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Archive for May, 2012

A Circle of Tech: Collect Payout, Do a Start-Up

Posted in Board Of Intellectual Capital, Economy, Entrepreneurship, Gerbsman Partners, Intellectual capital, internet, Investments, IPO news, Market research, Social Networks, Startups, Strategy, Technology, Venture Capital, tagged , , , , , , , , , , , , on May 11, 2012| Leave a Comment »

Article from NYTimes.

MENLO PARK, Calif. — Matt Cohler was employee No. 7 at Facebook. Adam D’Angelo joined his high school friend Mark Zuckerberg’s quirky little start-up in 2004 — and became its chief technology officer. Ruchi Sanghvi was the first woman on its engineering team.

All have left Facebook. None are retiring. With lucrative shares and a web of valuable industry contacts, they have left to either create their own companies, or bankroll their friends.

With Facebook’s public offering in mid-May, more will probably join their ranks in what could be one of Facebook’s lasting legacies — a new generation of tech tycoons looking to create or invest in, well, the next Facebook.

“The history of Silicon Valley has always been one generation of companies gives birth to great companies that follow,” said Mr. Cohler, who, at 35, is now a partner at Benchmark Capital, and an investor in several start-ups created by his old friends from Facebook. “People who learned at one set of companies often go on to start new companies on their own.”

“The very best companies, like Facebook,” he continued, “end up being places where people who come there really learn to build things.”

This is the story line of Silicon Valley, from Apple to Netscape to PayPal and now, to Facebook. Every public offering creates a new circle of tech magnates with money to invest. This one, though, with a jaw-dropping $100 billion valuation, will create a far richer fraternity.

Its members will be, by and large, young men, mostly white and Asian who, if nothing else, understand the value of social networks. And they have the money. Some early executives at Facebook have already sold their shares on the private market and have millions of dollars at their disposal.

Mr. Cohler, for example, is at the center of a complex web of business and social connections stemming from Facebook.

In 2002, barely two years out of Yale, he was at a party where he met Reid Hoffman, a former PayPal executive who was part of a slightly older social circle. The two men “hit it off,” as Mr. Cohler recalled on the online question-and-answer platform, Quora (which was co-founded by Mr. D’Angelo). He became Mr. Hoffman’s protégé, assisting him with his entrepreneurial investments, and following him to his new start-up, LinkedIn.

Then, Mr. Cohler joined a company that Mr. Hoffman and several other ex-PayPal executives were backing: Facebook.

Mr. Cohler stayed at Facebook from 2005 to 2008, as it went from being a college site to a mainstream social network. One of his responsibilities was to recruit the best talent he could find, including from other companies.

Mr. Cohler left the company to retool himself into a venture capitalist. He has since been valuable to his old friends from Facebook.

Through his venture firm, Mr. Cohler has raised money for several companies founded by Facebook alumni, including Quora, created in 2010 by Mr. D’Angelo and another early Facebook engineer, Charlie Cheever. Other companies include Asana, which provides software for work management and was created in 2009 by Dustin Moskovitz, a Facebook co-founder; and Peixe Urbano, a Brazilian commerce Web site conceived by Julio Vasconcellos, who managed Facebook’s Brazil office in São Paulo.

Mr. Cohler has put his own money into Path, a photo-sharing application formed in 2010 by yet another former Facebook colleague, Dave Morin. Path is also bankrolled by one of Facebook’s venture backers: Greylock Partners, where Mr. Hoffman is a partner.

And he has invested in Instagram, which was scooped up by Facebook itself for a spectacular $1 billion. “Thrilled to see two companies near and dear to my heart joining forces!” Mr. Cohler posted on Twitter after the acquisition.

Instagram clearly was a good bet; it is impossible to say whether any of the other investments Mr. Cohler or other Facebookers are making will catch fire or whether the start-ups they found will last. Certainly, there is so much money in the Valley today that start-ups have room to grow without even a notion of turning a profit.

Ms. Sanghvi, one of the company’s first 20 employees, married a fellow Facebook engineer, Aditya Agarwal. Mr. Zuckerberg attended their wedding in Goa, India.

Read the rest of this article here.

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Startups Party at the Patent Office

Posted in BloombergBusinessweek Technology, BusinessWeek, Entrepreneurship, Inetellectual Property on May 10, 2012| Leave a Comment »

Bloomberg Businessweek Technology

Startups Party at the Patent OfficePhotograph by Image Source/Getty Images

Startups Party at the Patent Office

By on May 03, 2012

Software startups have traditionally avoided patenting their innovations, viewing it as an unneeded expense that can eat up $15,000 or so. “We thought about it, because there’s definitely some patentable stuff,” says Brett Martin, the chief executive officer of New York’s Sonar, which makes an app that helps people connect with strangers. “But we’re busy trying to build a business.”

Yet many who aspire to build the next Facebook are learning from the mistakes of their guru, Mark Zuckerberg. His company was unprepared for the battle that erupted when Yahoo! (YHOO) sued in March for infringing 10 patents. Soon after, Facebook purchased 750 patents from IBM (IBM) and spent an additional half-billion dollars on part of the AOL (AOL) patent portfolio recently bought by Microsoft (MSFT). Meanwhile, Apple (AAPL), Google (GOOG), Oracle (ORCL), and other tech giants are locked in patent lawsuits.

Which is why more entrepreneurs are thinking like Oliver Cameron. His new iPhone app, Everyme, is a social network similar to Facebook. Behind the scenes, though, algorithms perform some fancy operations, such as grouping a user’s friends on other networks according to criteria such as geography or workplace. Before the app’s launch in April, Cameron, the CEO of the Menlo Park (Calif.) startup, made sure to file his patent paperwork. “We’re not really patent whores,” he says. “We’re just proud of what we’ve built.”

“The Valley in general seems to be getting more litigious,” says Travis Katz, a former Myspace executive who co-founded travel startup Gogobot. “Big companies can sue small companies out of existence, even with a baseless claim.” Katz has had his lawyers begin reviewing Gogobot technologies that could be patented. Path, a mobile social network started two years ago, has filed for 13 patents. Karma, which makes a gift-buying app, has filed for three patents covering technologies related to commerce, notifications, and social networking.

Chris Tolles, an investor and the CEO at local news site Topix, says startups should invest in patents before pool tables and Aeron chairs—the typical accoutrements of hip young companies. “I wouldn’t do it Day One. But you’re a year in, you have some funding, then yeah, get some patents,” he says. The patent process can take as long as five years, according to Mark Radcliffe, a partner at law firm DLA Piper.

While small tech companies are learning to play the patent game, at least one larger one is trying to change the rules altogether. On April 17, Twitter announced all its patents will be governed by its Innovator’s Patent Agreement. Under it, the person whose name is on a patent—usually an engineer or scientist—retains control over how the patent is used, even if the patent is sold to another company. Patent owners must ask the innovator’s permission before suing over the patent, although there are exceptions for companies that use patents defensively.

Everyme’s Cameron and his co-founder Vibhu Norby want to support the IPA. Their first three apps were already with the U.S. Patent and Trademark Office by the time IPA was available, though, and they don’t plan to refile them. “There are bigger things to worry about,” says Cameron. “Like launching,” says Norby.

The bottom line: While startups get serious about intellectual-property law, Twitter pioneers a type of patent friendly to engineers.

Milian is a reporter for Bloomberg News in San Francisco.

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The VC industry is broken. So now what?

Posted in Uncategorized, tagged , , , , , , , , on May 9, 2012| Leave a Comment »

Article from GigaOm.

“The investment team at the Kauffman Foundation believes the venture capital industry is broken and they — or rather investors in VC funds — are partially to blame. The report condemns venture firms for being too big, not delivering returns, and not adjusting to the times. But then it blames the situation on a misalignment of incentives: Namely, limited partners that invest in venture firms have done so in a way that encouraged VCs to raise huge funds at a time when huge funds weren’t really warranted. And now, for the Kauffman Foundation at least, the chickens have come home to roost. From the report:

The most significant misalignment occurs because LPs don’t pay VCs to do what they say they will — generate returns that exceed the public market. Instead, VCs typically are paid a 2 percent management fee on committed capital and a 20 percent profit-sharing structure (known as “2 and 20”). This pays VCs more for raising bigger funds, and in many cases allows them to lock in high levels of fee-based personal income even when the general partner fails to return investor capital.

A smaller VC industry is needed

The solutions to the problem — changing the compensation structure, investing in smaller funds where the partners have also committed at least 5 percent of their own capital, investing directly in startups or alongside funds at later stages, and taking more money out of the over-saturated VC market — are already happening. Look at the widespread trend of angels or smaller funds created by a few investors. Or look at the rise of hedge funds or Digital Sky Technologies’ investing directly in hot companies like Twitter or Facebook at crazy valuations.

It’s unclear if other LPs will take the advice issued in this report, but the trends around VC investment these days are fairly clear. There are plenty of firms willing to put small amounts in at an early stage, so they have the option to keep playing if the deal gets hot. And they are just as likely to drop firms quickly around the second (Series B) fundraiser if they aren’t shaping up into a Pinterest or a Spotify. This hit-driven style of investment is a symptom of too much money chasing a new type of startup, and it’s likely that venture investors will compete until much of the return is squeezed out of a hot deal. And that’s no good for limited partners either.

The Kauffman report lists the ways it has decided to solve the mismatch between LPs and venture firms, and it goes into a lot of depth on how to improve the industry overall. But if one agrees with the assessment and solutions offered in the report, it also will result in some serious questions about the startup economy. The venture industry invested $28.4 billion into 3,673 deals in 2011, according to the NVCA and the PWC MoneyTree report. About 50 percent of their total investments were in seed and early-stage companies.

Does less venture money mean fewer startups?

Following the Kauffman Foundation’s suggestions means the pool will shrink. In many ways this is a good thing, as there will be less money chasing the few standout deals, but it also opens the door to thinking about building companies in a connected era. Angels are already picking up some of the VC slack and will likely continue to do so. Once Facebook goes public, I expect we will see a host of newly minted millionaires playing at being an angel or perhaps taking their riches and using it to build something new.

For those without soon-to-be-liquid options, Kickstarter and the gold rush promised by the JOBS Act are also likely to fill the gap. So it’s entirely possible the pool of venture capital will shrink while the pool of startups will remain about the same. In such a scenario, VCs, angels and then the rest of us play the role of investor. It’s a role millions already undertake, with Kickstarter’s seeing $200 million pledged and 22,000 projects funded since its founding.

And the passage of the JOBS Act means startups can now beg for money among the ranks of friends and family who aren’t accredited investors. I for one am leery of this development, believing it ripe for scams. The law also has the side effect of cloaking information about companies until right before they hit the public markets, which I think is the exact opposite of what a bill that encourages consumer investment ought to do. But still, there will be legitimate companies that will be able to start businesses thanks to the bill.

And as lawyers and entrepreneurs get comfortable with the law, new funding platforms should arise. So perhaps the Kauffman Foundation will find itself on the cusp of a trend, from the old-school style of fundraising where an entrepreneur has few choices and has to play by the VC industry’s rules to a crowdsourced and connected era of raising capital that mimics how the Web is changing a variety of businesses. Maybe the VC industry is like Motown. And it’s going to have to adjust to the new reality.”

Read more here.

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Intuit to Acquire Demandforce for $424MM

Posted in Board Of Intellectual Capital, Business models, Economy, Entrepreneurship, Gerbsman Partners, internet, Investments, Market research, Social Networks, Strategy, Technology, tagged , , , , , , , , , , , , , , , , on May 7, 2012| Leave a Comment »

Article from AboveTheCrowd.

This morning, Intuit announcedits agreement to acquire one of Benchmark’s portfolio companies, Demandforce, for $424mm. As with Instagram, Benchmark Capital is the largest institutional investor in Demandforce. Unlike Instagram, which is a consumer application and is extremely well known, Demandforce focuses on local professional businesses and has chosen to keep an intentionally low profile – a strategy that has served them well.

Great entrepreneurs often blaze their own trails, and the founder and CEO of Demandforce, Rick Berry, is no different. In a day and age of social media, where many companies project a persona much larger than reality, Demandforce chose instead to focus on its customers and its products. We never even announced Benchmark’s funding of the company, which I believe is unprecedented. The Demandforce team always felt that the attention should be focused on the customer rather than the company.

Demandforce’s customer mission has always been the same – to help small businesses thrive in an evolving and increasingly complex connected world. Today, they are the leading provider of interactive “front office” SAAS services to thousands and thousands of professional small business owners. The Demandforce product is a powerful web-based application that seamlessly integrates with existing workflow systems, works automatically, and delivers guaranteed results. Through this, Demandforce provides local businesses – like salons, auto shops, chiropractors, dentists, and veterinarians – with affordable and easy access to the tools and platforms that large enterprises use to communicate with customers, build a strong online reputation and leverage network marketing. It you have ever received an automated communication from your dentist, it was likely sent through Demandforce.

Demandforce’s success puts it at the forefront of the burgeoning “Local Internet” wave. The combination of Internet pervasiveness and smartphone penetration has led to a complete reconfiguration with regard to how local businesses interact with their customers. These local businesses have traditionally spent over $125B/year on traditional media, and this is only in the U.S. But the channels they have historically used, such as the newspaper and the yellow pages, are increasingly compromised. These business owners know they need new solutions, and these dollars will be reallocated to these exciting new platforms. Benchmark believes this “Local Internet” wave is many times larger than the “social” and “mobile” themes with which it is often contrasted. In addition to DemandForce, Benchmark is fortunate to have backed such “Local Internet” market leaders as OpenTable (OPEN), Zillow (Z), Yelp (YELP), Peixe Urbano, GrubHub, Uber, and Nextdoor.

It has been an honor and a pleasure to work with Rick Berry, Patrick Barry, Hoang Vuong, Mark Hale, Sam Osman and Annie Tsai at Demandforce. This is truly one of the best teams ever assembled. It was also a pleasure to work with Steve Kostyshen as well as Mike Maples of Floodgate and Peter Ziebelman of Palo Alto Venture Partners, all of whom preceded us in their investment, and all of whom are passionate fans of the company.

It is certainly thrilling to see a team of entrepreneurs reach a significant milestone such as this.  That said, it is equally bittersweet as it means we will no longer be working directly with them on this incredibly compelling mission. Our loss is unquestionably Brad Smith and Intuit’s gain. Combining the leading “front office” small business SAAS vendor with the iconic Silicon Valley small business company is an incredibly compelling combination.

Read more here.

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Accel, Goldman Sachs big Facebook sellers in IPO

Posted in Board Of Intellectual Capital, Business models, Economy, Entrepreneurship, FaceBook, Investments, IPO news, LinkedIn, Market research, Social Networks, Strategy, tagged , , , , , , , , , , , , on May 5, 2012| Leave a Comment »

Article from SFGate.

Facebook investors Accel Partners and Goldman Sachs plan to sell as much as $1.8 billion in shares of the top social network, becoming two of the biggest sellers in the planned initial public offering.

Goldman Sachs is selling 13.2 million shares, worth as much as $461.6 million at the high end of the range outlined Thursday by Menlo Park’s Facebook. Accel Partners, an early investor in Facebook, intends to sell as much as $1.3 billion of shares.

Facebook unveiled plans Thursday to raise as much as $11.8 billion in the largest-ever Internet IPO. Executives including Chief Executive Officer Mark Zuckerberg and backers such as Digital Sky Technologies will sell a total of 157.4 million shares for as much as $35 apiece, according to a regulatory filing. None will unload their entire holding.

On Friday, Facebook received a buy recommendation from Wedbush Securities and a target price of $44, its first rating since announcing plans to sell shares in an initial public offering.

Facebook should benefit from its large, growing user base that will help it attract more spending by advertisers and boost revenue and earnings, Michael Pachter, an analyst at Wedbush in Los Angeles, said Friday in a note to investors. Mobile advertising could play an especially important part of the growth in advertising, Pachter said.

“More users should drive more usage, which in turn should drive increased advertising revenue share,” wrote Pachter. “Facebook will capture an increasing percentage of spending on offline advertising, while growing share of online advertising as well, as usage continues to increase and advertisers become more comfortable with the cost-effectiveness of online advertising.”

Facebook would be valued at more than $90 billion, and executive and investor sales would yield $5.5 billion. Existing shareholders paid an average of $1.11 a share for Facebook, the filing shows.

Facebook is offering 180 million shares to raise funds for general corporate purposes.

While Goldman Sachs is one of the IPO underwriters, it failed to win the lead role after scuttling a private sale of Facebook’s stock to U.S. investors last year. Facebook said in January 2011 that it raised $1.5 billion from Goldman Sachs and Digital Sky Technologies, valuing the company at $50 billion. Goldman Sachs, affiliated funds and Digital Sky invested $500 million, while non-U.S. investors in a Goldman Sachs fund bought $1 billion of shares.

Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the plans to sell Facebook shares. Richard Wong, a partner at Accel Partners, declined to comment.

Zuckerberg will offer 30.2 million of his 533.8 million shares in the sale, bringing him as much as $1.1 billion. The majority of his net proceeds will be used to pay taxes associated with exercising a stock option.

Accel, the biggest outside holder, invested $12.2 million in Facebook in 2005 and owns 11.3 percent of Facebook’s Class B shares. At the high end of the proposed IPO price range, Accel’s remaining stake would be valued at about $5.7 billion.

Digital Sky is selling 26.3 million shares to yield as much as $919 million.

Selling may be smart for holders with large stakes who haven’t had a chance to diversify their assets, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan in Ann Arbor.

Other selling stockholders include Elevation Partners, Greylock Partners, Microsoft, Zynga CEO Mark Pincus and LinkedIn Chairman Reid Hoffman. The investors are selling only parts of their Facebook stakes.

Read more here.

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