Category Archives: Business

Thoughts on “R.I.P. Good Times, Part 2”

I don’t pretend to know much of anything about tech venture investing but there are several aspects to Paul Graham’s warning to his portfolio companies that are not passing the “smell test” for me. To whit:

  • A venture investor warning startups to “expect lower valuations” is like a truck driver warning a gas station to “expect lower gas prices”. Of course they want entrepreneurs to “expect lower valuations”; this is never not the case.
  • It’s an article of faith that Facebook’s declining stock price will depress startup investing, but I’m not clear on why. The Facebook IPO will actually unlock a large amount of free cash for Facebook employees which they will need to park somewhere. I’d read that more than 1,000 Facebook employees and ex-employees became millionaires on IPO day, and it’s safe to say that most of those folks will still be millionaires even if FB trades at 23. If only 10% of them start doing angel investing (which seems conservative), that means there will be 100 more angel investors in the valley than there were six months ago. You really think this is going to depress startup valuations?
  • The market bats last. No single investor or group of investors gets to determine what the correct market value for something should be. Investors barely get a vote, much less a veto. Anything else is guesswork.
  • The genesis for the original “R.I.P. Good Times” talk was a near-collapse of the U.S. banking system which led to the biggest recession in a century. But the sky didn’t actually fall back then; in the years following there has actually been a significant uptick in angel and venture investing and an increase in IPO activity. The genesis for PG’s warning, on the other hand, was a conversation between a couple of wealthy investors following a two-week decline in a widely-followed (and, arguably, overhyped and overpriced) IPO.
  • The VC model is horribly broken. Still. Investments in Silicon Valley today are mostly done through personal connections, political/business alliances, and one-hour pitch meetings that mostly favor entrepreneurial stereotypes (in essence, males in their 20s) over experience or business viability. If any other kind of Silicon Valley company did business on these principles, they’d be laughed off the playground.
  • The November election has a chance to have a significant affect on the economy; if the Democrats take back Congress and keep the White House (which I think is likely), it’s possible we’ll see the current Republican economic austerity strategy eased somewhat (or entirely abandoned) which could have positive macroeconomic effects that could kick in by Q2 2013. The end of the recession will have a strong positive effect on technology companies, both new and established, and it will cause new investors to emerge.
  • There is a decent chance that the playing board for seed round startups will be rearranged in January 2013, when the SEC rules pertaining to crowdfunding are in place and companies can start soliciting from non-qualified investors. I can’t help but wondering if this isn’t responsible at least a bit of the investor angst we’re seeing today.

At the end of the day, investors don’t express their displeasure with excessive corporate valuations by posting them on the internet. They do this by curtailing their investments.  So until you hear that Graham’s incubator is no longer accepting new companies, I’d say there’s not a lot to see here.

Advising Startups in 2012

One of the favorite things I do is provide advice to startups. Most of the assistance I give to other peoples’ companies is done through my consulting firm, but I’ve done the advisor-for-equity thing once so far (back in 2008, when Twilio was a three-person company) . In 2012 I will have room in my schedule to do it again for one or two new companies.

Stuff I’m good at:

  • Supporting businesses that create products that target software developers. My experience in this area is world-class, and there are not too many people in Silicon Valley who have done it longer than I have.
  • Providing polish to consumer Web-based applications and workflows, coming up with ideas for making them better, and coming up with ideas for aligning new products and features to the business.
  • Introductions. I’ve been around the block for quite a while, I’ve worked at/for several established companies, and I know a lot of people.
  • Helping with the kind of stuff that falls in the scary grey zone between “engineering” and “business” (also known as “talk to the English majors, talk to the MBAs, talk to the software engineers, then talk to the customers”). These are the kind of roles that two- and three-person startups hate to staff because they frequently don’t represent full-time jobs, which is one reason why it makes sense to have advisor help here.

The profile for the kind of company this would probably work for:

  • It would probably make sense for you to be located in San Francisco, since that’s where I am.
  • Your company should have a Web or mobile product in development, or at least a prototype. (If you’re at the “idea stage” an advisor engagement might work, but the idea would have to be pretty compelling.)
  • Your company should have at least one technical cofounder (or a non-technical cofounder who is becoming a technical cofounder).
  • You are not competitive with the stuff we’re working on (professional technical education).
  • In terms of funding and revenue, you fall into one of these categories: you are currently pursuing seed funding, you have completed a seed round, you have decided to never pursue venture funding, or you’re bootstrapping. (If your company has already raised a significant investment round, you probably don’t need an equity advisor, a consulting engagement would probably make more sense.)
  • You should be prepared to swing for the fences. Look at the trajectory of Twilio from 2008 to the present for a sense of what this means.
  • You should be prepared to do a standard deal for equity advisors.

Knowing me personally (or getting a strong introduction from a friend) goes a long way here, because if I’m going to advise you effectively it’s important that we are able to communicate well. The best way to contact me regarding advisor engagements is at @jeffreymcmanus on Twitter.

TV Rebroadcaster Shut Down by Injunction

I didn’t see any tech blogger coverage of this, then I remembered I had a dusty old blog of my own, so I’ll do a quick summary here. is a terrific television rebroadcasting product that enables you to watch local stations from various US markets on your computer using a downloadable client application that works on both Mac and PC. They charge a very reasonable monthly subscription fee (a fraction of what we paid for DirecTV before we got rid of it last year), but it was a bargain for the few times a month we want to watch live TV (basically, baseball playoffs and entertainment awards shows).

As you might guess, whenever big media is perturbed by technological innovation, a lawsuit must necessarily follow, and this time is no exception. This TechCrunch piece from last October, written by a presumably non-insane lawyer, talks about the legal status of The writer points out that there’s an exemption to copyright law called the “passive carrier exemption” that theoretically enables companies to do what does as long as they don’t alter the programming (there were a few failed attempts at this where companies tried to superimpose their own advertisements, which is obviously evil). But doesn’t do that — they just charge subscribers a monthly fee, like any other cable operator. And importantly, kicks back a portion of subscriber fees to broadcasters, just like cable operators do.

Today the company announced that they were shut down by a court injunction brought by the standard evil media conglomerates (Comcast, Disney, CBS, Fox, Major League Baseball, etc.).

The net effect is that our consumption of live broadcast TV will be going from “very little” to “zero”. Well played, entertainment industry. If the Giants make the playoffs again this year, which they will, I guess I’ll watch every game from a barstool somewhere instead of the comfort of my laptop. Maybe I can teach my daughter to fetch peanuts for me or something. The net result is that the local pub will make more money from me than the TV nets ever will. That can’t possibly have been the intention here. And honestly, it can’t be long now before the black hats (also known as Our Triumphant Liberators of Content) will set up some kind of peer-to-peer rebroadcasting network. Have fun bringing a lawsuit against that, jerks.

Update: Over on GigaOM, Ryan Lawler has excerpts from the injunction, which seems to assert that because they send TV over the internet (instead of wires or via satellite), they can’t be classified as a cable operator. This seems like a pretty dippy interpretation of the law (it’s not is broadcasting content willy-nilly — they’re only sending it to paid users of their custom client app).

Well That Didn’t Take Long, Usurious Banks

Now that the most predatory practices of credit card issuers and banks are being zapped by regulation, banks are working overtime to figure out new, even scummier ways to drain the money from your account:

Given the billions at stake, consultants are urging banks and credit unions to hire them to help. “Your fee income will take a substantial ‘hit’ if you don’t start getting consumers to ‘opt-in’ for POS/ATM overdrafts NOW!” Mike Sobba, president of Strunk & Associates, a financial institution advisory service, warned banks in a pitch on the company’s Web site.

Link: Banks Pressure Customers on Overdraft Fees

New Credit Card Regulations Go Into Effect Today

A mere five and a half years since I started posting about the usurious business practices of consumer credit-card lenders, the new federal regulations on credit card lending go into effect today. Thanks to our most excellent congresswoman Jackie Speier for this link to a summary of the new regulations.

There are still a few loopholes that industry lobbyists were able to get into this law (such as no restrictions on late payment fees), but as a first step, there’s a lot to love here. I’m hoping as a next step we’ll look at a junk mail ban on all types of consumer lenders, but I guess now that corporations have the same free speech rights as natural persons, that’s too much to hope for. Maybe we need a few more debt-generated brushes with the collapse of civilization before we get serious about this kind of thing.

Anyway, I’m very excited to see that elements of the design mockup I did in 2008 made it into the final law. Now,  when you receive your credit card bill, your lender has to do the calculation to determine what it will take to pay off your entire balance (both with the ridiculous “minimum payment” and with a more realistic payment that will get you out of debt in three years). I am sure that the credit card issuers will triple the number of frequent-flier junk mails and other inserts to take your attention away from this important part of your monthly bill, but still, it’s a step in the right direction.

The regulated payment notice goes beyond my design in a few effective ways: it describes the minimum payment trap with the word “warning,” tells you how many years the “minimum payment” will keep you in hock, and calculates how much money you’ll save if you pay off the debt sooner.

Provide an Efficient Market for Pay TV

I’ve been following the News Corp vs. Time Warner Cable standoff over retransmission pricing, not because it affects us (we are longtime DirecTV satellite subscribers) but because it calls out how inefficient the market for pay TV is. The basis of the conflict is that News Corp (the content provider) is trying to shake down Time Warner (the delivery system) for a huge increase in the fees it pays, far more than any other delivery system pays. Time Warner is threatening to kick Fox stations off its system unless they’re priced more reasonably. They’re in a standoff at the moment, with the retransmission contract being extended hour-by-hour while the negotiators negotiate. A number of New Year’s football bowl games hang in the balance for anxious New Yorkers who are into that kind of thing.

News outlets like the NY Times are focusing on the standoff drama of the whole thing and barely touching on the consumer choice angle. To me, it seems absolutely crazy that the channels that appear on my TV are being randomly turned on and off by teams of lawyers meeting in a conference room somewhere in New York. The whole reason why this is happening is because of content providers’ insistence on acting like a cartel. Right now pay TV customers have very limited choices in terms of pricing and selection — cable and satellite providers price channels in bundled packages as a way to sell you more than you need. For example, we never, ever watch ESPN, yet its retransmission cost has been tacked on to our monthly DirecTV fee since the beginning of time. Why are we forced to pay for something that we never use?

It’s clear that left to their own devices, content providers and delivery systems will never work this out themselves — quality of product will become poorer and the number of choices will become smaller over time. So this situation should be dismantled, using the FCC’s regulatory authority (or federal antitrust statutes), if necessary.

Rather than forcing customers to choose from two or three expensive programming bundles containing mostly stations they don’t watch, it would make way more sense to give customers the ability to pick and choose the individual channels they want. This isn’t a new idea; it’s called a la carte pricing and it’s been batted around for more than five years, although it doesn’t seem to have gotten anywhere during that time, possibly because the idea came about during an administration that was all about throwing consumers under the bus in favor of the whims of big business.

But there’s actually something for the big businesses in this if the unbundling is handled fairly (through regulation instead of through a million drawn-out conflicts and back-room negotiations). Some chaotic evil delivery systems such as Comcast seem opposed to unbundling, while the neutral good systems such as Cablevision see the potential and are in favor. Using our family’s viewing habits as an example again: We probably wouldn’t spend an extra $10 a month upgrade to a premium satellite package with 100 extra useless channels just to get the two or three kids’ channels we don’t get today, but we might spend $0.50 a month per additional channel if channels were offered that way. That way, DirecTV would make an extra $12 a year from us that they wouldn’t otherwise see. And at the end of the day, if the content providers went crazy and decided to charge $97 a month for QVC, they could, with the understanding that the cost will passed directly on to customers, who will then have the choice to cancel the channel or not.

Content delivery systems (cable and satellite providers) have argued that they don’t have the technology to enable each customer to create their own custom package of channels. This is nonsense. All they need to do is extend custom pricing today, and then figure out how to restrict content when they get around to it.

The Secrets of the Talent Scouts

Link: The Secrets of the Talent Scouts
So mavericks like Michael Moritz, the Silicon Valley venture capitalist, are shrugging off talk of economic collapse and scouting for winners anyway. “A downturn can be a very good time to build a company,” he contends. “The parvenus and the pretenders are gone. The only people who want to start a company in a time like this are the ones with the greatest conviction.”

Sweet vocabulary word: parvenu, “a person who has suddenly risen to a higher social and economic class and has not yet gained social acceptance by others in that class”.

Clay Shirky: Newspapers and Thinking the Unthinkable

Link: Newspapers and Thinking the Unthinkable

When reality is labeled unthinkable, it creates a kind of sickness in an industry. Leadership becomes faith-based, while employees who have the temerity to suggest that what seems to be happening is in fact happening are herded into Innovation Departments, where they can be ignored en masse. This shunting aside of the realists in favor of the fabulists has different effects on different industries at different times. One of the effects on the newspapers is that many of their most passionate defenders are unable, even now, to plan for a world in which the industry they knew is visibly going away.

New Management and “Colorful Language” At Yahoo!

Link: Yahoo Picks Former Autodesk Chief to Succeed Yang

In a conference call with analysts, [incoming CEO Carol Bartz] acknowledged that Yahoo faced significant challenges but said she believed that the company’s strong brand and market position gave it a “huge opportunity.”

Ms. Bartz also delivered some of the colorful rhetoric she has become known for. “I think Yahoo has unfortunately been battered in the last year and that has caused it to look internally and be protective,” Ms. Bartz said. “That’s nonsense for such a great company and such a great franchise.” She said that after reviewing the business, she planned to turn Yahoo’s focus outward. She also said that Yahoo had some great assets that “frankly, could use a little management.”

As a former Yahoo manager whose job description was to employ the use of colorful rhetoric to encourage the company to face outward, I can say with confidence that this is right on the money. (A lot of current and former colleagues I’ve talked to agree that Yahoo’s culture — which emphasized getting along rather than winning — has been one of its biggest problems, and this cultural problem is rooted more deeply and goes back further than anything related to its relationship with Microsoft.)

I’m really looking forward to seeing what Carol Bartz can do here.