Author Archives: Shai Goldman

iPhone Review

It took me a while to buy the iPhone as I was on the Verizon network and was waiting for my contract to expire, so I have been anticipating the day I got my phone.   I’ve had my new iPhone for two weeks now and wanted to report some thoughts on the device.

In regards to the dislikes, there are a few:

1.  I’m not able to capture video, which I knew when I bought the phone.  The lack of functionality is really annoying, given that almost every phone currently available allows you to capture video.

2.  you are now allowed to download documents to the phone.  Given that I use my phone to check my work/personal email, which includes documents such as MS Word, MS Excel, MS Powerpoint, and Adobe Reader (PDF), it really limits my productivity by not allowing me to view and edit the documents.

3.  The keyboard continues to be a challenge for me.  I’m used to using devices such as BlackBerry and HTC, which provide a physical keys, which allow me to type very quickly and accurately (compared to the iPhone).  I’ve spoken to iPhone users who have had their device for a while now and they indicate that as time passes, the speed/accuracy increases, we will see.

4.  Battery life is short.  I have been able to manage my settings on the device to allow me to extend the battery life, but the fact is that my device runs out of juice toward late afternoon/evening.

Thoe are the main negative items I have found so far, but I’m sure that a few more challenges might arrive as I use my iPhone a little more.

Rather than discussing the positives items of the actual device, I rather review my top 10 free applications.

  1. Facebook – use this every day to check updates, messages, invites, etc
  2. Twitteriffic – use this every day to update Twitter and Facebook, great tool, which allows me to upload pictures to my tweet
  3. Pageonce – use this almost every day, to check  balances on my bank accounts, credit cards, loans, etc.
  4. Pandora – use this a couple times a week, when I’m in the mood to listen to some music, great service
  5. Touch4 – for some reason I’m addicted to this game, it is old school, but still a lot of fun
  6. 12seconds – given that I don’t have video capture (discussed above), this app allow me to take 3 pictures and layer audio to it.   I guess this is as close as I’m going to be to real video!
  7. Yelp – use this a few times a week to look up restaurants and write reviews
  8. iBART – use this a few tims a week to look up the BART schedule
  9. NYTimes – I use this almost every day, to stay on top of what is happening in the world
  10. Checkers – another old school game, which I really enjoy

I’ve only downloaded a few paid apps, but as I find some that I really like, I’ll report my top 10 paid  apps.  If you know of any “must have” paid apps, please let me know.

2009 StartUp Outlook

So 2008 was a terrible year in a lot of ways, but it was a good year for startups to raise capital, except for the Q4 following the market downturn.  So how will 2009 look like for those looking to raise VC money.

The good news, VCs have raised a lot of money (new funds) the last two years, which means that many of them have sufficient capital to invest in new companies.   The VCs can’t simply stop investing all together, so checks will be written to the “right” companies.  During the last recession in ’01-’03, there was still a significant amount of VC activity; in 2002 over $4B was invested in early stage companies, 2009 should see as much, but I predict it will be more than 2002 .  Other good news, there a lot of qualified unemployed professionals who are seeking work; this is a great time to “cherry pick” some engineers, sales, marketing, finance experts.   Not only is there a breadth of talent available, but they are also willing to work for less than they did in 2008.   Lastly, the costs of starting a business continues to go down, as everyone who is providing a service is a lot more willing to reduce their cost of services.  For those startups that are utilizing hosting services such as Amazon, Rackspace, etc, this area is becoming a lot more competitive and therefore prices should go down for these services as well.

Well that is most of the good news, the bad news; IT, Marketing, Ad budgets are going to continue to get cut.  Consumer spending will be reduced as well.  Companies who need significant revenue to maintain their business, will be in a life or death situation.   For those startups who raised VCs funds in 2007 or 2008, many of them will be out of business in the next 6 months as they will not be able to bring in the revenue needed to keep the lights on and will not get additional funding for their VC investors.  Companies that have excess money to acquire startups, will be in a great situation as there will be plenty of dying companies available, it going to be a buyers market!  This is good news for startups, as there will likely be less competition and there could be an opportunity to buy IP/client base at a heavily reduced prices.   If you are raising VC money, you could factor a portion of amount raised for acquisition purposes (this is not usually in business plans, but now could be a good time to do so).

In regards to specific positive sectors areas that VCs will be looking to invest in will include, mobile, gaming, energy efficiency, life science, and SaaS related companies.

If you look at the mobile sector, the proliferation of smart phones continues as both professionals and consumers are adopting these devices at a rapid pace.   I  just read a blog post this morning about a Blackberry device selling for $20, that is so cheap!!!  The Blackberry Curve is selling for $99, which is a good deal as well for a great phone.  Even the iPhone is going down in price, you can now buy a refurbished iPhone for $99! So kids, teenagers, college students will easily be able to adopt these inexpensive devices.   The adoption of these type of devices, allows startups an additional way to reach their clients and provide an avenue for more revenue.

In regards to gaming, this is an area that continues to increase in adoption and money spent.  The pre-teen and teen generation has always adopted gaming and this will continue.  There are GenX/Y and baby boomers who are gamers, but there is still a substantial percentage the historically have not been interested in gaming, but are not starting to become interested with the help of the Wii, iPhone and internet based casual games.  Although the broader gaming sector is saturated with competitors, there are still areas for companies to make  money.

Cleantech investing reached the peak in 2008 (in terms of dollars invested) and most expect that dollars invested in this sector will continue at a healthy pace.  A lot of the VCs invested in solar and biofuel companies, which accounted for the largest percentage of the invested dollars.   These two sub sectors have been very capital intensive and there have been few companies which have performed as expected;  there will be some consolidation in this sector.  In 2009 a  lot more funds will invested in cleantech companies that are more capital efficient than solar and biofuel. For example, software based cleantech companies will get more interest as well as mobile/PC components that reducing heat and energy consumption, such as battery, antenna, CPU, screen related companies (which ties to the points made regarding the mobile sector).

Life Science and health related companies are not as susceptible to the ups and downs of the economy, as people need to stay healthy.   In addition, the baby boomer generation continues to get older and need more health related services.  I don’t expect to see a big change in VCs dollars in the Life Science sector in 2009.

Lastly, SaaS (Software as a Service) companies will continue to receive VC dollars.  SaaS continues to displace traditional software which was sold based on 3 year contracts, was installed behind the firewall, which caused a lengthy sales cycle.  The adoption of SaaS by large and medium sized companies will continue as traditional software contracts are expiring and are likely to be replaced with companies providing a similar solution but delivered via SaaS.

One area that is going to see a lot less VC money is consumer internet companies.  This sector has seen a lot of investments over the last several years, but has very little meanigful exits (this has been the case for most sectors).  More importantly companies in this sector have failed to monetize their userbase and unless a company has a real revenue model (beside advertising), raising VC money is going to be real tough!!!

The key to raising some money in this economic enviornment is to establish a great team and even more critical now is to have some recurring revenue (assuming you are a software/service company).   The VC money is out there, so go get it!

Gas at less than $2/Gallon

I just filled up my gas tank at a local gas station in Hayward, CA and I always use premium gas and was amazed that the listed price was $1.99!  I was wondering when was gas this cheap and assumed it has been several years, but wanted to look it up.  Well, it has been roughly three years, January 2005 was the last time gas prices were this low.

January 3, 2005:

Dow Jones Industrial Average (^DJI) was at 10, 729

NASDAQ Composite (^IXIC) was 2, 152

Unemployment was 5.2%

GDP 3%

Compare that to December 5, 2008

Dow Jones Industrial Average (^DJI) was at 8,635

NASDAQ Composite (^IXIC) was at 1,509

Unemployment was 6.7%

GDP .1% (Q3 2008 data, Q4 data not available as of yet)

July 14, 2008 was the peak of gas prices at $4.05 for regular gas based on average US prices and currently is it $1.79.  This represents a ~56% decline in gas prices in roughly an 18 week time frame!  If you compare that to the drop in market prices, it is drastically disproportionate as that decline in the stocks market (NASDAQ and Dow) is roughly 20% to 30% during the same time frame.

Since 1990, the lowest gas prices was in Feb. 22, 1999 at $.88 (that’s right, 88 cents!).  If you recall, this was during the dot.com era, so it was at time when the economy was very strong.

So, when you take all of the above information into consideration, the big question is whether or not the economy effects the cost of gas and/or is it based on the basic theory of supply and demand.   The current extreme reduction in gas prices really raises some eyebrows as demand has not been reduced that dramatically.   I agree that there is a reduction in demand, but the fact is that globally people are still driving, flying, goods are being shipped (by air/sea/ground), and goods are still being produced.  Empirical information to why gas prices have reduced sharply is hard to find.  I have read many articles as to why gas increase/decrease, but I’m usually left unsatisfied with the explanations provided and really believe the very few people truly understand the reasoning of fluctuating gas prices.

In any case, I’m enjoying the drop in gas prices and this reduction is likely to continue, perhaps as low $1.05 (as was the case a few months following the terrorist attacks on 9/11/2001).

Some of the data provided via these links:

http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_history.html

http://www.bls.gov/

SDForum Event Recap

Yesterday I organized and moderated an event on SaaS/Cloud Computing.  The event was through SDForum Venture Finance SIG, which I’m a co-chair of.

Jim Lussier of Norwest Venture Partners and Ken Gullicksen of Morgenthaler Ventures we part of the event.  In addition, there were four pre-VC backed companies who provided a 5 minute product/company pitch, followed by 5 minutes Q&A from the VCs.  The presenting companies were Qlubb (consumer application), Trevaly (enterprise application), Continuent (infrastructure open source application), and TapInSystems (infrastructure application).

Some of the feedback provided by the VCs:

Jim Lussier: when looking to invest in a enterprise application SaaS company that is seeking a Series A financing, he typically looks for a company that has a complete product with 5 to 10 beta/paying clients.

Ken Gullicksen: when looking to invest in an open source SaaS company that is seeking a Series A financing, the company needs to be further along than a typical SaaS company as the company doesn’t have IP defensibility that a start up company typically has.

Jim and Ken: when pitching an idea to VCs there a few key areas you need to focus on; you need to indicate and quantify how big the market it, indicate what the pain of your customers are, and indicate why your company solves the pain and also how you are differentiated from any competitors you might have.

Jim and Ken: when indicating the market size, you should not only rely on specific figures provided by reports such as Gartner.  What they would like to see is a bottom up approach and the ability for the entrepreneur to quantify the market on his/her own.

An Auto Bailout?

This entire financial crisis is getting much worse and is far from over.  In the last few weeks there is an increasing discussion that the U.S. needs to bailout the big three U.S. auto manufactures; GM, Ford, Chrysler.  According to reports, the U.S. auto industry involves 1 out of 10 workers and that more than 3 million jobs will be jeopardy if these corporations are out of business.

Here is the issue, while these companies are responsible for so many jobs, they are doing an awful job at running their businesses and this potential bailout will not solve their core problem of inefficiency, poor performance, poor prouct quality, lack of new technology adoption/creation.  These car companies have been failing for several years now, so this is not a new challenge, but a challenge that has been significantly enhanced in the last few months.  You could argue that we are bailing out banks and other financial industries, so we should do the same with the big three.   The big difference is that the financial institutions are in an industry that was growing, have well educated and experience employees, and have mostly been acquired by other institutions.  The bailout of the financial services is really a correction for lack of federal oversight of mortgage backed securities and very loose mortgage underwriting guidelines; these two items can be corrected in the very near future.

If there is bailout of the big three auto companies, the big question is how are they going to fix the broader more complex issues?  There has to be a strategic plan that is provided to the fed indicating a drastically new approach to a long term sustainability of their companies.  They need to focus on how they are going to be investing significant funds in new technology (hybrid, fuel cell, biofuel, electic, etc).   Specifically, they need to provide a game plan on how they are going to compete with Toyota, Honda, Nissan, Japanese auto manufactures, who are continue to increase their market share in the U.S.  Based on an event I recently attended, Shai Agassi CEO and Founder of Better Place, indicated that he provided an opportunity to several U.S. auto manufactures to be involved in his company and these unnamed companies declined to participate and Nissan/Renault made the commitment and looking really smart for doing so.

I don’t believe the management teams of the big three have the vision and aptitude to turn their companies in a new direction in a short amount of time.  If we do bailout these companies, it will certainly help our current financial condition by providing a bandage, but will not solve the multitude of problem these auto companies face and the money they might receive will certainly not solve their main challenges.

A long term solution for the more than 3 million auto employees: bailout funds need to fund training for the soon to be laid off auto employees to translate their current skill set to other manufacturing positions in other industries, specifically, solar (panels), wind (turbines), and electric utilities (new smart/automated grid).

Declining U.S. market share and increasing foreign market share:

http://www.usnews.com/blogs/flowchart/2008/6/9/how-toyota-could-become-the-us-sales-champ.html

U.S. Market Share by Manufacturer

May 2007 May 2008
GM 23.8% 19.3%
Toyota 17.2 18.4
Ford 16.5 15.4
Chrysler 12.8 10.7
Honda 9.3 12.0
Nissan 6.0 7.2
Hyundai 4.6 5.6
BMW (includes Mini) 2.0 2.3
Volkswagen (includes Audi) 2.0 2.2
Mercedes (includes Smart) 1.4 1.8

Why should I move?

I recently met with a company based in Southeast US and we started discussing that challenges the company might have in raising capital from Venture Capital firms.  Part of the dialogue revolved around the fact that the company is not in a “convenient” location for the VCs.

If you look at which geographic areas that most Bay Area VCs invest in, it is primarily in the Bay Area, followed by Southern California and Northwest US (Seattle and Portland).  The company indicated that they would like to stay in the Southeast as the cost of labor is much more cheaper than the Bay Area and it would not be financial wise to relocate to the Bay Area.  The team indicated a willingness to fly to the Bay Area for board meetings, but my feedback to them was this would not solve their geographic “challenge”.  The fact that a VC needs to get on a plane and fly out of the area make it very inconvenient, which is understandable.  However, the broader issue I believe is primarily a mental barrier, meaning most VCs would like to have the ability to meet with the team at any given moment and not having this option is a challenge.  The fact is, many VCs don’t spend a lot of time physically (besides board meetings) in front of their portfolio companies, majority of the communication is done via email, phone, skype, etc.   That being said, companies that are seeking funding, need to be close to the money.

The are certainly a lof of VCs around the country, but the majority of VC funding is made to Bay Area companies, so if you have the ability to move the management team to the Bay Area, it is a wise move.

Monitor110: A Post Mortem

Silicon Alley Insider posted a great post mortem on well funded start up called Monitor110. A few of the key insights for me was that the company received too much money initially and management team was not focused. It is very difficult to find candid stories about failed start ups, so learn as much as you can from other peoples’ failures.

http://www.alleyinsider.com/2008/7/monitor110-a-post-mortem#slide_4