Category Archives: Venture Capital

Qualcomm Qprize 2012

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Qprize's final date for submissions is coming up this Friday, August 17th.  The Qprize is a great opportunity for entrepreneurs to showcase their ventures.

The Qprize website that has detailed information as well as a link to apply. The process is pretty straightforward and offers start ups funding, visibility and validation from Qualcomm and 2/3 of the second year winners have closed Series A funding so far in addition to the QC funding.

Key highlights are:

·         Eight semi-finalists will compete in London for €100k Euros and a chance to travel to San Diego to compete for a further $150k as the grand prize winner.

·         Entrepreneurs/Companies must not have raised more than $2m for their business to date

·         Deadline for applications is August 17, 2012

·         Companies should be in the following sectors:

  • Mobile consumer/enterprise applications and services
  • Semiconductor and component technologies
  • Digital media and content
  • Healthcare technologies and services
  • Internet of things

·         Full details and application form at http://www.qprize.com

 

Founder Teams: Growth and Alignment

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MoscowLast week I was a panelist at the EBAN Congress panel titled, “How to Find and Grow a Yandex”.  Since the event wass in Moscow, I figured there would be someone on the panel who actually had a finger in finding and growing Yandex, but alas, we were all mere spectators. However, each of us on the panel have been fortunate enough to be involved in the building of great companies.

Thinking about what it takes, especially in emerging markets, to create exceptional companies, I was not surprised that I arrived at my usual conclusion: that it starts and ends with the Team.  This is even more important in the case of the most ambitious of the startups I witness, as there a few additional complexities.

First, for the homeruns, you need excellence on all fronts.  It’s not enough that a team has a brilliant technical founder, or that the CMO is a marketing genius.  You need full performance from the entire team, a balance of operational excellence AND the drive to conquer the world.  It’s rare that you get all of this in the initial founder mix, so a key to growing a homerun is supporting the company in its talent needs.  I always think that a VC is, before all, a human-resources professional, both in trying to spot talent, supporting them constructively and helping to fill the gaps in the team.

Let’s assume that you have a fantastic team, and that the gaps are being filled effectively.  Now comes the challenge that I think is particularly critical in our geographies: aligning the interest of the founders with the investors.  Billion dollar exits are rare by definition.  You have a smart team, so they can do the math that when the business starts to show traction, let’s say hitting metrics that would value the company in the $10-20m range.  Typically, the founder team at that juncture will recognize that a significant portion of the wealth is now in their company’s stock.  Assuming they are not independently wealthy, or they have had previous exits, the natural reflex at this point would be to switch to a defensive, preservationist stance.  And this would typically coincide with the point where the early traction would allow them to accelerate their growth via new growth capital.

One solution at this point is to align the founder team’s interests with those of the investors by allowing some shares to be sold by the founders as a part of the round.  Some investors are allergic to this, thinking it may kill the hunger and drive complacency, but I have seen many examples where the model worked effectively.  I think it is an important step in the creation of a great company.

As hinted in the point above, one needs to make sure that they are not funding a “back-door exit” for founders who have decided that they are OK with a discount having lost their faith in their business, but that problem, I think, can be averted by spending a lot of time with the team.  In any case, I think full alignment is usually worth the risk.

Turkish Online Advertising Gap

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AdsQuintura blog reports today that the Russian online ad market size has reached almost $1.4b in 2011.  This represents a 56% jump YoY.  These are fantastic numbers for the market.  No wonder the country has produced two massive internet companies Yandex and Mail.ru, that have primarily ad-based revenues.

In comparison, the online ad market in Turkey is estimated to be around $400m in 2011 (The IAB figures for 2010 were 271m Euros).  Furthermore, my personal estimate is that at least $250 of this is Google, which leaves a paltry $150m for any local company that is going after ad dollars.

This is a problem that impacts the ultimate quality of original Turkish content, which is monetized at lower rates than other geographies.  It certainly explains the dearth of online content businesses that have reached any significant scale (the Nokta sites, Eksi Sozluk, Mackolik and SporX are the exceptions here).  And finally, it points to a huge opportunity as one would expect this gap to close.

As one of our investment themes, we will be watching solutions that enable more effective monetization of content, beyond ad networks, and lean producers of high-quality content that can attract online ad dollars. 

The Power of Real Time: the Super Bowl Twitter Experience

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Twitter-cheerleaderI watched parts of Super Bowl LXVI in a lounge at LAX, on my way to the Bay Area.  Not being in an ideal setting, quite distant to the screen, my natural instinct was to tap into my second screen to enhance the experience, so I fired up Twitter on my iPhone, and came face to face with the new social media reality for essentially the first time.

Now I am reading that it was a Twitter record with 12K tweets per second during the game.  While TV viewership is flat, the real time web was alight with interaction, commentary and sharing, demonstrating what is now possible in the connected world.

I really think it's a combination of a few separate curves that is defining the new real time web experience.  On one hand, the community is getting more fluid in its expression.  Conventions are being established and the new vocabulary and interaction modes are now better understood by all.  Some of the early clumsiness has now diappeared.

Secondly, the commercial voices are better integrated. So when Madonna or Shazam or Foursquare are interacting with their audiences, that is also more fluid.

And most importantly, the online communities are extremely comfortable integrating the living room experience to their online conversations.  For me, Twitter was an enhancing addition to my TV yesterday.

All of this tells me that we are still in the very early stages of media and entertainment disruption we are seeing enabled through the connected economy.  It also tells me there will be many more great businesses that will be created in this realm.  What excitement to feel on the month of the Facebook filing.

Artificial Scarcity

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Hollywood-signI have previously shared my frustration with artificial scarcity around geography restrictions on content (regions), specifically DVDs and video games.  It drives me nuts that I can not watch a DVD I PAID FOR in NYC in Istanbul.  I have two DVD players at home for this problem.  It's idiotic and it sucks.

Today I found myself thinking about another type of artificial scarcity propogated by Hollywood – the movie release windows.  It's a model for premium video content that I suspect is around because "it's always been that way". However, my suspicion is that Hollywood is missing sales opportunities.  The reason I seldom go to see movies in the theater is that it's expensive in time, not dollar, cost.  If I have a chance to watch – legally – the current popular releases at home instead of the theater, I suspect I would.  Once they become available on VoD streaming, etc, a lot of the time, the buzz around that release has evaporated and it's not current and hot anymore.

I can not say I have looked any research on the topic, but my hunch is that this is just another example how content owners don't get the connected economy.  Ripe for disruption.

 

If You Try to Play Like Your (Bigger) Competitor, You’ll Lose to Them

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Moneyball_ver2_xlgI just saw the movie "Moneyball" on my flight to NY.  I'd read the Michael Lewis book (please read the Wikipedia link if you have not read or seen Moneyball, for this post to make sense) and really liked it and was looking forward to the film.  I enjoyed the film as well.

In the film, there's a dialog between Billy Beane and his old-school scout Grady Fuson: 

Billy Beane: We are the last dog at the ball. You've seen what happens to the runt of the litter? He dies!
Grady Fuson: Billy, that's a very touching story and everything, but I think we're all very much aware of what we're facing here. You have a lot of experience and wisdom in this room, now you need to have a little bit of faith and let us do the job of replacing Giambi. 
Billy Beane: Is there another first base player like Giambi?
John Poloni: No, not really.
Billy Beane: And if there was, could we afford him?
Grady Fuson: No.
Billy Beane: Then what the fuck are you talkin' about, man? If we try to play like the Yankees in here, we will lose to the Yankees out there.
Grady Fuson: Boy, that sounds like fortune cookie wisdom to me, Billy.
Billy Beane: No, that's just logic.

I think the point here is very relevant to startups who are challenging large incumbents with far more resources.  You have to play a different game. If you attack your larger competitor replicating what they have, they always have a better chance of out-performing you.  You have to find your edge and make sure you are playing your game, not theirs.

Local Marketplaces and Network Effects

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Professional

I am sensing a tipping point in the usage of LinkedIn among Turkish professionals.  My invitation volume from Turks has increased by at least an order of magnitude since the beginning of the year.  While I have historically been very promiscuous with my LinkedIn connection acceptances, I am now changing my behavior and have modified my privacy settings to make it more difficult to friend me.

I have been watching the ratio of Facebook and LinkedIn users closely.  Today Facebook stands at 800m users and Linkedin at 116m.  That ratio suggests that with ~30m Turkish users on Facebook, Linkedin should enjoy a crowd of 4m.  I don't know what that number is but Google AdPlanner suggests traffic numbers at less than 1% of global traffic.  That tells me the traffic and attention upside on LinkedIn for Turkey remains enormous.  

Combine that with the facts that LinkedIn is enjoying the recent growth I mentioned (albeit anecdotally) in the first paragraph and it is already ranked 61 on Alexa Turkey, and one would expect LinkedIn to break into the top 25 properties by Turkish traffic fairly soon. Game over. LinkedIn has won.

Cember.net was the first company to try to capture the Turkish professional networking opportunity.  After the Xing acquisition, the mindshare that it enjoys has all but disappeared.  That was followed with a few attempts to provide similar utility to Turkish professionals, but no one was able to reach critical mass.  Now LinkedIn has arrived and the window of opportunity has been shut.

This should be a lesson to ventures in areas with significant global network effect.  In local markets, there will exist a window of opportunity to build a marketplace and get to critical mass, at which point you can exit the local venture before the global players prioritize your market.  If you are too slow, you will not be able to realize value before the global network effect kicks in.

Turkey’s Bright Internet Future

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Bridge

Last week Sina Afra had a good post on why Turkey has turned into a hot internet market, as a follow on to Robin Wauters's post on Trendyol's new round in Techcrunch.

All of this attention is obviously triggered by the tremendous year Turkish internet industry has had.  We have enjoyed a landmark period where we've seen two large exits in the $200m range to global strategic buyrs (GittiGidiyor-eBay and Markafoni-Naspers), and numerous investment rounds from top VCs like Tiger Global, Kleiner Perkins, Intel Capital, ePlanet, Earlybird and Hummingbird.

The interest is certainly not limited to the names mentioned above.  I have probably had more conversations with global VCs about Turkey in the last 6 months than the last 6 years combined.

Sina does a good job going through some of the reasons why Turkey is so hot.  He focuses on:

  • Large internet population: estimated at 35m, 5th in Europe
  • High growth e-commerce penetration, with huge upside remaining
  • High engagement, evidenced by the huge Turkish population on Facebook
  • Favorable demographics – 70% of online population <34 years of age
  • Strong payments and logistics infrastructure, critical for e-commerce

I fully agree with all of Sina's points, and I won't spend more time on these.  Turkey's getting all kinds of investor attention in every asset class and I think the country's merits on the macro level are evident to most.

However, I do want to point out some additional key actors who have contributed to the growth of the internet sector in Turkey.

First is talent.  There is an increasing number of young, smart, well-educated entrepreneurs launching technology ventures in Turkey.  For the best and the brightest,with plenty options in traditional careers, launching or joining a startup is much more of a viable career path today.  SocialWire (aka Iletken), Peak Games, Gezlong, and KonutKredisi.com.tr are a few examples that quickly come to mind.

Second is the growing diaspora of Turkish entrepreneurs, investors and professionals around the world, interested in and supporting the Turkish internet sector.  They understand the dynamics and the promise of theTurkish market and their influence, experiences and conections have been helpful to many Turkish ventures.

Third is the Turkish interent user. When you observe the meteoric growth of Turkish ventures like Grupanya, Markafoni, Trendyol, YemekSepeti and Nokta, you realize that the Turkish internet user is hungry for high-quality offerings, both in media and services. If a venture is able to offer first rate service, the uptake is extremely fast.  Sometimes the recipients of this attention are global players, but local ventures almost always get a first shot at attention.

I continue to believe we are in the early chapters of the Turkish internet story.  I look forward to helping build the next generation of Turkish internet winners.

UPDATE: With this post, I realized I'd missed Ari's post on the same topic last week.

Ignore the Noise – Keep the Focus

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Collapse The financial world seems to be in shambles again.

Pictures of 2008 are flashing back in my mind.  I spent the bulk of 2008 to execute a fairly hairy deal in an effort to raise $50m to invest in my vision of Turkish internet back then.  Had it not fallen apart at the nth hour in December 2008, it now looks like it would have created monumental returns.

So forgive me if I get a bit upset when the headlines are screaming apocalypse again.  I get upset because barely 2 years after the apocalypse cries, and RIP: Good Times memos, we were watching our trading screens looking at LNKD’s $10b market cap and 2,400 PE ratio.  And then, apocalypse again.  

If I have learned anything in the last two years it’s that it is mostly noise.  As humans, we are in constant need of narrating the world around us.  The explosive growth of media and the proliferation of channels that deliver us that narrative has exponentially grown the amount of noise.

To an entrepreneur, the noise can be paralyzing. Best entrepreneurs I know have taught themselves to tune it out, except maybe a few trusted sources to keep an eye on macro factors, while maintaining an intense focus on the work at hand: the KPIs, strategic imperatives and the general landscape in which their venture operates.

I just thought it may be the right time to remind my readers (myself?) of this.

BTW, regarding the current financial mess we are seeing around the world, Umair Haque has been calling this out forever.