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4 days ago
in The Mobile Challenge on Union Square Ventures
Hi Fred,
We're focused on the Enterprise ($$). We wanted a way that an enterprise could reduce their risk regarding mobile app development, and yet take advantage of GPS etc inside a smartphone while still retaining control/privacy over their data.
Let me give you an example using a large engineering/services company. They have 3,000 employees who are all using Blackberry's. These BB's have GPS in them and they want to access that data and use it for their SmartStatus portal which is browser based. They install a simple mobile app that access the GPS data and then makes it available to the smartstatus web portal whenever their employees login using the browser.
Now they've also decided that they want to incorporate Windows Mobile smartphones into the mix to reduce their dependencies on BB's and the BES server. They want to leverage everything they've done and want an identical solution on another platform.
Using this browser approach you can deploy in less than 30 days. The mobile app is cross platform - the interface is the browser so there is nothing new to learn, and there are no programming changes on the portal server.
If we had to build a mobile app with a full UI and make it identical across multiple mobile platforms the cost would huge (100k or more) and may take 6 - 9 months. The alternative approach is web services and a single set of business logic that can be controlled by their existing programming staff.
For more background on why I think the future of mobile is web services here is a great read http://communities-dominate.blogs.com/brands/20... (it's really long). The key section is titled "Software" followed by "Web based services, not apps". Now I usually disagree with the author, however not this time.
Mobile apps might be fine for the consumer (iPhone) but the Enterprise is a more complex beast. All they want is to leverage what they have and reduce the risk. The way to do that and ensure consistency across everything is the browser and web services.
The problem is simple - get the data off the phone and into the browser. Harder to solve than most think.
We're focused on the Enterprise ($$). We wanted a way that an enterprise could reduce their risk regarding mobile app development, and yet take advantage of GPS etc inside a smartphone while still retaining control/privacy over their data.
Let me give you an example using a large engineering/services company. They have 3,000 employees who are all using Blackberry's. These BB's have GPS in them and they want to access that data and use it for their SmartStatus portal which is browser based. They install a simple mobile app that access the GPS data and then makes it available to the smartstatus web portal whenever their employees login using the browser.
Now they've also decided that they want to incorporate Windows Mobile smartphones into the mix to reduce their dependencies on BB's and the BES server. They want to leverage everything they've done and want an identical solution on another platform.
Using this browser approach you can deploy in less than 30 days. The mobile app is cross platform - the interface is the browser so there is nothing new to learn, and there are no programming changes on the portal server.
If we had to build a mobile app with a full UI and make it identical across multiple mobile platforms the cost would huge (100k or more) and may take 6 - 9 months. The alternative approach is web services and a single set of business logic that can be controlled by their existing programming staff.
For more background on why I think the future of mobile is web services here is a great read http://communities-dominate.blogs.com/brands/20... (it's really long). The key section is titled "Software" followed by "Web based services, not apps". Now I usually disagree with the author, however not this time.
Mobile apps might be fine for the consumer (iPhone) but the Enterprise is a more complex beast. All they want is to leverage what they have and reduce the risk. The way to do that and ensure consistency across everything is the browser and web services.
The problem is simple - get the data off the phone and into the browser. Harder to solve than most think.
1 reply
Peter Semmelhack
Peter - I totally agree with you. Everyone forgets that before Windows, ISVs had the same problem with microcomputers. And until there is a similar situation in mobile (which I sincerely hope does *not* happen) the browser/web services/etc represent the only sane way to develop cross device/cross network mobile applications. Otherwise you choose a platform and pray.
4 days ago
in The Mobile Challenge on Union Square Ventures
Vladimir,
We faced a unique set of challenges when we built our solution. We use the mobile browser to communicate user, device and location information from the Smartphone. We add the meta data to the outgoing HTTP headers. Our issue was twofold - how do we protect the privacy of this new data and how do we integrate it into the Enterprise back end without requiring Admins to learn anything new. (We solved the problem by creating generic headers which can be read by any script and then you use CGI to pass the data to any back end service that needs it (mash out). This is different from device fragmentation. Which requires that you test on lots of different devices. We don't have that issue because we're "inside" the browser.
We faced a unique set of challenges when we built our solution. We use the mobile browser to communicate user, device and location information from the Smartphone. We add the meta data to the outgoing HTTP headers. Our issue was twofold - how do we protect the privacy of this new data and how do we integrate it into the Enterprise back end without requiring Admins to learn anything new. (We solved the problem by creating generic headers which can be read by any script and then you use CGI to pass the data to any back end service that needs it (mash out). This is different from device fragmentation. Which requires that you test on lots of different devices. We don't have that issue because we're "inside" the browser.
1 reply
Vladimir Vukicevic
But even though you're inside the browser isn't fragmentation still an important issue? How did you manage to optimize the look-and-feel of the interface (whatever that might be) for all the different screen-sizes and form-factors (touchscreen, the BlackBerry ball, etc.)?
4 days ago
in The Mobile Challenge on Union Square Ventures
Very well stated. A mobile app per se is not a sustainable business model. You have to dig much deeper to uncover the real customer problem. And even when you figure that out, marketing, distribution and price sensitivity all play a big role. Finally don't forget integration - that's a far harder problem to solve the fragmentation.
1 reply
Vladimir Vukicevic
What do you mean by integration in this context?
5 days ago
in The Mobile Challenge on Union Square Ventures
Barry,
Do you have a web based (browser) version of your train logic? If so our mobile app can send you real time GPS and or Cell Tower information and they you can display the results in the browser.
Cheers,
Peter
Do you have a web based (browser) version of your train logic? If so our mobile app can send you real time GPS and or Cell Tower information and they you can display the results in the browser.
Cheers,
Peter
1 reply
Barry Engel
Peter, our mobile app already uses the native GPS and mapping from the phone - combined with schedules. Please tell me if you see something else. Thanks! Barry
5 days ago
in The Mobile Challenge on Union Square Ventures
I'd use the browser. Simply extend the current web services/app paradigm to Mobile. That way it scales across all devices, can use one set of business logic and reduces risk and costs of deploying standalone mobile apps.
1 reply
fredwilson
I'm a big fan of the mobile browser too but it does seem like the prevailing delivery package today is the mobile app, not the browser
3 weeks ago
in Twitter…Top or Opportunity? on Howard Lindzon
Here's Twitter's problem... in 3 minutes you had 20 recommendations. Friction to obtain those answers = zero. Cost to obtain those answers = zero. Value generated to you = Priceless... cost to Twitter $$$ to support all of that. Every time they give you value they lose money, and they repeat that on every single tweat. It's simply not a sustainable business model.
You say that you would pay for the service... ok, how much would you, how would you pay, to whom would you pay, how long would you pay. Lots of questions unanswered. And therein lies the rub. It's all about value given and received. The second you don't get value you'll be like your son and your loyalty will switch with a click to the next "percieved" value provider.
You have no idea whether the Twitter top is in, and the kicker is - nor does anyone else.
Cheers,
Peter
You say that you would pay for the service... ok, how much would you, how would you pay, to whom would you pay, how long would you pay. Lots of questions unanswered. And therein lies the rub. It's all about value given and received. The second you don't get value you'll be like your son and your loyalty will switch with a click to the next "percieved" value provider.
You have no idea whether the Twitter top is in, and the kicker is - nor does anyone else.
Cheers,
Peter
1 reply
howardlindzon
Thx peter. You nailed me but its just a blog post.
I would pay per request or monthly.
I am in agrremment re twitter having difficulty monetizing but the platform in some form wikl continue to be viral and cost structures of services low enouhgh and scalable enough to make biznesses
I would pay per request or monthly.
I am in agrremment re twitter having difficulty monetizing but the platform in some form wikl continue to be viral and cost structures of services low enouhgh and scalable enough to make biznesses
2 months ago
in The Venture Capital Math Problem on A VC
Fred,
Let's make the math simple. (and the see if it scales). You raise a $100m fund. The LP expects a 3x return back to him. So you have to turn that $100m into "at least" $400m (this covers your expenses and your carry). Now so as to not get eaten alive by inflation (none at the moment) and interest (low at the moment) you have about 4 years to return that asset to the LP. You have then a year to invest that $100m (get it working). Lets say that you invest $10m each time (huge number). You will have to do a deal a month (then take two months vacation for a job well done). You sit back and wait for 3 years for all your investments to exit (not happening now). You know a 1/3 will fail ($33 million down the drain) you know that a 1/3 will break even ($33m for the LP - not good enough you have $367 million to go). Your final 1/3 (actually 4 investments) all hit a five X. So that's $200m returned to the fund. So lets check the math so far:
1/3 - nothing
1/3 - even - $33m
1/3 - 5x - $200m
Total returned over 4 years $233m. Pretty good actually - I doubt the LP could double his money in 4 years.
Now for reality. There's no way you can do 10 ten million dollar deals in a year. It will take 8-10 years to spend that amount. There's no way that 4 of your companies are going to exit with a 5x multiplier (not for the next 10 years anyway).
So what are the chances that your class (VC) can return even a 2x on the $100m in a 7 year time frame. I bet it's a lot less AND with a lot less risk than the LP can do himself by placing safer investment bets.
The Black Swan for the VC's is now clear - there are NO exits and I need to add a qualifier here before you jump on me - "In a time frame that makes it a viable asset class". It's the "AND" that is causing the problem. You will have to hold longer, your companies will HAVE to be profitable and they will have to be either acquired or IPO (huge barriers).
You math above shows that the VC business has now changed forever. You got a reprieve in 2000 because Alan Greenspan made money cheap and Wall Street did some financial engineering - but it was all smoke and mirrors. The chances are that it won't return for at least a decade which means that the Entrepreneurs really have to build "measurable, sustainable, profitable revenue from volume" for less than $15m invested and then drive up the value so that there's a decent enough valuation that the price per share that you exit with is high enough. (Assumes that you got in early enough).
And if your still reading (thank you)...so far I see you as one of the few VC's who understands the business well enough to get in early and set the capital structure of the company... because what few realize is that capital structure of a company is going to play a HUGE role going forward IF you are lucky enough to get an exit.
Cheers,
Peter Cranstone
Let's make the math simple. (and the see if it scales). You raise a $100m fund. The LP expects a 3x return back to him. So you have to turn that $100m into "at least" $400m (this covers your expenses and your carry). Now so as to not get eaten alive by inflation (none at the moment) and interest (low at the moment) you have about 4 years to return that asset to the LP. You have then a year to invest that $100m (get it working). Lets say that you invest $10m each time (huge number). You will have to do a deal a month (then take two months vacation for a job well done). You sit back and wait for 3 years for all your investments to exit (not happening now). You know a 1/3 will fail ($33 million down the drain) you know that a 1/3 will break even ($33m for the LP - not good enough you have $367 million to go). Your final 1/3 (actually 4 investments) all hit a five X. So that's $200m returned to the fund. So lets check the math so far:
1/3 - nothing
1/3 - even - $33m
1/3 - 5x - $200m
Total returned over 4 years $233m. Pretty good actually - I doubt the LP could double his money in 4 years.
Now for reality. There's no way you can do 10 ten million dollar deals in a year. It will take 8-10 years to spend that amount. There's no way that 4 of your companies are going to exit with a 5x multiplier (not for the next 10 years anyway).
So what are the chances that your class (VC) can return even a 2x on the $100m in a 7 year time frame. I bet it's a lot less AND with a lot less risk than the LP can do himself by placing safer investment bets.
The Black Swan for the VC's is now clear - there are NO exits and I need to add a qualifier here before you jump on me - "In a time frame that makes it a viable asset class". It's the "AND" that is causing the problem. You will have to hold longer, your companies will HAVE to be profitable and they will have to be either acquired or IPO (huge barriers).
You math above shows that the VC business has now changed forever. You got a reprieve in 2000 because Alan Greenspan made money cheap and Wall Street did some financial engineering - but it was all smoke and mirrors. The chances are that it won't return for at least a decade which means that the Entrepreneurs really have to build "measurable, sustainable, profitable revenue from volume" for less than $15m invested and then drive up the value so that there's a decent enough valuation that the price per share that you exit with is high enough. (Assumes that you got in early enough).
And if your still reading (thank you)...so far I see you as one of the few VC's who understands the business well enough to get in early and set the capital structure of the company... because what few realize is that capital structure of a company is going to play a HUGE role going forward IF you are lucky enough to get an exit.
Cheers,
Peter Cranstone
1 reply
fredwilson
Peter
I did read the whole comment (thank you)
Most of what you say is right. But we have deployed about 100mm in our first fund over five years by starting with 250k to 750k seeds and then scaling our investments over time
We now have 7mm to 10mm in most of our top third which is about 7 companies including one which we've exited from (tacoda)
We called that 100mm over five years and will call the final 25mm over the next five years. Our capital calls over time looks like an s-curve with the steep part of it being in years three and four
The model still works if you do it right
I did read the whole comment (thank you)
Most of what you say is right. But we have deployed about 100mm in our first fund over five years by starting with 250k to 750k seeds and then scaling our investments over time
We now have 7mm to 10mm in most of our top third which is about 7 companies including one which we've exited from (tacoda)
We called that 100mm over five years and will call the final 25mm over the next five years. Our capital calls over time looks like an s-curve with the steep part of it being in years three and four
The model still works if you do it right
6 months ago
in There's Plenty Of Oxygen In The Air on A VC
You wrote...
Any company that can figure out how to get over a half a million rabid users/bloggers on it platform and reach 15mm unique visitors a month with just six people, three of which have just joined, isn't going to be suffering from asphyxiation any time soon.
Maybe so... however the real issue is this... can they get to measurable, sustainable, profitable revenue from volume? Let's do some back of the envelope math... take 1% of 500,000 users as those who are willing to pay for a premium service. That's 5,000 users. Let's charge them $10 a month. That's 50k a month or $600,000. Now lets say we get some attrition each year, however this is countered by growth of the premium accounts of say 5%. Net growth number is 3% a year. Over 5 years maybe they get to $5m a year in revenue.
Most VC's wouldn't even show up for that. Heck most Angels won't. However there is something here. Lets say that the $4.5m was done at a pre of $6m for a post of $10.5 - the real issue here (which of course no one talks about) is the number of outstanding shares. Let's say there were only 3m pre and 5m post. (post share value is $2)
Now fast forward a few years (they have enough runway for at least 2 more years). They grow the user base, add a premium channel and get to maybe a run rate of $2m a year. Big Co comes along and offers $10 a share for all the outstanding. (Total exit price is $50m which is right in the current M&A range)
VC exits stage left with a 5x return over 2 years. Compare this to stock market returns over the next 2 years and this is a grand slam.
So what's left to do? That can be summed up in a single word. "Execute". Deliver growth (doesn't have to be huge) get people converted (at least 1%) to a premium model and then sell in two years.
Tumblr has done 2 rounds - A & B. Total raise is $5m plus and "IF" they can exit in 2 years the VC has played it perfectly. If they need a C round then the 5x is going to drop.
So there you have it. 5x if the Tumblr team can execute AND the VC can get the exit. If not then all bets are off. However what has happened here is risk mitigation by getting in early before the Cap table gets out of hand.
You just have to remember that while profits are the mothers milk of companies, the price per share is the mothers milk to the VC. Get in early, control the cap table, get the team to execute and then get out before the C round and that's what great returns are made of.
Cheers,
Peter
Any company that can figure out how to get over a half a million rabid users/bloggers on it platform and reach 15mm unique visitors a month with just six people, three of which have just joined, isn't going to be suffering from asphyxiation any time soon.
Maybe so... however the real issue is this... can they get to measurable, sustainable, profitable revenue from volume? Let's do some back of the envelope math... take 1% of 500,000 users as those who are willing to pay for a premium service. That's 5,000 users. Let's charge them $10 a month. That's 50k a month or $600,000. Now lets say we get some attrition each year, however this is countered by growth of the premium accounts of say 5%. Net growth number is 3% a year. Over 5 years maybe they get to $5m a year in revenue.
Most VC's wouldn't even show up for that. Heck most Angels won't. However there is something here. Lets say that the $4.5m was done at a pre of $6m for a post of $10.5 - the real issue here (which of course no one talks about) is the number of outstanding shares. Let's say there were only 3m pre and 5m post. (post share value is $2)
Now fast forward a few years (they have enough runway for at least 2 more years). They grow the user base, add a premium channel and get to maybe a run rate of $2m a year. Big Co comes along and offers $10 a share for all the outstanding. (Total exit price is $50m which is right in the current M&A range)
VC exits stage left with a 5x return over 2 years. Compare this to stock market returns over the next 2 years and this is a grand slam.
So what's left to do? That can be summed up in a single word. "Execute". Deliver growth (doesn't have to be huge) get people converted (at least 1%) to a premium model and then sell in two years.
Tumblr has done 2 rounds - A & B. Total raise is $5m plus and "IF" they can exit in 2 years the VC has played it perfectly. If they need a C round then the 5x is going to drop.
So there you have it. 5x if the Tumblr team can execute AND the VC can get the exit. If not then all bets are off. However what has happened here is risk mitigation by getting in early before the Cap table gets out of hand.
You just have to remember that while profits are the mothers milk of companies, the price per share is the mothers milk to the VC. Get in early, control the cap table, get the team to execute and then get out before the C round and that's what great returns are made of.
Cheers,
Peter
1 reply
fredwilson
Peter
That's all correct and is part of the investment equation here
But there's one thing you left out of your math
Let's say that 5mm/year of revenue is achieved with a 15 person team, 2.5x what they have now
Then its possible that the profits could be 2.5mm per year on 5mm of revenue and at 12x pre-tax, that's worth 30mm
I've written a lot about this. With web services, its possible to get to interesting ebitda levels on a lot less revenue if you stay lean and capital efficient
Tumblr would be a good candidate for this model given what they've achieved to date
And I think the take rate on premium will be a lot higher than 1pcnt, but of course we'll have to see
That's all correct and is part of the investment equation here
But there's one thing you left out of your math
Let's say that 5mm/year of revenue is achieved with a 15 person team, 2.5x what they have now
Then its possible that the profits could be 2.5mm per year on 5mm of revenue and at 12x pre-tax, that's worth 30mm
I've written a lot about this. With web services, its possible to get to interesting ebitda levels on a lot less revenue if you stay lean and capital efficient
Tumblr would be a good candidate for this model given what they've achieved to date
And I think the take rate on premium will be a lot higher than 1pcnt, but of course we'll have to see
9 months ago
in Should I get an iPhone or an Android? on Mathew's comments
Depends... what problem are you trying to solve and what are you willing to pay for it. Voice is a done deal - no need to pay through the nose anymore. That leaves the data plan and what you're going to access with it. Is it a must have or a nice to have?
Decide exactly what apps you need to run on it and then compare against the competitors. My bet is that a Blackberry will work just fine - the iPhone will look better in your pocket and the Gphone will make you look hip. It all boils down to your wants and your needs. The rest is simply marketing.
Cheers.
Peter
Decide exactly what apps you need to run on it and then compare against the competitors. My bet is that a Blackberry will work just fine - the iPhone will look better in your pocket and the Gphone will make you look hip. It all boils down to your wants and your needs. The rest is simply marketing.
Cheers.
Peter
1 reply
mathewi
Thanks, Peter. Good advice.
