I had the privilege today to be on a great panel this evening organized by the Churchill Club on storing your data and personal experiences in the cloud. The discussion was kicked off by Gordon Bell (photo to the right) who recently published a book on the subject called “Total Recall: How the E-Memory Revolution Will Change Everything“. The book is a great read and I can definitely recommend it. While I have been moving a lot of my data to the cloud, my efforts seem trivial compared to Gordon’s vision.The discussion on the panel was fun with Rob Coneybeer of Shasta Ventures, Suni Vermuri of reQall and terrific moderation from Barron’s Eric Savitz.
One of the more interesting discussions was around what companies will do well in this space. It was great to see how Evernote, reQall and Eye-Fi (all represented by the people on the panel) integrate their services. I think the fact that many data stores with relevant information have no APIs for integration is one of the main issues that this emerging sector is facing.
While I don’t have the time to play much WoW any more, one think I decided a few month ago was to try out and see how hard it is to accumulate the maximum possible amount of in-game currency in the game. WoW uses a signed 32 bit integers to track the amount of coins you carry, thus the maximum is 2^31 = 2,147,483,648 copper or 214,748 gold, 36 silver and 46 copper. In practice my experience was that the limit is two copper lower, but who is counting.
It turns out that virtual economies like WoW are still very inefficient. The arbitrage opportunities and price fluctuations in the in-game auction house are large, and creating crafted items from raw materials often yields margins of 30% and higher. My initial assumption had been that working capital would be the main limitation for how quickly I could grow, but that turned out to be wrong. Instead market size and “shelf space” day set the limits for growth. The server I play on has an “active” market of about 2k players during peak hours (source). Assuming the average player spends 100g per day, this means the total addressible market is only 200k gold. About half of this market consists of items that are found in-game and not produced. Of the other 100k I was able to capture about 10%-20% a day for revenue of 10k-20k and profits of about 2k-3k. The main reason for only capturing a small part of it is that I listed items on the market only once a day, and would often get undercut quickly. Thus often I was only the cheapest provider for a small part of the day.
The in-game time keeping suggests it took about 170 hours of play time to to the peak, or around 1000g/hour. The WoW gold exchange rate fluctuates, but a quick survey suggests an exchange rate of around 150g = $1. Thus my account is now worth in the order of $1500 (although it is non-trivial to liquidate that much gold) and I made $8.30 per hour. While that is more than the the California Minimum Wage of $8, for now I’ll stick to my day job.
The NVCA Numbers are here, and they look worse than I would have expected. Only 25 new funds were raised in Q2/2009 vs. 82 funds in Q2 of last year.
Typically the initial tally by the NVCA increases by 15% or so as additional closes are announced (see Estimate in the graph for where I think we will end up), but even then this number is very low the worst we have seen in the last decade. Total capital raised was $1.7 billion.
Continue reading “VC Fundraising falls off a cliff”
The Technology Review today published its list of Top 10 Emerging Technologies for 2009 or short “TR10”. One of the Technologies is “Software Defined Networking” and the very well written article heavily focuses on our OpenFlow efforts at Stanford.
A second technology that is highlighted is Siri’s personal assistant software. I am really looking forward to trying out Siri’s product when it goes into beta later this year. For full disclosure, Morgenthaler is an investor in Siri.
When Morgenthaler raised their last fund I wrote that it looks like Venture Capital is ready for a shake-out. If anything the Q4 numbers from the NVCA/Venture Economics confirm this trend. Below the graph for Venture Funds closed for each quarter over the past 3 years.
Only 43 venture funds where closed in Q4, and the total capital raised was $3.3 billion. This is down from 84 funds raising $11.6 billion a in Q4 of 2007. This brings venture fund raising back to the levels we saw right after the crash of 2000. I would expect to see a further decline for all of the next year in both number of funds as well as total capital. What this means for the venture industry is that if you have fully invested your old fund, and not yet raised a new fund (or at least had an initial closing), you may be in a very difficult situation. Howeve if you just raised a fund, you can expect less competition (and thus hopefully better returns) in the next few years.
Morgenthaler Ventures (where I am currently an EIR) announced today that they closed their ninth fund. In a normal market, this would have been business as usual and not be particularly newsworthy. However the current financial markets are anything but normal.
According to the NVCA release, the number of venture funds closed over the last quarters is:
In 3Q of this year we saw a steep drop. However the impact of the current liquidity crisis and the resulting stock market decline didn’t become fully apparent until October. If I would have to bet, I would expect 4Q to look a lot worse. Venture Beat recently wrote about this and concluded that essentially what we are seeing, is a shakeout in the VC industry. While I haven’t seen numbers yet that conclusively demonstrate this, it intuitively makes sense. Firms that were burnt badly in the post-bubble of 2000-2003, now have fully invested their funds and realize that in the current financial climate they can’t raise additional capital. One would expect new entrants in the Venture Capital space to be the most vulnerable. A firm like Morgenthaler with almost 40 years of track record and an established network of LP’s is naturally in a much better position.
Continue reading “Morgenthaler Announces Closing of 9th Fund”
The 2008 MIT Technology Review list of top innovators under 35 came out today, Sundar Iyer and Seth Hallem, both fellow Stanford Ph.D. students, made the list this year, and I am very happy for both of them. Sundar has had a profound impact on how buffers for high-speed routers work, and Seth has changed what is considered best practice for code checking. Both have also founded great start-up companies in the process.
Congratulations Sundar and Seth!
Update: As Sundar points out, Stanford CS faculty Andrew Ng and former Ph.D. student Meridith Ringel Morris also made the list. Congratulations here as well!
A few people mentioned that they were suprised about my move to Stanford after leaving Voltage. This post should be a lot less suprising: I am joining Morgenthaler Ventures as a part-time Entrepreneur in Residence. Spending a day a week at Morgenthaler Ventures is a very synergistic combination. The exposure to bleeding edge technology in Stanford helps understanding entrepreneurial opportunities. Vice versa seeing the hard technical problems that portfolio companies face helps define meaningful new research areas. And while some of you may not have heard of them before, Morgenthaler is a great firm to work with.
Continue reading “EIR at Morgenthaler Ventures”
Friday last week was officially my last day as an employee at Voltage. The company has been doing great, both in terms of the organization as well as market traction. However after working there for 6 years it felt like it was the right time to move on. Since we founded it in 2002, Voltage has developed from being an early stage technology venture, to a stable, self-sufficient leader in enterprise software. And this means I can move on to do something new.
Building a company is primarily about finding the right people and building the organization. Conversely, the in my count most common cause of death for an early stage start-up is dysfunctional team. At Voltage, we started with a founding team that shared a common vision and terrific investors that were an incredible help whenever we needed them (picture of the early days on the right). On these foundations we together built the great organization that Voltage is today. I am grateful for having had the opportunity to work with everyone in the company, from the executive team, to the board to each and every employee. In retrospect there are only few hires that I would not make again. Going forward I am confident we have the team in place that has what it takes to guide Voltage into the future.
Continue reading “Moving on…”