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Investors Provide Millions to Risky Start-Ups

Posted in Board Of Intellectual Capital, boic, Business models, Economy, Investments, Market research, Mobile, Social Networks, Strategy, tagged , , , , , , , , , , , , , on June 21, 2011| Leave a Comment »

Article from NYTimes.

“What if you threw a $41 million party and nobody came? A start-up company called Color knows how that feels.

In March, Color unveiled its photo-sharing cellphone application — and revealed that it had raised $41 million from investors before the app had a single user. Despite the company’s riches, the app landed with a thud, attracting few users and many complaints from those who did try it.

“It would be pointless even if I managed to understand how it works,” one reviewer wrote in the Apple App Store.

Since then, Color has become a warning sign for investors, entrepreneurs and analysts who fear there is a bubble in start-up investing. They say it shows that venture capitalists, desperate to invest in the next Facebook or LinkedIn, are blindly throwing money at start-ups that have not shown they can build something useful, much less a business that can provide decent returns on investment.

Color, which says it is overhauling its app, is just one of the start-ups that have set tongues wagging about bubbly excess in Silicon Valley. The Melt plans to sell grilled-cheese sandwiches and soup that people can order from their mobile phones. It raised about $15 million from Sequoia Capital, which also invested in Color.

Airbnb, which helps people rent rooms in their homes, is raising venture capital that would value it at a billion dollars. Scoopon, a kind of Groupon for Australians, raised $80 million; Juice in the City, a Groupon for mothers, raised $6 million; and Scvngr, which started a Groupon for gamers, raised $15 million. These could, of course, turn out to be successful businesses. The worry, investors say, is the prices.

They say they have paid two to three times more for their stakes in such start-ups over the past year. According to the National Venture Capital Association, venture capitalists invested $5.9 billion in the first three months of the year, up 14 percent from the period a year earlier, but they invested in 51 fewer companies, indicating they were funneling more money into fewer start-ups.

“The big success stories — Facebook, Zynga and Twitter — are leading to investing in ideas on a napkin, because no one wants to miss out on the next big thing,” said Eric Lefkofsky, a founder of Groupon who also runs Lightbank, a Chicago-based venture fund with a $100 million coffer.

A decade ago, in the first surge of Internet investing, it was not unusual for tech start-ups to raise tens of millions of dollars before they had revenue, a product or users. But venture capitalists became more cautious after the bubble burst and the 2008 recession paralyzed Silicon Valley.

Meanwhile, it now costs less than ever to build a Web site or mobile app. So this time around the general philosophy has been to start small.

“By starting out lean, you have the chance to know if you’re on to something,” said Mark Suster, a managing director at GRP Partners. “If you start fat and the product concept doesn’t work, inherently the company will lose a lot of money.”

Two of Color’s photo-sharing competitors, Instagram and PicPlz, exemplify the lean start-up ethos. They started with $500,000 and $350,000, respectively, and teams of just a few people. As they have introduced successful products and attracted users, they have slowly raised more money and hired engineers.

Color, meanwhile, spent $350,000 to buy the Web address color.com, and an additional $75,000 to buy colour.com. It rents a cavernous office in downtown Palo Alto, where 38 employees work in a space with room for 160, amid beanbag chairs, tents for napping and a hand-built half-pipe skateboard ramp.

Bill Nguyen, Color’s always-smiling founder, has hired a team of expensive engineers, like D. J. Patil, a former chief scientist at LinkedIn.

“If I knew a better way of doing it, I would, but that’s what my cost structure is,” Mr. Nguyen said in an interview last week.

Michael Krupka, a managing director at Bain Capital Ventures and one of Color’s investors, said Color needed to raise a lot of money because it planned to do much more than photo-sharing.”

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Small Group Rode LinkedIn to Big Payday

Posted in Board Of Intellectual Capital, boic, Business models, Economy, Gerbsman Partners, Investments, IPO news, LinkedIn, tagged , , , , , , , , , , , , , on June 20, 2011| Leave a Comment »

Article from NYTimes.

“For Reid Hoffman, the chairman of LinkedIn, it took less than 30 minutes to earn himself an extra $200 million.

With the hours ticking down to his company’s stock market debut, Mr. Hoffman dialed into a conference call from San Francisco’s Ritz-Carlton hotel as his chief executive, Jeff Weiner, and a team of bankers raced up from Silicon Valley in a black S.U.V. to meet with potential investors.

Demand for shares was intense, and they decided to raise the offering price by $10, to around $45.

When trading began on May 19, LinkedIn did not open at $45. Or $55. Or $65. Instead, the first shares were snapped up for $83 each and soon soared past $100, showering a string of players with riches and signaling a gold rush that has not been seen since the giddy days of the tech frenzy a decade ago.

Now there are signs that a new technology bubble is inflating, this time centered on the narrow niche of social networking. Other tech offerings, like that of the Internet radio service Pandora last week, have struggled, and analysts have warned that overly optimistic investors could once again suffer huge losses.

That enthusiasm was on full display in the blockbuster debut of LinkedIn, which provides a window into how a small group — bankers and lawyers, employees who get in on the ground floor, early investors — is taking a hefty cut at each twist in the road from Silicon Valley start-up to Wall Street success story.

“The LinkedIn I.P.O. will be used very powerfully over the next year as these companies go public and bankers deal with Silicon Valley,” said Peter Thiel, the president of Clarium Capital in San Francisco and an early investor in PayPal, LinkedIn and Facebook. “It sets things up for the other big deals.”

The sharp run-up after the initial public offering set off a fierce debate among observers about whether the bankers had mispriced it and left billions on the table for their clients to pocket. But the pent-up demand for what was perceived as a hot technology stock set the stage for easy money to be made almost regardless of the offering price.

Naturally, Wall Street is enjoying a windfall. Technology I.P.O.’s have generated nearly $330 million this year in fees for the biggest banks and brokerages, nearly 10 times the haul for the same period last year, and the most since 2000.

Besides the $28.4 million in fees for LinkedIn’s underwriting team, which was led by Morgan Stanley, Bank of America and JPMorgan Chase, there were also a few slices reserved for specialists like lawyers and accountants. Wilson Sonsini, the most powerful law firm in Silicon Valley, collected $1.5 million, while the accounting firm Deloitte & Touche earned $1.35 million.

Mr. Hoffman founded LinkedIn in March 2003 after making a fortune as an executive at PayPal, the online payments service, but even as LinkedIn grew and other employees and private backers got stakes, Mr. Hoffman retained 21.2 percent, giving him more than 19 million shares when it went public. He has kept nearly of all them, so for now his $858 million fortune — it was $667 million before the last-minute price hike — remains mostly on paper.

Mr. Weiner arrived more recently, in late 2008, after working at Yahoo and as an adviser to venture capital firms, but his welcome package included the right to buy 3.5 million shares at just $2.32. And they are not the only big winners who secured shares at levels far below the I.P.O. price.

For example, when LinkedIn raised cash in mid-2008, venture capital firms including Bessemer Venture Partners and Sequoia Capital, scooped up 6.6 million shares at $11.47 each in return for early financing. They have held on to the stock, but Goldman Sachs, which got 871,840 shares at $11.47, sold all of it for a one-day gain of nearly $30 million.

Scores of fortunate individuals also managed to profit.

Stephen Beitzel, a software engineer, worked at LinkedIn from its founding until March 2004, but kept his stock when he left. His shares are now worth $17 million, and he sold $1.3 million worth in the offering.”

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CafePress files for IPO, looks to raise up to $80M

Posted in Board Of Intellectual Capital, boic, Business models, Economy, Gerbsman Partners, Investments, IPO news, tagged , , , , , , , , , , , , on June 12, 2011| Leave a Comment »

Article from GigaOm.

“The tech industry’s initial public offering waveis showing no signs of slowing.

CafePress filed its S-1 with the Securities and Exchange Commission on Friday. The San Mateo, Calif.-based company is looking to raise up to $80 million in an IPO to be underwritten by J.P. Morgan, Cowen and Company, and Jefferies, according to the filing.

CafePress was founded in 1999 and sells user-customized products such as clothing, accessories, posters, stickers, and housewares through its flagship website CafePress.com. The company also owns a portfolio of other sites, such as CanvasOnDemand, which turns photographs into canvas artwork, and Imagekind.com, which sells artwork from independent artists.

CafePress is profitable and apparently growing. According to the filing, the company made $2.7 million in net income on $128 million in revenues in 2010. In the first three months of 2011, CafePress made $32 million in revenues, about 45 percent more than the $22 million it made in the first quarter of 2010. Last year, the company posted adjusted earnings before interest, taxes, debt and amortization (EBITDA) of $14.5 million.

But while the company’s financials are certainly solid, one could argue they’re not exactly spectacular. CafePress’ average order size has hovered around $47 for the past three years. The company’s top-line annual revenues have see-sawed recently, from $120 million in 2008, down to $103 million in 2009, and back up to $128 million in 2010. In the filing, CafePress blamed the 2009 dip on “macro-economic conditions in our primary markets that reduced discretionary spending by our customers coupled with the absence of election year sales.”

CafePress is just the latest in a recent series of Internet companies making moves toward the public markets. In the past month, LinkedIn, Yandex and Fusion-io have gone public, Groupon filed an S-1, and Kayak and Pandora have issued optimistic S-1 updates. Whether the activity represents another tech bubble or just a healthy and growing economy, it’s certainly shaping up to be a very busy summer for Silicon Valley.”

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LinkedIn raises IPO price – now $42 to $45 per share

Posted in Board Of Intellectual Capital, Economy, Investments, IPO news, tagged , , , , , on May 18, 2011| Leave a Comment »

Article from SFGate.

“LinkedIn Corp. raised the expected price of its initial public offering by $10, to a new range of $42 to $45 per share, making it even more overvalued by any conventional metric.

In my Sunday column (sfg.ly/k0PpDv), I pointed out that LinkedIn was going public at valuations that far exceed established tech companies such as Google, Apple and Amazon – and that was based on its previous expected IPO range of $32 to $35.

At $45 per share, LinkedIn would trade at roughly 17 times its 2010 revenues and 100 times its earnings before interest, taxes, depreciation and amortization, according to Morningstar analyst Rick Summer. That metric, dubbed EBITDA, is seen as a proxy for cash flow. With just $15.4 million in 2010 profit, LinkedIn’s price-to-earnings ratio is meaningless.

By comparison, Google is trading at just under six times revenue and about 14 times EBITDA, Summer says.

LinkedIn still plans to sell between 7.8 million and 9 million shares, which would raise up to $406 million and give it a market value of up to $4.3 billion.

The Mountain View company, which operates an online network for professionals, is expected to set a final IPO price tonight and begin trading Thursday under the ticker LNKD.

Investors are often willing to pay inflated price-to-sales or price-to-cash-flow multiples for fast-growing companies like LinkedIn, Summer says. However, for a higher-risk situation such as LinkedIn, you could argue that investors should be paying a lower multiple.

Less than 10 percent of the company’s shares will trade publicly, which could keep the price up in the short term if demand runs high. But eventually, the venture capitalists and insiders who own the rest of the shares will want to unload some and that could send the price down.

As the first major U.S. social-networking company to go public, LinkedIn could become a favorite of investors who like “pure-play investable themes,” Summer says.

But that also makes it hard to come up with an appropriate value for the company. “This is not an industry we understand incredibly well,” he adds.

Unlike the dot-com companies of yore, some investors argue that social-networking companies deserve lofty valuations because they have “real businesses and real business models,” Summer says. He agrees that LinkedIn has a strong business model and a competitive advantage. “But that’s like looking at a house and saying, ‘It’s livable, it has four bedrooms and two bathrooms. It’s worth any price because it’s a real house.’ ”

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Color Looks To Reinvent Social Interaction With Its Mobile Photo App (And $41 Million In Funding)

Posted in Board Of Intellectual Capital, Business models, Economy, Investments, Market research, Social Networks, Strategy, Technology, Web 2.0, web 3.0, Wireless 2.0, tagged , , , , , , , , , , on March 26, 2011| Leave a Comment »

Article from TechCrunch.

“$41 million. From Sequoia Capital, Bain Capital, and Silicon Valley Bank. Pre-launch.

That’s how much a brand new startup called Color has to work with. Your eyebrows should already be raised, and here’s something to keep them fixed there: this is the most money Sequoia has ever invested in a pre-launch startup. Or, as the Color team put it, “That’s more than they gave Google.”

But the founding team goes a long way toward explaining it. Headed by Bill Nguyen — who sold Lala to Apple in late 2009 — the company has attracted a wealth of talent. It has seven founders including Nguyen and company president Peter Pham, who previously founded BillShrink. And its chief of product is DJ Patil, who was previously LinkedIn’s chief scientist.

So what exactly is Color?

Update: The application is now available for the iPhone at Color.com. Android is coming.

At first glance, it looks like another mobile photo app, like Path, Instagram, or PicPlz. You take snapshots with your mobile phone (the app supports both Android and iOS at launch) and they appear in a stream of photos. And there aren’t even any of those trendy lenses to spruce up your images. Sounds pretty basic, right?

But the beauty of Color stems from what it’s doing differently. Unlike Instagram and Path, there isn’t an explicit friend or following system — you don’t browse through lists of contacts and start following their photo stream. Instead, all social connections in the application are dynamic and established on-the-fly depending on whom you’re hanging out with. And your photos are shared with everyone in the vicinity. In some senses this is the Twitter of photo apps — it’s all public, all the time (I’m ignoring Twitter’s protected tweets, since most people don’t use them). Another way to look at it: it’s almost the complete opposite of Path, which is built around sharing photos with an intimate group of friends.

It’s difficult to explain what Color does with a bullet list of features, so I’ll try painting an example that hopefully demonstrates how it works.

Say you walk into a restaurant with twenty people in it. You sit down at a table with four friends, and start chatting. Then one of your friends pulls out their phone, fires up Color, and takes a snapshot of you and your buddies.

That photo is now public to anyone within around 100 feet of the place it was taken. So if anyone else in the restaurant fires up Color, they’ll see the photograph listed in a stream alongside other photos that have recently been taken in the vicinity.

In a crowded area these streams of photos will get noisy, so Color also has some grouping features. Tell it which four people you’re eating with, and Color will create a temporal group with a stream of just the photos you and your buddies have taken. But here’s the twist: because everything on the service is public, you can also swipe to view other groups, to see what the tables next to you are snapping photos of. And you can always jump to the main stream, which shows a mishmash of photos taken by everyone.

It takes some time to wrap your head around, and my time with the app was limited, so I can’t really vouch for how well it works. But there’s some very interesting technology that’s working behind the scenes to make Color more than just a simple group photo app.

First are the social connections, called your Elastic Network. All of your contacts are presented in a list of thumbnails ordered by how strong your connection is to that user. Whenever Color detects that you’re physically near another user (in other words, that you’re hanging out), your bond on the app gets a little stronger. So when you fire up the app and jump to your list of contacts, you’ll probably see your close friends and family members listed first. But if you don’t see a friend for a long time, they’ll gradually flow down the list, and eventually their photos will fade from color to black-and-white.

These social connections are important because they’re the only way to view a stream of photos beyond those have been taken near you. If you fired up Color in that restaurant example from earlier, you’d only be able to see photos that had been taken by friends and strangers within 100 feet of that restaurant. That is, unless you jump to your social connections. Tap on your best friend’s profile photo, and you’ll then be able to see all of the photos that have recently been taken within 100 feet of them. In other words, Color is trying to give you a way to see everything that’s going on around you, and everything that’s going on around the people you care about.

The Groups feature also makes use of this elastic network. In the restaurant example above, the application would likely already know who your friends were based on your previous interactions and would automatically place them in the same group — you wouldn’t have to manually do it yourself.

Color is also making use of every phone sensor it can access. The application was demoed to me in the basement of Color’s office — where there was no cell signal or GPS reception. But the app still managed to work normally, automatically placing the people who were sitting around me in the same group. It does this using a variety of tricks: it uses the camera to check for lighting conditions, and even uses the phone’s microphone to ‘listen’ to the ambient surroundings. If two phones are capturing similar audio, then they’re probably close to each other.

So far I’ve described a compelling and unique photo app with some neat tricks. But how exactly is Color going to make “wheelbarrows of cash”, as Nguyen says?

At this point the company is still very early on, but it eventually plans to offer businesses a self-serve platform for running deals and ads as part of the Color experience (you fire up the app to see the photos being taken around you, and you also see the special of the day, for example).

But that’s just the start. Nguyen has visions of fundamentally changing some aspects of social interaction and local discovery with the app, which he considers part of the so-called Post-PC movement. Using all of the data being collected (remember, the app is taking advantage of all of your phone’s sensors), Color hopes to eventually start recommending nearby points of interest, and maybe even interesting people.

There are still plenty of questions, even about the existing service. This kind of voyeurism — you’re sharing photos with the world and looking at photos from strangers — could take a while to get used to. People may reject it entirely. Or it may be completely addictive. There’s really no way to tell until people start using the app in the wild.

The future is unclear, but promising. And with this much money in the bank and a staff of 27, Color has plenty of time to hone in on what works.”

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