TBJ Investments, LLC

The Big Whiff; Facebook IPO and the Boston Investment Community

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:

http://www.slideshare.net/tbjbuzzient/boston-vs-the-bay

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.

 

 

 

 

Zuckerberg in Boston, or "Yet another one that got away"

The last week, Boston has been abuzz with the news that Mark Zuckerberg was coming back to "visit". In one of his various interviews, the founder of Facebook remarked that "if he could do it all over again, he'd have stayed in Boston".

Almost immediately, select members of the Boston technology community seized on that statement as proof of Boston's equivalent status to Silicon Valley. There was just one little problem that those people conveniently overlooked...

Rather, there were 2.3B problems those boosters overlooked. $2.3B worth of funding that Facebook has raised since leaving Boston; none of that from Boston angels, investors, hedge fund side pockets, asset managers, private equity or venture firms.

Instead of crowing about Zuckerberg's comments as some sort of self-serving justification of their own existence, I think that Zuck's visit should be viewed more in collective shame.

Shame on Boston for letting him get away. Shame on the local angel investor community for not getting into the deal. Shame on the VC community for not only missing the early stage rounds, but with the exception of Greylock's west coast office, not being a part of ANY successive round. Shame on the Hedge Fund and PE communities for not getting into the deal via side pocket funds in later rounds.

Download Who-owns-facebook.jpg (JPEG Image, 600x446 pixels)

For a city that is one of the major money centers in the US, this is a major failure. This was never a matter of lack of capital. This was all about lack of will, lack of vision.

As it turns out, Zuck's trip to Boston wasn't just a simple visit, but a recruiting trip. Hundreds of the best and brightest students of MIT and Harvard were pre-selected for interviews with Facebook. I look at this as the biggest talent suck in Boston seen in recent years. Some of the best talent coming out of Boston universities was just drained away to the west coast.

I would hope that this visit, and the fact that Facebook is now valued at ~$50B would serve as a teaching moment, and an opportunity for reflection. I fear that lesson will be lost in the rush to claim some hollow victory in Zuck's initial comments.

How to avoid the next one? How to keep the next Zuck from leaving? Here are my thoughts:

1. Enable VC associates to originate deals up to $100K on their own, investments in technical members of their peer group.
2. Support a standard Boston Seed Deal termsheet, pre-vetted with local law firms and VC's. This termsheet should be similar to the Series Seed terms, but adjusted for East Coast investors. One page, easily executed.
3. Boston LP's should scorecard Boston VC's on their ability not just to generate returns, but invest in companies that create jobs in the Boston metro. Given that most VC's haven't generated returns aboove the S&P the last decade, this extra requirement shouldn't cause undue alarm.

Last, no one gets fired in VC for missing a deal. In the operational world of high tech, a sales rep missing the big deal in their territory would be fired. Not in VC. Somehow that lack of accountability needs to change.

 

Oracle CrossTalk 2010

Buzzient has had a great opportunity to present during the general session at Oracle CrossTalk 2010, Oracle's Retail industry conference. We've met with top retail executives from all over the world.Social media is clearly emerging as a new channel for multichannel retailers; Buzzient's ability to integrate social media data with Oracle applications gives these retailers tremendous competitive advantage.

I'm attaching my presentation here:  http://slidesha.re/aGUIIn

Social Media and the Iranian Election

I've had some time now to reflect on what we saw here at Buzzient with the recent Iranian election.

First of all, I was amazed at how quickly the social media community jumped on this issue and instead of being passive, became very active.

Second, I observed that the "digital resistance" organized very quickly, into self-managed and led groups. These folks put together proxy server lists, changed their posting locations to Tehran, whatever it took to add themselves to the legion of those wanting the results challenged. This resistance also took it a bit far with DDOS attacks and otherwise, but it was fascinating to see how quickly the partizans formed.

Last, I have to admit I felt proud that Buzzient's product, Buzzient Enterprise, was able to monitor Twitter in real time and create a social network of who was posting about the election. We've subsequently had more than a few requests to share the data, but we're going to err on the side of extreme caution here, as we don't want to endanger any of the people involved. That being said, it is remarkable to see how technology can enable both the resistance to political impropriety(suspected, not confirmed) as well as inform the casual observer.

Buzzient

After a long, self-imposed hiatus, I'm back posting. I've been deeply involved with the formation and launch of Buzzient. Buzzient is the result of work my cofounder Andreas Goeldi and I started at MIT in looking at cloud based applications. We realized that there was a huge opportunity not only in running an app in the cloud, but in helping enterprises understand the wealth of data growing in the ether.

Long story short, over the last 2 years we've built an application that harvests, analyzes, and quantifies what people are saying in social media. We've linked that to applications such as Salesforce.com and SugarCRM, and will expand the set of applications dramatically over the next two quarters. Thus, we're able to not only provide insights into social media, but can make social media actionable by connecting it to application workflows.

That's it for now. Check out www.buzzient.com or our crunchbase entry: Buzzient on Crunchbase   for more on the company.

Why I got out of the Homeland Security Business...

I've not posted for a while due to a stealth mode startup I'm involved with. In the interim, I've had the chance to reflect on past areas of interest, including homeland security technology. Though I still maintain active interests and relationships in this area, and have a deep belief that technology from our existing labs and universities can be marshalled to detect and project against terrorism, it's frankly a lousy place to do business.

Here's a classic example why:

Big Box Retailers block cargo container scanning

Net Net: Large, influential companies such as Home Depot and WalMart are actively lobbying to PREVENT the use of technology to scan 100% of containers coming into the U.S. . That's right, PREVENT the scanning of containers for potential radioactive, biological, or explosive threats. Why? Because it will generate  an expense of ~$20 per container. Now, there are 20M odd containers coming into the U.S. each year, so the aggregate expense is substantial, but spread across several multi-billion dollar revenue companies, plus a network of transporation interests, this strikes me as incredibly short sighted.

I had the pleasure to visit the Kennedy Space Center over the winter, and I marveled at how we once "girded our loins" (In the Shakespearean sense) during the '60s to go to the moon. Once upon a time, personal courage and national interest came together to achieve great things. Now we live in an age where large, stodgy companies who invent NOTHING block the use of technology so that they can keep the cost of Chinese flip flops as low as possible.

Time for Home Depot et al to Cowboy up and act responsibly. In the interim, there a sea of companies like AESI, Savi, etc. that could potentially help introduce new technologies to achieve a 100% scanning goal, but they're at the mercy of the big boys. Hence, a noble cause, but a lousy place to do business.

Global Mobility

I'm in Sweden and Holland for a week, but couldn't help but write about wireless and mobility on this side of the pond. I'm continually astonished at how mobile technology is embedded in Scandinavian society; on a trip out to Sandham in the Swedish Archipelago, we had top notch coverage on mobile devices and were able to download ringtones and songs on our way into the Baltic.

Contrast that with Sand Hill Road, where I ALWAYS lose a connection at the junction with Highway 280...Hmm....

Enterprise 2.0 update

I'm just coming off a week spent at the Enterprise 2.0 conference in Boston:  Enterprise 2.0 Conference

My general feeling is that this market is in the early stages where the food chain isn't clear. There are a number of collaboration companies that classify themselves as E2.0, but it's not obvious what if any greater capability they bring to users. Even more daunting is the lack of clear financial benefit to this movement. Though some dismissed my constant badgering of speakers/presenters as to the ROI, I think it's important that financial metrics be established to enable faster adoption.

Eba Systems

This is definitely a month where I'm having a lot of flashbacks. Today, someone in Australia sent me a link to a product I conceived and architected as founding CEO of Eba Systems.

Eba Systems Archived link

Download eba_systems_press.zip

Eba Systems product lives on!

Back in the early, painful, optimistic days of enterprise wireless data and WAP, I was convinced that enterprise users would demand corporate data on handheld wireless devices. Never mind the fact that in 1998, the convergence of the internet and wireless applications was just starting; I foolishly believed this would all come together in 3-5 years. At any rate, I put together a team that developed the first wireless application server that connected Siebel Sales Enterprise to PalmOS devices. We managed to generate about $250K in revenue AND ship the product in 9 months on only $1.2M of outside funding(yours truly was in the hole on this some additional amount I don't even want to know to this day).

We were early, I made a bunch of mistakes as a first time CEO, but came pretty close to selling the company to Siebel before having to settle for a lower cost sale to Iormyx. The day of our big demo to Siebel was probably one of the most important lessons I've every learned; EVEN if you delegate something to your direct reports...Verify, Verify, Verify...but that's another story...

I believe that enterprise wireless applications aren't dead at all; actually I speculate that a lot of companies are toying with deploying low cost, internally developed apps to WiFi or WIMAX  in the near future.  A lot of wireless development energy has focused on the consumer; I will be interested to see if the widgetization on the consumer side leads to better experiences for enterprises.

Download iormyx_wireless_framework.doc

MIT 100k 2007

I hadn't gotten around to posting this earlier, but this is the list of 2007 Semi-finalists for MIT $100k. I'm unfortunately going to be either in NYC at the Enterprise Search Summit, or on a plane to China, so I'll miss this year's presentation. That being said, the trick with $100k is not to find the winner, but the first or second runner up(those are the companies who end up being good investments, e.g. Akamai).

Download 2007_semifinalists_mit_100k.pdf