Alfidi Capital at Google Demo Day 2017

I had to check out Google Demo Day 2017. I'm getting quite accustomed to seeing brand new stuff at Google Developers Launchpad in San Francisco and the Demo Day was right up my alley. I don't need to repeat what the competing startups said in their pitches, because that's not why my readers are here. They're here for my original insights. Yes, I'm talking to you.

Google Launchpad gave out booklets on Demo Day 2017.

I took away some pretty clear lessons for startup founders based on the give and take between the judges and the pitching startups. Target your first vertical aggressively. Know your biggest competitors (how to position yourself, and how they'll counter you). Clearly explain your user experience (UX). Briefly walk through a successful use case from a paying customer. Know your capital requirements and how scaling up will affect both capex and opex. Explain how your solution shortens a customer's procurement decision cycle, which will be longer in some hardware-intensive verticals.

The implied tasking for entrepreneurs who need to forecast capex and opex is to either thoroughly know financial analysis prior to launch or bring on a CFO immediately after raising Series A. I have mentored a few startup founders through the basics of business finance. It is not child's play.

The VC judges picked a winner among the pitching candidates, and I was pleasantly surprised that it was the one I picked as a winner before they voted. See folks, I do think like a VC. The winner was a financial market application, so I admit my natural bias in seeking something in my sector, but a few other startup candidates had some decent ideas. One idea that I thought would go nowhere was too easy for established competitors to duplicate.

Hey Google developers, you're going to see me at the Launchpad a lot more now that I know its location. I really like the shiny, snazzy name badges they sometimes make for attendees. I should get a permanent one since I plan to be there so often.

The Haiku of Finance for 11/09/15

Impressive venture
Investors fully fund it
Pay for startup hype

More Thoughts On Launching API Startups

My experience at Integrate 2015 got me thinking about how APIs and other elements of the data supply chain can be stand-alone enterprises. I will throw my thoughts from our VC perspectives panel out on the Interwebs to see if any of them stick to entrepreneurs.

The successful API supports an app ecosystem. Other businesses in related sectors code their own apps to share affiliate revenue with the API owner for every transaction their apps process. Airlines and hotels build apps around Uber's API because their customers see value in having a short-haul transportation link. Uber's app ecosystem becomes a durable competitive advantage because the app owners would have to build a whole new app if another virtual taxi company tried to displace Uber. Digital infrastructure like apps impose some switching costs on partners, but those costs are probably not insurmountable for competitors.

One thing making APIs a core business model is the continuing integration of cloud, mobile, and Big Data solutions. Some parts of this convergence are coming along fine, like the analytics suites now part of most middleware. Other parts are not working because venture capitalists have wasted lots of money on startups with lame mobile concepts. Venture funds can force their portfolio companies to pivot from a mobile or cloud solution when something isn't working out. That's how they try to save their investments. Targeting APIs for venture investment means the least successful among them will be candidates for forced pivots.

I like startups that understand Customer Development, the Business Model Canvas, and Cloudonomics. Founders should download those white papers, hit the books, and work the equations. Revising the API business plan after working those three areas shows investors that they take de-risking seriously. Corporate development groups in particular carry marching orders form their enterprise mothership to fund startups that improve their internal KPIs and match their product lines. Startups can use Cloudonomics calculations to prove their APIs are a better investment. Cloudonomics is as compelling for IT as modern portfolio theory is for finance, because it offers a disciplined methodology for allocating limited capital among a potentially unlimited number of investment options.

I do not like startups that do not understand the new opportunities and risks of raising capital under the JOBS Act. The SEC continues to publish new rules defining what private companies can and cannot do to attract investment. Anything I blogged about in the past regarding crowdfunding will likely be obsolete by the end of 2015 as the SEC finishes its unfinished business. Startups will have to engage competent legal counsel earlier in their development process to understand JOBS Act compliance. Founders must meet all of the SEC's compliance requirements before they appear in front of pitch fest panels or hang pitch decks on crowdfunding portals. No one wants to be shut out of raising capital because they did something noncompliant.

Data sector startups can tell their stories more effectively by having a founding CEO who knows sales. It really is that simple. Technical founders love solving technical problems, but they may not know how to solve problems with financial or emotional components if they have never worked in sales. It goes back to the classic split in startup teams between the scientific co-founder who becomes the CTO and the MBA-type serial entrepreneur who becomes the co-founding CEO.

If I only had so much money to commit to a venture investment, I would prefer Big Data and cloud concepts over APIs or IoT. The industry standards for data and cloud are firmer than those for APIs and IoT, so the durable competitive advantages of a given business model will be clearer where standards are firmer.

No enterprise can ever indemnify itself by outsourcing risk. Trusting an untrustworthy partner brings a boatload of risk assumptions. Outsourcing an API means trusting someone else's coding with no supervisory input. If the API passes dirty or fraudulent data into analytics, the enterprise's compliance regime becomes a target for regulators. Don't ask for trouble by handing off mission critical API management to a third party.

Chew on all that stuff, API people. There's enough genius here for several weeks of boardroom discussions. Barriers to entry in API development are pretty low, just like in gaming, because the only immediate limit is a developer's imagination. The API businesses will be the next big thing in the mobile Big Data cloud.

The Haiku of Finance for 06/01/15

Hot babe in finance
Let's make some cash together
Show me your assets

Financial Sarcasm Roundup for 06/01/15

I had a really good time at the Commonwealth Club's 84th annual California Book Awards tonight.  The free booze and hot babes on hand put me in such good spirits that it's difficult to switch back to sarcasm mode for this article.  I said difficult, not impossible.

Ellen Pao is still pursuing her former employer through the courts.  I feel for anyone who suffers unjustly at the hands of an employer's asymmetrical power.  I've been there myself.  I think the easier route for successful VC women is to start their own investment firms and leave the good old boys' clubs far behind.  I'm all about women making big bucks on their own, especially if they spend it on dinner and drinks with yours truly.

The hotel business thinks it has a bright future.  I think they're wearing rose-colored glasses.  Disposable income drives leisure travel spending.  Corporate earnings drive business travel spending.  Both of those drivers will be imperiled in the next recession.  Straight-line growth projections only work in an economic expansion's first couple of years.  A lot of franchised downscale hotel operators and Chinese investors are going to get their rear ends handed to them.

US oil frackers are at some kind of crossroads.  Saudi Arabia is not turning off its pumping spree and many more highly leveraged US drillers are due to implode.  I think any fracking company is crazy to pump more or buy out a competitor unless it has a year's worth of cash, very little debt, and a plan to shut down high-cost wells.  I am of course giving frackers too much credit for foresight.  A lot of inexperienced fly-by-night operators will become very familiar with bankruptcy court, and probably divorce court.

I don't plan to write a book for submission to the next California Book Awards.  If I did, it would be about the stupid investors who went whole hog into hotels and fracking.  The sequel would be about hot finance babes who should partner with me on early-stage ventures, plus other exciting ventures of an intimate nature.  I am sure these literary works would sell like hotcakes because I am clearly the greatest writer in human history.

The Haiku of Finance for 04/20/15

Some new startup trend
Next sinkhole for capital
Cool way to get poor

Momentum Blasts Off Fintech Founders Lab In April 2015

I blogged last year about Momentum's fireside chats in downtown San Francisco.  Momentum has broadened its focus beyond mobile, as one can tell from their portfolio.  The latest Momentum initiative is the Fintech Founders Lab, which I attended tonight.  Venture investors and startup founders shared their experiences in tech land with those of us curious enough to learn.  My comments below represent what I learned.

Many hurdles trip up fintech projects.  Building relationships with regulators helps only if you can get out in front of potential problems by asking an agency to issue a "no-action letter" or its equivalent.  Firms with dominant market size can crush competitors with marketing spending, but that won't be enough to destroy a startup that truly hits pay dirt and builds a large market.  The big firms will then try intimidation through lawfare.  Charles Schwab built his brokerage the old fashioned way and the big wirehouse firms hit him with lawsuits.  Schwab survived legal challenges because the firm built undeniable financial strength.  Poorly financed startups today would fold at the first "cease and desist" letter from a large competitor's in-house counsel.  Regulatory arbitrage is an advantage for those fintech startups that pick only one jurisdiction.  Competing in multiple geographic markets or in more than one vertical means getting approval from multiple regulatory regimes.  Founders must think about how much insurance and how many securities licenses they will need before starting their roadshows.

Fintech founders have figured out Customer Development.  The data they get from the first 100 conversations within their target market gives them a better business plan.  Investors have also figured out fintech founders.  I have reviewed the template due diligence checklists found on the leading VC and angel associations' websites.  The checklists don't prioritize intangibles like founders' personal integrity or problem solving ability.  Evidence for those qualities is always anecdotal but frequently on display in due diligence conversations.  Conjuring a phantom pain point by making easily disprovable claims about merchant problems will make investors check the NO block on character.

Someone brought up Bitcoin, of course.  The panelists showed maturity by putting the concept in its place.  The earliest Bitcoin exchanges have flamed out after massive fraud and security breaches.  VCs are getting smarter about looking past Bitcoin's "store of value" fallacy.  Pivoting to a transaction framework makes the most of Bitcoin's open source ability.  It also means more regulation is coming.  I would like to see Bitcoin fans addresses the protocol's irreversibility.  Consider that a fraudulent charge executed in Bitcoin after identity theft will leave the victim permanently damaged if a payment processor cannot cancel it.

Financial startups are not like gaming or messenger app startups.  Business plan homework starts with regulatory research.  Payment processing fintech must start with the FTC or CFPB.  Banking fintech must start with the FDIC and Federal Reserve.  Brokerage fintech must start with the SEC and FINRA.  Startup teams will need a Chief Compliance Officer very early in their formation.

Heavy disruption is taking its sweet time in coming to finance.  I concur with the expert panelists that personal creditworthiness metrics need a 21st century makeover.  FICO scores are ripe for disruption with all of the Big Data the credit bureaus can access.  The financial crisis of 2008 proved that mortgage origination and institutional credit rating agencies also deserve disruption.  The biggest disruptions getting traction right now aren't in the heavily populated spaces like payment processing, where coders seem to land once their gaming startups flame out.  The real winners now are the AI brokerages that will eventually eliminate the highly compensated salespeople and relationship managers earning the bulk of the compensation in finance.

All of these other "disruptive" ideas are great within finance verticals but they must ultimately be linked to the IoT revolution.  A new POS terminal developed in isolation risks failure if merchants can't connect it to in-store IoT tools like beacons and video tracking.  Merchants want a whole suite of software and hardware that will tell them in detail where their same-store sales came from down to the minute, dollar, and square foot.  The systems integration opportunity will be enormous for vendors who can plug compatible IoT things together.

I have spent several years mentoring startups both on my own and through a couple of California-based accelerators.  I want to see what a Business Model Canvas looks like for a finance startup.  Fintech accelerators know where to reach me if their companies need mentoring.  Alfidi Capital is all about hot finance action.

The Wrong Ways to Fund a Dream

The perpetual merry-go-round of entrepreneurs and investors is full of wondrous sights.  I wade through the chaff so my readers don't waste their time.  I run down blind alleys far enough to know when to run back out.  I recently ran down one such alley with a group I used to think was reputable.  I shall correct that misjudgment right here in this article.

Raising capital requires hard thinking about proven methods.  Appeals to faith don't hold water.  It's not enough to tell people they've gotta believe in a capital raising system.  The system has to actually work.  If it is designed with a hidden agenda in mind, such as funneling deal flow to asset managers who do not have relevant expertise in helping startups, then the system does not deserve to be considered angel investing.

Introducing angel group team members begs questions about why they are on the team.  Are they experienced investors?  Are they entrepreneurs with successful exits?  If those don't apply, and they're just good technicians, then they are probably in over their heads as mentors to entrepreneurs.

People who want to inflate themselves will sometimes drop names of prominent people they've met casually, or who were early into deals when they themselves came in late.  That does not imply any formal business relationship between the big shot and the braggart.  I have been in the same room with tons of Silicon Valley's biggest names and none of them cared about me at all.  There is no way I can claim those billionaires as business partners.  Anyone can photograph a casual encounter with a business or political celebrity.  So-called investors who run their mouths about phantom partners should either publish proof of their claimed relationships or shut up.

I have never heard of waiting to the end of a receiving line to maximize face time with a VIP.  Think about it, people.  All VIPs are busy and waiting to be last in line risks missing them altogether when they have to pick up and leave for their next event.  Waiting around is never an effective tactic in my experience; being first in line for anything is much more likely to bring success.

In a similar vein, I have never heard of mapping out a wealthy prospect's personal network of gardeners and gold partners as a means of planting a venture pitch in their ear.  That is just plain ludicrous.  Every effective prospector knows the importance of getting past gatekeepers, not converting them into an unpaid sales force.

Angel investors are supposed to know certain things about technology startups.  They should know that a provisional patent offers some IP protection for a pre-revenue stage startup.  They should know that traction means sales, and nothing else.  They should know that metrics like CAC and LTV are ways to measure a marketing campaign.  They should not have to lean on an audience member to explain widely adopted concepts like the Lean Startup method.  They should know how funding rounds are linked to achieving operational milestones.  They should understand that VCs expectations are partly driven by a need to return capital to their investors, and that VC funds' stated lifetimes affect a startup's path to its exit event.  Finally, angel investors should know that an early expectation of an X-multiple ROI works backwards from the exit's terminal valuation, adjusted for dilution by terms offered to different investors.  I cannot take an "angel investor" seriously when they demonstrate obvious ignorance of these concepts.

Business fakers should be grateful that I am in solid control of my blood pressure.  Otherwise, I would be blowing up when I see self-described business leaders pull amateurish stunts.  I dislike watching an entrepreneur tell minions to adjust event admission prices at the door based on whether an attendee looks like they can afford to pay.  Doing that with real products or services leads to FTC complaints.  I also dislike watching a featured speaker adjust their presentation slides 20 minutes prior to showtime, wing it through the presentation, allow audience questions to go unanswered, and otherwise show a total disregard for people's time.  All of these things are very bad signs.  I run away from this behavior when I see it.

I cannot take seriously any claimed expert who engages in the bizarre tactics I described above.  Anyone who approaches early-stage venture investing in this manner will never figure out how to get their dream funded.

Startup Pitch Coaching Lessons Learned in September 2014

I had a fun day down in sunny Palo Alto today, coaching tech startups through their Cleantech Open pitches.  I learn as much from these sessions as the startups learn from me, if not more.  I am morally obliged to share my incredible genius with the masses.  This stuff is totally random and chaotic, just like running a startup.

The opening slide is the ideal time for the pitcher to state their name and title.  It's usually the founding CEO, and there needs to be a really good reason if it's someone else, like if the founding CEO is off pitching top-tier VCs at a major pitchfest and the COO has to give this other pitch to a second-tier angel club.  The intro of a long pitch is also a good time to reiterate the 30-second elevator pitch.  The elevator pitch ought to be on every employee's desk, repeated like a mantra whenever someone at the startup meets the general public.

Technical specs on competing products are less compelling than describing competing enterprises' market positions.  Knowing the big competitors' market size, solvency, and ability to defend their market positions shows a mature understanding of competitive reactions to a disruptive entrant.

Describing the team's composition is very important.  I am not swayed by headshots unless they depict really hot babes, with cleavage and pouty come-hither looks.  Okay, seriously, the team slide must describe what each team member brings to the game:  the scaling / serial entrepreneur, the scientific co-founder's patents, the super-salesperson who grew a product from zero revenue to eight figures or more annually.  Venture investors like visual stimulation and VCs in Silicon Valley are often focused on brand-name pedigrees.  VC partners with tech backgrounds have lots of Berkeley and Stanford degrees, and the ones with business domain experience have lots of Harvard and Wharton MBAs.  Logos for prominent schools and corporations are easy ways to make statements about the quality of the team's experience.

Never ignore Big Data as a cost center, revenue stream, and source of liability.  It's all the rage anyway and competently addressing its many facets shows maturity.  Big Data has storage costs in the cloud and they will grow with app downloads.  It can be a revenue source if its predictive analytics offer enterprise clients some ways to optimize whatever they do on their own.  The absence of privacy policies and other regulatory compliance standards opens the door to lawsuits.

Founders who are fully invested in their startups impress the heck out of sophisticated investors.  This is one bullet point that is best mentioned in passing while briefing the team slide.  It shows do-or-die commitment.  Some VC is eventually going to ask about it.

Look at my wonderful picture just above.  I drew this simple milestone slide as a sample of how startups can portray their growth expectations.  I believe it links projected revenue over time to product achievements and capital raising needs.  It also displays some kind of exit event.  Later investors want to know what the founders plan to do once the startup is successful.  The startup's strategies for finance, marketing, and capital raising are adjacent lanes on a highway, and the startup will change lanes at high speed.  Pushing back a milestone in one lane also pushes the others back the same distance.  Just link them all.  Each inflection point on the S-curve to adoption is theoretically driven by some success that justifies more capital.

I will never understand why some founders want their pitch decks to look like works of abstract art.  Diagrams showing lots of internal references between business units invite confusion.  Successful enterprises have an external orientation facing customers and results, not internal orientations facing their own processes.

The "secret sauce" of some magic technology means nothing if it does not generate a product with better / faster / cheaper characteristics.  Patents are nice but the consensus I've seen from VCs is that IP protection is worthless for a company that can't sell a viable product.  Stating price points and market positioning helps investors understand whether some startup can truly reach its target market.

The overused term "partnering" begs questions about what these partners bring to the table.  I want founders to tell me which of those corporate logos are in the supply chain because they're affordable, which are effective distribution channels, and which of the non-profits are helping ease the regulatory burden.  If they're just on the slide because someone in their purchasing department thought the startup had a neat idea, well, then they're not really a partner.

Everyone makes mistakes.  Founders should tell me how great they are at problem-solving and not belabor their mistakes.  My biggest mistake was attaining a degree from the University of Notre Dame that later proved worthless.  I recovered from that error by cutting off all contact with Notre Dame snobs who want me to fail.  Founders are free to describe how they triumphed over adversity, just like any good college football team that defeats the Fighting Irish.

Someone who is very proficient in the English language must proofread the pitch slides before the founding CEO makes them public.  This is more than just slapping in a Safe Harbor statement now that the JOBS Act puts pitches to non-accredited audiences (including those on crowdfunding portals) under SEC scrutiny.  Fix the typos and make the fonts readable.

Venture capitalists are renowned for their pattern recognition abilities.  They compare unknown enterprises to known business models.  Self-identifying as the "Uber of something" makes sense if they deploy a free app that programs an affordable service.  Self-identifying as the "eBay / PayPal of something" makes sense if they control an online marketplace that reduces several friction sources.  Cleantech startups have existing markets as reference points.  Renewable energy feed-in tariffs, solar  panel rebates, biofuel RINs, and carbon credits are all valid aids in pattern recognition.  Use them wisely if they resemble something brand new.

I told you this stuff is random.  Alfidi Capital is your source for truth.  Entrepreneurs are responsible for figuring out how to display their own genius in Guy Kawasaki's 10-20-30 structure or whatever format they must send to some pitchfest.  I'm outta here.  See you all tomorrow, or whenever.

Thoughts on Approaching Venture Investors in Round One

Bank of America's Small Business Community had a good article on May 9, 2014 about how to approach investors.  I concur with all of its major lessons.  I'll add my own thoughts to the important points covered.

A "pain point" is a vexing problem that existing products and services don't solve in a given market.  A disruptive innovation solves this problem.  One pain point in the finance sector is the ability of hedge funds to front-run all other investors by using high-frequency trading (HFT), as Michael Lewis describes in his latest book Flash Boys.  The exchange that slowed down orders solved this problem for large institutional investors who were losing out to the HFTs.  Serious venture investors watch for startups that have done their CustDev homework on solving major points in very large verticals.

My equity stakes in startups vary by the stage of fundraising they are in when I invest, and by the amount I put in.  There is no usual percentage for angel investors.  Large venture capital (VC) funds can pretty much dictate how much of an equity stake they will get because they invest tens of millions of dollars in any given round.  I invested in a medical device company and got less than 1% of its outstanding shares, but my investment was structured as a convertible debenture with warrants that accrue more shares the longer I own it.  If I own it all the way to IPO (which is looking very likely) I will still have less than 1% . . . of a very large company.  Investing as early as possible brings the greatest return but with very high risk of losing it all.

Here is some common sense for business owners.  Entrepreneurs should know their target investor's portfolio so they don't waste time with someone who won't be interested in their particular segment.  In other words, a mobile payments startup won't get attention from a VC who only invests in biotech.  Entrepreneurs should condense their fundraising pitch into a tight structure, like Guy Kawasaki's 10-20-30 rule.  Investors don't have the patience to wade through dozens of PowerPoint slides.  The pitch must get them sufficiently interested to perform more detailed due diligence and then commit to making an investment.  Entrepreneurs should NOT lie, ever.  Last year I attended a pitchfest where one solar energy startup lied about their appearance at a very prominent trade show, and they couldn't even answer my basic question about whether their technology was flat panel or thin film.  That's a pretty basic distinction in solar energy.

Keep watching Alfidi Capital for more signs of such pure genius.  

Funders and Builders Chat at Momentum VC

Momemtum VC has got momentum (pun intended) in San Francisco's mobile startup community.  I attended their fireside chat last week at Digital Garage's DG717 to hear how mobile startup founders get stuff done.  The two founders on hand shared insights on how they built their success stories.  I'll assemble their observations into some stream-of-consciousness mashups with my own thoughts in the mix, followed by some very insightful thinking straight from a venture capitalist.

If proximity terminals are to be compatible with analytics solutions, they also need to accept real-time data from other sources.  Such tech is useful in more than just badge and barcode reading; it can adapt to retail with commerce going mobile.  Retailers are very interested in using data from in-store video feeds.  Motion capture and facial recognition software are already in the pipeline for retail POS enterprise data.  Techies, make sure your mobile hardware has enough room for software that will push data through all of these streams.

I agree with these sharp mobile founders that entrepreneurs sometimes lack the emotional skills to succeed in large corporations.  I had too many bad experiences with bureaucratic types myself to ever go back to their way of thinking.  I like watching entrepreneurs launch into the creative tension of making something brand new.

The people in the Bay Area mobile startup community obviously know each other and frequently work together.  This builds a bench strength of capable serial entrepreneurs.  One founder said his job is to assemble a team that acquirers want to retain.  I would add that not every acquirer will go for the whole team in a buyout if they only want key people in an acqui-hire.

The sales team needs to be motivated by money, because that's a startup's only real metric.  There are multiple ways to monetize data and IMHO the founding CEO should compare each potential stream's NPV to set the sales team's initial priorities.  One founder said he liked an energetic sales team but their energy can grate on the nerves of the startup's technical people.  A strategic marketing plan generates a sales script that keeps the sales team faithful to product characteristics.

I was not aware that Traction and other portals are now connecting freelance content marketers to brands that need specific campaigns.  I was aware that marketing narratives must be compelling but it's hard to reach the "suspension of disbelief" phase without an iconic brand that carries an emotional connection.  Apple is probably the standard for such disbelief; people keep paying premiums for their incrementally improving product releases.

I learned a new acronym:  FOMO means "fear of missing out."  This fear of being disconnected from digital culture probably drives demand for those overpriced incremental improvements I mentioned above.  Startups whose marketing embodies FOMO have an edge, and I suspect investors who match patterns will seek that edge.  One founder recommended a Paul Graham essay on pattern matching; I couldn't find it right away but it's probably buried among Paul's tons of wisdom.

One additional participant was venture capitalist David Blumberg of Blumberg Capital.  The dude was super-sharp and relentlessly positive.  IMHO some entrepreneurs who become VCs share very  unique traits . . . transformative vision, lots of imagination, and divergent intellects conducive to pattern recognition.  They also have really charmed lives.  Doors just magically open.  David related numerous instances where his career took an unexpectedly successful turn when he was in the right place at the right time.  His upbeat attitude probably had a lot to do with other people's willingness to open their minds to his ideas.

David noted how software startup cost barriers are now lower than ever, and freemium mobile startups who keep their back-end service costs low can make that business model work.  His take on the 2001 dot-com crash was that bubbles happen when greedy investment bankers throw easy money and their own DNA into tech startups.  I often wish I had experience with investment bankers to see just how badly they pollute things they touch.

I don't know whether David read Paul Graham's thinking on pattern recognition, but he said something about it that opened my eyes.  If business models are more important than tech, then VCs use their pattern recognition abilities to compare those models.  Recognizing product cycle length, required support, and other factors are patterns that reveal the future.  They also leverage the business domain expertise of the startups already in their portfolios to perform due diligence on other startups.  He closed with the "six T's" categories VCs use when evaluating a startup:  Theme, Team, Terrain (market and competitors), Timing (go-to-market strategy), Tech, and Terms.  Wow!  That is some major insight into VC pattern recognition ability.  Thanks, David!

The tension between tech-focused engineers and revenue-focused marketers is as old as the tech sector.  It came up several times in these conversations and I've heard it expressed in different formats before.  David summarized it with a joke:  "How do you tell the difference between an engineer and a marketer?  Engineers don't know how to lie, and marketers don't know when they're lying."  The serious role of the CEO is to ensure the engineers produce something marketable and that marketers stay on the script that keeps them honest.

I'll make one more general comment about the San Francisco startup scene.  I've noticed that a lot of incubation co-working spaces have some pricey amenities.  Designing things like art, terraces, and other ornate extras into work spaces raises the incubator's cost.  Anything non-functional that raises a cost also raises the startup's hurdle rate.  The discount rate VCs apply to tech startups is always extremely high, and it makes little sense for incubation sponsors to raise it even higher by adding costs to commercial real estate.  I like startups that operate on a shoestring because I take a dirt-cheap approach to everything in life.  I can't imagine succeeding any other way but some broke San Franciscans are determined to live premium lifestyles.  Momentum matters more when it comes at a bargain price.

Full disclosure:  I have a tiny sweat equity stake in a mobile startup.  That entity is not involved with Momentum VC at the present time.  

Alfidi Capital at AlwaysOn Silicon Valley Innovation Summit 2014

I attended the AlwaysOn Silicon Valley Innovation Summit (SVIS) last week for the first time.  This conference has a long tradition of sorting through the most promising startups in multiple hot tech sectors.  My first taste of the show was the pre-opening social event, where remote operators entertained us with their mobile screen avatars.  That's what Silicon Valley types do for fun.  You can see one in action below.

I spent the next two days at the Computer History Museum receiving the wisdom of the Valley's all-stars.  Tony Perkins has been tracking tech trends since the 1990s dot-com boom when he launched Upside and Red Herring.  I still have a couple of hard copies of those mags in my archives.  I also have hard proof that I attended the show, in my typical name badge photo.  The bolded comments are my original action items, for any of you enterprise folks who are need a clue.

Satjiv Chahil let us all know that the world is not flat after all, as Thomas Friedman once wanted us to believe.  His work with the American India Foundation develops the digital and physical infrastructure of rural India.  The foundation uses street theater to advertise their developments in India in a native twist on Silicon Valley's guerrilla marketing styles.  Satjiv advised innovators to think of the cost structures in the rest of the world.  I think I know how that applies . . . cheap labor is everywhere but immature infrastructure complicates product delivery.

The discussion of new opportunities in data analytics covered the the changing real-time information that data fusion culls from formerly static sources.  I agree that data users are starved for real-time info and I believe the proliferation of APIs allowing data manipulation is just getting started.  I was not surprised to hear them say "Chief Data Officer" and "Chief Analytics Officer" are emerging enterprise titles.  I suspect that the CDO/CAO should work with the CKO under the COO, not the CIO, which would cement BI as a KM function.  Follow the acronyms to victory.  These guys got me thinking about KPIs, which tends to happen when I hear something thought-provoking.  IMHO those verticals that are the fastest adopters of real-time KPIs will be those that must integrate the most data streams.  The sheer number of discrete data streams flowing into an enterprise will drive analytics solutions, rather than gross data volume.

The venture capital outlook for 2014 implied that current tech funding is a boom and not a bubble.  I was stunned that most of the audience (82%) in the live poll thought startup valuations were not in a bubble.  Come on, people, the Fed's ZIRP stimulus has made everything a bubble by driving normally risk-averse investors to seek yield in riskier assets.  I would hate to be in some VC's shoes in a couple of years when they have to explain their cratering venture funds to institutional investors.  Anyway, I appreciated the panel's assessment that the amount of capital needed to start a tech company is at a record low, but scaling it up requires a record high amount.  High-valuation exits in some verticals like social media are easier because they're cheaper to scale.  I did not know that the M&A market in tech is twice as big as the IPO market, mainly because big tech companies like to grow with acquisitions.  These VCs are among the few I've heard who admit that the crowdfunding movement is on fire.  I can't wait to see the crowdfunding portals with the largest numbers of accredited investors get acquired by brokerages.

Online education is at some inflection point, according to the next set of experts.  MOOCs that assemble distributed content in playlists will resemble online music stores.  The challenge to universities is clear, but I believe the panelists' expected shakeout of failing colleges will be delayed as long as low interest rates keep student loans widely available.  Bad models can survive longer than they should even with poor content, but I agree with the panelists who expect distributed content to reign.  They introduced the term "knowledge portfolios" defining the marketable skill sets people will port from more scalable education models.  I see a role for the US Department of Education in helping to accredit MOOCs and develop universal standards that make their content portable, once said Department loses its rationale for funding soon-to-be-gone campuses.  I see their optimism for course offerings favoring entry-level job skills with an immediate ROI, and I'll raise them the next step in educational innovation:  disrupting state-run K-12 schools.

The "top company presentations" were actually pretty compelling at SVIS.  A lot of such pitches at conferences leave me with little hope that entrepreneurs have a clue.  That was not the case at SVIS.  I'll offer up a few random observations as blind items, since much of what the presenters offered was proprietary.  APIs allowing data collection and aggregation should be monetizable, especially since they show promise in replacing advertising servers and accelerating lead generation.  Data-source agnostic computing is great but it must allow for virtualization, and virtualization in turn can solve a lot of cloud collaboration problems.  Exchanging consumer rewards points on exchanges makes me think arbitrage will be possible.  One app doing both visual messaging and photo sharing is not an elegant solution because those are two very different functions.  I am very impressed with automated analytics that deploy results using visualization tools, because it's perfect for Peter Principle middle managers who would otherwise have to hire expensive outside consultants just to understand their own data.

Tony Perkins probed the CircleUp guy for crowdfunding insights.  They discussed the higher IRR for consumer retail startups, which IMHO is counterintuitive given the earlier panel's observation that scaling up is costlier than ever.  I would like to see consumer product startups address obvious gaps like urban "food deserts" underserved by grocery stores.  I get CircleUp's model of charging startups a commission and taking part in their warrants, and I think other portals can tweak this by adding revenue streams from investors who participate in a raise.

Jay Samit gave a brilliant lunchtime keynote on decoding disruption.  His mantra for cannibalizing one's business in favor of disruptive product development would be lost on Microsoft and other big firms notorious for product managers defending their turf.  I was one of the audience members who chuckled when he sketched out the post-literate world's penchant for communicating with images.  Wait until the images have embedded geodata, Jay, when they'll be more data-dense than ever.  Jay thinks smart shoes are on the horizon because walking recharges batteries, and Apple does have a patent for shoe sensors.  I will spend the next year or so examining tech startups through his social / location / mobile lens, which will probably bring me back to the geodata hint I dropped above.

Tony Perkins followed Jay's act with his own keynote.  Alvin Toffler's "infobesity" means saving steps in what people already do will build billion-dollar companies.  Got it, Tony, and lots of people working at Facebook agree with you.  He pitched the AlwaysOn model connecting its subscribers to emerging trends, and it sure worked because, hey, I attended, and I'm "always on" hot trends.  I like their crowdfunding platform concept . . . but I'm pretty sure they'll have to register it as a broker dealer given emerging SEC and FINRA rules.  This will challenge their ownership structure and I'm not sufficiently knowledgeable of securities law to say whether this portal should be a separate entity.  The business profiles they plan to publish for clients strongly resemble IPO "tombstone" ads, which are traditionally in the SEC's lane.  I'm pretty sure they can iron out the legalese to fulfill Tony's vision of disintermediating venture investing from the human gatekeepers on Sand Hill Road.

The Big Data panel enlightened me on how in-memory computing is a huge leap ahead in database order processing by creating a new layer in the software stack.  They admit that selling enterprise-level Big Data deployments is a challenge.  I knew that from several previous conferences.  It's a challenge because the solutions are pretty much the same price regardless of seat counts, which means the price doesn't scale along with the tech.  The panel thought that opportunities also come from layering apps and and blending data science with business domain knowledge.  I already knew that too, thanks to my attendance at Decision CAMP 2013, and you'll know it too once you read my blog article on that event.  I say the KM / DM / BRMS confluence is still the ultimate Big Data opportunity.  Cloudonomics calculations will validate the ROI of cost savings from business process improvements.  The panel wants business analytics to replicate VCs' pattern recognition abilities to help identify winning business models.  There's already plenty of historic data on startup failure for them to aggregate from the NVCA, National Science Foundation, and other sources.  I must disagree with one panelist who said privacy concerns will be a future trend.  I believe that people don't care as much about privacy as they say they do.  The whole concept is an anomaly of the first two Industrial Revolutions and it will not survive much longer as Big Data erases anonymity.

The social enterprise panel reveled the audience's displeasure with the amount of time spent communications tech.  One consensus point was that enterprise power users are in non-techie business domain functions who prefer simple tools.  I'm pretty sure the growth curve in social enterprise solutions will slow if business domains can't prove these things generate results.  Corporate treasuries aren't unlimited, people.  Where are the CKOs and COOs in all this?  Are they ever going to figure out that crafting enterprise KPIs is their job?  I know it's hard in fragmented organizations but it's worth the effort to grab project leaders and shake out their team-level KPIs.

Bill Gurley demonstrated his genius in his fireside chat on the instant economy with Tony Perkins.  His take down of the dot-com stock analysis algorithim was brilliant.  No one should assume an implied CAGR over 100% for several years running.  He also thinks it's a mistake to assume future bubble peaks will asymptotically match some previous bubble peak.  Yeah, this bubble peak has already surpassed the previous several.  The good news is that corporate VCs are the dumb money in the room, timing their investments poorly and ramping their buys prior to market highs.  I'll be sure and tell any startups I meet to pitch to corporate VCs in the best of times.  I learned from Bill that long-term, high square foot leases were a major reason for startup bankruptcies and recapitalizations in the 1990s dot-com bubble!  Wow.  That means the commercial real estate sector's health in major tech corridors is a pretty good leading indicator for tech bubbles.  I now feel sorry for anyone working at a VC-backed tech startup with its own gourmet food court; those luxury amenities add unneeded costs to their leases.  Here's a classic Gurley line:  Discounting long term risk makes us comfortable, "like a boiling frog."  Awesome!  Imagine it spoken with the remnant of Bill's original Texas accent.  Bill is amazed that privately held startups can raise $1B in capital without profits.  I'm amazed that the Valley can see the same phenomenon and still think venture funding isn't causing another bubble.  Bill also sees that startups launching variants of success stories is a sign of a market top, overfunding, and too much comfort with risk.  He nailed the missing link in Big Data analytics:  Pareto optimization.

I have to disagree with Bill Gurley on two points before I move on.  I don't share his thoughts on Uber or the effects of market corrections.  First, he said Uber's ease of use redefines its local driving use cases beyond the TAMs of the taxi and limo market historical sizes.  Okay, but I still say Uber's TAM is still limited urban, upper middle class transport.  The outsize use of Uber in San Francisco is probably a phenomenon of tech workers and their funded ecosystems (consultants, media people, nannies, gourmet cooks) living inside the new tech bubble!  Secondly, Bill thinks the 2009 market correction wasn't as painful for startups and VCs as the 2001 correction.  Hey Bill, the Fed lowered rates so quickly after the 2008 crisis that risky things looked a lot safer than in 2001.  Hardly anyone in the Bay Area can see the Fed's bubble now . . . except me.

Here comes the wearables boom, according to the next crop of luminaries on stage.  The panelists think software is the key to viable wearables, but frankly the ones I've seen at tech fests have no shortage of analytical horsepower.  These things need to have physical and visual appeal just like jewelry, because ordinary folks will be proud to show off a status symbol.  The coolest thing  learned from these experts was about regulatory loopholes applying to consumers who take control of their own data.  Medical privacy focuses on transmission confidentiality.  Voluntary patient use of medical wearables IMHO opens up a an indemnification can of worms for health care providers even with the devices' obvious benefits.

The team from 451 Research crunched the numbers for a look back at last year's top 250 startup picks.  The AlwaysOn SVIS show is one of the few conferences I've attended that holds itself accountable this way.  Several of last year's top picks went to IPO at valuations over $1B.  Apps, e-commerce, and mobility were the most active acquisition segments.  Analytics was a big common denominator.  Strategic buyers were the vast majority of acquirers.  The most important conclusion is that AlwaysOn's companies have exit valuations at premiums (measured by multiples of trailing revenues, both average and median) to most startup exits.

Cloudera got a special fireside chat as the summit's company of the year.  Their talent bench is pretty deep with people who worked at Google, Yahoo, Facebook, and Oracle.  I agree with their CEO that a salesperson with a technical background can easily be seen as a client's trusted advisor.  He's in the school of thought that startups raising lots of capital gain a flexible IPO date and create a secondary market for any early investors seeking an early exit.  His observation that most popular management books merely restate common sense reminds me of my undergraduate days when "reengineering" and the "learning organization" were the hot ways for consultants to make a buck.

Tony Perkins kicked off the second day of SVIS with a segue from app and smartphone dominance into a keynote from Smaato.  These guys are understandably fond of the freemium model for apps because it allows advertising penetration.  Mobile ads have scaled rapidly, certainly beyond my own expectations.  The latest hot term for big sites like Facebook is data management platform (DMP), which encompasses both users data and ad network data.  The Smaato dude must be reading my blog or something, because he noticed that the smartphone is becoming a hub for other wearables.  I've been blogging about that since late 2013.  Wait until the smartphone becomes the power management hub as well as the data warehouse and connectivity platform for wearables.  Here's another game-changer I'll throw at the world.  New programmatic ad pattern buys can address bids for similar demographics in parallel.  This means ad buyers pay more for precise demographic targeting, and users still get free content.  Smaato is catching on to this potential by doing both RTB and SSP.

The next panel addressed the multi-billion dollar mobile ad opportunity.  I get the difficulty of measuring how ad spending drives revenue, even for SMBs running location-based ads, and the integration of RTBs and SSPs into DMPs is supposed to make that seamless.  I wanted to hear more from the panel about how shortening a sales cycle makes the ROI of ad spending instantaneous but they moved on pretty quickly.  IMHO ad buyers are slowly recognizing the power of mobile ad spending combined with geolocated user data to drive campaigns that quickly clear out unwanted inventory.  The panel thinks about 50% of brand ad spending is wasted but marketing analysts don't know how to identify that waste, thus they pay twice what they should to build brands in target markets.  It wasn't always obvious (at least to me) that mobile ad gurus would figure out how to translate ad form factors from print to the various mobile platforms, but they have certainly succeeded.

Will cybersecurity really get worse before it gets better?  The next set of experts on stage at AlwaysOn said the mobile threat landscape is small but persistent.  I do not think making mobile OSs more secure will solve security problems at the user level as long as app developers are not building security into their apps.  The three legs of security, convenience, and performance in mobile computing mean one factor must diminish if another is to be enhanced; so far this is a zero-sum game.  Enterprises have methods to manage the risks of tradeoffs between these areas, and not just from a Cloudonomics perspective.  I've addressed enterprise risk before and my readers know what I would do.  Constructing a 2x2 matrix of severity versus probability allows plots of security incidents in each quadrant, and the risk profile for each quadrant should include Six Sigma estimates of their impact on operations.  I can lead horses to water on this blog but I can't make them drink.  Security is always an afterthought for product designers because they build for functionality first.  Performance and convenience are the factors that meet market opportunities because "security" is only a pain point for a savvy subset of each market segment.  The IT/OT convergence means security must catch up.

The "last-second economy" panel said Uber's success leveraged Bill Gurley's network multiplier effect, but I'm not sure the sharing economy qualifies as a back-end process.  That philosophy is not some internal part of the enterprise, folks.  It's common knowledge that Millennials are driving early adoption of instant economy concepts.  We have not heard the last of sharing commodified services.

Bill Cleary was up next to address Apple's market dominance.  He sounded like a pretty cool dude.  I never thought of Apple's top brand as a compelling narrative on its own until Bill positioned it that way.  The cool, hip ad images Apple uses are part of that narrative.  Apple's genius is seeding its brand into pop culture channels so that it's not seen as solely a techie image.  It was totally awesome to hear bill ridicule Google Glass, Amazon drone delivery, and driverless cars.  Someone finally has some great insights into unworkable tech that gets undeserving praise.  I offered my only question of the conference when I asked Bill whether Apple would make a 3D printer for the desktop manufacturing revolution.  Bill said not yet because it's too early; Apple needs to focus on other things first.

Other panelists spoke on how growth companies can leverage the cloud.  Customer demand for speed and performance means startups will have to go to the cloud to scale up.  Delayed page loads cause incremental revenue losses and caching content in other time zones is not a universal solution.  IaaS is a good solution for pre-populated caches.  The next amazing developments we can expect in the cloud are hybrid cloud brokering, data security partitions by nation, and ubiquitous cloud services as reliable utility-type background activities.  I repeat all of this cloud thinking uncritically because I want to see how it shakes out.

The Expensify dude easily had the best keynote of SVIS, with spontaneous applause.  He ripped apart the financial metrics that so many tech followers throw around as conventional wisdom.  If valuation is more than revenue and a multiple derived from a "vroom model," then ROI must be more than LTV divided by CAC.  This made his point about the difficulty of attributing sources of both costs and revenues.  Nouveau enterprise valuations are not quantifiable by traditional metrics.  We need new economic concepts to replace unquantifiable estimates.

The video boom panel noted how online video is now a completely personalized experience.  Every enterprise wants to create video because it is the most emotionally manipulative medium, but creation means nothing without distribution.  I just don't see how video startups can succeed by incentivizing viewers to watch videos simultaneously with their networks of contacts, given the medium's personalization.  No one wants to see their friends making faces on a screen while they're watching a movie.  Viral videos are sharable because people watch them individually at their convenience, no communally.  I'm pretty sure a whole bunch of venture investment money is about to be wasted on sharable video features that no one will use.  Multi-channel networks (MCNs) are figuring out how to use YouTube to distribute content and capture shared ad revenue.  The panelists made some bold predictions about how Google could enable video distribution in Gmail and how pervasive video will become in our lives.

The final panel covered one topic that provides me with no end of blog fodder . . . Bitcoin.  Yes, the cryptocurrency I love to ridicule has a whole slew of experts ready to sing its praises and raise venture money.  Listening to them gave me several OMG moments.  So many things they claimed about Bitcoin were nonsense.  Transactions are not at all frictionless given the market's illiquidity and the unreliability of Bitcoin exchanges.  Bitcoin does not ignore national borders because some nations do treat it differently; look at China's outright bans and the US's IRS tax treatment rulings.  Come on, people.  I almost went slack-jawed when one guy said he was proud to accept Dogecoin with a straight face.  Wow.  The dude also praised Silk Road as a "great use case" for Bitcoin's privacy.  Wow.  In case you missed it (ICYMI), Silk Road was a online market for illegal drugs that the FBI shut down, and Bitcoin did not shield any of its particpants' privacy because they caught the "Dread Pirate Roberts" dude who owned the site.  None of these panelists had any user advantages in mind.  None could explain why Bitcoin transactions are a better value than national currencies.  All of these thought leaders resorted to easily disproven claims and cargo cult wishful thinking about a "knowledge economy."  I'll give kudos to one guy who debunked the power of the "network effect" to speed adoption.

Any of you who are unfamiliar with my thinking on Bitcoin must read my extensive blog history on the subject.  Claims to marry cryptocurrency and trusted computing will always ring hollow.  Device hardware securing a private key does nothing to restore a key if the hardware is stolen.  Losing the hardware storing a private key means losing the Bitcoin if the private key isn't backed up.  One dude told me during one of the breaks that he thought Bitcoin was the greatest thing he's seen in forty years of trading currencies.  His rationale was that machines and bots could use it to trade with each other.  Ooookaaaay.  Folks, automated trading already happens in the hedge fund world with conventional currencies, and it adds zero liquidity to the global economy.  People pushing for the Internet to have its own currency don't understand that the Internet is not a sovereign government.  Using Bitcoin as a remittance mechanism for overseas expats makes no sense at all because Google Wallet already allows currency transfer as an email attachment.  A lot of people pushing cryptocurrencies will learn some very hard lessons about the real world.

Those of you who need more than my very faithful paraphrasing of what these speakers said can check out the SVIS 2014 archived videos on the AlwaysOn network.  This conference was a very valuable use of my time.  They had real honest-to-goodness expert speakers who have actually accomplished important things in the tech sector.  The lists of top 250 startups they keep generating are terrific coincident indicators of tech funding trends.  I'll see them next year for the next 250 great things.  

Microsoft Ventures Global Startup Day 2014 In San Francisco

Microsoft Ventures held its Global Startup Day 2014 showcase for the San Francisco area last week.  I got to attend because I am awesome.  Seriously, only the most awesome people get selected to attend these kinds of events and that's why Microsoft takes care to admit strong startups into its accelerator.  Holding this event at 111 Minna was unconventional for Microsoft but it sent the message that a big company groks the disruption of startups.

I was intrigued to discover that American Family Insurance's venture arm, American Family Ventures, is helping Microsoft underwrite these startups' adventures.  The insurance company's stated interest in home automation solutions makes some sense in mitigating insurance payouts from home accidents and burglaries.  Access to the Big Data in millions of policyholders' accounts is a boon to the startups mining it for validation.  Do you trust an insurance company to mask your personal identifying information?  Insurers have to follow privacy policies too, just like software companies.

The participating startups are all mentioned on the Global Startup Day page.  Most of them had significant non-US roots.  Microsoft must be throwing down the gauntlet to find non-US startups it can incubate.  I don't see many other US-based multinationals reaching outside this country's borders for startup candidates.  I'm probably not looking hard enough.

I really liked a couple of the startup pitches.  Applango implements SaaS metrics, something even the leading cloud service providers have difficulty delivering to customers.  Buddy manages enterprise data from IoT devices.  The market for collecting IoT devices' machine data will be huge and any data management providers need to understand the competing standards that telecom providers use.  I will also say that Miranda Gao, the co-founder of AllMobilize, looked stunning in her little black dress.  I don't think I need to say any more, unless she gives me a call.  Women tend to call me once I notice them and I can hardly blame them.

The expert panelists closing out the showcase were mostly venture investors familiar with the local software scene.  I thought they were generalizing too much by saying top startups come from the obvious major tech cities or hot national markets.  I say hot startups come from countries where the nexus of research labs, a strong rule of law, and favorable regulatory regimes enable entrepreneurs to make things happen.  The cultural ecosystem is paramount.  I am not impressed with supposedly knowledgeable VCs who chase "hot" markets just to attract investors in their funds.  These investors also think going global with a virtual model means startups don't have to be physically located in their largest addressable market.  Maybe they can get away with that if they're in a big global accelerator.  Microsoft can smooth out any regulatory difficulties they'll face in foreign jurisdictions.  Everyone else will have to at least talk to a couple of specialists in international trade.

The audience was packed with startup wanna-bes, venture investors, and people running other accelerators.  Menlo Park's US Market Access Center was on hand.  Corporate accelerators bring in startups who can benefit their ecosystems, and civic-funded accelerators should benefit their communities.  How many jobs have foreign startups brought to Menlo Park and San Jose after launching from the US Market Access Center?  San Francisco city planners should find out if they want to bring accelerator-sponsored startups to The City.  I would like to find out how to bring more attractive women into accelerators.  A few were on hand and one was on the venture investing panel (nice legs, babe).  They'll need more than bare legs in short skirts to make startups work.  They need yours truly, Anthony Alfidi, and I'll be at all kinds of startup launch fests around town.  

Box Dev 2014 Flew Drone Cam For Cloud Enterprise

Box held their first ever developer conference last week.  I dutifully attended Box Dev 2014 thanks to a hot ticket from Angel Launch.  My favorite people always hook me up with multiple blessings.  The free food was of course a major incentive.  Breakfast bagels, Off the Grid lunch trucks, and spicy dinner entrees were enough to get me excited about hanging with cloud enterprise developers.

I sat very near the front for the early talks and I checked out the folks at the so-called "media" tables.  They didn't look like they were banging out too many articles on the event or even taking notes.  That's why I take these events seriously.  Silicon Valley can always count on Alfidi Capital to pay attention when everyone else is falling down on the job.  Slackers checking email and Facebook can hang out somewhere besides the media table.

The CEO of Box is quite a charming fellow.  His cloudy socks and bright sneakers reminded me of Marc Benioff's fancy high-tops at Dreamforce 2013.  Cloud entrepreneurs have a thing for wild wardrobes.  Box is convinced that the addressable market for mobile information workers is larger than the market for people chained to a desktop.  They have tailored their cloud enterprise offerings accordingly.  I think Dropbox is an obvious competitor, but when I heard Dropbox's CEO discuss his company with Marc Benioff at Dreamforce 2013 I don't recall whether he spent a lot of time emphasizing mobile.  These two box-related companies are going to fight it out over enterprise sharing.

Entrepreneurs also have a thing for wild stunts.  Box's SVP for development came out to chat up their ability to connect the enterprise to all kinds of things.  Lo and behold, Skycatch flew a drone out to the strains of Darth Vader's theme music and took a digital image of the audience.  Drones now have an undeniable cool factor.  The drone is in the photo just above.  I was impressed that it could navigate the confined space of those curtains adjoining the stage without becoming unstable.  Photos come with metadata that Box aims to capture.  Image metadata has obvious uses in GIS for identifying frequent locations of system failures, sales calls, and other things that will drive enterprise revenue and costs.

Entrepreneurs can capture a few more lessons from Box's success than the implications of image metadata in GIS.  Sales is still the most important traction metric, but efforts to grow a startup's numbers of third party developers, API downloads, and SDK uses are worth doing if they drive some buzz.  Even page loads and white paper downloads generate metrics for startups desperate to hang their hat on something.  Cloud platform providers should also think about having more than one pricing model.  Pay per user (accommodates seat count changes), pay per time (accommodates seasonal surges), and pay per capacity (accommodates an expanding enterprise) all have their place somewhere.

The fireside chat with legendary tech star Ben Horowitz gifted the audience a free copy of his book The Hard Thing About Hard Things.  I have to love a show that gives me both free food and free books.  Ben liked Intel's approach to growing its market beyond memory.  I did not know that the "cloud" term came from Bell Labs' technical descriptions of telecom connections.  I thought some marketing pros dreamed it up.  Ben's favored technique for a package software company (read Microsoft) to turn itself into a cloud service company (read Salesforce) is to acquire a cloud startup and promote that startup's founder to CEO of the acquirer.  I don't know of any case where that succeeded, which is probably why Ben thinks such a transformation is so hard.  I was very disappointed to hear that Ben was bullish on Bitcoin.  His VC firm Andreessen Horowitz is making big bets on Bitcoin.  I'm pretty sure they're going to lose it all, but I won't guess about the timetable.

Palantir's founder got some stage time with one of the hottest female tech journalists I've ever seen.  War stories about PayPal are part of Silicon Valley's lore.  I was more intrigued by the guy's pro-market opposition to rent control and desire to unskew the asymmetrically high compensation in the finance sector.  This wasn't the first time I've heard entrepreneurs warn that large firms use regulatory capture to make business hard for startups.  I wish I could get as excited as him about AI and VR but those things have been five years away for the last twenty years.  The hype about AI and VR reminds me of the perpetual hype for nuclear fusion.  It keeps the research money spigot stuck in the on position with no commercial success stories.

The VC panel tried to make some five year predictions for mobile, VR, and other enterprise tech but I don't think they got any farther into probable successes than the Palantir guy.  They did make a worthwhile observation about how SaaS contracts favor short-duration pilot terms with cancellation options.  That goes back to my own thoughts above about having a diverse pricing model.  One client that cancels a short contract is welcome to consider a surge capacity contract.  These VCs claimed that some startup types cluster in certain cities.  That's true in niche sectors like agriculture, which is so far clustered in Northern California.  I've noticed that many mobile and social startups pop up in all the big cities.

I don't think these VCs have many blind spots.  They ought to see the disruption potential in capital-intensive verticals with long sales cycles.  Startups can capture that by breaking up SaaS sales packages into piecemeal iterations.  Salesforce did that with functional modules.  Go back to my pricing model notes above and figure out where to start.  The "grow fast" go-to-market strategy of consumer SaaS is not the same as the enterprise SaaS strategy of proving speed and agility in overcoming friction.  The panelist VCs know this and startups should know it before they design for one market at the exclusion of another.  The VCs measure the density of a SaaS solution's network connections by stickiness, virality, symmetry, and intraenterprise strength.  In plain English, that means enterprise SaaS is more likely succeed with very dense connections that encourage KM collaboration.  Know your monthly recurring revenue (MRR) and its churn before you pitch a VC, and don't pitch standing up when the VC asks for a sit-down conversation.  The venture investing community can be finicky.  I know they read my blog.

The CIO panel repeated a lot of things I've heard before at tech conferences.  Every IT leader wants to jump on the innovation bandwagon because running a cost center is a career dead end.  I did not know that the security landscape is evolving faster than the rest of the tech sector.  Maybe all of the warnings about app security are finally turning into action.  This poses good career opportunities for white hat hackers who can find and plug security holes.

Jerry Yang moderated the CEO panel.  The other CEOs on the panel sounded like they really grok CustDev.  They should get along well with the earlier CIOs who said they like startups that solve problems.  These CEOs admonished the crowd not to sell something they don't already have; apparently a lot of techies need to be told that only established companies can announce vaporware.  Their descriptions of reward systems that incentivize adherence to company values reminded me of things I've blogged before about corporate cultures.  Folks need to know that the CEO's personality and the HR compensation structure will determine everything.  That's Alfidi Capital wisdom.  I agree with the CEOs that their job is to tell employees they're doing a good job, and that no one will tell the CEO whether they're effective.  That is why KPIs tell CEOs whether they're succeeding.

I gave Jerry Yang a thumbs up as he walked out of the Fort Mason Pavilion after his panel.  He's the one on the left in the photo above.  I will always be grateful for his second stint running Yahoo because his resistance to Microsoft's buyout offer in 2008 opened a decent arbitrage opportunity for me.  I made some money on the differential between the two companies' short-duration options even though the merger deal wasn't consummated.  Thanks, Jerry.

The final fireside chat between legends Phil Libin and Steven Sinofsky was the stuff of legend.  Techie culture supposedly encourages internal teams to borrow each others' ideas during the SDLC, but I wonder how many companies practice what they preach.  Phil said in no uncertain terms that Evernote employees who make PowerPoint slides are unwelcome.  That is stunning, and awesome.  He correctly places slides in their sales role because he wants a higher cognitive model for engaging teamwork.  His vision for workflows that transition seamlessly between mobile and desktop is the kind of sea change forcing packaged software sellers to move their products to the cloud.  I do not agree with his prediction that the touchscreen interface will replace the keyboard/mouse setup simply because it's more comfortable for natural human hand movements.  Knowledge workers still need to input data somehow and touchpad reticles can't do the whole job.  Let me summarize this conversation's brilliant closer, driven by Facebook's acquisition of Oculus Rift:  "Oculus is something you put on your FACE.  It was bought by a company called FACE-book.  We'll see thing like Box-FACE in the future."  That had the audience rolling.  Great stuff.  You had to be there to see tech genius at work.

I have no idea what Box's platform does for clients.  They put on a really high-powered developer conference where I scored free food and wisdom.  Their CEO can mount a stage at a running leap, so maybe he ran track in high school.  They should hold a hackathon at their next conference to motivate developers to build Box stuff.  I'm impressed enough with everything to return next time.  

Angel Launch Launches Startup Venture Summit

I was privileged to attend Angel Launch's inaugural Startup Venture Summit last week in Silicon Valley.  It was the perfect counterpoint in many ways to my Dreamforce 2013 experience.  The Salesforce honchos told their entire ecosystem which markets they wanted to penetrate and laid out the details of their platform updates.  Entrepreneurs at the Startup Venture Summit met investors and partners who could help them gain traction with a big ERP ecosystem.

That layout is typical of what you'll find at eBay's Town Hall venue.  I can be a very aggressive networker when I have a mind to do so but I now find that people at these events seek me out.  I'm sure my listing as moderator of two panels helped attract people, along with my pinch hitting moderation of a third panel at the last minute!

The first VC panel shared their perspectives on top trends.  Stars from Khosla Ventures, Draper Nexus, and Garage Technology Ventures were on hand to let us know that startups need to show investors their "map of the world" on how they will realize their vision.  Paradoxically, VCs are more comfortable funding a business that doesn't immediately need the money if said business spends more time chasing customers than investors.  They like product demos that are installed with customers.  I must agree, because there are way too many shelf-ready products launching at venues like DEMO that never make it anywhere but the showroom.  VCs like it when startups figure out the minimal amount of capital they need to solve their biggest risks.  I just did a Google search of "overfunded startup" to see the frustrations investors have when startups waste money just because they can.  We hear the term "traction" a lot at startup events but the VCs know the term is a proxy for sales and other metrics tracking external acceptance.

The next panel on attracting angels and family funds featured some investors I've known for a while, and a new media outlet named BayLive.  These guys have been around the block enough to know that pitching them something they don't care about is a waste of their time.  This was not the first time I'd heard the startup investing "T's" cited all in one place:  Team, Tech, Traction, Timing, and Total addressable market.  I don't think the set of T's is standardized because different gurus tend to reword them based on their investing preferences.  These guys were big on networking because strong networks share visibility and investor referrals.  Many investors prefer referrals from their networks of attorneys, bankers, and consultants over cold contact from unknowns.  One panelist modestly admonished startups to take money from well-known investors first if they have the luxury of choosing their investors.  I should add that name recognition isn't the only thing prominent venture investors bring to the table and that some third-generation investors just do it because it's the "family business."  I should also add that some banks go out of their way to offer startups a beginner's guide to the early venture ecosystem.  I'm thinking Umpqua Bank, New Resource Bank, and Silicon Valley Bank would be good places for startups to keep their cash if they can't afford a pedigreed introduction at Goldman Sachs.

The moderator for the panel on valuation, acquisition, and expansion strategies was a no-show so I jumped up to offer the conference organizer my services.  I was already there as moderator for two other panels so I might as well save the morning.  "Luck is what happens when preparation meets opportunity" was Seneca's ancient wisdom.  Well, I was prepared when this opportunity presented itself.  Salil Pradhan and Bill Reichert reprised their roles from the VC panel and got more specific on how startups prove their worth as they grow.  They commented that early stage valuations are too high right now, and I was tempted to refer to the infamous Bin 38 "Angel Gate" meeting from a few years back that tried to hold valuations down.  Ron Conway had the correct reaction to that ill-conceived plan.  Anyway, I asked our panelists what they thought of valuation models like the market comparable method.  They thought it was more useful in later stages as the exit event looms.  Early stage valuation is different because it accounts for how much money it will take to build the company, and entrepreneurs need reasonable data points to show early investors.  They also thought expansion strategies must be sales-driven, with a sales capability ready on day one to do CustDev.  The point is not to lead investors into discussing valuation, but to get investors to commit to a business model that can move up a sliding scale of growth.  Experienced VCs have seen that customer acquisition costs are unique to each company and are typically costly in early stages.  Startups that don't need money have the luxury of saying no to investors.  I suspect those startups are rare.  Rarer still are those that can negotiate from positions of strength at an exit.  Our panel felt that taking a decent exit early may be preferable to facing more VC-backed startups later.  I got two things out of my hasty entry into this panel.  First, the ABC of "always be closing" recalls Guy Kawasaki's lesson from "The Art of Rainmaking" that sales fixes everything.  Two, your network is your net worth, and the ecosystem of partners a startup creates looks even better when a potential acquirer wants to merge it with their own ecosystem.

I moderated my next panel on Big Data, analytics, and business intelligence.  Our topic had a huge scope but the collection of VCs from Fung Capital USA, North Hill Ventures, and Sierra Ventures had it under control.  I'm pretty sure the entrepreneurs in the audience benefited from hearing that product-market fit, tenacity, and fast-scaling sales were some of the things VCs want to see when evaluating early startups.  Stuff like proof of concept and financial due diligence come into play in later rounds.  These VC think ERP pain points exist in Salesforce's mobile integration and in customer in-store behavior prior to the point of sale.  Take note of that, entrepreneurs.  If you can meet those data needs and bridge the gaps between technology platforms, you've got an audience.  They also think that focusing on unit economics early on is a key to scaling up later.  Your high customer churn rates will look bad to VCs so get sticky customers whose lifetime value is clearly measurable.  I asked the panel if any non-transaction ERP functions like HR and supply chain management allow for disruption.  They said that supply chain forecasting is often guesswork and could benefit from data that saves margins.  They key is assessing whether an organization's IT mindset is amenable to changing other non-transaction modules.  The VCs had very diverse opinions on the types of KPIs enterprises should use for Big Data; they mentioned revenue per employee (FTE) should be at least $400K, and that the customer lifetime value must compare favorably to the customer acquisition cost.  Payback period matters too, because VCs can't wait forever before they see a return on their investment.

Some more experienced angels from SF Angel and World Capital Market were up next to present strategies for funding pitches.  My biggest takeaway was the importance of an attention-grabbing story, because investors will want to know what's in it for them.  A lot of the lessons from Guy Kawasaki's 10/20/30 rule carry over as long as entrepreneurs remember that execution matters more than the idea.  I liked that they understood how a founder should be ready to surrender the CEO role or a majority stake if that is what will help the company make it.  Their list of speakers to study for good habits includes Steve Blank and Alexander Osterwalder.  I've heard Steve Blank talk and that guy knows his stuff.

My moderator duties continued with a third panel on enterprise platforms, cloud services, and infrastructure. This was another huge topic for serious investors from RWI Ventures, Second Century Ventures, Opus Capital, Scale Venture Partners, and IPV Capital.  Once again, product-market fit emerged as a key early investment criterion but the size of a startup's opportunity and its whether its revenue growth is sustainable also mattered.  One VC surprised me by mentioning LinkedIn as a due diligence tool.  See folks, your network and professional history don't escape notice.  I personally like to use the name query functions on superior court websites to see if someone I meet has a history of bankruptcies or lawsuits.  I've avoided several potential business partners who had sub-par legal histories.  Anyway, my panelists thought universal connectivity has validated Big Data and users want it accessible 24/7 anywhere.  The roadblock to full implementation is that enterprises don't yet fully trust the public cloud for sensitive data and still use hybrids.  The type of customer an enterprise faces determines whether security trumps performance in the inevitable tradeoff.  Cloud solutions offer value to SMBs that have few tools but startups need to make adoption easy if they want to disrupt big models.  The switching costs and key features of the big providers' walled gardens inhibit customer switches, so the pain points would have to be pretty high to induce a switch.  I asked our resident chip expert whether Moore's law still holds; he thought it was still valid because quantum computing and MEMS can extend chip life.  Ecosystems matter because a startup has to participate in a community of contributors to open source hardware (Arduino) and software (Hadoop) to make them all happy.  Companies can add valuable customized layers on top of open source tech.  The investors like freemium product distribution as a good way to qualify leads, and app marketplaces are a good way to evaluate the size of a platform's ecosystems.  I'll close this one by listing these investors' favorite accelerators:  Y Combinator, InnoSpring, and NAR REach.  There you go, folks.  I know my recollections of these panels can be jumbled in a stream of consciousness style, but buried in all that knowledge are hints you can use to move your startup forward.

I had time to listen to one more panel on investment opportunities in Europe after I had completed all of my moderating duties (three panels!) for the day.  Europort is the EU's vehicle for trade promotion in Silicon Valley.  The Bay Area Council Economic Institute is becoming ubiquitous at these types of events by noting that foreign R&D facilities are growing in the Bay Area.  This panel's observation that virtual trade missions are economical for SMBs mirrored what I heard the US Commercial Service say at a trade promotion event several months ago.  The Euro-folks cut the audience a break by noting that an entertainment budget for a trade mission to Europe wasn't nearly as important as one for a similar mission to Asia.  I guess those old legends about drinking Asian business executives under the table in some Tokyo karaoke bar are true.  I had to do some of that during my years in South Korea in the late 1990s for different reasons.  Perhaps I should have done a lot more.

I was impressed with this AngelLaunch event.  It attracted the right experts and hit the right themes.  Entrepreneurs need to hear this stuff as much as possible in many venues.  The endless pitchfest circuit is always a gauntlet but the addition of crowdfunding kicks fundraising into overdrive.  Tech startups need a 24/7 presence on multiple fundraising portals that leverages the feedback they get at these summits.  I am totally looking forward to similar events from iHollywood Forum.  I'm ready for my close-up.