VentureBlog

Was Hummer Winblad Unjustly Enriched?

A friend of mine, Mark Radcliffe from Gray Cary, sent me a PDF of the Hummer complaint last night (Capital Records et al. vs. Hummer Winblad Venture Partners et al.). It essentially alleges no more than 1) Napster contributorily infringed the Plaintiffs' copyrights; 2) Hummer Winblad invested $13 million in Napster at a time when it needed the money; 3) Hummer Winblad and its partners Hank Barry and John Hummer controlled Napster through their equity ownership in Napster and their participation as board members and CEO; therefore 4) Hummer Winblad, Hank Barry and John Hummer contributorily infringed the Plaintiffs' copyrights. I am told by folks closer to the copyright laws than I that there are in fact cases that have found officers and directors directly liable for the copyright infringement of their companies. If that is in fact the case, it's bad law and at odds with the very principles of corporate law.

Interestingly, Judge Patel threw out similar claims against individual defendants in the initial Napster litigation; however, she threw out the allegations for failure to properly state a claim, so she never actually got to the merits of the claims. Regardless, it is clear to me that this case is not about actually recovering damages for copyright infringement. This case is about intimidation and the complaint reads like it to me.

Do Your Homework

During a recent pitch by an entrepreneur, he asked a question that resulted in a major hit to his credibility. The question wasn't stupid. It wasn't inappropriate, per se. But it demonstrated beyond a reasonable doubt that he hadn't done his homework.

There is not a VC out there who you can't find out about on the web. The same is true of VC funds. You can get the VC's bio. You can get the firm bio. You can find out what boards that VC is on. You can find out in which companies his or her firm has invested. Its amazing the amount of information that is available these days if you do a little bit of digging.

Do your homework. If you haven't taken the time to find out about the firm and individual you are pitching, you may say something that makes you look uninformed (or worse yet, pitch to someone who sits on the board of a competitor). On the flip side, you can often gain credibility when presenting by showing that you are aware of a VC's background, interests, past investments, etc. Venture investors back great people as much as great companies, so be sure to demonstrate your seriousness and rigor by doing the necessary homework before sitting down with a VC.

Fear Expands Intellectual Property Rights

There were two huge stories in the Napster saga last week. One was Federal Judge Stephen Wilson's ruling in favor of Streamcast and Grokster -- the first big blow against the record labels. The other, in sharp contrast, was the newly filed lawsuit against Napster's main investors (Hummer Winblad and its partners Hank Barry and John Hummer). While the former is hugely important news in the evolution of digital content distribution, the later is of obvious interest to venture investors like me.

Blahg, Blahg, Blahg

There is no question that the O'Reilly Etech crowd is a blogging crowd. Just check out the conference Wiki and you'll see how many folks are blogging the day's events. Despite the blogger culture at the conference, I've heard more than my share of comments to the effect of, "if I have to hear another thing about blogging I'm going to kill myself." As much as blogging is a phenomenon that will have long-lasting social ramifications, I've heard a lot of conference attendees expressing the general frustration that blogging does not involve the kind of technical innovation about which they look forward to hearing at O'Reilly's conferences. It is possible that as folks like Dave Sifry continue to push the ways in which blogged content can be manipulated that very interesting follow-on technologies will emerge. But it appears that blogging is getting a disproportionate amount of air time at the Emerging Technologies Conference, given the nature of the technical innovation involved.

Power of the Alpha Geek

One interesting theme that has surfaced on a number of occasions at the O'Reilly Etech conference is the idea that the best way to find a piece of information is to follow the expert. This is no great revelation in some respects but how you put it to use can be. For example, in his talk called O'Reilly Radar, Tim O'Reilly described one way in which he stays on top of technology trends. Tim explained that he has a group of "alpha geeks" who he follows closely to see what things they find interesting. These alpha geeks tend to be bleeding edge indicators of the direction of future trends in computing.

Tim's description of leveraging the alpha geeks reminded me a bit of Cory Doctorow's VC pitch for OpenCola circa 2000. Cory explained that he was a collector of Disneyland Memorabilia and spent immense amounts of time on Ebay scouring for interesting stuff. When it ultimately became too large of a task to do by hand, he wrote a script to look through Ebay on his behalf. But even that became too large a task, churning hours worth of processing time to get through all the Ebay Disney postings. What Cory observed, however, was that when he did find an interesting piece of memorabilia for which he was willing to bid, he was almost always bidding against the same group of people. So he came to the realization that the best way to find the interesting stuff wasn't to scour Ebay himself (or using a bot) but rather to keep track of what auctions the "Disneyland memorabilia alpha geeks" were bidding on and look only at those things.

Similarly, In his talk about blogging this afternoon, journalist Dan Gillmor engaged in a conversation with a conference attendee. The attendee, in discussing the proliferation of technical content on the web, pointed to information about clinical trials underway and how powerful this raw data is. When Gillmor suggested that raw data about clinical trials was out of his technical grasp, the attendee said something to the effect of "you'd be surprised what you can learn and understand when you are sufficiently motivated." Gillmor thought about this for a second then said that when he was sufficiently motivated to get the answer to a medical question he called his brother-in-law -- who is a doctor -- and if his brother-in-law didn't know the answer (and he usually didn't) he'd know someone who did. Gillmor's brother-in-law was is own personal "medical alpha geek."

This idea of the alpha geek as a leading indicator is an interesting one and certainly one that many of us in the venture industry leverage. Smart VCs know better than to think that they are the alpha geeks -- they turn to others who live and breath a particular technology to help them reasonably assess potential developments in that field. VCs also look to alpha geeks to introduce them to interesting new companies in that individual's area of expertise. So if you're starting a company and want a fast track to funding, one of the most highly leveraged things you can do is get endorsed by the leading alpha geek in your field.

Metacrap and Interoperability

The O'Reilly Emerging Technology Conference is this week in the Bay Area. I've attended a couple other O'Reilly conferences and really like them. They push at the edges of what is truly emerging technology in a way that other conferences don't. They are also profoundly geeky, so you dig down into lots of minutia which is often (but not always) both entertaining and very revealing.

The conference just got started today with a set of tutorials. I attended a tutorial on the Web Services Stack which maybe took the minutia thing a little bit too far. But in the course of presenting the details of implementing a web service, Sam Ruby of IBM's Emerging Technologies Group, pointed to a great piece by Cory Doctorow.

Cory's essay is officially titled Metacrap: Putting the torch to seven straw-men of the meta-utopia. It is a basic indictment of the idea that by empowering metadata and better metadata standards we will solve all interoperability woes. According to Cory, the utopian view of metadata falls apart because: 1) people lie; 2) people are lazy; 3) people are stupid; 4) mission: impossible -- know thyself [people are lousy observers of their own behavior]; 5) schemas aren't neutral; 6) metrics influence results; and 7) there's more than one way to describe something. I completely agree with Cory; metadata in and of itself won't solve the problems of interoperability. Which is why the combination of SOAP, .Net, WSDL, WS-Inspections, UDDI, etc. are so useful. They allow metadata to be imperfect yet still create interoperation between disparate systems. This stuff is powerful and getting more so every day.

Uncle Sam's Huge IT Budget

There was an article in the Business Section of Sunday's San Francisco Chronicle entitled "Selling to Uncle Sam." The basic gist of the article is that while startups used to be reluctant to sell to the United States Government, as the government has increased its technology spending it has become an attractive customer for all infotech companies, big and small alike. According to the Chronicle, the Department of Defense will spend $364 Billion on technology products and services in 2003 (going to $380 Billion in 2004) and the Department of Homeland Security will spend $28 Billion in 2003 (going to $36 Billion in 2004). That's a whole lot of technology products and services.

My experiences over the last year or so definitely reinforce what the article suggests. Particularly in the wake of 9/11 and the "war on terrorism," the Federal Government is working hard to integrate information gathering, sharing and analysis across and among each of the departments. That is a huge project. Add on top of that the security you need to protect that massive store of data, and you've got a whole lot of technology dollars being spent. I would say one thing, however. It remains infinitely easier to sell to the Federal Government as a subcontractor to one of their trusted suppliers than to try to sell direct. But for those startups that have managed to find the right channel into the US Government, the payoff is significant.

Update: For an alternative point of view, check out this article in today's San Jose Mercury News. The article argues that despite all the Federal money out there, it is still really tough for startups to tap it and lots of startups die trying. Which is precisely my point about partnering with entities that already have access.

You can also get lots of great info in Owen Thomas' "How to Sell Tech to the Feds."

Better Than a Stuffed Matzoh Man

Last night I attended a wonderful Seder at the Pitluck Home. Sam Pitluck is a researcher at the Lawrence Berkeley National Labs Human Genome Center. The Human Genome Center, in conjunction with the US Department of Energy, has been frantically sequencing the human genome and have just published the finished human genome in time to coincide with the 50th anniversary of Watson and Crick's discovery of the double helix. In celebration of the sequencing of the genome, Sam gave us all Genomics Posters as Seder favors (actually, my one year old got a stuffed matzoh man, but the rest of us got Genomics posters). It is actually an incredibly cool poster jam packed with info about the human genome and you can grab a pdf of it on the Department of Energy's Doe Joint Genome Institute website.

The sequencing of the human genome opens up incredible opportunities to understand the human body, disease, longevity, evolution, heredity, etc. But it also creates a huge challenge for information technology. The computational power available today is insufficient to unlock much more than the most trivial genetic relationships. For the sequencing of the human genome to be truly transformative, it will require a transformation of processing power as well. The holy grail on that front is quantum computing which, if achievable, will make gene sequencing trivial. In the mean time while we wait for a functioning quantum computer, genomic research labs look towards distributed processing, purpose built genomic processors and the like to solve their number crunching woes. There's little doubt that gene sequencing and bioinfomatics will be at the heart of biotech innovation in the near term. But there is equally little doubt that before the true value of the human genome can be unlocked, there will need to be innovation in the processing firepower that can be brought to bear on the problem.

The Price of Procrastination

As April 15th rapidly approaches, I spent some time looking around the web at all the help available to the many tax procrastinators out there. We've come a long way in a few short years.

I remember sitting at my desk in the early evening of April 15th, 1998, and realizing that I was in deep trouble. It was too late to go to a store and buy tax preparation software and I had a few scant hours to do my taxes, print them up and get them to my local post office. Luckily I was advising a company at the time called BuyDirect. BuyDirect was a spinout of CNET and was one of the first companies to offer downloadable software for sale on the web. I went to the BuyDirect site, found the one tax preparation software program they offered, bought it and I was off and running. But off and running in 1998 meant lots of working in getting the download right, much frustration with the clunky tax prep software, no electronic filing, no electronic payments or refunds, and a late night trip to the post office no matter what you did.

The world is a better place for the tax procrastinator in 2003. There are a number of options that would allow most filers to think about taxes for the first time at around 7:00 in the evening on April 15th and still comfortably make the deadline. Intuit offers an ASP version of their TurboTax product or you can download Turbotax Basic directly from Intuit's website. H&R Block's TaxCut software can also be downloaded directly from their website. And for those of you who are both procrastinators and skin flints, 2nd Story Software's TaxACT is free -- you can either download the software or do your taxes online. What's more, with all these products, you can file and pay your taxes electronically, so there's no need to rush out to the post office. (By the way, this list is by no means comprehensive -- these are just the most popular tax preparation software solutions out there.)

Mind you, procrastination comes at a price. These companies have figured out how to make a bunch of money on tax preparation. And it's not just on the federal tax software (look at TaxACT -- its free). It's on all the other stuff... for instance, state updates and electronic filing fees (state and federal). And of course, on the credit card tax payment fees. When all is said and done, you will have paid plenty for the privilege of preparing and filing your taxes from the comforts of your home on the evening of April 15th. But on the good side, as all of these programs will point out to you, that expense is tax deductible. Happy filing.

A Porsche 911 For $750

I was reading my favorite travel publication on the plane today -- USA Today. What a great paper... where else do you get a half page on the war in Iraq, a half page on Tiger Woods' quest for a third straight Masters title and a half page on the three new reality-TV style movies coming out.

But along with those fine contributions to journalism was an interesting piece by Kevin Maney on the rebirth of Iridium. You may remember Iridium. Motorola poured $5 billion -- with a B -- into launching 66 satellites that would power a worldwide satellite phone network. Despite the $5 billion investment, the company went bankrupt and measured as one of the great business failures of our day. Until today -- perhaps.

It turns out the Iridium assets were bought out of bankruptcy for $25 million by a random collection of investors (Maney analogizes the acquisition price to paying $750 for a Porsche 911 or $2 for a night at the Ritz). The new owners cut out all the bureaucracy, stabilized the system and are now operating the company in the black, in no small part thanks to the many reporters and military personnel in the Gulf using Iridium satellite phones to communicate. Maney concludes "Once a joke, Iridium might turn out to be a leader."

I have no doubt that the excesses of the late 90's have led to a number of valuable assets being available for purchase for a song. That said, I find it a little hard to view the rebirth of Iridium as a business triumph. Iridium was a bad idea. There just wasn't sufficient business in the satellite phone market to justify $5 billion in capital costs to get it up and running. That the system is now making small amounts of money is a far cry from vindication for the initial supporters of the Iridium Project. It's great news for the new investors and more power to them -- good entrepreneurs can always spot an undervalued asset -- but the $5 billion Iridium Project remains a business mistake of pretty colossal proportions.