Category Archives: Venture Capital

What Is Uber’s P/E Ratio if it’s valued at $41 billion?

Uber raised $1.2 billion that valued the company at $41 billion. Some people are skeptical that Uber could have the same market cap as Time Warner Cable or ADP. Projecting future P/E may give some idea of the scale and scope of Uber.

The entire Taxi & Limo industry in the United States is well shy of $15 billion. If Uber has 50% market share and 20% commissions, its revenues would be $1.5 billion. Net profit margins for a mature internet company (such as Ebay) are 18% – or $270 million. That’s a 152x P/E ratio.

Factoring in the rest of the world (based on GDP) brings the P/E ratio to 33x.

In sum:  33x forward P/E ratio for the startup assuming 50% control of the industry throughout the entire world. The S&P 500 is cheaper.

So, perhaps Uber has grander visions – ride share / carpooling, car share, ambulance service logistics, military applications…. there must be a larger market it plans to tap into, or its latest investors got caught up in the hype.

Uber Ballooning P/E Ratios

Uber Ballooning P/E Ratios


Why Startup CEOs Are Fired

Noubar Afeyan, founder and CEO of Flagship Ventures, started his first company at age 24. As he was raising money, many investors told him that they wanted to bring on a more experienced CEO to run the company. But Afeyan wanted investors who would trust him, so he kept looking until he raised $1 million from three VC firms that would let him stay as CEO. Then on his second day after receiving funding, he did something unexpected: he hired an outside CEO to replace himself.

Now a prominent venture capitalist, Afeyan says a startup CEO stands for “Current Executive Officer.” It’s simply a matter of fact, he says, that 80% of startup CEOs are replaced at some point. And the cause is in large part due to the structure of venture capital firms.

Proposition #1: startups miss their numbers. It’s inevitable with any startup, good or bad, successful or failing.

Now, VC firms are run by individuals but have collective responsibility. Each partner has a portfolio of startups that they work with, but the other partners at the VC firm have an interest in the performance of all portfolio companies, if only a passing knowledge of what’s going on inside the companies.

The first time a startup misses its numbers, the lead partner usually goes to bat for the company. He or she tells the other VC partners, “yes they missed their numbers but they have a plan…”

The second time a startup misses its numbers and the VC partners are unhappy with the performance. They ask the lead investor what he’s doing about the situation, the most obvious answer is “there’s a leadership problem and we’re replacing the CEO.”

CEOs are critical to the success of a startup, but also the most interchangeable. Pull one out, drop a new one in, and the startup continues without missing a beat. So long as the CEO is not the founder. That’s why venture capitalists don’t like the founder to be CEO – because then if the founder/CEO is fired there is no more company.

Moral of the story? If you’re a founder of a startup looking for Venture Capital money, you probably don’t want to stay on as CEO. And if you’re a CEO of a VC-backed startup, keep your resume up to date (and try not to miss your numbers!)

The Art of the Presentation

My presentations are bad. Very bad.

And here’s why:

  1. I like to improvise.
  2. I don’t stick to a clear, simple story.
  3. I get bogged down by details. When I know too much about something, it’s hard to stay at the 30,000 foot overview
  4. I’m bad at telling jokes or anecdotes.

Any one of those four flaws could turn a great presentation into a dud. Sadly, all four together becomes the perfect storm of tedium.

What can be done to improve? Here are some tips I’ve picked up from working with one of the best professional speakers in the country:

    • Practice always. Every conversation – even with a friend or ordering a hamburger – is a presentation. Live the role.
    • Develop a repertoire of anecdotes that can be pulled out as appropriate.
    • Tailor the material to the audience – understand and focus on their interests


      • More often than not, visuals are distracting

      Note the supporting materials for Bill Gates vs. Steve Jobs (courtesy of Presentation Zen). See if you can spot the difference.

      Steve Jobs Presentation

      Steve Jobs

      Bill Gates Presentation

      Bill Gates

      Which audience would you prefer to be in?

      How to Manage Investors and Limited Partners

      Whether it’s entrepreneurs “managing” their investors or investors “managing” their LP’s, there are similar steps that can create a good relationship and ease any tensions that naturally occur.

      Todd Klein has suggestions here, which boil down to:

      1. Regular updates. Even if nothing has changes, monthly or quarterly updates will ensure investors or LPs know the current situation
      2. Strategic reviews. Assess current operating practices, in-depth analysis of operations, market position, competitive dynamics, strategic initiatives, and benchmarking
      3. Immediate sharing of news (both good and bad). Make sure team gets credit for good news, and most senior person takes responsibility for bad news
      4. Ensuring flow of information within investor groups by sharing detailed summaries of meetings with associates and other partners within the investor group
      5. Enabling investors/LPs to contribute to the success of the organization by identifying clear, easy and actionable requests

      Note that all five suggestions require a constant flow of information. For investors/LPs managing a dozen or more investments, this would likely result in information overload. Fortunately, there are two factors that can alleviate this situation.

      First, not all companies will communicate as frequently as they should, so an investor/LP with a dozen investments may only be actively involved with a small fraction of those.

      Second, by clearly labeling, classifying and summarizing communications, investors can quickly determine whether each particular communication requires their attention.

      Massively Multiplayer Online Game (MMOG) Hosting Market Opportunity Analysis


      The MMOG market is expected to double in the next five years. MMOGs differ from typical computer games because they are perpetual virtual worlds, meaning that users can continue to play forever building on previous play. New players are constantly starting to play these game and continue playing them, creating a snowballing user base.

      Traditional game developers are beginning to discover a new sources of revenue from MMOGs. The developers typically offer a free version or trial period to attract users, and then a subscription-based version (typically $10-$20/month) to keep the on going revenue stream. In the future, MMOGs are likely to generate additional revenue through advertising and non-traditional revenue sources such as virtual sale items.

      Overall, DFC Intelligence estimates the market will double by 2012, reaching $13B worldwide. Half the revenue will come from East Asia, 25% from North America, and the remainder from Europe and Japan.


      The 15 largest MMO Games are as follows:

      MMOG List

      Of these fifteen MMOGs, the fastest growing (based on 2006-2007 subscribers) are:

      • World of Warcraft
      • Second Life
      • Guild Wars
      • Dofus
      • Runescape

      Additionally, the following venture-backed MMOG developers are likely to launch in the next 1-2 years:

      • Real Time Worlds will be launching “APB” in 2008
      • Red 5 Studios is developing an as-yet unnamed MMOG
      • Areae is developing an as-yet unnamed MMOG


      Leading MMOG Hosting companies:

      • AT&T
      • Online Game Services (OGSi)
      • Hypernia
      • Valve Software

      Additional hosting companies used by MMOGs:

      • APIServers (
      • Go Daddy (
      • JHServers (
      • ServePath (

      Most game developers do not have the capabilities to host games themselves. Rather, they rely on outsourced MMOG hosting services. Even the largest MMOG developers such as Blizzard, Activision and Electronic Arts use third party MMOG hosting services.

      Whether an MMOG game developer is hosting a game in-house or outsourcing it to a hosting company, the following three issues are most important in selecting IT vendors:

      1. Price – minimize price of both hardware and bandwidth. A rough estimate for hosting prices for 100k subs requires 30 servers plus bandwidth and costs $50k/month. (Note this includes ammortized hardware costs, bandwidth, and managed services)
      2. System stability and scalability – ensure data isn’t lost or corrupted and system can scale to handle growing subscriber base.
      3. Bandwidth and latency – maximize uptime at all hours of the day, since most MMOGs are highly international and cross all time zones. Provide sufficient bandwidth for peak usage. Minimize latency by using NOCs collocated near major POPs and with localization in areas with large numbers of gamers.

      The largest IT vendors for the MMOG market are IBM, HP, and Dell.


      A vendor seeking to serve the emerging MMOG market should take the following approaches:

      1) Target both large MMOG developers that do their own hosting and also outsourced MMOG hosting companies. To avoid competing on price, focus on system stability, scalability, and management tools that can support the MMOG environment.

      2) Focus on the development stage. Historically, MMOGs could be hosted on any vendor’s hardware, but as developers seek to increase system stability they are increasingly becoming platform dependent. This means that if an MMOG developer uses a specific vendor’s hardware for development and testing, they are likely to request the same vendor’s hardware for hosting.

      In order to assess exactly how a company can enter this market, it is necessary to understand how the company is currently positioned. The Ansoff matrix provides a basic framework to understand what type of entry is needed – based upon a company’s product portfolio and market space.

      Ansoff Matrix

      A go-to-market strategy required for a Market Development play is quite different from those required for a Product Development play, and different still from Diversification.

      One of the immediate next steps to take will be to benchmark your company’s current status along key dimensions. Using a “Points of Differentiation” graph, it is possible to tailor the go-to-market strategy to take advantage of the company’s strengths.

      Points of Differentiation

      In the example above, a company may be strong in performance, reliability, average in scalability, reputation, service and price, and weak in value-added services. After analyzing other vendors using a similar framework, a company with these particular points of differentiation might choose to focus on midsized MMOGs with 100k-200k subscribers.

      MMOG Data

      DFC Intelligence – Online Game Market Forecast

      IGDA (International Game Developers Association) – Hardware and Hosting

      GigaOM Top 10 Most Popular MMOs

      MMORPG Developer’s Forum


      IDC – ASEAN Online Gaming 2007 – 2011 Forecast and Analysis

      IDC – China Gaming 2007-2011 Forecast and Analysis

      IDC – India Online Gaming 2007–2011 Forecast and Analysis

      Current trends on Security Software M&A Activity

      I was recently asked to comment on the state of the Security Software industry. Here is how I responded:

      Companies such as Symantec and McAfee are experiencing increased pressure from Microsoft, which has beefed up the built-in security capabilities in Vista. In an effort to counter this competition, the larger firms have made numerous acquisitions that will help differentiate their product portfolio and maintain product superiority. Acquisitions typically focus on two areas:

      1. Acquisitions with next-generation feature/functionality that can be incorporated into the core product suite
      2. Acquisitions that target a niche or highly specialized market that will remain impervious to any mass-market product that Microsoft introduces

      As Symantec and McAfee reevaluate their portfolios over the next year, they are likely to continue acquisitions at a slower rate, as management fills gaps in the portfolio and focuses on integrating previously made acquisitions.

      Whether consolidation in the industry is good or bad depends on who you are.

      • Consolidation reflects a defensive posture against Microsoft; however, it will not alter Microsoft’s slow entry into the market (nor will it alter Microsoft’s ineptness at developing secure products)
      • Symantec and McAfee will become larger and more stable, in a better position to hold off Microsoft
      • VC-backed startups will find it more difficult to scale organically to the size needed to generate 10x returns for their investors
      • Bootstrapped startups will continue to be able to find niche segments that are under the radar of the incumbents (even during and after this period of consolidation)
      • Customers will see fewer, more stable products and services with consistent levels of quality…for a price

      Going digital: video surveillance and pulling teeth

      Industries have moved into the digital age at different speeds. As information capture becomes digital, a massive amount of data goes “live” and can be parsed and analyzed in real-time. This leads to a host of new possibilities. Here are two examples:

      First, in the world of physical security, digital video recorders (DVRs) are a relatively new phenomenon, only gaining mainstream support within the last five years or so. Initially, it was only large, sophisticated security companies that could develop such systems – for example, airport security could track individual passengers as they move throughout the terminal. (And can even detect if a passenger abandons a bag!) Now that digital systems are becoming more commonplace, startups such as Agent VI are able to enter the market as well and leverage the vast data made available by modern digital systems.

      Second, the field of dental laboratories is about to change dramatically, as technology moves from physical casts of teeth (for crowns, implants, etc) to digital imaging and CAD/CAM fabrication technology.

      The move towards digital technology leads to a wealth of information, which in turn enables secondary, value added services.

      One way to compete against Microsoft and Google

      I was recently asked to comment on a startup that is attempting to compete against both Micrsoft Office and Google Docs & Spreadsheets.

      Here is what I suggested:

      “Historically, there have been any number of office products that performed better than MS Office but weren’t able to capture share. As a small player, it is extremely unlikely that your fate will be any different – don’t expect to beat Microsoft and Google at their own game.

      “Your approach, therefore, must be to develop a fantastic product targeted at a specific niche. The weakness of Google and Microsoft is that they are mass-market products and serve everyone adequately, but no one well. Choose either a niche market segment or a specific functional area – and dominate it. For example, mid-sized law firms, or word process that integrates with CRM for sales folks. If you develop best-in-class applications for a niche, not only will you have a compelling value proposition and easily identifiable target market, but it is much easier to achieve critical mass and become the dominant player.

      “One point to note: interoperability is key. There must be seamless, flawless opening and saving of Microsoft apps. There’s the old saying within Microsoft that the next version of office isn’t ready to ship until it breaks previous compatibility standards. It’s your job as a competitor to fight them in this arena – to stay up to date so that your users won’t experience any headache when interacting with the other 98% of users.”

      A new fad: hyperlocal journalism

      The latest efforts to revive traditional media involves hyperlocal journalism – i.e., local community news targeted at community members.

      The Washington Post recently announced a foray into this space. The Tampa Tribune is cutting 70 jobs (of 1,200 total employees) in order to refocus on online hyperlocal content.

      Venture-backed startups, such as NowPublic, a citizen journalism website, have been raising capital at an increasingly fast pace.

      Prediction…or Wild Guess? (Decision Analysis Part 2)

      In the recent bestselling book The Black Swan, Nassim Nicholas Taleb argues that traditional models focus on predicting events that stay within a “normal” range – that is, outliers and extremely rare events are excluded from the analysis and therefore are not predictable.ans, he argues, alter history with great frequency but we tend not to recognize their importance and rationalize them away post-facto. His hedge fund takes advantage of the rare event of a stock “exploding” – much the way a venture capital firm bets on many startups with the hope that one will become a Google.

      The Economist reports on a study showing our inability to predict recidivism in criminals – even within a group of criminals who are very likely to become repeat offenders, there is wide variation in any individual criminal’s likelihood. What this means is that although we may be able to classify someone into a high-risk group, we still don’t know how likely he/she is to commit a Black Swan event .

      In an article in Scientific American (“Shaping the Future,” April 2005), researchers at RAND Coporation and decision anlaysis firm Evolving Logic describe a second way of making predictions…

      Rather than building a model based on one (or a few) scenarios and optimizing to find the result with the highest expected value, what if we optimize to choose the result that is most robust? I.e., when dealing with policy affecting global environment and international economics, the best policy will be one that can *never* result in widespread destruction. We can’t build a portfolio on worlds the way a venture capitalist can, so when we bet the farm on a single set of policies, we should prefer a policy that eliminates the possibility of World War III or widespread famine over a policy that offers the possibility of a utopia (but might end in World War III instead).

      When we look at analysis – we must ask whether we want to predict the unusual event or the mundane event, and in the latter case what ramifications the Black Swan event can have on our business or our life.