Thursday, August 31, 2006

Peter Rip Tears It Up

I've referenced Peter Rip of Leapfrog Ventures here before. Excellent writing style. Quality posts can be found on his blog.

His latest is a series of posts talking about "Venture Capital 2.0".

The first installment talks about the Cycle and Key Success Factors of the Venture Capital industry to date. The last 10 years have brought us both bubble and bust. Yet, the industry continues to thrive and survive. VC firms largely did not go out of business after the bust and Limited Partners continue to pump money into VC partnerships, likely hoping for more boom times. But, realistically, when will a boom time return? The IPO market is largely dry, so VCs look to mergers and acquisitions for exits. The good news is that the great firms (like Google) can go out regardless of the market conditions and there is still irrational exuberance in the M&A space (witness Skype). All these things lead to what I call the "Limited Partner Drip". It's like a drug. Just give me one more giant exit, then I'll let it ride.

Peter argues that the problems with Venture Capital 1.0 are largely structural. He would know much better than I. I think the LPs have the power to limit the supply of money they feed to this asset class, or to get more strict with the (fairly high) management fees that they pay. I.e., if Venture Capital 1.0 has structural problems, those problems can be addressed by a VC firm offering the LPs a different "product". The VC product has been largely unchanged for 35 years. I look forward to more thought provoking stuff from Peter.

In Peter's next installment, he talks about the LP Conundrum. The thing that always gets me about this industry is the parallels between LP<->VC-Firms and VC<->Portfolio-Companies. I am working on a post about this. The business models are different, to be sure, but there really are many similarities. Peter touches on one of them (when the "VC" becomes the "entrepreneur" trying to raise money for their firm from LPs). Peter ends with:
The typical VC fund attributes are size, industry, stage, and geography. These attributes past for strategies in most fund raising conversations. My next post will deal with why I think this is mostly flawed, for both VCs and LPs.

I look forward to the next installment!

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4G vs WiMAX, Round 1

I've said it before. In the end, 4G will win over WiMAX. Now, that doesn't mean that WiMAX won't be able to find applications for which the technology is particularly well suited. It just means that in the global mobile marketplace, WiMAX will not be a replacement for the cellular infrastructure that will eventually lead to 4G deployments.

The Register just released an article on a demonstration done by Samsung in, presumably, Korea. They showed 4G data zipping along at 1Gb/sec, or 100Mb/sec. My (wired) Comcast High-Speed Internet gets 4Mb/sec. I.e., the demonstration was way zippier than anything we can anticipate on the near-term horizon for the US market. And, completely unwired.

Now, Sprint and Nextel have signed up to deploy WiMAX ASAP in the US. All good news. So, while WiMAX may win briefly in the US, I doubt that it will win globally. And, in the end, at those speeds, WiMAX will not be able to survive in the US either. The race is on.

Gentlemen, start your engines!

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Wednesday, August 30, 2006

Forget AJAX. GData is Much More Interesting

AJAX is all the buzz these days. Yeah, sure. It makes my web-based applications feel like desktop applications. That is important (but I kinda already had that with Flash anyway, so...). AJAX as a technology is certainly nothing new (JavaScript and XML have been around for a very long time). AJAX is a pain in the butt to use, so folks are starting to rally around Ruby on Rails instead. Again, great stuff - especially as my web-based applications become richer and more intuitive. Death to the Submit button!

However, we're spending all this time and talk on the interface technology. The needle movers are really elsewhere.

GData is poorly named (not nearly as cool as "AJAX" or "Ruby on Rails"). It's got a branding problem, to be sure. Heck, there's not even a fancy logo for it. But, ignoring that, the technology is dead-on right.

GData is the Google Data APIs (Beta). Google has plugged this into Google Calendar, Google Base, and Google Blogger. It's basically RSS & Atom (the technologies that fundamentally drive this blogging ecosystem) done right.

Right now, we all subscribe to a "feed". The "feed" is delivered to us through a newsreader client of some kind (I use NetNewsWire). Information is getting packaged into RSS & Atom feeds like there's no tomorrow, which is great for us information consumers (and aggregators). However, this is all a very passive experience today. We poll for information, download it, then process it in our client. Nothing more. Very pre-Web 1.0.

The underpinnings that drive GData allow for this to become so much more interesting. GData allows for your application (think beyond a newsreader/feedreader) to interact with the service programmatically. It's no longer poll and download. It's an API to interact with feed services. We talk about this in the context of blog and news "feeds" today, but you need to think bigger than that. These feeds are really just portals to information (think: ALL information, including that inside databases and filesystems - it's all getting plumbed with Atom right now).

What I like about this:

  • GData and other similar approaches allows for the "architecture of participation" for the applications themselves

  • It's easy to use

  • It's an extension on the stuff (RSS & Atom) that is getting plugged into every layer of our applications and operating systems (Microsoft is doing so with Vista big-time)

  • Since it is REST-based, it's so much easier to deploy and manage. This architecture has a much better chance of winning over any of the complicated SOA tools that I've seen out there to date

  • There is a serious opportunity for a startup to create a framework (or, better yet, a hosting provider similar to FeedBurner) that allows for the server applications to easily adapt to this new two-way world of feeds.

What I don't like about this:

  • It's not a standard. IETF is working on this. Stay tuned.

  • Google has done horrible marketing of this very well conceived and implemented technology.

Bottom line: This is the beginnings of the true programmatic web. The Web As A Platform. I look forward to watching the innovation.

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Tuesday, August 29, 2006

Mobile Media Revenue Projections: 2006-2011

Found in the current (August 28, 2006) edition of Red Herring magazine. Courtesy of Juniper Research.

Mobile Media Revenues (Billions), projected

Streamed Mobile TV$0.6$2.7
Broadcast Mobile TV$0.1$1.8
Ring Tones$4.2$2.4
Ringback Tones$1.0$7.2
Full Track Downloads$0.2$11.7
Streamed Music$0.4$4.2

So, it looks like Ring Tones + Ringback Tones continue to grow in size (from $5.2B to $9.6B), with the market shifting heavily from Ring Tones to Ringback Tones. Amazing. I can't wait to hear all the exciting ringback tones I will get to listen to in the future.

Also, Full Track Downloads come on with a vengeance moving from a weak $0.2B to an incredibly strong $11.7B. I have a hard time seeing that happen.

Interestingly, while the other numbers look inflated, the Mobile TV projections for 2011 actually look small to me. There is decent growth projected in those markets, to be sure. But, I think that in 2011, people will spend more money on viewing mobile video content than they will on downloading full music tracks. But, hey. That's just me. I could be wrong.

Bottom line: Juniper shows these markets, in aggregate growing from $6.5B in 2006 to a whopping $30B in 2011. Yow. Place your bets.

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Monday, August 28, 2006

Amazon Elastic Compute Cloud (EC2) - killer apps

I must admit that I am pretty excited about the recently announced service from Amazon (still in Beta). The Elastic Compute Cloud, or "EC2". It has nothing to do with Books or ISBN numbers. And, it's pretty darn cool. EC2 in a nutshell:
Amazon Elastic Compute Cloud (Amazon EC2) is a web service that provides resizable compute capacity in the cloud. It is designed to make web-scale computing easier for developers. [...] Amazon EC2 presents a true virtual computing environment, allowing you to use web service interfaces to requisition machines for use, load them with your custom application environment, manage your network's access permissions, and run your image using as many or few systems as you desire. [...] Amazon EC2 enables you to increase or decrease capacity within minutes, not hours or days. You can commission one, hundreds or even thousands of server instances simultaneously. Of course, because this is all controlled with web service APIs, your application can automatically scale itself up and down depending on its needs.

Ok, that's a bit of marketing speak. Bottom line: EC2 provides a highly scalable pool of compute servers that are hosted by Amazon. You pay by the drink (only for what you use), so it is truly a Utility Computing model. And, best of all, it is all programmable and managed by web services requests, which means that you can scale your app up and down very easily and completely on-demand. For more, read the FAQ. This is gonna be big.

And, to be perfectly clear, you never have to order a server, receive it, unbox it, install it, diagnose it when it's broken, fix it, upgrade it when it's old, add more A/C when the server room gets too hot, buy a ton of bandwidth into your site to account for the expected "peak load", etc. Lots of headaches go away through a hosted model. But, this is so much better than the usual dumb hosting model, which provides you with either a physical server or a virtual private server - those solutions have no real and easy way of scaling your application on-demand.

Now, the guys on the Amazon Web Services team are seriously good. I kid you not. They have been on the forefront of opening up the core set of infrastructure and data that Amazon has built to find ways of increasing Amazon revenues. Did I say that this is gonna be big? Their blurb:
Amazon has spent ten years and over $1 billion developing a world-class technology and content platform that powers the Amazon web sites for millions of customers every day. Using Amazon Web Services, developers can build software applications leveraging the same robust, scalable, and reliable technology.

But, EC2 takes a very big step forward. Especially now. This kind of capability allows startups to have a world-class and scalable infrastructure from day one. No need to buy massive racks of servers and bandwidth pipes. If the startup's service takes off, you can spin it in-house later. I'm sure Amazon will end up pricing this to entice you to never want to bring these capabilities back in-house (current pricing feels a bit high, but many details are not yet fully known).

Jon Udell has posted a screencast showing the EC2 service running his application, just as his local servers do. No big deal, but you can tell that he's pretty excited. Maluke has a nice write-up here, including this snippet:
Please note that EC2 is not limited to web hosting applications, far from it. It makes even more sense to use it for virtual render farms, to run simulations and other tasks that require a lot of computing power but are usually executed only once in a while. So if you need for ex. 100 instance-hours to complete the computation, you can make your own cluster of 20 machines of similar power (will cost about $10000 for hardware alone) and complete the task in 5 hours, you can use EC2 to create this virtual cluster, compute and then shut it down when done and pay much less — $10 per job. Or you could use EC2 to create a 200 machine virtual cluster, complete the job in half an hour and pay the same $10 for it. Think about that.

Of course, I'm a bit biased. The service will need some killer virtualization management tools, like what we built at Cassatt. The Cassatt system (many patents pending) is a goal-oriented system designed specifically to scale application tiers on-demand, based on your specifications. Of course, nothing works with EC2 today, but having easy management tools allows this to be very easy to deploy and manage for production-type services. That's what Cassatt does. Disclosure: I am founder and was the founding CTO of Cassatt.

Another somewhat biased example of a killer application for EC2. Using it as your dev/test server farm. My buddies over at Gauntlet Systems (recently acquired by Borland) had a hosted build/test system which just makes a lot of sense to me. Plugging Gauntlet Systems into EC2 would make for a very scalable software test farm with very little need to build the infrastructure yourself (just pass the charges back to your customers, since you would be charging them by the drink anyway; basically, let Amazon do the nasty accounting for you!).

Final somewhat biased example here is the use of Akimbi Systems plugged into EC2. Akimbi was recently acquired by VMware. They have a great tool for moving your dev/test environment to a virtualized and very dynamic environment. Ground-breaking stuff. Having a module for Akimbi that plugs into EC2 would allow you to fully outsource your test environment. Disclosure: I am an advisor to Akimbi.

OK, I'm excited too. Nice work Amazon!

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Friday, August 25, 2006

An Entrepreneur in Residence, Part 1

This post is part of my Venture Capital FAQ Series.

I was an Entrepreneur in Residence for Sevin Rosen Funds from May 2005 through February 2006. It was a wonderful experience - one that ended up changing my career path from "entrepreneur" to "investor". I wanted to write a couple of articles about the experience to explain, first-hand, what it was like to be an EIR for a top-tier firm like Sevin Rosen Funds (SRF). This first installment will talk about the "Entrepreneur in Residence" title in general. Part 2 will discuss how we defined my specific role. Part 3 will close with some of the activities surrounding my particular instance of the title.

Part 1: A word about the title itself...
"An entrepreneur in what?"

That's what most of my friends and family would say when I told them my new title. Turns out, the Venture Capital community is small. As of May 2006, the NVCA1 has somewhere around 485 firms listed as members, with only about 8 investment professionals per firm (on average). Of those firms, only a small fraction have active EIR programs. So, at any point in time, it's hard to believe that there are more than a hundred EIRs in circulation on the planet. That makes the EIR title somewhat exclusive! As a result, nobody outside our industry has ever heard of such a title. Especially given that the title is not a "career" title. You get the title, hold it at most a year or so, then leave it behind when you move on. I.e., there are very few EIRs and they hold their title for a very short period of time. So, in terms of "Title-Years" (a term I just made up), being an EIR may be one of the rarest titles out there to hold. It's no wonder that they lay-person outside of Venture Capital has never heard of it.

I, for one, am proud to be a member of the EIR Alumni Club (if we had a club)...

You know it's a rare title when you type it into Wikipedia and see the top match being "Vacation property"! OK, add double-quotes. Now, the top match is Virvint Capital because they list an EIR as part of their management team. Digging down, we see a 2.3% Relevancy match in the Venture Capital topic where they say:
EIRs are experts in a particular domain and perform due dilligence on potential deals. EIRs are engaged by VC firms temporarily (six to 18 months) and are expected to develop and pitch startup ideas to their host firm (although neither party is bound to work with each other). Some EIR's move on to roles such as Chief Technology Officer (CTO) at a portfolio company.

Not much has been written about this elusive title. In researching for this article, I found that there are many consulting companies and schools that use the "Entrepreneur in Residence" title in ways other than I describe. For this discussion, I am limiting the scope of the title to EIRs working for Venture Capital firms.

You will also see references to "Executive in Residence" or "CEO in Residence". This allows for executives and CEOs who are not necessarily entrepreneurs (or who choose to emphasize their executive status over their entrepreneurial experience) to join a VC firm in a similar capacity to an EIR, so what I say here about EIR applies to them as well. My general experience is that you see more "Entrepreneurs in Residence" at VC firms, while the "Executive in Residence" and "CEO in Residence" is more often found at Private Equity (PE) firms. However, this is changing as more VC firms choose to keep the stash of known-quantity CEO's close for when a CEO needs replacing at a Portfolio company.

Here are a few choice links about the title (slim pickins, please add other good links in the Comments section):

I've talked to quite a few other EIRs about their role within their sponsoring firm. The EIR title is a very nebulous one. Every Venture Capital firm is different and defines the role to suit their individual style.

  1. Some don't do EIR programs at all. Some do them frequently, with an ever-rotating entrepreneurial door.

  2. Some limit the participation to a single EIR at a time. Others will take on multiple entrepreneurs if the timing just happens to work itself out that way.

  3. Some only take on entrepreneurs that they have worked with before (maybe as a previous founder or key contributor at one of their portfolio companies, or someone that the Partner has worked with in a previous life). Others will take on entrepreneurs that they don't know, but are highly regarded as experts in an industry segment (particularly one that interests a General Partner of the firm!).

  4. Some restrict the access that the EIR has to the firm's operations. Others run it wide open and transparent.

  5. Some will keep an EIR in stealth mode with no public announcement. Others will issue a Press Release. Others will add the EIR to their web site.

  6. Some encourage the EIR to assist with the day-to-day operations of the firm. Others keep the two worlds separate.

  7. Some will compensate the EIR through the VC firm's management fees (with the EIR being a "consultant" to the firm). Others will choose to seed a company entity and use fund money instead of fee money.

Be sure to continue the story. Please read:

  • Part 2: Accepting the title

  • Part 3: A day in the life of

1Note: Not all VC firms are members of the NVCA. For this article, I assume that NVCA represents the "majority" of VC firms. Double the numbers for worst-case estimates. It would be great if the NVCA clarified their estimate of the percentage of the VC industry that are members currently (in the comments section below).

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Thursday, August 24, 2006

Business 2.0 Magazine: The $100M Giveaway

Business 2.0 Magazine features 20 Venture Capitalists telling the entrepreneur one specific area that interests them, how much money their firm is willing to throw at the problem initially, and how far along they want the team to get (progress+time) in building out the solution/company. The total is $100M for investments.

I love it!

To see which ideas these VCs will fund for a total of $100 million, click here. The business2blog articles is here.

VCs get to see A LOT of companies parade their business plan before them. As such, they often get a very good handle on what markets are important and what markets are underserved or unserved.

VCs are not entrepreneurs, however. They are investors. If the VC believed in their idea with entrepreneur passion, they would write up the business plan and go get started building the business. Instead, they are sharing with us one of the holes they see in the market today and are making an indication that their firm wishes to place a bet to fill that hole. Entrepreneurs should read this article.

VCs are wrong more often than they are right. I'm working on a post about that for my Venture Capital FAQ Series of articles. The business model of the asset class allows for that. So, I don't think that you should latch on to one of these ideas and build a plan around it. Instead, you need to be true to yourself and your particular skills/knowledge. Your company needs to be your idea. You need to have the passion. You need to have a deep understanding of the market you are entering. You need to understand the technology, markets, distribution channels, competitive forces, key people, etc. Don't chase someone else's idea of what is going to be big. Chase your own.

So, what caught my eye in the list? Brian's Picks:

  1. The New Power Play, Elon Musk, co-Founder of PayPal: "As Musk's two most recent investments -- in a space rocket and an all-electric sports car -- suggest, the 35-year-old entrepreneur likes to think big. So he's intrigued by the promise of a next-generation battery called an ultracapacitor, capable of powering everything from cars to tractors. Unlike chemical batteries, ultracapacitors store energy as an electrical field between a pair of conducting plates. Theoretically, they can be charged in less than a second and far outlast anything now on the market."

    • Absolutely. This is go big or stay home. Agreed that this is a University opportunity. Exits for this kind of business do not often line up with venture firm's fund cycles, but a stand-alone guy like Elon can have the patience that the other firms can't.

  2. A Better Energizer, Samir Kaul and Vinod Khosla, partners, Khosla Ventures: "Khosla, a legendary Silicon Valley VC whose winners have included Juniper Networks and Redback Networks, and Kaul are looking for an engineering team to build a lithium-ion battery with five times the life of anything found in cell phones, PDAs, or cameras. Matsushita and Sanyo are pushing the limits on lithium-ion cells, as are a couple of promising startups. But as with ultracapacitors, Khosla and Kaul think the right inventor will come from an academic lab. "We see research that proves it's attainable," Kaul says. "This is not a flying car. If it was, I'd ask for 20 times." "

    • Same comments as above apply here. Anyone that solves the battery problem will do very well. This is an obvious idea, and again, Khosla Ventures can have the patience to see it through. Of course, I'd like to see wireless recharging of my devices - why deliver power over lines? Remove the battery problem altogether.

  3. New Tricks for Old Drugs, Kate Mitchell, managing director, BA Venture Partners: "A team of researchers that can identify, patent, and market new uses for prescription drugs with expiring patents. The typical drug discovery process can last 15 years and cost $500 million. But "repurposed drugs" -- already approved by the FDA for safety in treating specific illnesses -- can be turned around quickly and cheaply and used to treat other maladies. The process can take as little as three years, with a cost that Mitchell says tops out at about $150 million after clinical trials."

    • Fantastic. One-fifth the time and One-third the cost. Those numbers are not great, but good enough to build a nice business (if one of them pops). And, what I love about this is that this can be a world-changer. Finding new uses for old drugs (that we now know a ton about) can unlock improved health globally.

  4. Search for the Small Screen, The Investor: Danny Rimer, general partner, Index Ventures: "Delivery of new types of Web search to mobile phones. Google, Microsoft, and Yahoo are all taking a swipe at this, but Rimer believes they're betting on a losing strategy. [...] Rimer's willing to invest in new search applications that, for example, depend as much on voice recognition as on text input, and would offer up everything from shopping and news headlines to driving directions and restaurant reviews with a few voice commands and keystrokes. Like many of the startups he funds at Geneva-based Index Ventures, Rimer expects this one to make heavy use of open-source software to hold down development costs." "

    • I upgraded to a new Nokia E61 Smartphone and it sure could use a service to give me what I want out of the darn thing. This area is ripe for the picking. The world is going mobile and wireless. Data services are skyrocketing for the carriers. The US lags Asia, as usual - this is a global need and opportunity. Nobody has figured out how to deliver ads to mobile phones in a way that works with how we consume mobile services. Mobile phones continue to fly off the shelves. This is hot.

  5. GPS-Guided Coupons, Jeff Crowe, general partner, Norwest Venture Partners: "GPS-enabled ads and coupons piped to your mobile phone at just the right time and place. Location-based marketing is a concept that's been bandied about for years, but only now is the required technology becoming cheap enough to implement. Companies like Yahoo and Google, meanwhile, have proven inept at building quality services for wireless carriers. Though the timing is ideal for a startup to build the technical pieces, persuading customers to sign up for a steady barrage of marketing offers may prove the bigger challenge. "The behavioral piece is the biggest uncertainty, but you've got to make your bets now," Crowe says."

    • For all the same reasons as the last idea, this one is good as well. The LBS market is growing, certainly. The younger generation, in particular, expects their mobile phone to be an active device, not a passive one (it's not just "for emergencies", it is their connection to the world around them). Active LBS will greatly enhance the phone's value and relevance in adapting to where I am and what I'm interested in. Lord knows I don't want to get Viagra coupons buzzing on my phone as I drive by Longs Drugs. So, the one that can build this right will win big (relevance-placed coupons/ads and rev-share of the coupon usage - the "coupon-through" rate).

  6. A Matchmaker for Mashups, Todd Dagres, general partner, Spark Capital: "A Web-based service that allows users to combine their own videos with a library of licensable clips and music to create video mashups online. Want to create a cameo for yourself in Glengarry Glen Ross? Have your boss stand in for Lumbergh in Office Space? That's at the core of Dagres's idea."

    • I hated the title of this one because I so loathe the "Mashup" term. But, that's not what this really is. YouTube is already full of user-generated videos with amateurs doing some very impressive video editing (check out all the Star Wars knock-offs). The tools are largely becoming democratized now. This tool takes it to the next level. I don't think you need the licensing deals to make this interesting, though it's pretty easy to make a case for how this can be a big revenue stream for movies that are on the shelf but have some cult following. Heck, the editing tool doesn't even need to be that good. The users will put up with spending hours making these things just right if it turns out looking cool.

  7. Optimized Sales for the Little Guy, James Slavet, partner, Greylock Partners: "A Web-based service that helps small online publishers choose the most profitable way to sell their ad inventory - whether that's direct sales, Google's or Yahoo's ad networks, or other channels. Large digital-media consulting firms like Aquantive already provide this service for big clients; what's lacking is a nonproprietary service that can do it for smaller players. "Unless you're one of the larger sites," Slavet says, "you've either got nothing to help you or some hacked-together system that isn't efficient at all." "

    • I think of this as an automated Federated Media for the Long Tail of publishers. Buzzword compliant? I chose Google AdSense for my blog. Why? Because it was easy and because it was Google. However, if there was a site out there that could demonstrate equivalent or better relevancy, quick and reliable ad insertions, equivalent analytics, and 50% better returns, I'd switch in a heartbeat. It's easy to switch, as it turns out. Google does not have a lock on the long tail. They may own them for now, but an upstart can really take it away quickly. And, this is an incredibly scalable business - build a revenue share with, TypePad/LiveJournal, Drupal, etc., to get some mass adoption quickly and there's nothing to prevent you from scaling up to take on Aquantive.

So, that was fun.

BTW, I am available as an Advisor or Executive Coach for any of these teams (except the battery or health ones - not my bag, baby). Here's my About page.

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Wednesday, August 23, 2006

My Dream App is, well, Dreamy

Take a walk over to My Dream App. Right Now!

I think of it as American Idol meets the Shareware market.

So, here's the business model.

If you have a great idea for the Mac OS X platform, but no way to build it or hire a team to build it, you can submit your idea to My Dream App right now. This thing was announced all of 2 days ago and they've received 1572 ideas submitted so far. Incredible. You have until September 1, 2006, to submit your ideas, so get on with it!

At that time, the My Dream App team will pick 24 ideas from the list - what they think are the best (and implementable) ideas of the bunch. The top 24 picks will be announced between September 4 and September 15.

Starting September 16, the elimination rounds begin. From September 16 through October 23, the voting is turned over to the user community (registered on the web site). Five, count 'em, 5 eliminations rounds later, the top 3 winners are selected (all by popular vote).

The top 24 picks all win a prize. The first 6 eliminated get an iPod Shuffle. That's hardly a prize. The 3 winners get a MacBook Pro laptop and 15% of the NET profits from the sales of the shareware product that is subsequently built and brought to market.

What I like about it:

  • Great idea that is getting lots of traction

  • The Forum discussions about many of the submitted ideas are FASCINATING; truly a demonstration of the openness of Web 2.0 users. The ideas are already being refined, compared, discussed, and improved.

  • If the concept is proven to be solid, it can be easily extended to other platforms (Windows, Symbian, PalmOS, Linux, Solaris, SaaS).

  • Could imagine building this into a marketplace for programmers and ideas. Just because you are a great coder does not mean that you know the killer idea (and vice versa). You would think that O'Reilly would be all over this.

  • The ideas themselves are not big enough to support a VC-funded business. That's expected, as the target is the Shareware market. However, the My Dream App concept, with some tweaks I discussed above for scalability, could build a nice-sized business and, what I like, is that it could build applications that change the world.

What I don't like about it:

  • The My Dream App guys exclusively own your idea if it is selected. I understand why they did this - they are running a business, and this term makes the legal issues very clear and concise. However, I think it is a bit onerous and they should have stated it as "you own your idea and have given us an exclusive license to bring it to market as a shareware solution for the Apple Macintosh".

  • You get 15% of NET profit, but nobody has defined the accounting that goes into calculating the profit (i.e., what are reasonable and usual expenses, who pays for the developer, etc).

  • They only have to pay you for the Apple Macintosh version. The implication is that if they take your submitted idea (which you gave them, remember) to another platform, like Windows, they would owe you nothing.

  • I personally feel that 5 rounds of elimination are too many rounds. I would do: 24 to 12, 12 to 6, 6 to 3. Resulting in 3 rounds of elimination.

I intend to watch this closely (and, hopefully, will be picked to judge as I'm a big Mac user and fan). I wish these guys all the success in the world. Fun stuff!

Anyway, this has had some great blog coverage. TechCrunch, Paul Stamatiou, O'Reilly Mac Devcenter Blog, binarytales,,, Manual Web Crawler, anshuljain, FixYourThinking, Mac1

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Tuesday, August 22, 2006

Entrepreneurs Need To Drink…

Coffee, that is!

Our current coffee pot at home is a Melitta Mill & Brew. It has the following problems:

  1. Doesn't brew coffee hot enough, so the full flavor is not achieved; it's blah

  2. Pot is made of glass, so the coffee doesn't stay hot after brewing

  3. Warmer under the glass pot continues to cook the coffee after brewing, which quickly detracts from the flavor over time

  4. A plastic piece which holds the grinder in place broke off some months ago, but that has not affected the brewing, until...

  5. Another plastic piece broke off that holds the coffee filter in place. I "fixed" it, temporarily, but we knew the time would come to replace it.

So, I spent the day, well, really, almost the whole day on Saturday researching coffee pots. One day of my life consumed in the quest for better coffee. Such as it is. Results of my hard work gladly shared with you below.

Core requirements were:

  1. Brew temperature of 195+ degrees F (ideal is 195-205)

  2. Quality construction

  3. Thermal carafe (with vacuum seal ability)

  4. Automatic timer to start the brew going in the morning

  5. Under $200 (the Melitta can be had for $60, so we were willing to spend more)

Having a grinder was a nice-to-have, but not required. We also didn't need some fancy $3,000 espresso, cappuccino, latte, fancy-shmancy unit. We just wanted good, basic coffee that brewed at the right temperature and stayed hot for a few hours (while I blog and drink!). For espresso, we would just buy a dedicated espresso machine later. For the other stuff - well, we don't care.

After reading a ton of reviews, I determined that there was no perfect model. Everything had quality control issues. Also, the addition of the Thermal Carafe apparently causes a number of design problems in these units, resulting in coffee spilling out onto the cabinet and the floor if you don't place the carafe perfectly back in the unit. This seemed to be universal among all the models. I chose to accept the risk so I can have my coffee hot in the pot and not cooked to crap in the glass.

Under $100, there were two that caught my eye:

  • Zojirushi EC-BD15
    The Zojirushi looks to be the best value. You can find it for $75 on NewEgg. Most of the complaints surround the spilling problem I mentioned above, and the fact that the unit seemed to fail in some way after 9-12 months of service (lots of quality problems). On the plus side, it seems to brew at the (correct) hottest temperatures, and the carafe appears to hold the heat. Ignoring the quality complaints, this appeared to be a really good "value" coffee maker. I was tempted by this one, but chose to pass because of the rampant quality problems and reports of spilling.

  • Cuisinart DTC-975
    The Cuisinart also had plenty of spills reported. I could not get any feel for whether the coffee brewed at the proper temperature. However, the Cuisinart received very high marks for the Thermal Carafe itself - they may have the best one out there. Unfortunately, quality problems plagued the lid on the carafe, making it very hard for folks to line everything up perfectly - spills galore. I felt good about the carafe, but without confirmation of the brew temperature and the quality issues, I decided to pass on this one too.

Above $100, the following didn't make the cut either:

  • Cuisinart DGB-600 Grind-and-Brew
    This one runs about $148. It does include a coffee grinder, whish would be a nice plus. However, 2 family members already owned it. After talking to them, this one was quickly removed from the list. Doesn't brew at the right temperature and doesn't keep the coffee hot. We didn't hear any spilling complaints.

  • Capresso CoffeeTEAM Therm
    This one runs about $299. Also includes a coffee grinder. However, the grinds are fed into the filter through an elaborate swing-arm motion of the filter basket. It looks cool, sure, but that's way too many moving parts. And, the reviews confirmed my instinct. Keep it simple, guys. Good reports on coffee quality, however. And, it was well beyond what we wanted to pay. TWIT Review here.

  • Capresso ST600
    This one runs about $230. It's beautiful looking, no grinder, and a bit beyond our price limit. I would have given it serious consideration, but there just weren't enough reviews posted to make me comfortable spending that much for a coffee maker. Capresso does seem to know how to brew coffee at the correct temperature, however, so i feel like I would have gotten a decent coffee maker. I just had no way to know. Pass.

So, who won the business?

We decided to purchase the Capresso MT500 (Model 440.05).

Capresso seemed to consistently make good coffee. This unit seemed to have fewer complaints of spills and quality problems (but it certainly did have its share). It runs about $169, so it is certainly not cheap, but it is in our price range. The Thermal Carafe does not appear to be as good as the Zojirushi or the Cuisinart DTC-975, but I think it will be such an upgrade compared to what we have now, that I am not worried.

The coffeegeek site included a nice review on this unit, but the review is a bit dated.

Placed the order on Amazon on Saturday evening. It arrived today. I will do a follow-up report with full stats on brewing temperature and carafe thermal capabilities.

Venture Capital Note: The process of finding and reading user-generated product reviews is really painful and time consuming. Nobody has found a way to build a great social networking site around reviews which attract, rate, build a reviewer's reputation, and rewards them for their contributions. Or, a site that aggregates the reviews of the hundreds of shopping sites with proprietary review engines. Add a note in the comments if you think I should try and comment on a better review engine for consumer products.

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Nisan Gabbay: Startup Review

I had breakfast with Nisan Gabbay, Analyst at Sierra Ventures, this morning at Buck's of Woodside. We had a nice chat about the Web 2.0 markets and some exciting things that Nisan is seeing and working on (he will give you the details later, I am sure).

Nisan is the author of a blog called Startup Review:
Startup Review will feature weekly, in-depth case studies on successful Internet start-ups. The companies profiled will have achieved either: a) significant exits, b) large revenue, and/or c) strong Internet brands.

Startup Review has received good coverage from Brad Feld, Matt McCall, and Richard MacManus. I just wanted to add some link love for Nisan's effort. Keep up the good work!

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Monday, August 21, 2006

Timeshifting The Family

I love TiVo.

For one of my startups, I was traveling almost non-stop (wearing the hat of "bag-carrying salesman"). There was absolutely no way for me to ever see my favorite TV shows. Until I got TiVo, and could watch them on my schedule. Finally, TV was adapting to me instead of the other way around. Many thanks to the entrepreneurs, investors, and employees who created that business. The TiVo box has gone many years without major change - a testament to the fact that these folks got a lot of it right (or, at least, "good enough"). Congrats to them. You have fundamentally changed the way that we consume television.


Amy and I were talking this weekend about some of the old, classic movies that we love and about a miniseries or two that had a big impact on us. Amy insists that I should see the miniseries Lonesome Dove, so I've added it to my list. For me, I remember, at 13 years of age, watching the miniseries Roots with my family. My family, and most other TV-watching families in America, were glued to their seats, day-after-day, to follow along with the trials and tribulations of Kunta Kinte and his family.

At that time, the concept of "miniseries" was a new one to television and, according to Wikipedia, Roots had a heck of a following:
The term became well-established in the mid 1970s, particularly with the success of Rich Man, Poor Man, based on the novel of Irwin Shaw, in 1976. Alex Haley's Roots in 1977 can fairly be called the first blockbuster success of the format. Its success in the USA was due to its schedule: the twelve hours were split into eight episodes broadcast on consecutive nights, resulting in a finale with a 71 percent share of the audience and 130 million viewers.

Yes, that's 71% share with 130 million viewers. I imagine that this was primarily a US-only viewership.


Remember, these were the days before TiVo. You had to be up-front and center to experience the show. To some, TV was even a reward. Your shows started and stopped whether you were ready for them or not. TV, and the shows your family loved, was a forcing function. In the days before TiVo:

  • You HAD to be in front of the TV with your full attention (no rewind)

  • You HAD to finish your chores or homework in time, else you didn't watch (no record)

  • You ENJOYED the commercials, since they gave you a chance to use the restroom or get a snack (no pause or fast-forward)

  • You WATCHED and COMMENTED on the show WITH your other family members (no "I'll watch it today, you watch it tomorrow, then delete it")

  • You BRAGGED to your friends on Monday morning that you stayed up late to watch Saturday Night Live (now it's Saturday Night TiVo'ed)

  • You EXPERIENCED the show the same time as the rest of the nation, so you could talk about it around the office cooler the next day (no checking user-contributed reviews to see if you will even bother watching what you recorded)

Roots captured the attention of the US viewers, culminating in an amazing miniseries finale. Most importantly, it was a national shared experience. The fact that we all sacrificed in some way to see these 8 back-to-back episodes at the same time seemed to enhance the collective experience.

Of course, TiVo doesn't take any of this away. TiVo is just a tool. I still love TiVo.

When you Timeshift, and many of us do these days, don't let the tool allow your family to miss those shared experiences.

These days, the nation gets its shared real-time experiences through shows like American Idol, which must be watched with that same attention because the viewers have to vote for their favorite performers within a short window following the show. Hey, you do what you've gotta do to keep America's attention and to keep those forcing functions alive.

Like TiVo, TV is just a tool as well. Use your tools wisely.

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Wired: Build a Web 2.0 Startup!

The September 2006 issue of Wired Magazine includes one of their "useful" StartUp-O-TronTM algorithms for picking what your next, hot, Web 2.0 startup should/could be.

This really takes all the fun out of building your business model. Ah, well.

Choose one or more from each column:

Market Hyped Tech Service Architecture
Dating AJAX Recommendations Podcast
Reviews Streaming Messaging Auction
Gambling Ruby on Rails Entertainment Blog
Maps BitTorrent Publishing VodCast
Porn RFID Buying/Selling Social Network
Music Wireless Search Store
Gaming Flash Discussion Wiki
Video Java Aggregation Community
News VOIP Data Mining Sharing
Photo GPS Portal
Productivity RSS Utility Software
Sports Tagging

Wired Example:

  • It's a PHOTO site that uses TAGGING and RSS to do SEARCH in a COMMUNITY. We call it FLICKR.

They missed a few buzzwords. I’d add:

  • For Market: File Sharing, Real Estate, Finance

  • For Hyped Tech: P2P, Mashup

Brian Berliner Quick Example:


Add one of your own to the Comments section. Perhaps the TechCrunch guys could start each review out with one of these generated tag-lines! Enjoy...

For an automated tool to do something similar, and more, try bullshitr.

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Thursday, August 17, 2006

Nokia E61 and iSync

I've had quite a few people write to me in response to my post about the Nokia E61 Smartphone. Some have asked how I got it to work with iSync on my Apple Mac OS X system. Here's what I did. It works for me, but you should exercise extreme caution whenever mucking with stuff like this (up-to-date backups of everything, etc).

I am running Mac OS X 10.4.7 with iSync 2.3.

  1. Take a look at this post

  2. If you don't speak German, it basically is telling you to download this link

  3. Within that download you will see:

  4. If you still don't speak German, you should:

    1. Quit from iSync

    2. Drag the Orange folder to the Red folder and drop it

    3. Start up iSync

    4. Add your device, as usual

This will put the "mactomster.phoneplugin" folder into the /Applications/ ApplePhoneConduit.syncdevice/Contents/PlugIns directory for you. iSync should then be able to find your Nokia E61, including a lovely icon matching the device.

This may also work for the Nokia 3250, Nokia 5500, Nokia 6130, Nokia 6233, Nokia 6234, Nokie E50, Nokia E60, Nokia E70, Nokia E71, Nokia E72, Nokia E73, Nokia N80, Nokia N91, Nokia N92, Nokia N93 as well.

I have no idea what will happen when iSync 2.4 comes out or OS X 10.4.8 is released. You are on your own! Please add comments here to clarify any of the instructions.

Many thanks to Tom's Website for Symbian and Apple.

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Seth’s Web 2.0 Traffic List

Seth Godin has created a list of 937 "Web 2.0" companies, ranked them according to their Alexa Traffic Rank, then showed how they each have moved on the Traffic Rank list over the past 6 months.

Check it out on Alexaholic.

Now, you could certainly argue about who should or should not be on the list, and you could certainly note that Alexa Traffic Rankings don't tell the full story (they care more about bits moved than they do about unique users), but nevertheless, this is still an interesting way to slice the data.

Thanks, Seth.

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Wednesday, August 16, 2006

LinkExperts looks to “hire” a VC investor

Looks like LinkExperts just paid $200 to place an ad on the new TechCrunch job board, CrunchBoard.

The full ad is here.

It's hilarious. They are looking for a "Chief Investor (CI)":

LinkExperts is seeking an outstanding Venture Capital or Private Equity organization to provide funding and accelerate its strategic relationships. Responsibilities would include sourcing, executing and supporting an investment in LinkExperts.

The best part:

At LinkExperts, our employees are our most valued assets. We offer a variety of competitive benefit programs that demonstrate our commitment to our dynamic workforce. As an investor, you would not be eligible for any kind of compensation or benefits.


Parts were cute and parts were a bit over-the-top. I got a laugh out of it, but they might have been better served if they had included some current stats on their business instead of the list of current benefits. I give them credit for trying to reach a target audience, but VCs care more about the business than they do about cute marketing tactics.

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LinuxWorld Expo 2006: San Francisco

I walked the LinuxWorld Expo 2006 floor and wanted to highlight a few companies for you. I did not have time to dig in with everyone, so this is just what caught my eye.

General Observations
Each year, it seems that the LinuxWorld Expo continues to grow in size. And, each year, there appear to be more and more "suits" (which is a good thing). There were plenty of folks doing storage & continuous data protection &  iSCSI , lots of virtualization management, lots of 10Gb ethernet,  lots of old acquaintances, and lots of freebies. There was plenty of Open Source and a renewed focus on Small and Medium-sized Enterprises (SME/SMB) marketplace, and product pricing is getting better (cheaper for customers). Finally, there were a bunch of anti-virus, anti-spam, anti-spyware, IDS/IPS companies - trying to keep the bad guys at bay.

I listed to a couple dozen product pitches. Many of them needed way too many words to get the core product idea and differentiation across. Don't ask me to pull the interesting pieces of your product out of you. Marketers note: Get your pitches nailed by everyone at the booth, keep the pitch short and simple, and hit the important points quickly. Geoffrey Moore of Mohr Davidow Ventures provides some advice on the components that should be part of an elevator pitch, as well as David Cowan of Bessemer Venture Partners.

I would have to say that the company with the most unfortunate name would be: "LeWiz Communications". They are a San Jose company, yet all I could think of was, well, a French version of  "The Wiz", or, ahem, worse.

Disclaimer: I obtained the stats below by talking to folks in the booth. I could be completely wrong.

FiveRuns has built a nice monitoring tool and are selling it in a SaaS model. They think most customers will install between 35-50 servers at a cost of $60/month per server. They are squarely focused on the SME market. They've done a nice job with the UI. trying to bubble up the important information and hide the unnecessary detail through progressive disclosure. It's the less-is-more philosophy. It looked like a good start, and something that would be valuable to the SME customer (who don't have big-budget IT folks on hand, typically). Lots more work to be done, but I like the style of this first pass. They've received $2.9M from Austin Ventures and Goodrich (from Wilson Sonsini) at the end of 2005, so timeframe for a Series B is likely soon.

Side note: I prefer to think of the $60/month price as "$2/day... less than the cost of your Starbucks drink to monitor and manage your server".

GroundWork Open Source sells a suite of IT infrastructure monitoring and management tools. Somewhat similar to FiveRuns, but their tools are not hosted as SaaS - you install them locally in your network. They've based some of their offering on the Open Source Nagios 2.0 tool, and are active in that community. The product looks to be more industrial grade than the FiveRuns solution and, perhaps, harder to use. GroundWork is also targeting the SME marketplace. They've priced the GroundWork Monitor Professional at $16K/year annual subscription, and that gives you the right to install it on a single server, but you can manage thousands of other servers from it.

So, entry cost is certainly higher for GroundWork than it is for FiveRuns. However, if you've got a big enough shop (266 servers, say), the costs balance out. Also, GroundWork sells add-on products for a one-time fee of $9K each. The add-on modules available are: Network Discovery & Configuration Control, Network Traffic Analysis, Scalable SNMP Polling. I don't think these add-ons are given back to the Open Source community.

SWsoft provides a tool that does what they call "OS Virtualization". It's not like VMware or Xen or Microsoft Virtual Server or Parallels. Those tools will allow you to run multiple operating systems on a singe physical piece of hardware. SWsoft's Virtuozzo allows you to ruin multiple, and isolated, application stacks on top of a single operating system. Think closer to Solaris zones/containers, I suppose. From system libraries up to the application software itself. And, the virtualization layer allows you to move application stacks between physical servers - even while the application is live. I've been watching SWsoft for some time. I think they've got a pretty cool hybrid approach to getting the goals of "virtualization", without having to virtualize the whole machine.

They've priced it at $1,250/cpu + management tools (if you wanted a GUI). I think that's too high, but the folks working the booth thought it was a bargain compared to VMware ESX. I'd be pricing this for market adoption right now.

XenSource was showing off their XenEnterprise 3.0 product, due to be released in a couple of weeks. The GUI is simple and pretty clean. Not much fancy going on here, which is probably a good thing at this stage. It will support Linux today and Windows guests in Q4 of this year (running under Intel's VT and AMD's Pacifica hardware virtualization chipsets, and with some Xen para-virtualization drivers loaded).  I think they have priced it at about $750 per 2-socket CPU server plus $200/year maintenance. I don't think this version will support Vmotion-like migration of virtual machines between physical servers, but the underlying Xen hypervisor will be able to do that on its own.

XenSource also recently announced a deep partnership with Microsoft to get their virtualized worlds to play together nicely someday. Basically, XenSource will provide a Xen-Enabled version of Linux that Microsoft's Viridian hypervisor will be able to run. Microsoft will support their OS running on top of XenEnterprise, much like it supports Windows on top of VMware ESX.

Future versions of XenEnterprise will support Virtual Framebuffers, enhanced storage/SAN support and iSCSI capabilities.

rPath builds some very cool software, for Linux only, which allows you to build a custom and easy-to-manage appliance from your application and Linux distribution. And, given how well Linux is being received as a perfect OS for embedded and appliance applications, this is all goodness. VMware certainly has a nice focus on their Virtual Appliance market, and rPath can help turbocharge it (for Linux). They have a total OEM model, which I like, but is usually hard to get started. However, once a design win is won, the two companies are locked together and the success of each breeds more success. I don't have specifics on pricing, but they get paid for every copy that their customer ships - a nice, scalable business model. They raised $6.4M last September from North Bridge Venture Partners and General Catalyst Partners, so it's likely time to do Series B.

Openbravo is an Open Source ERP solution out of Pamplona, Spain. They have a nice product, which isn't too surprising since they have been bootstrapping the development since 1999. They received about $6.4M in January, 2006, from Sodena, an investor in Spain. Again, they have an SME focus, which could work well for them. And, they've gotten good activity traction of after they put their code up. Their business model is the "professional services and support" form of the Open Source business model, as well as strong enablement and support of other installation "partners".. I would rather see them offer a SaaS version and do some proprietary add-on modules to pump up the traction and differentiation (but that's just me).

If they want to go big with this, they may very likely need to do what Compiere has recently done in order to scale to the size of the opportunity - get a large US VC to fund the Series B and move the headquarters to the US. Very hard things for some entrepreneurs to even consider, and they should only consider it if it matched their goals for the company. Compiere recently closed a $6M round with NEA.

Cassatt had a booth and it was nice to see the old gang peddling the wares, and quite a few new faces too. There appeared to be a good buzz around the booth. Disclosure: I am co-founder and was the original EVP & CTO of Cassatt (and a shareholder).

All in all, it was a good day. Unfortunately, I didn't win any of the drawings for the good giveaways. Maybe next year.

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Monday, August 14, 2006

Wordpress Trackbacks Not Working With Qumana

I am a new blogger.

I have discovered that blogging tools are still somewhat crude.

I chose Wordpress as my blog server-side software, hosted by Dreamhost instead of using the hosting service. Why? I already had the Dreamhost account and I wanted full control to use whatever version I wanted and to fix/enhance the software when needed. One of the advantages of an Open Source piece of software, like Wordpress, is that the user community gets to help make it better for everyone on the platform. A happy user community breeds a better Open Source product, and the cycle feeds, positively, on itself. I had dinner with Matt (Mr. Wordpress himself) at the O'Reilly Web 2.0 Conference last October in San Francisco. Wordpress has really taken off since then, so it seemed like a reasonable choice. I have been mostly happy with it. Until...

I also chose Qumana as my blog-writing client-side software. I wanted a WYSIWYG blog writing tool that allows for offline editing since I travel a great deal. I run exclusively on Apple Mac OS X. Wordpress has a list of available clients. I tried them all. Qumana is the best that's available today, but it has a number of annoying problems that I will get to in another post on another day. The current beta is free. TechCruch covers it here and here and here.

For today, I wanted to point out that, as a new blogger, the ability to send Trackbacks to articles that I comment on is pretty important. I am completely surprised that this appears to be a manual process:

  1. Visit the blog article that you are linking to

  2. Search down for "trackback" to see what the Trackback URI address is

  3. Select it and cut-and-paste, or right-clink and copy

  4. Paste it into the Trackbacks section of Qumana

OK, that's a pain, but at least it's a process with a known workflow.

The problem comes when you do "Publish Post" or "Update Post" to send your fine new article to your Wordpress server so that it can be posted, and can then ping all the trackback links for you. Wordpress 2.0.3 will not send out any of the trackbacks that you send it via the XML-RPC API that is used by blog editing software, like Qumana or MarsEdit or Ecto. When you edit the post in Wordpress, it will say "Send trackbacks to: Array". It will look something like:

Now, you are forced to:

  • Edit the article directly in Wordpress

  • Delete the "Array" part

  • Go find all your Trackback URI's again, one-by-one, as in the previous steps

  • Paste them into the Trackbacks field above, separated by spaces

  • Save the updated post in Wordpress

The worst part, though, is that after you save the post, some of the formatting is modified by Wordpress, causing the lines to wrap in Qumana in ways that you did not intend. Ugh. Fix the line breaks in Qumana and update it again. Heaven forbid if you actually added another Trackback address. I need a drink.

Annoyed, I took the morning off to fix it today.

There appears to be a bug that was opened about this issue, Ticket #1452 on Trac. The bug was opened one year ago, on June 18, 2005. It was fixed promptly by July 7, 2005, but the fix never worked. In November, Matt saw that the fix did not work and moved the resolution out to the 2.1 release (whenever that will be). I needed a fix now, so I found the problem and fixed it (the API was feeding it an "array", but the trackback code expected to get a "string" of Trackback URL's separated by whitespace). The fix was easy. Since I'm not familiar with the code, finding the fix took a couple of hours of old-school printf-style debugging.

My quick and dirty fix was as follows. Immediately after the following lines in xmlrpc.php:
$to_ping = $content_struct['mt_tb_ping_urls'];

Note that there are two lines in the file like the above line - one in mw_newPost and one in mw_editPost. You should add the following lines of code after each of them:
if (is_array($to_ping)) {
    $to_ping = implode("\n", $to_ping);

Update: As I wrote this article, I see that the Wordpress developers posted a patch for this very same problem TODAY at this link. Ah, if only I had procrastinated one more day... No matter. I learned a ton about PHP and the Wordpress architecture today. Also, their patch is completely different than mine and I have not tried their fix. Add a comment here if you do. Such is the life of concurrent software development.

Such is the life of a new blogger with fairly, ahem, "fresh" tools.

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Saturday, August 12, 2006

Rumor: Apple to add 64-bit Merom chips to MacBook Pro Soon

DigiTimes and jkOnTheRun leak a rumor in reference to AsusTeK (manufacturer for MacBook) & Quanta (manufacturer for MacBook Pro) that we may see the MacBook Pro with a 64-bit Merom CPU (the Intel Core 2 Duo Mobile) as early as September or October. The new chip would replace the current Yonah chip (hat tip to The Apple Core at ZDNet).

I'm still using my PowerBook G4 15" (which has served me very well), and have delayed purchasing the first-generation Intel-based MacBook Pro. The addition of the Core 2 Duo Mobile may be just the thing that gets me to upgrade.

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Friday, August 11, 2006

PEWeek Dan: 2006 VC/PE IPOs vs Non-VC/PE IPOs… So far

If you don't know Dan Primack... You should. He writes a daily email newsletter, PE Week Wire, for Venture Economics (a Thomson Financial company). In addition to Dan's witty and insightful commentary (which is good enough on its own to warrant our attention), the daily newsletter covers the following sections:

  • VC Deals

  • Buyout Deals

  • PE-Backed IPOs

  • PE Exits

  • PE-Backed M&A

  • Firm & Fund News

  • Human Resources

You can subscribe to PE Week Wire email here - FREE (not really offered, to the best of my knowledge, as a full feed via RSS because they want you to see the ads). Tell Dan I sent you. Ask about the old Pontiac. :-). Read this newsletter before you read the front page of the Wall Street Journal each morning.

Dan is one of the good ones.

Anyway, I just wanted to quote a couple comments Dan made this week comparing the performance of VC- and LBO-backed IPOs in 2006 compared to the performance of Non-VC/Non-LBO IPOs in 2006. This week. On Wednesday, he says:
*** I wrote that public market investors are becoming wary of LBO-backed IPOs. Some of you asked for evidence. So… Thomson Financial reports that the average aftermarket performance for all 2006 IPOs was -2% as of market close Monday. The average LBO-backed IPO, on the other hand, was down -2.06 percent. Admittedly not much of a difference, but LBO-backed offerings are supposed to outperform the overall public markets, not slightly under-perform.

*** An anonymous tipster suggested the following: “Take a look at IPO stock performance by different funds. Just to pick on one, companies Bain has IPO'd have performed above the average IPO performance. Similar patterns for many other top-tier funds.”

Ok, I looked. And you’re incorrect. Bain Capital has priced ten IPOs since the beginning of 2002 (I picked 2002 because it’s post-bubble). Nine of them are still trading, with one ( having been acquired by eBay. The average aftermarket performance of the nine is 9.6%, or 10.31% if you include the sale price. Overall, however, average aftermarket performance for IPOs over the same time period has been 32.8 percent. And so that you don’t think I’m picking on Bain, the situation is even worse for fellow HCA buyer KKR. Its average IPO aftermarket performance since 2002 has been 5.53%, or 10.3% if you include the sale price of PanAmSat.

While today (Friday), he says:
*** Earlier this week, I noted that LBO-backed IPOs in 2006 are performing worse in the aftermarket than IPOs at large. Some asked if the same is true of VC-backed IPOs. The answer is yes, and it’s more pronounced. You can find specifics in Monday’s issue of PE Week, but here is a basic explanation: The public markets are becoming increasingly risk averse, particularly for new companies. The best-performing IPOs in 2006 are in sectors like retail and industrials, whereas the worst-performing are in telecom and healthcare. It is in this latter sandbox that most VCs play – linke Vonage and Iomai -- and they are paying the price so far this year.

Now, the public markets of late have been a somewhat ugly place. Even so, the stats are the stats. Thanks, Dan. Keep up the good work.

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