- For The High-Tech Naturalist: LeafSnap Identifies Leaves Using Your iPhone’s Camera
- The Next 10 Years Will Be Great For Both Founders And VCs
- The Tech Press: Screw Them All
- OMG/JK: Can Google Correct Last Year’s Big I/O Flops This Year?
- Amazon Cloud Player Quietly Begins Working On iOS Devices!
- Did /dev/fort Just Hand Over Astronaut Listening Data To The WWW?
- Soon, AOL’s AIM Won’t Require A Separate Login To Chat With Contacts In Gmail
- Why The New Guy Can’t Code
- Weekend Giveaway: A 16GB BlackBerry Playbook
Posted: 08 May 2011 08:11 AM PDT
Posted: 08 May 2011 03:17 AM PDT
Earlier this week I issued a report about the positive changes that have recently taken place in the venture capital industry. These changes are profound and will have a lasting effect on both the venture capital asset class as well as today's start-ups.
Much has been written about the so-called "golden age" of venture capital in the late 1990s dot-com era, when the likes of Netscape, Yahoo, Amazon and eBay were created.
Yes, those certainly were great times for founders and early stage investors, but I will let you in on a little secret: for all of the brilliance, ambition and hard work that went into building these iconic companies, the vast majority of the capital appreciation in these businesses took place only after they went public.
To put it another way, the rewards for building a truly great business – say, the world's biggest etailer or the largest online auction site – accrued mainly to the public shareholders. That's right. The ones who went through all the hard work of logging into their E*Trade accounts and clicking the "Buy" button. They participated in over 99% (literally) of the value created from these brilliant entrepreneurs and their wonderful companies.
Now understand, I don't begrudge the public investors, but as either a founder, early stage company employee or investor (angel or VC), why bother taking all of the early stage risk when you could have earned far more just buying shares of your company once it went public?
Let's also keep in mind that public companies are generally a lot less risky than private ones. Less work and lower risk. That is how it used to be for public shareholders, but that era has ended for good. Let me give you some perspective on how much things have changed since the last tech cycle.
Amazon.com, the world's largest Internet retailer, went public at a $440 million valuation. Hard to believe, isn't it? A company worth $90 billion today was worth just over $400 million when it went public in 1997. That skimpy valuation represented less than one times its forward 12 months of revenues, a multiple more closely associated with a corrugated cardboard manufacturer than the most important innovator in retailing in the past 100 years.
eBay went public at a $650 million valuation, representing less than three times its forward revenues. Amazingly, this valuation was considered adequate even though at the time of its IPO, eBay had already established itself as the pre-eminent auction site on the web. Go back to the earlier part of the 1990s, and it gets even more extreme. Cisco, the most important company in computer networking infrastructure, went public at $225 million, a valuation representing just over one time its annual revenues.
Remember, this was supposed to be a time when venture capital and entrepreneurship was highly rewarded. It turns out, until very recently, public investors, those who waited until the hard work was done and the upside was evident, were the ones who earned the greatest returns. Nice work if you can find it.
We have now entered a new era, a marvelous era, in fact, for those brave enough to start a company and bold enough to build a global business. This new era, what I call the "real golden age" for company builders and private investors, allows for enormous value creation before a company even goes public.
Google was the catalyst for this change. When it went public in 2004 at a $40 billion market cap, many thought the Internet bubble had returned. Something had changed, but it wasn't a new bubble mindset. It was the understanding that some companies were now able to create value far faster than was possible before. Those investors who thought Google was overvalued at $40 billion soon learned that, in fact, it was dramatically undervalued. In 2010, Google earned nearly $19 billion in gross profit and almost $12 billion in operating profit!
Of course, if investors had known that when Google went public, they would gladly have bought the shares at the $40 billion valuation. Then again, some investors gladly did. So what happened in the span of six or seven years that caused public investors to go from valuing Amazon or eBay at a few hundred million dollars to valuing Google at $40 billion? I believe three permanent changes occurred during that time period that allowed heretofore unprecedented valuations to take hold.
First, the proliferation of Internet access. When my partners and I launched our consumer Internet fund – idealab Capital Partners – in 1997, we already thought of the Internet as a mainstream phenomenon. How wrong we were. Consider that, even by the year 2000, only one-third of the U.S. population had Internet access. Today, nearly every US household has Internet access, many with a high-speed broadband connection. The growth rate in China makes the U.S. figure look downright sluggish. China has gone from about 20 million Internet users in 2000 to close to 500 million today.
These extraordinary growth rates in Internet adoption were not fully reflected in company valuations in the last tech cycle. Now they are, and investors are giving businesses like Facebook, Zynga and others the benefit of the doubt that they will capitalize on the value created by far higher global Internet penetration rates.
Second, the rise of the hedge funds. Since 2000, the number of hedge funds have doubled and the assets they manage have nearly tripled to $2 trillion. Why is this important? Because hedge funds often specialize in particular asset classes, like technology stocks, and with that specialization comes superior knowledge and a greater insight into the potential terminal value a company can achieve. This was not the case in the 1980s and 1990s, when many of the iconic technology start-ups were born.
Microsoft went public in 1986. Keep in mind this was 11 years after its founding, by the way, for those who think the present eight-year standard for going public is too long It was offered to the public at a $640 million valuation, or about three times its annual revenues. Yet, at the time of its IPO, Microsoft's Windows was already the world's dominant operating system. However, there were few technology-focused mutual funds, which were then the primary buyers of tech IPOs.
And so, very few investors appreciated the speed and scale at which Microsoft could grow. Accordingly, the company was valued modestly by its investment bankers and nearly all of the gargantuan value of the Microsoft franchise was made available to the public shareholders. Think that Facebook 's public shareholders will have the same luxury?
The investors who bought Microsoft shares at its IPO and held onto it for the same amount of time it was a private company – 11 years – were treated to several hundred billion dollars of capital appreciation, not the $650 million that Bill Gates, Paul Allen and the other early employees earned for their 11 years of grueling start-up work. Compare the Microsoft, Cisco, Amazon or eBay examples to what we see in the post-Google era.
VMWare went public in 2006 at a $12 billion valuation. It quickly rose to a $30 billion market capitalization. Thus, the existing investors (parent company EMC in this case) captured over one third of the company's likely terminal value. Google's founders, pre-IPO employees and early investors also did quite well, capturing a respectable 25% of the companies likely terminal value. And what of those earlier tech giants – Microsoft, Cisco, Amazon and eBay? The founders and early investors of these extraordinary businesses captured less than 1% of the terminal values of their businesses while they were still private.
The valuations of today's private tech leaders – Facebook, Zynga, Groupon and possibly Twitter – are such that I believe upwards of 50-75% of the terminal values of these companies will be captured by the folks who did the real work and took the real risks, those who quit their jobs and begged, borrowed and cajoled friends, families and angel investors to take a chance on their far-fetched idea.
Here is the important, and game-changing, point: in order to participate in the great wealth creation taking place in this and future technology cycles, you will have to be a founder, an early employee or a private investor. The so-called easy money will be earned before a company goes public. This is a radical shift from earlier technology cycles.
The third factor contributing to the far high valuations accruing to private companies today is the speed at which companies can now exploit the global marketplace. When I was at idealab in the 1990s, none of our start-ups attempted to address international markets in the first few years of their existence. In fact, for many of those companies, international markets didn't become a serious focus until after they went public. How times have changed.
Today it is possible to pursue an international growth strategy almost as quickly as a domestic one. The cost of running a global business has dramatically shrunk, and while costs of going overseas have plummeted, the revenue opportunities have increased manifold.
Just consider where three of the largest economies were 10 years ago, and where they are today. India was a $500 billion economy in 2000. Today it is a $1.4 trillion one. Brazil was a $600 billion economy ten years ago, compared to $2 trillion in 2010. The growth of China's economy in the last decade is breathtaking, from $1.2 trillion to $5.7 trillion in just 10 years. Combined, these three economies have added $6.8 trillion to world GDP since 2000.
Public investors are aware of these economic figures, and they are rewarding companies addressing the global marketplace sooner in their lifecycle. Groupon has taken note. It is just four years old and already operates in 35 countries. Given its international ambitions, it is likely that within two years Groupon will have upwards of 20,000 employees outside of the U.S. A potential $25 billion IPO valuation awaits it for going global faster than its peers.
What makes the change I have just described so fascinating is that so many of the traditional limited partners to venture capital funds have withdrawn from the asset class in the last few years, understandable perhaps after 10 years of poor returns. But just as the game has shifted to rewarding private investors over public shareholders like never before, limited partners have decided to look elsewhere for exceptional returns.
I believe that is a mistake.
Going forward, those who participate in building new companies and providing the start-up capital to fuel the growth of those businesses, will be handsomely rewarded like never before.
Posted: 07 May 2011 07:09 PM PDT
Last week I wrote a post about my current investment policy at TechCrunch, and pointing out already disclosed financial conflicts of interest. Our primary duty to readers, as I’ve said many times, is transparency. To that end we will (as we always have) be extremely careful in disclosing any investments I’ve made in startups or in venture funds. And these interests will be disclosed even when other TechCrunch writers are covering these companies.
In that post I said that there would be a lot of criticism headed our way from our competitors. And that’s exactly what happened. AllThingsD calls me “vaguely icky.” The Atlantic Wire says what I’m doing “lowers the bar for journalistic independence.” And Tom Foremski says “It’s best to have a blanket policy of no investments allowed. That way readers can read the news without having to do all the leg work to figure out if there is any bias.”
So, hold on a minute.
We can argue all day about whether or not my policy is a good one. You’ll have your arguments, I’ll have mine. But the really important thing to remember, as a reader, is that there is no objectivity in journalism. The guys that say they’re objective are just pretending. Everyone is conflicted in different ways, and yet the “rules of journalism” don’t require any sort of transparency or disclosure unless it’s a direct financial conflict. I’m going to have to write a longer post about his yet again.
But when you read a tech blogger call a CEO “tough and misunderstood,” should you know that the CEO in question is social friends with that blogger, and leaks confidential information to her? The answer is yes. But you’ll never know. Or when the same CEO is called incompetent by another blogger who was just turned down by said CEO to speak at his conference. Disclosed? No. Conflicted? Yes.
Like I said, that’s a different post. But in putting this current issue to rest, there are some things I’d like to point out.
AllThingsD’s Kara Swisher, the chief whiner about our policy, is married to a Google executive. This is disclosed by her, but I certainly don’t see it as any less of a conflict than when I invest in a startup. And yet she whines. One of her writers, Liz Gannes, is married to a Facebook consultant. She covers the company and its competitors regularly. She discloses it as well, but it isn’t clear whether or not her husband has stock in Facebook. That’s something as a reader I’d like to know. And regardless, it’s a huge conflict of interest. I think someone will think twice before slamming a company and then going to sleep next to an employee of that company. Certain adjectives, for example, might be softened in the hopes of marital harmony.
Foremski, the other chief whiner, is a real piece of work. Despite railing against my policy, he has his own direct conflicts of interest. The man who said just a week ago how horrible I am for investing in startups has financial interests in a whole slew of tech companies – “Disclosure: Current and past consulting clients and sponsors of Silicon Valley Watcher: Pearltrees, Intel, Tibco Software, Edelman, Infineon Technologies, SAP.”
And he isn’t so good about disclosing these interests. If one of our writers pulled this stunt they’d be fired in a second.
Why do the people who complain the most about TechCrunch have these vague conflicts of interest themselves? Why aren’t they more forthcoming in their disclosures? How do they justify their hypocrisy, even to themselves? Seriously, how?
Look, I’m still new to this journalism thing. I treat our readers the same way I’d like to be treated. With full and complete disclosure. I’m really sorry if that upsets the old guard. But the reality is this. The people complaining the most are the people who are the most deeply conflicted. They’re the people who are, at best, vague about their own conflicts of interest. Right and wrong don’t seem to be concepts they worry about too much. Nor do they seem to be overly concerned with hypocrisy or even the basic underlying lack of logic in their rants.
Really, it all came into focus for me this week. A major news publication asked for “my side” after all this complaining. I spent a half hour on the phone with him at his request. And he never wrote. Why? “My editors want to leave Arianna dangling in the wind,” he said, referring to the fact that Arianna Huffington, my boss, was taking heat for this situation. It never occurred to him that he just killed a story because that story might help a competitor (Huffington Post), and how screwed up that was.
I have little hope for this industry until the last of the old guard have finally been put down. They do NOT control the news. They do NOT control opinion. They do NOT get to say who gets to write content and who doesn’t. And they do NOT get to rant about their ethics when they constantly fight against simple transparency.
Swisher doesn’t get to complain about my investment policy when she is married to a Google executive, and when we can’t figure out whether or not one of her writers owns Facebook stock through her husband. And don’t even get me started on the time her employer, the WSJ, killed a story that was critical of its sister company MySpace, and then denied it. Foremski doesn’t get to tell me my policy is unethical when he has financial conflicts all over the place and seems unconcerned with proper disclosure and transparency. And major media doesn’t get to preach to me about their ethics policies when they kill stories because their editor wants to keep Arianna Huffington squirming.
Before I started TechCrunch I never understood how screwed up this whole news world was. It’s ugly as hell out there, people. These people, the tech press, just disgust me.
Posted: 07 May 2011 05:53 PM PDT
It’s just about that time again. Google I/O is happening next week and just as in year’s past, the company is expected to announce some big things on stage during their two keynotes on Tuesday and Wednesday morning. But what will those things be? Jason and I delve into some predictions for the event, which we’ll both be covering.
But first we take some time to look back at last year’s I/O which made a big splash at the time — and can now probably be best described as a big flop. Google TV, Google Music, Chrome OS. Etc, etc, etc… Will this year’s be more of the same? Or will Google’s mouth actually be able to write checks that their body can cash this time around? Stay tuned…
Here are some articles that are relevant to this week's episode:
Posted: 07 May 2011 04:41 PM PDT
Back in March, alongside the roll out of Amazon’s new cloud-based music upload/player service, we noted one glaring problem: it didn’t work on iOS devices. You might think this had to due with Flash or another technology that iOS wasn’t compatible with, but it wasn’t. It looked like something else was simply blocking it from working. Well, good news. That’s no longer the case.
If you visit Amazon’s Cloud Player through the Safari web browser on an iOS device, you’ll see that it does in fact now work. You’ll first hit a warning page telling you that your browser is not supported, but just ignore that. Click into the music in your drive and it will begin playing. It works flawlessly — even to the point where if you get a Push Notification or incoming call, the music will be paused.
Of course, this implementation is still not as good as it is on Android, where Cloud Player is part of a native app. But if Amazon just did a little web work and made the web-based player optimized for the iPhone and iPad, it would certainly be very useable on a regular basis. Uploading, however, still requires Flash. But I assume most people are doing that from their computers anyway.
While this is great news, Apple is expected to announce their own similar service sooner rather than later. And that will be fully baked into iOS (and is expected to have full music label backing, unlike Amazon’s service — which is both ballsy and awesome).
So you Amazon cloud lovers, take the skies and get your music working on iOS now.
Posted: 07 May 2011 03:48 PM PDT
Everyone is rightly very excited about the upcoming mega-hackathon at Disrupt New York. At last count, the event will host around four hundred billion hackers, working on some eighty five trillion projects. Luckily, as at all TechCrunch events, there’ll be rock-solid wifi and wired Internet for all those billions of people to use.
And yet… on the other side of the Atlantic, a merry band of hackers is providing that you don’t need to attend a record-breakingly-large hackthon to produce a seriously cool app. In fact, you don’t even need Internet access.
/dev/fort is the brainchild of London-based developers James Aylett and Mark Norman Francis – and provides an answer to the age-old question: what happens when a bunch of developers and designers lock themselves away in a 19th century fortress on the Channel Island of Alderney, without Internet access, and decide to build a cool app.
As attendee Hannah Donovan explains.…
(If Donovan’s name sounds familiar, it’s probably because she used to be Creative Director at Last.fm. In fact, the most recent /dev/fort was like a Last.fm reunion camp, with former Systems Architect Russ Garrett and ex-Head of Web Product Matt Ogle also in attendance.)
The result: Spacelog, which hacks the original transcripts of early space missions to tell the stories of Vostok 1, Mercury 6, Apollos 11 and 13 – and more – as they happened. Each transcript is broken down into (ahem) small steps for man-ageability, and also sorted into timelines and phases so readers can follow each mission in, effectively, real time. It’s as if Neil Armstrong, Buzz Aldrin et al were on Twitter. Or actually, given there are photos from the Apollo mission too, it’s as if Armstrong Aldrin et al were on Twitter and Twitpic.
Who knew that astronauts could be funny?
Sadly, in space nobody can hear you laugh.
Of course, alongside all the jokes, there’s also plenty of space jargon in the transcripts. Fortunately, though, rolling over key phrases provides a translation for the benefit of non-astronauts who might not know that, say, PTC means Passive Thermal Control.
Spacelog would be a cool hack in any circumstances, but the fact that it was conceived and built in an isolated mid-Channel castle in 36 hours tips it over into the realms of awesome. As Donovan puts it…
(You can read more about that process here)
As with all good hackday projects, Spacelog’s development is ongoing, albeit constrained by the team members’ day jobs. Says Aylett, “Apollo 8 would be the next one, but there’s a fair bit of work to get it out”. If you’d like to help them out, there are details on how to get involved with Spacelog here.
Posted: 07 May 2011 12:57 PM PDT
Since 2007, you’ve been able to sign in to your AOL Instant Messenger (AIM) account to chat with your AIM contacts directly from Gmail. You simply login with your AIM account in Gmail and your contacts will populate your gChat list, allowing you to chat with them just like you would your Google Talk contatcs.
From this notice, it looks like changes may be afoot to this feature. From AIM’s notice, In the next few days, Google and AOL are working together to change the way you connect to AIM buddies within Gmail. After this change, Gmail and AIM users can talk directly to each other without having to log into both services (you will no longer be able to log into AIM within Gmail’s “Chat” section).
It’s unclear what technology Google and AOL are working on that will allow users to integrate both services with Gmail; but AOL says it is working on an importer to add AIM contacts to your Gmail contacts list. AOL says in the notice: You’ll be able to IM them directly from your Gmail username, but your AIM Username will not show your online status.
AOL says the change will take place in the next few days, but you can sign up to receive a notice when new importer is available.
But honestly, who uses AIM anymore?
Disclosure: TechCrunch is owned by AOL.
Posted: 07 May 2011 10:30 AM PDT
We’ve all lived the nightmare. A new developer shows up at work, and you try to be welcoming, but he1 can’t seem to get up to speed; the questions he asks reveal basic ignorance; and his work, when it finally emerges, is so kludgey that it ultimately must be rewritten from scratch by more competent people. And yet his interviewers—and/or the HR department, if your company has been infested by that bureaucratic parasite—swear that they only hire above-average/A-level/top-1% people.
It’s a big problem, especially now. There’s a boom on. I get harassing emails from recruiters every day. Everyone’s desperate to hire developers…but developers are not fungible. A great coder can easily be 50 times more productive than a mediocre one, while bad ones ultimately have negative productivity. Hiring one is a terrible mistake for any organization; for a startup, it can be a catastrophic company-killer. So how can it happen so often?
Like many of the hangovers that haunt modern software engineering, this is ultimately mostly Microsoft’s fault.2 Back when they were the evil empire where everyone secretly wanted to work, they were famous for their “brain-teaser” interview questions – Why are manhole covers round? – and, of course, they asked new university graduates about computer science theory; “Write me a binary search.”
Everyone wanted to be like Microsoft, even Google, until everyone wanted to be like Google (until recently); and so that interview meme persisted. Check out these two recent posts on the subject of interviewing, courtsey of Hacker News: one from a would-be employee, one from a Google interviewer. A couple of illuminating quotes from the latter: “I'm not even necessarily saying that this is a good metric” and “If it's any consolation, at least we don't ask gotcha riddle questions anymore. Those were especially offensive.”
It’s nice to see that Google have almost sort of realized that their recruiting algorithm is problematic. Too bad they haven’t fixed it. See also Jean Hsu’s “How Effective Are Technical Interviews?” The fundamental problem is that the skills required to pass today’s industry-standard software interview are not the skills required to be a good software developer. Oh, there’s some correlation, but it’s like the Oakland Raiders always drafting the fastest runners available, only to discover to their endless dismay that the NFL is not a foot race.
Actually it’s worse than that. At least wide receivers have to run, whereas I can guarantee you, without fear of contradiction, that no software engineer will ever have to write a binary search after they are hired. It’s like choosing a contractor because they know how to forge and cast steel using coal, iron, an oven and a bellows, when they actually need to know a) the address of the nearest Home Depot b) what to do with the steel once they buy it.
Joel Spolsky once correctly explained that you’re generally looking for two things in an employee: Smart and Gets Things Done. (Academia is teeming with people who are the former but not the latter.) First, though, you have to establish something else: Not Completely Inept. You’d be amazed how many totally incompetent people show up for technical interviews. Google’s binary search is presumably intended as their “FizzBuzz” – a low bar you have to hurdle just to get in the door. But a FizzBuzz should take all of five minutes, before the real interview begins.
So what should a real interview consist of? Let me offer a humble proposal: don’t interview anyone who hasn’t accomplished anything. Ever. Certificates and degrees are not accomplishments; I mean real-world projects with real-world users. There is no excuse for software developers who don’t have a site, app, or service they can point to and say, “I did this, all by myself!” in a world where Google App Engine and Amazon Web Services have free service tiers, and it costs all of $25 to register as an Android developer and publish an app on the Android Market.
The old system was based on limited information—all you knew about someone was their resume. But if you only interview people with accomplishments, then you have a much broader base to work from. Get the FizzBuzz out of the way, and then have the interviewee show and tell their code, and explain their design decisions and what they would do differently now. Have them implement a feature or two while you watch, so you can see how they actually work, and how they think while working. That’s what you want from a technical interview, not a measure of its subject’s grasp of some antiquated algorithm or data structure. The world has moved on.
1Yes, I am being deliberately sexist here, because in my experience those women who write code are consistently good at it.
2I don’t mind that Bill Gates is a megazillionaire; he’s done a lot of really interesting and innovative stuff. I do mind that a lot of unworthy people rode his coattails to minizillionaire status, eg the inventor of Hungarian notation, probably the dumbest widely-promulgated idea in the history of the field.
Posted: 07 May 2011 10:28 AM PDT
A few weeks ago we gave away a BlackBerry Playbook and, much to your disappointment, you didn’t win. In order to right that wrong, we present The Return Of The Attack Of The 16GB BlackBerry Playbook, Part II featuring a brand new BlackBerry Playbook with your name on it.
How do you win? I think you know.
|You are subscribed to email updates from TechCrunch |
To stop receiving these emails, you may unsubscribe now.
|Email delivery powered by Google|
|Google Inc., 20 West Kinzie, Chicago IL USA 60610|