Startable - Healy Jones’ & Prasad Thammineni’s Blog

There has been a lot of talk recently on Yahoo’s reorganization and impending doom. I agree that the company faces some really challenging times. The ad market that they generate their revenue from is going to shrink this year. But I think that the rumors of Yahoo’s impending death are a bit premature. Here are my:

5 Reasons why Yahoo isn’t going to die

1) Solid #2 in search

Ok, I know, I know, Yahoo’s search results are not as good as Google’s. That’s why I don’t use Yahoo for search… but still, they have a solid number two position in the search market. Which means they should have enough data to improve. From Comscore’s January 2009 search engine rankings: 

Google Sites led the U.S. core search market in December with 63.0 percent of the searches conducted, followed by Yahoo! Sites (21.0 percent), Microsoft Sites (8.5 percent), AOL LLC (3.9 percent) and Ask Network (3.7 percent) 

Yahoo has the number 2 slot in what may be the most important industry in the technology industry. Come on people, they should be able to do something with this!!

2) Ad powerhouse  

165 million unique visitors through their ad network in December, the number two position to Platform-A. Reaching something like 87% of the US internet population. Recent innovation from this group bodes well for the company as a whole. Their new ad retargeting solution is really pretty darn cool. It uses data/views from search and display ads to generate better targeting/ROIs for advertisers. If only the search group could innovate like this. Read the rest of this entry »

Being a bit histrionic here, but yesterday Gmail was down… today I can’t log into Facebook?! The web is ending as we know it! 

Anyone else having this problem?

Well, hopefully Twitter is working at least… otherwise, how will I promote this post??

Don’t sell your team short when you are trying to get a meeting with a venture capitalist. When a VC is trying to decide if they want to meet with your startup, the most important factor is YOU and your team. I’ve seen way too many financing pitches/teasers where the startup does not provide information on the team and their previous accomplishments.

Can the Team really be more important than the Idea?

In a word: yes. If Bill Gates wanted to meet with me to discuss financing a pig farm I would take the meeting. VCs take meetings with people all the time because they are interested in the people. Networking is a key, perhaps THE key, job function of the VC. Make sure your team sounds accomplished enough to warrant the meeting, then shine in the meeting and convince the VC to get interested in the business idea.

Make your Bios interesting to the venture capitalist

In your investors’ pitch or teaser you need to:

1. Make sure you have your bios in the slide deck/teaser
2. Name the companies that you have worked for and highlight key accomplishments
3. Feel free to include your advisers if they are compelling - VCs might want to meet them too!

Read the rest of this entry »

I am back from my vacation and have a couple of hundred emails to get through, among other things, so here are some links that you may or may not find useful while I dig myself out from under this rock:

How is your VC doing?

Brad Feld (a well known VC and blogger) wrote a piece on 3 questions to ask your VC to check their fund’s interest in your company and its health. I like this post - it is similar to one I am drafting on why you should talk to your VC about how much they have reserved for follow on investments in your startup. Brad’s key points are that the venture capitalist, as an investor and important partner in your startup, owes it to you to let you know how likely they are to continue to support your business. 

I will be attending the OMMA online behavioral advertising conference on Thursday in NYC

As one of my new year’s resolutions I promised to let you know if I’d be attending interesting conferences. This Thursday (Feb 26th) I’ll be at the OMMA Behavioral conference. Let me know if you are going to attend. As a well known Boston-area startup entrepreneur once said to me, “you VCs are way too into online advertising.” Yes we are, and targeted advertising is the name of the game this time around!

I’m a few days behind here due to my vacation, but I do think that the WSJ (and I guess the US Federal Trade Commission…) have been talking about allowing the online targeted ad world to self-regulate. The WSJ’s article on this suggests that the FTC is asking for clear disclosure and the ability to opt-out of target advertisements. Of course, any given consumer could opt-out by clearing their cookies, but the thought of an active opt-out is nice.

My personal belief is that targeted advertisements are not bad nor are they intrusive. However, I clearly understand that there is a large segment of the population that feels that this is not appropriate. We’ll call this segment… “old people.” Since Congress happens to have a large number of “old people” I’m willing to bet that eventually some crotchety old person is going to get all upset and pass an annoying law that messes up the online ad market. Therefore, I’d really prefer that the FTC put out some sort of real regulation and prevent old people from destroying the entire targeted ad space.

Ok, back to my vacation. Let’s hope that the beer is London is not too warm tonight.

Not all technology entrepreneurs should raise venture capital, as I’ve mentioned before in my post “don’t raise venture capital.” An important component into figuring out if you startup should search for those elusive VC dollars is to size your market. Venture capitalists typically like to invest in startups that have the potential to be the number one or number two in a large industry.

Startups raising VC should be in industries over $1 billion in market size

By “large” I mean an industry that can pretty easily have $1 billion plus in revenues. The rational behind this is pretty simple - in order to generate 10x returns on their investment the VC’s startups need to have a real chance to hit several hundred million in size. Larger industries also have more outcomes that can be generated by trade sales to larger companies within that industry or in adjacent industries. Note that the market can be growing to be this size in the next couple of years.

VCs will sometimes find niche industry spaces attractive, ones where a particular startup has a highly likely and defensible chance of becoming number one, but this is much more difficult - and your startup still needs to be able to potentially grow to be $200 million or more in revenues in this niche case. I’d recommend that if your industry is less than $500 million in total size you seriously consider a less capital intensive growth plan, one that can be financed with a few million in angel investments.

When you are thinking of raising venture capital, do the market sizing analysis from the top down and the bottom up. That means do more than just read some analyst reports that suggest that a market is a particular size - actually talk to a number of potential customers. Choose representative customers that are similar to the average potential customer for your startup. Get a feel for their potential desire to purchase and their willingness to pay. With that information, you can then multiply their projected price point against the number of potential customers who look like the ones you have spoken with. Viola, your market size!

Sorry for the gratuitous french - I’m actually vacationing in Paris at the moment… and now off to a brasserie for a beer and some steak frites!

This is much more of a stream of thought post (yeah, my posts can be even less well formed and more rambling!) but here goes:

How much information is due to employees @ startups who get options?

How is an employee even supposed to know what they are getting with their options? Do most employees even know enough to ask what % of the company they are receiving, and at what strike price? My wife has worked for several technology startups, and she had to press for info on her options. She’s been told how many shares she is receiving, but not what their strike value is or how much of the company they represent. She did ask and get good answers, but does the average, non-finance trained technologist/marketing person/early employee/intern know to ask this stuff? And don’t even try to get to the bottom on the preferred preference that is likely sitting on top of the common…

Does the employee have a right to know? When an employee is told they are getting x thousand options it really doesn’t mean anything - without additional information, it pretty much is like saying “you are getting some options.” Companies tell their employees how big their salaries are and often what the potential bonus ranges can be… but there is no guidance on the potential value of the options. I know it’s a lottery ticket, but for many companies it is really just a lottery ticket at best. 

I really don’t want any additional work for CFOs (or any additional billing hours for accountants…) And I don’t want any private information such as non-public company valuations leaking to the public. And I don’t want to any of our CFOs to get sued in case they imply that an employees’ optinos will be worth something when they don’t end up paying off… So, it appears that I don’t suggest any real changes to the current system. 

Sorry for the rambling post.

I guess I’ve just been thinking a lot about this after my recent post on the new realities of stock options. 

According to a report by the Pew Internet American Life Project, the internet is “maturing” (that was a pun) as older users begin to more aggressively spend time online. The biggest group of new internet users since 2005 is the 70-75 year old category. The Center for Media Research has a great summary of the reports findings. 

The Pew report points out that older age groups use the internet more for transactional services, such as research, shopping and banking. Younger groups are more focused on networking/hanging out.
However, more mature age demo’s are getting into the online entertainment phenomena too:

Some 13% of G.I. Generation internet users (age 73+) reported downloading videos, up from 1% in 2005, and another 13% of the online Silent Generation (ages 64-72) say they download videos, up from 8% in 2005. 

That is a pretty serious data point for people making the case for online videos becoming more and more mainstream. Perhaps the era of true on demand entertainment will actually reach all generations of Americans!

The report is an interesting and quick read, and may contain useful figures for entrepreneurs building an internet based business. You should check it out!

There has been a lot of blogging on the new realities of venture capital industry (Fred Wilson’s “Is the “Traditional” VC Model Broken?” is probably the best). Venture capitalists, journalists and experienced founders of technology companies have begun to internalize that the go-go late nineties were a blip and that we’ve entered a new model of making money (or not making money) from startups. However, there is another group of professionals impacted by this new technology/funding landscape, and that is the option-granted employees of technology startups. Has the world come to grips with the new reality of stock options for employees of technology startups?

The new reality of stock options

The financial upside of stock options is not as rosy as it once was. Fred Wilson talks a little bit about the new exit landscape in the post I link to above; $100 to $250 million exits for VC backed companies have somewhat replaced the $1+ billion exits we saw during the dotcom boom. (I’m going to ignore the whole expensing of stock options, even though it is something that I hate.  While I enjoy picking on the accountants as much as anyone at the NVCA, these rules are only part of what has made technology options not as valuable…)

A $100 million exit, for a company that have conservatively raised VC, can result in a good outcome for the founder. Not amazing, but getting a few million dollars taxed at a capital gains rate is nothing to scoff at. However… the sad but true fact is that most employees of technology startups will not become stinking rich off of their stock options if the trend of $100 millionish exits persists.  In fact, that employee might be able to buy a nice Subaru or something. In other words - it’s not jet money. 

Read the rest of this entry »

US eCommerce sales supposedly shrank by 3% in the final months of 2008, according to the “comScore 2008 Digital Year in Review.” (You’ll have to fill in a form to get the report, but I’d recommend it - I like this report because it has some pretty compelling charts on eCommerce spending, online traffic growth by categories, search trends, online advertising, online video and mobile.)

eCommerce hits the skids

I’m going to blatantly copy one of the reports charts on US online spending and hope that the content police don’t yell at me: 

The poor US consumer, and the even poorer US eCommerce company who ramped up their capacity for the holiday season. I sense a coming shake-out in the middle market online retail business.