Venture Capitalists: We’re Doing Fine! Really!

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From my Forbes.com blog The New Persuaders:

With so much turmoil in the venture capital business, from the rise of competing super-angel investors to tepid fund returns for the past 10 years to some big IPO duds this year from the likes of Facebook, the future of this economic engine of innovation is pretty murky. But to hear VC investors on the opening panel of the Silicon Valley Venture Summit held annually in the coast-side community of Half Moon Bay by business media network AlwaysOn, there’s not much to worry about.

On the panel addressing the “VC & Investor Outlook for Global Silicon Valley” were host Packy Kelly, partner and co-head of KPMG’s U.S. Venture Capital Practice; Norm Fogelsong, general partner at later-stage VC Institutional Venture Partners; Neal Dempsey, managing general partner at early-stage VC Bay Partners, which has gone through its own travails in the past couple of years; and Gaurav Tewari, director of SAP Ventures. Here’s what they had to say about the state of the VC business:

Q: Where are we in terms of the VC cycles today?

Fogelsong: The industry’s healthy. Things got quite excessive in the bubble, and now we’re back up to $15 billion to $20 billion that’s healthy for the industry.

Dempsey: Companies are going to have major exits, and I’m convinced it’s going to be fine over time.

Tewari: The pace of innovation and entrepreneurship is just accelerating. It’s a very exciting time. The numbers are mixed. The number of folks in the industry has shrunk 30% in recent years.

Q: Is there still ample capital to invest?

Fogelsong: Yes. But we’re still burning off the excess of the bubble.

Q: How have things changed in terms of the choices entrepreneurs have now–angels, seed funds, accelerators?

Dempsey: It’s only better for the industry. The angels provide this huge infrastructure of small investments that we can’t make. We can see what trends or companies are working. When we get involved, [unlike angels who make dozens of investments a year], we’re hands-on.

Fogelsong: But if you’re thinking of getting angel financing, get an experienced angel. Some of the new ones don’t realize their investments are going to need follow-on financing. …

Read the complete post at The New Persuaders.

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Jeff Bezos: How Amazon Web Services Is Just Like The Kindle Business

From my Forbes.com blog The New Persuaders:

Amazon Web Services, which provides computing and storage services to hundreds of businesses, began as a seemingly crazy idea in 2006, but it has since grown into a $1.5 billion business this year,  according to a new report from R.W. Baird. It’s believed to be one of Amazon.com’s fastest-growing businesses, the largest piece of an “other” revenue category that grew 68% in the third quarter, to $648 million, far outpacing overall company revenue growth of 27%.

Today, Amazon founder and CEO Jeff Bezos offered an explanation of how AWS, often seen as something that has little to do with its core retail operation, fits into Amazon’s business, and how it runs on similar principles. In fact, he says, it’s quite similar to Amazon’s Kindle business, where the company makes little money on the device but a lot more if it’s used–in that case to buy lots of books and movies.

Bezos made his comments, which were webcast early Thursday afternoon, to close the company’s first public conference on Amazon Web Services, a three-day geekfest that started Tuesday in Las Vegas. Following are his edited and sometimes paraphrased comments in conversation with Werner Vogels, Amazon’s chief technology officer, sometimes ranging well beyond AWS to entrepreneurship, rockets, and a humongous clock in the mountains of west Texas. (Unfortunately, he had nothing to say about Amazon’s surprisingly large ad business.) You can view the whole keynote here or click the video above.

Vogels: The last time you were onstage, at the Kindle Fire announcement, you said that Amazon should only win when our customers win, and that’s how the Kindle Fire business works. I’d like to think AWS also works that way, but elaborate on that.

Bezos: It’s very similar to our Kindle device business. We sell our hardware near break-even, so we make money when people USE the device, not when they BUY the device. That is very aligning with customers. It causes us to have the right behaviors.

AWS is very similar. It’s a pay-as-you-go service. We’re not incented to get people to overpay for hardware. In the long run, that will work out very well for customers, and it will work out very well for Amazon.

Vogels: You’ve always talked about flywheels, which in Amazon retail is low prices, convenience, etc. What’s the flywheel in AWS?

Bezos: I always get the question, what’s going to change in 1o years? I almost never get asked, what’s NOT going to change in the next 10 years? That’s the more important question, because you can build a business around things that are stable. One is low prices. Another is faster delivery. Vast selection.

On AWS, the big ideas are also pretty straightforward. People will want more reliability, lower prices, etc. The big ideas in business are often very obvious. But it’s hard to keep a firm grasp of the obvious.

Vogels: What are the real mechanisms of innovation?

Bezos: Innovation is a point of view. You have to select people that want to innovate, to explore. An explorer company isn’t for everybody. But for people who get up in the morning and want to change things, it’s a lot of fun.

Other things important for innovation isn’t as fun. One is you have to have a willingness to fail, to be misunderstood for long periods of time. Then, you can ramp up your rate of experimentation. Successful invention requires you to increase your rate of experimentation. AWS is one of those things that helps startups do experimentation faster. …

Read the complete post at The New Persuaders.

What Does Apple’s Patent Trial Victory Over Samsung Mean To You? Nothing.

From my Forbes.com blog The New Persuaders:

Apple scored a big victory in its smartphone patent infringement case vs. Samsung late Friday afternoon as a jury awarded the victor $1.05 billion in damages. But does the closely watched verdict mean anything to consumers?

No–at least not for now. Why?

* This case no doubt will be appealed. That means little is likely to change anytime soon, at least until Apple files for injunctions against the Samsung products involved. And those are by no means all of Samsung’s products, let alone other Android smartphones.

* You won’t have to surrender your Samsung smartphones or tablets or worry that some court-induced software update will cause your device to stop working overnight. However, it’s quite possible an injunction that Apple surely will request could stop further sales of infringing devices such as the Samsung Galaxy S II in the U.S.

* Smartphone makers will find new ways to emulate (if not copy) Apple’s features. Patent infringements are often worked around by tweaks that are not very onerous for users, even if they’re a costly hassle for the infringer. So one way or another, it’s hard to imagine that nothing but the iPhone and iPad will have scroll-bounce, pinch-to-zoom, and tap-to-zoom, the features targeted in the case, or something very similar, forever into the future.

* The two companies, with Google lurking in the shadows, might go back to the bargaining table. Samsung won’t have many chips, of course. But it may still be worthwhile to Apple to find a way, perhaps by demanding a very large check or by getting Samsung to back off on other patent claims vs. Apple, to end the hostilities and avoid the costly appeal. Not least, Apple would avoid pissing off half or more of all smartphone owners who just wanted a good smartphone and got caught in the patent crossfire. …

Read the complete post at The New Persuaders.

Is The Tech IPO Deep Freeze Finally Thawing?

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From my Forbes.com blog The New Persuaders:

Facebook’s initial public offering in May was supposed to be the bellwether for an expected pile of IPOs this year, but the subsequent dive in the social network’s shares appeared to put new offerings into a deep freeze. Now, it looks like the mini-Ice Age for IPOs is starting to thaw.

Today, two companies that were widely expected to file for an IPO before Facebook’s IPO faceplant, said they plan to go public this month. Internet security firm Palo Alto Networks aims to raise up to $175 million with an offering at $34 to $37 a share.  Kayak, which had put off an IPO expected late last year, also priced its offering, hoping to raise $87.5 million at $22 to $25 a share.

Given that Facebook’s IPO was supposed to be a sure thing–and most assuredly wasn’t–there’s certainly no guarantee that these two companies will help bring back the IPO market. Investors will be cautious about every new IPO, not only because of Facebook, but because of the poor subsequent performances of tech IPOs such as Groupon and Zynga. What’s more, the economy is simply too uncertain to bet on a momentum-driven market like IPOs.

Nonetheless, successful IPOs by Palo Alto Networks and Kayak–on top of another recent IPO success by ServiceNow in June–would inject new life into the technology investment cycle. Indeed, investors such as YCombinator’s Paul Graham have warned that Facebook’s face plant has already cooled early-stage tech investment. So any revival would be positive for the innovation and growth that comes out of that cycle. …

Read the complete post on The New Persuaders.

Don’t Kid Yourself–Project Glass Will Produce An Advertising Bonanza For Google

From my Forbes.com blog The New Persuaders:

One of the first questions about Project Glass, the augmented-reality glasses that Google debuted in fine style this week with a skydiving stunt in San Francisco, was whether we’d see ads plastered on the tiny screen in front of our faces.

Google co-founder Sergey Brin, who has been championed this project to create a new kind of wearable computer, couldn’t have made his intentions clearer: No plans for ads. That’s despite the helpful video above that one wag created to show Google just how ads might work on Glass.

But make no mistake: While I think that, like the driverless car, Project Glass is cool and groundbreaking enough that Brin and the company for now simply want to see where it goes, Google’s advertising business could be a big beneficiary. And maybe not too long after they hit the streets next year for software developers and the year after that for consumers. Here’s how:

* Google will now know what you’re likely to want next–right here, right now. Already, smartphones are providing Google and others the ability to know where you are and serve you ads from nearby businesses. But potentially with Glass devices, Google will also be able to see and analyze not just where you are but what you’re looking at. …

Read the complete post at The New Persuaders.

For Once, Google Tops Apple: Today’s Death-Defying Demo

From my Forbes.com blog The New Persuaders:

Apple is legendary for its demos at its software developer conferences, introducing products that surprise and delight the crowd and then consumers. Even with the passing of cofounder and master showman Steve Jobs last year, Apple will likely continue to set the gold standard in launching products in the most public and desire-inducing way.

Google? It’s known more for rather geeky demos, and even one or two that didn’t work very well, like the demo of Google TV two years ago.

Today, however, it outdid itself–and even more amazing, outdid Apple. Reminiscent of Jobs’ famous “one more thing” announcements, Google cofounder Sergey Brin bounded onto the stage at the Google I/O conference keynote to “interrupt” VP Vic Gundotra with a demo of Google Glass, those wearable computer glasses he has been seen wearing in the last few months.

But this wasn’t just any demo. Google had a few people in an airship wearing the glasses, and when they looked down on San Francisco, it was pretty cool in a vertiginous sort of way.

Then it became apparent that these guys (and a woman) weren’t going to stay in the airship for long. They were going to jump. Over a heavily populated city. Onto the roof of the very conference center where Brin and 5,000 engineers were gathered. …

Read the complete post at The New Persuaders.

The Top 10 Tech Trends, Straight From the Top 5 Tech VCs

Cross-posted from my Forbes blog The New Persuaders:

Everyone in Silicon Valley wants to know what’s coming next, and every year for the past 13 years, a panel of the most forward-thinking minds in technology and tech finance convenes here to provide a look at what innovations are likely to emerge in the next few years.

Last night it was time again for the Top 10 Tech Trends dinner, hosted by the Churchill Club, which puts on a bunch of Valley events with top tech folks every year. I wrote about last year’s here as well.

This year, the 14th, the panel is especially venture capital-heavy, but these folks are also, to a person, heavyweights in the Valley, so their opinions carry special weight. On the panel: Kevin Efrusy, general partner at Accel PartnersBing Gordon, investment partner at Kleiner Perkins Caufield & ByersReid Hoffman, partner at Greylock and executive chairman and cofounder of LinkedIn; panel regular Steve Jurvetson, managing director of Draper Fisher Jurvetson; and Peter Thiel, president of Clarium Capital. Moderating the festivities in place of longtime emcee  Tony Perkins, Churchill Club cofounder with Forbes Publisher Rich Karlgaard, are Forbes’ Eric Savitz, San Francisco bureau chief for the magazine, and Managing Editor Bruce Upbin.

The panel portion of the dinner, which attracts several hundred people (you can watch it live here for a fee), starts at 7 p.m. Pacific at the Hyatt Regency Santa Clara. The audience gets to vote–in past years, with red and green cards as well as electronic voting devices. This year, they’ll be using a Twitter-based polling system. Panel members have similar red-green paddles they hold up. I’ll post the highlights as they happen.

And we’re underway. Eric and Bruce will describe each trend and then the owner of that trend, one of the panel members, will explain it.

1) Radical Globalization of Social Commerce: Efrusy explains that companies today will be instantly global, or they will fall behind those that aren’t. For the previous Web generation, international was a distinct minority. Groupon, for example, was half international when it went public last year. If you want to be the leading global player, just leading the U.S. might not be enough. You can’t wait to win the U.S. and then open an office.

The other panel members wave half-red, half-green panels. Gordon, who waved a red, says that’s going to take awhile. Hoffman, also red, said the U.S. is still the most important. Thiel’s in-between, I think, but because he thinks it’s not very interesting. Jurvetson says it’s true, but 12 years old. It’s what every consumer Internet startup has been doing for 12 years. Thiel on second thought thinks it’s a worthwhile rule to go international early to avoid local copycats.

The audience shows mostly greens, matched by about 70% supporting the trend on TwitPolls.

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