Monthly Archives

January 2013

Facebook Q4 results – strong growth, good profits but entering into an investment phase

By | Uncategorized | No Comments

Facebook announced strong Q4 results yesterday:

  • 1bn monthly active users across all platforms, a 25% YoY increase
  • 680m monthly active users on mobile, a 57% YoY incease
  • Mobile DAUs exceeded web DAUs for the first time in Q4 2012
  • Revenues of $1.6bn, up 40% since Q4 2011 and slightly ahead of analysts’ expectations
  • 84% of revenue from advertising
  • 23% of revenue from mobile, up from 14% in Q3 2012
  • Non GAAP net income of $416m, up 18% since Q4 2011 (although GAAP net income was much lower)

However, investors were expecting all this good news and Facebook shares were down 4% to $30.51 (VatorNews) in after hours trading, most likely because Zuckerberg spooked investors when he said 2013 will be a year of investment rather than a year of profit maximisation. He highlighted Graph Search and Mobile as two areas for investment.

I, for one, am looking forward to what Graph Search brings us in 2013.

    The end of privacy by obscurity

    By | Privacy | No Comments

    A penny dropped for me when I read Facebook’s graph search and the end of privacy by obscurity on GigaOM recently. Regular readers will know that I’m of the opinion that we have more to gain than to lose by sharing our information, and that I hope that people with privacy concerns will slowly get over them as the benefits of sharing become clearer. However, when I sought to understand whether that hope was realistic I struggled with the diffuse and unfocused nature of people’s privacy concerns. They would say that they don’t like the idea of people being able to find out what they have been doing, but weren’t really able to say why that bothered them. I now see that the concern is not so much with privacy but with losing their obscurity.

    In other words, the issue is not with the information that gets shared so much as the fact that it makes people visible. Some people (myself included) like to be visible, but other people find it uncomfortable. I think that discomfort is what leads many people to be concerned about their privacy in a Facebook and Google world.

    These people do, or course, have the choice of not using Facebook and Google, but I think it’s pretty clear that for the vast majority their usefulness is worth the unease that comes with being more visible. That means that rather than hope that people with privacy concerns will get over them, I should hope that they get used to their increased visibility and it stops bothering them. After that the privacy concerns will go of their own accord.

    Amazon to challenge Google in online advertising?

    By | Advertising, Amazon, Google, Yahoo! | No Comments

    Amazon has been slowly building an adtech business for the past few years now. Back in 2008 I wrote about the launch of their advertising network and since then there has been a steady trickle of announcements and hires that show they are getting more and more serious about becoming a player in the adtech market. The pace of announcements seems to have picked up a bit recently and this morning the FT ran an article entitled Amazon opens up new advertising front.

    Their big hope, of course, is that the proprietary data they have about shoppers on Amazon will allow them to target ads much better than their competition. I hope they are successful, because right now Google stands pretty much unchallenged as the only major tech player in the adtech space, which limits partnership and exit options for startups. When we invested in back in 2006 AOL, Microsoft, Yahoo and Google were all credible potential acquirers, and we spoke to all of them before ultimately selling to AOL, and I’m sure that the existence of those other players as alternative suitors helped us complete the AOL deal quickly and at a better valuation. Fast forward to today and Google is the only player left on that list that makes regular adtech acquisitions, which is why I hope that Amazon will enjoy enough success with their advertising products to want to step up and provide some competition for them in M&A.

    There is also a sliver of good news on this front from Yahoo today. Their Q4 results showed an improvement in their search advertising business and Marissa Mayer has said that she wants to take back some market share in search from Google. I have nothing against Google, but once again, I hope they succeed.

    Creating value in European companies by expanding to the US

    By | DFJ Esprit, Startup general interest, Venture Capital | No Comments

    European companies that successfully launch in the US experience a step change in value and one of our investment strategies at DFJ Esprit is to be part of that process. We provide capital to finance the expansion and our networks and experience of how to do it right increase the chances of success.

    These thoughts are in my mind right now because I’m sitting on a plane to New York for a three day trip during which my diary is entirely filled with meetings related to a number of our portfolio companies (barring one dinner with a venture partner at our sister fund DFJ Gotham). I think this is the first time I’ve been on a trip that is so dominated by our portfolio. It’s only a short trip, but I take that as a sign we have an increasing number of companies doing interesting things in the US.

    We put a lot of work into being able to identify and help companies that can successfully launch into the US, including joining the DFJ Network back in 2007, and its pleasing to see we are executing well on this part of our investment strategy.

    Apple’s innovation challenge

    By | Apple | No Comments


    This chart from Venturebeat shows how Apple’s first quarter revenues broke down (total $55bn). The amazing thing about it is that 76% of their business now comes from products that are less than six years old. On the one hand it is an incredible testament to the leadership of Jobs, Cook and Ive that they have reinvented themselves so successfully, but on the other hand it highlights the requirement to find new products that will have a comparable impact over the next six years.

    The new product that everyone is talking about is an Apple television. That sounds like a great idea, but it is hard to know how good it is, how successful it will be, or what the margins will be until it is released. In the meantime Apple’s growth comes from the iPhone and iPad, which are both great products, but which are both facing increasing competition from lower cost Android devices.

    Against this backdrop it is perhaps unsurprising that investors are hyper-sensitive to any signs of faltering growth and wiped $50bn off Apple’s market capitalisation this week when the company released first quarter revenues figures that were a new record high for the company but below analysts’ expectations.

    Your fundraising strategy depends on whether you’re startup is hot

    By | 50 Questions, Startup general interest, Venture Capital | 7 Comments

    I spoke at a workshop this morning where most of the participants were CEOs and founders of early stage startups. We talked about the state of the market, what makes a good investor, and how to go about raising money and afterwards I was struck by how much of the fundraising advice given to startups is really only good advice for hot startups. The clearest example of this came from one CEO who had raised large rounds on multiple occasions who advised only talking to five investors and making them feel like they were privileged to be able to take a look at his company. That’s great if at least one and hopefully two of those five are going to bite, but it is only hot startups which get success rates like that.

    This turns out to be an important question, because if your startup is hot then going to a small circle of potential investors is a good way to minimise the time spent fundraising and can be good for valuation, but if your startup isn’t hot then the chances are your process will fail if you only target five investors. In other words you need to know whether your startup is hot before you determine your fundraising strategy.

    So how can you know if your startup is hot?

    You get out and talk with potential investors a long time before you need the money. This is good practice anyway (remember VCs invest in lines not dots) but determining your fundraising strategy is another good reason to invest time in networking with VCs. The trick is to figure out their level of interest before you are actually asking for money but without pitching too hard and ruining your emerging relationship. It’s a delicate balance, and in my experience many entrepreneurs don’t get it quite right – some almost never talk about their companies and therefore don’t have any idea whether I might be interested or not, whilst others overdo it by pitching for too much of the time that we are speaking. If you’re not sure I would err on the side of pitching too much but keep your senses tuned for signs that you should tone it down a little.

    If you get out and meet lots of investors and make sure they know what your company does then you should pretty quickly get an idea of whether a short and tight process will work for you. The only way to go wrong now is to read the signs badly. Be ruthlessly honest with yourself. Everybody will say they want to consider your round when it happens, so you should look beyond that for signs that there is real appetite, like investors requesting to meet before you ask them or starting to help with introductions.

    Then, if you have five or more investors who are very keen before the formal fundraising process starts you can manage everyone to a tight timetable and hope that one of them will move very quickly to pre-empt the others. But if you don’t have those five then you should talk to many more potential investors (say 20-30) and figure that a successful the process will take 6-9 months.

    HR by the numbers

    By | Startup general interest | 2 Comments

    One of the most important changes in business practice over the last century has been the use of numbers and analysis to improve productivity. My (admittedly vague) grasp of industrial history is that the start of this movement came with the notion of piece work and production lines to improve the efficiency of manufacturing – see Taylorism and The Model T-Ford for more details. More recently we have started to apply similar disciplines to drive productivity improvements in the fuzzier areas of business – e.g. sales and marketing effectiveness, return on investment analysis of new IT projects and most recently innovation accounting from Eric Ries and the lean startup movement.

    Up to now, however, human resources has largely escaped the disciplines of analysis and measurement. Google is one of the most data oriented companies on earth and also has enough people to draw statistically significant inferences from staff surveys and attrition rates so it is perhaps unsurprising that they are in the vanguard of change in this area.

    There was an interesting article on Slate yesterday which described just how they are applying data to improve HR outcomes. Perhaps the best example comes from 2007 when Google’s People Operations team noticed that the attrition rate amongst female employees was too high. Their first step was to drill into the data to better understand what was driving the problem. It turned out that the issue lay with recent monthers who were leaving twice as often as other women. Reasoning that improving their maternity leave plan might help, Google updated its industry standard offer of twevle paid weeks off in California and seven weeks outside to five months paid leave which the mother can split into chunks and take when she wants, including before the birth and when the baby is older. Following the change attrition rates amonst new mothers dropped to the average for all female employees, i.e. a 50% improvement. The change is analysed as a win for Google because the increased costs were matched by recruitment savings and staff happiness increased as measured by Googlegeist, a lengthy annual survey of employees.

    More recently they have hired social scientists to run experiments to help them better manage the firm and they now have hard data on the best ways to achieve a range of outcomes including getting people to contribute more to their pension (implore them to save an unreasonably large amount), implementing management hierarchy (good middle managers make people happy), delivering pay increases ($1,000 salary increases are preferred to $2,000 bonuses), to optimising the interview process (four interviews is enough to form a solid view of a candidate).

    Most companies have too few people to run HR experiments for themselves, but they can learn from the work that Google is doing. Learning from other people’s experiments is, of course, different from doing your own and the applicability of their conclusions needs to be carefully thought through, but as you have read, there is some useful stuff coming out already. I will keep an eye out for more.

    Range, convenience and price – the three axes of retail competition

    By | Ecommerce | No Comments

    The big news in the UK business sector this week is that the high street music, voodoo and game retailer HMV has gone into receivership. This won’t be a surprise to many people. Back in 2007 I noted that HMV was the most shorted stock on the London stock exchange and many similar businesses have also gone bust in recent years (Game in the US and Zavvi in the UK spring to mind).

    However, this news is a reminder of how comprehensively online (particularly Amazon) is winning out over traditional retail in some verticals. As I see it the key axes of competition in retail are range, convenience, and price and the varying success of online versus offline in different sectors can be explained by their relative strengths and weaknesses along these three dimensions. Products that can be delivered digitally work best online because range can be infinite, digital formats and distribution are now much more convenient and much cheaper than their physical antecedents, and that is why highstreet music, video and game retailers have suffered so much. Clothes are an intermediate case – range can be much larger online, and ordering online is more convenient than visiting a shop, but not being able to touch and feel the clothes or try them on prior to purchase leads to high returns which are a significant inconvenience. In furniture shopping in physical stores still mostly win out because delivery and returns of large items are highly inconvenient.

    Amazon, the poster child of ecommerce success, excels on all three axes. They have an amazing website where one-click purchasing makes buying amazingly convenient , the Amazon MarketPlace gives the largest range imaginable, and they work incredibly hard to keep their own costs down so their prices to consumers can be low.

    The obvious takeaway from this for other ecommerce companies is to innovate to improve their offering on these three dimensions. Many fashion ecommerce companies, most notably Zappos, have addressed the convenience issue by making returns much easier, and now they are looking to reduce the number of returns by using technology to help people work out which clothes will fit before they buy (virtual changing rooms, if you will). Ecommerce entrepreneurs in other verticals could look for analagous opportunities.

    Self parking Audi

    By | Uncategorized | 2 Comments

    Every now and again I like to post a video which shows how fast new technologies are coming down the pipe. The pace of technology innovation is accelerating all the time but most people don’t fully grasp the implications. By showcasing technologies like self driving cars and robotics I hope to make those implications more real for people.

    Audi released this video at CES this year. It is pretty cool and shows clearly that Audi believes its customers want cars that are able to drive themselves for at least part of the time, that they will be controlled by smartphones, and that they plan on being able to satisfy this desire before too long. That said it is a bit more marketing oriented than I would have liked. A 30s tech demo showing somebody driving up to a car parking space, pressing a button and then sitting with their hands in their lap whilst the car parked itself would have been better. The car does park itself, but the way the video is shot leaves open the realistic possibility that the demo is canned. The video is 4.34 mins, with the key action points at 30s, 1.30mins, and 2.45mins.

    This video also made me think about a bunch of issues that will have to be figured out before there are too many vehicles like these on the roads. Over the last one hundred years or so we have developed a complex system comprising a set of norms regarding where cars can and can’t be left, how fast they drive in different circumstances and how the norms should be policed and enforced. These cars are being programmed to follow the letter of the law, but they will also need to operate effectively in the grey areas. Watching this video raises the spectre of autonomous cars frustrating us by driving too slowly out of car parks and then blocking access at the front of hotels. With today’s cars, if a driver tries to leave her vehicle in a legal but awkward spot the hotel doorman asks her to park somewhere else and, unless there is an emergency or other good reason not to, she complies. Autonomous cars will need to be able to take similar decisions or they will drive us all mad.

    Mercedes, Volvo, BMW, Ford, Citroen, Honda and GM are all also working on systems that make their cars at least partly autonomous, mostly for safety reasons – more detail here.

    Top five typical frustrations and confusions in the fundraising process

    By | 50 Questions | 4 Comments

    If you’ve been paying attention you will know that Nicholas Lovell and I are writing a book for entrepreneurs who want to raise venture capital. It’s tentatively titled Get Funded. We are now preparing to shoot a promotional video which opens with five frustrations that entrepreneurs frequently encounter when they embark on the fundraising process, expressed as questions. Then it will cut to the second section where Nicholas and I give answers. The idea is that these two opening sections will illustrate the fundraising problems we are seeking to alleviate and show that we have some good content to offer.

    These are my best guess at those to five frustrations and our one to two sentence response.

    1. What does she want to see in my pitch?

    She wants to see you present a confident and convincing story about how you are going to build a big business. Get the story right and you will get the chance to fill in the details later.

    2. How much money should I ask for?

    The amount that is right for your company, generally an amount that allows you to significantly increase the value of your business with a decent cushion on top. Pitching the amount that you think fits the investment size of the VC you’re talking to is putting the cart before the horse and will either make you look bad or your company will end up with the wrong plan and the wrong amount of money.

    3. We were getting on great, but I haven’t heard from him for ages, what does it mean?

    It means you should chase him for an update. If after a couple of chases you still haven’t heard anything it probably means they aren’t interested, much like that girl/boy you were sweet on who didn’t return your calls when you were 13. Console yourself with the fact that you probably didn’t want to partner with the sort of person who doesn’t return calls anyway.

    4. What on earth does this termsheet mean with it’s liquidation preferences, anti-dilution and protective provisions?

    Like many industries venture capital has developed its own language which is confusing when you first come across it. Most of the concepts are actually pretty simple when you get into it. For example, liquidation preferences are financial structures whereby rather than just getting a share of the company investors get their money back first and then get a share of the company on top.

    5. Is this VC going to take control if I let her on my board?

    Probably not, but you should ask her, and ask to speak with people at other companies she’s invested in to find out. Good VCs know that the best way to make money is to back great entrepreneurs and help from the sidelines whilst they do their thing.

    Any and all thoughts on the above appreciated.