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Archive for the ‘VC’ Category

Wisdom of Markets

Monday, December 17th, 2007

I was looking at company that wanted to build a generalized market trading mechanism for anything (which seemed to me to be another name for gambling) and decided to look at intrade wondering whether a market mechanism could actually be used to acurately predict future events. I looked at some of the most highly traded intrade political markets (over 100K trades, which I guess doesn’t really mean over 100K different people) to see who will be the future president in 2008. According to intrade (on Dec 17th)  it will come down to Hillary (with VP candidate Bayh or Obama) vs. Giuliani (with VP Huckabee), and it looks like Hillary is a shoe-in.

One interesting thing I noticed is that there seems to be an internal consistency to these markets, even though the participants are (probably) different.

There is a close correlation between the nominee front runner charts and the presidential winners charts (even though they are unlinked as markets). It will be interesting to see how these predictions change as we get closer to the election, and whether they will actually predict the future…

 BTW - according to intrade there is about a 50% chance of a US recession next year (below the sentiment in September, but above the low in October), but only small chance that Israel/US will bomb Iran (way down from September)…

Investor Presentations

Saturday, December 15th, 2007

I have been seeing a lot of presentations from budding entrepreneurs trying to at least get in the door to present their ideas to some source of funding. Of course, there is great variation in the quality of the presentations (both style and content) – but it isn’t the quality of the graphics that matters (though you can spend hours with Powerpoint wasting time on the presentation), but rather the content and your presentation style.

There are quite a few primers on the web on how to create a good presentation for VCs and other potential investors (e.g. 102030 rule, enetrepreneur pitch guidelines) so I don’t feel the need to write yet another one. In general two simple rules that I use are probably good enough:
1. When creating a presentation a good rule of thumb for the order of a presentation is: Tell them what you’re gonna tell them, Tell them, Tell them what you told them (I heard this first from Stephen Boies while I was at IBM Research).
2. Get to the point – quickly. Since we are a technology oriented fund, tell me about the technology, what it does and why it is unique. So you may actually need to tweak the presentation based on the audience. Or maybe just do it without slides (some of the best pitches were from someone just telling me their story – not a fancy Powerpoint presentation).

One pet peeve of mine is the use too many superlatives – you want me to get excited, but don’t tell me this is the best thing since sliced bread – every entrepreneur thinks that about their idea. You need to convince me. Tell me something I didn’t know. Convince me you know your technical domain and business environment (including competitors).

Another pet peeve is “patent pending technology” – important to mention since it shows that you have respect for your IP and protecting it. Beyond that – it doesn’t really say much. Anybody with a “dollar and a dream” can submit a patent, and in many cases even when it is issued – it doesn’t actually mean much about the value of the idea or technology.

More on Increasing Your Chance of Success as an Entrepreneur

Sunday, December 9th, 2007

An interesting study was published yesterday by the Kaufman Foundation on “Returns to Angel Investors in Groups” which did a large scale study on the returns of angel investment groups in seed and early stage investments.  The main conclusions are:
1. Due diligence time: More hours of due diligence positively relates to greater returns.
2. Experience: An angel investor’s expertise in the industry of the venture in which they invest also is related to greater returns.
3. Participation: Angel investors that interacted with their portfolio companies at least a couple of times per month by entoring, coaching, providing leads, and/or monitoring performance.

 Points 2 and 3 are the most relevant to enttrepreneurs (as long as they decide to invest, who cares how long the DD takes - as long as it is reasonable). The charts below summarize the two main points on the value of angel expertise and experience in providing value to both the entrepreneur and their investors:

Impact of Angel Participation

Impact of Industry Expertise

These numbers back up the my previous claims in “Increasing Your Chances as an Entrepreneur” - anything you can do to get experienced professionals willing to take an active role as part of your team - do it, it will greatly enhance your chances at success.

IsraelNetSphere Panel and Advice to New Entrepreneurs

Friday, November 30th, 2007

I was on a IsraelNetSphere panel last week about Web startups and Angels. The moderator (Yaron Orenstein) asked an interesting question – if we could give a piece of advice to new entrepreneurs what would it be.

Not surprisingly the first was to come prepared to meetings, don’t just assume that you can win over an investor off-the-cuff. Now of course this is hard for someone who has never done it before (since you really have no idea how to prepare), but if you want to succeed - prepare. Present your ideas to friends, family, classmates – refine and hone your pitch as much as possible. Sort of like the old joke about “how do you get to Carnegie Hall?” – practice, practice, practice. I think that young entrepreneurs see people doing these types of pitches and assume that it is simple – it isn’t. In my experience the people who make something seem really simple are the ones who spent to most time preparing.

That doesn’t mean be long winded – be short and to the point. Some investors like presentations, other like discussions. You probably won’t know until get into the meeting, so prepare for both.

The second piece of advice was to listen – and that two of you should go to every meeting. Whenever one speaks, the other should listen. Intently. Think of every meeting as a way to prepare for the next one (and 99% of your meetings will be a prelude to another meeting).

Finally – persevere. You will hear a lot of “No’s” before you hear a Yes. You are going to meetings where people aren’t giving you the benefit of the doubt, and are essentially testing you, and your ideas.

Now if you think the preparation is hard – wait until you actually have the money and need to deliver…..

Decsion Support, BI, BPM and Human Process Management

Monday, November 26th, 2007

I have been thinking lately about decision support in business settings. Executives and managers make many, many decisions a day about the business – most of them involving other people that need to either be part of the decision making process, or act on the decisions. Essentially as an executive, you gather some data, meet with some people, make some decisions and then fire off some emails (or phonecalls) - repeat. From my experience, most processes in an organization are of this ad hoc flavor – and really have no tools (except email) for supporting the end-to-end process (from an ad-hoc set of decisions, through execution and finally to results)

There are various tools that help with the steps – for example I remember in the late eighties\early ninties decision support systems (DSS) used to be all the rage. The problem was that executives were unwilling to use the systems and they morphed into the Business Intelligence (BI) tools that all are the rage today (at least based on the number of acquisitions going on in that space). But, both DSS and BI tools address only part of the decision process – gathering and analyzing the data so that an intelligent decision can be arrived at. So those tools help with the “gather some data” part.

Another set of tools are collaboration tools, which can help somewhat with both the “meet some people” and “make some decisions” part. Other tools like Excel, Word, Powerpoint and email also play an important part in these steps. Most executives I know don’t use the various collaboration tools that are available - they use meetings, secretaries and productivity applications. Maybe they’ll start using Wikis too, but as another productivity tool - not an end-to-end decision support system.

Now if you believe the Business Process Management vendors the final step should be to create a process using your easy to use BPM design tool, and then have the process execute using your BPM (hey maybe even BPEL) engine. Yeah, right. BPM tools are heavy duty tools for the IT department, and are used to string together various IT assets. They don’t support the ad-hoc nature of most business processes, or the heavy (or perhaps exclusive) human interactions needed. Even the emerging area of Human-Centric Business Process Management (as coined by Forrestor) doesn’t fit the bill – they really don’t support the ad-hoc nature of most processes in an organization.

So where does that leave us? Essentially with meetings, email (sometimes phone calls and faxes) and productivity tools (ala Excel, Powerpoint, Word). That is how most business and business processes are done. I think this is main cause of email overload in organizations – and until some more natural mechanism for managing these ad-hoc business processes come along – the overload will only get worse…

An interesting article on email overload from First Monday.

Increasing Your Chances of Success as an Entrepreneur

Tuesday, November 20th, 2007

I am revisiting the topic I mention in my previous entry on “Overconfidence and Entrepreneurial Behavior” because of an interesting post I found on the subject by Bob Warfield. He points at a study from the Harvard School of Business, that essentially comes to same conclusions about experience as the Israeli study in my previous post, but has some interesting insights that are useful to a first time entrepreneur.

First their definition of success is different than that of the Israeli study - success is effectively defined as an exit (closer to the hearts of most VCs than the definition used by the Israeli study). Here is my summary of their findings:

1. Entrepreneurs who succeeded in a prior venture (i.e., started a company that went public) have a 30% chance of succeeding in their next venture. By contrast, first-time entrepreneurs have only an 18% chance of succeeding and entrepreneurs who previously failed have a 20% chance of succeeding.

To be honest the relations seem about right - though the actual numbers seem a bit high, but maybe it isn’t if you take into account that an exit doesn’t necessarily mean that money was made.

2. Companies that are funded by more experienced (top-tier) venture capital firms are more likely to succeed. This performance increase exists only when venture capital firms invest in companies started by first-time entrepreneurs or those who previously failed. Taken together, these findings also support the view that suppliers of capital are not just efficient risk-bearers, but rather help to put capital in the right hands and ensure that it is used effectively.

This is really important news for entrepreneurs (since you really can’t just increase your own experience) - if you don’t have the experience yourself, you should “buy” it. Choose your investors not just on the basis of money, but on the basis of their experience, and how much of that experience they are willing to put into a company (one day a month just isn’t enough). Or, if you can then you should hire the experience even though it is expensive. If you look at the numbers in the study - by getting the appropriate experience on board - you can increase your chances of success by 7%-12%

3. The average investment multiple (exit valuation divided by pre-money valuation) is higher for companies of previously successful serial entrepreneurs.

in other words - by getting the appropriate experience on board, you can not only increase your chances of success - but leave more money in your pocket when you are successful.

So for me the study proves the model that we are using at eXeedtechnology, while expensive, is the right model for entrepreneurial success (early heavy involvement of experienced industry veterans as an integral part of the startup). While it doesn’t increase your chances of a home run (which seems to be heavily predicated on luck) – it significantly increases your chance of a successful exit.

Some Thoughts on Blogging

Wednesday, November 14th, 2007

I have been blogging for a while now, and like everyone else I used to look at metrics everyday, now I look at them every once in awhile. What struck me most about traffic (and hopefully readership - since I can only know that users looked at the site, not whether they read it ) - is that the more you talk about currrent events the more traffic you get.

The blips that I saw on traffic were always around my blogging on topics that were just discussed by other sites, or events that just happened - rather than the blogs on general topics (e.g. the blog post on Mashup camp got a lot more traffic than my posts on Integration and M&A).  The traffic blip is of course even more pronounced if you comment or link-back to the main sites that discussed the event themselves.

This probably isn’t earth shattering news to most bloggers - but the heavy traffic to current event bias suprised me.

Data Integration and Mashups

Saturday, November 10th, 2007

I am attending Mashup camp and university here in Dublin (the weather reminds me of a poem that a friend of mine wrote about Boston in February - gray, gray, gray, Gray!). IBM was here in force at Mashup University giving three good presentations (along with live demos) on their mashup stack. They were saying that the products based on this stack should be coming out early next year (we’ll see, since from my experience it can be very difficult to get out a new product in an emerging area in IBM - since you can’t prove that the space\product is valuable enough). They have decided to pull together a whole stack for the enterprise mashup space (the content management layer, the mashup layer and the presentation layer -see my previous post on mashup layers). One thing that struck me, especially when listening to the IBM QEDwiki and Mashup hub presentations, is how much those upcoming set of tools for enterprise mashup creation are starting to resemble  “traditional” enterprise data  integration tools (e.g. Informatica and IBM\Ascential). These new tools allow easy extraction from various data sources (including legacy data like CICS, web data  and DBs), and easy wiring of data flows between operator nodes (sort of a bus concept).  The end result isn’t a DB load as with ETL, but rather a web page to display.  No real cleansing capability yet, but my guess is that will be coming as just another web service that can be called as a node in the flow. So it is like the mashups are the lightweight cousin of ETL - for display rather than bulk load purposes. It will be interesting to follow and see how ETL tooling and mashup tooling come together at IBM, especially since the both the ETL and mashup tools tools are part of the Data Integration group at IBM.

Microsoft seems to be taking another route, a more lightweight desktop like approach, and focused on the presentation layer. Popfly is a tool that also allows you to wire together data extraction (only web data as far as I could tell, though it could be extended to other data types) and manipulation nodes – as you link the nodes, the output of one node becomes the input of the next etc… It seemed very presentation oriented, and I didn’t see any Yahoo! Pipes like functionality or legacy extraction capability.

Serena is presenting tomorrow, it will be interesting to see what direction they have taken.

Web Credibility

Tuesday, October 30th, 2007

I was looking around at some sites and was reminded of some older, but still relevant work done by the Stanford Persusive Technology lab on web credibility. I would have like to see the research updated to include some guidelines for UGC (User Generated Content) sites - but even so it is still very relevant. There are also a nice set of charts that describe captology here,  and web credibility here.

Another reason that I was reminded of the persuasive computing work is that I keep hearing from Israeli VCs the notion of “ease of use” being a key ingredient in the Web 2.0 world, and you need to make sure that Web 2.0 enterpreneurs understand that. IMHO that is a mistake - ease of use is the minimal bar - without that you don’t get to play… The real need is to make sure that developers and designers  understand that the real goal is “Joy of Use” - sure it has to to be easy and intuitive to use, but users also need to have fun using the technology - otherwise you won’t succeed.

Email and Enterprise 2.0

Wednesday, October 24th, 2007

I just read an interesting post on The state of Enterprise 2.0 and it seems like the various technologies that make up Enterprise 2.0 (RSS, Blogs, Wikis, Mashups, Communities) seem to be gaining acceptance and some traction in the enterprise.  Not surprising - I think the big losers will be the traditional enterprise portals. At the moment you can’t really find a complete Enterprise 2.0 stack, but it is clear that the writing is on the wall - and the Enterprise\Web 2.0 versions of the stack are much more useful, entertaining and engaging then the standard enterprise portal solution.

As I stated in an earlier post the Web 2.0 world is starting to penetrate into the enterprise, defining new ways to collaborate and raising ease of use expectations - things that are not usually at the forefront of existing enterprise portal technology.There was one specific quote in the article that intrigued me “The biggest impact of this lesson is that these new tools are so different and generally support such different types of knowledge than usually captured, that impact to existing systems seems to be minimal. Interestingly, you might see a decrease in the use of e-mail or ECM when the conversations that formerly happened on those platforms make a more natural home in Enterprise 2.0 platforms” (the emphasis is mine).  This got me thinking, since one of the main selling points of Web 2.0 technologies is that they will eliminate (or at least substantially decrease) email usage.  I have never seen any numbers to bear out this claim. My gut tells me that the number of emails in enterprises is growing, not shrinking (see “Intel flirts with No Email Fridays” for at least anecdotal corroboration), and I just don’t see why these technologies will change that substantially. Enterprise 2.0 technologies  may end up slowing the growth of email a bit, but are certainly not turning the tide.

My guess is that email is too pervasive, too general, too useful and too simple a tool to ever be replaced. I only wonder if as with the “paperless office” - where computers and technology were going to replace the need for paper, but instead only seemed to increase its usage - enterprise 2.0 technologies won’t actually generate additional uses for email…