According to current and former traders, the senior banker who has been blamed for the debacle, Ina Drew, began to lose her grip on the chief investment office as early as 2010, Jessica Silver-Greenberg and Nelson D. Schwartz reported. Read more »
This weekend finds NYC in between Internet Week (which I largely missed because of my London trip) and Disrupt NYC (which I will be at on and off this coming week). So the development of NYC as a startup hub is very much on my mind. And so I thought I’d post about the development of startup hubs.
This theory, which I like the call The Darwinian Evolution of Startup Hubs, is not new and I certainly didn’t come up with it. But I think it is important for everyone to understand and so I’m going to blog about it.
If you study Silicon Valley, what you see is something that looks like a forest where trees grow tall, produce seeds that drop and start new trees, and eventually the older trees mature and stop growing or worse, die of disease and rot, but the new trees grow up even taller and stronger.
In my mental model of Silicon Valley, the first “tree” was Fairchild Semiconductor (founded in 1957) which begat Intel (founded 1968) which begat Apple (1976) and Oracle (1977), which begat Sun (1982), Silicon Graphics (1981), and Cisco (1984) which begat Siebel (1993) and Netscape (1994), which begat Yahoo! (1995) and eBay (1995), which begat Google (1998) and PayPal (1998), which begat YouTube (2005), Facebook (2004), and LinkedIn (2003) which begat Twitter (2006) and Zynga (2007), which begat Square (2010), Dropbox (2008), and many more.
If I left out important foundational companies of this mental model, please forgive me. That was not meant to be a comprehensive history. It was meant to illustrate how this evolutionary scenario plays out over time.
If you drill down a bit deeper, you see that the founders, investors and early employees generate a tremendous amount of wealth from these big successes. The later employees don’t make as much wealth but they do learn a ton and make enough money that they don’t need to work for someone else and so they strike out on their own and are often funded by the folks who made the big money in the prior startup. That’s how the seed drops from the tree and starts a new tree growing. This continues on and on and on.
If you look at that history of silicon valley, you see that in the forty year history (since Intel’s formation), there have been close to ten cycles of maturation and new company formation, and those cycles are getting shorter and the number of important foundational companies that are formed each cycle are increasing.
That makes total sense since this darwinian evolutionary model is non linear. One company begets two and those two companies beget four, and so on and so forth. Of course there are exogenous factors that also play out, like technology changes, financial market cycles, and the availability and cost of talent, and they impact how fast the startup hub economy expands.
This darwinian evolutionary model of startup hub development is not limited to silicon valley. We have seen it play out in other places, most notably Boston, and increasingly in NYC. It is also playing out in markets like Boulder Colorado and Austin Texas and many other parts of the US and many parts of the world.
When I look at a startup hub, I like to figure out what the “Fairchild Semiconductor” of that market was and when it got started. That tells me how far along the development cycle that startup hub is. In NYC, that was Doubleclick which was founded in 1996, the same year as my first venture capital firm, Flatiron Partners, which was founded on two premises, that the Internet would be big and that NYC would be an important locus of Internet innovation. We did not invest in Doubleclick (sadly) but we did invest in a lot of interesting Internet companies in NYC in the late 90s.
So NYC’s startub ecosystem is 16 years old now. And we are two cycles in. The companies that are getting started and funded right now in NYC are akin to the Apple/Oracle stage of silicon valley. If you want to push, you could suggest that we are three cycles in now and the companies that are getting funded right now are akin to the Sun/Silicon Graphics/Cisco era. That might be right.
But in any case, NYC’s tech sector is not anywhere close in terms of fertility to silicon valley. It will be there in another 25 to 30 years. And silicon valley will be even further along.
Unless, of course, something else happens.
The technological revolution that preceded the digital revolution was autos and airplanes. They were invented in the late 19th and early 20th centuries and the first commercial startups emerged in the first decade of the 20th century. The auto/airplane revolution played out until the 1960s/1970s. That suggests that a technology revolution lasts around 75 years.
The transistor was invented in the late 1940s and by 1958 we had commercial startups working on the technology. So if this revolution is anything like the last, the next big thing will be invented any day now and within a decade or two we will be on to the next technology revolution.
And in that case, all bets are off. Silicon Valley could become the next Detroit and who knows what will be the next Silicon Valley.
But of course, all of this is conjecture. History doesn’t repeat itself. But it does rhyme. That comes from Samuel Clemens (aka Mark Twain). One of my favorite people ever.
Austin, Texas – Mass Relevance, a SaaS enterprise platform for real-time social content curation and broadcasting serving networks has raised $ 3.3 M of series A funding from Austin Ventures, with money from Battery Ventures, Floodgate, Allegro Venture Partners, and Metamorphic Ventures.
The new funding will be used for the hiring of new employees in the Austin office and also for adding workforce in the New York office.
NextIO Secures $ 12.3 Million in Series F Financing
Investment to fuel worldwide expansion of companys I/O consolidation solutions for datacenters, managed service providers, and cloud computing environments
AUSTIN, Texas, May 17, 2012– NextIO, the pioneer in I/O consolidation and next-generation networking solutions, today announced it has closed a Series F funding round of $ 12.3 million. This round included investment by existing investors and an undisclosed strategic investor. NextIO, which demonstrated significant growth in 2011, will use the new funds to further expand sales and marketing efforts and to further expand NextIOs family of I/O consolidation solutions.
Our investors have a strong history of successful investments in companies at the forefront of a number of technologies. This investment is important not only as a source of capital, but as a vote of confidence in our strategy for datacenter I/O consolidation, said K.C. Murphy, President and CEO of NextIO. After a very successful 2011 built around our vCORE and vNET product lines, we intend to double our revenue in 2012. Closing this funding is a critical step to achieving that goal, as it allows us to take our I/O consolidation solutions and marketing strategies to the next level in the U.S. and throughout the world.
NextIOs customer base includes technology leaders in a variety of markets, including managed service providers, internet service providers, aerospace, automotive technologies, oil and gas, government, and finance. In 2011 alone, several hundred NextIO I/O consolidation systems were installed into these customers worldwide. NextIO will use the capital from the Series F funding round to grow both its worldwide go-to-market efforts and its product portfolio to further increase revenue and market penetration in 2012 and 2013.
NextIOs I/O consolidation products are achieving impressive market penetration in the multi-billion dollar datacenter networking market, said George Ugras, General Partner at Adams Capital Management. The explosion of data and the migration to the cloud presents a great opportunity in this market, and NextIO is uniquely positioned to capitalize on these trends as customers look for next-generation networking solutions. The customer adoption to date has validated the value proposition for NextIOs products, so we felt this was the right time to further invest in the company and capitalize on the tremendous demand we are seeing.
NextIOs portfolio of rack-level I/O consolidation solutions includes products for datacenter network consolidation, GPGPU computing, and high-performance storage. The newest product in the NextIO portfolio is the vNET I/O Maestro, which provides server connectivity at the rack level to both Ethernet and Fibre Channel networks without the need for changes in governance models or proprietary, hard to support I/O drivers. The result is the elimination of expensive 10Gb Ethernet NICs, Fibre Channel HBA, multiple top-of-rack leaf switches, and an up to 80% reduction in the number of cables at the back of the rack. By simplifying server I/O, the vNET I/O Maestro significantly reduces CapEx, power consumption and cooling, while providing the ability to dynamically reconfigure I/O resources across servers as the needs in the datacenter evolve due to business conditions.
About NextIO
NextIO provides rack-level I/O consolidation and virtualization solutions that maximize value, productivity and efficiencies by simplifying server I/O in the datacenter. Our innovative architectures are based upon industry standard PCIe switching technology. By separating compute from I/O, we create pools of I/O resources that can be shared, virtualized or dynamically allocated across servers within the rack. Datacenter managers benefit from lower TCO, increased I/O resource agility, and quicker time to revenue. NextIO solutions address datacenter requirements across multiple industry segments including: Enterprise, Oil & Gas, High Performance Computing, Financial Services, Academia, and Government. For more information, visit www.nextio.com.
Contact:
NextIO
Jamie Smethie, +1 512-439-5353
Global Director Marketing
jsmethie@nextio.com
or
David Gibbs, +1 512-432-1861
Media Relations Representative
dgibbs@bando.com
For the week Facebook went public you wouldn’t know it–and no, that’s not a knock on where its shares closed today. Instead of opting for the obvious, peHUB readers stuck to their knitting–dialing in for big fundraises, key returns data and why you just might consider that college dropout for a job after all!
1. Mark Boslet takes a look back at some hot ’07, ’08 vintages
2. Alastair Goldfisher keeps an eye on Accel Partners, which was named the top VC for online businesses
3. Luisa Beltran breaks the story on Providence Equity, which may still wrap up its seventh fund (albeit short)
4. Guest contributors Victor Belfor and Ben Smith opine that, perhaps, what you really need is a college dropout!
5. Gregory Roth writes on why Vista Equity really likes the view—for its latest fund
6. Mark Boslet writes on Psilos’ big return on the Extend Health exit
7. Bernard Vaughan cracks the case on TA Associates’ latest fundraise
8. On a day when Facebook shares treaded water, we remember the Reuters post from this week, which points to the company’s early backers—who are definitely happy with their haul
9. Connie Loizos chats with one stock picker who picks Facebook’s stock to take a ride—down
10. Mark Boslet covers Accel and Sequoia’s biggest joint (investment) ever, man! It was a $ 70M round for Qualtrics
Image Credit: Shutterstock.com
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Paul Angott is an idea man. He holds 40 patents on products such as a clock thermostat, a wireless doorbell, and a laser-guided, unmanned mower for football fields and golf courses. Throughout his career, he’s launched five companies and raised more than $ 10 million for his various entrepreneurial endeavors, sold more than $ 100 million worth of his products, and taken 30 of these products from concept to market. Now, with a new company based in Bloomfield Hills, MI called Angott Medical Products, he wants to revolutionize testing for breast cancer.
“Our goal is to save 10,000 lives per year,” Angott says. “If you detect breast cancer at stage one and it hasn’t spread to the lymph nodes, the survival rate is about 98 percent. Our test, which is an adjunct clinical breast exam, can detect a tumor at one centimeter in diameter 95 percent of the time.”
Angott’s prototype device tests for breast cancer using 3-D advanced thermal profiling. During the test, a woman lies with her arms stretched over her head on a specially designed exam table. The woman puts her hands on a cold bar that is part of the table, bringing the her body temperature down, while a camera snaps a series of images of her chest. That’s where the thermal imaging kicks in: blood vessels that feed a tumor won’t cool down with the rest of the body, making them stand out on a thermal image. The only portion of the test that touches a woman’s body is the cold bar.
The test captures data digitally and then uses special software to interpret the results, which Angott says eliminates the need for highly trained specialists. The test also works with women of any age woman and with breasts of any density—a difference from mammograms, which don’t work as well on dense breasts, he notes.
Angott emphasizes that his test is not meant to replace mammograms, but augment clinical breast exams. He adds that the device doesn’t cause any pain or emit radiation, is non-invasive, and doesn’t cost a lot to administer—all of which are common criticisms of the industry-standard mammogram. Angott plans to sell his device for $ 15,000, with $ 15 per test going to the doctor that administers it.
He became interested in the field of breast cancer detection after watching his mother struggle with the disease. She had two mastectomies 13 years apart, but finally succumbed to the disease 20 years ago. “Watching the physical and emotional agony she went through was devastating,” he says. “She was angry with God. It’s a devastating disease, and I think having breast cancer is one of women’s biggest fears. So I figured I’d just try to solve the problem.”
With no medical background, Angott says he spent about 10,000 hours researching breast cancer. Eventually, he hit upon the idea of using thermography as a means of detection. (Thermography, he admits, was once commonly used in the era before mammograms before falling out of favor with most doctors, who felt it generated too many false positive readings.)
He researched thermal imaging clinics around the world and stumbled upon a method developed by a doctor who took more than a million images over 40 years and studied the what occurred in thermal images after a patient put her hand in cold water. The “cold challenge” causes a fight or flight response in the body that makes blood vessels constrict and the body’s temperature drop. Blood vessels that form around tumors don’t constrict during a cold-temperature challenge, Angott adds, so the thermal imaging detects the heat they give off. He took those ideas and adapted them when building his device.
Angott, who won TechTown’s 2011 Entrepreneur of the Year award, estimates he’ll need between $ 5 million and $ 6 million to get his prototype to market. He’s already invested $ 1 million of his own money and picked up an additional $ 1 million from angel investors. Ann Arbor SPARK and the federal government have also invested in his company. The reaction from the medical establishment so far has been good, he says, with 63 percent of the 240 doctors he polled expressing interest in offering their patients his test. Now, he’s seeking more angel investors to raise the money needed to get his product to market.
“In 480 B.C., women used to put mud on their breasts to see how it dried,” Angott says, noting that a breast that contains a tumor is a few degrees warmer to the touch than a breast without a tumor. “This is technology that has been used for a long time because it works.”
WASHINGTON — A federal investigation into JPMorgan Chase’s multibillion-dollar trading loss widened Friday as regulators pursued a new line of inquiry.
The Commodity Futures Trading Commission opened an enforcement case, people briefed on the matter said, making it the third federal agency to examine the trading loss.
The agency joins the Securities and Exchange Commission and the Federal Bureau of Investigation, which are also examining possible wrongdoing at the bank, the nation’s biggest by assets.
The various investigations are all preliminary. No one at JPMorgan has been accused of any wrongdoing.
The commodity commission’s members also voted on Friday to publicly disclose the existence of their investigation soon, an uncommon step that occurs only in the most serious cases. Last year, the agency confirmed that it was investigating the collapse of MF Global, the brokerage firm that misused customers’ money.
In the JPMorgan matter, the C.F.T.C. will potentially examine, among other things, whether the bank’s trading affected the market for credit derivatives — which lie at the heart of the bank’s trading debacle.
While the agency is not the bank’s front-line regulator, it does have jurisdiction over the derivatives industry. It started tracking the bank’s trading in April, one person said, after reports emerged that a London-based trader was taking large bets in credit derivatives that distorted the market. But it was not until recently that the agency opened a formal investigation.
The agency’s chairman, Gary Gensler, is expected to disclose the investigation when he testifies on Tuesday before the Senate Banking Committee. It is unclear whether he will offer additional insight into the scope of the case.
The S.E.C. and the F.B.I. office in New York are examining JPMorgan’s accounting practices and public disclosures surrounding the risky trades.
Both of those inquiries are likely to examine JPMorgan’s regulatory filings that mention the chief investment office, which is the internal unit that placed the trades, and recent statements from the firm’s top executives. On April 13, Jamie Dimon, the bank’s chief executive, publicly played down the concerns about the unusual trading by the “London whale,” calling them a “complete tempest in a teapot.”
On May 10, the bank disclosed that it had lost at least $ 2 billion in trading, blaming “errors, sloppiness and bad judgment.” A bet with credit derivatives, meant to be a hedge, was “poorly constructed and poorly monitored,” according to Mr. Dimon. The losses are now believed to have grown by at least another $ 1 billion.
Federal prosecutors in New York have also contacted the bank.
A spokeswoman for JPMorgan did not immediately respond to a request for comment.
Elevation Partners, the private equity firm that famously counts Irish rock star Bono among its co-founders, sold 5.2 million of its Facebook shares (or 13% of its stake) for $ 198 million as part of Facebook’s IPO on Friday.
Elevation’s partial exit from Facebook marks a clear success among the firm’s recent investments, which also include Yelp, the customer review site, and helps the firm overcome some of its early missteps.
Prior to Friday, Elevation owned 40.1 million shares, or roughly 1.5% of the social networking Goliath. That stake was worth slightly more than $ 1.5 billion. Elevation’s made its investments in Facebook during 2009 and 2010, paying $ 268, representing a 5.6x return for the firm.
The firm is currently raising its second buyout fund, a middle-market growth equity vehicle that is thought to target between $ 1 billion and $ 1.9 billion. The fund will not only invest in growth equity, but also be able to invest in seed to late stage firms, sources told Buyouts magazine last year.
The firm’s debut fund, which closed in 2004 and raised $ 1.9 billion, has so far returned 1.4x and delivered an IRR of 11 percent, according to December 2011 data from the Oregon Investment Council, which committed $ 100 million to the fund.
Elevation Partners was able to get several marquee investors to invest in its debut fund, including the Washington State Investment Board, the Oregon Investment Council, the Colorado Public Employees’ Retirement Association, the Pennsylvania State Employees Retirement System and the Illinois Teachers Retirement System. There has been no information on whether any of these investors are planning to commit to Fund II.
To be sure, Elevation Partners was founded by several partners other than Bono, including Roger McNamee, who previously co-founded tech buyout shops Silver Lake Partners and who plays bass and guitar for Moonalice, a rock band; Fred Anderson, a former Apple executive; and Bret Pearlman, a former Blackstone senior managing director.
Elevation’s other big hit investment is Yelp, which Elevation was reported to have invested $ 100 million in. The firm’s 11 million shares are now estimated to be worth $ 227 million based on Yelp’s closing price on Friday of $ 19.49 a share. Another notable investment for Elevation has been Pandora, the Internet radio site.
Elevation’s largest investment was for a 25 percent stake in Palm, the mobile device maker. Elevation invested $ 460 million in the public shares of the firm over a three-year period. Ultimately, Palm was sold for $ 1.2 billion to Hewlett-Packard in 2010. The investment did a bit better than break even for Elevation, which saw a $ 485 million exit following HP’s purchase.
Elevation also invested $ 300 million in Forbes, the financial magazine and online publisher, which has struggled financially, not unlike many business publishers.
Gregory Roth is a senior editor at Buyouts Magazine and peHUB. Follow his tweets @RothReuters. Follow Buyouts tweets @Buyouts.
Image credit: Bono listens to Obama speak at a World AIDS Day event at George Washington University in Washington. Photo by Kevin Lamarque, Reuters.
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Facebook now has some proving to do.
On the first day of trading as a public company, Facebook shares did not deliver the pop that many investors have come to expect from Internet companies. The lackluster first-day performance may be an early sign that the market is not fully comfortable valuing Facebook at $ 105 billion, a number that assumes the company is capable of producing enormous profits.
At its current market value, investors are not just friending Facebook — they expect it to be their best friend for a very long time. Yet stock market history shows this ardor evaporates when a highly valued company disappoints.
“At $ 100 billion, everything has to go according to plan,” said Aswath Damodaran, a professor of finance at the New York University Stern School of Business. He thinks the company could be worth about a third less.
In isolation, $ 105 billion does not mean much. That value has to be compared with Facebook’s earnings and sales. And that is when it begins to look as if the company is priced for perfection.
Facebook is trading at 108 times its earnings in the 12 months through March, compared with 14 times for the overall market and 18 times for Google, Facebook’s main competitor for online advertising revenue. On sales, Facebook’s stock price also looks rich, even alongside similar companies. LinkedIn, a social network, trades at 17 times sales. Facebook far exceeds that at 26 times.
“I can’t justify it,” said Anup Srivastava, an assistant professor at the Kellogg School of Management at Northwestern University. “Facebook is a great business, but it’s worth around $ 25 billion.”
There is one measure upon which Facebook does not look the most expensive — how much value the market places on each of its users. The company had 806 million worldwide users visit its sites in March, according to comScore, a data firm. The market values each of those at $ 130, compared with $ 172 at Google.
But there is a very good reason Google is higher. It manages to make $ 35 in revenue for each user, seven times more than Facebook.
Young companies often start out trading with absurd-looking valuations, but then fulfill them as they produce the earnings that investors expect. Google went public in 2004 at a similar valuation to earnings. Since then, its shares have gone up seven times.
But Facebook’s business model is not as clear as Google’s, Mr. Damodaran says. He says he thinks it would be a mistake to assume that just because it has hundreds of millions of users, it can make strongly increasing profits for the foreseeable future.
“It’s like a Chinese company that says it’s worth a lot because there are a billion people in China,” Mr. Damodaran said.
The next big market milestone for Facebook will occur early this summer, though it is likely to be a far more sober affair than the $ 16 billion initial public offering on Thursday.
That event will be Facebook’s first quarterly earnings report as a public company. The shares of other Internet companies that recently had I.P.O.’s fell after releasing earnings that did not meet expectations.
Investors will be scouring the quarterly numbers for evidence that Facebook is finding new ways of generating advertising revenue, which accounts for 85 percent of total sales.
It is possible that investors will treat Facebook like Amazon and award it a stratospheric valuation even in the absence of strong profits growth.
Amazon has this favored status mainly because investors say they believe its huge and hard-to-assail presence in online shopping gives it the time to generate higher earnings. Likewise, no social networks so far look as if they might become close rivals to Facebook.
But the danger for Facebook is that, if its shares start falling soon after the offering, it may stir up more skepticism about its prospects. It may find it hard to win back the faith among investors that allowed it to go public at such a high valuation.
“Facebook has a great product, but it’s not a great company yet,” Mr. Damodaran said.
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