Accompanied by my AV buddy Andrew, we attended Yaron Samid's densely packed NY Video Meet-up, where nearly 400 NY based internet participants heard presentations from 5 emerging internet video related companies. If you are interested in investing, or joining a video company, this is a monthly must attend forum.
Of particular note, keep an eye on the impressive progress of open source, not for profit entity Miro. Their recently introduced Miro 2.0 does a great job of bringing internet based HD video to your PC. With a built-in media guide, great codec support and BitTorrent availability, they provide wonderful access and search capabilities. The service seems to be attracting a nice audience. As an example of their market acceptance, here's Quantcast's estimates for Boxee.tv vs Miro:
Per the Miro presenter, they have not yet drawn the formal 'attention' that Boxee's received from Hulu. I suspect we will hear more on this topic as the year unfolds.
Wednesday, March 11, 2009
Tuesday, March 10, 2009
Why Jeff Bezos is leading a $19B revenue company and will lead a much larger one
Jeff Bezos was given a one hour interview on Charlie Rose the other day. For those pressed for time, I have summarized key take-aways below. Despite being somewhat long, I think it's really worth seeing.
Key points:
Unlike many companies, Amazon's strategy is built around things that stay the same (fundamental customer needs) rather than what will be different. The bedrock of their strategy is built around three common attributes, sought by all customers:
Low prices
Fast delivery
Selection
Therefore, Amazon's mission is to serve customers through lower prices, speeding delivery and increased selection. This strategy is married with an execution philosophy that recognizes that we live in a complex world, if you can simplify it for your customers, they will value it.
The Kindle is an example of how expansively the company will dream, and seek to execute the vision. The device disruptively hits all three strategic criteria as its promise is to someday offer every book ever printed (in any language), available in 60 seconds, for a price far less than a physical alternative.
While designing the product, they had the vision of enabling the reader to enter the world of the author, then get out of the way. A B&W 'e-paper' screen was selected as it's easier on the eyes and has a dramatically longer battery life than a color alternative. It was designed to be a purpose driven reading device, and specifically not designed for reading 'sippers'. For these informal readers, the Kindle software was introduced for non-specific devices such as the iPhone.
Turning back to strategy/culture, Amazon chooses to obsess over customers, rather than competitors. Bezos' belief is that if they do well with customers, they will be rewarded with an extension of their trust into new categories.
The company has tried many initiatives that have failed. A9 in search and auctions are two high profile examples. Yet, lessons from auctions led to a different way to look at the business and led to the birth of the successful 3rd party affiliate business. It also drove home his belief that me-too companies tend to not do well. Even if you are a big me-too.
I was struck by the contrast between Sony and Amazon. Sony does not lack for a strategic framework that brings them a timely entrance into many high growth categories. Yet, their execution in e-books, game consoles, music devices, phones and so many other markets has led them to being a consistent me-too in all.
Key points:
Unlike many companies, Amazon's strategy is built around things that stay the same (fundamental customer needs) rather than what will be different. The bedrock of their strategy is built around three common attributes, sought by all customers:
Low prices
Fast delivery
Selection
Therefore, Amazon's mission is to serve customers through lower prices, speeding delivery and increased selection. This strategy is married with an execution philosophy that recognizes that we live in a complex world, if you can simplify it for your customers, they will value it.
The Kindle is an example of how expansively the company will dream, and seek to execute the vision. The device disruptively hits all three strategic criteria as its promise is to someday offer every book ever printed (in any language), available in 60 seconds, for a price far less than a physical alternative.
While designing the product, they had the vision of enabling the reader to enter the world of the author, then get out of the way. A B&W 'e-paper' screen was selected as it's easier on the eyes and has a dramatically longer battery life than a color alternative. It was designed to be a purpose driven reading device, and specifically not designed for reading 'sippers'. For these informal readers, the Kindle software was introduced for non-specific devices such as the iPhone.
Turning back to strategy/culture, Amazon chooses to obsess over customers, rather than competitors. Bezos' belief is that if they do well with customers, they will be rewarded with an extension of their trust into new categories.
The company has tried many initiatives that have failed. A9 in search and auctions are two high profile examples. Yet, lessons from auctions led to a different way to look at the business and led to the birth of the successful 3rd party affiliate business. It also drove home his belief that me-too companies tend to not do well. Even if you are a big me-too.
I was struck by the contrast between Sony and Amazon. Sony does not lack for a strategic framework that brings them a timely entrance into many high growth categories. Yet, their execution in e-books, game consoles, music devices, phones and so many other markets has led them to being a consistent me-too in all.
The other shoe
Yesterday, I received a year-end financial report from one of the venture firms that I am invested in. The firm cited adherence to FAS 157 (mark to market rule) and proceeded to list their investment values with markdowns ranging between 10-50%. Such markdowns are greatly predicated on year end values of comparable companies (clearly an art form).
In previous years, venture firms would markdown companies that significantly missed plan, or were involved in a tangible transaction (e.g. investment round) that reflected a lower price. Proactive markdowns, based on industry comparables were rare, and that was unfortunate.
I have no idea how long, or how deep this downturn will last, however, it's evident that it will take sometime to right the ship and only rarely does one know the exit value of an investment. Today's proactive portfolio valuation, however imperfect, provide LP's better visibility to true asset value, and enable them to run their businesses better. Rule 157 enables institutional investors to more consistently hold their portfolios, consisting of private equities, public securities, and real-estate to a common standard; which for the long term augers well for the private equity world.
Today, many institutions are suffering from a 'denominator' problem, where the percentage of assets invested in private equity greatly exceeds proscribed limits, due to the collapse of the public security valuations. This round of 'mark to market' will hopefully go a long way towards bringing private equity valuations and percentage allocations into alignment.
Many institutional investors won't be surprised by the write-downs, many will even welcome them as a way to clean house and set the stage for a new approach to their portfolio management. What worries me is that many firms won't be aggressive enough in taking a realistic approach to portfolio valuation. Instead, hoping their portfolio is unique, or that valuations will shortly return to pre 2008 levels, they will be more 'conservative' and leave themselves vulnerable to unrealistic exit expectations that will surely affect the timing and form of the exits which LP's require to fund their requirements.
Expect other shoes to drop:
1. It's easier for a VC to cease funding for a company already written down in their portfolio (less downside). Unless a venture firm has a mature portfolio of self-supporting companies, it is likely a triage process will be undertaken to allocate reserves to support the minority of investments with the best likely outcome. The others will be closed/sold/ignored.
2. Look for more 'carve-outs' for management teams whose paydays sit behind investor preferred securities. Recognizing that maintaining alignment with the teams that bring you through an exit is important, investors often put in place a 'phantom equity' mechanism that rewards teams for an exit; even one that does not return capital.
3. More down rounds, diluting management and non-participating investors, in portfolio companies where the lead investor has already taken a mark down.
In previous years, venture firms would markdown companies that significantly missed plan, or were involved in a tangible transaction (e.g. investment round) that reflected a lower price. Proactive markdowns, based on industry comparables were rare, and that was unfortunate.
I have no idea how long, or how deep this downturn will last, however, it's evident that it will take sometime to right the ship and only rarely does one know the exit value of an investment. Today's proactive portfolio valuation, however imperfect, provide LP's better visibility to true asset value, and enable them to run their businesses better. Rule 157 enables institutional investors to more consistently hold their portfolios, consisting of private equities, public securities, and real-estate to a common standard; which for the long term augers well for the private equity world.
Today, many institutions are suffering from a 'denominator' problem, where the percentage of assets invested in private equity greatly exceeds proscribed limits, due to the collapse of the public security valuations. This round of 'mark to market' will hopefully go a long way towards bringing private equity valuations and percentage allocations into alignment.
Many institutional investors won't be surprised by the write-downs, many will even welcome them as a way to clean house and set the stage for a new approach to their portfolio management. What worries me is that many firms won't be aggressive enough in taking a realistic approach to portfolio valuation. Instead, hoping their portfolio is unique, or that valuations will shortly return to pre 2008 levels, they will be more 'conservative' and leave themselves vulnerable to unrealistic exit expectations that will surely affect the timing and form of the exits which LP's require to fund their requirements.
Expect other shoes to drop:
1. It's easier for a VC to cease funding for a company already written down in their portfolio (less downside). Unless a venture firm has a mature portfolio of self-supporting companies, it is likely a triage process will be undertaken to allocate reserves to support the minority of investments with the best likely outcome. The others will be closed/sold/ignored.
2. Look for more 'carve-outs' for management teams whose paydays sit behind investor preferred securities. Recognizing that maintaining alignment with the teams that bring you through an exit is important, investors often put in place a 'phantom equity' mechanism that rewards teams for an exit; even one that does not return capital.
3. More down rounds, diluting management and non-participating investors, in portfolio companies where the lead investor has already taken a mark down.
Sunday, March 8, 2009
Whose eating lunch?
Tuna Sandwich- 1 share GE $7
Glazed Donut- 1 shares GM $1.50
Small coffee (not from Starbucks)- 1 share Citigroup $1
As anticipated, over dinner the other night, the conversation turned to the dismal state of the economy and areas of future opportunity. That's when my tall skinny friend Scott said something that really struck a chord. For background, Scott is a successful and soon to be executive refugee from the wholesale 'shmatah' retail business. He doesn't say much, but when he speaks, it's good to listen. He noted that so many of the troubled companies in his industry are struggling because they lost their relevance. Sure, the recession pushed them in extremis, but the economy only accelerated and exposed the market reality that they were no longer needed, or even wanted. As an example, he cited once proud Sears and its sole remaining relevance as a place to buy Kenmore appliances or a tools. Not much of a reason to have tens of thousands of employees and a $4B market cap. He went on to say that retail is littered with so many corpses that never made the 'big box' transition pioneered decades ago by Walmart; and being big is not good enough. You have to be different and better.
His observation rings true across many other traditional and emerging industries which now suffer from a massive production oversupply; the slowdown has meerly exposed such over-investments. A combination of cheap production, supply chain efficiencies, open global markets and government subsidies have greatly accelerated production supply, far outstripping demand, and leaving producers vulnerable to a certain, and necessary shakeout.
Looking close to home, the flip side of capital efficiency in the Internet has given us a stunning over supply of little differentiated companies, long on UI, but with scant IP innovation. True, the combination of low cost outsourced infrastructure (thanks Amazon and Akamai), free open source software (LAMP), and pay as you go marketing (Google) lowered the barriers to entry, but the barrier to success, when faced with scores of relevant competitors has never been higher. We have overproduced companies, with far too much capability to serve a finite amount of relevant customers. More than ever, innovation is critical as insulation from the ravages of price competition that inures in markets suffering from supply surplus.
We have seen too few innovative solutions like Wolfram is apparently working on. And too much time, and capital invested in nice product mash-ups which are not destined to ever be self supporting companies.
The financial services sector is also an industry that I have been closely involved with. Now that Lehman and Bear are gone, outside of the market shock, is there really an effect on clients? The twin towers of innovation and globalization, where the banks down the block are headquartered in Canada, Hong Kong, and the UK, and operate seamlessly in NY, has fundamentally altered the banking relevance map. If a few more disappear will it really change the customer landscape? I think not.
The Private Equity sector is not immune from the relevance test. In Israel it seems that the combination of low returns, global competition and an institutional liquidity crisis is well along to shrinking the domestic venture market by at least one third. I suspect that they are a leading indicator for the US market.
I see little friction in the type of companies entrepreneurs choose to start; bridled passion knows no bounds. I look forward to more successes from innovation perspiration and am confident entrepreneurs will again shake it up.
Glazed Donut- 1 shares GM $1.50
Small coffee (not from Starbucks)- 1 share Citigroup $1
As anticipated, over dinner the other night, the conversation turned to the dismal state of the economy and areas of future opportunity. That's when my tall skinny friend Scott said something that really struck a chord. For background, Scott is a successful and soon to be executive refugee from the wholesale 'shmatah' retail business. He doesn't say much, but when he speaks, it's good to listen. He noted that so many of the troubled companies in his industry are struggling because they lost their relevance. Sure, the recession pushed them in extremis, but the economy only accelerated and exposed the market reality that they were no longer needed, or even wanted. As an example, he cited once proud Sears and its sole remaining relevance as a place to buy Kenmore appliances or a tools. Not much of a reason to have tens of thousands of employees and a $4B market cap. He went on to say that retail is littered with so many corpses that never made the 'big box' transition pioneered decades ago by Walmart; and being big is not good enough. You have to be different and better.
His observation rings true across many other traditional and emerging industries which now suffer from a massive production oversupply; the slowdown has meerly exposed such over-investments. A combination of cheap production, supply chain efficiencies, open global markets and government subsidies have greatly accelerated production supply, far outstripping demand, and leaving producers vulnerable to a certain, and necessary shakeout.
Looking close to home, the flip side of capital efficiency in the Internet has given us a stunning over supply of little differentiated companies, long on UI, but with scant IP innovation. True, the combination of low cost outsourced infrastructure (thanks Amazon and Akamai), free open source software (LAMP), and pay as you go marketing (Google) lowered the barriers to entry, but the barrier to success, when faced with scores of relevant competitors has never been higher. We have overproduced companies, with far too much capability to serve a finite amount of relevant customers. More than ever, innovation is critical as insulation from the ravages of price competition that inures in markets suffering from supply surplus.
We have seen too few innovative solutions like Wolfram is apparently working on. And too much time, and capital invested in nice product mash-ups which are not destined to ever be self supporting companies.
The financial services sector is also an industry that I have been closely involved with. Now that Lehman and Bear are gone, outside of the market shock, is there really an effect on clients? The twin towers of innovation and globalization, where the banks down the block are headquartered in Canada, Hong Kong, and the UK, and operate seamlessly in NY, has fundamentally altered the banking relevance map. If a few more disappear will it really change the customer landscape? I think not.
The Private Equity sector is not immune from the relevance test. In Israel it seems that the combination of low returns, global competition and an institutional liquidity crisis is well along to shrinking the domestic venture market by at least one third. I suspect that they are a leading indicator for the US market.
I see little friction in the type of companies entrepreneurs choose to start; bridled passion knows no bounds. I look forward to more successes from innovation perspiration and am confident entrepreneurs will again shake it up.
Thursday, March 5, 2009
A Tale of Two Companies
It was the best of times (NFLX), it was the worst of times(BBI).
I was in Dallas yesterday, corporate HQ for Blockbuster, and their rumored bankruptcy filing was big city news. For consumers, who are voting with their purses that the mail-in DVD/streamed video offering is far superior to the brick 'n mortar and too little/late stream, it's no surprise.
The torrid growth in the NFLX streamed subscription service, coupled with anticipated improvements in bandwidth and large screen access, again highlights that content access is trumping content ownership, and it's only going to get far worse for the ownership folk. DVD sales will continue their steep decline and it will be a challenge for the content owners to replace an ownership revenue stream with subscription dollars in a permacheap and disposable world.
It seems as if the whole content related world is undergoing fundamental and permanent change. Newspapers have gone free on-line, where CPM's, and ARPV (avg revenue per viewer) have plummeted. Cable and broadcasters are under assault by the combination of WiFi and cheap storage/bandwidth that enables folk to disintermediate the set top box. Publishers are staring down the Kindle, Sony Reader and iPhone that will slash their existing business models and, perhaps be a step towards self-publishing going mainstream.
Traditional media is getting that Old and in the Way look.
I was in Dallas yesterday, corporate HQ for Blockbuster, and their rumored bankruptcy filing was big city news. For consumers, who are voting with their purses that the mail-in DVD/streamed video offering is far superior to the brick 'n mortar and too little/late stream, it's no surprise.
The torrid growth in the NFLX streamed subscription service, coupled with anticipated improvements in bandwidth and large screen access, again highlights that content access is trumping content ownership, and it's only going to get far worse for the ownership folk. DVD sales will continue their steep decline and it will be a challenge for the content owners to replace an ownership revenue stream with subscription dollars in a permacheap and disposable world.
It seems as if the whole content related world is undergoing fundamental and permanent change. Newspapers have gone free on-line, where CPM's, and ARPV (avg revenue per viewer) have plummeted. Cable and broadcasters are under assault by the combination of WiFi and cheap storage/bandwidth that enables folk to disintermediate the set top box. Publishers are staring down the Kindle, Sony Reader and iPhone that will slash their existing business models and, perhaps be a step towards self-publishing going mainstream.
Traditional media is getting that Old and in the Way look.
Tuesday, March 3, 2009
Search opportunity
Kara Swisher posted today an internal MSFT memo regarding their new new new search initiative. It was particularly interesting for me as earlier today, I downloaded Xmarks to enhance my search experience, through their service that aggregates bookmarks as a way of discovering relevant sites.
I find that Google is fine for many things but the cat and mouse SEO game is continuing to hurt the quality of relevant sites displayed. Moreover, the mostly simple text display is not too helpful in facilitating a decision to click or not; there are just too many 'false positives'.
Back to MSFT, here's an excerpt that seems to highlight why I, and many others, are looking for alternatives. I am not ready to through away my love for Google, but it seems as if there wonderful opportunity available to bring the search experience forward as:
40% of queries go unanswered
half of queries are about searchers returning to previous tasks
46% of search sessions are longer than 20 minutes
I find that Google is fine for many things but the cat and mouse SEO game is continuing to hurt the quality of relevant sites displayed. Moreover, the mostly simple text display is not too helpful in facilitating a decision to click or not; there are just too many 'false positives'.
Back to MSFT, here's an excerpt that seems to highlight why I, and many others, are looking for alternatives. I am not ready to through away my love for Google, but it seems as if there wonderful opportunity available to bring the search experience forward as:
40% of queries go unanswered
half of queries are about searchers returning to previous tasks
46% of search sessions are longer than 20 minutes
Monday, March 2, 2009
Riders on the Storm
Dan Primack of PEHUB posted on what seems to be a growing trend amongst Venture firms; raising 'Annex funds'. In the post, he cited prestigious firms such as Kleiner, Mohr Davidow, Tallwood and First Round Capital all going down this route.
Venture firms usually seek to raise annex funds when the world changes mid-fund, causing a change in their investment thesis or in execution strategy. Such changes most often are symptoms of a firm finding, for whatever reason, they have insufficient capital to carry out their stated initial mission.
In today's market, it would be reasonable to assume that VC's (and the list is surely much broader than these organizations) are faced with a dual market reality of portfolio investments taking a longer period of time to be self-supporting and finding a paucity of like minded firms sufficiently interested in leading follow-on rounds. This double whammy means that prudent firms ought to provision reserves, to support their portfolio, at much higher rates than budgeted. An Annex alternative would be to either reduce the breadth/depth of new investments (e.g. strategy change), or deeply triage existing investments (perhaps prematurely). These actions 'create' more reserves for surviving portfolio investments.
We were last confronted with firms raising Annex funds when the internet only bubble burst. Unfortunately, I don't think many of these funds did well for their LP's. Though, that was before many of these experienced managers garnered experience riding the storm.
Venture firms usually seek to raise annex funds when the world changes mid-fund, causing a change in their investment thesis or in execution strategy. Such changes most often are symptoms of a firm finding, for whatever reason, they have insufficient capital to carry out their stated initial mission.
In today's market, it would be reasonable to assume that VC's (and the list is surely much broader than these organizations) are faced with a dual market reality of portfolio investments taking a longer period of time to be self-supporting and finding a paucity of like minded firms sufficiently interested in leading follow-on rounds. This double whammy means that prudent firms ought to provision reserves, to support their portfolio, at much higher rates than budgeted. An Annex alternative would be to either reduce the breadth/depth of new investments (e.g. strategy change), or deeply triage existing investments (perhaps prematurely). These actions 'create' more reserves for surviving portfolio investments.
We were last confronted with firms raising Annex funds when the internet only bubble burst. Unfortunately, I don't think many of these funds did well for their LP's. Though, that was before many of these experienced managers garnered experience riding the storm.
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