Thursday, February 26, 2009

Todd Dagres on Twitter's (Eventual) Business Model

I was talking yesterday with Spark Capital founder Todd Dagres... and I asked him if the rumors were true that he has begun Twittering. (Spark is the lone Boston investor in San Francisco-based Twitter, having recently participated in the company's $35 million fourth round.)

It's true, but his Twitter identity is tough to find. (It's here.)

A pithy sample post: "Lots of coats and ties in the room. Ties = bear market."

I asked Dagres why he'd started using Twitter (though others at his firm blog, he has never been a big blogger), and when we'd hear about Twitter's business model.

"I tried it because I wanted to see what all the fuss was about," Dagres said. "This thing is growing about as fast as I’ve ever seen anything grow before. Now, I’m addicted to the stupid thing. I follow Shaq and a few other people who’ve got interesting insights." That would be Spark colleagues Bijan Sabet and Santo Politi, and Jonathan Seelig from GlobeSpan Capital. (While at Battery Ventures, Dagres was an investor in Akamai Technologies, which Seelig helped start.)

Dagres says that Spark and Union Square Ventures are the two biggest shareholders in Twitter.

"We think it’s kind of funny to listen to people [in the press] talk about the lack of a business model," he said. "We know how we’re going to do it, and we’re very confident about how we’re going to do it, and it’s not necessarily in our interest to tell people how we’re going to do it. There is a biz model that has yet to be implemented. Of course, I can't guarantee it’s going to work."

Dagres continued, "All of a sudden there will be some changes that won’t undermine the experience or the virality -- but it will be pretty obvious how we’re going to moentize it."

Twitter hasn't generated any revenue thus far. Dagres said that changing that situation was definitely a project for 2009. But "we’re in no rush right now," he said.

Isn't it nice to fantasize, amidst the current economic gloom, that you work for a company that is under no pressure to start bringing in revenue any time soon?

"Calgon, take me away....."

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$26 Million In, $3 Million Out

This is one of those deals all the VCs involved would probably rather forget: putting $26 million into Tizor Systems of Maynard ($8.3 million as recently as last February), and then selling it to Netezza for $3.1 million in cash. Tizor makes software for securing and auditing the information stored in data centers.

Who was involved in this one? Longworth, Navigator Technology Ventures, Common Angels, and Masthead Venture Partners locally, and Hummer Winblad on the West Coast, according to PEHub.

I wrote earlier this month about the rising number of these fire sales of struggling tech companies. And a while back, I wrote about firms like Masthead and Longworth trying to raise new funds. Neither has.

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Wednesday, February 25, 2009

What Advice Would You Give to a Friend Who's Looking for Work?

What advice would you give -- or what advice have you been giving -- to a friend who's currently in the job market? One thing that not everyone knows to do?

Post a comment here, if you would...

Sunday's Globe column offered a collection of advice that I gathered last week from recruiters, CEOs, and HR execs.

There was also this video conversation with HubSpot CEO Brian Halligan, who talked about using social media for building your own personal brand:

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Thursday, February 19, 2009

Dear Deval and Greg: You Are Missing the Point on Branding

Good to see Rob Weisman's piece in today's Globe about rebranding the tech sector in Massachusetts.

As readers of this blog know, this is a campaign that I have been trying to nudge forward for a few months. (A blog-based brainstorming session happened here in December 2008, and I wrote a column in the Globe on the topic later that month.)

But our fearless elected leaders, especially Greg Bialecki and Deval Patrick, are missing two very important points:

- Trying to brand the tech sector, and also trying to brand the life sciences sector, and oh yeah, we also have financial services, and education, and cleantech, is a pointless exercise. We're about innovation across all sectors... we are about coming up with new ideas that change the world, no matter what industry they're applied to, or whether they involve software, hardware, genomic data, engineered molecules, or medical devices.

- This ought not to be a Massachusetts solo project. We are part of a regional cluster that is called New England, and innovative stuff is happening from Burlington to Portland, from Providence to Northampton... (and even in Hartford!) If you believe that we're competing in a global economy, let's leverage everything we've got in the region.

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Monday, February 16, 2009

Colorado-based TechStars Will Launch a Boston Program This Summer

Less than a month after Paul Graham announced that Y Combinator won't be running its summer start-up cultivation program in Cambridge, we learn that TechStars will fill that vacuum.

TechStars was founded by MIT alum Brad Feld, who also started his first company, a software consultancy, here.

TechStars is a bit younger than Y Combinator, having spooled up in 2007. But a dozen of the twenty companies that have been through TechStars thus far have received angel or venture funding, and two have been acquired. TechStars invests up to $18,000 in each company, offers lots of guidance and mentorship, and organizes a pitch session for prospective investors at the end of the summer.

It was one of those investors, Bill Warner, who helped bring TechStars to Boston. Warner put some money into Eventvue, and visited Colorado to chat with Feld last December. At the time, Warner didn't realize that YC would be eliminating its Cambridge summer program. He writes via e-mail, "...with YC already in place in Boston, and with the 2009 season already coming up, it didn't make sense to push for this year. [But] once YC decided to focus on Silicon Valley, [we] really ramped up our discussions."

They don't have a venue yet for the summer program, but applications are due by March 21st. Managing the program will be Shawn Broderick, CEO of TrustPlus, who worked with Feld earlier in his career.

Among the mentors for the new Boston program are Microsoft's Don Dodge, Lead Dog Ventures founder John Landry, iRobot CEO Colin Angle, Harmonix co-founder Eran Egozy, Nabeel Hyatt of Conduit Labs, and software exec Chris Heidelberger. The investors who'll be getting TechStars Boston off the ground include Feld and Warner, as well as Bijan Sabet of Spark Capital.

According to TechCrunch's report on the news, TechStars says that their "expansion into Boston has been in the works for about six months now, so Y Combinator’s decision didn’t play a role."

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Sunday, February 15, 2009

Assessing the M&A Environment in 2009

Today's Globe column is headlined 'Fire sale for struggling start-ups.' It got cut rather drastically for space reasons... so I'm publishing the "director's cut" here, along with this week's video: a chat with i-banker Paul Deninger.

Fire sale for struggling start-ups

Last summer, in the clubby, wood-paneled confines of the Oak Bar at the Copley Plaza Hotel, Chris Cabrera and Mike Torto got together for drinks.

It wasn’t the first time the two chief executives had met – Cabrera’s San Jose company, Xactly Corp., competed directly with Torto’s Lowell-based business, Centive Inc. – but it was the first time they seriously discussed combining the two companies. “We realized that the only deals we were losing were to them, and vice versa,” says Cabrera. Both companies sell Internet-based software for managing the way salespeople are paid. “There seemed like a lot of synergy to bring the two companies together.”

Synergy, perhaps. But when Xactly’s acquisition of Centive was announced last month, there didn’t seem to be much upside for the investors, founders, and employees of the Lowell company: after nearly a dozen years of work building Centive, and more than $92 million in venture capital raised, they handed their company over to Xactly in exchange for stock in the San Jose start-up, which is privately-held and not yet profitable.

Entrepreneurs, team members, and investors work insanely hard under the expectation that they’re creating something of value. The dream is that eventually, the stock market or a deep-pocketed acquirer will repay them for all that work. But right now, public offerings are at a standstill, and the types of acquisitions that have been happening over the past few months don’t look too alluring.

“Investors are looking at their portfolios, and trying to decide which companies can cut costs and survive, who’s going to die, and who they can sell,” says Paul Deninger, vice chairman of the investment banking firm Jeffries & Company. “And sometimes when they sell, they’re happy to just get their bait back, and maybe make a tiny profit.”

Centive isn’t the only recent example of the lackluster market for tech companies. Earlier this month, a bargain-hunting Oracle Corp. snapped up Burlington-based mValent, Inc. for an undisclosed sum. mValent, which helps customers keep track of the way computer systems are configured, had raised more than $26 million from local investors like Polaris Venture Partners, Flybridge Capital Partners, and Charles River Ventures. In January, San Francisco-based Riverbed Technology, Inc. paid $25 million in cash for Mazu Networks of Cambridge, which makes software to help optimize the performance of their technological infrastructure. Only problem is, investors like Waltham-based Matrix Partners, Greylock Partners, and Pilot House Ventures of Boston had poured $47 million into the company.

There’s a possibility that Riverbed may shell out another $22 million for Mazu, if the acquired company hits certain business targets over the coming year. But analyst firm The 451 Group opined that achieving those targets will be “unlikely” given the current economic situation.

Somewhat incredibly, the banker who handled the Mazu transaction dubs it “a huge win.” How’s that? “When you have interested parties at the table in this market, and you have a company that has momentum and is doing well, you sometimes say, ‘Let’s take advantage of this now,’ versus taking the risk that the company will either require further funding, or the company may lose its momentum,” says Ben Howe of America’s Growth Capital in Boston. In other words, the price could get worse in six months, or would-be acquirers could vanish.

Venture capital firms are holding on to their best companies – the top prospects – and wouldn’t consider a low-ball offer. But when it comes companies that seem like black holes for funding, or the time and attention of their VC board members, the attitude is, “Any semi-serious offer will be considered.”

“You’ll see a whole bunch of investors just getting rid of stuff this year,” says Giles McNamee, co-founder of the Boston investment bank McNamee Lawrence & Co.

Liz Cobb founded Centive, then known as Incentive Systems, in 1997 to help companies better calculate the commissions that are paid to sales reps, and inform the sales reps about how well they were performing. She wrote the business plan and raised a first round of $2 million to build the product. Eventually, the company promoted Mike Byers, its chief financial officer, to CEO, and Byers went on a fund-raising tear. The company also started chasing big, million-dollar deals with customers like General Electric, Kinko’s Analog Devices, and Computer Associates. But every deal, Cobb says, was a custom job requiring lots of individual attention.

A big shift happened in 2005 and 2006, when a new CEO, Torto, was brought in. The company sold off its original enterprise software business in order to focus on software-as-a-service, or delivering its sales compensation software over the Internet, which reduced the cost of acquiring customers and also the amount of hand-holding they needed. Torto also recapitalized the company, which wiped out many of the earliest investors and gave a larger stake to those who were willing to stay in the game and keep funding Centive.

Xactly was founded around that era as well, and Centive started bumping into them in the marketplace. “For the past four years,” says Cabrera, “we’ve been battling each other for #1 and #2 in the market.” Xactly also opened up a Boston sales and marketing outpost.

By last year, Torto had nearly nudged Centive into profitability. After the Oak Bar meeting, Torto discussed the potential deal with his board, and the two companies began the due diligence process. “We always figured it would be an all-stock deal,” says Cabrera, “but a lot of time was spent on the delicate subject of valuation.” It was determined that Torto and most of the rest of the Centive management team wouldn’t stay on after the acquisition closed. But Xactly plans to retain the Centive engineering team in Lowell – at least for the foreseeable future, while they combine the best features of the two products.

For their part, even if they don’t have any cash to show for it, Centive’s investors are trying to remain optimistic. They’re now minority shareholders in Xactly, and that company could turn out to be a big winner. Right?

John Gannon is a partner at Polaris Venture Partners in Waltham, which backed Centive from its genesis to its most recent $10 million round, in 2005. “I think there’s a higher likelihood that by putting these two companies together, there will be a really positive exit from an IPO or an acquisition,” Gannon says.

Cobb, Centive’s founder, had split from the company in 2003 after some differences of opinion about its direction. So she wasn’t at the Oak Bar meeting when the two companies began exploring an acquisition. She learned that her old company had been sold a few weeks ago, when a colleague at Makana Solutions, the company she now runs, sent her an e-mail with a link to the announcement. Her founding stock in Centive had been so diluted over the years that she didn’t wind up with a stake in Xactly.

“It’s not fully what I had imagined,” she says.

In 2009, she’s not the only entrepreneur who’ll be feeling that way.

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Thursday, February 12, 2009

Does Larry Weber Get the Social Web?

Back when the first edition of Larry Weber's book "Marketing to the Social Web" was published in 2007, I noted that he didn't have a blog.

Now, there's a second edition out, and still, Larry has his minions blogging about the book on his behalf, and shooting YouTube videos for him.

After a quick glance today, it seems that Larry has no Twitter account, no Facebook account, and no MySpace account. (There are other Larry Webers on MySpace and Facebook, but not the famous social media guru.)

I guess it's possible to really understand this stuff in the abstract, without really using it?

Here is Larry's first YouTube video, to promote the book. Does this count as social media, or is it really just a TV commercial?

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Monday, February 9, 2009

Tomorrow at the State House: Event on Education, Entrepreneurship & Mentoring

MassEntrepreneurship 2009, taking place Feb 10th at the State House in Boston, focuses on how universities can better support entrepreneurship -- a really important topic. After the requisite intro from the Governor, there are two panels: one on running mentorship programs that connect students with experienced businessfolk, and another on supporting young entrepreneurs. The event is free, but you need to register here.

And while we're on the topic of supporting young entrepreneurs, Jeffrey Bussgang of Flybridge Capital sends an update about the Stay in MA program, which helps cover the cost when students attend industry networking events and conferences. Bussgang writes:

    ...[I]n the first month of the program, we have granted over a dozen student scholarships for students from Babson, BU, MIT, Harvard, UMass Boston and even one high school. We are actively marketing the program on campuses throughout the state and have developed partnerships with nearly every local business association. The breadth of the associations supporting it are awesome – check it out at The website attracts over 1000 visitors per month.

    The feedback has been terrific. ...The Governor has been super-supportive as well – he’s asked for direct updates from us and enlisted his Secretary of Economic Development to assist in promoting.

Lots of organizations are involved, and are doing a better job of promoting Stay in MA on their Web sites to let students know about the program.... the only notable non-participants are the Greater Boston Chamber of Commerce and the Massachusetts Biotech Council.

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Thursday, February 5, 2009

Hang with Adeo Ressi & Bitch About VCs, on March 10th is doing their first east coast event next month -- a cocktail party on March 10th at the MIT Media Lab.

What exactly will happen, once you've bought your $100 ticket? From the site:

    - Get to know fellow CEOs from various fields
    - Hear The Founding Member [that would be the no-longer-mysterious Adeo Ressi] discuss start-up strategies for 2009
    - Learn the current market perspective of an Award Winning VC
    - Explore cutting-edge MIT projects and technologies with the Professors
    - Socialize over food and drinks in a unique Boston-area venue

At least 25 people want to be there; early bird tix are sold out.

What kind of awards, I wonder, will this unnamed VC in Bullet Point #3 have won? Oscar? Grammy? People's Choice? Blue Ribbon from the Big E?

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Wednesday, February 4, 2009

Patrick and Bialecki Wake Up to the Need to Rebrand Mass.

I'm glad that Gov. Patrick and Greg Bialecki, the new secretary for housing and economic development, have been talking about the need to rebrand Massachusetts as part of their west coast swing this week.

This is a great step forward.... but I'd like to see a pan-New England branding effort get started, rather than pitching each state as an island unto itself.

Or am I being blind to the way state politics always work?

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Looking at Media Start-Ups in New England

My most recent Globe column focuses on some of the new media-oriented start-ups in New England -- and the challenges they'll face in an advertising-constrained climate. It mentions GlobalPost, Foneshow, Gather, and Helium. But I had to leave out a few others, like NameMedia, which is building a handful of "enthusiast" Web sites like; The Daily Grommet, a video guide to cool new products; and BlogPire, a network of product-oriented blogs, like

Know of other interesting media start-ups? Post a comment here.

The video is a short conversation with GlobalPost CEO Phil Balboni, who previously started and ran New England Cable News:

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