VCinJerusalem

Ambient Still Going Strong, 16 years Later. Never Say Never.

In 1995 I co-founded a company called Ambient. The original idea was to commercialize technology being developed by a group of Israeli-Russian scientists who had immigrated to Israel in the early 90s.

We raised some start-up capital, and then had an opportunity to do a very early stage IPO, what some term public venture capital. We raised a few million dollars, and poof we were a public company (still trading today, ABTG.OB). Soon after the IPO I realized I did not want to continue to manage the company (I was the CEO), and turned over the reigns to my then CTO Dr. Yehuda Cern. Yehuda, together with some of the original investors in the company, continued to push it forward. My last major contribution to the company, just before I resigned, was to help Yehuda pivot the technology from it's first purpose, contactless smart cards, to very different market, which is the data over power line industry, otherwise known as Smart Grid. 

Flash foward 16 years--the company is not only still around but is thriving. In 2010 Ambient corporation generated over $20 million in revenue and a gross profit of $8 million. Still losing money, due to continued investment in R&D. But not bad...

Ambient proves the adage Never Say Never. Had I been pressed to predict in 1995 whether Ambient would survive the first tech bubble bursting, financial meltdown, and more, I probably would have said no way. But thanks to perseverance of Dr. Cern and others on the team -- Ambient is a thriving company today. I have been diluted down to nothing, so my stake is completely sentimental, and I doubt if beyond a footnote in some annual report anyone at Ambient knows of my historical connection. Still feels good to see something that you willed into existence still moving forward. 

May we all be privelaged to see the fruits of our labor flourish in our times. And if Ambient would like to invite it's founder and first CEO out to dinner (or more), happy to accept...

 

 

 

The Color of Money

What could inspire me to blog after such a long "rest?" (a deserved rest, I might add, what with new daughter, 6 other children to parent, marathon to run, companies to start, etc.)

Well, the color of money. No, not the funky colors of Israeli monopoly money, but the good old greenbacks of US of A, a land where anything is possible, including raising $41 million dollars for a start-up that had NOT EVEN LAUNCHED A PRODUCT. And they are proud, check the press release here. And proud they should be -- showing off the heights of lunacy in America today.

Yes, I am talking about the recent news item that the legendary VC firm Sequoia Capital led a $41 million round for the company known as Color. What does Color do? I am not quite sure, but thanks to my new friend Tal Givoly I was alerted to this review. Check it out for a laugh, in a sentence I will take this in a more serious direction...

In searching through the web for clues as to how this insanity happened, I stumbled across an interview Color founder Bill Nguyen gave to Business Insider. You should read it in its' entirety (here), but let me just dwell on a few choice lines. Before I do, let me expose something about my relationship to Bill -- we don't know each other, but have bounced around similar circles. When I co-founded Delta Three, he founded OneBox, both playing in VoIP space. When I was focused on mobile email/apps in founding NomadIQ, Omnisky, 2bAnywhere, he was doing Seven. And so on. Bill has made a LOT more money than I have at this start-up game, but like me still loves it. So he is somewhat of a kindred spirit. OK, now back to our regularly scheduled programming. 

In the interview, Bill is asked many questions. But what astonished me was not all the nothing he had to say (after all, there is no traction, no growth, no rave reviews, just a lot of money sunk in). What astonished me are the following:

"There's not much we can do about the money we raised, I'm not giving any of it back."

Wow. 

And then when asked for the "business model" behind Color, he said:

BN: Advertising through the app. We're going to build a intelligent system that allows businesses to participate with their customers. So when you walk into a restaurant and you use Color, and they're also customers through a self-service Web interface -- or actually a self-service iPad interface -- every time you walk into the restaurant, your [first] name will show up with your picture. The maitre d' or receptionist will know who you are, they'll be able to welcome you, they'll know the last time you were here, they'll be able to see pictures if you took them here. They'll be able to provide you better service than they've ever before, that's going to drive up their revenue by increasing repeat business because we always want to go back where we feel welcome.

BI: They would pay you for that capability?

BN: Exactly

Double wow. He actually said his business model is....someone seeing your picture on an iPad when you walk into a retaurant. And someone paying for that. Heck, I would pay for that not to happen. 

I am not going to enter the debate as to whether we are in a bubble or not...for another time, maybe after it bursts (oops, gave myself away there). But regardless this story is fascinating. 

On the one hand, I love the fact that serial entrepreneurs can command massive investment on the basis of....whatever Color is, or will be. On the other hand, the VC community has forgotten that they are supposed to be professional investors. How much is Bill himself investing? That's what I want to know. After all, he has a shekel or two. If the answer is zero, than something is very wrong with this situation. Here we have a very wealthy tech guy, being given more money that 40 standard start-ups combined to develop...a photo sharing app that claims it is something else?

This sounds to me like some serious laziness on the part of Seqouia, and their tag along co-investor Bain Capital. At least they should give Bill a slap on the wrist for the line about not giving the money back -- or perhaps this is Bill's twisted way to improve the Palo Alto economy, by robbing from the rich and giving to the...rich?

Anyway, if anyone out there is listening, please help me understand the Color of Money. 

 

 

Read more: http://www.businessinsider.com/exclusive-bill-nguyen-qa-2011-3?page=3#ixzz1HqCRSqGH

Back to Business: Facebook on path to $1 BILLION Annual Revenues (I was wrong)

Just before we start to shut down for the holiday season (here in Israel we started "early," as Hanukka started last week...) want to admit where I was wrong--looks like Facebook is well on the road to becoming a serious cash machine, like it's cousin Google.

According to recent reports, besides passing 350 million active users, Facebook is on a run rate to hit $1 billion in annual revenues. In 2009 it is reported they already will exceed $500 million. While we [at present] do not have info on how much Facebook is spending, should be safe to assume less that their revenues, and they are starting to not only be profitable but generating some serious cash reserves.

I need to admit that I was wrong. I did not think Zuckerberg and team had it together to translate massive usage into business, but I guess the usage was just to massive to get it completely wrong...slowly but surely they are monetizing that user base (again, little visibility into numbers, but seems to be from display ads, virtual goods, and very focused ad campaigns).

I still do not think Facebook is any kind of new operating system, and if a better FB comes along they could be left in the dust. While my 11 year old is a FB addict, my almost 9 year old doesn't use it at all [yet]. If a better FB comes along to capture her attention, FB is threatened. They have no intellectual property, no defensible technology advantage. "Just" massive momentum, which may make them too big too fall. But then again, where is Myspace today? My 11 year has never even tried it.

Bringing this back to our home court, the venture community in Israel, we need to think more about what it means to scale up, and monetizing success. Facebook, I still maintain, is the exception to the rule. Now lets see if Twitter can start to generate Google-like revenues....

Is Twitter Worth Billions? Jeff Thinks So. I'm still not convinced.

See this interview with my good friend Jeff Pulver on the "State of Now" and the "Real Time Internet." Oh, and by the way, Jeff thinks Twitter is worth billions. Now. Well, good thing Jeff is public that he is a shareholder, we wouldn't want him to be objective about this company...

19 Comments And Counting: the "power" of Facebook

I have writing a blog now for almost 2 years. From time to time get comments, sometimes an email (or even an old fashioned phone call, usually from Elie Wurtman) complimenting me on a blog posting. The feedback is nice, reminds me that I am not only writing for myself (which I am) but also for others.

While I am not the world's greatest fan of Facebook, or its bloated valuation, it definitely has created a public commons, a place where people feel free to express their opinions. Perhaps, like Wikipedia, it should be turned into a massive non-profit. Throw a search box in there, share the ad revenues with Google et al, will definitely be enough to cover costs of operation (like the Mozilla browser).

What prompts my thoughts on this? Well, was on a super boring conference call a few days ago, and was fiddling around with Facebook and decided to write something in the "status" box. I wrote that I was waiting for President Obama's speech to start, and that I hoped he would "say the right thing." That launched a debate (on my rather vague status update) which currently has more than 19 comments. More than any blog posting I have written, and the comments are well thought out, whole paragraphs, not just a few words here and there.

Incredible. As always, proves that people have way too much free time, but also that a simple to use interface, which will guarantee "exposure" will be enough for many to write and write. And it is somewhat unmoderated. As long as you are a "friend" of mine you could comment to anything I throw up on my facebook page. and yet for the most part the self moderation works...not too much abuse, language is kept in check, little outright digital vandalism.

Facebook has developed as a powerful medium, and I am not sure if it is yet at the peak of its power (we will have to see how its kissing cousin, Twitter, develops), but it certainly is no closer to developing a real business than a year ago. And perhaps that's OK, if Marc Zuckerberg gives up on dreams of billions of dollars, and instead decides to donate facebook to the people. He is young, I am sure he will figure something else out to make sure he gets his riches. And/or he could donate it with the caveat that he gets a $X million a year salary for 10 years, enough to feel that he has real money, but far short of Sergei like riches.

If any of you know Marc, pass this thought on to him. From an ego point of view, he did it. Now he needs to decide where to go from here. Meanwhile I am thinking up my next creative status update....

Fred, You got it right. Things will pick up again. Question is when...

Fred Wilson gets it head on in his posting (see below) on the coming revival of the IPO market for "venture backed companies," which for me is a euphemism for young companies starting to show promise but not controlled by a single investor (who could simply live off profits/dividends).  The exit path for investors, option holders, etc. has traditionally been IPO, and M&A (if acquired for cash or by a public company with liquid shares).

I completely agree with Fred's analysis, but like many messianic prophecies, the question is not if, but when. On behalf of all of us in the start-up sector, may it be soon!

The End Of The IPO Drought Is Coming

Fred Wilson|May. 5, 2009, 8:01 AM|3

Print

Tags: Online, Big Tech

I've said it a few times on this blog recently as offhand comments, but I feel compelled to say it a bit more loudly. I think we will see the end of the IPO drought for venture backed companies within the next year, possibly by the end of this year. I don't know if this market rally we've been having is a headfake or the end of the bear market. My gut says we'll see at least one more pronounced down move before we see bottom.

But either way, at some point investors are going to want to own stocks again, and when they do, I think the old fashioned VC-backed IPO will have quite a bit of appeal. Here's five reasons I think this is going to happen:

1) VCs have been in the penalty box for almost a decade since we committed the cardinal sin of foisting crap into the public markets. Somehow the investment bankers who helped us do it got out a lot earlier than we did. But we've done our time and others have replaced VCs as enemy number one of public market investors.

2) There are a lot of really solid companies sitting in venture portfolios waiting for the right moment to go public. Stuart Ellman of RRE wrote last fall that:

RRE has a number of companies that had zero revenues when we invested and which are now doing $100 million or more in revenues and growing very quickly.  These companies have achieved what they needed to achieve, become market leaders, yet they cannot go public or exit under the assumptions that employees or founders assumed when they began.

So what do you do?  Sit tight, be patient, and continue to grow the company.

3) Many of these companies are subscription-based or annuity type business models that make for great public companies. Sarah Lacy touched on this on her post about Open Table's IPO:

OpenTable is hardly an Internet homerun. It’s frequently described as a consumer Internet company, when really it’s a software-as-a-service company. The good news –for this moment in time—is that that means Open Table doesn’t have an ad model. It actually has paying customers in the form of restaurants using its reservation software and paying it monthly subscription fees.

4) When investors decide they want to own stocks again, they are going to look for simple businesses, products they can understand, balance sheets with cash and not much else, and growth without leverage. Guess what? That's what the venture capital industry produces.

5) Sarbox is now well understood by the accounting industry and by the finance teams inside of our companies. There are providers of Sarbox compliance tools and services that have now brought the cost of Sarbox compliance down to reasonable levels. I'm not saying that Sarbox is good or that it doesn't need to be reworked (it does), but it's a devil we know at this point and it will not impede the IPO boom when it comes.

Last week the NVCA put out a four point plan to "restore liquidity in the venture capital industry" at its annual meeting last week in Boston. It involves getting more investment banks engaged in taking our companies public, spurring the development of secondary market exchages and related pre-IPO liquidity activities, continued lobbying for lower taxes on VCs and entrepreneurs, and reform of Sarbox.

Regular readers know that I am a huge fan of the secondary market idea and I welcome the NVCA's attention and energy on that issue. On the other three, I think they are wasting their time. It's like the government suing Microsoft while Linux was growing in popularity right under their noses. I believe the market will take care of this problem as soon as we get a market that wants to purchase equities.

And my gut says that time will come sooner than most think.

Fred Wilson is a partner at Union Square Ventures. He writes the influential A VC, where this post was originally published.

Twitter for $1 Billion: Good for the Jews?

Ok, you ask, what possibly could be the connection between the suggestion of Henry Blodgett that Google purchase Twitter for $1 billion and the Jews?[see Henry's full posting below] Well, besides the fact that there are a nice number of members of the tribe at both companies, I really am using the "Good for the Jews?" question as a way of asking two parts:
-Is this good for the world in general?
-Is this good for Israeli start-up scene?

On both counts, answer I come up with is NO!!

Regarding the world in general, or more specifically the start-up world, wacky prices paid to one-off "success" stories are never a good thing.  I am not going to start arguiing right now if Twitter has or has not brought about a real paradigm shift (as I believe Google did, not so much with search technology itself but how it was applied). (I do not believe Twitter has yet accomplished that). But paradigm shifts do not a business make (sometimes they could, a la Google).

Twitter has yet to show any clear business direction, and until they do their value is somewhere between zero and the amount of money invested in building the product and attaining the user base.

For the Israeli start-up scene, we need to be building businesses. The more entreprenaurs are fooled by Twitter-like companies that building a no-revenue company is a good idea we will sink deeper into a real depression of the tech sector here in Israel. We do not have the capital allocation in Israel that allows for silly investments (just think how many companies will get funded to be the next Twitter...if Google buys them for $1 billion).

Google Should Offer To Buy Twitter For $1 Billion (GOOG)

Henry Blodget|Apr. 3, 2009, 9:37 AM|54

Print

Tags: Online, Twitter, Google

GOOG Apr 6 2009, 09:41 AM EDT

367.49	Change	% Change
	-2.29	-0.62%

If Google isn't in talks to buy Twitter, it should be.

Specifically, it should offer the company $1 billion, cash. 

Why?

Five reasons:

Google needs a huge new growth engine and Twitter might just fit the bill.  The current search product cycle is coming to an end.  Google needs an "Office" to go with its "Windows."  It hasn't found one yet.  Twitter--and real-time search--could end up being a monster.  If Google waits around to see whether it really WILL be a monster, Twitter will be a hell of a lot more expensive.  Remember when Yahoo's Terry Semel whiffed on buying Google?

Twitter is a hell of a lot more relevant to Google's business than other big Google ideas, such as YouTube or Larry Page's plan to have Google solve the world's energy crisis (see his crazy talk of two years ago).  Twitter is also about communications, which is the one part of the content-communications-and-commerce Internet tripod that Google is still weak in.

$1 billion is couch change for Google.  Google generates $1 billion of cash every two months.  If Twitter ends up being worth $0, as some people persist in thinking, Google can just say "oops" and take a minor write-off.  If Twitter ends up being worth a lot more than $1 billion, however, as we and others think is likely, Google will make money.  If it ends up being a monster, Google will make a lot of money.

Twitter could conceivably threaten Google's cash cow--search.  This "real-time search" meme is actually a compelling story-line. If you want to know what people are talking about right now, you go to Twitter, not Google.  Twitter hasn't figured out how to make bank off that yet, but it may well do so.  Remember how much ridicule was heaped on Google's worthless "search engine" in the early days?

Like Google, Twitter is already a verb.  What company do you know of that owns two verbs?

Would $1 billion be enough to get the Twitter boys to part with their baby?  It might, actually.  $1 billion is still a lot of money, especially for a company with no revenue.  And Google's global distribution and technology infrastructure would be a help to Twitter.  So they'd be silly not to take the offer seriousy.

Twitter: Making Fools of All of Us

Yes, I continue to be stalked in Twitter land. I have not "twitted" (or is it "tweeted") in over a year, yet almost daily get messages that someone new has signed up to follow me on Twitter. Must be boring to follow me, as I have been standing in place in Twitter land. Yet the guys at Twitter continue to "succeed," by certain metrics. The media love them, elites all over the US have adopted it as a platform of "communication" (how much can you really say in 140 characters, perfect for the ultimate soundbite). And they continue to raise money from "serious" VCs.

Keep in mind, while they do theoretically have 6 million users (how many are like me?), as of today they have generated ZERO revenues. Nada. Nothing.

Now I think Twitter is inane enough that even as a non-profit it should be shut down -- I posit that their value proposition is negative. But that's another discussion. Now I want to limit myself to the question of value creation...why is Twitter worth anything in this environment, shouldn't the VCs wait to invest more until after some business model emerges (and has traction)? How much does it cost to run Twitter after all??

Twitter is succeeding at making fools of all of us that are calling for sanity in start-up culture, and has a negative influence on entrepreneurs (everyone wants to be Twitter).

Anyway, I think Jon Stewart best sums up my personal frustration on the service and its contribution to the world...see here:

The Daily Show With Jon StewartM - Th 11p / 10c

Twitter Frenzy

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

What Are "VC Returns"??

So I am back to work (never stopped, but mentally taking me time to recalibrate to current realities), and will start to regularly post again. In the wake of the revelations that the various Emperors have been running around naked, I have been giving a lot of thought to the business I have been in the past few year, the formal VC industry. In some sense, a continuation of the entrepreneurial path I have been on professionally since 1994, as the pitch to a potential investor remains the same in terms of potential retu

A company I am advising, and looking at as a potential investment for us, got this feedback from a well known Israeli VC (one of the franchise operations of a well known American VC):

    Hi Jacob, apologies for the delay in getting back to you. This email seems to have gone to the             wrong folder.

    We are not going to pursue the XXXXX opportunity, though we thought it was extremely                     interesting. it was hard to justify VC returns on this type of investment so we passed. We do             think it is an interesting project with a nice potential.

Ok, so we all know the "wrong folder" trick, just an excuse as to why we don't respond to emails when we should, but look at what they wrote---and explain to me the difference between "nice potential" and "VC returns." When T-bills are paying out less than 1% return, seems to me anything more than that should be considered VC return. After all, with the risk of VC comes reward. What reward justifies the risk? And should shouldn't the level of risk be partof the equation?

I don't have any clear answers to these questions, but everyone involved in start-ups need to think these questions through, whether as entrepreneur seeking investment capital or VC looking to make profits.

For those claiming the VC model is broken, I say the world is broken. We all need to figure out how to fix it, and make a living at the same time...

 

Locked Out of Facebook: NOT Mission Critical

Received a Facebook message notification this morning through email. Now, this was actually an important message that I needed to respond to in a timely fashion, from someone I became Facebook "friends" with, but did not have his direct contact info (nor he mine, which is why he used Facebook to communicate).  When I tried to respond, received the message below (yes, tried a few times)...obviously Facebook is not ready to be a "mission critical" application. No company is too big to fall. Unless Facebook grows up and becomes a truly always-on app, achieving a 99.999% service level, they will fall.