Sunday, October 13, 2013

Alfidi Capital Attends HYSTA Annual Conference 2013

The folks at HYSTA put on a pretty good show at their annual conference for 2013.  I lucked out when I got a free ticket at the last minute, and you know I never turn down free learning opportunities.  I'm all about empowering the next generation of entrepreneurs.  I had never been to the UCSF Mission Bay Conference Center before and I was suitably impressed with the stunning cubic architecture and equally stunning athletic bodies of attractive women working out at the UCSF fitness center.  I was further impressed with the large numbers of attractive Chinese women who arrived early for the HYSTA conference.  Hello, ladies.  My usual convention for describing conferences still holds.  I paraphrase the speakers in regular type and add my own observations in italics.

The HYSTA big chiefs' introductory remarks noted that the organization's 15-year history has seen many sponsored startups achieve successful exits.  Their first ever CEO Summit in 2005 led to Yahoo's partnership with Alibaba.  The HYSTA core mission is unique; it does startup incubation and also sponsors trade missions to China.

Tech exec Sean Maloney gave the morning keynote and advised us all to have our carotid arteries checked during our annual doctor visits, because that can give early warning of the kind of stroke he experienced.  Sean thinks humans underestimate long term progress and overestimate short term progress.  That explains for me why e-commerce business models took longer to mature than the short VC-derived time horizons of the late 1990s.  His graph of Moore's Law drove home the point that exponential growth can lead to sudden limits.  The ethnic Chinese audience chuckled when Sean said Google gets fewer searches than Baidu.  I just tested that theory with a Baidu search for pics of hot Chinese women, but I couldn't see a search count number on the page.  The search also returned mostly Caucasian women.  Come on, I can find those on Google.  Sean went on to show that consumers have sufficient CPU power in their mobile devices to meet their demand for video, so future tech disruption will be confined to the cloud.  The cottage media for VC and tech have lately lamented the disappointing results of Big Data hype.  They need only be patient for a few more years.  Sean's conclusion for entrepreneurs was to pick one thing with the biggest impact and don't waste a minute.  I liked his advice to "laugh because you don't know how long it will last," but I know precisely how long my own life will last.

The conference split into two tracks and I opted to stick with the expert panel on the mobile Internet revolution.  Battle Silicon sounded interesting but I figured I'd catch whatever recording ended up on the Web from Ding Ding TV.  Anyway, it's a truism by now that mobile sales are outpacing PC sales but the real revenue is now coming from in-app purchases.  The panel opined that the Internet of Things will do things smartphones can't (presumably with drones and wearables) using an automobile's connectivity.  No one mentioned cars when I first heard about IoT at this year's Maker Faire Bay Area.  The experts there assumed mobile connectivity would be sufficient.  Using a car as a mobile hub is an evolutionary development.  I still expect in-home devices with smart grid interfaces to be the main driver of IoT.  Asian markets monetize mobile more than the US with non-US app markets showing strong growth.  The US intelligence community's monitoring effort is a very serious issue for app developers, as are national jurisdictions governing the use of data collected from citizens.  Say goodbye to all of the corporate theorists who convinced business schools that we live in a borderless world and that said world is flat.  Those theories coincided with US hegemony after the Cold War ended.  Nationalism is coming back because the US-led developed world is proving to be a poor steward of the global institutions it created - namely the IMF, World Bank, and WTO.  The interregnum that comes next will be messy.  I was not surprised to hear the panel say that the vast majority of app revenue is from games.  Computers were supposed to make our lives more productive.  Whenever I'm on a bus or train I see people using smartphones to goof off with games and puzzles.  I have yet to see someone using their smartphone to design the longer-lasting light bulb on their way to the office.  The panel said games are hard to globalize because preferences are culturally-specific, but IMHO that ignores some major game developments.  Some of Atari's early hits like Pac-Man crossed over successfully from Japan to the US.  Tetris had no trouble escaping its Soviet prison to worldwide acclaim.  Angry Birds is now a global phenomenon.  Games that are simple and generic seem to have no trouble crossing cultures.

This panel made several references to Weibo, a major Chinese microblogging phenomenon.  Weibo maintains multiple data centers worldwide to support its user experience.  That's important to note.  A Chinese-language service concerned enough with worldwide latency to have servers outside China shows the importance of their non-domestic users.  The panel thinks US app stores have disrupted insular Asian markets to the point that Asian tech companies are forced to reach out to global markets.  The tendency for Asian tech companies to start with a pan-Asian market strategy before they go global was something I noticed when LINE presented at the beGLOBAL conference.  The smartphone folks on the panel ran down some common startup mistakes:  not protecting IP; not protecting the capital structure by documenting early ownership; not understanding their market and revenue model.  I recently read something by one of the Web's most renowned serial entrepreneurs that success with a Web business is about enabling people with the convenience of doing the same things they always do.  It's not about forcing people to do radically new things.  People used to pass the time in public by reading books or newspapers, doing Sudoku and crossword puzzles, or just sitting around.  Now mobile enables people to do those same things more easily.  Finally, the panel noted that the SME sector is large in China to support mobile marketing channels for business owners.  I think there's an opportunity for disruption in real-time localized environmental data.  Pollution is regularly bad in many areas, as one panelist noted, and Chinese people want to know conditions before they travel.

The next morning panel was all about games.  Programmers get paid more at database companies than game companies because it's harder for database companies to attract talent.  Every kid dreams of designing games.  A lot of those kids are going to be very disappointed when the bottom eventually falls out of mobile.  Consumer spending is stagnant at a historic peak, and Sean Maloney noted above that consumer mobile doesn't need any more disruption.  Microconsoles enable new gaming tech, but I wonder how much more blood game developers can squeeze out by porting app games to a large screen.  The whole point of app games is to play them quickly while traveling or waiting for some real-world event.  Large-screen games are different and have their own subculture of people who connect on the Web to play in teams.  IMHO the whole gaming sector depends too much on blockbuster games like Halo.  The app revolution was supposed to be about playing many smaller games with shorter development times.  Whatever.  The panel said game startups should think about monetization and globalization on day one.  Didn't these guys listen to the first panel that said globalizing games is hard?  They should listen to me instead, because I noted some major exceptions.  My ears perked up when the panel made the following very important observations.  Rural parts of developing countries have slower Internet connection speeds and less-capable PCs (audio speakers, video graphics cards, etc.) so game developers must scale their game engines to adapt to less robust tech platforms and environments.  That says more about the state of enabling infrastructure than anything else.  No wonder leading tech companies are pushing the initiative to wire the rest of the planet.  They know quite well that their growth will halt without WiFi in every African village.  The panel recommended that startups only outsource those things they understand but are too costly to do in-house, and these functions must present an opportunity cost of not developing your core tech.  They concluded by noting that Silicon Valley does not favor slowly growing a business by reinvesting long-term internal cash flows.  That's a relief.  I have a couple of angel investments in companies outside of Silicon Valley pursuing just such a long-term strategy.

The next keynote on "Revolution and Death in the Valley" was from tech legends Keith Teare and Kambiz Hooshmand.  These guys had tons of things to say, so here it comes in a stream of consciousness.  They plugged their Archimedes Labs accelerator.  Everybody has an accelerator these days.  The ones that matter have big-name VC or corporate backing.  The audience responded positively when asked if they now used WeChat more frequently than Facebook.  Getting "acqui-hired" means a big firm buys an unsuccessful startup that didn't get a Series a funding round, just to hire the founders.  No one will ever acqui-hire Alfidi Capital, for the record.  TechCrunch's Deadpool notes startups that die when they hit their "Series A crunch," aka the "second round problem."  Risk capital ignores post-seed startups that don't have traction  but there's still lots of growth capital available for early-stage startups.  Mobile media's future depends on how brands manifest themselves, like old media transitioning online.  Keith's magic formula for startups raising money is to target a $200M VC fund with a $2-8M investment on a multi-year timeline; he thinks this will win a second round capital commitment.  My solution to these second round problems is crowdfunding.  That will dribble out second round capital for years.

The next panel had two generations of entrepreneurs debating the nature of startups.  One guy said life is too short to do the same thing as everyone else.  Amen, brother.  No way will I ever return to someone else's cubicle.  Entrepreneurship is a highly personal introspective process with no single correct answer.  Tech innovations have reduced friction that financial and physical barriers cause for startup launches.  This puts intellectual ability at a premium.  VCs want to fund startups that hunt "whales," established businesses with fat margins they can disrupt.  Finishing a startup is harder than launching one.  A startup's tradeoff is that high-level, high-value success is harder than a smaller goal.  Solving a simpler problem is less risky and has a shorter path to success but has a much lower payoff.  Serial entrepreneurs often have many modest successes but the largest valuations have been built by a single long-term entrepreneur (i.e., Bill Gates, Steve Jobs).  There is no shame in building many small businesses.  Big successes come with big problems:  lots of employees, regulations, etc.  Literary education enables shared feelings across cultural contexts.  That's why some startups concepts can propagate globally.

The final panel I sat through was about tech trends in social, mobile, and Big Data.  This is one of those meta-themes that's all over Silicon Valley right now because VCs are trying to save their investments in each category by combining them into one big category.  User-syndicated video viewrship on YouTube far outpaces officially published content.  The panel dude couldn't understand why so many YouTubers republish different versions of a Katy Perry video.  Duh!  I know why.  It's because they're stealing content and want to steer searches to their own channels and get ad revenue.  Too many idiots think their lame videos of cat tricks and untalented acoustic guitar covers will benefit from a ripped-off video of Katy Perry showing her goodies.  It's just like Chinese companies stealing IP from Western companies doing business there.  Sheesh.  BTW, Katy Perry is hot and I'd like to see her up close and personal, if you know what I mean.  Okay, back to this panel.  Maintaining new hire quality while growing is a challenge.  Investors judge your success by how much money you've made.  Many things are out of your control but you always control your reputation.  Good relations with your partners, suppliers, employees, and investors can help you with your next startup even if you fail at one.  I'm certain that applies to founders from VC-backed startups even if they don't get acqui-hired.

I've got a couple of random observations from the panel sessions that deserve their own narrative.  First, I'm surprised that there aren't more startups applying artificial intelligence to Big Data analytics.  Machine learning is another emerging thing in the Valley and I suspect VCs will demand their portfolio companies graft it onto Big Data solutions to save their investments.  Second, no one on any of these panels mentioned the importance of API-level security or came up with new ways to generate use case data.  I should have asked.

The final keynote was from Evernote's Ken Gullicksen.  Much of it was like a sales pitch but the lessons for entrepreneuers were in there.  Getting into standard app stores is the short path to globalization but eventually a tech company will need offices in countries' major innovation centers.  That helps with cultural learning and adjusting text UI to other languages.  I think Evernote Market is an IoT version of Apple's strategy that seeded app demand for the iPhone.  The coolest strategy is building your own IoT ecosystem.  I've never used Evernote's stuff but it looks like a way to do knowledge management that's more adaptable than Microsoft SharePoint.  I've noted several times in previous blog articles that CRM linkages to ERP systems will facilitate Big Data.  Evernote seems to accomplish this by embedding its data notes into Salesforce's CRM suite.

Thanks for the free ticket, HYSTA.  You can tell that I had a good time at this conference.  I learned that Chinese-American tech entrepreneus are a lot like the Indian-American entrepreneurs I've met at TiE Silicon Valley.  Self-starters are all about risk, passion, drive, genius, and attitude.  I'd rather hang out with American entrepreneurial leaders than the losers I used to know in asset management.  The very attractive Chinese women in attendance were a delight to behold in between sessions.

Full disclosure: I later decided not to return to any HYSTA events. I have no ongoing contact whatsoever with anyone who spoke at this HYSTA conference or anyone who is an official at HYSTA. I have never done business in China and I will never do so. Please understand that my comments are those of an independent analyst, not someone who would ever do business in China.