First Phone First Computer

http://www.cnn.com/2007/TECH/ptech/01/29/cell.phone.revolution.ap/index.html

for most of the world, the first computer people use will be their phone.

But on the use of ecurrency, it looks like those countries are bypassing the USA, and going on their own currency.

Unfortunate that Paypal or one of the US companies wasn't successful in creating an international currency. Having a bunch of disparate currencies creates an artificial barrier for international commerce. The big opportunity would be replacing the US dollar. And if the different virtual wallets were able to act together, then commerce opportunities arise.

It's an interesting thought. Unlikely to start in the US, but viable in areas where the currency might not be as solid.

Unintended consequences of biofuels

NYTimes article on how palm oil use may increase not decrease the amount of carbon put into the atmosphere.

In this case, burning peatland in order to get cropland for palms, and the use of fertilizers to grow palms causes more damage than the switch from fossil fuels to biofuels.

But for how long? When is the break even point where less carbon is emitted?

The other question is, in a carbon market, who should end up paying for the excess emission of carbon into the atmosphere? Indonesia? The Netherlands?

I’ve brought up the topic of inaccurately allocated carbon credits before. The tundra and permafrost in Siberia and Canada is melting, this emits carbon dioxide and methane into the atmosphere, warming the earth, and causing more melting of the same tundra and permafrost. Who gets charged for these additional greenhouse gasses? Is it Canada? If not, then how fair/right is it to give carbon sequestration credits to countries for their forests/trees?

What happens when the forests burn down through an act of nature? Do those carbon credits disappear? Or do those countries get charged for those carbon credits? Do the countries need to pay to replace them?

What’s fair, what’s right?

And now that the land has been cleared for palms as a crop, do we not use it?

Tech Barons and Energy Policy

When did this become a cleantech blog? I’m not sure, but here’s another article from the NY Times on how VCs are starting to collide with established big oil.
There’s a bit of smoke and mirrors in Edward Murphy’s quote:

If a company’s product sells for less than gasoline, “you don’t need government help,” he said. “Consumers will be beating a path down to your door.”

This implies that big oil doesn’t get any government help at all.

I state that big oil does get government assistance, corporate welfare. While some come about as a mistake, such as the royalty payments that the government doesn’t receive from gulf oil drills. Others are hidden under different labels.

Such as credits for exploration, R&D, drilling, etc.

It’s expensive to dig a dry well.

Having government assistance is the only way to make the numbers work and get $2/gal at the gas pump. Even $3 is considered cheaper than what most of the world pays. When gas is kept at $0.50/gal, it’s the hand of government, not the market that keeps the price low.

There’s no level playing field.

And while it is to the advantage of big oil to pretend that no one gets a hand out, this is not the case.

A true free market supporter would say “Eliminate EVERY handout/credit/tax cut.” Make everyone play under the same rules, and see what the market supports.

Living in the Washington DC area, I know how futile a request that is, there are too many jobs depending on the very same credits for most politicians to accept a schumpeter type of change.

Here’s where I have hope. If the alternate energy systems can compete and succeed despite all the advantages the current old line companies enjoy, then the conversion will happen that much faster. It will unlikely be a graceful slide as one technology displaces the other. But a more explicit shift is probable. In which even existing plants might be mothballed sooner than their lifetime would expect, since the costs of maintaining and running them is greater than the costs associated with the new technology.

This is a radical claim, but when the economics and desire align, even old industry moves quickly.

Web 2.0 fizzled?

Redherring bit on web 2.0 fizzling out.

That was fast.

The new new new thing became the old new new thing, or is that new new old thing. Either way, there’s no longer the hype and excitement with Web 2.0 right now.

Will it last? Don’t know, don’t care. Benefits to users, benefits to customers, and cost control are still the mantra to used with web services.

Targeted media, segmented/niche populations, etc. Are all pretty meaningless and worthless to advertisers, unless they get a sale. And the value for each additional customers is determined by the marginal cost to the seller.

With all the noise surrounding the new things, recognize that the constant is commerce. Without something driving the gears, all of these services fall down.

Clean energy from Khosla

Vinod Khosla on CNN money

His thoughts on where clean energy is going.

I’m a little surprised at how fast he’s going from corn based ethanol to other feed stocks. I’m happy to see this, but wonder who’s left holding the bag on all those corn stills that still haven’t broken ground on construction.

His Clean Coal answer as an alternative energy source makes me wonder what his criteria are. I’m not saying it’s a bad source of power, nor am I saying it’s wrong, since it’s cheap. But the amount of CO2 that can emit from even a clean coal or coal to liquid plant, makes me think that CO2 is not among the key criteria he uses for investment.

The solar thermal answer as the final solution still brings up huge solar farms out in the desert to me. Which means a sterling engine or some other way to get that heat energy to kinetic or potential. Maybe he’s got a panel that can take IR and convert it to electricity efficiently. A viable thermal-voltaic panel.

I’m still thinking that losing 1/3 of the power in transmission cripples the larger solar farm approach. So I'm still of the opinion that distributed energy will be the final answer.

MITEF and Jack Biddle

MITEF had their state of the investment event. 4 experts on satellite explaining a few of their views on the topic. Afterwards Jack Biddle of Novak Biddle came up, and gave his take on the local economy specifically.

A few bits from the nationwide speakers:
Exits from 200-250 mil were not going IPO, instead buy outs and hedge funds were seen as the exits in these ranges.

Vcs are speding money right now, and the ones brave/lucky enough to be deploying money in 01, 02 and harvesting, are seeing good returns.

With all the scope creep that's going on, it's hard for VCs to do turn around deals.

What's the next big thing?

Energy – alternative/battery/energy management
Digital Media
CleanTech
Large Caps will beat out small caps
Nuclear energy
Health Spending Accounts

Then Jack took the stage, and gave his account of the industry and the neighborhood.
In VC investments, Margin is the secret to the investments.
10x returns are only possible with huge margin profits on companies.
Value pricing comes from a limited monopoly.

For the DC area, government based companies are successful:

Defense/Inteligence
The area has world class technology, and companies can be successful here.
AOL is starting to finally spin out companies with management teams that have worked together.

The region will have:
Software
Information systems
Government services companies

When asked why Biotech startups haven't taken off in the region, Jack's opinion was that the outside perception of investors was that NIH was great, but the type of people in the neighborhood were not bio-entrepreneurs.

All in all, given the topics covered, it was interesting to hear the opinion of a local investor.

Ethanol updates

Nytimes article on spring time for ethanol
Redherring article on the ethanol bubble bursting
Washingtonpost article on the booming ethanol production

So,

everything is going great, but the bubble could pop any moment, since too much ethanol is going to be coming on line too fast.

I agree.

Now what?

If you're a corn farmer, things are pretty good.

If you're an ethanol producer things might look bleak. More competition, lower ethanol prices, higher corn prices. This presumes you're getting ethanol from corn. If your feedstock is something different, something that's not a food source, then you're insulated from the corn prices.

But does your cost advantage compensate for the drop in ethanol? Is it enough to keep you around as a producer when the model calculations used last year are going awry?

The State of the Union Address mentioned Clean Coal first. solar/wind and nuclear. Then mentioned BioDiesel followed by ethanol. He didn't mention corn, but instead listed: woodchips, grasses and ag waste.

This is a range of energy initiatives. But we'll see where the final initiatives exist.

Not an easy thing to predict where Ethanol will end up. If it was a true fuel, not an additive, then the conversation changes. Bio-Butenal is a better substitute for gasoline. Manufacturing it takes a little more, but if it maintains the current infrastructure, then the distributors would be more receptive to it.

Porn on HD-DVD

NYTimes article on how HD DVD might not be the best thing for porn.

If Sony doesn't allow porn on Blu-Ray, then we might be seeing Beta 2.0. But if this article is right, then we may not really want to see high def porn. If it's too real, then the fantasy is ruined, and suspension of disbelief is shattered.

What's the likely answer? Do we drop this canary as a harbringer of new technology? No.

The answer is straight forward and comes again from the tech world: Video Airbrushing

We already see this being used in broadcast TV. It's used to clear of tattoos, doing the same thing for razor burns or other blemishes isn't difficult to consider. Current video tape and broadcast at NTSC allows for a lot of blurring and distortion of details.

Using special effects to hide undesirable features will become standard. The techniques of today will be seen as poor quality and laughable in the future, the same way we laugh at the special effects of the '60s today. But it's good enough for now.

Vlogs

I’m not good enough to set one of these up.

Here's Redherring's take on video blogs.

But, having worked with video for a portion of my life, I do want to note that it is easy to distinguish between good videos and bad ones. Camera work, editing, sound, etc. and then the core scripts/actors/etc have to be good as well.

Lot of bad stuff on Youtube. And a lot of stuff that's edgier and crazier than you'd believe.

Recognize that most people don't want to watch poorly filmed/edited home movies. So the high quality videos will be rewarded, and the poorly created ones will join the flotsam that's out there today on the web. Vlogs will overhyped, and then go back into the mainstream. Some aspiring people will utilize them to open the door to opportunity.

Critisim and leadership

USAToday artice on thin skinned leaders.

Criticizing your CEO.

Or investors.

Or anyone else who might hold power over you.

Doesn’t matter.

If the CEO isn’t willing to listen to criticism, not a fatal flaw.
If the CEO isn’t willing to listen to customers, get out.

No Customers = No Company.

This article is interesting in that it treats the CEO and Company as an entirely closed system. It talks about criticizing a CEO, but doesn’t really mention what is a successful CEO. What will all this improvement/criticism go towards? What kind of CEO are we trying to develop, and how will we recognize her when we finish?

Who does the CEO work for? Shareholders? Employees?

One other challenge that was brought up, don’t constantly bring up problems/questions for the CEO and expect an answer. Sometimes the CEO doesn’t know. Everyone wants the person at the top to know where we’re all going. It’s human nature to want the person we trust with our jobs/paychecks to be confident in what he does.

After many board meetings, conversations, debates and arguments. I have to disclose, this isn’t always the case. Some CEO’s make it up as they go along. Unlike David Tennant’s Dr. Who, not everyone “does it brilliantly.

Cleantech investing drops in Q4

Redherring's article on how Q4 Cleantech VC dropped.

The economist will say “Oh, this is bad news.” Granted, any economist will take any news and find something to fault.

But what does this really mean?

Well, without huge investments to prop up the dollar amounts being spent on cleantech, then the numbers must drop. Especially when we won’t see any $200 Mil investments into a corn to ethanol company.

Remember:

Better <> Good

Cleantech > Ethanol

What do the funding levels mean to me? Companies are getting financing. But not at the levels as before. Also all the easy investment vehicles have been chased down. Smaller investments will continue. Funding levels are still pretty high compared to last year.

Something else to consider is today's oil drop below $50/barrel. It didn't stay there long, but $50 was the simple number used to support biofuel projects. Given the larger number of oil consuming companies, the price is unlikely to go lower. But having oil at current prices puts some of the biofuel projects at risk.

The groups that are prepared for price fluctuations will do OK at this rate. Remember that there are still subsidies available, and that if you have a cost advantage in production you can withstand some disturbances.

Video Delivery

Netflix delivering over the web.

This is a great idea, executed poorly.

That’s a little unfair. Perhaps it can be executed well. But the expectations that are being set up “Watch Now” are too hard.

Netflix did an amazing thing early on, and is now destroying the very advantage they created for themselves.

Netflix was able to get consumers to accept ad-hoc random delivery of movies through the mail. If they had offered the service of receiving movies by either mail or web delivery WITHOUT promising “NOW” delivery service, they would have been blasted for not making more prompt on demand viewing available. But expectations would be lowered, and people could determine if they wanted something right away or downloaded to a hard drive for viewing later.

It’s been a while since I’ve taken a close look at the infrastructure, costs and support requirements of heavy duty streaming. I’m a bigger fan of distributed networking. P2P is a dangerous word when it comes to movies, but it is the only thing that makes sense to me.

I’ll give credit to the company in making a choice. It’s not a choice I agree with, but I’ve been wrong before.

MAVA 2007 kickoff event

Tonight's event was hosted by Peter Barris of NEA.

It was a nice way to start the year. Networking after everyone's returned from the holidays. MAVA does a great job in connecting the local venture community.

Seeing old faces, there was a lot excitement about the coming year. New deals on the horizon, and recent investments closed.

This event is special because more of the bigwigs show up at this event than most others. Partners and other higher ups who want to see each other in a comfortable setting. Plus, for the host, it's a way to show off their place.

These events are valuable in maintaining contact with the other local investors. A time when we are able to network with just investors. There were enough people around that it was a valuable night.

Water Harvesting

Great news on Aqua.

OK, it's been mentioned before, and I really don't know how well it works or what the stumbling points on this technology or business are.

But given what they're doing, extracting clean water from air, and the pricepoint, of $0.30 per gallon, it seems fantastic.

When this is finally available, it can change a lot of issues.

One unknown that we'll worry about later is, how does this moisture extraction affect the regional climate? We already know that cities will create their own weather patterns by their very presence, and we've seen how wind farms can churn up the atmosphere in ways that weren't planned for during initial construction. What will these water harvester's do?

But that's a problem for a later time. Right now, too many folks are dying, too many problems exist with the current water situation.

3rd level thinking

I'll admit that I stole this idea from a poker article I once read.

There are many levels of thinking, but most people stop at the very first level.

In poker, the first three levels of thinking can be described as:

1. What do I have, what does he have
2. What do I think he has, what does he think I have
3. What does he think I think he has, what do I think he thinks I have.

This can go on for a while, but so few players ever get beyond the first 2 stages, that simply getting to the third stage puts you ahead.

Does this translate to business?

Not well.

But you do have to get to those second and third level of comprehension in order to understand what motivates your customers and suppliers? Yes. It definitely helps to understand how your customers make money, and how your suppliers profit from your business.

So in any negotiation, from financiers to customers, understand their motivation, understand what they're thinking, and what they think you're thinking. It will give you the edge in any confrontation, and let you understand why they're doing what they're doing.

Ideas aren’t enough

In evaluating companies for financing or presentation, once in a while we run into a doozy.

These are the ideas so far out there that you can’t tell if it’ll be a success or not. Ok, that’s wrong, these are ideas so strange that you can’t tell what a success would look like.

There are usually several fatal flaws in these companies that prevent an investor from writing a check. Of these are:

Why does the customer care

How does this change the way commerce is currently done

Who’s job are you changing for the better/worse

Why is there no competition

What are the benefits to the people currently in the system

The idea won't be enough to succeed. Execution will prove the concept right or wrong. And it will usually be execution without investor financing.

No Teacher’s manual

In school, there was a teacher’s manual with the answers to the questions posed in the text book.

Granted, the answers weren’t always right, but they were there.

However, while investigating companies for financing, I don’t have an answer manual. Most investors don’t know what the right answers to the questions they pose are. We ask the questions in order to get a better understanding of the investment, and the management team. How the entrepreneur thinks. What are the key assumptions behind the plan, and where are the fatal flaws in the plan.

We don’t have the answers, and it’s OK if the entrepreneurs don’t have the answers either. But if an investor doesn’t feel comfortable as to WHY the entrepreneurs don’t have an answer, or in how the answer was acquired, then there’s a problem going forward.

Having a response won’t get you financed, but failing to provide peace of mind will result in a rejection every time.

Higher corn prices because of ethanol?

Redherring starts to look at the corn prices caused by ethanol production.

It's not true that no corn will be diverted, it can't be.
Economics states that the highest valued use of corn use will get the most corn.

So the idea of finding other sources for ethanol is vital. They touch on the food or fuel problem, and the use of sugar beet, or switchgrass.

In looking at ethanol businesses today, I'm struck by the dilemma face by corn based ethanol plants. Corn prices are going up, ethanol prices dropping, and value of used distiller's grain (used corn from ethanol production) is all going in the wrong direction.

This is a 3 play commodity squeeze. When farmers own the ethanol plants, it makes a little more sense. This is vertical integration. However, unless you can have a cost advantage or transportation efficiency, you're going to be among the first to go.

Non Profit Foundations and MRI

An LA Times article on the dilemma faced by foundations.

Gates is targeted because it’s the largest around.

But the rules set by the IRS have caused this to evolve to the form we see today. Paul Hawken has mentioned many times the issue behind investing in companies that are undermining the very works you’re trying to perform.

It’s been argued that the secondary market investors have no influence on the performance of management, afterall, these are just stockholders, right? The counter is that by holding onto these companies, the investor is providing a higher share price. This higher share price is then used by the company as a valuation for the treasury shares or new shares of the company. This becomes important in M&A activities specifically, but is also important in secondary offerings, when the money goes directly to the business itself.

The ideal solution is to stop having 95% of your endowment destroy the 5% you’re donating to charitable works.

But we can’t expect such leadership from the older/established foundations. Why? Because of our litigious society. As I understand it, if the board of trustees is not acting in a fiduciary responsible manner, then they will get sued.

And so, the 5% MINIMUM imposed by the IRS, has effectively become a 5% MAXIMUM for funds donated. Any more can be attacked, since the trustees haven’t acted in the best fiduciary manner.

But that’s when the original founder has passed away, and can’t be asked about what the intentions behind the foundation were.

When the founder is still alive, and can dictate, “I started this foundation to do THIS.” Then there’s a smaller chance the founder will be sued.

On Slashdot, there was a question as to why Buffet gave the money to the Gates foundation.

The answer is simple.

Not because they are friends, not because this was the best of available options.

The Gates foundation is the ONLY group that could put the huge amount of money to work effectively.

Rockefeller is the 2^nd largest foundation, and clocks in a 11 bil. So Buffets amount would have quadrupled the amount of money under management for the foundation in one shot.

It would have done a worse number to everyone else, except Gates foundation. There, it only doubled the amount of money.

Putting 1.5 Billion to work every year is hard. It’s hard to make serious, intelligent, effective donation/investment decisions every year.

Now, double the money, and the task would swamp any other organization. Gates can handle it, and invest in a manner that Buffet trusts.

Innovation from outside

AP article on how immigrants are making a big part of entrepreneurs.


25% of startups have someone from outside the US in a lead role.

That’s 25% of US start-ups have someone born from outside the US in a lead role.

The number gets bigger if we start counting 1 generation folks. People who were born in the US, but have a heavy international influence on their upbringing.

But innovation is being outsourced to other countries, and these immigrant entrepreneurs may one day stop crossing the oceans, and start developing in their home countries.

An honest opinion

When you don’t know, say so.

http://www.msnbc.msn.com/id/16442819/

There’s only one problem with “I don’t know.”

It’s not the final response.

The true response is one of the following.

1. I don’t know now, but I’ll spend resources to find out, until I know, or stop spending resources.
2. I don’t know now, and I won’t spend any (more) resources to find out.

Answer #1 buys you time.

Answer #2 will get you questioning glances. But in the long run, when you can justify that not spending resources like time/money/effort is the right answer, you’ll be better off.

When you can sit back and state that this level of ignorance is acceptable, move on. There are many important tasks that await your efforts.

How do you know which ones to ignore? That comes from experience.

When in doubt, walk

Every once in a while, an entrepreneur will challenge me, and say "Isn't this why you started making private investments?"

It usually comes as a quick comeback, when I express caution or doubt on the deal. It's not always the business itself I question, but the initial terms that the entrepreneur is considering.

I rarely say if the terms are reasonable or not. Only caution and explain that a $5 mil raise that's worth 1/3 of the company implies a $10 mil premoney valuation. Or that right now, before anyone puts any investment, the company is considered to be worth $10 mil.

Sometimes this is a reasonable figure, other times it's not.

But my first reaction is to walk away. Being able to work with an entrepreneur is a big part of the job after the cheque's been written. Getting off to a poor start makes the rest of the journey much harder.

MITEF Gala 2007

The MIT Enterprise forum of DC/Baltimore will be holding their annual Gala event on January 30th this year.

It's a chance to reflect upon the past events of 2006, celebrate some successful companies, and have a good time.

you can sign up at www.mitef.org and see what's been going on in the DC area.

I'll also be running a talk to the angels panel in February.

These events should be fun

2007 predictions

Maybe one day I'll look back on this and see how wrong I was.

But on this new day of the year, let's make some guesses.

Water will still not be solved by this time in 2008

Lead acid batteries will see a revolution in 18 months. Leading to electric vehicles in fleet systems.

BioDiesel will see greater use in maritime facilities.

Corn based ethanol plants will sprout up, dropping the commodity price of ethanol everywhere. Producers will side-step this scenario by upgrading the quality of the ethanol to food grade, and start providing alcohol for medicinal and food.

No successor to Kyoto will be determined, but the fact that Kyoto will end in 2012 will begin to enter the mainstream consciousness.

Another Billion dollar M&A will befuddle investors, like youtube.