Web 3.0 & Accountability - Democracy in Action

This will be a short post. Not only is information important to personal involvement and accountability in the areas of the environment and personal health, but in the area of government.

The story below provides an interesting example of what we're up against in managing information to create more accountability in our own democracy.

http://blog.wired.com/27bstroke6/2007/06/librarians-desc.html

List of Venture Capital Resources

One thing I haven't found is a good list of venture capital firms and resources - not private investor-types but firms themselves. When you are raising funding, this can be helpful, to say the least.

You may not appreciate it, but just identifying firms can be a chore...so I hope you enjoy it, and it brings you luck! I will continue to update it often.

A word of caution - there are lots of ways to segment firms which provide "venture capital" (I tend to use the word in the most generic sense), but one of the most important is in terms of the size investments they typically like to do. These ranges change over time, and there are plenty of exceptions to every rule, however, here's a quick and dirty:
- Friends & Family - They know you, they trust you. Typically under $250K, but hey, you know 'em better than I do. Typically will not want majority stake to invest.

- Angel Investors - They used to invest in smaller dollar deals, but now they have become more sophisticated. There are plenty of Angel groups, like Pasadena Angels, etc. Angels can be a great source of funding, up to $1-2M. These guys invest their own money, so there is a lot of variation in what you see.

- Venture Capital Firms - These are companies who invest as a business - they have employees, offices, etc. So they are a different animal. VCs often are more risk-averse, and require you to give up more to work with them. They typically have all kinds of filters up front to keep most people away - they are best approached through contacts. These guys will invest in all sorts of deals, but common estimates are that they start at $2M-$5M, and go up from there.

- Private Equity Firms - Different animal from VCs, but not entirely. Generally different in that they are much bigger, and may manage the companies they "buy."

Hopefully this will save you some work (link and specialty included where possible):

Private Equity and Venture Capital Firms
- Abraaj Capital, LTD (Dubai, UAE) at www.abraaj.com - Specialty in the MENASA region
- Advanced Technology Ventures (Waltham, MA) at www.atvcapital.com
- Advent International Corp. (Boston, MA) at www.adventinternational.com
- Alta Communications, Inc. (Boston, MA) at www.altacomm.com
- Apex Ventures (Chicago, IL) at www.apexventures.com
- Ascent Partners
- Atlas Venture (Waltham, MA) at www.atlasventure.com
- August Capital
- Battery Ventures (Waltham, MA) at www.battery.com
- Canaan Partners (Westport, CT) at www.atlasventure.com
- Clearstone Partners
- Fidelity Ventures (Boston, MA) at www.fidelityventures.com
- General Atlantic (Greenwich, CT) at www.generalatlantic.com
- GlobeSpan Capital Partners (Boston, MA) at www.globespancapital.com
- Great Hill Partners (Boston, MA) at www.greathillpartners.com
- HarbourVest Partners, LLC (Boston, MA) at www.harbourvest.com
- Highland Capital Partners (Lexington, MA) at www.hcp.com
- KB Partners (Chicago, IL)
- Mission Ventures
- MPM Capital (Boston, MA) at www.mpmcapital.com
- North Bridge Venture Partners (Waltham, MA) at www.nbvp.com
- OTS Investments
- Polaris Venture Partners (Waltham, MA) at www.polarisventures.com
- Parthenon Capital (Boston, MA) at www.parthenoncapital.com
- Silk Road
- Silver Oak
- Summit Partners (Boston, MA) at www.summitpartners.com
- TA Associates (Boston, MA) at www.ta.com
- TVM Capital (Boston, MA) at www.tvm-capital.com
- Union Square Ventures (New York, NY)
- Weston Presidio Capital (Boston, MA) at www.westonpresidio.com
- Y Combinator (a-typical) at www.ycombinator.com - Specialty in making programmers into entrepreneurs? Small scale seed funding?

Angel Groups, Brokers, Intermediaries and Forums:
- Golden Seeds (New York, NY) - Woman-Owned Companies
- Pasadena Angels
- Angel Investor Forum
- River Valley Investors
- New York Angels
- Connecticut Venture Group
- The Indus Entrepreneurs
- CUBED at University of New Haven
- Illinois Venture Capital Association
- National Venture Capital Association

For additional view points on the vagaries of raising funding and news/events:
- Tech/Web 2.0 specific product news (lots of VC happenings) - http://www.techcrunch.com
- Why VCs Are Evil - http://www.paulgraham.com/venturecapital.html
- Why VCs Are Evil, part 2 - http://blog.guykawasaki.com/2006/01/the_top_ten_lie.html

Web 3.D - Virtual Lower East Side, Second Life, and Getting Abused

For those of you interested in this virtual worlds stuff, the NY Times did a big article on the subject.

http://www.nytimes.com/2007/06/24/arts/television/24itzk.html?_r=1&oref=slogin

But are these Virtual Worlds (Second Life, VLES, World of Warcraft and others) living up to the hype? I've been putting hours against each environment to try to uncover the answer.

So far, I've noticed a few things:
- Virtual worlds generate a lot of excitement because the technology is pretty cool, and the possibilities are fairly limitless (remember 1997?),

- You either believe that Neal Stephenson or William Gibson are the intellectual fathers of these things (Snowcrash and Neuromancer authors, respectively), and stating your opinion is a sign you are in the club,

- The experience on the ground, though, is mixed. Actual experience suggests that at this point, the worlds are a little on the empty side, and when you do run into folks (unless you know people in the real world "RL" (for real life) taking part), they often are out to abuse/get lascivious with your virtual self.

I had an experience in VLES last night, in which a character virtually abused me because I walked too close to where "she" (the avatar was female, anyway) was. After a short tirade (I turned on the "ignore" feature), I noticed her go on to try to sexually engage one of the other avatars, which happened to be a MTV Networks "monitor." Not exactly living up to the dream, eh? Well, maybe somebody's dream.

If you read the press (see above), the reason for the hype seems clear - there are some predictions about the quality of this kind of environment in terms of moving units (credit to David Bazan). In spite of the high-minded ideals out there, there are always going to be a) lonely people looking for an outlet to bash/reach out in some way to someone, and b) shrewd people who want to get in on the ground floor to make money.

In fact, go back and read some of that cyberpunk fiction, and you will note that this equates with much of their content.

All-in-all, we are still very early in the life of these products, and it shows. The most important thing that these virtual worlds can do now is increase their user bases and introduce more interesting content/experiences.

I have a prediction - feel free to tell me if it turns out to be wrong. As with internet technologies, virtual worlds are being touted as a way to create your own universe, and interconnect and collaborate with "anyone."

My prediction is this - this tool will be more important to create a world in your own image - a place you might rather be than the real world. An escape. Contrary to Linden Labs founder's opinion in the article, I think this will be very much like TV - partially because you *can* create whatever universe you want.

Detailed predictions:
- Worlds will likely be highly partitioned, or at minimum, most of the activity will happen within partitions. I choose to be in the world I like the most - the one I made.
- "Computer-generated" characters will be much more important than real ones. They will behave as I prefer.
- Look for a trend toward replicating reality within the game, so that people can replay reality as they would like it to have occurred. Ah, revisionist history!
- Media and entertainment company domination of the medium will almost certainly occur, probably in part through M&A, but also through greenfielding.
- SecondLife and others will be acquired by companies peddling products.

Again, I look forward to being proven wrong!

Equity - How Much Should I Take

If you are part of an early stage startup, you may be faced with a question - How much of a share should I accept/ask for? The answer, in a nutshell, is that you need to think like an investor - because that is what you are. Lay out the potential cash flows to you over time, and what you need to invest (time, money, etc.).

While there are some emotional dimensions of this question, there are lots of practical issues. The value of whatever share you get, practically speaking is (your stake, expressed as a percentage) * (what you expect the value of the company to be). There are other issues, like the time value of money, etc., but this is a simple, and useful way to think about things. Without getting into sophisticated concepts, you should be able to get a good read on whether you are getting a good deal.

What do you think this venture will actually be worth? Will it be purchased by a competitor? For how much? Will it make an Initial Public Offering? Will it generate an income stream for you as part of its regular operations?

These questions, once answered, raise others, and make the simple equation more complex - if you think the company has a chance of being acquired by a competitor for $10M, and your stake is 10%, the value of your share would be $1M. However, if the chance of that scenario happening is 1%, then the value of your stake is $10,000. If you are paying $100,000 to be part of the club, and sale to a competitor seems to be the only viable exit strategy (aka means of cashing in), you may want to reconsider that investment.

But if that same company also is projected to generate $1M in net profits (after reinvestment, taxes, etc.) a year in its first year of operations, and you have a share of that income as part of your equity stake (again, let's say 10%), then that is a different story. If you guess that you have an 80% chance of that scenario occurring, then you may be looking at $80,000 per year.

Again, you need to take a lot of factors into account - but as you are told by others what the business is worth, you should do your own analysis (be sure to include any salary you are getting into the analysis - that may significantly reduce the risk you are taking).

Of course, remember the most important thing - the business value, comes back to its fundamentals. Ability to generate revenues and profits are important. Sure, the product might just be so good that you IPO without revenue or profits - you might be acquired in spite of a lack of financial results.

But these are very low probability scenarios - go old school and be critical about how the business will make dollars and sense. At minimum, it will increase your comfort with the negotiation about your share.

Identity Theft and Information Security

Not everyone thinks about how to protect their sensitive information, their credit, and their identity. Fortunately, I have lots of friend who do.

But I've noticed that it can be a bit challenging (and expensive in certain cases) to act on a nagging feeling that your information may be unsafe. Here are a couple of free pointers:

1. Claim your federally-secure free credit report. Every year, instead of paying a for credit report, get one free from the site www.annualcreditreport.com (a site set up by Equifax, Experian, and Transunion in accordance with the FACT act). Oh, and be sure to read it! You may find errors that affect your credit score!
   
2. Shred. Either shred all pay stubs, mail, receipts, etc. with sensitive information on them (like credit card solicitations), or secure them (lock in file cabinet). Never throw away unopened mail - rip it up. Mail is used in some areas as a way to verify your home address.
   
3. Protect your SSN. If you are asked for it (for example, by a call center representative), ask if you can provide an alternative means of identification. Only provide your SSN in special cases to companies you trust. Watch your paystubs - some companies still print Social Security Numbers on their paystubs. Overall, with any sensitive personal information, don't transmit it via email, chat, virtual world chatting, etc. And never ever to someone you don't know well.
   
4. Protect your information online. Regularly change your online account passwords (every 72 days is a good rule of thumb) - and never give your password to anyone. Do not write your passwords down - but if you have to, lock them up at minimum. Investing in some sort of anti-spyware and anti-virus software is a good idea. (Be sure to get periodic updates).
   
5. Destroy old back ups (not your back up, but the back replaced by your back up). Never throw away old back up CDs without shredding them (some larger shredders can do this) or breaking them up (I use a hammer - works well).
6. Beware unknown email senders. There is a whole class of people who try to get you to send them your account details, SSN, etc. Even if you know someone, don't send any of this kind of information via email.

This certainly isn't everything you can do. But these are a few things that are pretty easy and cheap to do.

More Accountability-Themed Web 3.0 Stories - Intel & Exercise

http://news.com.com/8301-10784_3-9732440-7.html?part=rss&subj=news&tag=2547-1_3-0-20

Being dubbed Exercise 2.0 in this story, Intel is venturing into the computing of personal accountability. The theme of using computing to help people make better decisions for themselves and society, using Web 1.0 (infrastructure) and Web 2.0 (identified interconnection) is pervasive.

They have managed to also throw in embedded computing and mobile into the mix, so they seem to hit all the right notes.

Web 3.0 & Accountability - Gas Prices and Consumption

Google has a neat little gadget for iGoogle (I still call it Google Personalized Home) called "Local Gas Prices." This is a neat idea, especially in these days when gas is being priced like cigarettes - I know the two aren't quite neck and neck, but the parallels between their pricing and effects are interesting.

At any rate, this little widget, which you can get once you set yourself up on iGoogle, shows you the gas providers in your zip code area, and sorts by lowest price per gallon of unleaded.

Although providers like CostCo (usually at least 5 cents lower than any other provider, at least in my area) and Sam's are not listed, this is a great service. Because CostCo's pricing strategy seems to be dependent on the prevailing price in its immediate vicinity, you can get a pretty decent read on where the cheapest gas is, and buy it when you are on the way to/from that area.

As simple as this gadget is, this is a great example of the kind of data that can fuel personal accountability - it is hard to think about how and where to get the lowest price of gas without starting to think about your consumption and whether $3.09 per gallon was worth whatever it was you went out to do.

Equity - Splitting Up Your Company

Equity is a kind of funny chicken-or-the-egg kind of proposition (but we'll get to that later).

The question "Who should get what?" is often accompanied by others:

• What is each 'share' in our company worth?
• What is our company worth?
• Who might pay money for our company? How much money?
  
• What is the nature of each company partner's contribution and what should they get for that contribution?

All these questions, early in the start-up's life, are usually accompanied by what my friend Dave Dunlap calls "magical thinking." That is usually because the revenue forecast of the business (it is usually much easier to develop an expense budget for a business) and therefore the underlying valuation of the business (its attractiveness to an acquirer or the IPO investor) is a tricky, slimy animal.

Magical Thinking (all rights reserved - the movie is due out next year) is a phenomenon whereby you basically very quickly come up with a revenue forecast (and valuation) bigger than General Electric's 2007 plan in a simple, but ridiculous way. Making audacious assumptions and using copious facts are two crucial ingredients in this process.

For example, you might be discussing a business to sell a new kind of glove to people in China. First, you would start with the true statement "There are about 1.3B people in China."

Then, you would apply a huge assumption, "As virtually all of those people have one or more hands, all of them are viable customers!"

Then, apply another statistic, "Our cost of creating a single glove is $1, and competitive research shows that gloves cost an average of $8 in China." (note, this is just an example, I have no idea how much gloves cost in China)

Then make another huge assumption, "Given our competitive pricing, by selling our gloves for $5, we will capture at least 50% of the market!"

Note the use of powerful, authoritative sounding stats, and "China" (a very fashionable place to throw around in a business plan - better, though, would have been Shanghai. Shanghai.)

If you follow that path, you end up with a wonderful conclusion "After ramping up production, which will take 1 year, we will sell about $3.25B in gloves."

At this point, if everyone has accepted the ticket to your magic place, your partners should be measuring up their piece of the pie. Surely a company with $3.25B each year in sales (this is another important ingredient of magical thinking, leaving out that crucial question "Just how many gloves does one person buy, and how often are do they replace them?") will get at least a 1 times revenue valuation from an acquirer?

At this point in our saga, everyone is looking up the cost of a Bentley on their iPhones. Because now, there is money involved - and everyone wants, rationally, to maximize their share.

All this having been said - with no track record of performance, $3.25B and $50 are both in the realm of possibility. Try to separate the act of "carving up" equity stakes from the valuation of the company - because what you are really doing is determining "relative" stakes, not absolute stakes. If you can guess the valuation of a company within even $5,000, I think you should be buying Lotto tickets, not running a company.

Pick a number like $1M, and base your equity carve up on that. Then remember that, because you are assigning relative shares in an enterprise, you are also making a statement about the relative importance of individuals (I've learned this the hard way) - which makes it potentially rough times. A few factors to look at:

1. The "reserve" equity, or the equity you want to hold for new partners
   
2. The greenbacks each partner is investing (Hard money is often more valuable than an equivalent amount of work)
3. The estimated "sweat equity" of the partners (Part time? Full time? Just remember that most of the work has yet to be done - build in earn-in provisions)
   
4. The value of the partner's skills and experience to the enterprise (your PhD scientist and patent holder might be more important than your buddy you've always wanted to work with - however, a partner with 5 clients ready to jump with him works too)
5. Any salaries or guaranteed payments to partners (think of them as negative greenbacks)
6. Need for control in the business
7. The spirit of the partnership
   

While many of these considerations show up in every business, their relative importance is always different. Many times, #7 is the most important of all.

Remember, when you build a business, you need to build your team - and it is very easy to make the mistake of alienating someone who feels their stake should be higher. But also remember that you will have to live with the decisions you make at this stage - so make sure they are sound in terms of facts, and not just emotion-based.

Web 3.D - The Content Dilemma & Network Externalities

A good question to ask about virtual worlds is "What value do I get from being in this world?"

It was on my mind as I walked through Virtual Lower East Side (VLES), the alpha of a new virtual world organized around the physical neighborhood in New York. The graphic design and heads up display (HUD) in VLES is very well designed. It is also "moderated" or policed by characters who are employees of VLES, which is a nice feature (Second Life provides some interesting and somewhat slimy encounters at times).

But in spite of how nice the tool is - the tool in exclusion doesn't provide value. Here's a model for value in a Web 3.D product (user based - not developer based!):

1. My Objective Potential (to learn, to shop, to hang out, or to find a partner for nastiness is the
user's objective, and in my mind, there is an absolute potential associated with it)

< +/- >

2. Tool Factors:
a. Installation (at best can only be a "minus")
b. HUD
c. Content Generation Tools
d. Sign Up
e. Support

3. Content:
a. Active Users (not the same as subscribers)
b. Non Player Characters (NPCs)
c. Physical Space & Objects
d. Sound
e. Virtual Media (web links, video, music)
f. Touch
g. Smell

I've noticed that Active Users is has an exponential impact on value.

Timely Innovations - Jawbone and Personal v. Public Space

Every action has an equal and opposite reaction. And as we pop tiny, always connected, beefy computers into our pocket (some call them cell phones), we free ourselves from the chains of office, desk, schedule, and fly through wires to...

Oh, wait, I had a point. Ah, well, one of the unintended consequences of computing is that personal versus public space is up for grabs once again.

So that is why I am thrilled to see the Jawbone product come out. Don't get me wrong, the iPod looks great - but the Jawbone is the beginning of an important trend in devices. The Cone of Silence (no offense intended to any Zoroastrians).

As our personal selves infringe in a new way on public space, and vice versa, devices which create private space out of public space will become increasingly important. This is an important first step.

Web 3.D - Go to School in a "Video Game"

I'm not sure if you can say the Web 3.0 debate is raging on. Maybe you can. While I disagree with the idea that virtual worlds and gaming are ready for prime-time, I still like this term "Web 3.D." The trouble with it at this point is not really about technology but about readiness for adoption and the VC market, but that is another story.

At any rate, if you are interested in 3D technologies, and getting a feel for what the potential is, here are a couple places to look:
- www.vles.com (Virtual Lower East Side) - Check it out. This has the bonus of being interesting and being all about music.
- www.3dlanguage.net (Coccinella Development, Inc.) - OK, this is a personal example. But 3DLanguage actually is an interesting take on virtual worlds, because it comes from a different vantage point.

Again, unbelievable activity and potential here - especially when you look at virtual worlds as "infrastructure" for interaction with existing data pools. Any of you Neuromancer (by William Gibson) fans will remember visualization of data and interface with it. Why not, frankly?

The interesting thing, again, is the VC community's lack of understanding of virtual worlds. See www.masshightech.com (Developers of Game Software Move Toward Non-Entertainment Markets) for some other good examples, and, at the end of the article, a somewhat frustrating characterization of this area of technology as built around a "consumer-driven blockbuster model." I'm not sure you could more totally miss the point.

How Do I Find Funding? (Secret Track inside)

Virtually on a daily basis, I am asked this question. Or at least some variation of that question.

If you are asking yourself this question, I want to offer my advice. You can add it to your collection of advice (you can also check out Guy Kawasaki, Paul Graham, and so forth, folks who have lots of opinions and insight on fund raising).

My advice is this. Bootstrap your business. Even if you intend to look for funding, behave as if you will never get it.

Consider the situation of most investors (your average person buying stock) - they go to a stock brokerage service, log in to their account, and buy what their friends, advisors, or cat tell them is going to be the next biggest thing.

But there are millions of people buying stock, and when millions are buying, it is easy to rationalize your purchase. Besides, while it is true that Microsoft could vanish tomorrow, it is pretty unlikely. More probable is that during the period you hold Microsoft, it might lose you money. But, because of the hordes out there, it seems much less likely. Everybody else is doing it, why not me?

Investors in your business are buying your stock - I know it sounds stupidly simple, but it bears saying. But, because you are new, bold, and untested, no one has heard of you. So there are not, in fact, millions lining up to buy your stock. There is just that one person you are pitching.

That person has no evidence to rationalize the purchase of your stock. Oh, other than your charm, business plan, and the latest news on your industry. You lack the momentum represented by media, employees, customers, suppliers who all have a vested interest in your success.

So it is safe to say that, unless you've started and sold your own company, have highly specialized skills and experience, or are connected/come from money, you probably will have a heck of a time raising funds.

Which brings us back to bootstrapping. The best evidence of a high potential product or company I am aware of is revenue. If you can sell your product, you can fund it through revenue. So get out there, bust your tail, develop a product someone can buy, and win your customer.

Then your business plan will have teeth - and you'll have a back up plan if you don't land a big VC.

What Is Web 3.0?

Technology does a lot of cool stuff. And it is becoming capable of doing more cool stuff everyday.
What is Web 3.0? 3D technologies and virtual worlds? Systematic integration of vast disconnected pools of data? Using mobile technology to enable true anywhere, just-in-time computing?

Probably all of those things. But should it? It is entirely possible that that is the equivalent of seeing the trees and not the forest. For a quick illustration - check out NPR's recent 'blogging' inspired discussion of notions of the individual and society.

http://www.onpointradio.org/shows/2007/06/20070614_b_main.asp

But let's move on. Let's pick a more tactical starting point. For example, these days technology helps you:
1) Pay bills automatically,
2) Buy Def Leppard songs without a trip to the record store, guilt, or clothes, and
3) Make business connections in Nairobi over your morning coffee, while nakedly paying bills and unabashedly buying Def Leppard songs.

This is pretty great, I hope we can all agree.

But acquiring the ability to do remarkable things doesn't make them right or important things, does it? Another list of things technology has recently helped people do:
1) Prey on children in chat rooms
2) Sell people products they don't need and can't afford
3) Steal your identity

In fact, nearly every innovation out there has a dark side - why? Look at the definition of technology... http://dictionary.reference.com/browse/technology. Draw your own conclusions.

So a question to ask is "Where is technology headed?" But that is a pretty simplistic question - it is going where money can be made. The real answer to the question "What is Web 3.0?" is one that will probably be answered by VC money or a similar factor.

A better question to ask might be "What is technology's purpose, and how will the next wave of technologies help to realize it?" Another way of phrasing this question is this - "What is the purpose or intent of technology?"

But I like this question best - Does technology increase my ability to be accountable for myself and how I live, or less so? In fact, I submit that this should be the focus of Web 3.0.

Here are three reasons why:
1) To date, our technology development cycles have focused on 3 "I's" - infrastructure (fiber, networks, PCs, devices, and so on), interconnection (for example, web 2.0 social networking or virtual worlds), and information (the data passing between inconnected folks through said infrastructure). In reality, these are basically building blocks for an effective mirror of the outside world offline (sorry, online). An OO programmer's dream - also an amazing body of innovation that is extremely powerful. Connected to a factory production line or a Roomba, we have basically reproduced a stunning replica of ourselves.

2) But let's be frank, we haven't been the most responsible users of innovation in the past. We have determined, through careful study and research, that spitting massive amounts of pollution into our environment is...drum roll please...stupid. I think that has something to do with the dark side of innovation. http://www.climatecrisis.net/takeaction/ (no endorsement implied, just information)

3) We have furthermore concluded that sedentary lifestyles, filled with plentiful supplies of food, are slowly killing us and our children. http://www.davidkatzmd.com/opose_summary.asp (no endorsement implied, just information)

So the real question is why wouldn't Web 3.0's main goal be to leverage a mechanism for efficiently moving intelligence and decision support to individuals desperately in need of it?

I'll let that hang out there until the next post.