Don Dodge on The Next Big Thing

Dave DeWitt opens Microsoft's Jim Gray Systems Lab

Database pioneer Dave DeWitt has joined Microsoft as a Technical Fellow, and will head a new research lab called the Jim Gray Systems Lab. Jim Gray was a legend in the database world, and was tragically lost at sea in January of 2007.

Ted Kummert, Corp VP at Microsoft said "It’s a great honor to be able to name this lab after Jim Gray.  Jim’s impact on the database and computer systems industry is immeasurable – not just in terms of the ideas and works he created, but as importantly on the people in this industry. Jim was very interested and supportive of education throughout his career.  Having his name on the lab is a way of honoring both his technical contributions to the field as a Turing award winner and his support of education and research."

I knew Jim Gray for more than 20 years. We worked together for many years at Digital Equipment Corp in the Database Systems Group, and again at Microsoft, although in different groups. Jim is the smartest guy I have ever worked with, and also the most friendly and humble. Jim received the Turing Award in 1999, the equivalent of Nobel Prize for computer science. I stopped by to meet with Jim in his San Francisco office 6 months after he won the award. He had a plaque and a picture from the award ceremony sitting on the floor behind a bunch of computer science journals. I asked him about it and he just shrugged and said "Well, my daughter is very proud of me...that is all that matters". The smartest guy I ever met also understood the simple things in life.

The Jim Gray Systems Lab will be in Madison Wisconsin, where Dave DeWitt was a long time professor. DeWitt recently retired as an active professor, and is now Professor Emeritus at the University of Wisconsin-Madison.  His technical contributions have been recognized with election to the National Academy of Engineering and the American Academy of Arts and Sciences. DeWitt’s research program produced numerous technical contributions to the database field as well as educating many students who went on to make major contributions to the database system field. Microsoft’s own Technical Fellows Peter Spiro and Rakesh Agrawal both were students under DeWitt. His PhD graduates are a veritable who’s-who of the database industry – many of those graduates here at Microsoft both in the SQL group and in the database group in Microsoft Research.

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The Future Of Social Networking - Consolidation or Mass Customization?

The Future Of Social Networking was the topic of a panel at Microsoft's ReMIX Silicon Valley. Will social networks consolidate into a few big players like Facebook and MySpace, or will it splinter into thousands of special interest social networks? The opinion of the panel and audience was split.

What about the financial success of social networks? FastCompany published a timely article about Ning raising $60M at a $500M valuation. Beebo recently sold to AOL for $850M. Facebook recently raised more money at a $15 Billion valuation. Valuations are one thing...profits are another. Sometimes the correlation between the two requires creative math.

The future of social networks is an interesting, and potentially very lucrative, question to ponder. Will there be a few giant networks or thousands, even millions, of special interest social networks? It is interesting to note that Facebook started out as just a network for Harvard students and alumni. Mark Zuckerberg quickly discovered that other schools wanted a Facebook too. Schools were added slowly and you had to have an email address with the school domain name in order to join that Facebook network. It was a cozy social network for college students and alums to stay in contact...and express themselves. You know the rest of the story. Facebook allowed a few companies to have social networks, then opened the floodgates and let anybody in.

Ning, and others, believe there will be millions of smaller social networks based on special interests. Ning reportedly has 230,000 social networks on its service. Other social network players include Microsoft Spaces, Beebo, MySpace, iMeem, and even services like Flickr, Seesmic, Twitter, and various blog networks.

Do page views equal profits? It seems clear that both big social networks and small special interest networks will continue to grow. The distinction may be that only the big social networks will gain the "critical mass" and "audience demographics" to be financially successful. Not all page views have the same financial value for advertisers.

A penny for your thoughts? I talked to a Facebook App developer at the ReMix conference. He told me his app is generating 300 million page views per month. Wow! Then I asked what kind of CPM (Cost Per Thousand) ad rates he was getting. He shrugged and said somewhere between $0.02 and $0.05 per thousand. That pencils out to between $6K and $15K of advertising revenue per month for those 300 million page views. Pretty good for a couple of young hacker/coders with very low overhead, but not the kind of business that  commands million/billion dollar valuations.

Other industry insiders at the conference said they see CPM rates of between 10 cents and 50 cents per thousand for social networks, but it can go much higher ($2.00 to $5.00) for highly targeted demographics.

Is Web 2.0 financially viable? A small moderately successful software company can generate $12M in annual revenues by focusing on a narrow niche market. What would it take for an advertising based Web 2.0 company to generate the same revenues? Lets assume a $2.50 CPM rate. To generate $1M in monthly ad revenue you would need 400,000,000 monthly page views. Hmmm...how many web sites or services generate that kind of traffic?

So, what does the future hold? Social networks are clearly a hot area. We are in the early stages of evolution. Facebook is here to stay, but other approaches and models may emerge and be even more successful. The monetization of social networks is also in the early stages. Will the current valuations prove out? Remember a few years ago when some people thought paying $580M for MySpace was insane? It looks like a pretty good deal now. Friendster is an example of an early leader that went in the other direction.

What do you think? What are your favorite social networks and Web 2.0 services? Who do you think will be the winners? Leave a comment and join the discussion.

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The Capital Gap or Where are the $Billion Startups?

Paul Graham wrote an interesting essay "Why There Aren't More Googles" where he basically places the blame on reluctant VCs who won't invest small amounts on tiny startups.

So what's the real reason there aren't more Googles? Curiously enough, it's the same reason Google and Facebook have remained independent: money guys undervalue the most innovative startups.
The reason there aren't more Googles is not that investors encourage innovative startups to sell out, but that they won't even fund them.

There is a Capital Gap between the $50K from Friends and Family, and the $3M to $5M from VCs. But, that gap is being filled by Angel Investors who invested $26B in over 57,000 companies in 2007.

How many Billion dollar ideas are there? Angels in vested $26 Billion in 57,000 companies last year, while VCs invested another $29.4B in 3,813 companies in 2007. The problem isn't a lack of capital, or even a lack of entrepreneurs. It is a lack of disruptive big ideas that can generate a Billion dollars.

Most startups are acquired before they reach $1B. Look at the M&A numbers over the past few years. Last year there were $25.4B in M&A transactions compared to just $10.3B in IPOs.

Paul Graham and Y Combinator are hatching some really cool companies. Is there a Billion dollar company in there? Certainly there are some $50M ideas, but a Billion? Possibly, but unlikely.

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Venture Capital returns in 2007 best since 1999

Venture Capitalists have been in a very good mood lately. That is because 2007 was the best year for VC returns since 1999. I have been following the investments and returns (IPO and M&A) for a long time. See the chart below, all figures in $Billions;

	Investments	Returns
Year	VCs	M&A	IPO
2001	$32.1	$16.8	$3.5
2002	$22.1	$7.9	$2.1
2003	$19.6	$7.7	$2.0
2004	$22.4	$15.4	$11.0
2005	$23.7	$16.0	$4.5
2006	$25.5	$17.1	$5.1
2007	$29.4	$25.4	$10.3
Totals	$174.8	$106.3	$38.5

A couple of trends are clear from these numbers;

• VC investment has been growing steadily since 2003
• M&A has been the best exit every year...by far
• Exits have exceeded investments just twice in 7 years

VC investments usually take 5 to 7 years to get to an exit. So, you would expect, on average, that the 2001 investments would exit in 2006 or 2007. However, over the long term, any snapshot in time should show exits exceeding investments. Not so recently.

By any measure 2007 was a great year for VC returns. Both the M&A and IPO markets were very strong. Investments were also at the highest level since 2001.The break down for 2007 by investment stage shows the clear trend towards bigger deals at later stages.

• Seed Stage -  $1.2B
• Early Stage - $5.2B
• Expansion - $10.8B
• Late Stage - $12.2B

Angel Investors are filling the void at the Seed/Early Stage investing $10.2B in 2007.

There is a popular refrain heard around Silicon Valley "Party like its 1999". From an investment return perspective it is a lot like 1999. The difference, I hope, is that the stock market is not in a similar bubble condition.

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MatchMine leaps ahead

I first saw MatchMine at DEMO Fall 2007, just over 6 months ago. MatchMine, based in Massachusetts, is a media discovery service that delivers personalized recommendations for movies, music and other online content on the Web. I saw the potential in the service then, but they had some kinks to work out.

Today MatchMine announced new media partners, and improvements in the service. More on that later. First let me summarize what I think are the major leaps forward for MatchMine;

1. No more client download required. You can start using MatchMine with just one click on a partner web site.
2. Content partner sites can easily integrate MatchMine with a plug-in widget or by using their APIs.
3. The business model is a win/win. Free to consumers, and a revenue share from partners based on incremental revenue.
4. MatchMine preferences follow you to any new partner site. No more need to start from scratch building up your preferences for each new site.

Why is that important? MatchMine has lowered the barriers to adoption for both users and partners, and instantly increased the effectiveness of recommendations.

Users can sign up for a MatchKey as part of the registration process at a content site. Or, if you were already a registered member of a content site, with just one click you can add a MatchKey and automatically import all your preferences and ratings.

Partners can integrate MatchMine into their site in minutes by adding a pre-built widget or adding APIs to their site. This allows their users to get better recommendations, and potentially increase ad revenues or product sales. MatchMine shares in the incremental revenue. This makes it a no pain, no risk, proposition for the partner content sites.

OK, so how does MatchMine help me? We are all deluged with information and media. We want just the good stuff. MatchMine matches your preferences, both explicit and implicit, and delivers relevant media content to you.

How does MatchMine do it? Once you have signed up for a MatchKey they keep track of all your explicit ratings, votes, favorites, and import your previous preferences from sites like Netflix, Amazon, YouTube, LastFM, and the new partners announced today. They also track your implicit preferences like what you save or delete, if you watch a video to the end, or quit, if you click away from content, etc. These actions build a constantly evolving profile of your likes and dislikes, allowing MatchMine to deliver just the content you want.

The new media partners are;

• FilmCrave - a movie review site
• Fuzz - a music community
• Odeo - a music and podcast site
• Blogged - a blog discovery site
• Blogdigger - a blog search engine
• MediaMelon - HD TV for the Internet

Go to any of these sites, get registered, and see MatchMine in action.

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ReMIX08 MIX Las Vegas moves to Silicon Valley

MIX08 in Las Vegas was sold out to rave reviews. Over 3,000 designers and developers attended MIX08 in Las Vegas, and many more wanted to attend. Now you have another chance to attend a condensed one day version of MIX in Silicon Valley on April 17th. Here are the details and a link to register. It is FREE!

Thursday April 17, 2008 
8:00am – 5:00pm
Microsoft’s Campus in Silicon Valley
1065 La Avenida Street
Mountain View, CA 94043

For directions please click here.

Whoever said that what happens in Vegas has to stay in Vegas? Join us at ReMIX08 Silicon Valley and continue the conversation between designers, developers and business decision makers exploring the possibilities of the next web. This event will feature a keynote from Scott Guthrie who runs Microsoft's Silverlight and ASP.Net development teams, among others. The event in Vegas SOLD OUT, so get a jumpstart on registration as this event promises to sell out too!

What to expect at ReMIX08 Silicon Valley...

We chose the best sessions from MIX Las Vegas and brought them to Silicon Valley for this event.

• Building richer, more interactive Web experiences using Silverlight 2.0
• Exploring the opportunities for Silverlight on Mobile Devices
• Developing dynamic and interactive applications using Windows Live Platform
• Using cloud-based storage services featuring Microsoft SQL Server Data Services to address a number of business scenarios
• Discussing the sustainability of Web 2.0 applications
• Exploring the future possibilities of social networking sites
• Engaging in the 'open' discussion with industry leaders

I will also be moderating a panel on “The Future of Social Networking and Sustainable Business Models”

Panelists include:
Dalton Caldwell, Founder and CEO, iMeem
Dave McClure, Startup Advisor, 500 Hats
Jeff Clavier, Founder and Managing Partner, SoftTech VC
Joseph Smarr, Chief Platform Architect, Plaxo
Ryan McIntyre, Managing Director, Foundry Group

The day concludes with a big reception starting at 4:00PM. Come on down and join the fun. Register today, we are getting close to maximum capacity.

Boston startup events and resources

Boston loves startups. The Massachusetts Technology Leadership Council is doing a great job setting up events. Watch the MTLC site for future dates. MITX, The Capital Network, the Angel Capital Assoc, and others are also putting on events. Here are just a few of the upcoming events this week and next.

Tech Tuesday - is a regular monthly meet-up organized by Dan Bricklin, of Visi-Calc spreadsheet fame. Tech Tuesday is for geeks, tech savvy professionals, DIY-ers, press, and other industry luminaries for an informal gathering. Bring your laptops, robots, OLPC XO's, Amazon Kindles, new cell phones, gadgets, and other new-fangled devices. Tech Tuesday meets the second Tuesday of every month. Microsoft is a sponsor this month.

New England Angel Capital Conference - The Angel Investor groups of greater Boston meet once a quarter to review their best companies. Each group nominates companies to present. They are all looking for a round of funding that is bigger than any one Angel Group can handle. This meeting lets all the groups get a look at promising companies and pool their investment dollars.

Entrepreneurial Team Building - a panel of entrepreneurs that have built companies from the ground up and know the ins and outs of building great teams. What really makes a team come together? How can you be sure that you are bringing in the right folks? Who should be hired first, second, next? We'll talk about teams at the senior management level and at the BOD level.

Entrepreneurial Series - Plain English Term Sheets - This is a webinar for startup entrepreneurs who want to understand the details of financing term sheets. What to ask for...and what to avoid.

MITX - Mass Innovation & Technology Exchange have lots of great events for technology based startups. The next session is "Building Social Applications and Widgets".

The Capital Network - TCN's network consists of entrepreneurs on their way, entrepreneurs who have lessons and talents to offer and investors who may have themselves drifted across the entrepreneurial line. TCN has 3 or 4 events a month. The next one is on Founders Equity Issues.

The 128 Innovation Capital Group -  The regular meetings are held on the second Thursday of every month at the Best Western Hotel on Totten Pond Road in Waltham. Every month an investor provides our formal program. After Q&A, our speaker generally remains to speak with audience members, one on one. After the meeting, a roster with the contact information of all attendees is made available to those who came to the meeting.

Web Innovators Group - WebInno was founded by David Beisel of Venrock Capital. Scott Kirsner is also deeply involved. WebInno has regular meetings. The usual format; early stage start-ups and individual innovators will briefly demo their product/service in two different forums. First, there will be a couple center-stage presenters giving five minute demos for the entire crowd (aka “main dishes”) at 7pm. In addition, there will be a number of tables set up at the periphery of the room for live informal demonstrations to smaller groups during the schmoozing sessions (aka “side dishes”). Each will help provide the community a glimpse of current local endeavors in the space and offer the basis for further conversation.

Nantucket Conference - The 2008 Nantucket Conference audience will consist of approximately 150 of New England's top entrepreneurs, investors, and tech executives. Rather than sitting through a series of speeches and PowerPoint presentations, the audience will be engaged in a dialogue - and sometimes a heated debate - with Conference presenters.

Boston based bloggers

Scott Kirsner, a writer for the Boston Globe, and a blogger at Innovation Economy is always organizing and promoting startup events. Watch Scott's blog for announcements of upcoming events.

Jeff Bussgang - VC partner at Flybridge Capital Partners (formerly IDG Ventures Boston). Jeff is a former entrepreneur and now a VC. His blog is appropriately called Seeing Both Sides.

Xconomy - Bob Buderi, Rebecca Zacks, and Wade Roush cover Boston based startups, technology trends, and VC investments.

Mike Hirshland - VC partner at Polaris Venture Partners in Boston.

Nicholas Carr - Nicholas is a former Harvard Business Review editor and author of several books.

Boston based entrepreneur bloggers - Ben Saren (founder & CEO of CitySquares Online), Matt Douglas (founder & CEO of Punchbowl Software), Pito Salas (former CTO of eRoom).

BlogString has an extensive list of Boston events. Thanks to Nathan Burke for the link.

Come on out to these events. I try to attend all of them, and would love to say hello. However, for the next two weeks I am working in Silicon Valley...my second home.

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Microsoft sponsoring TechCrunch50 Conference

TechCrunch is back again this year bigger than ever. It is now the TechCrunch50 and will be held September 8-10 in San Francisco. Microsoft is a sponsor of the conference this year. I was honored to be one of the expert panelists at last years conference. Fifty hot startups all launching at the same time.

Mike Arrington reports that last years TechCrunch40 raised $143 million in venture capital. This year the winning startup gets a $50,000 cash prize.

TechCrunch50 is unique in that the presenting companies pay nothing. It is free. The only rule is that the startup must launch at TechCrunch. The attendees pay $1,995 to attend.

Here are the important details for the conference;

Official Site: TechCrunch50
Dates: September 8 - 10, 2008
Tickets To Attend: TechCrunch50 Tickets
Application to Launch Startup/Product: Company Application Form
Applications Deadline: Friday, June 27, 2008 (early consideration deadline June 13)

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Angel Investors put $26 Billion in 57,000 companies

The Center for Venture Research at UNH today released their annual Angel Capital report for 2007. Angels invested $26 Billion in 57,120 companies, up slightly from last year. The report says there are 258,200 active angel investors in the USA.  By comparison, Venture Capitalists invested to $29.4B in 3,813 companies in 2007.

Software accounted for the largest share of Angel investments, with 27%, followed by Healthcare Services/Medical Devices and Equipment (19%) and Biotech (12%).

Angel Investors continue to be the largest source of seed stage and early stage start-up capital, with 39% of 2007 angel investments going there.

Mergers and acquisitions represented 65% of the angel exits, and IPO's 4%, in 2007. Unfortunately, bankruptcies accounted for 27% of the exits. Overall annual returns for angel’s exits were 27.7%.

Angels tend to invest just like VCs except they do smaller investments $200K to $2M and they do about 15 times as many deals. However, Angels have the same investment criteria and expectations of significant returns. The "average" angel group makes 8 investments per year for a total of about $2M. The average deal size (seed stage) is about $250K.

The larger angel groups in Silicon Valley and Boston do significantly more deals and invest between $350K and $600K per round, and maybe $1.5M to $2M per company.

Keiretsu Forum is the largest angel investor group in Silicon Valley. I don't have the numbers for 2007, but I know they invested $51M in 2006 in 30 companies. Several of these were real estate deals so it skews the average deal size substantially. Keiretsu Forum has invested $115M in 125 deals since its founding.

Band of Angels is another large Angel group in Silicon Valley having invested $130M in 220 companies since its founding.

Boston has around 20 Angel Capital groups. Some of the larger groups are; Beacon Angels, Boston Harbor Angels, Common Angels, eCoast Angels, Hub Angels, and Launchpad. See the Angel Capital Association site for leads to angel groups in other parts of the country.

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