11.16.05

Timing is everything

Posted in Technology Ventures at 5:02 am by Ray Wu

I was a panelist for a conference last week and one of the questions was on whether some of the leading technologies such as WiMax and IP Broadcast is going to take off. My comment to that was it all depends on timing and location. Any significant change using technology, especially infrastructure deployment goes through a hype curve and takes time to catch on.

When I was in Cisco and first looked at VoIP in 1999, it was a dream and most of the technologies hold promise but none of them is scalable. No one was using IP Phone, and a lot of people don’t even believe it could be done and be reliable. Cisco was the first large communication company that believed in the vision and bought a bunch of startups to put that dream together. But it was a hard sell to customers and took about 4 years before it becomes somewhat a mainstream technology and generates profit. Same thing in web services deployment in Enterprise. When I first looked at web service related investment in 2000, a lot of people thought it was catching up quickly and CIOs were just waiting to jump into SOA. Guess what, it again took about 4 years before we see real adoption. Consumer adoption is generally faster, but in my mind, everything goes through an adoption curve from hype to reality and It is always great to sell your company when it is in hype. It also depends on location. Advanced technology like WiMax and IP broadcast are deployed much faster in Asia than US since the infrastructure in Asia has and can jump a generation of technology. I still see hunger for latest and coolest technology and willingness to try anything that provides a competitive edge in Asia. I seldom see the sparks in the US anymore, at least the cost of selling is much higher.

11.14.05

Mash-Ups

Posted in Technology Ventures at 5:02 am by Ray Wu

Business week had an article a while back on a new term called “Mash-Ups”. Mash-Up is about remixing and creating a consumer service with a combination of data and features of two or more existing sites and services. Some good examples are chicagocrime.org that combines google map with Chicago crime data or BusMonster that combines google map with traffic condition to create a more useful services out of existing offerings. This consumer/Internet move mirrors the today’s enterprise trend of “composite app” with web services and data aggregation.

As more of more data and service become available in the market place, it is no longer the question of whether there are enough services, but what the best services are. With proliferation of existing data and services out there, it makes great sense not to reinvent the wheel, but to build a car. We watch the hardware sector moving offerings from a single chip to multiple chips to board to computer; I think we are seeing more and more resemblance in the software/service perspective.

11.09.05

Authentication Management

Posted in Technology Ventures at 5:03 am by Ray Wu

In business and personal life, AAA (authentication, authorization and audit) is an ongoing challenge. There are more and more passwords need to be managed. In general, it is hard to make a password hacker-proof, yet make it easy to remember for a user. This is not only a major hassle for enterprise (ie. system administrators who normally have many passwords to keep track of), but also consumers who have multiple web sites to sign-on. The simplest solution is to create a centralize password/digital identity storage and use that to map into various systems automatically (i.e. Encentuate and Metapass). Extend beyond that is to add a biometrics sensor that use body part for authentication, either finger print or facial recognition

  • Encentuate: enterprise access security solution
    ** VCs: August Capital, Gabriel Venture Partners, VSP Capital
  • Metapass: Enterprise Single Sign-On with a single password administrator
  • DigitalPersona: fingerprint authentication
    ** VCs: IDG Ventures, VantagePoint Venture, Invesco Private Capital, Atrium Capital, Intel
  • SafLink: authentication solutions using biometrics, smart cards, and tokens
  • UPTEK: biometric fingerprint solutions
    ** VCs: STMicroelectronics, Diamondhead Ventures, Earlybird Venture Capital, EDBVM Singapore, Sofinnova
  • A4Vision: 3D face recognition technology
    VCs: Menlo Ventures, Tako Ventures, Logitech, Singapore Technologies, Sunrise Capital

11.07.05

When does it make sense to get external funding?

Posted in Technology Ventures at 5:04 am by Ray Wu

Since I am going to moderate a panel tomorrow on funding for growth, it gets me thinking on when it makes sense to get external funding. Here are some of my thoughts, feel free to add in your thoughts on this to make it complete.

  • You have proven that business model and selling process work, and want to infuse money to scale up and duplicate the existing process to a much larger customer base or various vertical sectors.
  • The space is accelerating quickly and top 1 – 2 leaders will likely to take majority of the market share. You need money to become the leader in this space. It is critical to determine whether the market/money is really there as you projected since a lot of the new trends are just hypes produced by technology industry itself. If the market is not there or takes a long time to develop, adding external funding to accelerate your process is like boiling ocean with lamp heat…
  • You need to build strategic partnerships and want to leverage financing to secure/sweeten the deal. The strategic partners can be corporate or IPO bankers.
  • You truly believe your product idea is unique and innovative and you are looking for funding to finish it. If this is the case, I would suggest you do as many customer validations as possible so that you are not wasting your own time/energy and VC funding. I see many cool advanced technologies that are ahead of its time. Millions and millions of dollars pours into a project that is not ready for the prime time.
  • You are a super-smart techie and want to find partners who can complement you on the business side. Funding from a top-tier VC will give you an edge to fine-tune your offerings and help you sharpen business model. If this is the case, don’t be cheap on the equity. A small percentage of a huge pie worth a lot more than a small pie.
  • Probably most important of all, you absolutely need external funding for growth. If you have enough money to fund your own company and can forsake a salary, then you might want to delay funding till later date for a higher valuation or better capital efficiency.

Since I only allow myself 15 mins for this write-up, this is what I come up. Probably a lot more bullet points if I give it more time to think through. Of course, that is part of discussion we will have tomorrow: http://www.sdforum.org/positioningforgrowth.

I have seen a lot of founders get washed up in multiple rounds of funding. My advice to entrepreneurs is to know thy self and your business cycles before blindly follow a cookie-cut formula of venture funding.

11.03.05

Event coming up next week

Posted in Events at 5:05 am by Ray Wu

I am going to be a panelist for the Israel Venture Association Conference 2005 to talk about latest trends, and investment opportunities that are developing in the Information-Technology and Telecommunication fields. It is on Nov. 10th. Israel is a major technology hub and I look forward to be part of that discussion.

So if you are in either one of these events, please stop by and say hi. Love to hear more from you on what you want to see more on this blog.

11.02.05

Strategic Investment Structure II

Posted in Technology Ventures at 5:07 am by Ray Wu

In my last blog, I talked about some typical side-letter terms a strategic investor might ask. In this blog, I am going to talk about some of the financial considerations.

As a rule of thumb, a strategic investor tends to take less than 20% of the equity stake in a startup mainly due to accounting consideration. In general, a startup would have financial loss in the beginning of its venture years. As such, a corporation would try to stay away from accounting for its investment’s financial loss on its book. There are a few tricky factors in what is called “significant influence” which might change accounting treatment even if the investment stays below 20%. But with Enron and other corporate accounting abuse, there are some additional rules such as variable entity structure that need to be taken into consideration in today’s environment.

Strategic investors tend to be long term investors and will likely to invest continuously unless there is a change in strategic direction. But in many cases, “pay-to-play” type of term is not welcome by corporate investors since there are many contributions besides money that have been put into developing a startup. I understand why financial investors might want to ensure everyone stays committed in the long run, but the alignment for business is more critical for a strategic investor. Even though sometimes financial situation in a corporation has changed and might not want to continue to add money into an existing investment, the business arrangement will continue and probably brings more value to a startup than the money put in.

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