After spending a few days in Atlanta, i have decided that Atlanta is the last untapped niche in the US for the venture industry. Stanford and MIT have created a vast amount of great venture returns for those willing to take risks. Additionally, RTP has served a few small investors well. But I think the opportunity in Atlanta can be the third largest VC market in the future. Here is why:
Silicon Valley and Boston are each driven by one technology institute, Stanford and MIT. Georgia Tech is one of the best engineering schools in the nation. They create more patents per R&D $ spent than either Stanford or MIT. They also graduate more total engineers than either school and specifically more RF engineers than either school.
Lastly and most importantly, Georgia Tech students have the profile of great entrepreneurs that have come out of both schools. Many students are from overseas including India, China, and Eastern Europe. These people are more inclined to start companies and take risks. Many of these people also have very advanced engineering degrees which are needed for high tech startups.
What GT doesn't have is a real venture capital community. They have a few small seed stage and angel groups but they don't possess enough capital to drive a company from concept to exit. A true Sequioa or KPCB model in Atlanta would be effective. Many of the venture companies have received capital from Boston and Silicon Valley based VC's. Local VC's have not been active in a lot of opportunities. Take for example the following recent deals:
IISS: KPCB (Recent $2bn acquisition by IBM)
Stealbox: Sierra Ventures
Air2Web: Carlyle Group
N2Broadband: Highland Capital
JBoss: Matrix and Accel ($400M acquisition)
These deals show that the market is ready for a true VC fund ($400M) that can invest $10-20M in the lifecycle of companies and there is no better talent than Georgia Tech to do so.
KD is bullish on Atlanta and the opportunities within. Long on Hotlanta.
Wednesday, October 18, 2006
Monday, October 16, 2006
YouTube's Valuation
KD has decided that he should do a fairness of valuation opinion because in all honesty, it should be done. Sequoia is the largest shareholder of Google as well as YouTube so there are obviously some conflict of interests here. I have mixed feelings about the Youtube acquisition because I have not been able to determine whether the valuation was fair. I think that Youtube has built a great website and product for its customers, but they only began to scratch the surface of their business model. Let's dig in and see if there is more "meat on the chicken".
Many people claim that Youtube did not make any money but I fail to believe that. Here are the reasons:
First, they did have some unique video advertisements and also adwords. And if you know anything about online ads now, you know that one can build a business simply by Google Adsense. If you have 34M uniques, by GOD, someone is clicking through those adds! In addition to those, just before the acquisition, Youtube did strike several deals with large media houses.
Secondly, Youtube raised $8M on the first of April. LEt's do a quick cash flow extrapolation. They had 67 employees so they are burning $500k in opex and another $1M in bandwidth per month. But this obviously ramps up so let's say they burn $2-3M per month. Youtube funded the 8 months of the operation with $8M so the net burn was clearly less than $1M per month. Therefore, they were probably doing a few million per month in revenues before the acquisition and probably break even or higher the month before the acquisition ($3-4M) so they would not have to raise another round of financing. I don't think Google would buy a company about to go bankrupt, do you?
With that, there was an inherent projectable value in the business. Then, I'm sure Mr. Mckinsey, CFO Paypal, Roelof built some large financial model justifying the long term value of each unique monthly visitor to a potential acquirer. In fact, several weeks before the acquisition he said the company was worth $1.5bn.
Why wouldn't a savvy CEO have strung them out? Did buying them now prevent them from being a $2,3,10bn acquisition 2 years from now? What if Google waited for them to raise another round of financing and to build a more substantial business model? Let's investigate the valuation.
1) So let's assume that 1 year later they built a company with $10M per month from the content deals and adwords in gross revenues (because Chad said that he could in a newspaper article) and they have to share 50% with the content holders and others so they actually make $5M per month. As previously stated, they had 67 employees so they are burning $500k in opex and another $1M in bandwidth per month. But this obviously ramps up so let's say they burn $2-3M per month which yields a NPAT of about 1.2M per month or about 15M per year. Google trades at 60P/E so they pay the same multiple for YouTube, assuming a PE/G of 1:1 and the projected valuation is $900M. If you tube grows its earnings faster than that, say 2x, then a P/E of double that is justified and so is a $1.8bn valuation. An IPO in 2-3 years could have well exceeded that number.
2) According to Techcrunch, Viacom acquired iFilm and AtomShockwave (3.3M and 1.3M uniques per month) for $50M and $200M respectively suggesting per user value of $15 to 150 per unique). Sony acquired Grouper for 65M which was about 100 per unique. The Japanese have a tendancy to overpay for US entitities so we have to discount this. Youtube had 34M uniques per month suggesting a fair value of $3.4bn. Google only paid $48 per eyeball.
3) Google paid Myspace $900M to embed its search bar which is a deal they are definately not losing money on. Google is not going to hurt its gross margins of 60% so they probably are making about $1.5bn in revenues on that deal (60% of 1.5bn is 900M). Assuming Google would pay YouTube the same for such a deal and then have access to a whole new medium of media why not just pay $1.5bn for complete ownership of the website and they breakeven on an embedded search deal. It makes sense to me.
4) Lastly, Youtube does not represent a new medium for watching TV. I don't think people will watch TV shows on Youtube. People merely are entertaining themselves by watching their videos and their friends videos. I don't think any of this crazy legal issues are issues at all. Not many people are going to watch CBS, NBC, ESPN shows and so forth. All people want to see is someone fall of their bike or throw a pie in someone's face. This is the new medium and one that no large media company can capture and no one every will again.
KD's final assessment on the YouTube deal is I think Youtube got the short end of the stick. They should have held out for $2bn. I also think it was savvy for Youtube to sell now, not because of the legal risk which I discount, but because they had peaked the success of the website without having a partner like Google.
KD
Many people claim that Youtube did not make any money but I fail to believe that. Here are the reasons:
First, they did have some unique video advertisements and also adwords. And if you know anything about online ads now, you know that one can build a business simply by Google Adsense. If you have 34M uniques, by GOD, someone is clicking through those adds! In addition to those, just before the acquisition, Youtube did strike several deals with large media houses.
Secondly, Youtube raised $8M on the first of April. LEt's do a quick cash flow extrapolation. They had 67 employees so they are burning $500k in opex and another $1M in bandwidth per month. But this obviously ramps up so let's say they burn $2-3M per month. Youtube funded the 8 months of the operation with $8M so the net burn was clearly less than $1M per month. Therefore, they were probably doing a few million per month in revenues before the acquisition and probably break even or higher the month before the acquisition ($3-4M) so they would not have to raise another round of financing. I don't think Google would buy a company about to go bankrupt, do you?
With that, there was an inherent projectable value in the business. Then, I'm sure Mr. Mckinsey, CFO Paypal, Roelof built some large financial model justifying the long term value of each unique monthly visitor to a potential acquirer. In fact, several weeks before the acquisition he said the company was worth $1.5bn.
Why wouldn't a savvy CEO have strung them out? Did buying them now prevent them from being a $2,3,10bn acquisition 2 years from now? What if Google waited for them to raise another round of financing and to build a more substantial business model? Let's investigate the valuation.
1) So let's assume that 1 year later they built a company with $10M per month from the content deals and adwords in gross revenues (because Chad said that he could in a newspaper article) and they have to share 50% with the content holders and others so they actually make $5M per month. As previously stated, they had 67 employees so they are burning $500k in opex and another $1M in bandwidth per month. But this obviously ramps up so let's say they burn $2-3M per month which yields a NPAT of about 1.2M per month or about 15M per year. Google trades at 60P/E so they pay the same multiple for YouTube, assuming a PE/G of 1:1 and the projected valuation is $900M. If you tube grows its earnings faster than that, say 2x, then a P/E of double that is justified and so is a $1.8bn valuation. An IPO in 2-3 years could have well exceeded that number.
2) According to Techcrunch, Viacom acquired iFilm and AtomShockwave (3.3M and 1.3M uniques per month) for $50M and $200M respectively suggesting per user value of $15 to 150 per unique). Sony acquired Grouper for 65M which was about 100 per unique. The Japanese have a tendancy to overpay for US entitities so we have to discount this. Youtube had 34M uniques per month suggesting a fair value of $3.4bn. Google only paid $48 per eyeball.
3) Google paid Myspace $900M to embed its search bar which is a deal they are definately not losing money on. Google is not going to hurt its gross margins of 60% so they probably are making about $1.5bn in revenues on that deal (60% of 1.5bn is 900M). Assuming Google would pay YouTube the same for such a deal and then have access to a whole new medium of media why not just pay $1.5bn for complete ownership of the website and they breakeven on an embedded search deal. It makes sense to me.
4) Lastly, Youtube does not represent a new medium for watching TV. I don't think people will watch TV shows on Youtube. People merely are entertaining themselves by watching their videos and their friends videos. I don't think any of this crazy legal issues are issues at all. Not many people are going to watch CBS, NBC, ESPN shows and so forth. All people want to see is someone fall of their bike or throw a pie in someone's face. This is the new medium and one that no large media company can capture and no one every will again.
KD's final assessment on the YouTube deal is I think Youtube got the short end of the stick. They should have held out for $2bn. I also think it was savvy for Youtube to sell now, not because of the legal risk which I discount, but because they had peaked the success of the website without having a partner like Google.
KD
KD on His Blog Template
My blog template is ugly. I feel like this is a flag color of some rogue communist state governed by a lethal dictator with the last name of Kim. I really hate the star in the left hand corner but I don't know how to change it. Someone help me.
Sunday, October 15, 2006
FUNMOBILITY
KD would like to elaborate a bit on FUNMOBILITY. www.funmobility.com . Simply, these guys rock. KD has known FUNMOBILITY, previously known as FUNMAIL (FM) for over 5 years.
In 2000, FM started early in the foray of the mobile entertainment market with a small MMS application that allowed users to send a SMS to a friend which would then dynamically insert a picture message based on the message. Due to the sheer size of the SMS market, it was a good idea but limited handset capabilities in high usage SMS areas impeded large uptake.
In 2001 for the entire year, the team struggled to pay the rent and their employees. No one in Silicon Valley could see the potential in what they were doing. They slowly changed their business model to wallpapers and ringtones, which was going to explode within a few years. Silicon Valley investors failed to see the success of these applications in Asia and Europe and missed a great opportunity. Sole angel investor and successful entrepreneur, Randy Rissman, took the plunge and funded the company, just enough to pay the bills.
The CEO, Adam Lavine, and his Co-Founder, Dennis Chen, did a great job rolling with the market and using existing technology to grasp new market demand. Adam was highly creative in developing unique IP wallpapers and ringtones so he didn't have high licensing fees. The unique IP has given them a strong following of recurring users and of course high MARGINS.
Furthermore, Adam realized there was huge value in developing relationships with the operators and helping them to make money from value added services. This has given him unique advantage in deck space and first dibs on new applications the operators want published.
In 2004, the market spiked in the US. This was 4 years after Japan, 3 years after UK, and 2 years after China. FM was in perfect position to benefit. The cash cow businesses funded new applications like America's Best Mobile Pix which has been a great success. In October, it achieved its 100 Millionth Vote and gets 20M page views monthly.
In 2006, KD was able to help Mitsui merge one its subsidiaries, ZAPPTRIO, one of the original ringtone businesses in the US to merge with FM. The merger has been a success and the combined entity flourishes.
The company will continue to make great products for its users. Those products must be help users socially connect to one another via the phone in a unique way. They have the vision, they have the success; and, it is only a matter of time before the big boys come knocking.
The market is over billions and the management team has the 5 tools. I will never understand why the Silicon Valley Boys never saw these guys. It shows me the opportunities are there even for the covert Japanese investors.
In 2000, FM started early in the foray of the mobile entertainment market with a small MMS application that allowed users to send a SMS to a friend which would then dynamically insert a picture message based on the message. Due to the sheer size of the SMS market, it was a good idea but limited handset capabilities in high usage SMS areas impeded large uptake.
In 2001 for the entire year, the team struggled to pay the rent and their employees. No one in Silicon Valley could see the potential in what they were doing. They slowly changed their business model to wallpapers and ringtones, which was going to explode within a few years. Silicon Valley investors failed to see the success of these applications in Asia and Europe and missed a great opportunity. Sole angel investor and successful entrepreneur, Randy Rissman, took the plunge and funded the company, just enough to pay the bills.
The CEO, Adam Lavine, and his Co-Founder, Dennis Chen, did a great job rolling with the market and using existing technology to grasp new market demand. Adam was highly creative in developing unique IP wallpapers and ringtones so he didn't have high licensing fees. The unique IP has given them a strong following of recurring users and of course high MARGINS.
Furthermore, Adam realized there was huge value in developing relationships with the operators and helping them to make money from value added services. This has given him unique advantage in deck space and first dibs on new applications the operators want published.
In 2004, the market spiked in the US. This was 4 years after Japan, 3 years after UK, and 2 years after China. FM was in perfect position to benefit. The cash cow businesses funded new applications like America's Best Mobile Pix which has been a great success. In October, it achieved its 100 Millionth Vote and gets 20M page views monthly.
In 2006, KD was able to help Mitsui merge one its subsidiaries, ZAPPTRIO, one of the original ringtone businesses in the US to merge with FM. The merger has been a success and the combined entity flourishes.
The company will continue to make great products for its users. Those products must be help users socially connect to one another via the phone in a unique way. They have the vision, they have the success; and, it is only a matter of time before the big boys come knocking.
The market is over billions and the management team has the 5 tools. I will never understand why the Silicon Valley Boys never saw these guys. It shows me the opportunities are there even for the covert Japanese investors.
Sunday, October 01, 2006
Top 10 Reasons You Know You Lived In China/Asia Too Long
Upon returning to the US, here are the Top 10 Reasons You Know you were in China/Asia too long:
I wrote this about a year ago so I thought I would share with my 5 viewers.
10) You can understand everything that people say around you
9) When crossing the street, you feel uncomfortable because of the lack of speeding cars and bicycles. You wait until a car speeds by and then you sprint across stop on the yellow line, while both sides of traffic pass you and honk at you, then you proceed with another sprint until reaching the end of the street. This feels normal; people think you are suicidal.
8) You are driving, stop at a stop light, and wonder what happened to all the people riding bicycles.
7) When eating at a restaurant, you are not only surprised, but also a bit annoyed, by the kind waitress continually asking you how your meal is but you are also stunned, counter to logic, that you get free refills with iced tea
6) When an Asian-American speaks to you in English, you get startled.
5) When you enter your local grocery store, you wonder, who in God's name, eats all of this food.
4) You often bite your tongue, speak a bit more quietly, less often, and speak English using different grammatical structures. People look at you strangely when you repeatedly say, "Oh, I see, I see" or "Yes, I understand, I understand (as they would in Japanese). You think this is normal; they think you are from another decade.
3) You walk to the end of your block looking for fruit and vegetable stands.
2) You get sick of getting in the car to go everywhere.
1) You walk into a bar with your friend and you look around and see a girl with blonde hair and blue eyes and you comment, "that girl looks exotic" and your friend says, "Yeah, she's an American, you idiot"
I wrote this about a year ago so I thought I would share with my 5 viewers.
10) You can understand everything that people say around you
9) When crossing the street, you feel uncomfortable because of the lack of speeding cars and bicycles. You wait until a car speeds by and then you sprint across stop on the yellow line, while both sides of traffic pass you and honk at you, then you proceed with another sprint until reaching the end of the street. This feels normal; people think you are suicidal.
8) You are driving, stop at a stop light, and wonder what happened to all the people riding bicycles.
7) When eating at a restaurant, you are not only surprised, but also a bit annoyed, by the kind waitress continually asking you how your meal is but you are also stunned, counter to logic, that you get free refills with iced tea
6) When an Asian-American speaks to you in English, you get startled.
5) When you enter your local grocery store, you wonder, who in God's name, eats all of this food.
4) You often bite your tongue, speak a bit more quietly, less often, and speak English using different grammatical structures. People look at you strangely when you repeatedly say, "Oh, I see, I see" or "Yes, I understand, I understand (as they would in Japanese). You think this is normal; they think you are from another decade.
3) You walk to the end of your block looking for fruit and vegetable stands.
2) You get sick of getting in the car to go everywhere.
1) You walk into a bar with your friend and you look around and see a girl with blonde hair and blue eyes and you comment, "that girl looks exotic" and your friend says, "Yeah, she's an American, you idiot"
Subscribe to:
Posts (Atom)