from MediaFile:
Why are cheap startups so expensive?
Starting up a Web company is never easy, but at least it's not as expensive as it used to be. Instead of buying and maintaining an IT infrastructure, as they had to do in the dotcom boom, startups now turn to cloud server services like Amazon's. Instead of costly proprietary software, OpenOffice and Google offer cheaper (or free) options. Instead of paying office rent, employees can work from home. And the viral power of social media can bring new customers with little marketing. Open-source projects and the durability of Moore's Law promise to lower costs even further.
But if it's cheaper than ever to fund a startup's growth, why are some Web companies receiving hundreds of millions of dollars in financing? And why are valuations rising quarter after quarter, to the point where some venture capitalists are complaining that certain startups have simply gotten too expensive to invest in? How is it that Web companies are becoming both cheaper and more expensive? Are VCs valuing companies on fundamentals, or following the market's momentum?
Such questions might seem academic, except that the gap between startup costs and valuations keeps widening. The last six months alone have seen a surprising number of nine-digit venture rounds. In July, Airbnb, a home-sharing startup that had 130 employees, raised $112 million in a round that valued the company at $1.3 billion. A week later, Twitter, which had 600 employees, raised $800 million (half going to cash out early investors), valuing it at $8.4 billion. In October, online-storage company Dropbox, another small company of 70 employees, said it raised $250 million in a round valuing the company at $4 billion. And just last month, group-buying company LivingSocial closed a $176 million round, vowing to raise an even larger amount in the coming months.
There are two key reasons for such outsize venture investments – one strategic and one emotional. The strategic is that startups that have built a loyal customer base and strong word of mouth often solicit big investments to scale up in a nascent or highly competitive market. So, for example, Airbnb is building on its early success to expand internationally and bring in more users. And LivingSocial is looking for a bigger share of a group-buying market that once belonged to Groupon.
“There's not a lot of value in second place,” Ryan Moore, a partner at Atlas Venture in Cambridge, Massachusetts, told Reuters. “If you have an interesting model, you spend aggressively and build aggressively to win in your category. There are a lot of situations out there where people are betting big.” In accepting a large investment round, a small startup may be banking on ambitious growth, or even preparing against the risk that the capital markets may slow down.
The second, more emotional reason is that these companies are raising all that money simply because people are willing to give it to them. This is especially common in early rounds, where valuing a startup relies less on metrics. As a result, the correlation between what it costs a company to grow successfully and what investors decide it's worth has become looser, especially in Internet startups.
“You have companies raising far more money than they know what to do with, simply because valuations are high,” says Josh Goldman, a partner at Norwest Venture Partners. “They can raise money now – and put it away for a war chest or for future needs that they can't even anticipate now – because investors are tripping over themselves to give it to them.”
from MediaFile:
The Life of Jack: Twitter/Square co-founder details his grueling workweek
Managing a fast-growing tech start-up is not a job that everyone is cut out for.
Managing two of today’s hottest start-ups simultaneously? That’s a feat that could overwhelm even some of the corporate world's biggest egos.
Somehow, Jack Dorsey, the co-founder of microblogging service Twitter and mobile payment company Square, is managing to pull it off, putting in 8 hour days at each of the two companies every day, without collapsing into a pile of jello.
How does he do it?
Dorsey, who serves as Chairman of Twitter and CEO at Square, shed some light on his double-duty worklife during a talk at the Techonomy conference in Tucson, Arizona on Sunday.
The key, Dorsey explained, is to “theme” his workdays, with each day of the week dedicated to specific matters. Below is the schedule of Dorsey’s grueling workweek, as explained at the conference:
Why do customers shop at local small businesses?
– Stephanie Rabiner is a contributor to FindLaw’s Free Enterprise blog. FindLaw is a Thomson Reuters publication. This article originally appeared here. –
Despite hard times and shrinking profits, Americans still shop at locally owned, independent retailers.
A new small business survey from American Express polled 1,000 consumers aged 18 and older. Ninety-three percent of respondents believe that it’s important to support local small businesses. And on average, they spend about one third of their monthly discretionary income at these stores.
How can you capitalize on this information?
Survey respondents primarily shop at small businesses because of friendly employees and product knowledge.
Additionally, 87 percent of respondents share favorable opinions about a business, while only 69 percent share negative feedback. The majority use word of mouth and social media. Only 13 percent use sites like Yelp! and Citysearch.
Do you already have the right employees with the right knowledge? If so, the small business survey seems to suggest that you should work on peer-to-peer advertising. Yelp! receives a significant amount of attention these days, but social networking appears to be a better use of resources.
Ms. Rabiner,
I enjoyed reading your post and was pleasantly surprised to read that consumers still shop at locally owned, independent retailers. The links and statistics provided were especially informative such as how you stated, “in a small business survey, ninety-three percent of respondents believe that it’s important to support local small businesses.” I was even more surprised that consumers spend about one third of their monthly discretionary income at these stores. I agree that these independent retailers’ main advantages over large retail chains are friendly employees and product knowledge. There’s a book, The Loyalty Effects (a Harvard Business School Publishing) that reiterated your point and showed successful companies in any field of enterprise had one common trait—they had low employee turnover rates. Additionally, I think the ability for smaller independent stores to cross-train employees is another significant advantage over large retail chains that have employees specialized in departments. From a consumer standpoint, you want to be able to walk in the store and ask anyone in there for the help you need rather than having to be directed to the right person. An even better situation is walking in a store and knowing the person working inside on a first-name basis. This level of familiarity and comfort provides a certain amount of loyalty and trust that can often supersede lower prices. What’s your view on cross-training vs. specialization of employees?
While, these small stores have certain advantages, I also think it’s still very challenging for local owned stores to compete with the convenience level of megastores like Wal-Mart and Target where a customer can buy all their desired products (clothes, food, electronics, and more) at one store. How do you think small retail stores can compete with the convenience levels that Wal-Mart and Target stores provide, especially as they continue to expand and become even more popular? Large retail chains also have much more resources in learning about their consumers. For example, are you aware of the checkout scanners and data-mining software that provides retailers with insights into local preferences and buying behaviors? I think these types of consumer research tools would be very beneficial and is becoming necessary for any sized retail chain, large or small.
Flipboard founder on venture capitalists: “Take their money”
– Connie Loizos is a contributor to PE Hub, a Thomson Reuters publication. This story originally appeared here. The views expressed are her own. –
Many entrepreneurs privately disparage venture capitalists as egoistic, autocratic, and increasingly unnecessary. Not serial entrepreneur Mike McCue. He believes in VC.
Case in point: McCue’s newest startup, Flipboard, a 20-month-old iPad application that transforms social media feeds into an elegant, print-like magazine. Though the Palo Alto, California-based company has yet to develop a business model — McCue is contemplating running full-page ads and allowing publishers to charge subscriptions to their Flipboard-rendered content — Flipboard has already raised $60 million in venture capital from Kleiner Perkins, Index Ventures, and others.
One can certainly see what some of the excitement is about. Thanks to the work of company’s 40-odd employees, Flipboard is a slick product. Nevertheless, when I asked McCue earlier this week if he knows how many people use the application on a daily basis, he answered, “Yes, I do,” laughed politely, then offered some metrics that Flipboard prefers disclosing, including that the app has been downloaded 2.8 million times, and that every month, people “flip” between 400 million and 500 million pages.
The numbers suggest some meaningful engagement, but McCue’s confidence in his ability to turn Flipboard into a billion-dollar company seems closely bound to his track record with his investors.
McCue and Index Ventures’ Danny Rimer speak each other’s unspoken language fluently. Two times in the past, Rimer has pulled out his pen and written McCue his first check with nary more than a cursory description of McCue’s plans for the money. “It’s great to have people who believe in you,” said McCue.
Meanwhile, McCue is so tight with Kleiner Perkins that when he was appointed to Twitter’s board last December, many assumed his role was to serve as Kleiner’s inside man. (Late last year, Kleiner led a $200 million Twitter round but couldn’t take a seat on the company’s board because of conflicting investments.)
Entrepreneur Peter Yared: Social is “so over”
– Connie Loizos is a contributor to PE Hub, a Thomson Reuters publication. This story originally appeared here. –
Entrepreneur Peter Yared doesn’t mince words. In April, after TechCrunch misreported some of the circumstances around a Facebook employee’s termination, Yared wrote a widely read post titled “Why TechCrunch is Over” in which he called its founder, Michael Arrington, “insane,” adding that it “must be hard to live amidst a rapidly declining site.”
In more recent posts, Yared has called Twitter “primarily a broadcasting platform with very few active users” and unusable for “normal people.” He has also suggested that if he were to start a company today with either entrepreneurs Mark Pincus, Evan Williams, or Mark Zuckerberg, he’d go with Pincus “given what we now know” about Williams and Zuckerberg. (Both have been accused of elbowing their early co-founders out of the picture.)
It’s no surprise then that Yared — who has founded and sold four companies, including to Sun Microsystems, VMWare, and Webtrends — is very fun to chat up. I caught up with Yared recently. Our conversation has been edited for length.
You recently wrote at length about how Twitter could improve the customer experience, as well as make money. The company seemed to only half-kiddingly offer you a job afterward.
(Laughs.) Yeah, they were (very nice to me) for a while there.
Your advice was fairly comprehensive. What did you leave out, if anything?
Google is building cars and a number of other things. However, they are also making a strong attempt to enter the social space…and aside from the rather poor launch of the Google+ I really think they’ve got their concept nailed this time. If this turns out to be true, they have a strong chance at being the next big social media company.
To get the details read this article http://bit.ly/lTJS3l
Al Jazeera boss tops innovators list
When former Egyptian president Hosni Mubarak cut off the country’s Internet in an attempt to silence the media, Al Jazeera got creative and began broadcasting via cellphones and reporting through social networks such as Facebook and Twitter.
This kind of lateral thinking thrust the “Arab CNN” into the global spotlight and landed its leader – Wadah Khanfar – at the top of Fast Company’s 2011 list of “The 100 Most Creative People in Business”.
“We think a lot about who’s going to be No. 1,” said Fast Company executive editor Rick Tetzeli, noting Khanfar’s selection, ahead of innovative leaders at Apple (Scott Forstall, No. 2) and Google (Sebastian Thrun, No. 5), is a testament to the Al Jazeera editorial director’s unorthodox approach to news.
“He had done something over the last year that was very current, very public and really astounding when looked at by an American audience that doesn’t get to see what he does much on television,” Tetzeli said.
Rounding out Fast Company’s top 10 are: Russian venture capitalist Yuri Milner (No. 3); Twitter and Square founder Jack Dorsey (No. 4); Chinese fashion designer Guo Pei (No. 6); social entrepreneur Sal Khan (No. 7); physician Jim Yong Kim (No. 9); Huffington Post founder Ariana Huffington (No. 10) and late-night TV host Conan O’Brien (No. 8).
“We believe that anybody can learn from anyone in whatever industry they’re in,” said Tetzeli, who fought for O’Brien’s inclusion in the top 10 and believes the comedian’s experience leaving NBC to start a new show on TBS is relevant to anybody trying to rejuvenate their career. “I think more people are open to cross-disciplinary learning than they have ever been.”
Fast Company’s list (www.fastcompany.com/100), which hits newsstands May 24, will likely be just as talked about for whom it omits, and Apple fanboys are sure to voice their displeasure at the absence of Steve Jobs.
Entrepreneur’s tweet sparks fight with angels
– Connie Loizos is a contributor for PE Hub, a Thomson Reuters publication. This article originally appeared here. –
Last month, entrepreneur Matt Mireles published a tweet, asking: “Why is TechStars NYC run by a non-entrepreneur?”
The “non-entrepreneur” in question is 29-year-old David Tisch, whose grandfather built Loews into a Fortune 100 company that operates hotel chains, and whose family’s largess has helped bankroll numerous institutions, including the Tisch Galleries at the Metropolitan Museum of Art, and the Tisch School of the Arts at NYU. Since 2007, the young Tisch has been seed-funding startups with his brothers. According to his LinkedIn profile, he has also started two Internet companies, both of which were shuttered in less than a year’s time.
Surely, Mireles isn’t the first to wonder whether someone with Tisch’s background can fully appreciate the challenges that struggling entrepreneurs face. But the New York angel community’s reaction to Mireles’s apparently sincere question was surprisingly harsh. “I would recommend reserving judgment until you meet and know someone before you insult them publicly and passive-aggressively,” tweeted Chris Paik of Thrive Capital, a seed-fund in New York. Josh Stylman, an entrepreneur and seed investor who has stakes in Betaworks and GroupMe among other startups, called Mireles a “judgmental d**chebag” on Twitter.
Other comments were milder although somewhat defensive. “David is one of the good guys,” tweeted Hunch co-founder Chris Dixon, who is also a member of the seed-stage investment group Founder Collective. (Tisch smartly declined to weigh in, at least publicly.)
That something legitimate should cause so much consternation and trash-talking is concerning. Angel investors often claim that they provide an alternative to the rigid orthodoxy of venture investing. Collectively bashing an entrepreneur who dares to pose a reasonable question is more than unseemly: it’s as provincial as the herd mentality that many angels commonly associate with Silicon Valley VCs. No wonder Mireles fears his public smack-down could stifle other entrepreneurs from speaking openly about their opinions. As he told me yesterday, any entrepreneurs who “witnessed this little episode [will] be more afraid and less likely to call bulls**t when they see it.”
Maybe Mireles doesn’t get much respect because his startup, SpeakerText, a transcription service for Web audio and video, isn’t setting the world on fire. SpeakerText recently raised more than $600,000, including from Lotus founder Mitch Kapor and Dave McClure’s 500 Hats, but it’s still eking out revenue by charging $2 per minute for the transcriptions. In fact, Mireles is still rooming with his co-founder.
why would an entrepreneur take the time to run a convention. These people are driven to take big risks and build big things.
They also tend to fail; a lot.
From an economical perspective of reward for time investment, do you really want them running a convention? Do you want to attend a high risk high stakes convention?
Can you imagine a professional convention where you where all talks are limited to 5 minutes, where everyone gets a microphone, where the speakers in the room come from some brilliant but random pool, where lunch ends up being a potluck? entrepreneur like to do new things, so don’t expect to see something that has been done before.
If you want a predictable, well organized convention, get an administrator. Don’t get an entrepreneur.
Tax incentives for moving into blighted areas
– Stephanie Rabiner is a contributor to FindLaw’s Free Enterprise blog. FindLaw is a Thomson Reuters publication. This article originally appeared here. –
One of the bigger stories out of San Francisco of late is Twitter’s planned move into the Tenderloin — a blighted area riddled with shuttered restaurants, graffiti, and crumbling facades.
Considering a move into the suburbs, Twitter managed to brokerage a deal with the city wherein it promised to move into the Tenderloin if the city would provide tax breaks.
While the majority of the debate in San Francisco was about gentrification, the fact of the matter is that sometimes, if it cleans up an area and increases safety, gentrification is a good thing.
It can also be good for business.
Twitter is a large company with a decent amount of pull, but that doesn’t mean that you can’t benefit from moving into a blighted area as well.
Cities and states across the country are trying to figure out how to increase economic development in areas that have been hit hard, and many of them are turning to tax incentives.
Mcbride: if we decide on less government than we give less money to the rich! How’s that sound! Vote for those that will most likely give us less government!
An entrepreneur takes on LinkedIn – and Facebook
– Connie Loizos is a contributor for PE Hub, a Thomson Reuters publication. This article originally appeared here. –
Entrepreneur Rick Marini has a lot to be thankful for, including smart, connected friends who’ve supported him in the launch of two of his businesses. The most recent of these is BranchOut, which leverages Facebook to help people find business connections and that has an enviable list of backers and advisers.
Marini may soon need them more than ever.
The 38-year-old entrepreneur first benefited from close ties when he and his best friend from Harvard Business School, James Currier, created Tickle back in 1999. The company — which raised $9 million, mostly from August Capital — leveraged viral marketing to become an immensely popular purveyor of intelligence, matchmaking, and personality quizzes. It sold to the jobs colossus Monster in 2004 for roughly $100 million.
Marini’s friends have more recently come to his aid with BranchOut, a 20-person, San Francisco-based company that started life as a social entertainment site called SuperFan in 2008. The bootstrapped service struggled until last summer, when a friend of Marini asked for an introduction for a sales lead to a company. As Marini recalls now: “I couldn’t remember who in my Facebook graph worked for that company and typing in the company name took me to its Facebook fan page.”
Marini asked one of SuperFan’s six engineers to create a widget to solve the problem. Four weeks later, BranchOut was born. Accel quickly lined up to lead its $6 million Series A, along with Norwest Ventures and Floodgate. Marini also assembled more than a dozen angel investors, including Ben Ling, a Googler who leads the monetization efforts of YouTube; Twitter product manager Josh Elman; Path founders Shawn Fanning and Dave Morin; and Matt Mullenweg, the founder of WordPress.
Managing elephant-sized social media blunders
Global brand strategist Jonathan Salem Baskin can’t help but scratch his head over the rationale behind the controversial social media dispatch from GoDaddy founder Bob Parsons. The flamboyant CEO sparked a backlash recently when he posted a video link to his elephant shoot in Kenya Zimbabwe.
Baskin offers the following advice on how small businesses can prevent or manage social media blunders.
Q: Are social media posts pertaining to a business owner’s non-business doings relevant to consumers?
A: It is a sideshow. Just because there’s (social) media that helps blur those things doesn’t mean you have to fall for it. YouTube doesn’t care if your employees humiliate themselves. The stupider you are, the happier these platforms are because it creates buzz and traffic. You don’t make any money from that.
Q: What about the old argument that no press is bad press?
A: That’s a cliché quote from 50 years ago. If anything, it’s either at best neutral and at worst it turns people off. Aren’t half the people in America women? The last time I checked — so he’s already writing off half of America with his (prior) stupid shenanigans. Now he wants to write off anybody who loves animals. What is the attention good for?
1. This was not a social media blunder. This was actually a social media success. You need to look at the success of the results: http://wp.me/p1hiro-jn
2. This video was likely faked. You never, ever see an elephant in the whole video: http://wp.me/p1hiro-jt
