Something is going on. LinkedIn has filed to go public, many lesser known companies have succesfully done it and it is now Pandora. You can read a lot about Pandora’s filing so my contribution is limited to the following points:
– you can read below the cap. table of Pandora (and enlarge it by clicking or even download the picture, ask me for the excel file if interested)
– there were 3 founders: Tim Westergren, Will Glaser, Jon Kraft but only the first one is mentioned in the filing and the equity of the two other ones is unknown. I made the assumption that the remaining common shares belong to them, but it canot be true. It is just an assumption.
– Pandora has raised nearly $100M with its investors.
– Revenues are nice: $50M in 2010 and $19M in 2009, but the company never had a profitable year even if its recent quarters have been (about $1M for the July and october quarters).
– The company was founded in 2000, so it would have taken him 11 years to go public.
Will this be sufficient to concince investors? To be seen….
The much anticipated filing by LinkedIn was announced last week and I could do my favorite analysis, the capitalization table and equity structure of the start-up. My main frustration came from the fact that there is no information on the founders’ shares. LinkedIn has five founders and only Reid Hoffman shareholding is known. Wikipedia states that “the company was founded by Reid Hoffman and founding team members from Paypal and Socialnet.com (Allen Blue, Eric Ly, Jean-Luc Vaillant, Lee Hower, Konstantin Guericke, Stephen Beitzel, David Eves, Ian McNish, Yan Pujante, and Chris Saccheri).” Linkedin mentions them in its Founders web page. This just means their equity level is rather small… here is LinkedIn cap. table (assuming a virtual IPO date and price per share).
Another interesting disclosure is the full list of LinkedIn investors:
“Of course, business, just as life, is never a smooth curve. Failure can come as quickly, and more unexpectedly, as success. But true success is management of failure. Every time you hit a bad patch you must be able turn your fortunes around. That’s why it’s important to be always prepared for failure and build strong teams. To be a successful entrepreneur, venture capitalist or philanthropist, you must bring together people who know there will be problems, love to solve problems, and can work well as a team.” … “It reminds me not to be too proud. I celebrate failure — it can temper your character and pave the way for great achievement.” Kamran Elahian.
Kamran Elahian is a famous Silicon Valley entrepreneur. He was the founder of Cirrus Logic which is famous enough to be in the Silicon Valley Genealogy poster. The extract below lists the founders of the company, you can not read their names but they were 5 and here what the poster says: Suhal Patil (Patil Systems), Michael Hackworth (Signetics), Bill Knapp (General Instruments), M. Kei (Intel), H. Ravindra (Patil Systems) and Elahian himself (CAE Systems). Strangely, Elahian has a different list on his website — Suhas Patil, H. Ravindra, Bill Knapp, Mark Singer.
Nesheim in his book High Tech Start Up also mentions Cirrus as a success story and gives the cap. table at IPO. It is indeed his model I follow for my own cap. tables.
Then Elahian founded Centillium which unfortunately did not have the same end though its IPO was a great success. In 2008, the company was acquired for about $42M. So failure is followed by success and by failure again. Elahian also gives Centillium founders on his site: Shahin Hedayat, Faraj Aalaie, Babu Mandeva, Tony O’Toole.
In the same area of chips, semiconductor for telecommunications, there is a similar story: Atheros has just annouced it would be acquired by Qualcomm for about $3.1B. Atheros is a company I had studied in my book because its two founders are two Stanford professors (Theresa Meng and John Hennessy, currently Stanford president) and its CEO is Craig Barratt whom I had as a teaching assistant when I was studying in California. Who says scientists/engineers cannot be great business people?!!
But the (possible) interest of all this is that you can compare three stories, more than 20 years apart and you cann see that there are tons of similarities and the web2.0 start-ups I covered recently are not so different.
I just learnt about Isilon yesterday. It certainly shows how disconnected I have been from the start-up world these days :-(. Isilon was backed by Atlas and Sequoia and went public in December 2006. It finally got acquired this week by EMC for $2.2B!
Fred Destin mentions about Isilon in his blog so you will find more info there. What I did since yesterday is looking at the company numbers since its foundation in 2001. So first, here is its stock price history as well as its revenue/profit numbers.
It was not an easy success story. Following its IPO, the company missed its numbers, lost money (no profit) until this year so that the stock price does not show a nice growing curve (even if the VCs always had a nice multiple on their investment). But the company had to wait until the acquisition by EMC to see happy employees and investors. Destin claims Atlas will finally make a 22x multiple over its investment.
What is for me (and I hope for you too!) of interest is the shareholding structure that the next table illustrates. You will have to click on it to read the details. (As usual, if you want the excel file, just ask me).
What the IPO prospectus did not say is as interesting as the rich information it provides:
– not much info on the series A and B, except the total amount, but I could not distinguish Atlas, Madrona and Sequoia investments. It would probably possible to guess the real numbers as Sequoia invested (and probably led) in the series B whereas Atlas and Madrona invested in the Series A. With prorata rules, you can make your own guess.
– Paul Mikesell, a co-founder, is not mentioned anywhere so I have no clue how much he owns/owned of the company…
Finally, Isilon was not based in Silicon Valley, but in Seattle. It’s interesting to connect this to a recent post by Bill Curley entilted the Silicon Valley IPO’s anxiety. Though Silicon Valley remains a craddle of innovation, the ratio of IPOs its experiences compared to the rest of the USA, is quite low and Curley has some explanations.
PS (November 18): I was wrong, there was more information available online: I could find the precise allocation of preferred stocks (notice there was a 2.4 stock split) and in addition Mikesell is mentioned…
The funny thing is that when I had lunch last week with a Swiss entrepreneur who needed contacts in Silicon Valley, I discovered that one my eBay contact was now at Facebook, one of my Microsoft contact was now at LinkedIn, so at the micro or macro level, there is something going on.
You know Google is one of my favorite topics. I regularly look at their growth for example. So here is it again. Too early to say if they are in the slowing part of the S-curve…
Facebook numbers? it’s rumors mostly so the graph below should be treated cautiously!
The funny thing is that I had noticed there was a relation at Google between employees and revenues, basically $1M per employee. Facebook looks slightly less efficient.
Silicon Valley has always been a war for talents. In the 90s, the electronics industry lost people to the Internet companies (you should remember that Yang and Filo, the founders of Yahoo! were studying in the field of electronic design automation) then Google was doing the same in the early 2000s, now it is about social networking. I would not worry too much for Google though. Not yet! As as Richard Newton was saying in EDA Cafe : “Silicon Valley and the Bay Area are cradles of innovation.” And he further added, stating a colleague of his: “The Bay Area is the Corporation. […When people change jobs here in the Bay Area], they’re actually just moving among the various divisions of the Bay Area Corporation.”
I spent 5 days in Finland in mid-October and I came back with interesting lessons. But before writing about these in my next post, I would like to come back on the Israel situation which interestingly enough has been a strong model for Finland. I had discovered the Victa report (you may see my older post) a few years ago and during my trip, Will Caldwell who had invited me to Helsinki offered me his book Attracting Foreign Investment into Early-Stage Finnish Technology Companies. An Examination of Different Investment Modes Including Case Study: Comparing High-Tech Investing Environments in Israel and Finland.
One of the strong features of the Israeli situation is how international their start-ups are. This includes international investors and also the fact that most start-ups have a US presence very early in their development. (They have fully digested the Go West I mentioned in my post of yesterday). And finally, the M&A and IPO ouputs are a by-product of all this. Will’s book was published in 1999 so it could look old, but it is not. Let me just show you a number of examples: one striking element which is not about Israel is a comparison of what entrepreneurs need and what local business angels (in Finland) can bring.
The discrepancy which appears was an argument for the need of international VCs. This may still be the case!
Now more about Israel. The country is known for its great success with high-tech start-ups and here is what Will was showing:
– Table 6: Israel had more start-ups on Nasdaq than Europe as a whole. One may claim Europe has local stock exchanges but it would not change the success measure.
– Table 5: The M&A activity mostly by US companies (of course). You could compare to my table about European M&As in my book.
– Appendix 4: the Mkt. Cap. Of all Israeli Nasdaq companies in 1998.
The results are obviously impressive but if you look closely at the volatilities, it also showed that the Israeli situation was diverse. Below, I just did an update of his tables.
One final table I steal from his book is a comparison of what entrepreneurs claimed in the business plans and what really happened. Not surprising but I had not seen it so often.
Now my updates of his tables: I looked at these public companies again. I used the Nasdaq web site and Wikipedia and then Yahoo and Google finance. So here are the updated values of the companies which were public at the time and the new public companies. I have not done stats yet, but the basic description of all this is good enough I think!
A great document that I found thanks to Burton Lee. It summarizes perfectly what start-ups are about. It clearly shows how uncertain these things are: 0.1% home runs, .5% success at $100M level, young people, hungry, ready to change as fast as needed, so with the righ mental state, all this is just crazy and a little irrational. That’s why it is also beautiful. The movie about Zuckerberg (the topic of my previous post) describes very similar features by the way.
The new movie about Facebook’s founder, Mark Zuckerberg, is a great movie. It does not matter so much if it is a description of reality. You may watch it as a piece of fiction, and it would remain a great movie thanks to the actors and screenplay.
It is also great because it describes the start-up world in a very accurate manner. It is not a movie about start-ups really, but there are details which reminds me a lot of real-life stories.
The first lesson is that money and friendship seldom work together. The stories of Eduardo Saverin, the founder soon to be diluted, Sean Parker, the exhuberant founder of Napster and Plaxo and mentor of Zuckenberg and the short appearance of Peter Thiel are such examples.
It also shows the old world of Boston where people think ideas are crucial and the new world of Silicon Valley where what matters is implementation. It’s why Silicon Valley is the Triumph of the Nerds. It shows how right Paul Graham is when he says Silicon Valley is about nerds and money. You see the crazy, sad, exciting, depressing life of these hard-working people. You may like it or not, but it is mostly what start-ups are about.
I just looked for what some key people thought of the movie. So, for example, Eduardo Saverin said here: “The Social Network” was bigger and more important than whether the scenes and details included in the script were accurate. After all, the movie was clearly intended to be entertainment and not a fact-based documentary. What struck me most was not what happened – and what did not – and who said what to whom and why. The true takeaway for me was that entrepreneurship and creativity, however complicated, difficult or tortured to execute, are perhaps the most important drivers of business today and the growth of our economy.”
And Dustin Moskovitz said there: It is interesting to see my past rewritten in a way that emphasizes things that didn’t matter (like the Winklevosses, who I’ve still never even met and had no part in the work we did to create the site over the past 6 years) and leaves out things that really did (like the many other people in our lives at the time, who supported us in innumerable ways). Other than that, it’s just cool to see a dramatization of history. A lot of exciting things happened in 2004, but mostly we just worked a lot and stressed out about things; the version in the trailer seems a lot more exciting, so I’m just going to choose to remember that we drank ourselves silly and had a lot of sex with coeds. […] I’m very curious to see how Mark turns out in the end – the plot of the book/script unabashedly attack him, but I actually felt like a lot of his positive qualities come out truthfully in the trailer (soundtrack aside). At the end of the day, they cannot help but portray him as the driven, forward-thinking genius that he is. And the Ad Board *does* owe him some recognition, dammit.
Of course, this looks like corporate language, we should remember these guys have FaceBook shares! Talking about shares, there was another thing I did not like recently, the fact that according to Forbes, Zuckerberg would be richer than Steve Jobs. I had a discussion with a friend over the week end and he agreed with the statement whereas I disagreed. It may be a detail: but as long as Facebook is not quoted, Zuckerberg’s wealth is mostly paper value he can not really trade. I am sure he is already rich, he probably has already monetized some of his shares but not all of them whereas Jobs owns shares which are liquid. It may not be a big difference given the success of Facebook, but I have seen to many stories of start-ups where people thought the paper value of the stock was real wealth and the next day worth nothing…
When my daughter told me yesterday, she might at least explain her friends what her dad was doing. i.e. working in the world of start-ups, I thought the movie had at least reached that goal of reaching a large audience towards this important topic!
Final point, a recurrent topic in my blog: Facebook cap. table and shareholder structure. As Facebook is private, it is a challenge to know what’s true and what’s myth. I have still tried the exercice from what the Internet gives. One interesting feature is Saverin’s dilution from 30% to 5% whereas Zuckerberg went from 65% to 24%, not really pro-rata! We shall see when Facebook goes public, who wrong I was!
With my seventh contribution to the Créateurs newsletter, I stay in Switzerland again with two succesful SMEs. Enjoy!
There is a recurrent debate in the world of high-tech start-ups: and if the American model of fast growth supported by aggressive venture capital was not adapted for European or Swiss entrepreneurs? Two examples may contribute to the discussion: Sensirion and Mimotec.
In my contribution to Créateurs last time, I had focused on Swissquote, which has become a magnificent success story, without that venture capital, which is so much criticized these days. Mimotec is an EPFL spin-off with 24 employees and about CHF10M in revenues. The company provides micro technologies for the watch industry. Mimotec was founded in 1998 by Hubert Lorenz who told his start-up’s story during a recent venture ideas conference at EPFL. It is a clear example of organic growth, a steady growth even if not exponential.
Sensirion is probably more impressive. Founded also in 2008, it is an ETHZ spin-off and it sells pressure sensors, another field of expertise in Switzerland. In an article published for the MEMS 2008 conference, Felix Mayer, Sensirion’s co-founder and CEO, described the growth model of his company. Here is an extract: “The Europeans – especially the Swiss – do not go for the big thing! They rather start small and put one foot in front of the other. A characteristic of the European and Swiss mentality is not to promise high returns for a business idea based on an immature new technology. The European way is rather to start with the own money, to try to find customers, and to grow with the earnings. The Americans, as far as I can tell, follow the motto: “Shoot for the moon. Even if you miss, you will land among the stars”. This means: to go for the new big thing, write down a promising business plan, and raise money to realize it. Hunting for potentially high gains means, on the other hand, to take a higher risk. The United States have more of a high risk culture. However, if you fail, you also get a second chance. Europe is different in this respect”.
Mayer adds that because the financial means are lacking, the European entrepreneur will be more challenged to target the very big markets. Therefore he believes in an intermediate path which will not generate Google-like companies, but leaders in their niche. Thanks to the patient support from a business angel and then from its customers, Sensirion can be proud in 2010 of its 180 employees (the revenue numbers are not public as the start-ups is still privately held). I should however add that it took Sensirion six years before ti could fund its growth through its profits; its business angel was apparently critical to its success.
Is there a model that Europe may follow without just copying the Silicon Valley way? Yes, if we notice that very few companies could reach the size of Logitech or Actelion for example. Whatever the success of an Hubert Lorenz or a Felix Mayer, I cannot help expressing again the same thing I did in my book Start-Up. Why should not Europe ambition the same large success the USA experience in addition to our mid-size stories. Don’t you think the Americans do not have companies similar to Mimotec and Sensirion, in addition to Google or Apple? Criticizing venture capital might be an easy way and I prefer quoting an American entrepreneur on investors: “You can’t live with them, you can’t live without them” And let us not forget that Google has today about 20’000 employees and it was founded in… 1998. There is no doubt that our culture and financial support is not made to produce our own Google but I seriously believe that we should not be afraid of having large ambitions instead of criticizing an American model which also has great assets.
