Fun Friday: Back to the Old New Tech Lifestyle

As I sit in William’s and my office in Los Gatos, I’m struck with how empty everything feels. The aux offices nearby are now empty as the call of the wild beckons folks back to the non-performing real estate that leaves many CEOs fuming. People who once revelled in the glories of a non-commute day now struggle to drive the crowded freeways and fight to park near the lobby entrance, grab a quick drab coffee from the machine, and stagger to a shared table “desk”. Just like in the Before Time. 

As I always told the kids, “Traffic is the most important thing is Siicon Valley”.

 Does this upset me? Not really. I no longer have to hear the bellowing of the sales guy wafting through the walls. Nobody builds offices to be sound-proof. My relaxing music sounds so much nicer when I don’t have to crank it up to compensate, or put on noise-cancelling headphones.

But for those who worked at home, the demands of working in an office must be quite a struggle. Startup types do their “zero to one” juggling pitch act in any place that will suffice, whether it is a coffee shop, a conference room, a beach, or even, dare I say it, at home. Obtaining an office to work is actually a milestone funding achievement – not a given.

Hence, I am at our office today, surrounded by memorabilia, computer and software and writings, seeking inspiration!

Well, perhaps inspiration should step aside for the moment. Let’s take a bit to check the weak pulse of venture and startups.

As we move out of the “spend money for anything online” phase of a cloistered culture in the grips of the pandemic, major  companies responded by 1) laying off all of their excess employees hired to keep other major companies from hiring those same people they just laid off and 2) forcing everyone back to the office to listen to the CEO tell them how useless they were when they were stuck at home working. 

In like kind, investment in the wacko side dropped like an anvil. Crypto currency was shown to be a fraud (is anyone shocked?). Blockchain is too narrow for application. Gaming is hit and miss, usually miss. The gig economy is a bust. And whatever happened to Meta?

So now venture is hyping AI. Again. Yes. Again. 

In lockstep, startups are all adding their AI gambits to their existing offerings to look mod and rock their asses. Sigh. It’s a living.

So where do we stand. Easy. We have 1) M&A in the doldrums,  2) down rounds and the potential for clawbacks, and 3) VCs on the defensive. Let’s take these one at a time.


As VCs closed their wallets, they hoped that continued hype would propel their less favored dead dogs into the eager arms of corporate strategy guys. (Note — William actually handled strategy and new ventures for Tandem in the old days, so I heard about this a lot, every day). Well, these guys aren’t quite as stupid as they thought. A bunch of desperate sounding VCs selling a high discount startup (hey, it’s 50% cheaper than last time!) wasn’t enough to move the acquisition forward. Frankly, these deals take time and are usually lined up well before one needs funding as their “Plan B”. 

At the same time, while venture was eager to deal, corporations looked at their bottom line and didn’t like what they saw. Stock prices are depressed, or at the very least not increasing dramatically. Integrating new companies into the fold is a costly investment in people and technology. And last and not least, the random pivots by VCs from one unicorn technology to a completely different unicorn technology has heads spinning and disrupt the acquisition process.

In an effort to preserve the appearance of astronomically priced unicorn startups, venture has grasped the tail of the AI GoogleBull while Microsoft NoPilot yaws and ChatGTFO hallucinates. It is a strange summer, even for Silicon Valley.

Already the tech journo crowd is side-eying all this sturm und drang. They’re starting to whisper that all this stuff is passe. After all, when you start to have ignorant Texas Aggie profs flunking students because he heard about AI taking over writing essays, you know the jig is up.

Down Rounds, Discounts and Clawbacks:

Let’s face it, startup valuations have always been, shall we say, invented? Created? Innovated? OK, yes we look at the upside potential. That’s because in zero-to-one that’s all you have — Potential. And potential can mean nothing — or it can mean everything.

But we also had to demonstrate a product, market, path to profitability, and an exit strategy. 

Guess what? This is where the tech innovators and the con-men (like poor little rich boy Sammy Bankrupt-Fried) and con-women (Orange is the New Black Liz Holmes) separate, if not actively scuttle away. 

Building a prototype and product is hard. Convincing customers to pay for it is extra hard. Making enough money to actually not need investment is super hard. And finding a means to transition beyond the startup mode, whether through acquisition, IPO or just plain good sales is excrutiatingly hard. So it’s no surprise that most unicorns skipped all that other stuff and got lots of money when money was basically free.

Now that things are hard, VCs are looking at all those other pesky hard things. And most startups funded in different conditions can’t step up and evolve. The end result is a lot of startups will not get further funding. They just aren’t worth it, valuation-wise.

While some of the fatter venture unicorns are pitched as promising M&A opportunities (see above), many others will shrivel and starve. The ones that pivot to some kind of revenue and profitability with real customers may survive, while those that restructure to some kind of “NewCo Tech Opp” (cough, AI, cough) may squeak by with fresh funding.

As venture partners and their Limiteds get increasingly disappointed in their portfolios, anticipate clawback. It’s never pretty, but it will happen.

VCs on the Defensive:

It’s only common sense that as returns nosedived, folks would start looking for someone to blame. And VCs are in the thick of it.

This lovely little article from Crunchbase is an excellent example of forensic analysis of successful investments. On this Fun Friday, I leave you with these thoughts from that article:

“What’s concerning with our sample of the largest IPOs of the past 10 years, however, is the absence of any real star performers among the big names. None are even above their first-day prices, let alone returning a multiple to their IPO investors.

It’s even more worrisome when one looks at how much capital has been going into startup investment. Over the past 10 years, investors have plowed more than $1.4 trillion (!) into seed through late-stage and pre-IPO financings.

At the peak, in 2021, a whopping $329.5 billion went into North American startup investments across all stages, per Crunchbase data. That — to put it in context — is more than the total recent valuation of all 20 of the biggest IPOs in our sample set.

To make good on that level of investment, startup backers will need not just hits but grand slams. Their recent batting averages indicate that’s unlikely to happen.

Fun Friday – If a Sequoia Falls in an Angry Forest of Limiteds, Does it Care? Martian Craters and the Lives of Eels!

Firstly and most importantly, there is a fascinating article about the eels returning to the Sargasso Sea to reproduce in Smithsonian Magazine that I highly recommend reading. Eels have played a part in literature, myth and cuisine for eons, but little is yet known about their life cycle. I wonder how they feel, after living so many years in brackish shoreline and fresh waters, making the long journey back to the salty sea to spawn and die? Do they miss it? Do they want to leave? What do they dream?

From the deep seas to the starry skies, one can learn a bit about crater counting to determine (roughly) geologic events. This technique, first devised for lunar geology, can with caveats be applied to Mars. So what are you waiting for? Count those craters!

Finally, out in Silicon Valley venture land, the crypto fallout continues, with one of the most powerful and ruthless venture firms on Sand Hill Road diving into the foxhole. According to Bloomberg, “Sequoia Capital wrote down the full value of its $214 million investment in FTX only weeks after hailing the founder of the embattled cryptocurrency exchange as a “legend” with a “savior complex.”” Ouch!

This especially must bite all the other investors who in June 2021 let Sequoia lead them down the merry path of a $1B investment round. How times, and valuations, change.

Since then, while man-child Mr. Bankrupt, er, Bankman-Fried, who obstensibly ran FTX and is incidentally the spawn of law professors from Stanford — an investment fund that also runs a university — has been running around begging understanding of his plight, Sequoia decided to handle this disgrace by sacrificing one of their lesser lights to the Gods of Mammon — even though poor Divya Gupta wasn’t even at Sequoia when they led that fateful round in 2021. Heck, he hardly had the chance to get his feet moist, as it were, before things collapsed. Ah well, at least they don’t make them walk the plank anymore (I think). 

Partner Alfred Lin, Mr. FTX is Swell, had the pleasant duty of apologizing to their Limited for this debacle, whining that they really really really did their diligence (snort) and that they were misled (hahahaha). 

Sure, it’s absolutely commonplace for a little venture firm like Sequoia to not have the resources to conduct proper due diligence of an investment opportunity and its founder, ignore the paperwork, and glad-hand other venture firms using the “Trust me, we’re the smart money” mantra to get everyone else to dive in – NOT

But they are saying now that they have learned their lesson: “Moving forward, Sequoia partners said they would be more cautious about making substantial investments in companies whose founders they did not have a longstanding relationship with for investments made out of its global growth and expansion funds.”

I guess Stanford is no longer welcome at the Christmas party.

Happy Holidays!

2018 Tech IPOs: Is Enterprise a Game-Changer?


Jon Swartz’s recent piece in Barrons asks “Is This the Year Tech IPOs Stage a Comeback?” Prior year IPOs did not meet expectations, with consumer companies like Snap and Blue Apron the poster children for a miserable performance.

But the speculation among the smart money is that 2018 tech IPOs will surge, and they’ll be driven by enterprise companies.

So, is enterprise the game changer for tech IPOs in 2018?

Continue reading 2018 Tech IPOs: Is Enterprise a Game-Changer?

Apple Store “Bait and Switch” IPhone Battery Gambit: Apple Giveth and Taketh Away


Beware the Apple Store “bait and switch” iPhone battery gambit. We faced this yesterday in Los Gatos, CA where they tried to claim a working iPhone 6s with a good screen / original owner was not eligible for their $29 battery replacement at the appointment because it had a slight bow in the frame.

Now, by this point everyone likely has some flaw in their old iPhone, whether it is a slightly dinged frame from being dropped to a minute crack or scratch under the frame. It’s normal wear and tear. And they likely didn’t have a problem replacing the battery before the discount was announced and replacements were more costly and infrequent. But now, it’s an issue.

They did offer to sell an iPhone 6s for close to $300! This is a terrible price. Don’t go for it. This is what they mean by bait and switch.

Continue reading Apple Store “Bait and Switch” IPhone Battery Gambit: Apple Giveth and Taketh Away

Of Virtualization and IPOs

VMWare is the little company that could. When it was launched in the late 1990’s, the “smart money” wouldn’t touch it. It wasn’t just that it was open source – a big “loser” badge at that time. It wasn’t just that it was founded in part by a husband-wife team who had established business (Tandem, SGI,…) and academic credentials (UCB, Stanford, MIT,…) – an even bigger “loser” badge that still persists in some dark corners. It’s biggest damnation by old-line investment was that virtualization was a trite idea. I heard this myself frequently from the horse’s mouth, so to speak, during the time I was working with 386BSD and InterProphet, and I pitched a similar idea to Tandem’s CEO back in 1996. It was the next obvious step – at least to a technologist.

Given the tremendous success of this IPO, you might ask “How could they have missed this one?”. Technology, like fashion, goes through phases, and sometimes smart people get so hung up on fashion they miss the trend line change from computer as a calculating device to computer as an organizing device (and vice-versa). If a computer is a calculating device, you want the most cycles. If it’s an organizing device, you want to spend time adding stuff, not managing stuff. A bit processor, like blit-bit processing for graphics, the more concrete, discrete and obvious the instructions executed at the bottom level, the more goodness you get out of the machine. A symbol processor, like parsing language or voice recognition built out of abstraction, is not as deterministic by the nature of the function desired, so capacity to process symbols and the benefit it provides overrides performance.

This happened with virtualization. At that time overfunded Internet companies (remember Egghead, for example, anyone?) and their backers absolutely believed that the most important technical issue was to build a site industriously out of C++ code to maximize performance. They didn’t believe sites based on scripting languages would be powerful or scalable enough for their millions of customers. They underestimated the demand for rapid creation and deployment of new features. Now everyone uses scripting languages like Perl, Python and PHP (we use Python on all our sites for example) – it’s faster and easier. VMWare realized that people allocated servers for containers of scripted sites when performance was impacted, and it didn’t make any difference if it was virtual or real. As reducing power demands becomes a “hot” button topic, virtualization will be increasingly used in datacenter and networking applications.

Fun Friday – Internet FSBOs, Business YouTubes

A few items on the Internet front. For years realtors have been hammering customers that selling their home with them gives the buyer a 16%+ sales advantage. This has made Internet-based FSBO sites a queasy deal for somebody’s biggest investment / nest egg. So a bet on who got the best deal from their home sales between a couple of bored economics profs at Northwestern (one used a realtor, the other did a FSBO) resulted in a detailed analysis of a successful (20% of the market) Internet FSBO site versus realtor sales in Madison. And guess what – the Internet site did just as good at the end of the transaction (considering size, locale, and so forth) as the realtor-mediated transactions. The FSBO site did take longer, but that may simply be due to the reluctance of buyer’s agents to show any FSBO houses – a problem that may disappear as buyers demand to see houses they see on the Internet. The future is starting to look more rosy for Internet-based realty businesses.

Business Week has decided to launch a “VC” video pitch competition, where desperate entrepreneurs line up to convince cynical readers their ideas, like Frosted Flakes, are “Grreat” (thank you Tony the Tiger). Those ideas that survive the slings and arrows of ridicule (likely those so stupid or so obtuse nobody can understand them) undergo a final beauty contest via a biz plan competition for the princely sum of $500,000 “from a VC firm to invest in the proposed business”.

No word as to what serious VC would put half a million on a business by public acclamation, but I’d place my money on a series of Sanjaya-inspired hair salons. Wow, think of the possibilities.

I’ve been involved in a number of biz plan competitions over the years (along with real meetings with real investors), both as a participant and a reviewer. I’ve done video pitches. I’ve developed video pitch technology for CEOs. And I’ve watched other CEOs do video pitches. And while the views were great (they were restricted to VCs invited by the CEO – business plans are actually very valuable), nobody believed Internet video would ever “catch on” enough to matter. Amazing the difference one Sequoia with one YouTube can make!

Don’t believe this? Think that everybody knew YouTube would be a success before 2006? To illustrate, I once decided to enter the Berkeley Haas business plan competition in 2004 with an interesting Internet video startup idea I had while I was working with the physics department on our alumni greeting card video project. It seemed a good idea at the time. People were watching, the system worked, and it was easy and fun. And I made sure to run the business plan by some pros in the Valley. I do my homework.

So it was a straightforward business plan to evaluate – good customers, good technology, and good numbers. A no-brainer, really. I looked forward to seeing how Haas dealt with it – remember, I’ve participated in and co-founded a number of venture-backed companies over the years, so I’m no novice. But did they evaluate the business? No! When I got back the comments, I got things like “They have some TAM numbers from an analyst. But…they really haven’t done a good job in showing the SAM” (nobody had, and nobody could). “Their exec summary is 3pp long. In general, I tell people I won’t look at anything over 2pp” (such terrible food and such small portions). And finally, “regardless of their domain experience, etc., I would never back this team. I will NEVER back a team where it appears that the founders are husband and wife or domestic partners. We did it once; it was a painful lesson”. I always wondered if this last comment was their usual fallback ploy for businesses presented by African-Americans or Jews or single women – funny how you don’t hear they won’t invest in white / Indian / Asian guys because they “did it once” and it failed. It’s hard to fight prejudice.

After the inept evaluation and overt bigotry I received at the hands of Haas biz school, I resolved only to talk to real professional VCs who could afford the time to actually read a 3pp exec summary and understand the business. In other words, don’t go this route if you really care about your business. Do the hard work of developing the relationships instead, or get someone in the biz who can.

Don’t hold your breath to see all these cool startup ideas anytime soon – Business Week is still shopping around for someone to build the site for them. Knowing mags as well as I do, it won’t be a lucrative deal for the site designer.

Fun Friday – Electric Sportscars and Commodity Chips

From prototype electric sports cars to commodity chips, a few items of interest to round out the week.

Yesterday the much-hyped Tesla Motors Roadster prototype was seductively displayed outside of PARC, courtesy of JB Straubel, Tesla Motors CTO. While the motor was buttoned-down and just out-of-reach, the leather seats were quite accessible and comfortable and the light carbon-composite body with aluminum frame attractive and shapely. The TM salesman was carefully positioned with a towel to wipe off any drool and greasy fingerprints from careless admirers.

One of the primary objections to all-electric cars is that they require new battery technologies which are untested on a massive scale and can result in unpredictable and costly liability suits. Even Li-ion batteries have had their share of “combustible” announcements, like when Sony manufacturing standards slipped as laptops went up in flames.

Tesla Motors decided that the benefits of a standardized Li-ion commodity battery (the 18650) outweighed the risk, and developed a fault-tolerant battery architecture that isolates each battery in 6800 individual metal cells with microprocessor-mediated power management and monitoring. As batteries fail, capacity reduces safely over time.

With $30M in orders already on the books (the first 100 orders at $100,000 up-front, and follow-on orders at $50,000 up-front) and plans for a plant in New Mexico, Tesla Motors may be the first car company in 50 years to introduce a new car well under the half-billion dollar cost estimate that is routinely bandied about by modern car companies. Of course, if you want one you’ve got to wait in line. It isn’t a touring car (consider a 200 mile limit), and it won’t fit a trunk. It does fit a couple of golf clubs, but I’d rather take an overnight bag and a guitar and drive to Santa Barbara.

Here’s a quiz for our hardware guys. How long does it take to get delivery on a little 8-bit commodity processor sample for development from the manufacturer? A few days? A week? As Don Adams of “Get Smart” liked to say, “Would you believe six months?” Yes, six months. That’s the delivery time one engineer recently complained he got for an Infineon 8 bit Microcontroller (PLCC – 84). He set out the call pleading with people to tell him why a common part in appliance products with volumes of millions would be so hard to obtain in a timely way.

Like a Zen Koan, the answer to the question is the question. Because it’s a common commodity part. Infineon ships this little chip in volume with six month advance orders because there is no reason to do it any other way at the low cost per piece. So if your little company wants it too, but you’re not going for a million volume order, the manufacturer will think you’re getting “too good a deal” piggybacking off of everybody else’s big order because they made it so cheap. Want it fast? Go to Frys and pay retail.

We once did this at Symmetric Computer Systems with DRAM during the memory wars of the 1980’s. When 1mbit DRAM rose from $12 to $40 in a day, we went to Frys and bought every single piece they had at $19 to make shipment to the NSA. The next day, their price went up to about $50. About the same time, Apple’s CEO Scully went off on vacation and left CFO Debi Coleman minding the store. When the DRAM crisis hit, she and the other Apple execs went on a buying binge. The resulting oversupply nearly killed that company. It was very funny.

Buying retail isn’t the solution for every chip. Little guys are in the pole position for exotic or new parts, and manys the time I’ve had field service engineers sit in my office pushing their cool new I/O or multicore products. My philosophy is always go for the low end of the exotic parts for tests because the sales and FAEs hand them out to our eager design engineers like jellybeans. Then sell them on how your hot new innovative cutting-edge state-of-the-art startup is going to use their high-end product still on their drawing boards to drive both our sales. That’s something they’re never going to hear from the 8-bit chip big guys. And that’s how a smart small company deals with a big guy — even Intel or Infineon. Have a good weekend.

Hints of an Apple-Disney Merger – “Who’s the Big Dog?”

Did anyone notice the announcement today from Disney that they would soon be giving away their broadcast content on the Internet? Some might think this means that the Disney deal to sell “Lost” and other TV show episodes on ITunes is a dead duck – after all, who would buy these shows from Apple when you can download them for free?

But are things really as they appear? One Silicon Valley dealmaker sees the signs of a bigger deal pending. “It’s all about ‘Who’s the Big Dog’. The ITunes model breaks a lot of things for distribution. When the content biz takes it seriously, they won’t do the $1.99 per video pricing model anymore. They can’t vary the pricing – you’ve got to play pricing games to profit off of premium offerings at least some of the time, and begin the process of moving to value pricing.” So what’s going on here? It’s pretty simple…

Knight-Ridder Sold, But San Jose Mercury News Goes on the Block

So Knight-Ridder got sold, for a premium say some and for a steal say others. Since the San Jose Mercury News is a KR paper, the buyout on the surface appeared to be cause for celebration. Matt Marshall said “But we can confirm that many Knight Ridder employees are breathing a sigh of relief. McClatchy has an excellent reputation for quality journalism, and its headquarters in Sacramento and relative strength in central California means that KR’s Mercury News, Contra Costa Times and other papers in Contra Costa, Monterey and San Luis Obispo will help make the combined company a California powerhouse.”

Maybe so, Matt, but since McClatchy has announced they’re selling twelve papers including the Merc because they only go into “high growth markets” (Pruitt, McClatchy CEO, NYTimes), perhaps the staff should put the cork back into the champange bottle. The only one dancing with glee right now is the SF Chronicle.

More to the point, the analysis of the buyout forsees a lot of debt for McClatchy in a shrinking market. Newspapers aren’t the cash cows they once were, and Internet companies from Google to Craigslist continue to gut both their content and classified revenue. Is this a good buy, or is it a “good bye” for the Merc? One analyst I know here in Silicon Valley said “for what it’s worth, the journalists at that paper might want to polish up their resumes and start blogs ASAP”.

Fast Internet Movers and the Long Term

Bill Burnham’s slant on “Deal flow is dead, long live thesis driven investment” makes a number of good points for rethinking investment for Internet companies. Ben Savage of Wasserstein & Co counters “So a firm that pursues thesis driven deals in ‘unpopular’ sectors I think is partially dooming itself to be a firm that hits for average and not for power. Unlike in public markets contrarian investing doesn’t seem to work so well in ventureland.” Perhaps even more to the point, it is a reminder that our industry isn’t “one size fits all”, and the key factors for enterprise versus Internet, for example, demand different evaluatory criteria.

The success of thesis investment depends on the time-to-market of the product vended. Having co-founded startups in bottom of the food chain semiconductors (InterProphet, w/Vint Cerf on the board, doing layer-4 semiconductors for datacenter / interconnects) and top of the food chain Internet services (ExecProducer, realtime video/audio production datacenter hosted services for Internet/DVD/3GPP) I’ve found the demands on IPR and product roadmap are completely different.

InterProphet was granted it’s first patent 3 years after founding and after an intense product development cycle that is still ongoing. ExecProducer in contrast was up and running with partners (we don’t sell direct) and referenceable accounts producing movies for customers instantly (in other words, no manual intervention = no expensive engineering / design staff required) within one year with none of the concerns that a fabless semiconductor networking company faced (equipment, expensive engineering personnel, high legal/patent expenses, due diligence with customers, and so on).

It took several years of time / expense to worry out the patents for a successful ringing strategy for InterProphet, and I’m still working on one of the landmark results papers. It took about a year of part-time work on a fun project with Berkeley to get a successful paper on pioneering massive video production accepted to ACM SIGCHI ACE2004, the conference that Disney and Warner and Pixar shop their papers.

I think Bill’s idea to get ahead of the game by calling up potential investments works well for top of the food chain companies like ExecProducer. However, given the capital and intellectual demands (plus the reputational and technical challenges) of areas such as enterprise software or telcom or networking, and the years of work to establish a presence, Ben’s view is probably quite correct for that space, and unlikely to change in the near future.