Benjamin Kuo’s Blog

Dan Primack over at PEHub.com appears to be spending his morning today focused on ferreting out stealth Los Angeles venture deals, and has the details on at least three, independent stealth fundings in Los Angeles today:

• Real D, which developing 3D movie projection systems for Hollywood, has raised $20M in a Series D funding
•  Katalyst Media, an entertainment studio headed by Ashton Kutcher, snagged $10M
• and C3L3B Digital, a developer of casual and MMO games based in Simi Valley, has scored a $3M investment (round in progress).

Helio just announced that Sky Dayton is stepping away from his CEO position to become Chairman of the firm, and at the same time announced some numbers for the firm’s subscriber base.

Helio said it now has “nearly 200,000 subscribers” with an ARPU of over $85 per user; the firm claims it has a $240M run rate for its business. Interestingly enough, I recall an eerily similar release of numbers by Amp’d Mobile back in April of last year–right before the firm’s flameout–where Amp’d said they had reached “200,000 subscribers” with an ARPU of $100 per user. The question is–nonwithstanding ARPU and subscriber numbers–can Helio avoid the same kind of spectacular flameout that Amp’d had last year?

One of the difficult issues we constantly face in our editorial coverage comes from an unlikely source: spam filters. We’re finding that we’re frequently finding stories which — although news worthy — are quite difficult to cover in our normal newsletter coverage. A large number of our readers are reading our news via email, and we find the bounce rates on certain topics go through the roof if we include stories in our newsletter (even with whitelisting and doing everything in the book to make our emails “kosher”). In fact, we find that not only do readers get their emails bounced, but often, they won’t be able to access a web page with the story featured.

For example, THQ, an Agoura Hills-based company which develops video games, just announced a deal today with Playboy to develop Playboy-branded mobile games. (described as “mini-games depicting animated, bikini-clad Playmates at the famous Playboy Mansion”). Interesting to many of our readers, who care about the entertainment and computer games industry in the area — but something which would not get through any spam filter out there.

I’m constantly emailed by our readers (particularly those at law firms, accounting firms, and large corporations) about this issue. It’s particularly bad, in some cases, that people are asking me to FAX them info from the (legitimate) company’s web site because the web site is banned by their web firewall.

Topics which seem to create issues: anything gambling/casino related, any phrase even remotely related to sex (ie. even the use of the term “breast cancer”), anything related to drug development (okay if you call it “biopharmaceuticals”), alcohol (even innocous “wine tasting” networking events) and anything related to computer games — for whatever reason, particularly if you call it “computer gaming.”

If anyone hasn’t gotten enough of technology events, there’s a boat load of events this week focused on the technology industry in the area.

First of all, out in Palm Springs, there’s Demo 2008 — where 77 new startups from all over the country are pitching what they are doing. Tradationally, lots of Silicon Valley “buzz” around those startups comes out of the conference, which has been held down here for several years now.

Second, all over Los Angeles there are a ton of events linked to Los Angeles Technology Week. The kickoff is today at lunch with a keynote by astronaut Sally Ride. Tonight’s Tech Coast Angels Fast Pitch is always very interesting. Other events of particular note is the open screening session by the Pasadena Angels, and a session on the Future of Game Development.

For those folks down in San Diego, the San Diego Venture Group has their 2008 Venture Capital outlook scheduled for Thursday. Finally, out in the Inland Empire the University of La Verne has their third annual Venture Capital conference scheduled for Wednesday — also notably spearheaded by a number of Tech Coast Angels.

Entretech, the Los Angeles-based nonprofit focused on supporting high tech companies in the region, announced finalists for its 2008 Entrepreneurship Awards this morning. The group said that Calando Pharmaceuticals, EdgeCast Networks, and Rubicon Project (which incidentially announced $21M in funding from Mayfield this AM) were finalists in its “Startup” category; Central Desktop, Nami Media, and Zag were named in the “Emerging” category; and eHarmony, Green Dot Corporation, and Vantage Media in the “Growth” category. The group will select the winners in March; the finalist will be featured at a breakfast on the 31st. (disclaimer: I’m on the board of Entretech, and the Entrepreneurship Awards are sponsored by PricewaterhouseCoopers, which is also a sponsor of socalTECH).

There’s been a lot of banter recently here, at conferences, blogs, and in my personal conversations with people about the effect of an overall slowdown (if there is one) on Internet advertising.

The problem is, there are several, very different, and powerful forces bearing down on the Internet advertising market, which make it hard to say what — at least, in the short term — will happen with ad rates.

The biggest, and I personally believe the most powerful, is one that a lot of people ignore in the short term, but which over the last few years has driven the internet advertising market most strongly. That force is the shift of traditional advertising dollars (think branding campaigns and Superbowl commercials), as a percentage, towards Internet advertising.  This is part of what is driving the huge profits and building companies in the Internet advertising market, which is traditional advertisers starting to pay attention to this “new thing called the Internet” and dipping their toes into branding ads here and there. My belief is this is only at the very, very beginning, if you compare the vastly greater sums being spent on other media like television and even the maligned newspaper industry. Anyone who does any kind of advertising placement can tell you, you can buy Internet ads at pennies on the dollar versus what you’d pay for an ad in your local small town newspaper. This shift is happening, and is not going to stop because of any kind of economic environment.

The second force, which has also been driving Internet advertising, is the entree of a different class of advertiser. These are the small businesses, web sites, and others who would not be purchasing traditional ads on television, newspapers, or radio–but have done so fairly regularly on the Internet. These are the bread and butter of Google — the advertisers who are only spending a small amount every month, but are able to because of the low cost of getting a few impressions. I think of this as the “eBay” effect — because there’s a marketplace available, a new market has been created which previously didn’t exist. Based on the kinds of ads I see popping up on Google, these are the folks that have been driving the bulk of Google’s ad revenues.

Finally, there’s the (short term) force of any spending pullback by advertisers due to a soft economy. This can be quite significant: witness the giant pullback in spending on technology magazine ad pages during the Dot Com bust. It also will most likely result in lowered CPM for online publishers, as competition for inventory drops and there’s a lot more available ad space than willing buyers. However, if there is a recession, Internet advertising is a way to get a lot more bank for your buck — it’s much cheaper (and more measurable) to buy up Internet advertising space to sell your products.

So, if you try to measure the shift of ads to the Internet, the democratization of advertisers being driven by Google, and economic effects, I’m really not sure what you get.  The fundamental question is, what’s the overall direction the Internet advertising market will take, given these the opposing forces? In the short term, it’s pretty darn muddy, and may even be bloody as the cost structure being supporting by high CPM rates on sites gets decimated by a drop in CPMs–it may even be fatal for some web sites. But, in the long term, I think it’s clear — more Internet advertising, and most likely better CPMs as all those traditional advertising dollars see a better ROI and reach in Internet properties.  As a long term play, I think it still looks pretty good.

One thing I have been hearing lots recently is speculation about how a recession will have an effect on the high tech and venture capital market. Last night, I had more than one VC tell me they were not funding CPM-based companies (ie, those companies solely reliant on advertising for their revenues), and at least one entrepreneur express some fear of the effects of a recession on his business (due to an anticipated drop in CPMs).

Opportunities, and threats, abound in any recession, but it’s definitely worth looking back at the Dot Com bust to see if any advice might be heeded on how to succeed despite — or perhaps, because — of a recessionary environment.

Interestingly enough, most of the major recent successes out of Southern California were companies born in the turbulent times post Dot Com bubble. My own opinion is that the best companies were forged in the fire of tough economic times, and came out much stronger because of it.

Some random tidbits I’ve gathered from my interviews with the more successful companies of the era:

1) Cashflow is king. During a recession, cash flow is absolutely the most important factor in a business. I have been told by more than one founder that watching cashflow, in order to meet payroll and pay bills, is the most important thing in an environment where raising capital is not an option. Generating cash from operations is key to building and surviving in a tough environment.

2) Focus, focus, focus. In a boom environment, sometimes companies have a difficult time deciding what it is they want to do and what they want to be. They decide they want to pursue multiple markets, try several different kinds of products, and generally aren’t very focused — because they don’t need to be. In a poor economic environment, you’ve got to focus, focus, and focus more on only those efforts that are the most important, most likely to generate profits, and build your business.

3) Spread your risk. For companies with reliance on a large single customer or small set of customers, it’s important to spread your risk among different kinds of customers and a number of companies. There have been many horror stories about companies who suddenly lost a customer (i.e., think drop in advertising from mortgage lenders due to the subprime fallout) due to a down turn in a specific industry. Provided it makes sense, having a variety of different kinds of customers can often help cushion a possible downturn in any particular industry.

4) Leverage your suppliers. Relating back to cash flow, a number of companies who ended up doing well recently told me they used their partners and suppliers to help manage their cash flow, form such things as vendor financing and flexible terms.

5) Be a “must have” rather than a “nice to have.” Must haves are products that people must have, no matter what happens in the market — think of “air, water, food.” “Nice to haves” are things people can (and will) go without. There are lots of “nice to haves” in business, but fewer “must haves.”

6) Thrive on poor economic times. Any company that has a product that helps save money, make better use of assets, or which can easily be shown to reduce expenditures is suddenly of more interest when the economy goes south. One favorite example of mine: VMware, which provides virtualization software which enables multiple computer images to run, simultaneously, on a one server, absolutely thrived during the Dot Com bust as companies looked to cut back hardware purchases.

7) Use the opportunity to conquer your market. One opportunity that happened in the aftermath of the Dot Com bust was the competition in many markets suddenly was reduced, enabling many companies to suddenly become the number one provider in their market. Because of unwillingness to invest, very few startups were created in their segment, and the field of competitors were whittled down–making it possible to create very big, and very successful companies.

One of the signs of the growing awareness of Southern California in the technology industry is a recent surge of events (both public and private) aimed at connecting the technology industry. In particular, the number of Silicon Valley-style events on the west side of Los Angeles has been increasing quite rapidly (think Lunch 2.0, Meetups, etc.). The latest of these was an event last night in Santa Monica held by DealMaker Media.

The invite-only event was the launch of a series of events in the Los Angeles area, and was held at the offices of Michael Ovitz, and catered by Ovitz’ restaurant Hamasaku. DealMaker is known for its events in Silicon Valley (Under the Radar, Dealmaker Forum, Momentum Growth Conference) and had an invite-only list of around a 100 people invited to their launch party (plus a long line on the waiting list - and apparently a bunch of other people wanting to go).

The event — which was extremely well attended despite a torrential downpour outside — was packed with venture capitalists from both Southern California and Silicon Valley, as well as entrepreneurs and executives. Among the folks I saw or talked to there were: Ross Levinsohn (now at Velocity Interactive, formerly of Fox Interactive Media); Peter Pham of Photobucket (brokered its sale to MySpace); Michael Jones of Userplane/AOL; entrepreneurs like Jason Feffer of Sodahead, Jason Nazar of Docstoc, and Adam Lilling from Biggerboat; Mashable founder Pete Cashmore; a slew of people from Google, and a huge number of venture folks (from Mohr Davidow Ventures, Redpoint Ventures, Clearstone Ventures, Norwest Ventures, GRP Ventures, Greycroft Partners, Steamboat Ventures, GKM Ventures, Prism Venture Partners, Mission Ventures, Stone Canyon, Draper Fisher Jurvetson, just to name a few).

Since we don’t have a technology gossip rag like ValleyWag here in the area, here’s a few photos from the event:

Above: The art gallery that is Michael Ovitz’ office and the crowd.

Left: Jason Feffer of Sodahead; a blurry Adam Lilling of Biggerboat.

VC’s galore: Palomar Ventures’ Kevin Jacques on the left, William Quigley of Clearstone Ventures on the right

Nicole Jordan of Rubicon Project/et al; Peter Pham of Photobucket (middle); Michael Jones of Userplane/AOL (right)

Valleywag posted this amusing piece on the lack of posts on Yahoo’s corporate blogs this morning, pointing out that most of Yahoo’s “official blogs” haven’t been updated in months.

Having worked at, and worked with, corporate marketing departments, the problem with corporate blogging is that generating content is hard work, bloggers generally write what they are passionate about, and most corporate cultures aren’t all that supportive of passionate/non-edited/non-reviewed/non-sterilized content being posted by their employees. To compound the problem, often times companies assign interns or others who aren’t all that passionate about a company to write blogs for them and want to control every single word posted on their blog.

The result is–with the exception of small startup companies and the personal blogs of founders–most corporate blogs are stilted, infrequently updated, and rarely connect with their readers. The exceptions are the ones that give a blogger free reign and “ownership” of the blog; set up general guidelines and rules ahead of time for posts, but do not exercise post-by-post approvals; identify the blog with a specific employee (or group of employees), by name; and find the most passionate, involved, employees with the capability and interest in blogging about the company.

I don’t know if any of these issues are what is up at Yahoo, but it probably doesn’t help that the company is looking to lay off hundreds of employees. It’s hard to find employees who are passionate and interested under that situation…

I was recently having coffee with a friend of mine who has been making the rounds of local venture capitalists, and he told me “It’s amazing how much more traction we’ve been getting since we started showing a demo of our product.” This entrepreneur–who has a great pedigree and lots of prior success–was surprised that, even with people he’d worked with before–the demo made a gigantic difference in the interest level and calls he had returned.

I’ve heard the same thing from many, many other entrepreneurs, who are surprised at the effect that a simple demo of their product has on their talks with investors, potential employees, and others.

What most entrepreneurs do not realize, is that there is a huge line between talking about a company, talking about a potential product, and showing a PowerPoint, and a “real” company. Most investors — whether angel, venture capital, etc. — see thousands and thousands of great “virtual” products and companies. Those companies are all on PowerPoint — what one investor told me he called “dream” companies. They’re someone’s dream, but no more.

However, when you show an investor a demo — even a simple prototype — suddenly, you’ve jumped a significant gap (from thousands of PowerPoints, to just dozens of companies who are showing products). What they don’t realize is they’ve proven a number of other things to the investor at the same time as showing their product.

1. You’ve proven you can move beyond the concept phase to implementation, ie, you’re not just an “idea person”
2. You’ve shown you are someone who is likely to execute — an important trait in companies and entrepreneurs.
3. You’ve demonstrated your team is technically capable of the tasks you are proposing.
4. You’ve shown you’re willing to spend your own dollars/time/effort to move your company forward, without waiting for funding–a sign of your commitment to the idea/company/product.

It can’t be underestimated.