Category: Tech news

You probably have not heard of Oren Zeev, and he would prefer it that way.

There’s a small breed of early investors in Silicon Valley who primarily invest their own money, but who want to have an active role in building a company. This model isn’t for everyone. It’s a hybrid of a traditional VC with a dash of the early-stage angel investor, and it requires getting your hands dirty. They aren’t writing checks in the six figures. They’re putting in seven figures, and, in turn, own more of a startup than the average angel investor. This isn’t about scaling. It’s about building. And this is what Oren Zeev excels at.

The results speak for themselves. Zeev, the early investor behind Chegg, Houzz, Audible, Tipalti and others, has quietly seen a 100 percent IRR each year on his collective investments.

Institutional To Angel

Zeev’s career in investing began at Apax Partners in Israel. As he recalls, he was fresh out of business school and he saw the industry as nascent. There were only a handful of funds, each of which only had around $20 million in capital. While at Apax, Zeev focused on creating a private-equity business for the firm in Israel. In 2002, Zeev had an opportunity to move to the U.S. to work on Apax’s VC business in Silicon Valley. While moving away from his family across the world with his wife and two young kids was a risk, Zeev had always dreamed of “coming to the mecca of technology and venture.”

But Silicon Valley was still reeling from the bubble bursting. Zeev was focused on Internet investing, and people thought he was crazy for even making the move. Most VCs weren’t in the mood to do new deals because they had portfolios full of problems. But Zeev took a wait and see approach, and stumbled upon Audible, an online audio technology company that had gone public in 1999 but hadn’t seen any traction on the public markets.

“It was a total penny stock and the entire company was worth $30 million. People did not think it would make it but I thought the company may have gone public too early and I saw value,” he says. Apax’s $11 million investment bought 40 percent of the company. And a month after investment, Audible signed an exclusive deal with Apple to provide books on iTunes. In 2008, Amazon bought Audible for $300 million.

“There was an advantage of being an outsider and looking in to Silicon Valley,” he adds.

Don Katz, the CEO of Audible, explains to me that many of the VCs at that time came out of the MBA mold more so than the operator mold. “Their core competency was founder removal. Whenever things got tough that was their first instinct,” Katz says. “Oren was so different. He was a partner and was supportive of the founder as well as the company. He could have judged us through the eyes of a financial investor, a number cruncher, but that wasn’t helpful at the time. And he knew that.”

Zeev continued to work for Apax until 2006, but when the firm moved away from investing to concentrate on mega buyouts, Zeev knew he needed to move on. He was burnt out and, while his time at Apax had been lucrative, he needed a change. He started to teach middle school math at a school in Los Altos and took a few graduate courses at Stanford.

On the side, he started investing his own money. “Back then angel investing was less common. Most angel investors would write small checks but people weren’t really doing it for the money. These investors actually liked the company-building part of it,” says Zeev.

He also started to pool his money with three other investors in a consortium of sorts called Primera Capital. There were four equal partners, but Zeev was the only one sourcing deals full-time.

In 2008, Zeev was introduced to the co-founders of then textbook rentals startup Chegg. At the time, the company was looking for a Series B investment, and Zeev, along with his consortium, invested $3.5 million into the company (a quarter of which was Zeev’s own money), and Zeev joined the board. The entity put another $4.5 million in the Series C round when Kleiner Perkins came in. And Zeev helped recruit Dan Rosensweig to join the company as CEO.

Rosensweig cites Zeev’s network as being one of the defining factors that differentiates him as an investor. As Rosensweig recalls, when he joined, the company was at a turning point when it was trying to figure out its business model. “It was a tense, difficult situation and Oren was calm, and positive throughout the experience.”

While Rosensweig and the company were focused on making the transition from print to digital, Zeev was helping him source talent to help develop for mobile platforms and made the introduction to the 3D3R team in Israel, which, via an acquisition, became Chegg’s R&D and mobile team.

Along the way Zeev also invested in Cramster, a community to help students do their homework. When Chegg was looking to acquire compatible technologies and talent, Zeev made the intro to Cramster but recused himself from any discussions, and told Rosensweig that there was no pressure from his end on making the acquisition. Chegg ended up acquiring the company, which became the foundation for Chegg Study.

While there are a sea of angel investors, there aren’t many individuals who can grow with a startup that it matures into a late-stage company, and then a public company. Zeev is one of these unicorns, Rosensweig says. “It’s rare to have an investor and board member that can be useful at multiple stages of a company.”

“Oren is not the guy who will pound his fist on the table and demand answers. He’s thoughtful and asks the right questions,” Rosensweig explains. While Zeev is no longer on the board, Rosensweig still asks him to be in board meetings because his enthusiasm continues to help the company as it encounters new goals and challenges. “He’s really a jack of all trades and works tirelessly on behalf of his companies” Rosensweig says of Zeev.

Even when it came down to the money, Zeev didn’t sell much of the stock before Chegg’s IPO last fall. He sold 20 percent after the company’s Series E round and still owns 8 percent. The fact that he still holds stock (which is a rarity for early investors, and even some VCs) is a testament to his long-term vision for Chegg.

Oren 2.0

In Zeev’s subsequent deals after Chegg, he started to pull in different people in his network to participate in certain deals. As Katz tells me, he became “Oren 2.0.”

In perhaps the earliest, offline version of AngelList Syndicates, Zeev chooses these syndications very carefully, and says generally there is more demand than supply. And he never charges people to be part of the syndicate. While Zeev is responsible for the investment and the company-building aspect of things with the founder, members of the syndicate can get involved, as well.

Some are CEOs he has backed in the past like Rosensweig and Katz, and others are key individuals in his network who could be of help to startups, including Richard Sarnoff, an adviser to private-equity giant KKR and a former chairman of Bertelsmann, or former News Corp. exec Gary Ginsberg.

For the past few years, Zeev has been averaging around one to two deals per year. He’s also been investing primarily with Israeli entrepreneur Oren Dobronsky, the owner of Palo Alto restaurant Oren’s Hummus. Dobronsky and Zeev share an office in Palo Alto and Zeev has also backed Dobronsky’s current startup Mallpad. In total, Zeev has pulled in 40 to 50 different partners for his investments.

In 2009, Zeev backed social browser toolbar startup Wibiya with $2.5 million, which was eventually sold to Conduit for $45 million. In 2010, he backed DudaMobile, a mobile website maker, which has seen success after partnerships with Google and others. Other investments include Crossrider (acquired by Market.com for 19X the total money raised), Tipalti, Gogobot, Infolinks, Webflakes, Bonobos, Streamonce (acquired by Jive), and Preen.Me.

In late 2010, Zeev was introduced to Adi Tatarko and eBay engineer Alon Cohen, a married couple who had created a network around sharing photos and information around home remodeling and building. There was something about the startup, called Houzz, that struck Zeev as being a massive opportunity. As Tatarko recalls, Zeev went to her and Cohen’s home and saw what they were working on. Within days, the money was wired. Zeev invested the first million in Houzz for a sizeable portion of the company.

As Zeev promised Tatarko and Cohen, “I’m not going to make your life harder, I’m going to make it easier.” And Zeev stayed true to his word. He’s been a constant protector, she explains. “He’s never asked us to do anything, and he’s always there to help us, and we have leaned on him more than any other investor.” Zeev has been so involved with the development of Houzz that Tatarko compares him more to a co-founder than an investor. Zeev has taken on the task of recruiting many of the company’s strategic hires, as well as helping form deals and partnerships, and his track record helps him make inroads with investors.

When Tatarko and Cohen considered taking another round of funding in 2011, Zeev knew that he wanted to connect Houzz with Sequoia’s Michael Moritz. Tatarko and Cohen maintained that they didn’t want to visit VC offices and go through the traditional pitch process. Zeev didn’t know Moritz himself but his old friend Katz did (who Zeev had brought in on the seed round a year earlier), and he asked for an intro. Zeev pitched Houzz to Moritz over email at 9 p.m. on a Sunday night, and by Monday morning Moritz was visiting the Houzz office. Along with the Moritz email, Zeev also pitched four or five other Sand Hill VCs.

Moritz, fellow Sequoia partner Alfred Lin, Zeev, Tatarko and Cohen met and within two hours. Moritz told them that as long as terms could be agreed on, Sequoia would back the company. By the time other VCs had their assistants schedule meetings for Tatarko and Cohen, the ink had already dried on Sequoia’s first funding round in Houzz.

In the case of one of Zeev’s more recent investments, gifting service Loopt Commerce, he helped bring in PayPal as an investor, one of the few startup investments the payments giant has made. Zeev had seen PayPal CEO David Marcus at an event and was telling him about Loopt — the company actually wasn’t raising more money, but Marcus, and PayPal as an investor, is a key partnership and hard to turn down for a startup in the gifting space.

While Zeev’s network is vast, he’s also not afraid to put some old-fashioned hustle into his company building. “Everyone in the Valley is reachable within one degree of separation, thanks to LinkedIn. Recently, a portfolio company wanted to speak to someone at NetSuite and Zeev was able to connect with someone via LinkedIn.

Another element of Zeev’s network worth calling attention to is the Israeli connection — many of the entrepreneurs he backs are from Israel. Zeev acknowledges that a disproportionate part of his portfolio are startups from Israeli entrepreneurs, but he says part of his network involves founders and investors from his home country.

As I mentioned above, looking at the numbers, Zeev’s track record speaks for itself. He’s invested $20 million personally since 2008, and is responsible for around $60 million invested with other partners included. Zeev has seen his money return 100 percent annually since 2008. Good VC funds return around 20 to 30 percent per year, on average. The current value of Zeev’s portfolio is several hundred million (much of which is attributed to his 10 percent ownership in Houzz).

What is clear about Zeev is that he can’t scale, and he’s never going to be able to compete with some of the established seed and early-stage funds with larger funds. And it’s worth noting he doesn’t have a WhatsApp in his portfolio. Yet.

“What drives me is I really feel that my job is to work for founders and serve them. I like that I don’t have any other constituencies, like LPs or partners,” he says. That comes with some sacrifices as well, he adds. Zeev says he has no interest in building a firm, and acknowledges that what he does is not scalable.

But in a sea of early-stage capital and investors, Zeev offers a commitment and thoughtfulness that typically doesn’t come with scale.

The Gillmor Gang — John Borthwick, Dan Farber, Robert Scoble, Kevin Marks, John Taschek, and Steve Gillmor — bask in the afterglow of the 19 Billion Dollar Bash. The reasons for the WhatsApp deal are many: taking the rapidly growing messaging app off the table, turning Facebook into an appregator, introducing the media to the startling notion that the US market is just a piece of the tech puzzle.

Whether it adds up today or not, a quick look at how Instagram retained its youth population almost without the acquisition being noticed by its viral fans suggests that 19 billion may turn out to be a much smaller number than it is today. And for those who think the platform wars are over, this is the starting flag for the notification sweepstakes. When Aaron Levie starts feeling around for his wallet, you know the game is afoot.

@stevegillmor, @borthwick, @scobleizer, @dbfarber, @jtaschek, @kevinmarks

Produced and directed by Tina Chase Gillmor @tinagillmor

Live chat stream

The Gillmor Gang on Facebook

Google’s long-rumored smartwatch is real, and still “officially” expected to begin shipping in mid to late March. However, many members of the smartwatch team inside Google believe that date will either be pushed back to June, or the watch will end up shipping incomplete with a smaller feature set than originally intended. As it stands now, the timeline for the watch’s release is far from being set in stone.

The smartwatch prototypes are currently on lockdown in a Google building, under high security, and they’re not able to be taken out for fear that news will leak. (Oops.)

According to people familiar with the matter, an early prototype of the watch had a Pebble Steel-like metal band, square face, and a colorful digital display featuring a gradient background where colors gently fade from one to the next. It also seemed to have a more masculine vibe, also like the Pebble Steel.

But we’re hearing now that Google has settled on shipping a watch with a plastic band instead for the initial release. The band was one of many concepts the company was exploring. Like the previous prototype, the watch has a full-color display, with an LCD background that basically looks “like a cheap smartphone,” we’re told, which is capable of displaying a full-color image.

The whole idea behind the watch’s concept is that you shouldn’t have to take out your phone for various ambient alerts, like finding out who’s calling you or who just texted, for example.

The watch’s software supports notifications made possible through Bluetooth LE pairing with Android smartphones. It doesn’t sound like it’s yet capable of enabling a range of apps like Pebble’s watch does today. Third-party developers may be able to build for the watch at a later point following future updates.

Interactions with the watch are very gesture-driven. That is, swiping alerts and tapping to select.

Like others, including The Wall St. Journal, we’ve been hearing rumors of the forthcoming Google smartwatch for many months now. The WSJ had also previously reported that the watch will support “Google Now” alerts, which is a type of default notification on newer Android smartphones which includes personalized information like weather, traffic, events, meeting alerts, flight times, dinner reservations, sports scores, stock updates, reminders and more.

Development for the watch is being led by a team inside Google that includes designers from the Android team. That makes sense because the watch is being viewed as an accessory – an additive – to the Android phone, rather than being a standalone wearable device that others (including, say, iPhone users) might buy.

Interest in wearables has been heating up, with some analysts predicting the smart band segment alone will reach 8 million shipments in 2014, growing to more than 23 million units by 2015, and over 45 million by 2017. In addition to Pebble, top Android device maker Samsung also launched its own smartwatch, the Galaxy Gear. But Galaxy Gear reviews have been tepid at best, and the return rate on the watch is reportedly high. Apple is also rumored to be working on an “iWatch” of sorts, whose focus will be more so on health tracking, according to reports.

The problem with many of the current devices today include limited battery life and feature sets – things that could improve over time but may turn off a wider range of consumers in wearables’ earlier days.

Illustration by Bryce Durbin

Editor’s note: Glenn Solomon is a Partner with GGV Capital. Some of his recent investments include Pandora, Successfactors, Nimble Storage, Isilon, Domo, Square, Zendesk, Quinstreet and AlienVault. His personal blog, goinglongblog.com, focuses on growth-stage entrepreneurs who are thinking big. Follow him on Twitter @glennsolomon.

Scrolling through reports of recent venture financings, the names of the firms involved has changed quite a bit over the past few quarters. Of note, hedge funds have entered the later-stage, pre-IPO investment arena in a meaningful way. Firms like Coatue Capital (Snapchat, Box), Valiant Capital (Pinterest, Evernote) and Tiger Global (One Kings Lane, Nextdoor) are not new to venture investing but appear to be ramping their pace and investing in some of the most sought after private companies globally.

Similarly, several other hedge funds are entering the market and large, long-only fund managers such as T. Rowe Price (Pure Storage, New Relic) and Fidelity (Pinterest, MongoDB) seem to be increasing their activity, as well.

As Leena Rao reported last month on TechCrunch, hedge funds often impress founders with their ability to move quickly and pay higher prices than VCs. Hedge funds clearly present a compelling option. So, for founders and early-stage VCs, understanding why hedge funds are getting more active in the venture market and evaluating the pros and cons of taking their capital is worthwhile.

Motivations – Why Is This Happening?

Although my firm, GGV Capital, has been outbid more than once recently by hedge funds, I think the involvement of hedge funds in the venture capital asset class, especially in the pre-IPO stage, is a healthy thing.

Make no mistake, hedge fund managers tend to be some of the smartest and savviest investors. Although the prices they’re willing to pay may seem high sometimes, they routinely have sound motivations.

First, many companies are going public later nowadays, so if a hedge or mutual fund waits until an IPO, the companies are now much more mature, often with their most rapid growth behind them. Growth investors, who want to catch those years when a company is expanding really fast, opening up unpenetrated markets and going global, are forced to invest in private rounds, rather than wait for an IPO.

Second, the paucity of growth in today’s public company universe is leaving hedge and mutual funds with fewer options, driving their interest in faster growth IPOs, and in the financings one to two rounds earlier, while these companies are private, as well.

And finally, because the typical IPO hasn’t grown in size in many years, allocations are usually small, and even in the aftermarket, it’s hard to build a big position in newly public companies. Most successful hedge funds and larger mutual funds need to build sizable positions (i.e. many tens of millions of dollars) for it to make sense to hold a stock. Investing pre-IPO is a way for these funds to get a head start building a position.

Implications – What You Need To Consider

Given this new reality, what are the implications for entrepreneurs? There’s not a black and white answer. Many management teams and boards with whom I speak laud the benefits of taking money from hedge funds and/or mutual funds. For example, they often move quickly, saving companies precious time. Additionally, as public investors, their typical return expectations are lower than those of VCs, so, as mentioned above, they’re also often willing to pay higher prices and are less focused on deal terms than VCs. Finally, these funds are usually “hands off” investors, which is a positive for many companies, where there are already several VCs involved.

That said, hedge funds in particular tend not to invest with 5-10 year investment horizons. In fact, most hedge fund vehicles offer their investors quarterly redemption options. So, while most VCs will continue to support a management team that hits a rough patch or decides to double down on a new strategy, prolonging the time to an IPO substantially, hedge fund investors might be in a different position.

If a hedge fund’s investors head for the door due to macro or fund-specific reasons, the funds need to raise cash. During such events, venture capital positions aren’t desirable and the same goes for long-only funds facing redemptions. In these situations, the 10-year vehicles most VCs invest from are naturally more patient, and can help reduce risk of shareholder consternation.

Several hedge funds have attempted to remedy this issue by creating separate, longer term vehicles. This makes sense, and the test for these funds will come when the next big public market downturn occurs and fund managers feel pressure to deliver cash to their investors.

The Verdict – Get Prepared

Entrepreneurs should be proactive in thinking through this trend. Leveraged in the right away, hedge and mutual funds can be terrific investment partners for the right companies. Yet, there will be cases specific to a company or generalized to the overall public markets that could impact a situation and change the cadence of the investor-founder relationship quite abruptly. As with any funding source, founders would be wise to run through these scenarios when evaluating financing options, even though we’re currently in an exciting up market. Things always change and do so quickly.

It’s been a hell of a week worldwide. Caracas, Venezuela: “What had been a slow-motion unravelling that had stretched out over many years went kinetic all of a sudden.” Kiev, Ukraine: “Dozens dead as protesters regain territory from police.” Bangkok, Thailand: “Four people have been killed and more than 60 injured after a gun battle erupted between police and anti-government protesters.” Sarajevo, Bosnia: “Thousands of protesters took to the streets, setting fire to the presidency building and hurling rocks and stones at police.”

The weird thing is that this is nothing new: just a few more entries in the long list of protests erupting into violent fury around the world. The Arab Spring. Brazil. Turkey.

There have been periods in history when large numbers of people rebelled about the way things were, demanding change — 1848, 1917 or 1968. Today we are experiencing another period of rising outrage and discontent, and some of the largest protests in world history. Our analysis of 843 protest events reflects a steady increase in the overall number of protests every year, from 2006 (59 protests) to mid-2013 (112 protests events in only half a year)

A profile of demonstrators reveals that not only traditional protesters (eg. activists, unions) are demonstrating; on the contrary, middle classes, youth, older persons and other social groups are actively protesting in most countries because of lack of trust and disillusionment with the current political and economic system.

(source (PDF))

What’s going on here? And what happens next?

Researchers at the New England Complex Systems Institute in Cambridge have one simple answer to the first question, at least: hunger. Back in 2011 they predicted, based on rising food prices, that social unrest would sweep across the planet by, er, August 2013. OK, they were a little off, and their theory doesn’t explain those countries where food prices have risen without riots — but that does seem to be a significant factor.

I propose that another one is just as important, though: technology. Specifically, social media.

PM Erdogan of Turkey in June 2013: "Now we have a menace that is called Twitter… To me, social media is the worst menace to society."—
Marc Andreessen (@pmarca) February 21, 2014

To some extent, social media accelerates protest simply by getting the word out. It’s no longer possible for authoritarian governments to control what their citizens see and hear by clamping their iron fists down on newspapers and television/radio stations, unless they want to shut down the Internet and phone services entirely…and not even tyrants want to time-travel back to the 20th century that badly, unless they absolutely have to. As Mathew Ingram points out in a great post on GigaOm, “For those inside and outside of Ukraine and Venezuela, social media is the only media that matters.”

More subtly, smartphones and social media enable what John Robb named “open source insurgencies,” wherein many small groups work towards a common goal, without formal coordination or organization, while adopting, adapting, and evolving each others’ tactics and strategies on the fly. In Ukraine, for instance:

The crisis in Ukraine has spiralled rapidly out of control outside of the capital, Kiev, as anti-government protesters stormed buildings, seized weapons and staged demonstrations across the western part of the country … Although the protests were initially confined to the capital and west, in recent days they have spread quickly to the largely Russian speaking east, most notably Kharkiv.

@pmarca there would be nothing in Ukraine without Youtube, FB, smartphones and Internet. it's unbelievable how fast self-org happens.—
Max Ischenko (@maxua) February 21, 2014

Could this conceivably have happened without the Internet and ubiquitous phones? Of course. Can modern technology also be used to intensify and perpetuate government oppression? You bet, and how. But as creepy and Orwellian as modern surveillance states can be, their panopticons become pretty irrelevant when a million angry people are marching on the presidential compound with pitchforks, torches, and Androids in hand.

And it seems painfully obvious that modern technology makes open-source insurgencies orders of magnitude less difficult, and therefore, more likely to happen. Or, as Marc Andreessen recently put it:

Contrary to cynicism in some quarters: Internet + smartphone + many other infotech innovations ramping power of citizens vs bad governments.—
Marc Andreessen (@pmarca) February 21, 2014

Woo-hoo! Techno-democratic utopia! Internet FTW amirite?

…Not so fast.

First of all, ongoing protests and insurgencies against authoritarian governments are one thing; actually winning is quite another. Ask the Syrian rebels. Ask Egypt, which, if you haven’t been paying attention, was not exactly liberated after all in the aftermath of the Arab Spring. A million angry protestors do change the game, but that’s by no means a guarantee of eventual victory.

Second, while technology giveth to the masses today, it will bestow its riches upon the authoritarian thugs in the presidential palaces soon enough. I refer, of course, to tomorrow’s antipersonnel/anti-protest drones.

Have you seen what people are doing with drones of late? It’s pretty awesome. Massive mining drones in the desert. Autonomous farmer drones. Tiny quadrupeds that run at 120mph. Drones that sail around the world. And my favorite thing this week:

This $2,000 3D-printed recon drone, controlled by an embedded Android phone, can cruise at 70kph for 40 minutes: economist.com/blogs/babbage/…—
Jon Evans (@rezendi) February 18, 2014

until this came along:

"We present the first decentralized multi-copter flock that is capable of stable autonomous outdoor flight" arxiv.org/pdf/1402.3588.…—
Christine Corbett (@corbett) February 18, 2014

All very cool — until you imagine these machines militarized, weaponized, mass-produced by the thousand, and turned on the protestors in Kiev, or elsewhere.

My favorite thing on TechCrunch, not counting my own column — OK, fine, even counting my own column — is John Biggs’s occasional series “Today In Dystopian War Robots That Will Harvest Us For Our Organs.” What can I say, I love black comedy. But it’s always tinged, at least for me, with a little genuine terror — because I have written fiction for a living, so it’s especially easy for me to imagine, in vivid gory detail, exactly what will happen on the day a million angry protestors run up against tomorrow’s tyrant armed with ten thousand military drones and a tiny staff of engineers a la the Syrian Electronic Army.

Hint: it ain’t pretty.

The Internet and smartphones disperse power; but drones concentrate power in the hands of those who control them. It won’t be too many more years before that stark disparity will be all too obvious to anyone and everyone.

Image Credit: Wikimedia Commons

Editor’s note: Derek Khanna is a technology policy consultant and columnist. He previously worked for the House Republican Study Committee where he authored their report on copyright reform. Hespearheaded the national campaign on cellphone unlocking that resulted in proposed legislation to legalize unlocking your phone. Derek regularly writes for The Atlantic, National Review and Forbes. Follow him on Twitter @DerekKhanna.

On Tuesday, the House of Representatives will vote on legislation on phone unlocking (H.R. 1123). In January 2013, a decision by the Librarian of Congress made it a crime to unlock your phone, with either civil or criminal penalties. Since that time, the resale market has been significantly impacted and websites have shut down that offer unlocking services. In the following month over 114,000 Americans signed a White House petition demanding that this decision be reversed and supported our mass campaign, one of the largest online protests since SOPA/PIPA, and then legislation was introduced that has passed committee.

This legislation cannot be passed soon enough for Alex Koren, an entrepreneur who is attending Johns Hopkins University.

Koren is not your typical college sophomore. After completing his first year at Johns Hopkins, as an intern at Intel, he won a hackathon for designing an iOS application for distributed big data analysis. That app is the basis of an ambitious startup that he claims may solve some of our society’s most vexing problems, such as providing better weather forecasting and even advanced cures to cancer. Koren can be seen here running for student president with a Gangnam Style campaign video:

Koren won for student president but chose to resign to pursue his new venture. He believes that his startup has the potential to revolutionize big data analysis and change how each of us uses our smartphones.

As more Americans are accessing the Internet through their smartphones, web-enabled applications are the new hot commodity in the startup community. Millions of Americans, and soon billions around the world, access the Internet through their phones. Koren saw this as a big opportunity to network those devices into one large networked supercomputer. According to Koren, with such a large networked supercomputer able to utilize the resources of thousands or even millions of devices, it would have “the power to solve society’s most computationally demanding provisions.”

As Koren optimistically explains it, Hyv, the company that he co-founded with Sheldon Trotman, “will revolutionize the way we view and utilize big data.” In other words, each of our smartphones is a relatively powerful device, more powerful than the components that got us to the moon and back, and if many of these devices can all be networked together to operate as a supercomputer, it can create an extremely powerful parallel processing operation.

What could be done with such a massive parallel processing supercomputer? A whole lot. As Koren explains:

Whether we want to better forecast weather patterns, improve the accuracy of medical diagnoses, track the virility of Flappy Bird or analyze financial trends, we have no efficient way of processing the information. Supercomputers aren’t cutting it. They’re a black hole of energy consumption, require hundreds of millions of dollars to build and maintain and are quickly (within half a decade) usurped as new generations of processors are released. Fully understanding our world’s data requires an alternate, more efficient method.

Koren envisions this massive networked supercomputer finding cures for cancer through efficiently distributed protein folding and empowering others to perform advanced genomic research. He explains that “by using the excess processing capabilities in mobile devices, we can crowdsource available research; together, we can actively contribute to a progressive global community.”

Hyv may be able to create a massive parallel processing supercomputer to solve big problems, but it may also invigorate the entire mobile app ecosystem. Currently phone apps have essentially two ways to monetize their products. They can charge either for the applications or their services ( e.g. Uber), or they can give away their services for free and make money through advertising or data acquisition (e.g. Pandora, Facebook, Flipboard, Tinder, Instagram, Snapchat).

But historically, obtaining significant money through advertising on a mobile platform has been tough, there is less screen real estate for advertisements, often users are less willing to engage with advertisements on their phone and advertisements can also use precious data.

Hyv may offer a third model of monetization that could benefit future mobile applications: It could allow users to install an app and, in return, allow for some of their phone’s processing power to be used and sold to compensate the app creator. This form of monetization could supplement advertising revenue to allow new apps to be delivered for free to the consumer.

Does potentially solving some of the world’s most vexing problems and creating entire new mobile app ecosystems sound amazing? Well it was good enough to take first prize with Intel’s hackathon, and now six months later, they are testing a working prototype to ensure Hyv’s efficiency, security and effectiveness. Their idea on using many phones to operate together is not entirely original, but Koren thinks that they have solved the problem. Hyv has analyzed data in battery performance, data usage, computation speed and other key metrics. But a month ago, they hit a roadblock — one that, unlike previous barriers, they couldn’t control.

In order for Hyv to test its technology, it needed to use it on multiple devices and with multiple carriers. In particular, they are paying attention to how much data usage their software would require from users. “Our problem is relatively straightforward,” Koren says. “We must ensure Hyv functions equally well on all mobile phone carriers. However, a recent decision by the Librarian of Congress is barring this necessity.”

Hyv needs to take its devices, unlock them, and test them from one carrier to another. In so doing, the company would still fulfill its contractual obligation with their carriers, continuing to pay month to month, but would be able to see how Hyv operated on each network. As Koren explains it:

For two college students, bootstrapping and developing this colossal product out of our dorm rooms, cross-carrier performance analysis proves too financially demanding. Having the ability to simply unlock our mobile devices would remove our dilemma. Due to the ban on unlocking and unlocking companies, however, we aren’t able to legally do this.

After the campaign on cellphone unlocking, under severe pressure from the FCC, phone carriers agreed to a series of voluntary principles to allow their customers to unlock their devices in certain circumstances. But since Koren was still under contract for a subsidized device, those voluntary principles didn’t apply. So when he contacted his carrier for permission to unlock the device, while still keeping his plan with the carrier intact, they told him no.

Below is an excerpt of that conversation (emphasis and “[AT&T]” added for clarity):

Koren: I’m developing a piece of software that requires me to test across several different carriers. However, I’m on a tight budget and can’t buy devices on each carrier. Is it possible to unlock my phone and switch it to different carriers for testing purposes?
Mark [AT&T]: I understand that your situation Alex and I really appreciate it. Let us check on the account.
Mark [AT&T]: We can request for unlock purposes thru online.
Koren: How is that done?
Mark [AT&T]: http://www.att.com/deviceunlock
Koren: Have I paid for my device in full?
Mark [AT&T]: How much did you get the device [for] Alex?
Koren: I believe I payed around $300 for my Galaxy Note 3
Mark [AT&T]: I understand Alex! It means that you g[o]t it in a full discount price.
Koren: So am I eligible for an unlock?
Mark [AT&T]: Let me explain it Alex! Since your account is still under contract, the process of unlocking your device will not be possible.
Koren: Oh, I understand. Once the contract is over, then I can unlock my device?
Mark [AT&T]: Yes that is correct Alex!
Koren: Which would be October of 2015, correct?

Thus co-founders Alex Koren and Sheldon Trotman are stuck. They would like to continue paying their AT&T bill but also be able to test their devices, including the Galaxy Note 3, on another carrier. And until the law is changed, they can’t do so without facing potential legal liability.

While it should be noted that not all phones are compatible from one carrier to another, many phones and tablets are. While AT&T may not like that he’s taking his device from one carrier to another, that should be between Alex and his carrier, it shouldn’t be a federal, civil or criminal matter – but under Section 1201 of the Digital Millennium Copyright Act, and as a result of the decision by the Librarian of Congress, today it is a federal matter.

While many in the tech community often follow a mantra of asking for forgiveness rather than asking for permission – copyright law is not something to be so cavalierly disregarded; many copyright scholars believe that unlocking could place Hyv in potential criminal liability of up to five years in prison and a $500,000 fine.

While Hyv’s situation may seem unique, many startups launch as apps. Presumably, Hyv’s situation of needing to test its app across platforms is not a unique problem; rather, it is a problem that affects many app creators – which is often college students just like Koren and Trotman. One reason there has been so much entrepreneurship in this sector is because the barrier to entry has been so low, but the restriction on phone unlocking creates a brand new barrier to entry for no cognizable reason.

This week, Congress will have the opportunity to vote on short-term legislation, H.R. 1123, which would allow for consumers to unlock their devices until the Librarian rules again in October, 2015 (see my committee testimony here). This legislation would help entrepreneurs like Koren, Trotman and millions of consumers. Additionally, permanent, bipartisan, widely supported legislation has also been introduced, H.R. 1892, which would make these fixes permanent and provide certainty to the private sector.

On Tuesday, the House of Representatives will vote on legalizing phone unlocking, an issue that affects millions of consumers but also potentially small businesses like Hyv. “This ban, on behalf of the carriers, is standing in the way of our ability to make a significant contribution to the progression of our global society,” Koren says. “For many, the ban on unlocking phones is an inconvenience at most. For us, it has inhibited our ability to bring about positive change.”

Image by Shutterstock

Building hardware projects has become immensely simpler thanks to Arduino and Raspberry Pi. But Visionect scratches a far more-intersting itch: e-paper interface design.

At its core the device is a very simple cased or uncased e-ink reader. It consist of a very simple, waterproof device with an e-ink screen and allows programmers to build HTML5-based applications that can be pushed directly to the platform. Built as less of a dev kit than a thin client system, you use the Visionect screen as sort of a dumb terminal for your web projects although the system does allow for complex app development.

It should cost about 240 Euro when it launches. The Slovenian Team added a 120Mhz processor which powers the very basic terminal features of the device. Most of the heavy lifting, then, is done on the Visionect servers and pushed to the devices as needed.

It’s an interesting strategy – cheap hardware and a focus on cloud services – and I suspect it could catch on in situations where an e-ink interface would be ideal due to environmental concerns. In other words, don’t think of this as a denuded Kindle but instead a Star-Trek-esque flat control panel that is weatherproof and won’t be overpowered in sunlight.

via The Digital Reader

WhatsApp did a great job of being surreptitious about its funding while growing into a messaging monster. But as they say, the truth always comes out.

In this case, the truth is that the company had three rounds of financing, with Sequoia as the sole investor. According to documents unearthed by VC Experts, WhatsApp went from a $250k seed round in 2009 to an $8 million round at an ~$80 million valuation in 2011.

The final round, which we reported as a Series C here but was actually technically a Series B, was a $52 million round back in July 2013, at a ~$1.5 billion valuation.

Guess the news that Facebook was interested in scooping up the simple messaging app, as well as its exponentially expanding userbase (around 200 million at the time of this investment), drove the company’s worth up a couple of orders of magnitude.

The filings add up to the $60 million we previously reported, with Sequoia eventually owning around 20 percent of WhatsApp (we’ve heard “high teens”). Its stake is now worth about $3 billion in cash and stock, around a 50x return on its investment in the company.

What is most interesting about the filing is that the B is a participating preferred round with a 3x Participation Cap, which means that Sequoia could have received up to 3x its investment while participating on an as-if converted basis with common stock, after its 1x liquidation preference.

This does not apply in the case of this particular acquisition, which at $19 billion is the largest buy of any venture-backed company in history, and is clearly more than a 3x return (hence Sequoia would want to covert its preferred stock to common). TGIF.

VCExperts_WhatsApp_SeriesB_07162013

Facebook said there were just big fixes in its 7.0 iOS update it released yesterday, but actually there’s a big new feature it’s testing called Highlights. Inside the People tab you’ll see Highlights including friends’ Life Events and people you’ve interacted with recently. If you’re bored of News Feed and want to know what do next, Highlights could lead the way. Or you might just never use it.

Also released yesterday was a 3.2 update to Facebook Messenger featuring a new integration with the core app for all users, despite the update’s What’s New listing just bug fixes.  If you shortcut from Facebook to Messenger by tapping its icon in the tab bar, you’ll see a “Touch To Return To Facebook” notification bar at top that lets you instantly switch back. As Facebook moves towards more of an app suite strategy with companions like Messenger, allowing for seamless switching back and forth will be important.

But the bigger deal is the new People tab, which is currently available to just a subset of iOS users. Previously, the Requests tab in the tab bar at the bottom of Facebook for iOS just opened up Friend Requests and People You May know. Now called “People”, the tab includes the subtabs Everyone, which displays all your friends in alphabetical order, and History, which shows a reverse chronological list of people you’ve interacted with through messaging, liking posts, and other actions. The latter is somewhere between a simplified Activity Log and a reminder of who you might want to continue conversations with.

But the first and default tab in People is Highlights. It starts with new Friend Requests up top, though it hides old ones you’ve left in limbo under a See More button. Next is a panel of Friends With Birthdays Today, a duplicate of what’s in the Events section of the app.

After that is the most interesting part of Highlights: a list of recent Life Events from friends such as a new romantic relationship, starting a job, moving, graduating, or anything posted through the Life Events creator. If you don’t care about seeing the BuzzFeed articles and random photos your friends fill the News Feed with, this part of Highlights could give you a quick way to catch up with important milestones in friends’ lives.

Beyond Life Events is Friends With Upcoming Birthdays so you can plan to actually send them a heartfelt message instead of a shallow “HBD!” wall post. Then there’s People You’ve Contacted, which is quite similar to the History tab. And finally there’s a seemingly endless list of People You May Know.

With so much overlap between the Highlights and History subtabs as well as the Events section, I’d expect some of this to be redesigned or cut before/if the People tab is rolled out to everyone. Still, Highlights is a fascinating alternative take on the News Feed that focuses on people, communication, and big moments instead of the day-to-day ephemera. As Facebook’s feed moves more towards news sharing and public-facing content, it’s good see a feature dedicated squarely to connecting us with our friends’ lives. After all, that was Facebook’s original mission.

Back when we first found out about investor Tim Draper’s plan to break California into six different states (including one for Silicon Valley), we weren’t sure how far the unorthodox plan would go.

But, just this week, Draper got the green light from the state to go ahead and collect signatures to put his plan on the California ballot.

To be sure, he’ll still need to gather about 800,000 signatures to put it before the voters; and, even if it were successful at the ballot box, it could face opposition from federal authorities.

Without a groundswell of support, Draper will have to pay an army of signature gatherers to stand outside grocery-store parking lots and bus stations to wrangle residents for their approval. Such campaigns can pay $3 a signature or more to signature gatherers (a.k.a. the folks that sit outside grocery stores with a clipboard), but Draper told me that he’s willing to put money into a campaign to see this project through.

Earlier this year, the state of California put out an official analysis of what would happen to California if Silicon Valley became its own state. Given the Valley’s high concentration of wealth, a lot of funding for schools and social services would be stripped away from the less financially successful parts of the state if it somehow succeeded.

But Draper says that California has become too unwieldy in its current form and needs to be decentralized. Specifically, the proposed six new states are Silicon Valley, West California, Jefferson, South California, Central California and North California.

It’s still a long shot, but Draper seems to have made it through the first hoop.

In December, TechCrunch reported that Microsoft had met its earlier promise to bring rich 3D imaging of several cities to Windows 8.1 through a new Bing Maps Preview application. Today, Microsoft extended that work to include 15 new cities.

Why the gap between release and new content? The company had to go out and, well, collect the information contained therein. You can snag the app here, if you are a Windows 8.1 user.

What cities are among the newly added? Here’s the full list: Duisburg, Dresden, Spain, Marbella, Murcia Montgomery (AL), Bakersfield (CA), Sacramento (CA), San Francisco (CA), Gainesville (FL), Tallahassee (FL), Columbus (GA), Baton Rouge (LA), Shreveport (LA), Gulport (MS), Seattle (WA).

Why should you care? The update signals continued investment by Microsoft not only in its set of Bing-powered applications for Windows 8.1, but also that Bing itself has the budget to spend on — presumably — expensive projects to highlight its own competence. That and given Microsoft’s work to harmonize the Bing app experience between Windows Phone and Windows 8.x, that this technology will land on smartphones in the future.

In this week’s episode of Ask A VC, VegasTechFund’s Jen McCabe joined us in the studio to talk hardware, and more.

As McCabe explained, she’s particularly excited about hardware that can help turn ordinary interactions into a connected experience. With some consumers in “wearable fatigue,” there are many opportunities in other areas of health where connected devices can be game-changing. McCabe and I also talked about her newish role as a VC, and why there aren’t more women at traditional VC firms.

Check out the video above for more!

Tickets are officially sold out for the MWC Bubble Over Barcelona Meetup and we couldn’t be more pleased. If you’ve managed to snag a ticket, you’ll be able to join Mike Butcher, Natasha Lomas, Ingrid Lunden, and myself on February 24, 2014, at 10pm-midnight at the official TC MWC meet up held in cooperation with Bubble Over Barcelona.

This is a global mobile meet up designed to mix innovators and influencers in town for Mobile World Congress. We are doing this in a majestic, historic mansion in the Eixample district where all the nighttime action occurs away from the conference venue. There will be three open bars set up across the two-floor building to encourage mingling, along with a large terrace overlooking the city so you can enjoy the views.

Date: Monday, February 24, 2014
Time: 10pm-12:00pm midnight
Location: El Palauet, Passeig de Gràcia 113 – 08008 Barcelona
Buy tickets here.

We’re also going to hold a mini pitch-off at the event, inviting around 10 entrepreneurs to take the stage to pitch to a panel of expert judges. The five entrepreneurs will get two free tickets each and the winner will get a table at TechCrunch Disrupt in New York and two runners up will get a ticket to the event.

Special thanks to our sponsors:

Opera Max

Kingsoft Office

Magisto

Fiksu

Tapstream

With hardware suddenly all the rage, accelerators devoted entirely to the genre are popping up all over the place. And that includes the far-flung regions of Russia.

The Navigator Campus will be the first private hardware technology park in Russia’s Kazan region. If you’re unsure where that is, well, it’s at the confluence of the Volga and Kazanka Rivers in European Russia. Ok, nevermind. Suffice to say that the Navigator project will focus on consumer robotics, 3D-printing, smart electronics for “smart home” systems and wearables. And we are talking hard-core Russian tech expertise here.

Navigator is launching with $4 million in backing by founders Ramil Ibragimov (Runa Capital) and Vasil Zakyev (shtrafy-gibdd.ru, Ohmymentor.ru). It may not sound like much, but you can do quite a lot with $4 million in Russia. And they are not stopping there. The GRAVIZapp angel fund, specializing in hardware startups, will co-locate there. And they plan to build a network of hardware hackspaces and accelerators in the region, hoping to raise that funding to top $30 million spread across the region. Thus, neighboring cities like Ufa and Perm will get their own Navigator spaces.

Serguei Beloussov, Runa Capital senior partner and Acronis CEO, believes that access to scientific and business experts, VC mentors and hardware industry players like Dell, Samsung, IBM, Cisco, Intel and Foxconn will mean “we will soon see more venture-backed hardware deals in Russia.”

Some 93 out of 120 spots have already been taken by startups, covering various fields including 3D printing, robots, healthcare hardware, and consumer electronics.

A few hardware projects located there have already raised early money:

• iBlazr – a crowdfunding startup from Kiev (with $150K+ raised on Kickstarter previously) is building a ‘smart’ LED-flashlight for smartphones and tablets.
• Krisaf – robotized gym equipment for accelerated rehabilitation of children with cerebral palsy.
• ENNOVA – a startup manufacturing NOVA 3D printers.

“Our ambitious aim for the next 5-10 years is to launch this kind of projects in each and every Russian city with up to 1 million citizens in order to create a powerful hardware-community based on the Russian engineering history,” says Ibragimov, of Navigator.

It sounds like they might just do it. The Russians are coming…

The eye of big finance is finally turning towards cryptocurrency. Responding to requests from clients, Goldman Sachs has put out an early assessment of Bitcoin that says little about the bank’s official position on BTC investment.

So far, the financial services firm is neutral regarding the currency and is not actively recommending it to clients in its broad assessment of the currency and its impact for merchants and consumers. The bank’s take on Bitcoin attempts to tamp down on some of the hype around the currency.

The document, which we acquired through a source close to the bank, states: “2013 was the year when Bitcoin became a mainstay in mass media, to the extent that it has become hard to separate the effect of hype surrounding the currency from its fundamentals.”

Goldman also found that “there is no liquid derivative market for Bitcoin; nor a large market of B2B suppliers which companies can use for spending Bitcoin” and reiterates that Amazon has no current plants to accept Bitcoin. Both of these facts point to little traction in the BTC markets for big banks. Without the imprimatur of a big name, Goldman warns, the currency is a bit dangerous to offer to the serious investor.

Longtime followers of BTC will find nothing surprising in the document, but the fact that it exists at all – even in the guise of a discussion document – is an important step in mass acceptance.

Their investor recommendations are particularly interesting:

For investors, there are a number of ways to gain exposure to value creation in the Bitcoin ecosystem

— Speculation: Holding Bitcoin with the view that the currency will appreciate over time

— Mining: Purchase computers capable of mining Bitcon, and earn newly minted Bitcoins

— Enterprise: Provide value-add services to participants in the Bitcoin ecosystem, for a fee

Their analysis also splashes cold water on its rate of adoption, noting that “despite media coverage and current trading levels, bitcoin remains orders of magnitude away from widespread adoption.

“As a full suite of financial services build up around Bitcoin, there will be numerous (mostly commission- based) revenue opportunities investors can focus on, including providing exchanges, wallets, payment processing, lending, derivatives and other services,” the document notes.

Final analysis: The jury’s still out.

Underlying Value: While difficult to value the underlying currency, value of Bitcoin comes in its use as a payment method that removes credit card processing costs for merchants (especially important in micropayments) and adds anonymity, security and a natively digital experience to online transactions for consumers

* Merchant Use: For businesses today it is not yet feasible to hold Bitcoin given its volatility, and so merchants must convert into fiat currencies immediately (and incur commission charge)

— In the future when both hedging Bitcoin positions and committing to expenditure in Bitcoin is viable for merchants, this will help Bitcoin’s use as a store of value for merchants

Consumer Behavior: Currently there are more speculators in Bitcoin versus participants in commerce. As the currency begins to gain mainstream relevance as a payment method, this balance should shift. Overstock.com are joining Zynga and others who already take Bitcoin as a means of payment

Opportunity: We are currently in the first innings of a shift to natively digital transactions

— Bitcoin may emerge as the reigning standard, or others may compete for the crown

— Positioning investments in the companies striving to provide value-add services around cryptocurrencies will be key to participating in this cycle of value creation

It’s not much, but to BTC fans, it’s definitely a start.

Illustration by Bryce Durbin