msblogs

On this Labor Day, as we in the tech world gear up for the busy fall season, I’m struck by the fact that there really didn’t seem to be a summer slowdown this year. From my perspective, the funding rounds, product releases, acquisitions, IPO filings and corporate scandals didn’t take a vacation. Perhaps there were fewer tech conferences in August, but it’s not like we had time to take off work early for the beach.

Maybe it’s just that it was frigidly cold in San Francisco for most of the last few months. Or maybe it’s that those dang super angels haven’t heard about how in August all venture capitalists are supposed to take their kids to the South of France — or at least Tahoe. Not that I’m complaining; I much prefer writing about real news than making something up!

In case you did take off to an island somewhere, or if you want to reminisce about how gosh-darn hard we all worked for the last three months, here’s a sprinkling of highlights from our top summer stories:

• June 11: How Much Is a Facebook Fan Really Worth?
• June 16: Technology Quiets the Vuvuzela in Real Time
• June 19: App Creep and the Case for the Mobile Browser
• July 7: My iTunes Account Was Hacked for $ 375 — By My Own Kids
• July 20: Flipboard Buys Ellerdale, Launches Social Digital Magazine
• July 21: Fred Wilson: Apple is “Evil” and Facebook is “a Photo-sharing Site”
• July 24: 7 Reasons Why Techies Love Inception
• July 16: Apple: iPhone 4 Issues Blown out of Proportion
• July 27: Leaked Facebook Movie Script Paints Zuckerberg as Vindictive and Naive
• August 2: Android Sales Overtake iPhone in the U.S.
• August 2: How Big is Amazon’s Cloud Computing Business? Find Out
• August 9: Skype Files for IPO
• August 9: Tech Companies, Google Sold You Out
• August 13: Demand Media Faces Harsh Spotlight En Route to IPO
• August 18: The Facebook Location Perspective, Then and Now
• August 25: Why Motorola Bought 280 North
• August 31: VMware Goes Beyond Data Centers to Control the Cloud

Photo courtesy Flickr user GViciano.

GigaOM

An Engadget reader may have uncovered a secret that Google would rather keep under wraps: the origin of the Android logo. While few have questioned the origin of the now-iconic little green robot, instead opting to draw on the similarities between ‘Android’ and ‘droids’ from Star Wars, the gadget blog…

Neowin.net

Still wondering if cloud computing is the real deal, if it will find its way to a data center near you? Whether they’re buying, building or buddying up, vendors are surrounding their core competencies with everything they’ll need to compete in an increasingly integrated IT market.

GigaOMGigaOM

There’s lots of motion in the ocean in the early-stage investing world.  TechCrunch has a write-up on the companies that presented at Y Combinator’s demo day yesterday.  I had several of my own thoughts.

Quality

• The average company quality is up.  A much greater fraction of these companies will be singles or doubles compared to years prior.  I’m not sure if there will be a higher percentage of home runs or not.
• There are also more companies. Xobni’s class of 2006 had 15 companies; yesterday’s graduating class had 36!
• There’s more early-stage investing opportunity at YC than before.

The Index Fund Strategy

• Ron Conway and Keith Rabois invested in a number of these new YC startups.
• Some folks call this strategy the “index fund” approach.  Let’s define it as investing in more than five out of the 36 companies.
• The index fund approach might produce better returns (and/or risk-adjusted returns [1]) than cherry picking the best one or two companies from each Y Combinator batch. I’m not sure.
• The index funds have three main advantages: First, if you assume everyone’s throwing darts, then they’re more likely to invest in the home runs. Second, they can collect returns from the longer tail of singles and doubles without breaking a sweat.  Third, they can make investment decisions faster.
• Interestingly, VCs still try to cherry pick.
• So do some of the new super angels.
• Anyone in the comments want to take a hack at the index fund versus cherry picking strategies, e.g. in environments with different levels of froth?

The World is Flat

• VentureHack’s Angel List and YC’s Demo Day have made the fundraising landscape more flat.  It’s easier to see a wide variety of deals as an angel without doing heavy networking.
• This creates more competition.
• In particular, it removes a competitive advantage for heavily networked angels like Ron Conway.
• Networks and experience still matter a s***ton for providing value to portfolio companies, though.
• For example, a new investor from Hollywood could come in and start making lots of investments very quickly.
• But when shit hits the fan, or you need backchannels to an acquiring company, the movie star won’t be able to help (unless the acquirer is Roc-A-Wear and your investor is Jay-Z, in which case I’m pretty jealous).

Investor Credentials

• Looking at a VC’s investment list is very useful.  Did they get into the hot deals?  Were their companies successful?  What do their founders say when you call for a reference check?
• Angels advertise their investment histories as well, but the informational value of those lists will go down as the world gets more and more flat, AND as the index fund strategy becomes more popular.
• Being an angel investor in Google back in the day meant you were connected.  It meant you were friends with the founders.  It meant you know some of the behind-the-scenes details of the company.
• But angels are investing in more companies, and companies are raising money from more investors.  So again, the informational value goes down.
• What’s the new credential?
• Probably references.  Founders of an angel’s companies can tell you the real stories behind how an angel hurt, noop’ed, or helped their company.
• Do we need a TheFunded for angel investors?

Multiple Valuations: Early Bird Gets The Worm

• Another factor: different valuations for different angels.  As Paul Graham recently pointed out, a startup can issue convertible notes at different caps to different investors.
• This degree of freedom could be used in a number of ways.
• Some companies are trying to use this to give different valuations to different investors as a function of the order that they invest.
• The idea is that the first investor to commit is taking the most risk, so they should be rewarded for that.
• This can only go so far.
• If a company needs a minimum of $ X to get to the next step, once a company has raised $ X a valuation premium doesn’t make sense.
• $ X for a YC startup is probably around $ 200k.
• I’ll stop there on this topic.  There are lots of dynamics at play, and it will vary company by company, but in summary I don’t think early bird valuation discounts will become super prevalent.

Multiple Valuations: Value Add

• But as the angel investing world gets more flat, the average investor will become more vanilla, and investors like Ron Conway will become more differentiated by their savvy, connections, and in some cases the time they can devote to helping the company.
• I predict that it will become more common to reward value-added investors with valuation discounts.
• ESPECIALLY if these value add investors commit earlier.
• Often the big value add investors will commit earlier because they understand the space and get really excited about it.
• For example, one YC company yesterday had already raised money from a big time executive in their industry who can help them with intros/advising/etc.  Those situations can call for valuation boosts.
• Valuation boosts, while rare, were previously done by issuing extra common stock (sometimes specifically called “advisor shares”) to the value-add investor.  But that approach was a little too heavyweight if the angel wasn’t going to be heavily involved.
• So I think valuation cap differences will become more common for compensating value added investors, especially when they are the first money in.
• Secondary effect 1: non-value-add investors will be paying more for their equity, at least in theory, since entrepreneurs can now price discriminate.
• Secondary effect 2: more angel investors will try to be value add.  (?)  Especially super angels who have more resources and more companies to amortize fixed cost value adds across.

…good times.  : )

[1] thanks to Will Stockwell for reminding me that, of course, maximizing return/risk ratio is more important than maximizing returns.  More on this topic in the context of VC over at Fred Wilson’s MBA Mondays.

Adam Smith co-founded Xobni as part of the Y Combinator program in 2006. He ran Xobni as CEO for two years, was its CTO and member of technical staff for an additional two years and change, and is now a free radical in search of the next great idea. This post originally appeared on his blog and was republished here with his permission.

GigaOM

Cloud computing is a big deal for startups. The opportunity to essentially have unlimited computing capacity available at the touch of a button opens up amazing new opportunities. The power to launch 1,000 servers at the press of a button (and tear them down just as quickly) is indeed remarkable. But if comic books have taught us anything at all, it’s that with great power comes great responsibility!

My company, SlideShare, has been using cloud computing for almost everything we do, so we’ve made our share of blunders. Below are two of the more notable ones:

How to Lose $ 5000 Without Even Trying

Several months ago, we became fascinated with Hadoop. We organized a Hadoop Hackday at our office, and very quickly wrote some prototype code for calculating analytics data for SlideShare users.

Hadoop analytics is a perfect task for cloud computing. You need a bunch of
computers, but you only need them once a day to crunch all the data. But as we started testing our prototype code with larger and more realistic data sets, it started taking longer and longer to complete a job.

At that point, I made the call to quadruple the number of machines (from 20 to 75). This decision actually made sense: if it’s going to take 100 computer hours to get a task done, then you might as well have 100 computers work for one hour and get the job done faster.

A few hours after I made that decision, a major site outage occurred that distracted everyone on the engineering team. We worked through the night and the next day, and recovered from the (unrelated) crisis by Friday afternoon. We all took a well-deserved weekend off, and came in Monday morning to discover that the analytics job we’d started before the crisis was still running. Our buggy code was failing in a way we hadn’t anticipated, so throwing hardware at the problem hadn’t helped. Meanwhile, we’d run up a bill of $ 5000 with Amazon Web Services!

Lesson learned: if you’re going really use the power of cloud computing, you need to constantly monitor spend and make sure that it doesn’t get out of whack and break the budget, especially if you’re going to be scaling up and down dramatically. Unfortunately, Amazon Web Services doesn’t provide any alerting or charting tools that make it easy to keep track of spend; keeping track of spending is a cumbersome process involving downloading csv files, importing them into Excel, and analyzing the data. But it has to be done.

Getting Sloppy With Storage

We recently noticed that our spend on storage (Amazon S3) was increasing dramatically. A few days of investigation revealed that there was a general lack of discipline in how we were using storage. Files that could be deleted were being left in place; files for different purposes were being kept in the same directory; and there were some files that we couldn’t identify where they came from and whether they were still needed or not!

Amazon S3, or any cloud storage for that matter, can be thought of as a giant file system. There’s no over-arching control over what data goes where: It’s up to you to make sure you use the storage in a disciplined way. If only one person is writing the
code, this is easy. However, once you have a team of people writing multiple programs, it’s easier to forget to delete something. You need to make sure you don’t waste storage, and the only way to do that is to be really specific about what data is saved where.
A best practice is to put each type of resource in a separate “bucket” (Amazon’s name for a top-level directory), since that’s really the only way you can get accurate statistics about how much storage is being used for each type.

The Spider-Man Principal

In both cases, we learned we weren’t being disciplined enough to handle the power cloud computing put at our fingertips. If we’d been on leased hardware, we would have hit hardware limits (running out of disk space). It would’ve been inconvenient, but it would have forced us to think about what we were doing, and make a conscious decision to spend more money. It’s great to have the super-power of cloud computing, but you need to be responsible if you want to use it!

Jonathan Boutelle is Co-Founder and CTO of Slideshare, a web site for presentations that relies heavily on cloud computing. Previously, Jonathan was a principal at Uzanto, (a UI consulting firm) and worked as a software engineer at CommerceOne (a B2B enterprise software firm) and Advanced Visual Systems (a 3D graphics startup) You can find his presentations on cloud computing at slideshare.net/jboutelle, and his Twitter is @jboutelle. He also blogs at www.jonathanboutelle.com.

Image courtesy Flickr user adactio under creative commons.

GigaOM