Startable

Yesterday MSFT announced their new cloud computing service, “Windows Azure.” I’m not going to get into detail here on it because it has clearly been beaten to death by much more talented writers, and I’m also a day 

late to the party. However, given the recurring theme on this blog about cloud computing I feel the need to comment. I believe that the Microsoft cloud computing heralds the enterprise’s acceptance of the cloud - and that is big.

My prediction is that enterprises will dip their toes into the cloud by taking advantage of the cloud’s compute power, putting computationally intensive crunching into the cloud first. Likely this will be non-core or lower sensitive data in a non-mission critical process. As SLAs are better understood and security is, well more secure, other things like backup and redundancy will likely scoot towards the cloud. Eventually we’ll get full blown enterprise applications in the cloud. 

Here is a good post on the MSFT cloud effort if you want to learn more.

Recent conversations with startup founders and their questions on VC’s ability to invest given the current market conditions have reminded me that many technologists do not realize how venture capitalists manage their funds. Unlike mutual funds, VCs should be able to invest regardless of the market’s state. 

Many people tend to think of VCs as mutual funds that invest in private companies, but this analogy is wrong on several levels. Many mutual funds take money from investors on a rolling basis and begin investing in the market as they get these funds. Unless the fund gets additional investors’ money (or sells current holdings) it does not have capital to place in new investments (that is a generalization, but let’s go with it). Also, if current investors wish to withdraw capital from the fund they usually can do so on a daily basis. This results in the fund either using existing cash or selling assets to raise cash for these redemptions. Again, this is done on a rolling basis.

Venture capital funds are raised and redeemed differently. First, they are not raised on a rolling basis. Rather, a group of Limited Partners (LPs). These LPs sign an agreement with the venture capital firm agreeing to provide a specific amount of capital to the venture firm as needed. The summation of these LPs commitments is the size of the fund. If a VC has 50 investors who each commit, on average, $10 million then the VC has a $500 million fund. 

It is important to realize that the VC has not actually taken possession of this $500 million. Read the rest of this entry »

Prasad and I have been blogging about cloud computing and how it has sparked a massive round of new web services innovation. The advantages of using cloud computing for a startup’s backend are obvious; Prasad has touched on them before: low capital outlays; no long term contracts; Scale up and down on a whim; high availability, security and reliability, etc. However, if it is easier for your startup to enter a market due to cloud computing, then it is also easier for others. One way I’ve seen startups attempt to build barriers to entry/competitive differentiation is by using the data created by customers as a weapon.

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This is just a quick post to let startups who are using Amazon’s web services know about “AWS Startup Tour.” Amazon’s web services team is on the road meeting with startup CEOs this month, and will be in Boston on September 22nd. I think, besides me, several other venture capitalists will be there as well.

Prasad has posted on the cloud computing revolution and how it is enabling a new wave of startup innovation. As the cost of launching a new business drops we are seeing some very interesting web-based companies that would not have been possible just a few short years ago. AWS seems to be dominating the startup cloud services market. Here is a great chance for startup CEOs and CTOs to interact with the team behind AWS. I’ll be there and I hope you are too!

I’ve continued to play with Chrome and think about its implications, as any good* venture capitalist would do, and I’m starting to wonder if the real target for Chrome is Apple, not Microsoft. Stick with me for a second while I brainstorm on this (we are in the trust tree here, so I’m thinking while posting, always a dangerous thing…)

There has been a remarkable change in many of the Web 2.0 presentations that I have seen recently vs. those that I saw a year ago. One year ago, startups presentations to VCs had a bullet that said “Mobile strategy, blah blah.” In other words, the startup CEOs recognized that mobile was going to be a real part of their company’s product and marketing strategy, but were only at the articulation stage. All that has changed. Mobile demos are now a regular and important part of the VC pitch, and startup founders are spending just as much time showcasing their working mobile applications as they are demonstrating their pure web based product. Read the rest of this entry »

As a venture capitalist, I get a somewhat high level view of the economic landscape affecting startups. While I’m sure it’s not news to anyone, from my vantage point it does appear that the enterprise technology slowdown is now real. Startups that I met with several months ago have been returning with lowered plans. More sadly, several startups that were not able to raise funding from us or other venture firms have thrown in the towel based on slow revenue traction. Forrester research’s just released CIO study confirms that overall IT spending is down. My perspective is that Q2 enterprise IT spend was not healthy and Q3 will be worse.

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Pretend you are on the board of a startup. Unfortunately, this startup is not living up to its potential, and is failing to get sales traction as you and the team hoped. Why are sales not materializing? I had a brief, but insightful, conversation with one of my partners today. This partner (like most venture capitalists) is on several startup boards. Most of these startups are growing quite well; however, one of them is not.

The question is why? From a board level, it is quite difficult for a venture capitalist to determine the cause of the startup’s sales slippage. Is it the sales team? Or is it a market/product issue?

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Amazon’s and others cloud computing and storage have unleashed a new wave of productivity in the internet startup world. It’s very exciting to see how entrepreneurs are leveraging these powerful (yet oh-so-affordable) resources to create rapid innovation. One of the obvious first business models to be born from these web services is remote storage and backup - essentially putting a skin on Amazon’s S3 storage and letting consumers and businesses upload their documents. Since monthly storage and bandwidth costs are something like 15 cents per gig, and customers seem to be willing to pay $5 to $20 per month, many of these business models appear to be quite profitable.

Unfortunately, this market opportunity was so obvious that a ton of startups were founded to attack it. IBackup, SOSBackup, Mozy, Carbonite, FolderShare, AlwaysSync, GoodSync, Megaupload - this is just a random sampling of companies I know of in and around this remote data access/backup/storage/sync space, listed in no particular order (the order is actually from a competitive landscape analysis I did about 8 months ago, and this was the most copy-paste friendly list in the report - I identified another score of companies, but those box charts don’t paste so well.) Note that not all of these companies are using S3 or an outsourced provider of storage, some of them have developed in-house storage… expensive, but once you reach enough volume stored it makes sense.

So what’s a poor little venture investor to do when faced with such a huge number of competitors in a still infantile industry?

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One thing you must do before starting a new business is to talk to potential customers. Make sure you can answer the question, “who is going to buy/use this?” Figure out as much about your potential customer base early in your startup idea generation and then apply that knowledge against what you are trying to accomplish. Sitting down with and listening to potential customers before beginning your startup can help you justify all the effort you are about to expend, can help you focus your development on the exact solution that the market needs and can help you understand how to create a the right product positioning.

For some reason some consumer focused startup CEOs like to tell venture capitalists, “even my Mom/Dad will use it!” Of course your relatives will use your product; they’re your parents! Your Mom is not a focus group. Use online surveys. Find expert or passionate bloggers in the space that you are targeting and speak with them. (Yes, these people will likely talk to you, and if you’re eventually going to talk to venture capitalists about funding your business, you’d better get to them first, because VC’s will make those calls while they are evaluating your opportunity…) Talk to sales people targeting similar users. If you’re selling to big corporations, have you reached the people who will be buying your solution?

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