October 25, 2007 by admin.

So an older established company  older company is “out of touch” “doesnt get it” and is one of the “big bad corporate corporations”.  Like an unpopular girl at the prom the older company just gets no attention, no one really cares about  it in a positive way . However, the older company  has a solution;buy the younger company ( or a piece of it) and it will be all good in corporate land. So it goes and so it went. First Time Warner now Facebook and all the others before, after and in between.  So it will always be in the corporate world.

Now for the quick analysis:

Based on the numbers available this deal is just another pin pricking the bubble. Yes its true that based on suscribers vs Facebook users Microsoft got a “steal” paying about $300 per Facebook user vs over $6,000 per AOL user. However a closer look shows that the AOL deal based on revenues per user is about 4 times cheaper then the current Facebook deal. AOL had at the time approx. 31 million users and approx. $6.9 billion in revenues in 2000 which translates  t0 $220  of revenues  per user . Based on the purchase price, the price per AOL user ( PPU) paid in the deal is approx. $6,000 which is 27 times per user revenue (PUR). On the other hand, Facebook which claims 50 million users has revenues of , at the high end of estimates, of $150 million which translates to the grand total of $3 per user revenue. ( yes that is not a misprint : each ad hungry, super targeted, ad optimized,  optimally tracked, social user of the greatest and hottest social network actually generates low  single digit yearly revenue) . Oh, one more thing, the valuation of $300 per user is an astounding 100 times current revenue per user. This is approx 4 times more then AOL Time Warner. Go Figure and Go figure again and then stop because this is one you can’t figure out. You just sit and wait for the air to escape and then look around and say “what were we thinking”

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October 25, 2007 by admin.

Today microsoft announced it was paying $240 million for less then a 2% stake in Facebook.  This has to be the best deal that Google did not do. What does Microsoft get for this investment ? A small piece of Facebook’s advertising potential. This is mind boggling ( or mind bloggling in today’s world) . What was Microsoft thinking. Well, I know what they were thinking- we can’t beat Google so let’s buy a  social network with little actual social value where users actually go to do something as socially unrpoductive as possible. (Ok. Maybe a virtual foodfight can be productive is some ways - it is certainly more “green” and probably decereases the chance for global warming as food growers use emit less carbon when their food is not thrown out  as in a real food fight) . The reality is that for For Microsoft where there is some redeeming value in terms of strategic access to programming talent and cutting edge image- it could be no worse then adding to their $945 million ad budget.  Think about it, with a small $240 million investment Microsoft is not the Hip, Cool, cutting Edge, “Gets it” software company. Also don’t forget the endless press mentions and the publicity it geenrated. I would venture to say that this is probably one of their best advertising investments they have ever made.  Plus if the bubble continues they could potentially get an actual IRR on that investment. For them, For Microsoft, it is a no lose proposition. But, What is almost impossible to understand is as  the Forbes blogger Elizabeth Corcoran  http://blogs.forbes.com/meetblog/2007/10/facebook-making.html noted,  that two hedge funds invested at the same valaution as Microsoft. I ask - Who hit them on the head last night . How can this make sense from a risk reward prospective.  The numbers just dont add up. Oh one seconf I think I have a located quote from one of the Hedge Funds on this investment which could explain their thinking:  ”I don’t think this is too much to say this really is a historic … a time when we’ve transformed the landscape of media and the Internet,”  Oh, sorry my error, this is not a quote on their Facebook investment, No. Fraid not. This is a Steve Case quote on the  rationale  of the AOL Time Warner Merger. Pretty scary stuff.

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October 24, 2007 by admin.

I saw several interesting companies. Most notably there were some companies without business plans at all ( which I guess might be explainable given the nature of the event.  Interestingly, there were at least three companies that were focused on the job/resume space. I hope this is not an indicator of the most immediate need the entrepreneur’s at the conference. There was one resume company which had a particularly interesting approach which involved creating profiles of available positions- they are very early but, yet intially very interesting.  When we get a chance to talk further with the founders we will fill you in

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October 22, 2007 by admin.

I attended the “camp” today and I will have more comments in a roundup including details on my favorites. But I must say Wow . Not wow as in - this is just going to be a great time and year for startups but Wow  as in I feel like dejavue all over again. The palatable energy and enthusiasm is so obvious but, yet little business substance to match that energy . I have never been into the core of a bubble but this is surely what it must feel. Obviously some will succeed but this was an eye opener. More to come. Oh yes, one more thing - startups and web 2.0 are like any other business- they must sell products that people will pay for otherwise nobody will buy them . Quite obvious but, yet not so.

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October 21, 2007 by admin.

http://www.startupcamp.org/

We will be covering startup camp live with our unique cutting edge reviews and opinion. Stay Tuned

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October 21, 2007 by admin.

See  this article in  WSJ re decline in business lending. True it is not definitive but it gives you an idea of what we could be dealing with.  http://online.wsj.com/article/SB119301007770066437.html?mod=hpp_us_whats_news

We are heading towards a scenerio where we may just have the rug pulled out from under this market. That being said I it is hard to time the market rather, the idea is to limit risk to acceptable levels. For me we are way beyond acceptable levels when it comes to risk. ( mind you I would not have brought Google at $400 either or Apple at $100 ) So people may make gazzilions and the market could keep on going up but, that wont make me wrong. Risk is Risk. Risk does not mean automatic loss -it means possibility  of loss. And the risk is very high. As the public mkts go so follow the privates all the way down to seed.  It has happened before and it will likely happen again.

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October 16, 2007 by admin.

Its the Money Stupid ! Our Brief comments on the mortgage meltdown.

” Some of the conduct and practices that I have learned about are shameful. It is no secret that, while not the norm, some fraudulent activity on behalf of mortgage brokers occurred” This is what  U.S. Treasury Secretary Henry Paulson said earlier today.

After all the hand pounding and head wringing ( or hand wringing and head pounding) there should be secret to why the mortgage market fell apart- all you need to do is follow the money and the weakest link in the chain-  simple: the appraisers: The moment you really regulate the appraisers is the moment the bubble pops. plain and simple. easy to figure out. Without collatoral there is no loan . Without inflated appraisels there is no collatoral. Very Simple.

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October 8, 2007 by admin.

http://www.usatoday.com/tech/wireless/phones/2006-11-13-google-free-phones_x.htm

see this important article below as well- very timely !

Google Phone could usher in an era of free stuff and ceaseless advertising

A couple of weeks ago, a start-up called Google Freephone unveiled its business plan, which is to give away free  phones  in exchange for detailed personal information and the right to monitor the customers’ Internet surfing and buying practices.

As the old saying goes: Sure, FreePhone will lose money on every sale, but they’ll make it up in volume.

Now, I’m certainly not going to complain, as some observers have, that FreePhones fervent interest in its customers’ online habits represents a dangerous invasion of personal privacy. After all, blogs are given  away free in exchange for detailed personal and professional information.

In the case of FreePhone, what’s being offered in exchange for that information is a fairly powerful wireless phone with a retail value that’s probably somewhere around $400 . It’s a sign of just how far the Internet has come in the last few years that such a plan could even be credible.

The program works because each of FreePhone’s  customers represent, over a span of several years, well over $400  in online advertising and online sales revenue — enabling the company to cover its costs and have enough left over for a tidy profit.

As business tools, FreePhonewon’t be tempting to any but the most cash-strapped companies, because all that advertising and usage tracking would represent a significant leakage in productivity — not to mention competitive intelligence.

But in the consumer world, FreePhone is hardly the first company to try such a gambit. Free e-mail companies, such as Juno, offered free Internet e-mail in exchange for the right to target advertisements to you.

And there have been several experiments in free long-distance telephone service, first in Europe and lately in the United States. Using these services, you can call anyone you want, as long as you’re willing to have your conversations interrupted every few minutes by a short commercial.

Step into the Twilight Zone

Why stop at telephones, e-mail, and PCs? Imagine, if you will, a future where almost everything can be had for free, provided you have sufficient tolerance for advertising.

Picture a free metropolitan shuttle service with television-equipped buses that continuously show commercials to passengers.

Want free utilities? Someone will surely figure out a way to offer electricity at no cost, provided you’re willing to install special lightbulbs that project advertisements onto your living room walls.

Free food? It’s conceivable that someone will try to support food production and distribution through highly targeted advertisements of some kind. After all, milk cartons and cereal boxes are already covered with advertising.

For that matter, why not use advertising to support a revamped health-care system, in which insurance companies would underwrite the medical care of those people willing to tattoo the companies’ logos on prominent parts of their bodies?

Of course, in such a world, there will be no privacy or peace of mind except for those well-off enough to purchase premium goods and services. But, as Sun CEO Scott McNealy recently snapped at a conference in Switzerland, you already have zero privacy, so you’d better get used to it.

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September 26, 2007 by admin.

As reported in Pehub.com Demand Media has raised over 100 million for domain  names. That is US dollars ( not lira or some other overinflated( defleated) currency)This is on top of the over 200 million USD raised previously.  This is the release from the previous funding http://www.3i.com/media/press-releases/3i-co-leads-100m-investment-in-demand-media.html 

Essentially a super repeat of the speculative nature of domain purchasing - but on a huge scale- (think of a wholesale ticket scalping operation -which has some similarities if you think about it) I have no clue how someone makes money on a deal like this. It is true that there is more to the story because it seems that the investors are likely betting on good selling prices for domain names for  the island of Tuval in the Pacific -(which happens to be the logically popular.tv domain) which In demand has the rights to ( not sure of the terms of that)  but even more puzzling I have no clue how 320 million USD is going to produce anything near risk adjusted venture like -returns for the funds involved- even if the company is sold for 2 billion dollars in 2 years ( a 6x times venture like return) . Is is worth the Risk? Like my great grandfather once said if someone does something stupid ( and i am not suggesting that anyone is stupid here - the investors are all smart people) and nothing bad happens - it does not make him smart- This is one investment smart money would avoid. The question is time will Demand media be at the top of the chain or is it the beginning of the end- that is not a bet I would take.

One Question to ask yourself : how much would you pay for www.soyouwanna.com and sites like that.

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September 25, 2007 by admin.

Corporate VCs are back - and that is not really good news for everyone else.
here is a link to NVCA’s article on corporate VC investing-http://knowledge.wharton.upenn.edu/article.cfm?articleid=1299
(obviously originally sourced from Wharton) Remember this is supposed to be a positive article- I dont see it that way-
To be sure, there are many corporate VCs who are there in the bad and good times but seeing some old busted ones come back should make anyone nervous. Obviously there are some really smart corporate VCs

Disclaimer:  (I personally know many of the corporate VCs mentioned above and interact with them on a regular basis - of course I only know the smart ones)

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