I’m taking a class at Sloan called “Evolution to Web 3.0 and the Emergence of Management 3.0″ about what exactly “Web 3.0″ will look like. We’re tracing back historically through the evolution of web technologies and we’ll use that knowledge to sketch out what we believe web 3.0 will look like. Perhaps more importantly, we’re also exploring how changes in the web will affect the future of mangement.
The professor has not directly equated “Web 3.0″ to the “Semantic Web” (which many people do) and since our class started in January, the Web 3.0 entry on wikipedia has been deleted. Most credit Tim Berners-Lee with defining the “semantic web” in a 2001 issue of Scientific American - he’s coming to speak to our class on Monday (4/27), and I’m very excited to hear his take on how his vision has evolved over the past 8 years.
I don’t think “web 3.0″ is just some buzzword - there will be very tangible changes in search in the next few years that adopt more semantic, contextual principles. In an interview with Charlie Rose in March, Google’s Marissa Mayer pointed out that the future of search will address the difference between an “answer” and a “result” (first 2 mins of the video).
That idea - the shift from “results” to “answers” - will be central to web 3.0, should it ever move away from buzzword-only status.
I have been to several presentations in the last few months given by lawyers that work with startups. Last night, the firm was Goodwin Proctor and the topic was “8 ‘Great’ Mistakes Entrepreneurs Make”. To me there’s one HUGE common thread that comes up over and over again at these presentations: PROTECT YOUR IP (or as they phrased it last night “Mistake #8: Failing to Adequately Protect Your Intellectual Property Assets”).
If these lawyers push and belabor the IP issue in presentation after presentation, I’m guessing it’s because they see tons of startups that have had IP issues of some sort - and this is their attempt to head them off at the beginning.
Here’s the problem: founder equity debates (who gets what percentage of the company) are awkward enough, but trying to break down IP ownership is EVEN MORE awkward. I sometimes think of it as trying to divide up a check at a large group dinner when it’s someone’s birthday. You don’t want to pay more than what you believe you owe, but you don’t want to be the one to speak up either.
Yet the stories of IP disasters keep coming. The guys from Goodwin pointed out that it’s not just the co-founders that could have a claim to your IP - you also need to think about former employers, 3rd party developers, and consultants.
The lesson here - take some steps early on to protect your IP. Don’t be sheepish about discussing IP ownership and know that you might need to ask your employees to sign NDAs (though don’t try to ask a VC to sign an NDA, it will just show them how naive you are). Be vigilant about your IP - your lawyers will thank you.
I have been thinking a lot about bit.ly’s funding round that was announced a few weeks ago. There has been a lot of attention lately on URL shortening, especially with the explosion of Twitter (Twitter on Oprah!) and the introduction of the Digg bar.
Why did bit.ly get money? There are a ton of URL shorteners out there - and my initial thought was that if Twitter ever introduced the ability to hyperlink I would stop using services like bit.ly completely.
But bit.ly’s appeal to investors rests not in its URL shortening, but rather its tracking system and analytics. By using a bit.ly link one can tell how many clicks his/her links are getting and where the clicks are coming from - even inside of social networks like Twitter and Facebook. Bit.ly can get where Google Analytics cannot, which is great for bloggers/content creators.
If the original Google search algorithm was constructed based on a system of hyperlinks/pagerank, there is potential in the data collected by bit.ly to create a collection of “live hyperlinks” where you can track how a link is passed among people/websites. This would dovetail nicely with the [somewhat] burgeoning “semantic web” (ok, burgeoning since 2001, but still) in that it would provide more human, dynamic, and real-time input on hyperlinking.
That type of data, if presented right, has huge potential for online advertising.
OK, I’m convinced.
Company valuations.
Now that I’ve been staring at pro-formas for weeks and have officially re-kindled my love affair with my TI-83, I am sort of in love. What’s great about MIT is they don’t spoon-feed material - we got a packet of financial statements and just had go at it. Mk, on to the good stuff.
Apparently there are 20+ ways to do valuations, but they all fall into five general buckets.
For the uninitiated, here is my attempt at a breakdown:
1. Earnings Multiples (PE, EBIT, EBIAT): Methods that employ an industry-based multiple to the earnings of a firm. If a firm has no income (ahem, Twitter), its valuation using this method would be effectively zero. The most popular earnings multiples valuation uses a company’s price:earnings (PE) ratio — if you multiply the PE ratio and the company’s net income it will give you a general idea of the value of the business.
2. Asset Multiples (Liquidation Value as Percentage of BV, Replacement Values): This is when you liquidate the assets of the company, pay off your liabilities, and see how much is left.
3. Discounted Cash Flow (DCF): You use future free cash flow predictions, then discount them back to adjust for the time value of money. The most popular method of discounting uses the weighted average cost of capital - or “WACC”. There are a lot of WACC jokes in business school, and aren’t they just so hilarious? (You wonder why the MBA has taken such a reputational hit lately).
4. Comparables: Exactly what it sounds like. Use the valuation of similar (ahem “comparable”) companies to arrive at a valuation. Simple comparables worksheet: here.
5. Contingent Claims: This type of valuation involves derivatives (options). And that’s all I’m going to say about that.
So how are early-stage tech companies valued? If you have little to no revenue, earnings multiples and dcfs are sort of useless, and trying to ascribe value to site traffic and “intangible assets” is an onerous process.
This paper written by Cogent Valuation lays out what they call the “Early-Stage Technology Company Valuation Paradigm” - it’s a fairly straightforward explanation of their valuation process for these types of companies (though I sort of loathe excessive use of the word “paradigm” especially in reference to already hard-to-grasp topics like valuation).
This is a new topic for me, but I’m hoping by the end of my time at school I can produce the following post: “HotorNot: An Analysis of Valuation Methods for Early-Stage Technology Companies”. Stay tuned…
Looking for brunch in Boston before 11am? Good luck. Seems like this city has no interest in taking money from people who eat before 11am or after 2pm on Sundays. So me + friend Ann “I want my internet presense to be net-zero, so don’t use my last name” [redacted] were strolling around the South End at 10am, and found Stephi’s on Tremont (571 Tremont Street, South End) which was miraculously open.
I have never before been in a restaurant that so reeked of “restaurant consultant”. The menu was trend central: short ribs, serrano ham, chorizo, ahi tuna, eggs benedict plus another *fancy* eggs benedict option, and arepas. My usual experience with these places is that the restaurant consultants are great with details - orchids placed in just the right spots, excellent choice of glassware, perfectly rehearsed dialog from the waiters, “jam of the day” gimmicks, etc, but the food never actually tastes that great (example: Daedalus in Harvard Square - one of the few places that does brunch on Saturday). This is why I usually stick to greasy-spoon diners. At least when you say runny yolks at places like Sunny’s or Brookline Lunch (both in Central Square), that’s what you get.
I went with the arepas with chorizo and fried eggs, and MAN it was tasty. Artfully done, too, but not the sort of plating where you feel bad stabbing the egg yolks and soaking your entire meal in delicious cholesterol. I am now officially re-considering my stance on restaurant consultants (please note: I have zero proof that Stephi’s actually employed a restaurant consultant. I am merely postulating that their setup, menu, and decor is exactly what any good consultant would put in place if given the opportunity).
So congrats, Stephi’s - your brunch is rock-star. You might want to make your coffee a lil hotter though.
