Tag: investment

Finding the smart money

Can events like Sydney’s AngelEd and London’s City Meets Tech help those cities become global startup centres?

Around the world startup communities are working to connect with local investors, in Sydney and London two groups are showing how it is done.

“We’re looking at turning idle money into start money,” is the aim of Sydney AngelEd says one of its founders, Ian Gardner.

Fitting startup companies’ capital needs into the established criteria of investment managers is an ongoing problem that AngelEd’s founders want to resolve. “We see startups becoming an asset class,” says Gardiner.

AngelEd, to be held on November 7, aims to educate high wealth investors and asset managers on understand the risk, benefits and hype around angel investment, particularly in tech companies.

The global search for funds

Startups around the world are struggling to engage with investors – in London, the local tech community has set up City Meets Tech to introduce British investors to high growth companies.

London should have an advantage in this field given its leading role in the global finance industry, however the challenge for the tech community is to find financiers who are prepared to accept higher levels of risk than mainstream investments.

“The City is generally risk adverse and doesn’t understand tech and tech start-ups,” says the City Meets Tech website, “though really it’s about understanding the business and managing risk though unfortunately innovation requires at least some risk.”

Australia’s trillion dollar superannuation system should similarly give Sydney an opportunity that to become a global centre however it suffers from a similar, if not worse, conservative investment culture to London’s.

Turning Sydney into a global finance centre has been an objective successive state and Federal governments for twenty years but the sleepy, comfortable and risk averse culture of Australian fund managers offers little to attract foreign investors or companies.

Much of Australia’s is problem is the insular nature of local fund managers with all but a tiny part of the nation’s retirement savings being put into the top local stocks, listed property funds or domestic infrastructure projects that are notable for their lousy returns and extortionate management fees.

Breaking that mentality is going to be the key to both AngelEd and the Sydney’s success as a financial centre.’

Competing with the world

While London and Sydney are struggling with the challenges of encouraging investors into the high growth sectors, cities like Singapore and New York are developing investor communities that are attracting entrepreneurs to their cities.

Many governments dream of being the next Silicon Valley and while it isn’t likely anyone can recreate the circumstances that led to Northern California becoming the computer industry’s world centre , a vibrant and accessible capital market will be necessary for any place hoping to be a global cnetre.

For Sydney and London, the success of initiatives like AngelEd and City Meets Tech may be critical for both centres’ future in the global digital economy.

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Venture capital investors as mentors

Early investors bring more than money to a young business

LinkedIn founder Reid Hoffman has a wonderful post on his blog detailing what he wished he knew when he first pitched his business to investors.

His seven myths of pitching are well worth reading whether you’re seeking capital from Silicon Valley venture capital firms, a sceptical bank manager or your mum and dad.

The first point is the most pertinent — a successful financing process results in a partnership that delivers benefits beyond just money.

Raising investor funds is only a step in the journey of creating a successful business, it is by no means the end point.

Hoffman’s point is something every business founder needs to keep in mind, those early investors are important mentors and their advice could prove to be more valuable than the money they bring to a venture.

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Valuing Twitter

How does Twitter compare to Facebook and Google when they were floated?

Now microblogging service Twitter has released documents ahead of a stock market float, it’s possible to start looking at the viability and stock market valuation of the company.

When Facebook’s float was first mooted in early 2011, we looked at how the social media service stacked up against Google a decade earlier. The question was ‘is Facebook worth $50 billion?’

The stockmarket answer was resounding ‘yes’ despite an initial fall that saw investors face a 50% loss in the early days of Facebook being a public company. Today the stock has a market valuation of $122 billion, with an eye popping price/earnings ratio of 122.

So how does Twitter stack up at the valuations being discussed? Quite well it appears when we put it against Google, Facebook and LinkedIn.

Company Google Facebook LinkedIn Twitter
Market Cap 288 123 27 13
P/E 25 288 901 29

For Twitter, the real challenge is making money from the service and their latest idea is marketing the service as an essential companion to watching TV.

The discussion over how Twitter makes money exposes another problem for the service in it has no obvious revenue stream which makes comparing the platform to Facebook or LinkedIn rather problematic.

Facebook has advertising while LinkedIn has premium subscriber services both of which are problematic.

Not having an obvious revenue model may not turn out to be a problem – as LinkedIn’s P/E shows – and Twitter’s founders are probably more likely than anyway to be the digital media industry’s David Sarnoff.

It may be Twitter makes its money from giving advertisers, marketers and others access to the massive stores of data the company is accumulating.

Whatever way it turns out, Twitter’s going to be the hot IPO news for the tech industry for the rest of the year. At current prices, the investors will be lining up to buy the stock.

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Big Data needs big databases

Investors are making big bets on the databases that underpin Big Data

While the tech industry’s startup hype this week has been focused on the impending Twitter Initial Public Offering, a much more fascinating company quietly completed a major capital raising.

MongoDB provides an open-source, document database program and last week raised another $150 million from investors that values the company at $1.2 billion dollars.

Databases lie at the heart of Big Data and businesses need better computer programs to manage the overwhelming amount of information that’s pouring in every day.

As every business is unique, larger corporations find they spend huge amounts of money on their databases. The enterprise that buys an Oracle, IBM or SAP system usually spends tens, if not hundreds, of millions of dollars in adapting the system to work for them, often with less than spectacular results.

While implementing MongoDB or any other open source program doesn’t eliminate implementation costs, it is often easier to setup and maintain as most of the information about the system is shared and freely available rather than locked inside the vendor’s proprietary knowledgebases.

Probably most important of all, the data structures themselves are open so customers don’t find themselves locked into a relationship with one vendor because all their information is in a format that can only be read by one system.

Open source is where Big Data, social media and cloud computing intersect – without the data itself being open and accessible, most cloud computing and social media services will almost certainly fail.

So MongoDB and the other open source products are the quiet, back of house technologies that keep the internet as we know it ticking along.

Bloomberg Businessweek reports there’s some very serious investors in MongoDB.

The deal attracted new investors such as EMC Corp. (EMC:US) and Salesforce.com Inc. (CRM:US), along with previous backers Red Hat Inc. (RHT:US), Intel Corp. (INTC:US), New Enterprise Associates and Sequoia Capital, according to MongoDB.

Sequoia Capital are one of the longest lasting Silicon Valley venture capital firms whose greatest success was being one of the first investors in Apple Computers and New Enterprise Ventures have a similar pedigree with companies like 3Com, Juniper Networks and Vonage. Investment by industry leaders like Intel, Red Hat, Salesforce and EMC in the company also shows MongoDB isn’t the standard Silicon Valley Greater Fool play.

When there’s a gold rush, it’s those selling the shovels who make the big money and the investors in MongoDB and similar services are hoping they’ve found some of the modern day shovels.

That may well turn out to be the case and while the smart folk make more money from the technologies that drive social media and cloud computing services, the rest of us are distracted by the latest shiny thing.

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Death of a typewriter repairer

The tale of two shops shows how change threatens to overwhelm many small businesses.

Despite owing his longevity to cheap scotch and strong tobacco, the US’ oldest typewriter repairman passed away two weeks ago. The fate of his shop is one that many other small businesses will share.

Manson Whitlock of New Haven, Connecticut had run his typewriter shop from the early 1930s until shortly before his death. Needless to say, he didn’t like computers.

“I don’t even know what a computer is,” Mr. Whitlock told The Yale Daily News, the student paper, in 2010. “I’ve heard about them a lot, but I don’t own one, and I don’t want one to own me.”

While Manson’s shop had six staff at its peak, in recent years he ran the operation on his own and the business died with him.

Many Baby Boomer business owners face the same fate as Manson Whitlock as their businesses decline in the face of changing technology and shifting change.

Some of the boomers will suffer because they are undercapitalised and, as the next generation of entrepreneurs can’t afford to buy these existing business, most of those will work way wall past the date they planned to retireme.

A good example of this is a radio shop near my office which has been run by an old gentleman for many years. When I went into it in 1997 for something – I forget what – the proprietor was almost shocked to see a customer and he couldn’t help me.

It wasn’t surprising as it was rare to see a customer and the none of the stock behind the cluttered counter seemed to date beyond 1980.

The only reason the shop survived was because the proprietor owned the premises as there’s no way the place could have paid the modern rents with the non-existent turnover.

A few weeks ago the shop closed. I don’t know whether the owner retired or passed away, but the business closed with him.

Both the Neutral Bay electrical shop and the New Haven typewriter repairer show how businesses can be left behind by technology.

While both stores had plenty of time to react during the rise of computers during the 1980s and 90s, their proprietors chose not to and by the 2000s it was too late.

Today, technology and business is changing even faster and there’s many more big and small enterprises that risk being left behind by change.

It’s not only the changing market place that risks the future of these business, the failure to invest in things as simple as modern Point of Sale systems or even a basic website will leave many exposed.

The time to invest in new systems and products is now and if you can’t invest in the future, then it’s time to get out.

neutral-bay-radio-shop

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A startup’s journey – what businesses can and can’t learn from Silicon Valley

There’s a lot small business can learn from the tales of Silicon Valley startups, but not every lesson applies.

Tech Crunch has a fascinating story on the journey of failed startup, Los Angeles based Flowtab that hoped to create an bar tab smartphone app.

In many ways Flowtab is a story of our bubble economy times – a cheap, easily built service that addresses what is, at best, a minor first world problem.

Flowtab failed when it turned out solving that problem was a lot harder than just writing an app, which is something often overlooked in the current startup hype.

However had the timing of Flowtab’s founders been a bit luckier they could have hit the jackpot.

Dave Winer describes the herd mentality of venture capital investors and had the hot trend of the time been bar ordering apps then the Flowtab team could have been one of the beneficiaries of the Silicon Valley business model.

Along with being a historical insight into today’s investment mania, Flowtab’s story is an illustration of how a new business needs to pivot when the original idea turns out not to be as compelling as the founders first thought.

Even when a business does a pivot, it’s not guaranteed the company will survive, but that’s part of the risks in starting a new enterprise, particularly when it’s undercapitalised as Flowtab was.

There’s many lessons from Flowtab’s failure, but not all of them apply to every business.

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Collecting tolls on the information superhighway

The failure of Melbourne IT’s management proves that clipping tickets on the internet is not always the path to riches.

The news that internet services company Melbourne IT is looking at cutting management costs and returning cash to shareholders in the face of declining revenues doesn’t come as any surprise to observers of the firm.

In many ways Melbourne IT is a historic relic, one of the last examples of the late 1990s dot com boom where management from those heady days survived unscathed by the realities of the 21st Century.

Melbourne IT story illustrates the poor management and flaw investment strategies of the big dot com float and also illustrates the risk of under-investing in key areas, as anyone using the site or the services of its Web Central subsidiary will understand.

Both companies feature clunky sites and extremely poor customer service. For resellers and customers using the Web Central command center, the experience and technology is straight out of the late 1990s.

While overseas businesses like Rackspace, GoDaddy and Bluehost innovated and invested in their platforms, Web Central and Melbourne IT sat back and how expected their dominant position would guarantee them profits.

Much of that management complacency was born out the founding of Melbourne IT when it was spun off from the University of Melbourne to exploit the then monopoly the university’s computer faculty had on granting Australia commercial domains.

In 1998, as the dot com boom was entering its most heated phase, Melbourne IT was floated and immediately attracted anger and allegations of wrong doing – none of which was proved – as the stock debuted on the stock market at four times its listing prices which generated huge profits for the insiders who were fortunate to get shares allocated before the sale.

Melbourne IT’s huge stock valuation was based on the belief the company would exploit its dominance of the critical domain market – it was similar to other technology floats of dominant players at the time such as accounting giant MYOB in 1999 and Telstra’s spin off of its small business Commander operation the following year.

All of these stock market floats proved to be disastrous as each company’s management showed they were incapable of exploiting their privileged market positions.

Of the three, Melbourne IT’s management survived longest partly because of the riches expected to flow into the company’s coffers through Top Level Domain sales as gullible government agencies and corporates being driven by a Fear Of Missing Out overpay for new online addresses.

Now it appears ICANN’s top level domain river of gold isn’t going to flow, partly due to arrogance and management incompetence in that organisation, so Melbourne IT is now going to have to cull its executive ranks.

Steadily, both Melbourne IT and Web Central have gone from being dominant to irrelevant and provide a good case study of how poor management and complacency can squander a dominant market position.

The failure of Melbourne IT’s management proves that clipping tickets on the internet is not always the path to riches, particularly when you don’t invest or innovate.

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