Silicon Valley comes to Cambridge
My good friend Stephen Rowley (a physicist at Cambridge) invited me to the “Silicon Valley comes to Cambridge” panel discussion day organised by Silicon Valley Connect, which was massively fun and engaging. I’ve really missed out on a lot of the “boom 2.0” stuff, living far away from boomtown london, and this event had a palable sense of the zeitgeist buzz. I guess that’s the whiff of money from all the Venture Capitalists and dotcom millionaires.
I heard that Ellen Levy organised the whole thing pretty much single-handedly which makes her a bit superhuman (although obviously with lots of help, I don’t want to diss anyone else involved in setting this up) and when I spoke to her briefly, she was a very cool person too. This is echoed around the blogosphere already:
Ellen said some very interesting things. First, she said that as a Silicon Valley VC she really thought she had her ear to the ground and knew everything that was going on. But in her role at Stanford as a “connector†between students, faculty, industry partners, and VCs, she actually feels that her access to information is even better. She encouraged everyone to do something in social entrepreneurship, such as teach at a university, or work with non-profits or do community service. (Because there is more to life than making money.)
Hans Peter Brondmo of Plum was sharp, and Reid Hoffman (a founder of LinkedIn) was one of my favourite panelists. He kept up this gag about how he won’t get invited back for telling it how it is, which I thought it precisely why he’ll get invited back. Megan Smith was good, and I thought she represented the ‘plex culture very well. Paul Graham wasn’t there, but got namechecked a few times, which was cool.
Anyway, here are my notes.
Disclaimer
{Note for You: There appears to be some public interest in my lecture notes, that I take at all the various kinds of lectures that I attend, for my own learning. If there is anything incorrect, please email me and I will update the text, or add your comments or trackbacks as you’d like. Be aware that I type these conference notes for personal use, pretty much stream-of-conscious style, so my pronouns get all messed up and confuse comments from the speakers and myself, and my typing is not accurate so it is probably full of typos. I try to tidy things up when time allows. I’m also usually paying attention to email/rss and anything google-worthy that gets mentioned, so probably a lot of things are misquoted and not even true at all. Please, apply common sense and don’t take this for anything other than rough-cuts from a notebook; nothing here is reliable or a real quote of anyone, any errors or confusions are almost certainly mine, yet I hope you’ll find uses for it nonetheless… “A snowball rolls down the webhill!” as a friend says :-) And my comments are in curly brackets generally.
So, I went to the Silicon Valley comes to Cambridge conference, a day of panel discussions with silicon valley (SV) startup founders, venture capitalists and other investors, to talk about the Boom 2.0. Enjoy.}
2007-11-16
Exit Strategy
We need to return money to our investors; sp tradeoffs have to be made; either going with an IPO or selling to another company. we’d like to have as much time as possible to build a great comapny, but we need real financial discipllines
Its not about the return, but the longer it takes. the longer it takes the bigger the payoff has to be. Theres opportunities for companues that have value but aren’t massive IPO. the worst thing that can happen is a small startup that have to pass up a really big investor who wants that skype, that billion dollar exit.
I wasn’t thinking about an exit until we gotone. We focused on growth, on changin gthe world and having fun while we did it. raising money, at some point they want to see the growth, and when they are getting theiir money out. i’d advocate thinking about that too. you’re pouring time into something thats unpaid to start with, and you need to think about how you earn your money. if you focus on growth you’ll have a lot of choice, either by merger&aqusitions or organic growth; joining a public ocmpany, or going public yourself.
if you focus on growth, and grow at a goo clip, you’ll raise money easily. ability to hire and ability to aquire. you also want to have the best value added investors.
so, when is the right time? a lot of investment is driven by fear. MS needs to stay relevant, and computing is Google is really relevant . Yahoo and Google both wanted Jotspot and so the price doubled; who has fear in the market place, and who needs to pay to rise in th emarket. These windows open and close, and its trying to understand that. Web 2.0 companies have a lot of momentum, large audiences and are profitable, and the incumbent web companies like yahooare scared about that.
what happens a lot is companies see an exit window ocme up, they spend 4 months on it, and then it closes and they lose it and they’ve lost 4 months on their regular running.
Xen and Citrix is a current example, no sales and profitability models justify that transaction. The confidence of the silicon valley crowd is ahead of europe; in euope IPO exchanges are open, you can generat liquidity here more easily, the entrepeneural market is less developed, but then its harder to get those billion dollar exits.
if you come from a position of strength, you can invest very early and see where things goes. if youre not coming from that position, if you’re built to be sold, and you dont know where the revenues are going to come from in 2 years time, you’ll find it harder to get
I help sell companies. i wanted to sell concordes when i was a kid, and every concord is the same, but every company is different. you have startup, growth, and then decline. at the starts the metrics are all flat. you can invest in a company early when there are no revenues, but the “intellectual propety” is valuable because it has a technology that lots of people will want to have. Then i nthe growth phase,.
VMware was bought for 650million, they traded 20 million but they had 60 million booked. the multiple was good, companies look for accretive buys. tihnk of the shares divded by revenues. they dont byu companies with less than their numbers. and do they use last years numbers or next years numbers? theres a way to value them, you learn that in business schoool. one way is to have competive figures, so you can escalate simulataneously two bidders. So this is how Xen gets IBM and IPA and Citrix all looking to buy that company.
Having that kind of competition is key to getting a good price in the exit.
These are all people businesses, and you buy a company to buy the people. Yahoo needed help in mail and so they got this great team. Slingbox ?(?) is another one. Silicon valley is veyr open, competitors talk to each other and they know what is going on. so a larger company sees a small one and realises if they dont buy them now, they’ll haveto buy them for a lot more later on. that happens alot in SV.
A stock exchange is what happened with YoUTube, how they got that price. other situations, you want to get paid in cash.
Differences between UK and US: as an M&A person, europe is a bigger market in GDP than the USA. its a fragmented market though, not as unified. the technology of euope is great, people are more understated though, but they want things to work well. they have loewr value expectations; and you cant afford the multipliers. The ‘swing for the fences’ attitude isnt here, but USA investors want to diversify away from the dollar at the moment. the value is here is greater when you take it to the usa. so american companies are willing to pay more for european copmapnues than what they typically expect.
im at a cambs company with 70 people, there are another70 in SV, a handful in teipei, and its a 3 year old company. it makes its value in the far east, and it works well. its enabled by the internet. businesses can look outside their home markets, and thats a new development, but not all markets are equal. in france, the record of exits compared to USA is limited; theres a nervouseness about labour law, cultural differences, potisions on iraq. in SV there is this concentration, exit is a process not an event and you can shift phases without moving your fmialy.
weve done well investing in baidu and so on, where they found their exit in the local exchange, and we as investors have to be sensitive.
Q: how important is “fit” for companies and investors? A: Very. shared visions of technology are important. two companies sold for 60ish million dollars and had no revenues, but their technology could be dropped into the buyers business and book more money than that very soon. but if there isnt fit, the technology can sit on the shself and not make any money, and gets sold on and hopefully without a loss. and there was a company selling to one of the most “NIH” companies out there, MS, and they said, take the sales prices and divide it by the number of people wh will move to redmond. {hah!} IBM has 56% of its workforce working from home. amazing. internet has democratised a lot of things, and its easy to fit a workforce in. and buying the people is so key; as a buyer you dont want to buy a copany and have the people leave you after a year. the original vision of the bought company won’t cme through typically if that happens.
The process of exit. if you go public, you need to positoin for the market, so people will buy and sell your shares. M&A takes a long time. i got an offer, i got a bnker, they took 9 months to get 3 other offers and they were over double the initial one. its not something that happens overnight. if you want something next year, start working on its this year. align yourself with future investors.
Q: today, is 5 years too long from founding to exit? A: We did 2 companies who exited this year with over a billion dollars in one case, and they werew 7 and 9 years old. Short term stakes is really good, but there is never any rule today or anyu time.
09:30
Patents and the valuation of your startup
“What are the things CEOs need to do with their “IP” to ensure that VCs will want to fund the company or trade investors want to buy it? Differences with UK and USA?”
4 kinds of IP, usually with technology companies it centers around patents.
i work in my 3rd startup.
i work at a hard-soft company, my 9th startup
i work at a SV VC.
i work at an investment bank. ive looked at patents, as an aquirer at SUN, as an a investor, and i ve looked at them from lots of different seats of the table. industry differences come up often.
“IP” often ends up with a philosphical debate, but I hope thi will be pracical too.
“Biff” recently graduated and made an ORG. A biochemist friend said to patent his ideas and get angels and VCs. he sees patents as only useful to sue people later, and sees success as lots of users. should he register patentss?
There are lots of nuance in patent law. software in most of the world can support patents. theres a big debate if this is a good or a bad thing, but you can patent software, and have been able to for thelast 20 years. the question in any startup is you have limited resources and lots more to do than they afford. we dont look at if start ups filed patents. we’re early stage investors. for a software patent, it costs 10-20 thousand and thats mostly legal fees. not a lotof money, but could be used for something else. you have to chose fi you spend the money on hat on an engineers bonus. in iotech is more important, in semiconductor design its more important, but increasinly we’re seeing software idea patents. if you get a patent as startup, dont htikn about it as an offenseive weapon. its VERY expensive to being a patent lawsuit. for startups its more defensive, so you can ge tinto a corss licensing patent deal. many acquirors value patents highly so if you have a patent portfolio, that can effect the aqusiiton price.
filing patents is expensive, and there is an opportunity cost in paying attnetion to it. in a startup you always have more things to do than you have time. at a later date they can be valuable, but they ar emore defensive. i wsa working for a company, and they sued a taiwanese copmetitor. you need a patent strategy. its like any other asset, its competiting for time and money.
3 questiosn here; timing is impportant. how get investment, how to get to market, and allocation of importance. our startup is 6 years old. things change over time. patents dont change the value of your company, but they change the atittude of investors to investing in you. the registering cost of the patent isnt that big, and pining down the secet source is good, but it can take a LONG time to get a patent. its hard to get into patents early, as your resources are constrainted, but it is worth doing.
each of the 4 types of IP are very differnet, and were talking about patents here. getting a patent depends on how important the idea is for protecting. if the idea of selling virtual goods online, and the firs ttime that idea was thought up, and it was patented, it would be valuable. so in your sstartup, you wouldnt troll everyone else with that patent, but it means YOU could sell your company for more money. and if you sell to a patent aggressor like IBM or MS, they will be willing to troll everyone else and so will pay you more.
Q: You may chose to get a patent early or later, but if your business is based ona key concept, you must start from day one. A: my attitude moved a lot when i moved to san francisco. before then we werent bothered. writing out a patent wsa te last thing on our mind, we wanted to grow the market and tell customers what we did. but if you really nderstand what you’re doing at the start thats great. but most software companies dont, and they dont think anything new is done in computing. the search for prior art takes a long time. A: At most global patent treaties, you are required to register a patent within one year of disclosing the idea not under a NDA. you can keep it secret though, and not patent anything. If you have a webapp company, you dont need to tell anyone what you are doing. so they dont need to spend any time and money and thats the right thing for them. other companies spend a lot, and thats the right thing for them too. A: The purpose of the company might be to create products, or to create a idea and see what products come from that idea. so its important to build a strong comapny. A: A friend had a “big idea” but it was quite rusty, and a patent lawyer took him for a ride with registering the patent and going a valuation exercise on the patent. doing that at an early stage is mad.
Q: Would you like to invst in getting a product working, or getting an idea for a product protected? A: the former. you can raise the money for a patent on a working product easier.
Q: disclose in the uk means you can’t patent in the uk A: You want to patent globally
Q: investors dont do NDAs A: No. its a situation specific thing.
Q: Trade secrets. if we have a trade secret that we share with investors, how can we protect ourselves? A: you can ge tprotection with contractual agreemtns - NDAs - and you need to get a rela lawyer for that. The othe,r a bit limited, is jus tto limit how mayn eople know it. Eg, the coke recipe is only known by a fe people; the formular is written down, but there is know-how about how its made that is still secret today.
Q: Specifically in software, how A: Google and MS and Intel acquire on how many PhDs and patents the company has. in biotech, the patent is the first step in the first dance. Typically a company doesnt go around saying “I have a patent and you don’t” unless they are a company solely to do that. And those companies dont get investment a lot.
Q: large companies want startups to base themselves off their tech, and its tricky who can claim what patentable ideas. A: SUN never did joint developemnt because its tricky. A: You have to be careful. A: Most software engineers dont write things done other than code. you need to express things to an investor and an patent attreny. get software engineers to write down why your sruff is cool is the first step.
Q: if your idea was aprt of your phd, your idea is in a public library. so your idea isnt patentable. how to get around that? A: IANAL, but firs thing is to see the instituiosn patent policy. most USA unviersities have plices. MIT, Columbia, started it. rules govern your ability to exploit your ideas that happen as part of your uni work. and dont worry about it, an investor wont.
Q: how useful is a patent to being acquired? A: Rambus is patent company, and they spent 5-10m$ a year in litigation, they get countersued a lot, and the whole company is a patent troll on memory architectures. electric cloud has 2-3 patents, a few coming, about the ideas arond how to manage a softare application spread around a cluster with no common memory. a UCB professor is the brain behind this. the business will be aquired, and if the patents are deemed valuable - if they think they can weild them as weapons - they will pay more. SLI makes facebook apps, widgets you can embed in web pages, and it doesnt have any patents at all. it dpeends on the situation, and you can stpend a lotof moey on apetnts and be smart, or be dumb. A: patents are a investment fad. if you can’t asnwer the question of where your IP value is at, you wont get investors. the big quesion is, how hard is it for other people to do what you do?
last 2 years, the paatent market has changed. styartups arent threatened really because they
Q: what if biffs software is based on something that is GPLv3? A: we take this esriously. there are varous open source license, and some, ifou license it, your ability to exploit that software without disclaosing what you do varies. the most extreme flavour, you have to diclose everything you do ack to the community. there are no trad secrets. if someone signs the most extemre version, generally, no, we wouldnt invest.
10:30
Business Models: “Show me the money”
Companies are thnking about how to generate revenues. your customer, your audience, what are you tryin gto do for them, and the money isnt the cnetral part, its providing value ot poeple. especially in the kinds of bsuinsses were involved in. the google founders didnt have the advertising models that generate our revenue at the star.t htey were loosly in their minds, with VC discussions, it was teh search technology they had pinned down. thats a central point that i wantto pen with.
If you compare google and yahoo, google has a design principles that yahoo lacked:cusotmer first, UI first, and buesiness seocnd. yahoo arranged a lot around internally by revenue in the lsat quarter, bonuses and such, and that ulitmatley hurt them. “advertisers are paying for an audience” is a big model, subscription fees is the 2nd, and finally, syndicating data and seeling it on, fandango is an exmaple of this. getting usrs and working with massive scale engagement, and working amodel out of that. if you have a great economical model, but no users, you have no model.
Q: what about when technology is not in the product? A: technology is important, but ultimately you want to get where youre going as fast as you can.
Q: where do the ideas google have ceom from? (?) A: everywhere. we have a funtional way of organising teams in a non hierarchical way. We were concerned about how closed the mobile phone industry is, and we wanted the millions of developers around the world to innovate on top of that. Andoird was our answer to that. we might buy a company, we might have a engineer coming up with something themsleves, and we might come up with an idea in our R&D dept. we have 20% time, and lots of ideas come from that. you start doing it, and that creates discussion of ideas within teh company.
Q: how do you select from all the ideas? A: ycombinator give 5-10k grants to each member of a team, and they dont invest in one person; you have to be able to convince your room mate its a good idea. if its a good idea, people pile onto it. our customers help us too.
A: Internet sbusinesses can be successful anywhere. in SSV, you have a large market thats mature, easily serviceable, and its advertising revenue. there are 4 big cultures in the USA, im more west coast than the “fly over states”. i invested in last.fm, and you can rearch a global audience with the right distribution model.
Q: how do you decide whats a good business model? A: when i look at a series A investment, i ask what the distribution model is: how to get the first 1 and 10 million users. if i see a game plan there, i’m interested. the business model for 100,00 people isnt interesting. thats equal to 0 afaiac. {HAHAHA} And there is exerburence in investors at the moment, and its differnt to dotcom, the cost structures is lower, and bsaic models for making models are higher. there wont be the IPOs of the past, but you will see much more comapnies with CPMs (?). Advertising on the site is a generic way of revenue. People think if they have a great audience, and they’ll get $40 CPMs. Ad buyers work at various scales, so a small audeience ISNT an audience. And CPMs on the web wont grow; there is a lot of inventory, and few ad models are proven to be effective. ads is better than it was 10 years ago. and i like cobination of zero cost serives (to get millions of users) and premium servieces. if you have millions of free users, and 10,000s of paying users, thats not much. but then there are other models, like data aggregation.
A: when google looks at aqusiitons, we think about the potential. we value a small company, like the company who did google maps - they wer 4 guys with a prototype, and how to you value that? incredible technology, but how do you say what it COULD be? a lot of imes the valuations are about how to best get the idea born, and we hope thats by joining us and leveraging out platform.
Q: this morning, it was suggested to A: what matters most is getting millions of customers, and how to get millions of people is the firs tmilestone. dont ignore business models, but have them as puzzle pieces and figure out how to put them together as you get lots of users. A: get your team together, gte building, and get seed money to get started. intels orignal business plan is 3/4 of one page - find it on the web. an impressive document, and its exactely what they still do. the talent potential is whats interesting, YOU are interesting. get moving quicker, and when you are moving people will see you have what it takes for you to get there. A: its a powerpoint deck, 20 slides, its not that much to sort out.
A: venture funds wont invest in things without proven traction. they can pick one of 3 deals a year, and so you need angels to demonstrate traction.
A: in google, were good at somethings and not at tothers; we can’t make TV shows, we have engineers. but we have partnerst who can do things liket that. we an do our thing, they can do theirs, and we can share revenues in an equitable way. AOL pioneered getting content online into their walled garden. they used to charge per hour, before things went flat rate. so they get 1000s of content providers to get people to stay online. motley fool came out of that. you got 20% of the time spent in your area. the market knocked down the wall in the walled garnden, and now you allow people to do grea tthings. google brings an ad sales force to smaller players, which is enabling for them.
Q: should we just do powerpoints? A: I’d focus on powerpoint and thining. if you cant make your case quickly, with a small demo, its no good. A: who else are doing things in this space? A: How can you fail? Online, you can fail by not growing fast. in other industries, insufficient planning can kill you. online, speed of motion is very very important. A: google.org does investment in africa, in ghana we looked at standardising butchery indsutry. A: i’d rahter see the prototype scoping and planning documents than a powerpoint deck.
Q: how did last.fm or youtube get millions of usess? A: All kinds of technqieues for getitng distribution. almost nver is it paying for it. viral, invitions, being in search indices, things like that. facebook platform opened up spreading your app thorugh facebook.
A: we layed in revenue from the start to pay our costs, so we could stand back from the the early investors and keep control of the company. you need to pay rent and salaries. many comapnies KEEP CONTROL OF THEIR DESTINY by not growing too much revenue and getting out of control. A: you raise money to earn money. if the capitla market dries up, and you dont have revenue, you will die. thats the fun :) investing is like thermal draft, you play the game out as best you can. the hardest thing is, “is it good enough?” and things that are mediocre are hard to decide on; rarely are things immediately winners or stillborn.
A: everyone has a professional presnece online, and you can find good poeple thorgh the web.
A: the user generated parts o fyoutube is the majority, communities communitcating in a long tail. long tial is a key conetpt. UGC is about the middle and longer tail.
during the radio boom, the 3 second spot was invented. with the model T yo ucould any colour as long as it was black. the world isnt like that any more.
11:10
break
11:40
Your Academic Training & Entrepeneurial Success
“How Important was your academic training/subject to your entrepeneurial success? What else was key? What do you think is most important to learn in school to be an entrepeneur?”
…I dont htink academic and startups compete. Acdemia works much more slowly. 3 weeks in academia is a day in the startup world. If acacdemic contribution helps set long term trends, and startups set smaller ones, thats good. if they they start to compete will less funding, its not good.
What startups are people thinking of?
online community textbooks. cam.ac.uk is interested in getting resources to applicants before they arrive.
personalised medicine based on human genome project, and preventative medicine. store data in an easy way and provide it to doctors in an easy way.
The best way to learn how feasible an idea is, is to do it. its great to do this WHILE STUDYING. 80-90% are interested in working on a startup, and maybe 40% are already, so the bar is coming down on what it takes to make a startup, and so theres never been a better time. recent companies have started from when their founders wre students; facebok, google, microsoft, all came out of academic environemtns. you dont need to tke a leap thats that far. im a big fan of a small projec,t executing it, tkaing an opportunity RIGHT NOW. i started 2 copmanies as an undergraduate, a design company and a publishing company, and i thought it was abetter way to earn money than waiting. i learned a lot from it, and the entrepeuneurs i admire, i hear smilar stories.
if youre interested in entrepeneurship, start now. act. take action, take risks, that how you succeed or fail. nothing like actualy experience.
q: the pace in SV is faster than UK, which is fast than France. Cambdridge could be faster ithin theUK. how to get there? A: facebook was started in bsoton. he decided to move to SV. i thin kthat was a good decision, and you can see the need to run because everyone around you is runnning. the key skill of an entriepsnue is chosing what to do. ususally later means not at all. ive seen finacncin ghappening in 3 days. from conversation to money in the bank. usully its more than that, you need due dilligence, but it can happen. that kind of thing depends on the cutlure you live in. entrepensurship creates interesting places to live, and cambdirge is adopting the principles of silicon valley. ideas are transferred from thinking to doing.
Ive seen friends go through big disputes with univeristies over their ideas. SV is unbelieveble in that its adapted constantly to all new trends. its not about the physical location, its that way of getting things done fast. MIT is an ivory tower of getting things done, and the barriers are typically harder at MIT to get from thinking to doing than at Stanford.
Q: how do i do my phd and act instead of think about my ideas? A: i value both kinds of thing, but whats your goal? if you want to start a company, go do that now. PhD is great to do, lots of reasons, but it doesnt effect your ability to be an entrepeneur. theres no way monetise an idea other than executing it. A: what field are you in? Q: material science A: if theres a time for something to be done, and you miss it, thats a shame. the consumer web has this strang eproperty in that you dont need expertise in the technology to start up there. you can be an english student doing a web startup, being a CS grad isnt a requirement. but in other fields its neccessary to have advanced training. but you do need to have your end game in midn. I enjoy the deeper undersanding of trends, i like it that people pay me money to learn things. but once you learn something you know you can monetise, you should act on it, because they market not be there in the 5 years it takes to do your PhD. no one comes up with a money idea from outside the industry; you need to be involved. you have to be close to the details.
Accelerate what you learn from experience. be involved in business while studying is a good idea. you dont get a competitive edge with general philosphhical skills. you apply an iterative loop to a problem until you understand it better than anyone else.
experience is the most valuable thing you can do. academics and entrepenurs have something in common in that they look at everything else that is out there in their domain and see what is new that they can contribute. shaprespeake was one o the finest businessment of his day; the globe was like the disneyland of the day, it made a fortune without a wealthy background is very unusual at that time, as well as writing those amazing plays.
Many investors won’t invest unless you’re not doing it full time though - you have to be “ALL IN”. but you can do a lot without a lot of money.
12:10
Lobbyhouse report on Cambridge as a center of innovation and investment
Cambride is a leading tech cluster, and leads afte rlondon paris and tel aviv. VC money into cambirdge cluster area 2005-07 is £410 million. Plastic Logic got a lot of that (?). Cambs excels in hard innovatoin. healthcase & life sciences are the most important, 36%. IT is 2nd, 24%, and communicaitn is 16%. hard and soft innovation: hard is a really new technology, soft is the imaginative use of exisitng tehcnologies. this is web and media investment. cam.a.cuk is 2nd only to tandfordin terms of spin out copmanies, 140m£ of pre-IPO investment 2001-2006. The cambs share of the top european innovation clusters has gone down; london and berlin are rising.
Cambdirge has lost out in the soft innovatin; web media tech companies. berlin has gone form 0% to 45% since 2004! and cambs has dropped, and london and paris and helsinki and stockholmn have risen. (?)
Cambridge has also lost out in terms of 2st round institiaotnal investment. there have been fantastic exits.
the soft innovation is limited because of the small population; you can see this clearly grapher here.
Cambdirge has a history of great tech companies, and leaves falling form their trees as well as spin outs from the university is good. cambdrige can attract more pople to brdige the gap beween technology and markets.
we need more storytellers in cambridge in our management teams. populus clusters like london can do this more easily. but we can forge links with other areas; 25% of 2007 deals had USA investors. 60% in tel aviv, but the signs are optimistic.
Cambridge has to compliment rather than compete.
Q: How to get a copy of the report? A: lobbyhouse.net and download a copy. we can send hard copies to you.
Careers
“The teams behind the “hi tech” companies, how do they do it now? Who do they need now?”
Q: What do you need in your teams to do startups? A: Entrepentuial work is going from v0 to v1, a big company is v1 to v1.01 to v1.1…. if you join an early stage startup, you’ll join 5 people working 100 hour a week and they’ll do anything they can to make it successful. people dont say ‘im a product manager and i write specs and dont do support or deal with the premises lease’ but in a startup you have to. its really fun, crazy almost. things stay fluid for a long time too.
as the company grows, people specilise into what they love to do.
you can physically be anywhere and do what you need to do.
MBA doesnt mean anything for an under 50 person company; what matters is your ability to get jobs done. be flexible acorss a large number of things and get things done. teams with less than 20 people are build by personal relations, and things are do or die, you have to have a team that gels and works hard and jobs arent posted. you can find cofounders out there. A Computer Science degree is great because you learn to write software, but you dont need the degree, you just need the skills.
I run a “new business” team in google, we go talk to libraries about scanning their books, or getting OpenSocial an industry-wide standard.
Q: How to take on people you don’t know? You start with founders who know each other. the first hires are the most critical. A: Reference checking is really important. LinkedIn is very good for that {haha, hes the founder!} but when I hired a CEO I did 20 “off balance” references - as in, ones he didn’t give me. People get practiced at interviews. You can get a sense of quick thought, and so on, but does someone go psycho under pressue? A: Youre references might also tell you that a person isnt right for that position but would be good elsewhere. also, if you think you are 9/10, you cant really learn. what people THINK they are good at, and what their actual level is, are different. I worked with Alan Kay with my MA dissertation, and hes great at idas but very disorganised.
Q: in getting to funding, what do you look for? A: do the people have the drive, the skills, the adaptability, and the ability to recruit new people?
Q: how can UK citizens work in SV? A: most SV startups can only engage in visa for essential technical talent. so get to teh valley some other way and network to a job. linked in is 189 people, and we look 2 months into the future. A: Also, you might telework from the UK. A: If you want to work in the USA, build your skills and experience so that a larger company gets you out there. it will be an itneresting ride. we hire everyone from everywhere.
Q: when should founders leave? A: Also, there are creative destroyers, who are great at the start but need to leave as it matures, and then you get the bill gates who stay in the whole way. A: Its better the longer the founders stay; if it fractures early, thats usually a bad sign.
Google hasnt invested a lot, we have either partnered or bought companies instead. we find companies with product and engineering expertise, youtube or keyhole, and we want to bring them into the company because they are so close to our own core competencies. Orkut is huge, 2nd biggest social network in the world, huge in brasil and india. bebo is big in the UK, there are more business centric ones like linked in. there is so much diversity in the world, so theres lot of oportunities for dififernt social netorks. the secondary effects are fun too, reference checking, or the evergreen addresboo kwher eyou never lose touch with people. were finally seeing the infrastructure where we can make money in lots of ways.
world class generalists are hard to find. someone who can be good at anything? GREAT - get them in! I say.
Also being able to follow another leader is very important.
Q: Should founders be scared of Google crushing them? A: If someone moves into your space, you can adapt your company to be their friend and complement their service, or you can take them on. because you’re focused on that area, you can outcompete a big company that is more diffuse. A: If you are trying to do something diectly in googles sights, your like a small dinghy trying to get in front of a battleship. a dangerous game. but googles not doing social shopping as its major focus, say, and you can outcompete them in that space for sure; you really could be able to outdo them. i only care about that kind of thing if you are trying to compete with google on adwords, because htey focus on that and if your gonna try you BETTER be good. A: You can also do something and let it out to the big players, theres a flash games company that does the little games for yahoo, msn, ea games, neveryone.
Q: how do you select a team? A: The team you select is like marriage. A: Transparency and being positive is importnat. all people have talents; you need to be transparent when you are frustrated with people. things happen, and you need to keep tlaking with each other and keep everything on the table so you can get the best out of each other.
You can looking for a high tolerance for chaos and diversity. you need to use linkedin and google to check refernecs, and get through the mindfield mentality.
13:15
Lunch
15:00
Social Networks
“Why are they the buzz? Whats their impact?”
when copmanies got telephones for the first time, they didnt bcome telephone companues. bot dotcommers became internet companies despite that they sold pet food.
Social is the new black; everyone wants to be social so social means nothing.
Ive been on the net since 1982. its always been a communications platform. and now the internet is the computer. every appliaction you run is connected to the net, and the distinctio between your machine and the clous is going away. your now interacting with live objects, and they talk to each other, and to people. everyone is on the platform - the ineternet - and its a communications tool. we’re transfering exising social patterns on the network. we’re mmodifying our behaviours into whats more normal for us after being on the network.
in te phsycial world, we build different personas. but online, its harder to maintin those barriers. or is it?
when you write information on the net its published, its copyable and distributable. people try to say they share online only with a few people, but emails get forwarded and end up in blogs and then its on the wide wide web. there are multiole types of social networks; social, professoinal, family. there are different tules and behaviors and tthe software will need to work differnelty.
everyone here has a social network page, for an audience of friends and peers. you wouldnt take a print out of it into a job interview. facebook is more fun than linkedin but so is going to a bar instead of doing an exam. its stunning how people keep crossing those things. as soon as the connections take place, thats exciting. the default is that everything will be everywhere; information will get out thats harmful and its incredibly harmful because it cant be retracted. either people will figure it out sooner or later, and you need to understand what you’re playing with.
i like to call it “your electronic soul”. a dna database with credit databases with your web history - MI5 or NSA are already doing this, but its becoming PUBLICALLY available. You can find my mothers maiden name by googling my name. your persona gets reflected online more and more clearly, and eventually it reveals your soul. Facebook is 4 years old. its infant technology. its growing up, and i see a rnage of people from 20s to 40s and beyond, and theres a generational thing. are you going to look down on college drunken pics online when you have yours next to them? but also young people are getting used to having multiple personas.
i’m looking forward to see presidential campaigns in 20 years ;) many stanford students are interested in how to monetise the connections in social networks. these social netowrks are removing friction in the labour market.
two ways, advertising, and subsets - classifieds, linkedin does jobs, - and premium servivcs. suscrptions. less so on social networks, but a premium dating serive could be easy for facebook, say. social media is a facebook platform startup, and you have a social graph “hey your friend bob bought this book”. and theres one which lists ‘what you have done’ - bought this book on amazon, donated on kiva, and so on. amazon like this as its free advertsiing for them. the business model of web startups, facebook is 4 years old, adwords is 2 years really. (?)
i think the only viable model is an ad based one. i dont want the fact i bought a book on some weird subject to show up on my facebook page. im flooded with information. with my company plum, were making it easier to bring your friends with you out of facebook. if you can tap into that with full disclosure, thats powerful, peer pressue is strong. im also on the baord of trustee, a privacy badge, and in france the legislation is really archaic.
Q: facebok isnt about selling stuff, its about finding out whats cool today. I think linkedin is used to hire people. why do social networks succeed? we had 6 german facbooks, and only one grew exponentially. In russia, people mainly use ICQ. In the USA, livejournal is still huge. its not functionality, its not design, what is it? A: What makes something go viral is very intersting. are we being fooled by randomness?
Q: How did linked in go viral? A: the general asnwer, which is true, 13 employees sent out 150 invitationson the first day. I keep a list of 14 people who design effective viral systems. my investment history its all comanies with more than 10 million users and never spent a pennyy on marketting. Orkut was a friendster killer, and its not there in the USA, but its huge in Brasil, 1/7 brasilians are on there. there are skill factors, there are randomness factors. the digerati started using orkut, but basil became where it took off. A: Dont downplay the functionalisty and design, ubt they arent everything. i used linkedin a lot. if i found my network was exposed to everyone, i wouldnt use it at all. beyond viruality, there is addiction. you get someone hooked, and they hook in friends, but do they stick around? are you empowering your daily life better? Can you do new things with people you already know? thats good. but you have to be SO wary of the one thing that will taint your reputation. if you delete a file, you can kind of recover. but reputations arent like that. A: You say they ar ethe same, but they are all different. where is the invite button, on the screen? that really really matters. A: Yes, we did so much split testing of every variable.
Q: social networks becoming ubquitous, but how will they generate billions? A: whats the motivating factor? today its some form of hooking up. if i joined a college, and i realised i could find out about all the girls, see their photos and learna bit about them, how is that not compellng? one of my employers was facebooker #151, and she keeps in touch with a large friend network that way. its a social motivator, and that changes as you go through life. another, with linkedin, is fear. users want to put their resume out there, compare yourself with others. fear is powerful. So the first thing is adoption, and once you have adoption, you’ll figure out how to monetise. the formats are so young, user acceptance is young, and in SV right now, theres a trust that addiciton and usage and fear and sex as motivators, once mastered, will be profitable. google tapped into peopes attention, and it happened for them. you can’t know what the model is, because if you did, it would be game over.
Q: patents in this field? A: Facebook is going 2.5billion pages a day, and 20 million people logging in today. CPM, Cost Per Minute(?) is an adveriting term of art. right now its banner ads; will it be better in a few years? yes. Adwords is really new, and adsense is really really new but much smaller. There will be new advertising models. If you think of one, email me. A: when i started here, i was frustrated with advertising all over. Hale Varian (?) chief economists at google, and he says, Adveritisng is the new micropayments. this is how dollars are going to flow around the network. This isn’t just one way, this is a huge category of ways. A: Around the room, we used social connections differently. how people use and find value in things varies. i built a linked in network over 4-5 years, and most conections are in that now. i had a problem understanding UK VAT and i got it sorted out within 48 hours wtih zero dollars thorugh my linkedin answers page. So its hard to say its only dating or only something, because you can use a network for tonnes of things, and the value is all over the pace.
Q: how professional will social network be? A: social networks and productivity tools will merge. you change jobs 2-3 years in SV, in UK its prolly different, and the use of this in professional contexts is certain A: consumers are expecting to use their everyday tools in the coprpoate world: IM, tools like social networks, and these infiltrate from the outside in, to the chagrin of security guys. and all the platforms are opening up. Facebook wants to be seen to be open, but its really not, its a walled garden. but OpenSocial and so on will change this, which isnt totally open either but is getting there. So we have a customer say they were chucking away their CRM tool and using a few web apps APIs and their sites for their UIs. well see an amalgam of things built out of others parts: you dont copy and psate a map image into a document, you link in a googlemaps widget. The IT guys who hold things back will get smashed by the torrential force of users just doing it anyway. A: stanford cmputer forum, they have a debate about like router design and wireless chips and this year its about social networking. thats kind of intersting.
Q: do people like a social networking site? or do they like their network? how do you mitigate alienating users through monetisation efforts?
Q: What about the mobile space? mobile is a locked platform. USA and UK are different in terms of mobile internet. A: trends to tethered devices? you wont see generalised flourishing of our platforms until mobile is not lcoked. in the usa, mobile operators keep it locked down. nokia and google android are looking to break their grip, but its taking a long time. you use your work phone to call friends and vice versa; being connected and in your pocket is multicontext. Q: but wont the usa get left behind? A: As things open up, it wont. A: the 700Mhz C block is being opened up by the FCC. device manufacturers want it. comcast are studpid trying to block p2p; smart companies try to understand how to accomodate their usres. A: no one says “im a USA social network”, linked in is ‘half usa and half outside usa.’
Q: i think matchmaking will be a main way of monetising social networks A: yes, there are many daitn gwebsites, and linkedin has been profitable for the last 18 months.
Q: you cant IM from facebook to linked in? A: openID is coming, and there will be other efforts fr that but OpenID is a good project. professional networks will have totally binding to your name,and social networks wont be bound to your name. all intelligently run companies, which is al lbig ones, pay attention to what people want. if someone WANTS to conect apps together, it will probably happen. at linkedin we can make 3 features a month, and we have 800 on our list. when theres no demand for openID, it won’t get done. A: i want to believe what was just said, but MS got to be dominant through lock in. as soon as things get large, they lcok down. natural good business reasons for doing that when you are dominant. (????WTF???) OpenSocial is a direct response and reaction to the facebook platform. google is teaming up with mysspace, basically, and ms and facebook have squared up. itll be two big islands, and the econsystems around them will move to the most open one. but although facebook talks in terms of open, its just open on their terms. its not relaly open. if facebook behaved badly, using a different one isnt too hard. switching costs are lower.
Q: pschological reasons for adoption, do we need social scientists to research this? A: Sure, i have a psych PhD. A: Yes, its a petri dish A: If you invest in consume rinternet, you invest in one of the 7 deadly sins. if you use linked in, its not ually fear, its greed. when you get 10 million users, you look for human-being level qualities. if its not simple enough for everyone, it just wont scale.
15:50
Hot Trends In The Valley
“Learn about the new groundbreaking technology coming out of Silicon Valley’s most interesting companies. Social media, user generated content, collaboration”
Im from SV, left in 2004 when things started hotting up again.
so, panelists, what service or technology or company will effect how people sociale and communicate?
Email. this the most killer application of the intneret. i wait for yahoo or someone to relaunch email in a big way, to take email to a new level. it works well, its easy to organise. i look forward to someone doing osmething witht that.
but my kids dnot like email. its an effective way of community. google began by showing you threads (????WTF???) but in facebook you cant do anything with facebookmail. facebook is AOL all over again, with a younger guy running it. its a trapped closed system that will exhaust you. there are generational gaps that are very short; 4 years older than facebook people use IM, and 4 years more than them use email.
i disagree that email is it, but the metapoint is that communication need to improve. i can assume that metapoint and go from there. the best email client is OS X Mail.app because it has presence; you can see if the sender is on AIM and chat to them in reply. {Gmail does this, free software should.} its all about better more friend-powered communications. twitter embodies this, plum does it too {thats his company} and the way to deal with the flood of information, filter out the junk, is by having your friends and family help you do it together. huge opportunity to streamline the flow. collaoration within communities is key.
other companies: www.getsatisfaction.com - looks like a forum, user groups and so on, and a box at the top that you type your question into, but its a search field. they do good analysis of it, and they find questions like the one you are asking. forums lose the good posts. and you dont always find the BEST posts. so they are one of the early doc searls trend of ‘vendor relationship management’. the other is second life. there was a big hype, it crashed, people say everyone is ignoring it now. today is it useful toooo…… the millions of people using it. the ‘land’ has increased 5 times, and there are half a million users at any one tim.e seocnd life id is going to be like email an fax, on your business card.we will do business online gloablly in a 3d world. for. sure.
Q: second life goes forgotten for us, our real lives are good. if your real life isnt thatgreat, you live in a slum and not in a park clad apartment block, and you can get online, its more compelling than real life. A: in china, theres a virtual world planning for that kind of thing.
Q: there are social networks where you are yoruself, linkedin, and others where you are an avatar, seocnd life and myspace. surely, if the argument it will be about 3d world is correct, it will be more about your real life. A: I agree, for most epople who have lives, 2nd life is lame. its like brave new world, everyone lame has soma and its awful. video conference calling is good, and mysapce and 2nd life is more entertainment. A: Yes, 2nd life is an artificial construct with a high novelty factor. i remember when people first used computers and they oohed and aahed and after 20 minutes they were like “why would i do that again?” nad its not clear that 2nd life has benefit over lower tech and more productive tech.
Q: how much of tech starts with sex and fun? and then goes on to become meaningful and part of daily life. A: i think myspace, with video and more interactive elements, is going that way. myspace and facebook are differnet audiences, mysapce users are poorer.
Q: all social sites use social objects. facebook is built on photos; mysapce is built on music; linkedin is build of jobsearching. everything can be consumed in RSS. Kids are certainly outside of email. txting, IMing, twittering, are much more effective. A: twitter is super simple,and its behavorial mashup. its a IM status message broadcast. real time updates is the big idea there. real time updates about status, events, is huge. the smart mob is coming.
Hulu is out, you can get the entire show of Heros and move it around, mash it up, embed it in your blog. Joost is antiquated, you download software which is horrid, adn their content sucks. Its like a TV with only NBC. I think video is the driver of eveything. Bubblegum, zillioins of things. YouStream, and son on, that are doing live video.
JustinTV? This kid is broadcasting EVERYTHING he does every day.
Sure, but how does he make money? YouTube is unprofitable, facebook doesnt make that much money. VCs are footing the bill when its experimental, but I want to know how thing makes some csh.
google invests a lot in freaky shit, dna profiling from spit. sergei or someone removed all the free junk food snacks because his DNA has an obesity prepensity, haha
With video its inclear how it will work. little embedded ads make a tiny bit, and mysapce says they’ll make video work but thats just nascaring it up. iTunes is the biggest way of monetising video, Apple has these rights relationships to work though. My kids watch something live 20 minutes later so they cna skip all the ads. There is no concept of a 7pm showing, you watch it any time you want. my kids will TOTALLY reject any attempt to control their TV watching. Its all about the UI and who has the rights to what people want.
What does the BBC do? iPlayer, download without streaming, a total waste of money, $100 milllion on it.
Well, when flim started, it was filmed theatre and then they invented the jump cut. And justinTV is fasinating as its like filming theatre. if anyone said they were going to do video hosting as their startup, i’d relal caution that; youtube does it already, and amazon S3 and so on can do everything at a way cheaper cost than you can do it yourself. the infrastructure is becomging plug’n’play.
Web as a platform is the big thing here; the network is the compter was said a long time ago, and its fianlly true. its not about content, its about live content. you want a photo? no. you want a live photo where you can tell who is in it and everything about them. its at that level that you can do interesting things. wheres your competitive differentiation, when that is the platform?
So, what have you learned today? I come to these kinds of days, and I wonder what the response is?
Q: is silicon valley too inward focus? A: yes, its very analog, and inwards. techcrunch is a good view of it (?)
my Q: theres been lots of tlak about “the new aol” and walled gardens and lock in today, but from the perspective of other web app companies. what about users rights in the new platform? we talk about kids doing whatever they want, but there are no cracks for webapps features. Not once has DRM been mentioned when talking about online video, but A: privacy, sure. A: will users get what they want? users unionise and get what they want. DRM is being dropepd because of the public outage. iPhone users pay the stupid price for the first 2 months, instead but the news cycle A: DRM is considered dead in SV. A: if you have a social security number and a mothers maiden name, you have access to someones identity. theres no framework governening this. there is aldgrab for information. if i know all about you, ican sell you stuff, and i can control my borders. ifnroamtion is an asset, and asset models for personal information are not set out. you need to establish wonership model of personal inforamtion. there needs to be audit trails and so on to enforce legally that
the EU data protection stuff is so arcane. we need a new model. it ought to be t googles of the world to establish that kind of thing. Q: but its not in tehri interst? A: well, whoveer breaks the rules stands to benefit from the distruptoin,and google is known for doing that kind of thing. the problem is really leadership; its a big technical problem, and its a leadership problem. you dont get into space by building things, its by having a top down approach that syas “were going to the moon”. A: the government wont do it. the us government cant even fight a war, and we elecet presidents on if people are mean to them or not.
A: privacy hasnt had a big disaster. A: well, kids and parents are toning things down on social networks now that its effecti university scholaraships.
Q: privacy is the tip of the iceberg. google has a public policy counsel, so do you see a future where pervasive web based companies do public policy as regualr part of business? A: I think we’re there now. Yahoo last week, CEO was called a “moral pigme” and thats rich from a congressman. LOt of things, copyright fights, privacy, everything about online needs to be negotiated by big playsers.
Q: where does privacy guarding start and censorship begin? A: at plum we had suicidal images posted, another user told us about them. our legal counsel to do nothing; the minute we engage, we become liable in some ways. i felt that was wrong, we found out not though facebook, they did nothing, we got the name of her mother, she was canadian, and we found out she already in care, so we stopped there. we took the images down early on. we have ToS and if breaches are reported, we’ll act, but we dont go hunting. its disturbing to hear 60 pro anorexia gropus that are closed an dyou need to sned a proof photo to join. A: myspace has like 60 people working on this A: plum has a self harm clause; we will take down A: big companies are like governments in themselves
Q: SV trends for social entrepenteurship, like africa. A: better energy systems (a client) is doing realy interesting energy stuff, and portable charing devices are being given away in africa. the founder is into this, where is where SE comes from, and kerosine is the leading cause of lung disease in africa. kids read at night with kerosine lamps that kills them. an LCD light will change lives. hes making it possible forpeople to donate money to send them. there are lots of people who are motivated by that. A: yeah, bill gates gives so much fnding to africa. A: olpc stuff, a lot of SV companies are involved in that. a lot. the technology that we think is interesting doesnt solve the problems the rest of the world has. but there are huge amounts of that. A: tonnes of clean water technology which is a very basic problem everywhere. A: a lot of africa problems are fly-over. im not a fan of OLPC is mentoring, helping people do things. SV people done have the time for that. i think it needs to be rethought. african initiatives are not going to be solved thorugh technology, but through people. SV types go there for a day. I saw this. people turned up for a day and think they see something, it takes days to really get to know people.
17:00
closing remarks. What will you do now? Our supporter are: silicon valley connect, main organiser. the response from the greater business community in cambridge was phenomenal. NESTA is an amzing organisation, i dont know a USA equivalent. starting innovation in unis is amazing, and a lot of insights are from there. we only had sponsors who had substance to add. if you have suggestions, we might do this on a regular basis. the business school will collect those thoughts. i think its important to appreciate what has happened here.
If we come next year, we’ll be obsessed with something else. It’ll be some stupid company that odesnt make any money either.
The Silicon Valley comes to Cambridge by David Crossland, except the quotations and unless otherwise expressly stated, is licensed under a Creative Commons Attribution-Share Alike 3.0 Unported License.
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