April 24, 2003

A VC revisits dot-com land

Bill Gurley of Benchmark Capital took a little time off recently to examine what had happened to the world of "dot-coms"--a category treated as the ultimate pariah by VCs everywhere for the last 3 years.

Here's what Gurley says he found in his latest column :

"Amazon's market capitalization has climbed 79 percent in the past year to $9.7 billion. Yahoo, over the same time period, has climbed 63 percent to reach a corporate value of $15 billion. And eBay, the cream of the crop, is up 61 percent to reach a whopping $28.4 billion. Cumulatively, that is more than $50 billion in value for the top three players in this newbie industry, which seemed very un-business as we crashed to earth in late 2000......

Other public Internet companies are seeing a resurgence, or at least are holding their ground. WebMD, Verisign, TMP Worldwide (Monster.com), and DoubleClick all sport market capitalizations north of a billion dollars. Additionally, Overture, Earthlink and RealNetworks are hovering in the $700 million to $900 million range. Even newcomer NetFlix has seen its stock jump from a 52-week low of $5 up to a respectable $22 per share."

Gurley analyses the reasons why these companies are doing decently well for themselves and their investors in such a touch economic climate. Click Here to read Gurley's full column

PS: Interestingly, Gurley also takes a shot at the media in this article:

"Things are so good that last week Barron's dusted off its charming fondness for everything Internet with a newly negative article titled "Bubble Redux." It turns out that Barron's is quite unhappy that consumer Internet stocks have risen in value and suggests that the "real" value of eBay, Yahoo and Amazon are actually far below what their current stock prices indicate." :-)

Why (and how) Silicon Valley needs to change

Here are some extracts that I found interesting from an article in siliconindia.com by Naren Gupta, Vice Chairman of Silicon Valley-based Wind River Systems.

* Entrepreneurs need to pursue only those areas where they have unique expertise and those they are passionate about. I see too many mercenaries--masquerading as entrepreneurs--floating around Silicon Valley, looking to jump on to the next flavor of the month.

* In the last few years, VCs have assumed too much power and founders have been forced to cater to the whims of the VCs rather than follow their own instincts.

I have uniformly seen that great VCs, like Bill Draper, Bill Davidow, and others treat founders with immense respect and receive great admiration in return. They become trusted advisors, not taskmasters, to the founders.

* The expression "serial entrepreneur" needs to disappear from the technology lingo. To me this is an oxymoron. A serial entrepreneur sounds like someone who throws things together, sells the half-finished concept to an unsuspecting buyer and skips town before the truth is discovered. An entrepreneur must have the power of conviction. Bill Hewlett, Gordon Moore, Sam Walton, Ray Kroc, Bill Gates and many others worked on one enterprise their entire life and still did not feel that their dream was completely fulfilled. Yes, at times the best outcome is to merge the enterprise, but the entrepreneur's initial mindset should be a long-term commitment to the venture.

Click Here to read the full article

Selling software as a service

"In the past few weeks I have had a number of conversations with my friends in the venture capital community that have convinced me that consumers really want to purchase software as a service and not a shrink-wrapped CD offering."

So says US Venture Capital executive Charles Hudson in his web log

He goes on to add:

"I am fairly convinced that consumers do not want to manage complex applications or worry about the impact that a new application will have on his/her desktop computing environment. In a world where big businesses seem to have had their fill of enterprise software, enterprising entrepreneurs might want to take a hard look at services that customers would be willing to pay money to use."

Andrew Anker of August Capital adds in response:

"The services or ASP model is unfairly maligned because of a number of unsuccessful attempts at it during the late 90's. Those failures had more to do with the product than the model. I think the most important point Charles makes is that we don't even tend to realize that many of the services we use today (PayPal, Yahoo) are really just hosted software."

While these VCs are obviously talking about the US context, I believe that "selling software as a service" is something that is highly relevant--if not more relevant--in India.

Companies attempting to sell shrink-wrapped software in Indian constantly crib about how the Indian market is "very price sensitive". Add to that the problem of rampant piracy. Toss in the fact that the availability of affordable "always on" connectivity (through DSL/Cable) is increasing by the month. And my conclusion is that "pay per use" is going to end up as the best model to sell software in this country.

In selling the Internet to small and medium businesses, companies like ccavenue.com (payment gateway services), Net4India (ISP and hosting services) have already shown that the winning formula in India is to go for volumes with a "sweet spot" pricing. I believe it is a matter of time that this happens in software as well. What is missing so far are the "killer apps"--which address India-specific problems.

April 23, 2003

To talk or not to talk
tech with a VC

Naval Ravikant of August Capital talks about the problem of entrepreneurs reluctant to reveal details about their company's technology when pitching their companies to Venture Capitalists. He also presents some potential solutions.
Click Here to read the full article