JPMorgan, Credit Suisse Ramp Up Startup Push for Deals

When SurveyMonkey Inc. Chief Executive Officer Dave Goldberg wanted to buy out investors from his Internet company and attract new ones who wouldn’t balk at his aim to stay private, he steered clear of traditional startup financiers in the venture-capital community.

Instead, Goldberg turned to an entirely different adviser: JPMorgan Chase & Co. (JPM)

Jimmy Lee, vice chairman of the investment bank who normally works on multibillion dollar deals, traveled from New York to SurveyMonkey’s headquarters in Palo Alto, California, to brainstorm Goldberg’s options. Goldberg later hired JPMorgan to lead a $350 million syndicated loan for the online survey provider as part of an $800 million recapitalization the closely held company completed last year.

“Considering what a small company we are, SurveyMonkey isn’t something Jimmy would usually spend time on,” Goldberg, who is married to Facebook Inc. (FB) Chief Operating Officer Sheryl Sandberg, said in an interview. The recapitalization, which also involved selling $444 million in equity to Goldberg, Tiger Global Management LLC and Google Inc. (GOOG), valued SurveyMonkey at $1.35 billion.

Wall Street investment banks -- from JPMorgan to Bank of America Corp. and Credit Suisse Group AG (CS) -- are increasingly catering to closely held technology startups, especially in Silicon Valley. While firms led by Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) have long cultivated relationships with venture capitalists and entrepreneurs to later earn fees managing initial public offerings and advising on acquisitions, many banks have expanded the roster of services in recent years.

Photographer: David Paul Morris/Bloomberg

Dave Goldberg, chief executive officer of SurveyMonkey Inc.

Big Payoff

The push includes beefing up technology teams, organizing invitation-only conferences for entrepreneurs, starting coverage areas for venture capital and using balance sheets to finance startups or extend credit.

The efforts come as more startups stay private for longer and reach a bigger scale, raising the prospect of a larger payoff down the road for banks when the hottest companies ultimately go public or get sold.

“Technology is the fastest growing and most far reaching sector in the world,” Lee said in an interview. “It’s therefore a priority for any global investment banking business.”

More Firepower

In a sign of how seriously the banks are taking startups, JPMorgan in the past four years has relocated veteran bankers Mike Millman, Kurt Simon and Rod Reed to Silicon Valley. Jeremy Geller moved in February to head the firm’s private banking in Northern California, a business where headcount has since grown 30 percent.

Credit Suisse has since 2011 moved Anthony Armstrong, its co-head of Americas M&A, and David Wah, its global co-head of technology, media and telecom group, from New York to San Francisco. The bank also hired Chris Gaertner and Imran Khan after losing star George Boutros in 2010 to boutique adviser Qatalyst Group Ltd.

Goldman Sachs earlier this month named Dan Dees co-head of its global technology group alongside Anthony Noto, who had led Twitter Inc. (TWTR)’s IPO late last year. The securities firm moved current co-head George Lee to chairman of the group and made him chief information officer for the investment banking division.

Deals Pipeline

The potential rewards are vast. Heading into 2014, the pipeline of U.S. technology IPOs contained 590 venture capital and private equity-backed startups that have raised $55.35 billion, according to a Dec. 12 study from CB Insights. More than half of the companies are based in California and 25 were valued at more than $1 billion, the study found.

Last year, there were 131 deals in the U.S. in which a technology or Internet company sold equity on the public market or in a private placement for a total of $28.8 billion, compared with 80 equity deals worth $25.42 billion in 2012, according to data compiled by Bloomberg.

Silicon Valley entrepreneurs and venture capitalists say the increased attention from investment bankers is tangible. Goldberg said that it was far easier to recapitalize in 2013 than to line up a mere $37 million in debt financing from Bank of America in 2009.

Some of the challenge five years ago was that the recession made banks unwilling to lend. It also related to another, more fundamental obstacle: many banks didn’t get the way startups work, Goldberg said.

“After the financial crisis, the credit market was very tough,” Goldberg said. “Traditional banks also had a hard time understanding our subscribers-based business model.”

Wooing Wanelo

Wall Street firms have since made a bigger effort to woo technology entrepreneurs and serve their corporate and personal financial needs.

“Banks were quiet for a while in Silicon Valley,” Geoff Yang, general partner of Redpoint Ventures, a venture-capital firm based in Menlo Park, California, said in an interview. “They are now courting venture capitalists and entrepreneurs like in the old days.”

Investment banks are even reaching out to some of the youngest Internet startups. Deena Varshavskaya founded San Francisco-based social shopping startup Wanelo Inc. in 2010 and landed $14 million in venture funding over the last two years.

Even though her company was barely two years old, Varshavskaya said she was invited to speak at Goldman Sachs’s dotCommerce conference in New York last June. Goldman Sachs later named her one of the “100 most intriguing entrepreneurs” of 2013 at the firm’s Builders and Innovators Conference in Tucson, Arizona, where Hillary Clinton and Elon Musk were among the speakers.

Many Invitations

Varshavskaya, 33, also gave a presentation at Goldman Sachs’s Internet Private Company conference in Las Vegas in November and she will speak next month at its Technology and Internet conference in San Francisco.

“They bring together high-quality innovators and community building, which is an important foundation for our future growth,” said Varshavskaya, who adds that the relationship with Goldman Sachs’s bankers “will be useful in the future.”

Morgan Stanley and Goldman Sachs have long been the go-to investment banks in Silicon Valley. To be more competitive, Goldman Sachs started the private company conference in Las Vegas three years ago and its Builders and Innovators conference two years ago. It also ramped up direct investments in Web startups including Dropbox Inc. and Uber Technologies Inc.

Morgan, Goldman

Last year, Morgan Stanley topped the league table of underwriters of technology and Internet IPOs measured by dollar value, according to data compiled by Bloomberg. Goldman Sachs was first by number of technology and Internet IPOs underwritten and earned fees, according to the data.

Morgan Stanley’s technology team, led by Michael Grimes, Paul Chamberlain and Colin Stewart, the firm’s vice chairman of global capital markets, has had one of the longest-lasting footprints in Silicon Valley, opening an office in 1994 and staying through the aftermath of the dot-com bust last decade when numerous Internet startups flopped. To build relationships with startups, the firm has organized conferences, including a chief technology officer summit where it gathers hundreds of potential clients.

Other Wall Street firms have also beefed up their Silicon Valley presence. Bank of America organizes a Tech & OPS conference for venture capitalists in November and a Private Company conference in May. Last year, it hired Buz Walters from Goldman Sachs to head the bank’s venture-capital group.

“Many technology companies that go public tend to become well-known global brand names,” Walters said in an interview. “That’s why banks make an effort to work on their deals.”

Qatalyst, Allen

Smaller banks are also making a play for startups. Qatalyst, which former Credit Suisse bankerFrank Quattrone started in San Francisco in 2008, has become the go-to bank for technology companies seeking to sell themselves to large acquirers like Hewlett-Packard Co. It competes with Allen & Co., the New York-based boutique bank famous for its invitation-only Sun Valley, Idaho conference every July that attracts technology and media moguls including Goldberg and his wife.

At JPMorgan, the bank has gone beyond boosting its technology team by starting a digital growth fund in 2011 that invested in Twitter and wearable device maker Jawbone.

The efforts have resulted in deals, including JPMorgan leading Facebook’s secondary offering of $3.85 billion of shares last month. JPMorgan ranked third in the league table of technology IPO underwriters last year, according to data compiled by Bloomberg.

“We put leadership out here to connect the West Coast to the firm to serve clients’ corporate and personal financial needs,” said Noah Wintroub, head of JPMorgan’s Internet and digital media group in San Francisco. “The word spread.”

Source : Bloomberg

Is the Middle East the next new market for tech startups?

[This is an excerpt from the forthcoming book, "Startup Rising" by Christopher M. Schroeder. Copyright © 2013 by the author and reprinted by permission of Palgrave Macmillan, a division of Macmillan Publishers Ltd.]

The West tends to look at the world through the prism of its own successes, and believes that it has a monopoly on innovative ideas and entrepreneurship. Nothing amuses the entrepreneurs I meet around the world more than when some US politician who refers to entrepreneurship as a “leading American export,” as if other, thousands-of-years-old entrepreneurial cultures have only recently discovered it.
And one of the most common questions I hear from American entrepreneurs, investors, and policy makers as they consider looking at new growth markets is, what will be the “next Silicon Valley” of a certain region or country?

“Interesting businesses are and will be created outside of the Valley, in the States and around the world,” Ben Horowitz, the former CEO of the tech juggernaut Opsware and co-founder of one of the most successful venture capital funds in the world, readily concedes.

“But think of the movie business. Great films are made in many locations, but there is a reason that the vast majority of successful films — certainly in aggregate dollars — come from Hollywood. That’s where talent wants to be. There is Bollywood in India but it pales in comparison. In fact, how many technology startups outside of Silicon Valley or the US have built multi-billion dollar businesses?”

When I pushed venture capital investors who have opened up offices in emerging markets about why they do so, two consistent themes arise. First, they look for large market opportunities — one may lose money in a place like China, but for all its challenges, it’s too big to ignore. Second, emerging markets offer outstanding engineering and call-center talent, invariably much cheaper than in the United States.

As for opportunities for regional or even global innovation from the emerging worlds?
“It happens all the time, especially for services aimed at local or even regional needs, which explains Alibaba, Tencent, and Baidu in China,” notes Mike Moritz, chairman of the legendary Sequoia Capital — a pioneering venture capital firm responsible for backing the likes of Apple, Google, Cisco, PayPal and LinkedIn which are among the other most successful technology companies in the world.

“But Silicon Valley has always been a magnet for immigrants. It’s the place where raw technical abilities will always be embraced by successful companies and worldly leaders.”
But what happens when the vast majority of talented people don’t want to move — when they not only want to stay home, but are driven by almost patriotic passion to make change where they come from?

The real question going forward won’t be whether Silicon Valley is the only game in town or where the next one will crop up. Rather, it will be how rapid and inexpensive access to its innovations in software and devices will create new, multiple “hubs” of innovation in every corner of the globe.

This will also challenge the West’s definition of “innovation” as only the next shiny, new thing. The word has different ramifications in emerging markets that are gaining access to software and devices for the first time. These markets create innovative solutions for their own challenges and opportunities. From their unique experiences and circumstances, in fact, their solutions may one day be adopted globally.

What if information technology could make geographic proximity and network effects of talent less important? We know this is already happening in our day-to-day lives. Skype, group chat, social networks, collaborative software, and other, ever-advancing video connections are already mainstream and improving daily. They have had clear impact on the social and political dialogue in every country where they are embraced. They create hubs of action in many walks of life  unimagined even five years ago, and tweaked by individuals to better attune them to local and regional cultural needs and norms. These experiences may not yet be as ideal as face-to-face proximity, but for a new generation raised on them, and by breaking down barriers of distance, might they be plenty good enough?

There is precedent for how local need-solving becomes globally competitive innovation in the hardware business. Certainly no one in the early 1980s would have expected Japan or Korea to become a dominant player in mobile devices and consumer gaming. Who would have imagined that Finland, a country known mostly for wood products, would create Nokia — a company that first used mobile communication to facilitate connections between forestry and milling locations hard to reach with traditional telephony?

Look at mobile. Basic cell-phone penetration in Egypt, a land of 80 million people with annual per capita GDP under $6,500, is over 115 percent. The penetration numbers hold true throughout the Middle East.  Yet currently only 8 to 12 percent of these users have access to smartphones.  Can we fathom what kind of innovation may come from countries — those that never even knew landlines — that attain mobile smartphone computing access of 50 percent and more of their citizens? Mobile experts told me we could see sub-$50 smartphones within three years to help drive this adoption.
Moritz concedes, upon further reflection:

I’ve found in my travels that if you put great entrepreneurs from any corner of the world in the same room with each other, they are quite similar even if their mother tongues, religions, and colors are different. They look at the world, problems, and opportunities the same way. Their minds, their energies, and their desires to succeed are a lingua franca. They talk to each other as if they’ve known each other their whole lives.

Is any of this, however, truly possible and scalable in the Middle East?
In the face of brutal oppression in some nations and political uncertainty throughout the region, it’s hardly an idle question. Added to political instability, the gap between the mega-wealthy and the desperately poor throughout the region remains shocking; education and literacy offer profound challenges. Corruption, high unemployment, heavy reliance on government largesse, archaic and often indecipherable rules of law, and cultural resistance to investing beyond fixed assets are all daily realities.

For all the enthusiasm that came with the Arab uprisings, Arabs are still debating vehemently the kinds of societies and governments they will create, what role religion and women will play, and how business practices will be proscribed. One need only spend a few days in Amman or Cairo, going through metal detectors in every restaurant, hotel, and tourist destination, to sense how the political and social realities can keep risk capital — and, indeed, business itself — sidelined.

But while we must take these concerns seriously, they can also mask the three-fold hurricane-force wind these entrepreneurs have at their backs.

First, technology offers an irreversible level of transparency, connectivity, and inexpensive access to capital and markets unprecedented only five years ago. A new generation in the Middle East, as elsewhere, has never known a world before information technology, and they have a keen understanding of how others like them live and create opportunity for themselves.

Second, this generation benefits from regional and global capital now more comfortable with political risk. Twenty years of experience in other emerging markets, all but dismissed as economic engines less than a generation ago, has laid important groundwork. Nearly all of these countries were, and remain, equally marred by political uncertainty, opaque governments, corruption, and weak infrastructures.

Third, changing market dynamics, growth, and opportunity in the Middle East were in motion well before the uprisings. The Arab world alone has over 350 million people, nearly twice the size of Brazil — a GDP larger than Russia and India, and per capita GDP nearly twice China’s. Disposable income has grown 50 percent over the past three years, to over $1 trillion in 2012.  It’s a young market, with over 100 million people under the age of 15, who love their connectivity, mobile phones and rapid adoption of smart devices.

And this new generation is hungry. If there was one universal sentiment that connected every young entrepreneur I met it was this: Their revolution was not merely about overthrowing longstanding dictatorships, but challenging a generational premise and complacency of their parents that things could not change. “Why should we accept mediocre jobs in lumbering large companies or the government — assuming we can even find those?” one Jordanian founder told me. “In fact, I don’t understand why my parents accepted it! We can be better!”

These entrepreneurs come from every walk of Arab life. They are women and men, devoutly religious and culturally Islamic, college educated and self-taught, young and old and from literally every country in the region. They are above all realistic about the odds against them, yet unfazed by the political and infrastructural barriers.

They view the recent political change as an unprecedented opportunity and, in some cases, confirmation of their efforts over many years. They are unleashing social and economic forces that will create the foundations of a new Middle East. These forces will build and evolve over years, but will be accompanied with a speed and transparency through technology that will hold any leadership, and themselves, to instant accountability.

These entrepreneurs are not naïve. They expect setbacks. But they believe they are on the right side of history.

So to me, the most interesting question of all is why wouldn’t the Middle East be ripe to unleash a new era of tech-based entrepreneurship and innovation of the sort that has driven growth and job creation around the world?

[Image courtesy Shahrokh Dabiri]

On why the biggest tech companies are built in Silicon Valley

On Friday, ContentDJ founder Jerry Tian published a blog post addressing the issue of “Why Canada Has No Big Tech Companies” – Nortel is dead and RIM is quite obviously dying, he points out. Tian, who was himself responding to an interview with Boris Wertz, founder of Vancouver’s Version One Ventures, offers a thought provoking theory and one that applies to a large degree to all up-and-coming startup ecosystems.

The founder questions the commitment and willingness of Canadian investors and entrepreneurs to devote the ten years or more that it may take to build an independent multi-billion dollar company with staying power, rather than flipping that company for an eight, nine, or even ten figure exit – typically to Silicon Valley acquirers – and exporting that future innovation and wealth building. It’s a charge that could be applied equally well to New York, Los Angeles, Chicago, Austin, Boulder, and dozens of would be international startup hubs.

“’Silicon Valley is not a place but a state of mind,” Tian writes, quoting KPCB General Partner John Doerr. “Some of these insights are collaboration, competition, openness to innovation, failures and experimentation. Probably the most important one is the long term commitment behind technology companies.”

Of course, Tian and Doerr are spot on. What emerging startup hubs often miss when trying to “become the next Silicon Valley” – a flawed mission in and of itself – is that the grandaddy startup ecosystem is more than its physical infrastructure of entrepreneurs, engineers, designers, investors, service providers, universities, and the like. Equally important are the systematic irrationality and a feedback loop around the willingness to turn down the quick buck and go for the massive once-in-a-generation success story.

This isn’t the case with every company, founder, or investor, but it exists in enough density in the San Francisco Bay Area, and based on results to a lesser extent in Seattle, that these are the only two areas areas in the country that have led to multiple ten billion dollar plus technology and internet companies – the true giants that transcend their local ecosystems and seep into the lives of average consumers.

It is these companies, with their ability to attract talent, make acquisitions, invest in long-term R&D, and create systemic wealth that make ecosystems. And with very rare exception, getting to this scale requires a decade or longer commitment and a willingness on the part of founders and investors to turn down near and mid-term paydays. Similarly, it requires a vision and an ambition  to build something that will be around forever.

Tian writes:

So, why is nobody talking about these acquisitions? I think it’s simply because investors are getting filthy rich off these deals.

And that’s exactly what not to do if you want to create the next Silicon Valley. You cannot sell the hen that lays the golden eggs for a few quick buck [sic]. Technology companies take 10 years to really manifest the value. To really build a billion dollar company, it takes tremendous multi-decade commitment. And that’s the biggest missing piece in Canada.

Like or hate Zynga founder and former CEO Mark Pincus, one has to respect him for saying that he wants to build a “digital skyscraper,” a company that would be around for 100 years. Pincus went further to say that he views serial entrepreneurship as failure and that he wants to run Zynga for the rest of his career. Ironically, he recently replaced himself as CEO, personally recruiting Don Mattrick for the role. But Pincus made the ego-busting move in an effort to return Zynga to its former glory and to get it back on that century-long track.

In his somewhat controversial on-the-ground reporting on the Chicago ecosystem last summer, Trevor Gilbert delved into “the Midwest Mentality” and the impact it has on the types of companies that are built there. Gilbert called Chicagoans “pragmatic.” Lightbank partner Paul Lee offered an example of this pragmatism, saying that Chicago startups typically focus on generating revenue from day one, rather than building a massive, but unprofitable user base, a la Facebook and Twitter pre-monetization. Profit is all well and good, and should be the ultimate goal of any business that wants to be around for the long term, but focus on it too intently early on and it can be impossible to invest in growth. It takes a special kind of vision and fortitude to look past the short term and make the big bets required to create massive companies.

This is not to pick on Chicago. A similar phenomenon seems to exist in LA where companies race out to a low nine-figure valuation and then either stall out in that vicinity or sell for sub-one billion dollars to a larger out of town acquirer. Call it the curse of the big-little deal – maybe everyone here just wants to see their name in lights. In a market that is desperate for success stories and validation, these medium-sized exits are hailed as “wins” – and they are, given the difficulty of building a hundred-million dollar company – but they often rob the ecosystem of potential multi-generational tentpole companies. This is a mentality that appears to have changed in recent years, but that change has not yet bore fruit in the form of LA’s answer to Google, Amazon, or Facebook.

New York has seen its own version of this phenomenon, with the ecosystem’s biggest success stories, DoubleClick and Tumblr, being exits to Google and Yahoo respectively. Local darling MakerBot followed suit, selling for $600 million in June. New York does have Fab, Gilt, and Foursquare all shooting for the moon but these companies and the ecosystem as a whole still must prove that they can sustain this ambition and parlay it into a giant company.

As Tian points out, part of the blame for these exits falls on investors. It’s not that investors aren’t interested in massive outcomes – they most certainly are. But not all non-Silicon Valley investors are equipped for the financial and time commitment it takes to create them. These investors, many of which operate out of first- or second-generation funds, often have smaller pools of capital to invest out of.

Write a $2 million check at a $10 million valuation out of a $100 million fund, and a 50x return looks pretty good, returning 98 percent of your fund. Make that same investment out of a $1 billion fund and the impact on fund economics is decidedly less interesting. This is one of the few arguments in favor of mega-VC funds. But it also benefits firms that are on their fourth, fifth or sixth fund and have less to gain reputation-wise with solid base hits.

Returning to Tian’s piece, he closes by writing, “If you are wondering why Canada doesn’t have the [sic] billion dollar company, it cannot be more obvious than this. Too many people are in it trying to get rich quickly off entrepreneurs. Not enough people have the gut [sic] and commitment to create or help create something truly meaningful.”

Tian paints with a broad brush, yes, which ignores many of the subtle nuances and external factors that contribute toward building massive technology companies. But there’s little arguing that people in Silicon Valley think differently. Armed by decades of case studies and social proof, the ecosystem has developed a healthy disregard for rationality.

Mark Zuckerberg famously did just that when Yahoo came calling. He was just 20 years old and Facebook, at less than two years old, was unprofitable with just $30 million in revenue. Yet Zuckerberg and Facebook’s board, which included Peter Thiel and Jim Breyer, turned down Yahoo’s $1 billion offer. When the elder advisors tried to convince the young founder that his 25 percent of that offer would be a big number he said, “I don’t know what I could do with the money. I’d just start another social networking site. I kind of like the one I already have.”

Israeli social mapping company Waze just made the opposite decision, selling to Google for slightly more than that mythical $1 billion. Sarah Lacy cautioned Israel-bulls to “reconsider too much high-fiving over Waze.” While legendary local angel investor Yossi Vardi likes to compare Israeli startups to tomato seeds which need more experienced farmers to grow properly, Lacy believes that the country has the potential to build and sustain globally dominant Web companies without selling, offering MyHeritage as an example.

None of this is to say Silicon Valley is immune from this syndrome. There are thousands of entrepreneurs in the Bay Area who would rather flip their company than do the long, hard work of building something sustainable. But the sheer density of the ecosystem means that a dozen or so each year choose the road less traveled. Also, given the scale of the Valley ecosystem, building a big company is the only way to move the needle and attract talent and capital. Everyone in line at Philz coffee is working on the next “billion dollar business.”

Finally, Silicon Valley is a magnet for those entrepreneurs around the globe who want to build great technology companies, and the ecosystem surely benefits from this imported talent. This was actually Wertz’s central point in the original interview and is one that Tian touches on briefly. It’s a difficult problem to solve, given the power of knowing someone (or several someones) who has summited the mountain before and who can show you that it can be done. In each of these other markets, someone will have to be the first.

In many cases, it is highly irrational to turn down a nine- or ten-figure acquisition offer. There are real benefits to gaining access to the financial and personnel resources of a larger acquirer, ones that can often make or break the success of a still fledgling company. But, if there’s anything in Silicon Valley that Canada, LA, New York, and other startup ecosystems should aspire to it’s this willingness to roll the dice. Sometimes the shooter rolls a “7.”

Source : Pandodaily, by Michael Carney

inShare47

Why Silicon Valley Is Pouring Millions Into Hair

Photo: ohsarahrose / Flickr

This week, a Silicon Valley venture capital firm better known for backing online advertising startups and ex-Wired editor-in-chief Chris Anderson’s DIY drone company just invested millions in a hair dye startup.

Because, you know, your hair is in need of a little disruption.

Hair color doesn’t sound like a business that would attract the tech industry’s attention. But the $4 million bestowed on Madison Color in a True Ventures-led financing round isn’t quite as weird as it sounds. Tech investors are currently captivated by app-powered startups that sell non-techie products directly to consumers without anything so old-timey as a store interfering.

The creative use of technology to move merchandise is part of the appeal. Perhaps even more seductive: hugely lucrative product categories that have yet to taste Silicon Valley’s sacred cow-slaying approach to innovation.

“It’s just doing something really, really, really well and relating incredibly well to your consumer,” says Joel Cutler, a managing director at General Catalyst Partners and a board member at Warby Parker. “It’s what separates an okay investment from a great investment.”

Warby Parker is the eyeglasses startup that’s captured the love of the tech startup scene and more than $50 million in funding. They design, make and sell “vintage-inspired” glasses for a decent price, mostly online but also through a flagship brick-and-mortar store. As with hair color, glasses don’t sound like an especially enticing product for tech investors (unless they have Google in front of the name).

But Warby Parker has come to exemplify a new kind of startup that’s trying to do for physical consumer goods what many straight-up internet companies have done so well in recent years: build brands into which users invest a part of themselves. It’s easy to see how that self-identification works in relation to social media services like Facebook and Twitter. Glasses and hair color don’t offer the same species of technological venue for self-identification and expression.

But the web and mobile technology are still key. Warby Parker and other Silicon Valley favorites such as high-end hoodie maker American Giant and crowdsourced clothier Betabrand, however, are banking on a more intimate kind of connection between themselves and their customers enabled by mobile devices and the internet—a connection of a depth that they believe traditional retail can’t hope to reach. Through a clever mix of marketing and public relations across the digital channels where their target customers spend their time, these companies build stories around themselves and their products with the aim of attracting customers to involve themselves in the narrative.

But the digital-direct approach to niche retail isn’t just about a more nuanced sales pitch. If the product doesn’t meet the raised expectations the marketing strategy sets, the company won’t last long. These companies’ founders and backers contend that the path of direct online sales, which includes not just marketing but taking and shipping orders, also leads directly to better quality. “When you’re selling direct,” Cutler says, “you have more margin to put into the product.”

That’s the sweet spot that Warby Parker, American Giant, Betabrand and now Madison Color are trying to hit: neither overpriced luxury nor cheap throwaway, each in its own way is reaching for mid-priced goods that are more stylish, solid and even ethical than the competition.

For Madison, hitting that spot means aiming for what co-founder and CEO Amy Errett describes as the wide gap between the $10 to $15 ammonia-based off-the-shelf hair dyes from the nearest drugstore, and the $100 or more you’d spend to get your hair colored at the salon.

She says Madison’s dyes will be ammonia-free. Customers will be able to use their phones and tablets for how-tos on coloring their hair at home. They’ll be able to take pictures of themselves and send the photos to stylists who will help match them to their best colors—all with the aim of approximating salon quality at home.

To skeptics who might challenge that no one will care about buying hair color online, Errett points to a once-small startup that decided to go big on another fashion product that didn’t seem to lend itself to internet sales: Zappos. Of Zappos, she says, “I don’t know if anybody thought you could sell shoes online, because you have to try them on.”

Errett and her backers believe that the more personal connections made possible by the internet lend themselves perfectly to selling a personal care product like hair color.

Hair is also an enormous industry that has yet to find its way to the internet in any ambitious way. Errett says the U.S. market for women’s hair coloring alone is $15 billion annually. Between $3 billion and $4 billion of that total is home hair coloring, she says.

Such figures don’t make you the next Apple or Google. But even a percentage of those billions starts to look like profits worth pursuing, even if the business isn’t mainly about hardware or software.

“The opportunity for impact is transcending just technical improvements,” says Jon Callaghan, a True Ventures founder who’s backing Madison. “It’s the first time we’ve ever as venture capitalists been able to tap into markets where customers are in the billions.”

Source : MARCUS WOHLSEN, 05.03.13

Silicon Valley And The Reinvention Of Food

Fake meats have been around for years, but a new crop of Bay Area startups backed by tech investors think they can make meat substitutes good enough to compete with the real deal. Beyond Meat — backed by Twitter founders Evan Williams and Biz Stone via their companyObvious Corp — created an eerily accurate chicken substitute, for example.

But the most ambitious project is Rob Rhinehart‘s cheekily named “Soylent,” an attempt to replace food entirely with a liquid shake that has all the protein, fat, carbohydrates and micronutrients you need. The only ingredients recognizable as food are salt and olive oil. He claims to have lived exclusively on the stuff for a month. He says he has started eating real food again, but two months later he still gets 92 percent of his meals from Soylent.

Rhinehart makes an unlikely food scientist. He’s an engineer fresh off a stint at a Y Combinator-backed networking startup called Level RF that never exited stealth mode. He says he doesn’t have a background in chemistry. “Formally no more than an undergraduate level, but I am a huge proponent of self-study, online courses, and textbooks,” he says.

He decided to create Soylent because he was tired of spending so much time and money on food. “It takes me about five minutes to portion out all the ingredients at this point,” he says. “Without water it keeps for years so I could make it far in advance to save this time.”

He’s still working out the kinks. For example, he recently posted that he had run into some trouble with sulfur deficiency. Next Rhinehart is looking to do controlled experiments with a much larger sample base. “I have spoken to no biologist that doubts the feasibility of this,” he says.

But mainstream dietitians remain skeptical. “My short answer is that I don’t know any more about this product than the limited information provided on the product website,” says Diane Stadler, PhD, RD — a registered dietitian and assistant professor of medicine at Oregon Health & Science University. Stadler warns that although we know many of the essential nutrients in food, we don’t know everything and there’s a strong possibility that an elemental diet like this could miss something critically important. “I would not promote this type of diet to the general public, as there are many ways that it can go wrong, especially if consumed long-term,” she says.

Rhinehart’s defense is that people who don’t eat well are probably already missing important nutrients. But he admits it needs more testing. He’s already selling the mix to several people, and is seeking funding. “I need funding to scale up production and conduct more controlled testing,” he says. “I have received orders of magnitude more requests than I can possibly fulfill, which is lost revenue.”

There are already many meal replacement shakes on the market, but Rhinehart plans to offer cheaper, customizable products. “An athlete would need a lot of protein, an elderly woman doesn’t need many calories, and a coder or engineer type could elect to have nootropics included, if desired,” he says. “Meal replacement products can be even more expensive than traditional food. Soylent is already much cheaper, and due to the lack of real food sources, scales very well in manufacturing.”

Given the Valley’s current penchant for food startups, I wouldn’t be surprised to see him land a round. Besides Obvious Corp, Khosla Ventures and PayPal founder and venture capitalist Peter Thiel’s Breakout Labs are also in the game.

Khosla is backing Hampton Creek Foods, which has a product called “Beyond Eggs.” It’s also backing a few other food and agricultural companies, including artificial salt company Nu-Tek Salt and fake meat company Sand Hill Foods. Last year at TechCrunch Disrupt San Francisco Khosla went so far as to say that the artificial beef, which is made from soy protein, is still “beef.” At any rate, Anthony was pretty impressed with Beyond Eggs earlier this year. Khosla also has investments in a company working on alternatives to salt and a beef substitute. Breakout Labs has invested in Modern Meadow, a company that aims to “print” lab-grown meat and leather.

All of these companies are challenging the common nutrition advice to eat whole foods and vary your diet. In fact all these projects fly in the face of current food trends that advocate whole, unprocessed foods. Both the Michael Pollan, “eat food, not too much, mostly plants” set and the Paleo set both agree that it’s best to avoid processed food and just eat what nature gave us.

But the implications could be wide for the world. I try to eat natural whole foods, but I always feel a bit uncomfortable hearing from organic food zealots and the anti-GMO crowd. Fresh organic food is expensive, and cooking meals from scratch is time consuming. And there are, y’know, starving people out there who would love to get at some highly processed, genetically modified soy.

“I think humanity has been running on the equivalent of crude oil for ages,” Rhinehart says. “Imagine creating an efficient source of fuel for every living human, alleviating global hunger and malnutrition, reducing the environmental impact of farming, performing research on poorly understood biological mechanisms and potentially bringing agricultural societies in to the global economy.”

Source : Klint Finley, Techcrunch, 4/5/13

Marissa Mayer Is Giving New Parents At Yahoo $500 To Buy Baby Stuff

Earlier this week, we reported that Yahoo is now giving new mothers 16 weeks off, new fathers, 8.

That's not the last of the parenting benefits at Yahoo, reports the WSJ:

Among some of the other new benefits: New parents will receive $500 to spend on household expenses, such as laundry, house-cleaning, food or childcare, as well as Yahoo-branded baby gear, a spokeswoman says. (Employees with new pets also get freebies, such as dog collars emblazoned with the Yahoo logo.)  The firm also offers an eight-week unpaid sabbatical, for every five years of tenure with the company.And it will continue to provide  $5,000 toward adopting a child.

$500 is nice, of course, but the WSJ says Facebook gives new parents (adopted or otherwise) $4,000.

Read more: http://www.businessinsider.com/under-marissa-mayers-new-rules-new-parents-at-yahoo-get-500-2013-5#ixzz2SJg80N00

Pierre Kosciusko-Morizet : « Dailymotion va mourir »

« On est la risée mondiale de l’Internet. » Pierre Kosciusko-Morizet, le frère de Nathalie, est indigné.

Le co-fondateur de PriceMinister ne comprend pas l’opposition d’Arnaud Montebourg à l’entrée de Yahoo à 75% dans le capital de Dailymotion.

Répondant aux questions de Rue89, il juge même cette décision « catastrophique » :

« La notion de “France” n’est plus économiquement pertinente. Les capitaux sont mondiaux aujourd’hui.

Aux Etats-Unis et au Japon, les entreprises lèvent beaucoup plus de fonds, beaucoup plus rapidement. Si on dit aux étrangers de ne pas investir, on ne pourra pas décoller.

C’est difficile de discuter avec des investisseurs étrangers quand nos ministres leur disent : “Rentrez chez vous, on veut vivre en autarcie.” On envoie un message catastrophique.

Si on ne veut pas des Etats-Unis en France, autant leur déclarer la guerre froide. Fermer les frontières, comme ça, c’est aberrant. »

« Si on était restés français, on serait morts »

Lui-même a décidé, en 2010, de vendre son site d’achat et de vente en ligne à Rakuten, premier site de commerce en ligne au Japon. Aujourd’hui, il est toujours PDG de PriceMinister, et ne regrette pas un instant la reprise par la société japonaise.

« C’est simple. Depuis le rachat par Rakuten :

• le budget marketing a été multiplié par 2 ;
• le nombre de salariés par 2 ;
• le volume d’affaires par 3 ;
• la taille des locaux par 2,5.

On a pu rejoindre un groupe mondial, ce qui nous a sauvés. Si on était restés français, on serait morts. »

« Dailymotion n’avait plus le choix »

Si Pierre Kosciusko-Morizet a pu rester à la tête de PriceMinister après son rachat par Rakuten, c’est, selon lui, en raison de la conception japonaise des affaires.

« Les Japonais pensent que pour leurs affaires en Europe, il faut des Européens. La culture des Américains, c’est le “one-size-fits-all”, ils pensent qu’on est à leur image. »

Il estime que que si Yahoo avait réussi à entrer à 75% dans capital de Dailymotion, un PDG américain aurait été placé à la tête du site de partage. Un moindre mal, selon lui :

« Dailymotion n’avait plus le choix, ils avaient besoin de se développer pour affronter la concurrence. Là, je pense que Dailymotion va mourir. “

Source : http://www.rue89.com, 2013/05/02

New York Is Threatening Silicon Valley's Tech Dominance

West Coast—best coast? Not so, says the thriving New York City start-up scene.
During the past decade, the Big Apple has emerged as a top tech center for new companies and a hotbed for both angel and venture capital funding.

In the last year, 127 start-ups were founded in the city, nearly equal to the combined 131 that launched in San Francisco and Palo Alto, Calif., according to data from SeedTable.com.

Eric Hippeau, a partner at Lerer Ventures, told CNBC's "Squawk Box" he sees a shift from Silicon Valley to New York.

"New York is booming—here to stay as a big tech center," he said. "It's very different than the Valley. I don't think the people in New York are trying to replicate what's going on in the Valley. New York is doing what New York is good at—commerce, media, publishing, enterprise, marketplaces."
Last year, there were 100 deals for private tech companies in the city valued at $8.32 billion, second only to Silicon Valley, according to a recent report from PrivCo.

"It's clearly a testament New York City has arrived as a technology hub, and that we can create private technology companies, and ones worth being acquired," said Sam Hamadeh, PrivCo's chief executive.

He added that New York has become a permanent tech start-up hub, but one with a different sector focus than the Valley.
 "But the old adage that 'if you want to be a true tech entrepreneur, go West'—shown in the Facebook movie "The Social Network," when a young Mark Zuckerberg was told he must move to Silicon Valley for any hope of succeeding—no longer holds true, our data confirms," Hamadeh said. "One can now start a company in New York City, and find top venture capital firms and a thriving tech ecosystem for the first time. New York's tech ecosystem is now built to last."

Brooklyn-born Etsy, a pioneer in the ecommerce space for homemade crafts, exemplifies this trend.
CEO Chad Dickerson said he finds New York's urban environment more compelling. He moved from Berkeley, Calif., in 2008 after working at Yahoo for a few years.
 "I think Silicon Valley is really a one-industry area," he said. "Everyone's working in tech—everyone you speak with, everyone you meet is working in tech in some way. And one of the things I really like about New York that is different is that New York is much more diverse."
This diversity, both occupationally and demographically, has helped him develop his online services and website, he added.

For beauty subscription service Birchbox, it was important to launch in New York because of the city's proximity to the beauty industry as it built its reputation and established itself, said co-founder Katia Beauchamp.
"There was no other city for us to start our business, which is (a) hybrid media, marketing and retail company that started in beauty," she said. "New York is the destination for media, marketing and the majority of beauty companies in the U.S."

Changing Landscape
Since Dickerson's move East, the start-up landscape has changed as both the infrastructure and companies themselves grow in size and scope.
"It doesn't feel as much like New York is trying to be something," he said. "New York is something."
The venture capital scene is also improving in the city, he added.
"One of the things I've noticed is that in the four years I've been here—or almost five—is that nearly every West Coast venture firm now has an office in New York," he said. "And it's not really a satellite office; it's a real office. So where New York is lagging, I think New York is catching up really, really quickly."

As New York's tech scene grows, persuading talent to trek east has gotten easier, said Kellan Elliott-McCrea, Etsy's chief technology officer.
"Five years ago, if you wanted to move people to New York, they had to ask the question, 'Is this career suicide? If I move to New York and I take a job at Etsy, will I be able to get a job (later)? Is there a start-up scene in New York?'" Elliott-McCrea said. "And we've answered that question, and everybody knows about the tech scene in New York. So that piece is easier."
Still, the scarcity of nearby colleges with a heavy tech emphasis poses challenges.
"One of the things that's not quite as well developed in New York is the university system," Dickerson said. "For example, in the Bay Area, you have Berkeley and Stanford as feeder schools, and they're right in the heart of the Bay Area. In New York, we have NYU, but NYU's not really sort of a tech school."
But Dickerson thinks Cornell's upcoming construction of a campus on New York's Roosevelt Island could change this dynamic.

Birchbox's Beauchamp also acknowledged that finding talent poses some challenges.
"The culture in California is more established in fostering start-ups, and it is a bit harder to recruit tech positions and find the engineering talent that California is so abundant with, but we are succeeding nonetheless and are very proud of the tech talent at Birchbox," she said.

Encouraging Development
To foster additional growth in the sector, a number of initiatives have emerged to aid fledgling companies.
Last month, the city government extended its "We are Made in NY" campaign to the tech sector. More than 900 tech start-ups, including Etsy and Birchbox, have signed up to post job postings on the campaign's site.
The program's website provides links to find subsidized office space, apply for funding through NYC Seed, bid on government contracts and seek out up to $400,000 in training grants.

The initiative was launched by the mayor's office of media and entertainment in partnership with New York Tech Meetup, an organization with more than 30,000 members that holds monthly events where companies demonstrate new ideas. Several prominent members of New York's tech scene have debuted at the events, including Foursquare and Tumblr.
Although Hippeau said New York's tech scene still trails Silicon Valley, its growth continues to outpace both Boston and Austin, Texas.
"Will it be bigger than Silicon Valley?" he said. "Should it be bigger than Silicon Valley? I'm not sure that that's the kind of race you want to be in. The fact is, it's transforming the economy of New York and that's the important part."

This story was originally published by CNBC.

Source : Businessinsider.com