SatpalParmar’s Weblog

And the list goes on (feedburner,flickr,blogger etc). Valuation of a start-up is a complex process.It become even more complex when you have to deal with unreliable data,unproven bussiness models and mix of noise and hype.Unfortunely in case of web 2.0 companies we have to deal with these issues making valuation of SN very mysterious.

Ok.Then how did we reached to numbers these numbers.? What factor affect valuation?  How objective is the process?

I made a attempt to find answers to these questions by looking in to stories,news,blogs and follwoing comments around the most talked about startups of the world.

1.Why It’s So Hard to Value Social Networking Sites.

  “You have little data on what kind of revenues they can generate and what their cost structure is.”

“Valuing advertising-driven sites is particularly hard because the same numbers — such as the number of users or page views — can mean different things depending on how the advertisers are billed”

“But is Google a good benchmark? ”

Analysts also like to factor in a company’s future prospects, using any number of calculations to derive a figure for “discounted cash flow.” Essentially, they look at expected revenues over a given number of years and subtract expenses to arrive at a figure for “free cash flow.” Then, using various assumptions about interest rates, they determine what money received in the future is worth in today’s terms. Analysts can never be sure about any company’s future revenues and expenses, but the problem is even worse when dealing with a young company in a fledgling industry. “

2.Startup Valuation - The VC Method

3.: Guess the Value: Basecamp 

Virtual valuation game, in which reader are asked to guess the financial worth of a popular web app.

4.Why Myspce is overpriced.

“How much yearly profit would you expect from a $500 million purchase? How about a profit of just $10 million equating to a profit margin just under 2%. That’s right, the world’s largest social networking site, constantly in the top 10 web sites in the world, managed to make only $10 million on $550 million in revenue!”

5.High Tech Startup Valuation Estimator

This seems to be a highly objective process which include a multiplier for everything from size of market,stage of start-up,revenue,indusrty etc.But I doubt we can use this in case of SNs as calculation of multipiler is still a issue whihc is based on past history of industry,market,product and team.And yes ,we do have a fair amount of subjectivity here.

 Source: I find this here

I am a huge fan of Huge Macleod’s cartoons.He is very very creative person.While going through his archives at gapingvoid I find  a piece titled “random thoughts on being an entrepreneur”.I am so much impressed with  throughness,originality and directness that I decided to repost it here.

Here it is :

1. Everything takes three times longer than it should. Especially the money part.

2. The best way to get approval is not to need it.

3. People want what they can’t have. In fact, that’s pretty much all they do want.

4. Once you become an entrepreneur, you find the company of non-entrepreneurs a lot harder to be around. You’ve seen things they haven’t; the wavelengths alter, it’s that simple.

5. In a world of over-supply and commodification, you are no longer paid to supply. You’re being paid to deliver something else. What that is exactly, is not always obvious.

6. Word of mouth is the best advertising medium of all. The best word of mouth comes from disrupting markets.

7. People buy your product because it helps fill in the narrative gaps in their lives.

8. You can either be cheapest or the best. I know which one I prefer.

9. Some people think that once they secure venture funding, their problems will be over. Wrong. That’s when your problems REALLY begin.

10. It’s better to be underfunded than overfunded.

11. If an average guy in a bar can understand what you do for a living, chances are you’re halfway to becoming a commodity.

12. It’s easier to turn an ally into a customer than vice versa.

13. If you’re happy in your career before the age of thirty, you’re probably doing something wrong. Heck, if you’re happy in your career before the age of seventy, you’re probably doing something wrong.

14. Smart, young, artistic people are always asking me which is a better career path, “Creativity” or “Money”. I always answer that it doesn’t matter. What matters is “Effective” and/or “Ineffective”.

15. Write the following on a piece of paper, have it framed, and stick it on your office wall: “Have you hugged your customer today?”

16. People will always, always be in the market for a story that resonates with them. Your product will either have this quality or it won’t. If your product fails this test, quit your job and go find something else. Just making the product incrementally cheaper or better won’t help you.

17. Products are idea amplifiers. The molecules and/or bytes are secondary.

18. People remember the quality long after they’ve forgotten the price. Unless you try to rip them off.

19. Markets serve entrepreneurs better if the latter can keep the former undersupplied. Oversupply is the kiss of death.

20. I personally know a former CEO who, once he attained control of the company, ran an EXTREMELY profitable business into the ground in less than two years. From a market cap of $100 million to ZERO, just like that. Why? Short answer: He loved being “The” CEO, but he didn’t much care for being “a” CEO.

21. In terms of becoming an entrepreneur, probably the most useful thing I learned in the last twenty years was how to enjoy my own company for long stretches of time.

22. One successful entrepreneur I know well has a wonderful quality, namely that he never, ever compares himself to other people. He just does his own thing, which actually serves him rather well. Just because his competitor has bought himself a bigger motor boat, doesn’t mean he feels the need have a bigger motor boat. This quality helps him to build his business the way he sees fit, not the way the motor boat people see fit.

23. Running a startup is full of extreme ups and downs. Which is why so many successful and happy entrepreneurs I know lead such normal, stable, unglamorous, “boring”, family-centered lives. Somehow they need the latter in order to balance out the former. Extra-curricular drama looks great in the tabloids, but that’s all it’s ultimately good for.

24. MBAs are conditioned to use their brains in much the same way as sex workers are conditioned to use their genitals. Nice work if you can get it.

Interesting isn’t it? And here is my fav  thought:

 Bill Gates may have a million times more money than me, but he isn’t going to live a million times longer than me, watch a million times more sunsets than me, make love to a million times more women than me, drink a million times more fine wines than me, listen to a million times more Beethoven String Quartets than me, nor sire a million times more children than me. Human beings don’t scale.

BTW  most-read page on gapingvoid is “How To Be Creative”.Read it.Better get a print of this and read it whenever you are free.

Today I came across this very interesting blog  by Tom Evslin.

Entrepreneurs Are Predators

Predators are smarter than prey. Hare-brained is an insult; sharp as a fox is a compliment.

If you’re starting a new company, especially a new company that’s going to do something new, you have no idea what you’re getting into. OK, you’re prepared for the long hours, the lack of a steady salary, the need to raise capital; but are you ready for all the mistakes you’re going to make?

Convinced?

Before you read further have a look at this LIST.Businessweek claim that  this list represent  50 most powerful Indians. Agreed? Well, I am not.If you look at the comments ,most of Indians share my view that this list is a insult to readers.

 I appreciate editor took a  decision to have a exclusive feature on India celebrating 60th year of independence .But I doubt he selected his best people  to do the job.Authors seems to be in real hurry.Forget about the deepth of  research, there are serious factual erros.

This is one of the most confusing lists I have ever seen.Just imagine Akshay kumar and Ratan Tata on same plateform.Where is Kalam? Where are all the NGOs?Why aren’t there any doctors, scientists, engineers and authors? What about international CEOs such as Indra Nooyi and Mr. Bose? Also, what about journalists and/or media personalities? Religious leaders??

Only auther can explain what they were thinking while doing such a pathetic, moronic compilation.

One thing I learn from this is that International media can be as irresponsible as local media.And yes, Businessweek need better writers.

Microsoft Digital Advertising Solutions commissioned Synovate to conduct a survey via its AsiaBUS Service. It aimed to gauge the size of the blogging/social networking market as well as to examine usage habits in Asia Pacific.

The study covered the following 10 markets: Australia, China, Hong Kong, India, Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand*. A total of 11,306 people aged 15-64 were interviewed during December 2006, projected to a universe of 187 million.

Results are not very surprising. Korea with his world best broadband network , China & Taiwan with their   highet PC penetration (due to low hardware cost) are leading web 2.0 markets.One area where they are legging behind  is blogging.This can be explained in term of language barrier.I doubt if totalitarian government and lack of freedom of expression in China have any  discouraging effect on bloggers from China.

India is far behind in social networking and IM services but did surprisingly well in bloging front.  Low pc penetration coupled with poor broadband infrastructure make India a comparatively smaller  web 2.0 market.

 Can we say democracy rocks :) 

Happy Independence day India !!!!!!!!

Source:  advertising.microsoft.com 

One of the best way to get perspective on a product,service or field is to have a face to face talk with the founders or expert behind the that particlure product and service.Interviews provide great opportunity to have founders prespective on product and his area of endeavour.

Today I find this great collection of interveiws of founders of of most talked about web services providers.I am sure we will found lots of insight in areas product development,team  building,marketing and product design from these interveiws.

Alex Giron, founder CSSBeauty interviewed by SEOmoz
Alexander Kirk, founder of Blummy interviewed by SEOmoz
Amy Bohutinsky, of Zillow interviewed by SEOmoz 
Benjamin Bejbaum, founder of Dailymontion interviewed by SEOmoz
Bill O’Donnell, founder of Kayak interviewed by Emily Chang
Chris Hughes, founder of Facebook interviewed by SEOmoz
Christoph Janz, of Pageflakes interviewed by Emily Chang
Christopher Janz, founder of Pageflakes interviewed by SEOmoz
Craig Newmark, founder of Craigslist interviewed by InfoWorld
Craig Newmark, founder of Craigslist interviewed by Netsquared
Craig Newmark, founder of Craigslist interviewed by SEOmoz
Craig Newmark, founder of Craigslist interviewed by SFgate
Dave Pell, founder of Rollyo interviewed by SEOmoz
Dave Pell, founder of Rollyo interviewed by Technosight
David Sifry, founder of Technorati interviewed by Guy Kawasaki
David Sifry, founder of Technorati interviewed by SEOmoz
Eric Costello, Client Development Lead for Flickr interviewed by Adptivepath
Eric Rodenbeck, Mike Migurski and Tomas Apodaca, founders of Mappr interviewed by Emily Chang
Garret Heaton, founder of HipCal interviewed by SEOmoz
Garrett Camp, Co-founder of StumbleUpon interviewed by Centernetworks
Garrett Camp, Co-founder of StumbleUpon interviewed by ReadWriteWeb
Geoffrey Arone, co-founder of Flock interviewed by ZDnet
Jacob DeHart, founder of Threadless interviewed by Folksonomy
Jason Fried, founder 37signals interviewed by Web20show
Jeffrey Kalmikoff, Creative Director of Threadless interviewed by Juxaviews
Jen Mazzon, founder of Writely interviewed by SEOmoz
Jimmy Wales, founder of Wikipedia interviewed by SearchEngineLand
Jimmy Wales, founder of Wikipedia interviewed by Goodexperience
Jimmy Wales, founder of Wikipedia interviewed by Wikinews
Joshua Schachter, founder of Del.icio.us interviewed by Rands In Repose
Joshua Schachter, founder of Del.icio.us interviewed by ZDnet
Justin LaFrance, founder of StumbleUpon interviewed by SEOmoz
Kevin Burton, founder of Tailrank interviewed by Emily Chang
Kevin Rose and Jay Adelson, founders of Digg interviewed by Talkcrunch
Kevin Rose, founder of Digg interviewed by Philoneist
Kevin Rose, founder of Digg interviewed by Playlistmag
Kevin Rose, founder of Digg interviewed by ZDnet – part 1
Kevin Rose, founder of Digg interviewed by ZDnet – part 2
Konstantin Guericke, co-founder of LinkedIn interviewed by Sleepyblogger
Konstantin Guericke, co-founder of LinkedIn interviewed by SEOmoz
Mark Fletcher, founder of Bloglines interviewed by Bloxpert
Mark Fletcher, founder of Bloglines interviewed by Searchviews
Martin Stiksel, founder of Last.fm interviewed by SEOmoz
Mike Davidson, founder of NewsVine interviewed by SEOmoz
Mike Reining, Co-founder of BlinkList interviewed by Emily Chang
Mike Tatum, founder of Wayfaring interviewed by SEOmoz
Nick Wilson, Co-founder Performancing interviewed by Centernetworks
Pete Cashmore, founder of Mashable interviewed by Netsquared
Robert Kalin, founder of Etsy interviewed by SEOmoz
Ron Hornbaker, founder of Propsmart interviewed by SEOmoz
Sam Shillace, founder of Writely interviewed by Emily Chang
Seth Godin, founder of Squidoo interviewed by Emily Chang
Seth Sternberg, founder of Meebo interviewed by SEOmoz
Steve Huffman and Alexis Ohanian, founders of Reddit interviewed by Talkcrunch
Tariq Krim and Florent Fremont, founders of Netvibes interviewed by Emily Chang
Tim O’Reilly, founder of O’Reilly Media interviewed by ReadWriteWeb – Part 1
Tim O’Reilly, founder of O’Reilly Media interviewed by ReadWriteWeb – Part 2
Tim O’Reilly, founder of O’Reilly Media interviewed by ReadWriteWeb – Part 3
Tom Anderson and Chris DeWolfe, founders of Myspace interviews by Spiegel
Various Web 2.0 founders interviewed by Michael Arringtoncourtesy: Julian Paling 

Pat Fitzsimmons, a software entrepreneur (founder of  HubSpot). Here he has written a interesting artical for budding entrepreneurs. This artical is inspired by Intuit story.

Here is a quick summary :

1)    Business skills and technical skills are equally important.  

2)   Learn from non-technology businesses.

3)     Your competitor is not other companies, but the way that things are done now.

4)   Talk to as many potential customers as you can, from the very beginning. 

5)   Focus your product on the absolute essential user needs. 

6)  Even future billion dollar companies will teeter on the brink of defeat.  

7)  Do right by your customers

I really like the last point.Success breeds arrogance and arrogance decrease our ability to listen to others.In bussiness listening is a very important and critical skill.You have to keep your eyes open to listen from customers that includes suppilers,vendors,end customers and staff.  Intuit is a great success story becoz they listend to their customers.

“Disaster struck.  Customers from across the country were calling in complaining that the latest version of Quicken was freezing when they were trying to save their data to a floppy disk.   Intuit decided that all 20,000 customers needed a new version, and needed it as soon as humanly possible.  In the days before the Internet, that meant creating 20,000 disks in three days.  That was 8,000 more than their supplier could provide.  So the entire staff got to work, gerry-rigging computers into the positions where they could copy disks using both their fingers and their toes.   After that came a massive envelope stuffing operation.  Within a week, they mailed out 20,000 new disks to all their customers.  Their customers loved the rapid response.  Their customer satisfaction was actually higher than before the bug occurred.”

Last but not the least Intuit is great counter point to those who think only technical people can find a software company.

Gary Rivlin at the New York Times  his written great piece on Friendster. This could be considered as  best overview yet of the terrific bungle of social networking company,which sparked the social networking revolution by allowing friends to hook up with others.

It is a great tale of how Jonathan Abrams started the site as a way to get a few dates, turned down a $30M buyout offer from Google (which would be worth around $1B in GOOG stock today), and opted to raise VC money from John Doerr of Kleiner Perkins and Bob Kagle of Benchmark — trying to create the next big thing.

Friendster had everything a ”dream Start-up” seek.Great idea, first mover advantage, was backed by best VCs the  in market.All this  failed to make Friendster  a “success ”. 

Friendster story tells us many thing  us we should do as well as few we should we should not do.It tell us about role  managment team play in success of a venture.It tell us  how important  its that we use and believe  in the product we create.Focus is crucial as we grow and CEO and managment arrogance can kill  grand product in no time.

Friendster make a great case study for all aspiring WEB 2.0 enterpreneurs as we all know failure store more lessons for  us then a success.

Here is a interesting discussion about Friendster  story on Techcrunch.

Source:New York Times.
 

Information Architects has released their 2nd Web Trends Map Awesome collection of all the visible web brands especially Web 2.0, marked according to their category, proximity, success, popularity and perspective.