds, technology grants, etc.  They have stated criteria and an honest evaluation of your firm will help you determine whether you have any chance of qualifying for their funding.  Too often, first-time entrepreneurs don’t do their homework and/or don’t have the sophistication to properly assess their qualifications.  This can lead to disappointment, and sometimes anger, that could have been avoided.

Entrepreneurs have to gain the sophistication to understand what sources are viable for them and which aren’t.  The competition for those funds is often quite intense, and the people responsible for making the funding decisions have extreme time pressures placed upon them.  You are not doing yourself any favors by aggressively pursuing a source of capital for which you don’t qualify.  Similarly, creating ill will by venting your frustration when you are inevitably turned down is not smart.  Don’t shoot the messenger, particularly when the source of the problem is your mistaken belief that these programs are set up for “you� and you are “entitled� to them. You are not entitled to any of these funds.  Get over it. Compete for funds for which you are qualified, and compete well and from an informed base.

Private investors are not so predictable. That’s why you have to manage the process.

Sources of Risk
The first step in attracting private investment is to recognize how others will react to the risk of your enterprise. While risk can have an almost infinite number of dimensions, there are two core sources of risk: the business and the people.

Business Risk
The types of questions that a typical private investor might ask include:

Is there a market opportunity worth pursuing? Is the business at hand a reasonable way to exploit the opportunity? Who are the competitors and how are they addressing the identified opportunity? Can a start up or early stage business realistically establish itself in such circumstances?  Who are the customers? How are they accessed? How do they make purchase decisions? Can the venture successfully close sales?

What is the role of technology in this venture?  Does the company have proprietary intellectual property?  Is the technology invented, or in a lab? Have customers used it and endorsed its value? Can it be effectively protected?

I could go on and on, basically providing a full list of due diligence requirements that an institutional investor will use to evaluate such a deal, but you get the point.  Evaluating business risk can be quite daunting for the typical private investor.

People Risk
Similarly, the types of questions that a typical private investor might ask about the people include:

Is the venture’s team the one that will successfully exploit this opportunity and provide a desired financial return to the investors? Do they have relevant industry experience?  Have they done it before? Can they grow to meet the venture’s future needs? Will they accept advice and guidance?  Will they attract quality people to the team and let them do their thing? Do they understand the value of a dollar in an entrepreneurial concern?

Are they good people?  Do I want them to win? Do I want to work with them? Do I like them? How do I know if they have integrity? How can I go beyond superficial impressions and really get to know them as a person?

Evaluating risk
Just as risk has many dimensions, evaluating that risk can go in many, many directions.  In the private investor arena, the potential investor is unlikely to have the resources, time, or motivation to go a “professional� due diligence process. The private investor is rarely making investments in companies such as yours as his primary occupation.  If it’s “too hard� to evaluate your business, they will pass and move on to the next deal. Remember last week’s advice:

  • If you approach a potential investor prematurely or inappropriately, you will lose that investor unnecessarily and for the wrong reasons.

This discussion is why I gave that advice.

What are you to do then? How do you influence the perception of risk? For lack a better way to express it, you need to evaluate how well potential investors know the business and know you. If a particular individual knows something about your business, he will either “get it� of not. If he “gets it,� then his perception of risk will be significantly reduced relative to someone who doesn’t know the business.  Similarly, someone who knows you and thinks well of you will perceive lower risk than someone who doesn’t.


Advice to Entrepreneurs

  • Many sources of capital have defined criteria and processes for attempting to access that capital.  It is the entrepreneur’s job to learn what’s what, and to honestly evaluate whether his company qualifies for consideration.
  • Private investors are less predictable than institutional investors.  The entrepreneur needs to understand and categorize potential private investors according to their perceptions of risk.
  • Do they know anything about the business?
  • Do they know you?
  • Surround yourself with professionals, mentors, and advisors who can help you level the playing field.
  • Next time we’ll take a look at how you can use these insights in your fund raising efforts.

    NOTE: I would like to acknowledge Tom Canfield of Equity Catalysts (www.equitycatalysts.com) for his contribution to these articles.  Much of what I’m sharing with you was developed by Tom and me when we worked together at The Enterprise Corporation of Pittsburgh, a predecessor organization that was merged with others to form Innovation Works in 1999.
    —-

    By Frank Demmler adjunct professor of entrepreneurship at Carnegie Mellon

    Partner Sought to Leverage our Computing Assets

    The Spur brands (Big in Japan, Architel and SimpleTicket) previously utlized our own small data center (perhaps 20 cabinets on raised floor with all the standard bells and whistles). This month we were fortunate enough to acquire a significantly more robust facility built by McLeod Telecommunications. This new multi-million dollar facility will easily accomodate the several hundred servers we need for the Big in Japan tools as well as the new SimpleTicket SaaS offering.

    Finding ourselves with room, power and cooling for 4,200 servers (and that is leaving ourselves with plenty of room for growth) we started looking for a problem to solve. Today we have access to almost 2,000 fairly robust DELL servers and plan to install them in the facility because we don’t have a better place to put them. Our thought is to construct them into clusters or a grid (i.e. a virtual architecture able to distribute process execution across a parallel infrastructure) or some other virtual architecture (perhaps a combination of technologies). We are playing with Sun’s Distributed Resource Management Application API.

    We are now looking for someone to help productize, manage and sell this opportunity. If this sounds interesting to you give me (Alexander Muse) a call at 214.550.2003.

    Prospects for Google = Gloomy?

    If you believe the executives at Google the future for Google is not so hot.  Over the past 18 months some of the richest people in the world, who also happen to work at Google, have decided that the stock is overvalued.  Not a single insider has bought a single share of Google stock in the past 18 months.  Instead those same insiders have sold $7.4 billion in google stock.

    If you have taken $2 billion off of the table (for diversification purposes of course) I think it is time to take a stand.  If you are willing to tell shareholders your stock is worth at least what it is selling for I would stop selling.  If you are willing to tell shareholders your stock is going to be workth more than it is selling for I would start buying.

    The Google guys have taken  $7.4 billion off the table.  When should they start doubling down?

    • Larry Page: $2 billion
    • Sergey Brin: $1.9 billion
    • Omid Kordestani: $1.1 billion
    • Eric Schmidt: $650 million
    • Ram Shriram: $650 million (Director, Investor)
    • David Drummond: $200 million
    • George Reyes: $200 million
    • Jonathan Rosenberg: $200 million
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