Feb 242015
business return on assets is falling away

Andrew Wilkinson doesn’t want to be a unicorn. In Why I want to be In-N-Out Burger, not McDonalds, Wilkinson describes how he’d rather his business is a sleek racehorse rather than a beautiful, mythical creature.

One of the misunderstandings in the current startup mania is the motivation of founders and proprietors; many haven’t gone into business with the aim of flipping the company to a rich sugar daddy for a billion dollars.

In his great presentation “Fuck You, Pay Me” – essential viewing for anyone starting a business – San Francisco designer Mike Montiero describes “We wanted to pick and choose the clients we were gonna work with and we wanted to be responsible for what we’re putting out in the world.”

For businesses like Montiero’s and Wilkinson, having a venture capital investor looking over their shoulder would be as bad as working for a corporation; ceding control of your work is exactly the reason they started their businesses in the first place.

While the Silicon Valley venture capital model is valid for high growth businesses that need capital to scale quickly, most ventures don’t need those sort of large cash injections early in their development – for many, a million dollar cheque from a VC could prove to be a disaster.

There’s myriad reasons why someone starts a venture and all of them pre-date the current startup mania, it’s why every business is different in its own way.

Jan 252015
happy guy with lots of money

“Today we have herds of unicorns,” Fortune Magazine quotes Jason Green, a partner at venture capital firm Emergence Capital Partners, in its story about startups that have achieved billion dollar capitalisations.

When the ‘unicorn’ label was coined by Aileen Lee in November 2013 it was to highlight the rarity of the beasts – on 39 existed at the time.

Today, just on a year later, there are eighty unicorns and the growth doesn’t seem to be slowing as more companies are raising funds or looking at trade sales or IPOs that will value their business at over a billion dollars.

Betting on the unicorns

Some of the business on the Fortune 80 unicorns list – like Elon Musk’s SpaceX and medical testing venture Theranos – are big, brave bets on future technologies which could prove incredibly profitable if successful. These are to today’s market was Google was at the turn of the Century.

Others, such as Xiaomi, Meituan and Flipkart, are betting on massive growth in emerging markets which China’s AliBaba has shown to be huge opportunity.

Some are already profitable and showing great potential to deliver the multibillion dollar valuations; companies like data analytics firm Palantir, developer tools vendor Atlassian and Uber are in this camp.

Many though are platform based, transaction plays that hope to clip the tickets on fields such as rental accommodation, payment systems and e-commerce. Some will be insanely successful but most have a distinct whiff of irrational exuberance about them.

Frothy exuberance

Driving that irrational exuberance is the money tsunami which has overwhelmed the financial sector since the Global Financial Crisis. As Quantitive Easing has fattened the banks’ and corporate America’s coffers, managers have sought to get their lazy dollars doing some work and the startup sector is an attractive, and sexy, place.

That influx of money has in turn has driven a spiral; as companies like Facebook have found themselves cashed up, they’ve bought more companies – Instagram and WhatsApp are the best examples of this – which in turn has increased valuations and expectations across the board.

Some of the risks in this current mania are obvious, but the question of survival when your business is valued so high becomes a pressing issue as Twitter have found with the company flailing around looking for a revenue stream to justify its fifty billion dollar valuation.

Probably the best, or worst example, of struggling to justify massive valuations is found in one of the original unicorns; Google and its YouTube division.

Monetizing YouTube

Right now YouTube is trying to screw musicians with onerous terms in return for, in the case of most artists, will be a pittance. It’s necessary for YouTube to do this so the service can capture as much value as possible to justify the rates of return demanded from its management, particularly as it’s appearing the online display advertising market is beginning to plateau.

That dash to generate revenue may become more common when investor finance starts to dry up; faced with the need to generate cashflow and satisfy the needs of impatient investors who’ve been denied a profitable exit, many of today’s unicorns could find themselves in a difficult position in a tighter VC climate.

Unicorns were once mythical creatures; now they’re real, at least in Silicon Valley, they’re going to have to learn how to fight for survival.

Jan 132015

On many measures Google are in trouble, but one analyst thinks we’re panicking and his view is the lead of today’s links of the day. We also look at how the name ‘Silicon Valley’ came about, why solar power is getting cheaper and how some startups die.

Does Google’s future lie in R&D?

“Google is down but it’s not out” is the warning of this analyst’s report on the company’s earnings and strategy. Interestingly Google outspends Apple by $4bn a year on research and development, but both of them are dwarfed by Microsoft’s spending, which indicates R&D investment doesn’t guarantee success.

The origins of the name ‘Silicon Valley’

Last Sunday marked the 44th anniversary of the first time the label ‘Silicon Valley’ appeared in print. The US Computer History Museum looks at how the name came about and no-one will be surprised it was a marketing person who coined it.

Why does solar power keep getting cheaper

A few years ago putting solar cells on a building was expensive, now in many parts of the world the price of PV panels is becoming competitive with mains power. Vox Magazine looks at the factors driving the price drops and finds that economies of scale are now the main factor affecting the falling cost of installed solar power systems.

RIP Urbanspoon

One of the earliest food review platforms was Urbanspoon which was founded on the basis it would only grow as a bootstrapped company. In 2009 the founders sold out to a larger company who have now sold it onto an Indian business who is going to shut the name down.

Startups who’ve fallen off the map

Business Insider lists 17 formerly hot businesses who’ve fallen out of the public view this year, while some of them haven’t disappeared, it’s a list that reminds us that most new businesses, particularly tech startups, fail.

Jan 022015

In the development of any global industrial hub, there’s always a series of factors that attracted talent, capital and resources to that location. It’s true whether we’re talking about fifteen century Venice or the English Midlands of the eighteen century.

Silicon Valley is today’s equivalent of those historical powerhouses and what drove California’s Bay Area to be the technological centre of the world was the massive government research spending of World War II, the Cold War and the Space Race.

Which means declining research and development spending by the United States is going to hurt the region’s position in the medium to long term, a warning made by Fareed Zakaria in The Washington Post.

So the question is ‘if Silicon Valley and the US are in decline, which will be hub of the next business and technology revolutions?’



Dec 312014

2015 will feature more boneheaded moves as over valued companies try to meet investors’ expectations, a good example is Twitter adding sponsored accounts to its lists service.

The move by Twitter, reported by Search Engine Land’s Danny Sullivan, is another attempt by the service to get revenues that justify the company’s ten billion dollar valuation. While adding little income, the move further erodes trust in the service.

Illustrating the investment mania home delivery service Instacart announced it had raised $220 million, an amount that values the company at two billion dollars.

That home delivery services are again the investment flavour of the time is a worry given similar stakes marked the peak of the first Dot Com Boom in 2000. Whether today’s equivalents are any more sustainable will be one of the questions for 2015.

Another question for 2015 will be whether Twitter can crack the magic code and justify its valuation.

Happy New Year.

Dec 292014
geeky glasses for IT workers and social media experts

It’s becoming harder to be an expert warns Entrepreneur and investor Paul Graham.

What’s worse, Graham suggests being locked in the way things currently are is the biggest risk for today’s experts as change accelerates across society.

This climate of change makes it tough for investors like Graham to identify the next big things for them to stake money on; when the experts are often wrong it’s hard to figure out whose right in picking what business or technology will be successful in a few years time.

Graham suggests betting on people, particularly the “earnest, energetic, and independent-minded” is a better way of finding the next wave of successful businesses and his views are a useful reminder that   ultimately its people who find ways to implement and profit from technology.

The paradox with the changes we’re facing is that the technology is the easy part, it’s the human and social consequences which will surprise us.

Which is why Paul Graham is right about our having to think outside the boundaries of our own expertise.

Nov 212014
different technology standards like video cassettes cause problems

One of the irritations of being in Australia is the often insular and myopic view many of the nation’s business and community leaders have.

A consequence of that insularity is that business operates at a slower pace than in more competitive markets; there could be up to a five year lag between technologies being introduced in North America, Europe or East Asia and them being rolled out Down Under.

That lag creates an arbitrage opportunity for canny local investors, this post on the Investment Biker Analyst blog illustrates the thinking .

I’m not sure about the barriers to entry for potential competitors to Digivizer because part of my view as an investor since I got back to Australia is the way the markets geography has always insulated it from quick counter-punches. Think about the way the UK always seems to be the second place North American business rolls out it’s plans for sector domination. We’ve seen it over and over again. Australia on the other hand is well down the list as the market, while affluent is at 25million quite small. Also it’s a long way to come if you have to get on a plane . . . Oh, and besides that the “Aussies” can find us themselves without investing extra start-up capital.

Mike’s model is the standard for the Aussie start community; local entrepreneur looks at the hottest businesses in Silicon Valley, sets up a minimum viable copycat, pitches to investors who put money in on the hope of making a profitable exit to a dumb local player or to selling out to the market leader when they finally decide to set up an Australian operation.

Increasingly the second option isn’t working as the big player are either moving into the market quicker, which also screws the first exit option, or the locals are asking too much for their cheap knock offs.

As a consequence the local copycats are increasingly finding themselves stranded in the marketplace.

Quickflix is a good example of the local knock offs being stranded, having copied Netflix’s business model, the company has toddled along for a decade with its movie and entertainment delivery business and now faces Netflix starting an Aussie operation.

With a formidable competitor entering the marketplace, Quickflix is frantically trying to shore up its defenses, having made a $5.7 million capital raising and committing to cut costs.

One suspects though this will be nowhere near enough to build up defenses against Netflix, incumbent cable operator Foxtel, fellow steaming service Fetch TV or the bizarrely named and probably doomed Stan service setup by an uneasy coalition of fading old media companies.

In an increasingly connected world relying on the tyranny of distance to protect your business is a losing game, something that many Australian companies and investors are yet to learn.

Then again, as long as the coal trains keep running, maybe Australians don’t have to worry.