Monday, November 24, 2008
Consider these two familiar situations.
Situation A: You are a college student and parents gave you $200 and said, "kid, be frugal. Spend the money where you need to. If you run into financial crisis, let us know. You need to be studying and get good grades, not thinking about the financial situation".
Situation B: You are a college student and parents don't give you $200 and said, "kid, be frugal. Spend the money where you need to. If you run into financial crisis, it's your fault. Earn the money right away while studying and getting good grades in school".
Maybe these cases ring a bell. The government is treating the troubled companies with attitude similar to Situation A, not exactly, but quite similar. For the interest of constructive feedback to startups of the world, let's focus on Situation B.
Why do startups go through tremendous growth with limited resources at hand? It's probably because most of the decisions at hand have to do with survival without very few backdrop plans. It's a question of life or death.
Last time we were in great recessionary period, so called The Great Depression, the FDR administration treated the free market economy similar to what the new U.S. government is trying to do. Whether FDR's lifeline injection was effective or not, I'll leave it up to the historians to mull over. What's clear is that it wasn't the governmental actions that eventually saved the U.S. economy, it was WW II.
Fastforward to today... I'm not saying we should enter wars. I'm pointing to the whole attitudes of business managers to treat the whole situation as life or death situation. Focuse on cash reserves, reprioritize strategic decisions on a daily basis, win customers, depend on lean operation, consider there's no government to save you butt when things go sour, etc. The most notable example that makes me scratch my head till my head gets bald is Tesla Motors. Hey, it's a so-called venture-backed startup asking for a piece of auto bailout. C'mon. It reallly should've been hungrier than the hungriest startup if they ever remotely realized that bailout was never an option for them.
Companies (big and small), please be hungry. Operate like you would do in a free market. Please!
Thursday, November 13, 2008
The real scary part is that the value created by VC falls below the money raised. (TechCrunch link below) We know this country is used to running budget deficit all the time, but c'mon... this is insane. The net negative economic value created by the venture capital industry just doesn't make sense. Do LPs even realize they'd be better off re-allocating their assets to ... umm.... charity?
From entrepreneur's point of view, what does this mean then? If venture capital industry shakeout indeed happens, and Kleiner Perkins, Sequoia, Accel, and Benchmark command "quadpoly" power over startups, then what? Do we turn to commercial banks for loans and operate highly leveraged startups? Then, another credit crunch. Then, another bank goes belly up. Then, then, then........ we'll have those VCs invest and run all startups. Aren't they supposed to be ex-serial entrepreneurs with successful track record of running numerous startups anyways?
Seriously, this is problematic. We need to find a solution to make this work out. More than 40% of the U.S. output is generated by the small businesses. Startups fuel the economy and big companies keep the fire going. I agree with many of Adeo's points in his slides. What he doesn't realize is that the VC model MUST work in this economy. Stop complaining. We have to fix the model ... like.... right now.
Monday, November 10, 2008
10 November, 2008
VCs quickly turn off tap
The number of deals slows dramatically in October
Whoa, Nelly! The Wall Street financial crisis has caused venture capitalists to pull back sharply on their investment reins.
In October, U.S.-based venture firms did fewer investments than in any other month in nearly five years, according to preliminary data gathered by Thomson Reuters (publisher of PE Week).
Official data for the month of October won’t be released until after the end of the fourth quarter, when Thomson Reuters has collected quarterly surveys from venture firms.
The preliminary numbers indicate that VCs are hunkering down more quickly than they did after the dot-com crash. The data show that U.S.-based venture firms invested in just 250 companies last month, down from 565 companies in September and 518 companies in October 2007. You have to go all the way back to January 2004 (when they invested in 232 companies) to find a lower number. The only other October with fewer deals was in 1993.
“I’d venture to guess that the Q4 slowdown is going to be acute,” says Venky Ganesan, a managing director at Globespan Capital Partners, an early stage tech investor based in Palo Alto, Calif. “You can’t have the destruction of 40% of investor capital, or $10 trillion, and not have an effect on the economy.”
The amount of capital that VCs are investing also plummeted in October, when U.S.-based firms put $2.5 billion to work, down from $3.8 billion in September and $3.2 billion in October 2007.
The October 2008 total is the smallest amount that U.S. VCs have invested since February 2006, when they invested about $2.4 billion. Looking only at October, the last time the monthly total was lower was in October 2004, when about $2.4 billion was invested.
Maybe more telling is how few firms are actually doing deals. Just 240 U.S.-based venture firms made investments in October. That’s the lowest number since November 1997, when 239 firms made investments.
The anemic numbers are similar to those of 2002, when VCs pulled back following the dot-com crash. For example, U.S. firms invested $1.6 billion in 278 startups in October 2002.
Two of three VCs contacted by PE Week said they would be surprised if the venture business had pulled back as quickly as the data indicate.
“I wouldn’t have expected [the Wall Street financial crisis] to have had such a quick effect [on the VC business],” says Sanjay Subhedar, a general partner at Storm Ventures, an early stage investor based in Menlo Park, Calif. “I expected things to contract significantly in terms of investments in Q4 and certainly in Q1 and Q2 of next year.”
It would be unusual for deal numbers to drop so quickly because it takes time for VCs to put deals together, Subhedar notes. If the numbers did drop that quickly, it would suggest that a number of deals that were supposed to get done in October were put on hold.
Similarly, Bart Schachter, a managing director at Blueprint Ventures, a San Francisco-based firm that focuses on IP spinouts, says he wouldn’t expect total deal volume to decline so quickly. Still, he says: “I wouldn’t be surprised if outside-led financings have completely dried up.”
In other words, if a startup is trying to raise a Series B round, it is very unlikely in the current market for a new investor to come in and lead the round, Schachter says. Instead, the previous investors are doing the round without any outside help.
“Everyone has their arms tightly wrapped around their existing portfolio,” he says.
For his part, Ganesan says the venture market has already slowed down. “Globespan will continue to look at a lot of stuff, but the bar has gone really high and there’s no urgency of doing investments,” he says. “If we end up doing any deals, it will be one or two in Q4.”
A recent survey of 33 Bay Area venture capitalists showed that their “confidence” had hit its lowest point since the survey began in the first quarter of 2004. The Silicon Valley Venture Capitalist Confidence Index fell to 2.89 points on a 5-point scale, marking its sixth consecutive quarterly decline.
Alexander Haislip contributed to this story.
Saturday, November 8, 2008
As a former biomedical engineer by training, I just don't see how anyone will buy into causing detrimental damages to cr%$#h in exchange for the ability to walk around. Who's in?
TOKYO, Japan (AP) -- Imagine a bicycle seat connected by mechanical frames to a pair of shoes for an idea of how the new wearable assisted-walking gadget from Honda works.
This wearable assisted-walking gadget from Honda is designed to reduce stress on the knees.
The experimental device, unveiled Friday, is designed to support bodyweight, reduce stress on the knees and help people get up steps and stay in crouching positions.
Honda envisions the device being used by workers at auto or other factories. It showed a video of Honda employees wearing the device and bending to peer underneath vehicles on an assembly line.
Engineer Jun Ashihara also said the machine is useful for people standing in long lines and for people who run around to make deliveries.
"This should be as easy to use as a bicycle," Ashihara said at Honda's Tokyo headquarters. "It reduces stress, and you should feel less tired."
To wear it, you put the seat between your legs, put on the shoes and push the on button. Then just start walking around.
In a test-run for media, this reporter found it does take some getting used to. But I could sense how it supported my moves, pushing up on my bottom when I squatted and pushing at my soles to help lift my legs when I walked.
The system has a computer, motor, gears, battery and sensors embedded in it so it responds to a person's movements, according to Honda Motor Co.
Pricing and commercial product plans are still undecided. Japan's No. 2 automaker will begin testing a prototype with its assembly line workers later this month for feedback.
The need for such mechanical help is expected to grow in Japan, which has one of the most rapidly aging societies in the world.
Other companies are also eyeing the potentially lucrative market of helping the weak and old get around. Japan is among the world's leading nations in robotics technology, not only for industrial use but also for entertainment and companionship.
Earlier this year, Japanese rival Toyota Motor Corp. showed a Segway-like ride it said was meant for old people.
Japanese robot company Cyberdyne has begun renting out in Japan a belted device called HAL, for "hybrid assistive limb," that reads brain signals to help people move about with mechanical leg braces that strap to the legs.
Honda has shown a similar but simpler belted device. It has motors on the left and right, which hook up to frames that strap at the thighs, helping the walker maintain a proper stride.
That device, being tested at one Japanese facility, helps rehabilitation programs for the disabled, encouraging them to take steps, said Honda official Kiyoshi Aikawa.Honda has been carrying out research into mobility for more than a decade, introducing the Asimo humanoid in 2000.