Here's my recent comments on Fred Wilson's blog re: Tech Diversity
Lots of big VC rounds are being raised. A number of companies have raised $100M+. It's probably important to note two things:
1. The collective market caps of companies in certain sectors exceed the market sizes of those sectors
2. 75% of most exists are below $100M.
This chart is a good primer on where most exits fall:
Getting awful bubbly out there...
In his Siebel Essentials blog, Alexander Hansal continues his exploration of the Siebel Open UI.
VERY interesting. Oracle going to monthly updates on Siebel.Implies a lot more life in the platform. This is logical since Oracle gets $1B in maintenance reveneue (equivalent to $3-$5B in market cap effect).
Alex Hansal also points out the underlying reason why so many production Siebel customers are neither upgrading nor migrating from Siebel: The upgrades require such a major repository merge that for a large organization, this could be person-years of additional development to resolve.
Migrating to Salesforce(and losing years of customizations) would be an equivalent expense.
Hence why so many customers are looking to "Innovate around the Edges" of Siebel vs. upgrade or replace.
By Bruce Cleveland
Couple points to add:
1. Siebel maintenance spend is actually growing not decreasing. Siebel customers spent $1B on maintenance in 2013, up from about $600M in 2011.
2. Saleforce may dominate the edge of the network(marketing), but especially in Telecom, Siebel still owns the core (alongside Amdocs, Oracle, SAP, etc)
3. With my portfolio company Buzzient, we've seen a few behaviors recently:
We all have a lot to learn from Bruce's recollections of this moment in time, but it's also valuable to step away from they hype and see what's really going on with customers still using Siebel, potentially alongside Salesforce.
2013 was a year of transition. 2014 is going to be a year of dramatic changes. First off, we've made a few key moves at TBJ Investments over the winter. The most dramatic of which is that we moved out of Boston to Washington DC. Some of this is related to career opportunities, but the essential fact is that DC is going to go through a significant set of changes, and with that will be a number of investment opportunities:
Each of these themes will be explored in greater depth, but expect 2014 to be a dramatically different year.
Adding to its portfolio of CRM solutions, Oracle Corporation (NYSE: ORCL) has entered into an agreement to acquire Responsys (NASDAQ: MKTG), a cloud-based email and social marketing company to be part of the Oracle Marketing Cloud. Under the terms of the deal Oracle will acquire the company for $27 per share in cash or approximately $1.5 billion, net of Responsys’ cash. This represents a 38% premium over its share price the day before the transaction. In response to the annoucement, Responsys shares climbed to $26.90 in morning trading. Oracle Corp.'s stock added 3 cents to $36.63.
Another "marketing cloud" acquisition. At some point companies will stop marketing to each other and start selling, supporting, and building things again...
By Richard Napier
Why the Buzzient Social CRM offering for Siebel is superior; ability to link social data to current systems of record! #buzzient
By Richard Napier
Unique to Buzzient is the ability to do Social CRM for Hosted, On-Premises, and Hybrid configurations
By Richard Napier
Great summary from On Demand Education on the value of adding Buzzient to Siebel for Social CRM. A TBJ Investments portfolio company!
The opposite of play isn't work, it's depression
Great points by Bruce Daley from CCE2013. I'd also add that Social is a clear theme for all the enterprise players, and customers have this on the NEED list.
A leading Siebel blog has launched an applications exchange for Siebel specific code similar to Salesforce.com's AppExchange. Called the Siebel Store, the new marketplace is the brain child of Oli Ollerenshaw a long time Siebel consultant.
This is a BRILLIANT idea for the Siebel ecosystem. There are tons of production applications like Buzzient Social CRM which could be accessed this way.
EarthIntegrate has integrated its Pando Distributed Enterprise Marketing Platform with Oracle's Siebel CRM and will use the interface to help onboard a large financial institution. The institution in question has agreed to a $3,500,000, three-year contract in an effort to improve their customer's experience through better sales execution. The new customer will use the "Product Creator CMS," "Data Profiler," "Plan Administration >CMS," "Impersonation & Delegation" and "Approval Auditing & Archiving" modules of Pando.
Interesting data point for those who don't realize how vibrant the Siebel economy still is. $3.5M deals are hard to come by, and most SaaS companies claiming the "death of Siebel" are nowhere near this ballpark.
There's more evidence of $BA Boeing brand damage after the battery debacle. Some of this has been listed in a previous post on the Buzzient blog:
Since this original post, there's been a lot of noise about various aircraft fleets delaying purchase of 787's or even shopping for alternative airframes. If we take a look at Buzzient sentiment analytics for the last month, we can see this clear divergence for the 787 product line, where sentiment drops appreciably when compared to other Boeing products:
The dramatic drop in the red line (787 model) corresponds to the time period where it became known how bad the battery problems are. Since that time, Boeing announced decent results, but we can see in the social sentiment charts a lingering gap in product sentiment. Will this show up in delayed orders in subsequent quarters? I think prudent traders, using this Buzzient data alongside other measures would advise a HOLD on $BA.
This is one worth exploring. In comparing the Buzzient sentiment charts for Cabela's over the last 7 days and the Bloomberg chart for stock price, it's almost like they're inversely correlated:
Case in point, Feb 8 was the high point for sentiment, which correlates to the low point for the stock price in the past week. Is it that social sentiment drives new stock purchase behavior, hence the increase in stock price lags? If so, then using social media sentiment could be a VERY interesting and profitable technical indicator of where stock prices are going to go, particularly for long-oriented investors. Will analyze this further over time, but another tidbit of data on the potential application of social media analytics and sentiment to equities, ETF, and other long instrument trading.
As a follow up to the previous post on the Series A crunch( Series A Crunch), it's important to also think of alternatives. Yes, my principal thesis is that seed-funded companies without institutional investment should focus first on their core business and customers in order to get over the financing hump. That being said, the smart company also looks at alternatives.
If you're a startup that has been bootstrapped, hasn't raised any institutional money, and will need money anytime in 2013, you should strongly consider selling. Why?
1. The angel market is about to dry up
Everyone feels it. There's lots of competition right now for angel money, and few angel groups really have an efficient process for looking at lots of deals. To be blunt, so few angel groups have high volume deal screening processes that there's a bottleneck in looking for angel money. So, if an angel group tells you that their process takes 30 days, well, it actually takes 60 to 90. If they say 60 days, it's really 6 months.
In addition, there are so few cash on cash returns at the seed stage that a lot of angels are illiquid as well. That means they're waiting for cash buyers for existing portfolio companies in order to get back in the market.
2. VC's are being "Crunched" as well, and will act accordingly
There's another crunch going on; it's the Underperforming VC Crunch. Most venture capital firms underperform the S&P, and have done so for the last decade. A number of LP's are reconsidering their allocation to VC; CalPers for example is reducing their allocation from 7% to 2% or less.
That means that in order to justify their existence, those firms which aren't in a select few will have to drop eye-popping returns on at least 1 deal that captures headlines. That deal may/may not drive the overall portfolio, but will give the VC firm a reason to lobby for another LP allocation. To do this, VC's will tend to do later stage deals, even though their charter might be to invest earlier stage (Series B at a Series A Price). This is all about survival and justification of that 2% management fee, so charter be damned.
So, if you're a seed funded company looking at a "true" Series A where you have some revenue, customers, product, etc, but haven't begun to auto-scale, you're SOL. 9 out of 10 VC firms are just not going to be up for company building right now. For them, they're in their own "crunch", and in the battle for survival between you and them, well, guess who they'll pick?
3. There is an innovation gap that advantages startups; this means YOU!
Since the financial crisis, the level of R&D by both public and private companies has been somewhat suppressed. What that means is that the VP of Engineering/VP of R&D for larger companies has a list of innovations he/she would love to have, but has never been able to fund. That's where startups come in. If you're seed funded and have an actual product, your offering helps those companies accelerate their own plan. For the seed-funded entrepreneur, you get access to larger distribution channels and resources you don't have. It's a Win-Win.
To survive the Series A Crunch is going to take a lot of nerve, hard work, and an iron stomach. As you gird yourself for more capital raising, don't turn away from the acquisition route as well. If you find the right investors who are up for company building, carry on. If you don't find enough of them, M&A provides an alternative path that benefits your startup, your investors, the acquirer, and you the entrepreneur. Particularly without the "overhang" of VC preferences, M&A could be a BETTER outcome for early investors and entrepreneurs than with continued capital raising.
I had an awesome last week in NYC while presenting my portfolio company Buzzient (www.buzzient.com) to potential business partners and investors at the Gridley and JEGI conferences. So good that I've tried to step back and understand why Buzzient seems to get more customer and investor traction in NYC? IMHO, there are a few characteristics of the NYC scene that make it (second only to Silicon Valley) a dynamic place for tech businesses:
1. Sense of Urgency
One of the things I've always loved about NYC is the sense of urgency in business conversations. There is very little of the "let's see what happens, come back in 6-12 months" inertia that you find in a number of other areas. Some of this is the "trader" mentality which has moved uptown from Wall Street to the technology clusters in the city. This awareness of the fleeting nature of opportunity makes business conversations in NYC move faster, and have a definite action or endpoint.
I've found CEO's, financial executives, and prospective customers FAR easier to get to in NYC. I think this is related to the sense of urgency, but doors and rolodexes seem to spring open with far less advance notice in NYC. I was pleasantly surprised on this trip to have senior people in a variety of organizations re-arrange their schedules to accomodate my trip. I find that in the Valley, VC's are booked so far in advance(with a lot higher volume demand) that this is hard to do.
3. New Perspective
NYC has changed a lot from the Silicon Alley era. During that time, one could experiment with a tech startup and if things didn't work out, you could always go "Back to Banking". What's different now is that several of the banks are themselves gone (Lehman, Bear Stearns) and others are laying off (Morgan Stanley). For the first time I believe there's a new perspective where, short-term compensation aside, tech startups are not necessarily more risky than staying in financial services. With this fresh perspective, I believe the NYC tech community has a more balanced view of risk and reward that makes the tech community more long-term focused.
4. Community Building
I'm impressed by the amount of community building I see going on in NYC. As mentioned, I was in town to attend Gridley 2013 as well as the JEGI (Jordan Edmiston Group) Conference. In both cases, members of the firm reached out to me proactively to attend, as well as made time for introductions and connections to other companies. I saw a real "can do" attitude in hooking Buzzient up to at least one flagship firm and reknowned investor. Extremely refreshing attitude and one of the reasons why I believe startups from all over the world are seeing NYC as an easy place to get established.
I'll have another chance to evaluate the ecosystem Jan 30 when Buzzient will present as one of the SIIA Class of 2013 at SIIA Breakthrough:
If you happen to be at Chelsea Piers (Pier 60) on Jan 30th, please come by and say hello!
The SBA has recently (re)launched their Early Stage Program, designed to provide capital to funds focused on younger, riskier companies.
With the end of the year approaching, it's time for us all to catch up on our reading. As a result, I'm going to be publishing a series of case studies on how Enterprises are using social media for customer intelligence, customer service, and other purposes with Buzzient Enterprise. Since so many of the use cases for social revolve around a handful of companies, these use cases will serve to diversify the viewpoints on Enterprise Social Media.
Let's face it, we're living in an era of severe deflation. It's cheaper than ever to start a company with open source and cloud hosting. Real Estate (residential and commercial) is at a generational low, making it easier to find a business location or (save the Valley) an inexpensive location to live while launching your dream.
At the same time, I've seen a behavior I can only call"Series B at a Series A price". Meaning, I've encountered more investors than ever before who are looking to put money into very advanced companies stage-wise, but only at a low or early stage valuation. That is, the expectation level of how much a company will accomplish is often irrationally high, so much so that many of these potential investors expect Series B style metrics when a company has not had the resources to get there. I fundamentally believe this is at the heart of the Series A crunch we're hearing so much about; a lot of investors really want to invest later stage, and aren't willing to invest in would be considered true Series A; some proof points but the model and metrics aren't yet complete.
What will change this behavior? Who knows. A crash certainly wouldn't hurt, but I'm afraid a number of good companies will get caught up in this unrealistic wave of expectations brought on by price deflation. We'll see.
Just back from almost a month on the west coast. I'm even more convinced now that the Enterprise Social Media market is going to be a battle between the west coast and NYC. There are just so many enterprise companies pivoting to include social now that what was considered "fringe" even nine months ago is mainstream. The west coast guys got this first and moved on it. I've seen the NYC community embrace enterprise social as well, both at the platform(Foursquare) and application layer (BuddyMedia). I'd add Austin as a distant third, with the cluster of companies formed around Bazaarvoice, Social Dynamx and Austin Ventures. Everyone else seems to be fighting for fourth or worse.
This was also posted at buzzient.com/blog
For those of us brought up in the enterprise software (#EnSW) era, it’s been a long time coming. Ever since the emergence of B2C commerce, many of us have had to take a back seat to sketchy online consumer businesses which, though they make our lives better, are not necessarily feats of engineering or substantive importance to corporations, big businesses. Remember online dog food ordering? You get what I mean.
After the dot-com crash, there was a glimmer of hope for us enterprise software folks. As consumer internet investing seemed to be going the way of the platypus, companies such as Salesforce.com, Successfactors, and NetSuite emerged with internet-delivered business software which served the needs of fast-moving young gazelle companies as well as maverick departments inside larger enterprises. These Software-as-a-Service (SaaS) pioneers blended the best of the internet boom with the pragmatic problem solving required of enterprise solutions.
However, the re-emergence of the enterprise began to be overshadowed in 2003 by something new: Web 2.0 and social networks. All of a sudden, it seemed like the world took a great step backwards to 1999, as companies just needed to add a “-ster” or “-ly” to their name in order to raise capital and capture mindshare. Just type a few words into your Web 2.0 name generator and you were on your way: Web 2.0 Name Generator
Some of these companies were legit innovators and eventually market leaders. Many were not, but collectively they served to reinforce the notion that software had evolved away from being hard and difficult to build and deploy to being a gossamer, effortless use of a few open source libraries and some scripting. That the real purpose of software was to power consumer or small-medium sized business (SMB) interests and not cater to the needs of larger enterprises.
Many venture capital investors loudly proclaimed that the “Enterprise was Dead!” and they "wouldn’t invest in any company which required a business decision maker to be involved". Any investable company had to be tailored to the needs of the SMB user, someone willing to swipe a credit card for a few dollars to bring your product into their sole proprietorship, or into their cubicle, bypassing the scrutiny of the CIO.
Things have changed, though. In the last six months, there has been a resurgence of interest in big company software, particularly around managing unstructured social data and customer experience management. It’s as if investors, analysts, entrepreneurs, and even consumers have woken up and realized that there must be more to high tech than yet another photo-sharing social site which enables me to text my feelings to my followers and their puppies (or something like that).
What I’d like to highlight is that during this long nuclear winter for Enterprise Software, during these multiple head-fakes where it looked like the world would turn serious again, then blinked and went all consumer Web 2.0-y on us, that real enterprise software companies kept chugging along and building value. The SaaS upstarts previously mentioned continued to grow, and ultimately went public with market caps in the Billions. At the same time, a next wave of enterprise software companies emerged which resisted the urge to go consumer and are now poised to lead a new “golden generation” of business software. Jive, Marketo, Lithium, at the application layer, as well as others such as Vertica, Splunk, Cloudera and Couchbase pioneering Big Data.
Of all the new players though, the one that stands out in my opinion as epitomizing the "Rebirth of Enterprise Software" is Workday.
If there's any proof that yes, you CAN go home again, it's Workday. Workday provides cloud-based Human Capital Management (HCM) software for running payroll, recruiting, and general financial management. For those who don't know, Workday is the reincarnation of PeopleSoft. PeopleSoft, which was acquired by Oracle for $10B in 2005 after a hostile takeover by Oracle, was known as one of the best companies to work for in software.
Founded by Ken Morris and David A. Duffield ("DAD") in 1987, PeopleSoft came to the fore as an innovator for a number of reasons:
When pushed out by Oracle after the acquisition of PeopleSoft, Duffield could have just put his heels up and relaxed. Already extremely wealthy and with nothing left to prove, he could have devoted the bulk of his time to his already considerable philanthropy efforts. Instead, he and former PeopleSoft executive Aneel Bhusri started Workday a scant two months after the acquisition of PeopleSoft. By timing their recruitment of their old team to the expiration of non-competes and non-solicitation agreements they were able to successfully "put the band back together". And customers? Customers fell over themselves to do business with the new company taking HCM to the cloud. In a scant seven years, Workday grew from idea to IPO and market cap of over $8 Billion. Oh, and the deals they do? Straight up enterprise subscriptions with average sales price of over $400,000. Not something that would be put on a credit card. In fact, it smells like enterprise software to me, and that sort of growth and deal size is sexy as hell.
Attended the CalPERS Emerging Manager forum on Mon. Very interesting. No matter how you define "emerging manager", there is clearly a next generation of investment manager eager to get into the game. More on this later but key takeaways are:
1. CalPERS is reducing allocation to VC from 7% to 1% of portfolio over the next several years. This is still going to be a big number, but signals a retreat from VC.
2. Discussion on Micro-VC funds was notably absent, so much so that I had to raise the topic in the Private Equity forum. Microfunds are doing some of the best investing right now, and it's shame there wasn't some recognition of the unique characteristics of the class.
3. There are still a number of investment niches not adequately addressed by mainstream firms. These opportunity areas are where the alpha is going to come from in the future.
4. Elephant in the room, especially as per comments of reducing VC allocation, is how poorly a number of mainstream firms have performed. See here:
This post has been a long time coming. Maybe it's the historic date itself, the wooziness from a stomach virus, or the realization that you rarely see such a stark contrast between success and failure.
Namely, the Facebook IPO, valuing the company at $100B, exposes the sharp distinctions between the Boston and Silicon Valley investment communities. In effect, the inability of the Boston investment community to put even a sliver of investment in Facebook, a company that started here, is probably one of the largest squandered opportunities in business.
Facebook raised over $2B in the march from dorm room to IPO. Not a single dollar is from a Boston angel investor, venture fund, hedge fund side pocket, or corporate strategic investor. Not $1. The closest claims are the west coast office of Greylock and the trivia that Jim Breyer of Accel grew up in Newton, MA. That's it.
Not being a baseball guy, I may have my analogies wrong, but this reminds me of Babe Ruth. The Boston Red Sox undervalued Babe Ruth and traded him away to the Yankees. The Babe went on to a storied carrier, and 80+ years later the Red Sox finally won something. Boston had first crack, but just whiffed.
The failure doesn't just end at the first up at bat, the Seed/Series A, but in every successive round. Whiff, Whiff, Whiff.
The question is why?
When I first came back to Boston in March 2006, I saw major cultural differences with Silicon Valley. These differences were based on my having had ~20 years experience in high tech as an early employee, entrepreneur, CEO, Limited Partner, and even VC associate. That experience was in areas as diverse as SF/The Valley, London, Paris, Atlanta, and DC.
At the time, I compiled my ideas into a short deck:
Now, obviously many of the points raised in this presentation have changed. There still do remain, IMHO, some fundamental differences in the regions that led to this outcome.
1. Risk Tolerance:
Frankly, Boston has essentially none when compared to the Valley. Sorry, but that's just the way I feel. Even the "risky" deals I've heard certain investors beat their chests about have some sort of hedge, financial or otherwise. I've had conversations with a ton of investors who are really growth/momentum investors in VC clothing.
2. The Outcome, not the Process:
I've never been exposed to as many so-called investors who really are interested in multiples of Revenue/EBITDA and not actually building a company. The shift to SaaS in the software industry has created an even better cover for this behavior, with companies being reduced purely to CMRR, CAC, CLV and assorted other metrics. I don't know any successful Valley entrepreneurs who started a company to maximize CMRR or CLV. The Process of building a great company is what drives the best entrepreneurs I've known; their investors thus support that belief system and help the entrepreneurs BUILD companies vs. harvest the financials.
3. Clubbiness, not Competition:
Boston investors seem way more driven by colluding with whom else might be in the deal, vs. originating a deal and having to compete. There is far less outright competition between Boston VC firms to invest in new deals. So, that creates a slower tempo, less risk-taking behavior, and little desire to do something out of the box.
There are plenty of other factors that I will analyze in successive posts. I'll also make a series of suggestions on how to avoid whiffing on the next big pitch.
I was once being pitched by a very smart entrepreneur who, when he got to the slide about his companies financials, said "I made all of this up, but here you have it." On the one hand, it was an pretty flippant approach to a relatively crucial aspect of his business. On the other hand, he was saying what ever other early stage entrepreneur was thinking when describing to me the financial outlook for his or her extraordinarily risky and unpredictable business. So why bother with a slide on your financials when pitching a VC? It is well understood by entrepreneurs and VCs alike that the specific numbers an entrepreneur pitches when describing her early stage business are completely made up. Most early stage CEOs are lucky to have visibility into the next 6 months, let alone the next 3 year that are reflected in their financials (and the 5 year forecast is mere fortune telling). Nonetheless, there is a huge amount of information about a business, and about an entrepreneur, that is reflected in those financials. The key is not to focus on the numbers themselves but, rather, to focus on the assumptions in those projections and the points of leverage for that business. It is almost assuredly the case that a early stage company's projections are wrong. In the last decade I have only seen one company actually hit the numbers they pitched me on. The rest of the companies have missed by varying degrees of big time. But the real question when listening to a pitch isn't whether the company will actually hit the numbers they are projecting, but rather what those projections say about the entrepreneur and the business? Is the entrepreneur focusing on the right things? Do the financials make reasonable assumptions? If the assumptions are anywhere close to right, is there a big interesting business to be built? Smart investors will dig into your financials to get a better sense of how you are thinking about your business. Company financials are rife with assumptions. Entrepreneurs can easily gain or lose credibility based upon the assumptions that are embedded in their financials, their understanding of those assumptions, and their ability to justify them. How long will it take to hire the people you need? How much will you pay them? How much will it cost to acquire a customer? How many engineers will it take to build your product? What is your margin (are you selling software, hardware, a cloud service)? What is the length of your typical sales cycle? How long will it take for you to collect earned revenue? How much are you spending on marketing? What is the expected return by channel? If you are pursuing a freemium business model, what percent of your user base do you expect to pay? How much will it cost you to support the free members? How much money will your company make, if any, and when? How much more money will it realistically take before you get the Company cash-flow positive? What will you achieve with the money you are raising now? These are all incredibly important questions for any startup and how you are thinking about them will have a huge impact on the success or failure of your business. No one will have perfect answers but an entrepreneur's ability to be directionally right will often be the difference between success and failure. Not only will it be important to understand the assumptions built into your financial plan, it will also be crucial to appreciate the sensitivities of your model. There are often single variables that make the difference between a good business and a great business (or, more likely, between a viable business and a failed business). If the cost of acquisition is off by 50%, do you still have a viable business? If free customers only convert at 1%, can you support the 99% who will always be free? If the viral co-efficient of your service is 1.2 instead of 1.5, what does that do to growth? What if it takes 90 days to collect on billings rather than 30 days? These "what if" questions are critical to the understanding of your business. You should appreciate the places your business has leverage, and the places that your business has potential vulnerabilities, and be ready to engage in an honest conversation about those pivot points. I will be the first person to acknowledge that early stage financials are a work of fiction. But some fiction has the ring of truth, while other fiction is so outlandish that it is impossible to suspend disbelief. It is an entrepreneur's job when pitching her business to convince an investor to suspend disbelief. The better you understand the underlying assumptions in your plan, the more effectively you'll be able to do just that. So embrace the opportunity to build credibility. As an investor, I'm happy to buy into your fiction, I just want to avoid unbridled fantasy.
I totally agree with testing and uncovering the assumptions in the financials. The challenge is doing it if you actually have a real company up and running,and the metrics are incomplete. In this scenario, the entrepreneur who has NOTHING is actually better off than the entrepreneur who has actually gone off and generated revenue, albeit inconsistent.