Archive for May, 2006

Rise of incubator 2.0?

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on May 30, 2006
in start-ups, technology and vc
. 25 Comments

Lot’s of mention lately about new seed investment and incubation firms popping up which confirms some of what I already felt. Here a few of the latest tidbits:

  • Internet entrepreneur Phil Cooper, founder and CEO of Utarget PLC, today launches a new internet incubator, Utarget Ventures. Designed to assist dot.com start-ups with financial backing, online and offline expertise, the new incubator has already secured its first client, Ultimatehome.co.uk.
  • Adaptive Path, the cutting-edge Internet consulting and design firm that has helped define Web 2.0 (and developed the term “Ajax”) said today it has agreed to provide Sierra Ventures’ portfolio companies with consulting services in exchange for equity.
  • After nearly 20 years as a venture capitalist, Kathryn Gould is now investing her own money backing a select group of entrepreneurs who have “big ideas, frugal attitudes and serious intent to win at whatever they’re doing.”
  • Denuo from Publicis launches an incubation type service.

Why all the fervor? I think it’s because people are seeing that interesting platforms can be built quickly and with less money than ever before. Also, some investors, VCs (and entreprenuers) can see that these types of services may give new start-ups a competitive advantage over other venture capitalists who are courting consumer Internet startups. In our case, it seems lately we put about 80% focus into finding and developing our own ideas. That percentage could change as we’re constantly on the lookout for great new companies. We originally thought we’d invest more passively than we are actually apt to do. We see now that our ideal scenario is to get some smart folks with a good idea who find us early enough that we actually become part of the team on a deeper level. I can see that most of the companies we meet with need help in several areas to include business and financial modeling, product scoping and development market positioning, web, print, etc. Mostly, they need help being told what NOT to get excited about. What NOT to focus on. I really cannot overstate this enough. We have met with several very, very smart former Microsoft and Amazon execs over the last few months and the one thing that I believe happens frequently is a propensity to get caught up in the mechanics of the start-up. People get excited about meetings with VCs. Doing VC pitches isn’t a glory ride. The reality is that you can get those meetings one way or another. But most will not pan out. You’ll spend hours working on powerpoint decks only to realize later that you probably should have spent more time early on perfecting the product or service you want to bring to market. The product has to be better…not the powerpoint deck. The number of customer meetings has to be higher…not the number of VC meetings. If the product is further along and the prospect list is growing then maybe…just maybe…some of these so-called incubators might really be onto something. What you really need in the early days is less money, a lot of feedback, advice AND a ton of elbow grease injection from other smart people. Incubators can provide this. Most VCs aren’t well equipped to help you bootstrap your business when its not even on first base.

The other thing to add here is that not all VCs are the same at all. Some local firms (like Frazier take the attitude that rolling up the sleeves and getting in the trenches is just part of the job. I haven’t personally worked with them before but I know a few of the partners there and I know how much time they do spend on the investments they do make. So, if an incubator is doing their job, they can help guide a start-up to the right profile of VC when its time to take that step.

I’m going to keep watching this emerging space of Incubation 2.0. I think this second time around some of these firms might just provide exactly the right kind of value for aspiring entreprenuers.

Web 2.no

Published
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on May 18, 2006
in start-ups
. 570 Comments

There has been an interesting discussion going around about the web 2.0 hype and whether or not the latest ‘wishlist-bookmarking-socialnetwork-likeFlickr-but-better-than-myspace’ is really ever going to appeal to a mainstream audience. I think I know the answer. What rhymes with “2.0″? 2.No

Lately, we’ve looked at a lot of companies. We are small so we really want to find something special. Of course, things like valuation and other matters complicate these things but the fact remains that much of what I’ve seen lately has already been done ‘well enough’. I do think timing is everything but first movers have a big advantage. Consider 43things.com It would be silly to launch something called 44things.com with a goal that 1 more than 43 is just a little bit better. Or, thinking that launching a 43things in another language would be an interesting business idea. It isn’t.

I think that timing has a lot to do with these issues. At the time, 43things was a fairly innovative and interesting concept. I have absolutely no idea if its a good business but at least a lot of people play with it and thats a start. At the time, there really was nothing quite like Flickr. Building an online community around images was actually a fairly new idea. At least, nobody had done it well before. But, I have no idea why someone would necessarily think that a Flickr clone is a good business. I don’t have a crystal ball so it could all work out very well in the end but if you had to guess…

But things aren’t quite so simple. Context is also important. In the case of Zooomr, it was basically developed by 1 guy. Ok, so now a Flickr clone may not be so dumb after all. It might have been dumb for an angel to pump $500,000 into the idea beforehand but that doesn’t seem to be the case here. In the case of Newsvine, you could have argued that it wasn’t necessary because things like digg already existed. That’s true but on the other hand, Newsvine is playing to a very mainstream audience with a reasonably sensible mainstream product. Everyone gets the concept of news portals. Not everyone gets the idea of maintaining a list of life goals on the internet. I do think we’ll look back on a lot of web 2.0 wreckage. But here’s who I think will survive:

Those with real hardcore intellectual property (like JotSpot) are destined to survive.
Those who are paranoid about spending (FeedDigest.com) can survive.
Those who are good at marketing will survive (e.g. not geek-only shops).
Those with meaningful industry relationships at high levels can survive (by acquisition if necessary).
Those who were first in their category with an original concept that people have already validated should survive.

Oh, and I’d say that those who don’t confuse press on TechCrunch with business viability are a step ahead of the game.

What of Digeo?

Published
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on May 12, 2006
in inspiration and technology
. 56 Comments

It’s been some time since anyone talked about Digeo - a company that Paul Allen has been financing for a long while now. They actually released a pretty interesting product for the cable market which had one of the most innovative electronic program guides (EPG) that industry had yet seen. Even by today’s standards, their EPG is a more compelling product than the software running in most cable subscribers homes including my own. Yet, the company has had a great deal of management turnover over the years and hasn’t been able to make significant inroads into IP television. Where have they gone wrong? What happened?

When Digeo started out, they correctly determined that a) set top box middleware can be more immersive and b) more powerful set top hardware and chipsets would become economically feasible. When that happened, they knew they could develop a range of addicting applications such as photosharing, jukebox and in-home networking. The problem, quite simply, has been that:

1) The company overestimated their ability to fracture the cable monopolies in a more significant way
2) They overestimated their ability to transition their technology into the IPTV marketplace
3) They didn’t have enough team members that were deeply entrenched in these newer markets

Cable systems are based on radio frequency distribution. These days, its demonstrated that its possible to convert an analog cable signal to digital and transmit it in a standard 6-MHz television channel. Using MPEG compression, CATV systems installed today can transmit up to 10 channels of video in the 6-MHz bandwidth of a single analog channel. Yet, digital cable isn’t the same thing as IPTV. Digeo had a significant opportunity to become the dominant player in the IPTV market because they were a going concern before the first IPTV deployments went commercial. However, Digeo did not begin to develop their knowledge of the IP television market in any deep way until it was too late. As recently as 2004, there was only 3 or 4 people with deep knowledge of IP technology inside the company and zero people that fully understood the landscape. Sr. tech executives began to dabble with the notion of porting their software to popular IP television set top boxes, such as Amino, but they didn’t fully appreciate the full scope and length of the development and certification process. Deep knowledge of the up and coming players simply wasn’t there at the time. Digeo had their own hardware solution and wasn’t viewed as a go-to resource for knowledge about advanced video codec support vis-a-vis other chip vendors who had a prominant place in the market.

Developing an IPTV software solution is a complex task of integrating multiple video and networking technologies that can take years to fully integrate. Unlike the cable market, their were (are) dozens of new vendors in each category to include conditional access, VOD servers, set-tops and more. Prioritizing development resources incorrectly results in non-marketable solutions by the time development is complete. More importantly, overestimating actual IPTV deployments was an easy thing to do. In actual fact, the exercise involves multi-disciplinary concurrent engineering across network, IS, operations and marketing.
As few carriers had any video experience at all, they tended to gravitate towards those vendors that had an early and deep knowledge of actual IPTV customer service metrics, actual field data, installation intervals, churn, repair volumes, contact volumes etc.

Smaller entrants into the IPTV software marketplace began to build trusted relationships in the Tier 3 (IOC) market and larger Tier 2 and Tier 3 entrants found themselves choosing between Alcatel, Siemens and Microsoft. Digeo found themselves making late phone calls to both partners and customers. Other technology vendors that are necessary components in modern IP-based video solutions, such as conditional access or STB vendors had a hard time justifying any engineering resources to do the necessary integrations until Digeo could demonstrate that it had serious customer interest. To compound matters, the market got hot right as management shifts began to take place. New management in various departments was no doubt necessary but it takes time for new, talented people to take stock of the company and develop new strategic visions.

That brings us up to today. Digeo has new management at nearly every department and is working on a range of potentially interesting new directions. Whether or not Digeo can again be viewed as a hot new innovator in the video sector is yet to be determined. Through sheer will and fortitude, companies like Divx were able to stay relevant through a difficult period of consolidation. It’s possible Digeo will find significant new opportunities that are very close to the core competancies they have always had but it won’t be easy.

Simple works

Published
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on May 9, 2006
in start-ups
. 61 Comments

http://www.ksolo.com/ was recently acquired by Fox Interactive. It’s a great concept because its easy to understand and well executed. User generated content concepts are going to be hot for sometime and we’ll start to see fragments and focuses on niche topics (for example, cricket, soccer, moms/parents etc). Ksolo is basically a varient on the e-card theme. User generated eCards in general were always interesting because people seem to love them and some very smart people keep trying to improve on them (e.g. Smilebox). It’s pretty obvious by looking that they didn’t invest much to build the site itself. Most of the money was probably spent on SEO. The platform is very basic. As they say, its often about execution and not a great idea. Ksolo is a classic example.

eBay your web 2.0 software to buy that next house

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on May 6, 2006
in Uncategorized
. 31 Comments

This has been an interesting week. I’ve talked to three entreprenuers who have mentioned the idea of selling web 2.o software projects on eBay. Then on TechCrunch I see this mention of other folks selling similar start-ups the same way. I started thinking about this a bit tonight. Certainly, no serious investor or VC is going to view the sales of software platforms on eBay a great business. But, for the bright young folks just out of high school who happen to be very good at building web apps I can tell you that there are many “non tech” folks out there on the look out for this kind of stuff. Got a photo gallery app? Throw it on eBay. Develop an affiliate system for selling art and posters? Throw the system on eBay. For most young twenty-somethings this could be the easiest and fastest path to making $50,000 - $200,000.

At the time of this writing, the price for digforit.com is $11,000. I am sure the final sale will be for much more than this.

I predict a great number of web2.0 software concepts being sold for ‘pennies on the dollar’ as would-be entreprenuers head back to the stability of their corp jobs. But, somehow I actually think there is an interesting concept here that isn’t altogether crazy. Building software can be MUCH easier than building real businesses. Selling such software is also probably much easier than selling businesses with higher price tags. Depending on your personal situation, this could be a fascinating investigation.

The look of web 2.0

Published
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on May 4, 2006
in inspiration and start-ups
. 62 Comments

One of the things that has fascinated me about recent website trends is design pattern similarities. I thought this post about recent web 2.o logos was rather interesting. It seems absolutely true that one positive outcome of this web 2.0 trend has been a renewed appreciation for workflow and appearance. The new sites seem clean, organized and energetic compared to those websites that are like living relics of 1998 web design (e.g. Art.com).

More than most people, I admit to being particularly fascinated with this meme. Some people even suggest that certain colors constitute a “real” web 2.0 website. Well, it is true that many of them look very similar!

For those out raising money for their web 2.o start-up, I love to observe whether or not the entreprenuers actually have any sense of this subtle trend. I’m not suggesting that it’s necessary for a start-up to have that web 2.0 look that so many others have. But, when start-up founders give me a blank stare when it comes to these kinds of trends I have to admit that I’m befuddled. I find myself thinking, “how could you be a real ‘web’ person and not notice this?” At the end of the day though, it isn’t really about fancy logos. But, I do think that user experience is an important and appreciated trend. So many sites could be so much better. I mentioned Art.com above because we’re working on our own art site called Imagekind.com and I’m trying to achieve something that is both original but also fun and pleasant to navigate. I’m teaming with smart people to help me think through various ways to improve upon the work I’ve already done in this regard. Art.com doesn’t need to concern themselves quite as much with this kind of thinking. They are first movers. They have huge advertising budgets. And that’s really a significant point. Some web 2.0 companies are genuinely new concepts. Others are merely new twists on old ideas which are destined to compete with established players. In such cases, renewed focus on execution, usability and appearance seems like one great way to gain an edge over the competition. And that’s why we’re seeing this trend. Start-ups can’t outspend the Art.com’s of the world. Consumating.com can’t beat Match.com by trying to outspend them. So, they can find an edge in the dating game by providing a fun, unique navigational experience and presenting it in a way that’s fun and easy for users to understand. It really translates to fresh thinking in terms of information architecture and usability. To me, this is one of the most important ways that new companies can stand out in a crowded field. I’ve looked at several new start-ups this year that are entering exciting but crowded sectors. When this attention to detail is missing in their strategy I tend to get nervous. In terms of new Seattle start-ups, I think Alex Castro over at Pluggd really gets this. The guys over at 43things.com got it right early and the gents at 37signals practically wrote the book on it. Ultimately, all this competition is going to lead to much better online experiences for consumers.