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August
27, 2001
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Welcome to venture capital 2001-style. VCs are tougher and stingier.
Existing companies are worth less than they were a year ago, even if they
have more business. To raise money, entrepreneurs need a proven, operating
business with several clients, not just the idea of one. When they finally
get the cash, it has to carry them to profitability, not the next round of
funding -- and it could be years before an IPO. Indeed, five years has
replaced 18 months as the average VC investment time horizon.
So money is tight. But, far from an implosion, the slower pace of venture-capital investing is the precursor to a return to normalcy. Money is still being invested in venture capital. The total amount put into new deals in the first quarter totaled $11.7 billion, comparable to 1999's first quarter, but down 56% from the $26.7 billion in the first quarter of 2000, according to statistics from Venture Economics and the National Venture Capital Assn. And the average deal size of around $10 million is 33% lower than it was in the first quarter of last year, say VCs. For entrepreneurs, the new reality is harsh. The experience and quality of management has become paramount in importance, just as it used to be before the dot-com bubble blinded the better judgment of many a VC and investor. "We're seeing a correction back to the way things used to be," says Chris Darby, 41-year-old president and CEO of Cambridge (Mass.)-based digital consulting firm @Stake, which successfully closed a $26 million funding round in late October. "They want to know how you'll manage when finding equity is more challenging." That's the name of the game in venture capital these days and will likely continue to be as the private equity markets experience a return to normalcy. Source: http://www.forbes.com/asap/2001/0528/050.html
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Bleeding Edge
"Bleeding Edge"
started out as a joke in the software industry: there was "Leading Edge" technology, and then "Bleeding Edge." This was the stuff that was so new, so sharp, it might cut you when you tried to use it. In the last year or so it's come to stand for the very newest of the new tools: things that no one's quite sure are going to make it to mainstream.There are a lot of great ideas and products out there that the world would greatly benefit from. These products and services could potentially offer customers time and money savings. However, the inventors seem to not have the know how to drive these goods and services to market, and they waste time and resources inefficiently trying to get them into stores and boutiques because they believe in what they have created. Sometimes products need more than just belief in order for customers to buy them, they may need a plan.
Especially if you are at the "bleeding edge" in technology/Internet related advances - planning and business analysis is essential.
Update: Palm announced on Thursday that it is acquiring the technology assets and intellectual property of software maker Be for $11 million in stock, in a move aimed at strengthening its operating system to compete against Microsoft.
Palm Inc.'s operating-system
business is set for some changes, as executive Alan Kessler leaves and a band of
Be Inc. engineers prepare to arrive. Palm--which by some measures supplies the
system software for 75% of handheld computers--has been slumping financially of
late as it transitions to new products and contends with competitor Microsoft.
Kessler, Palm's chief operating officer for platform products, appears to have
taken the fall. The former 3Com exec plans to leave Palm Aug. 17.
Palm also says it's buying the engineering staff and
technology of Be--a software company founded by former Apple Computer exec
Jean-Louis Gassee in 1990--for $11 million in stock. Be has been through several
incarnations, most notably as the developer of an alternative PC operating
system, BeOS, and as a supplier of software for TV-top boxes. But Palm wants
Be's BeIA software for handheld computers, which provides instant-on
capabilities and TCP/IP software. Be, which claims Intel as its largest
investor, plans to liquidate its assets after the transaction closes. Palm says
Gassee will stay on temporarily as an
advisor.
Source: http://www.informationweek.com/story/IWK20010817S0002
Kettner's Comment
Business technology warfare at it’s best! One of the lessons I have learned over time through experiences and watching others is simply this: life is too hard to experience alone. The more people and expertise brought together the better things will turn out under smart strong leadership. Competing with Microsoft is no easy thing, so the experts must be brought in. Perhaps the Be group will make a difference for Palm.
I wonder if there is any money to be made in the battle between Microsoft and Palm?

PC makers face
back-to-school disappointment
Dell (DELL) and
Hewlett-Packard (HWP) officials confirmed that it won't be a stellar
"back to school" season for PC Sales on Thursday when they talked about the
current quarter with analysts.
Dell said it actually expects revenue to stay flat or decline slightly this quarter, which would buck the usual autumn trend.
And Hewlett-Packard Chairman and Chief Executive Carly Fiorina described back-to-school sales as subdued this year.
"We are -- as we've said a couple of times -- expecting a seasonal up-tick, but I would think of this school season as more subdued than others in the past," she said.
Baker said sales are likely to be closer to the levels of 1998, the year before generous rebates drove big gains in back-to-school sales. Although it is still early in the season, he expects sales to be down 15 to 20 percent from last year and 25 to 30 percent from 1999.
Source: http://www.upside.com/BigCaps_Weekly/3b7c529f1.html
Kettner's Comments
As we quoted in our December 2000 issue of the Ripple Effect Newsletter, we have enter the Post-PC era (Digital Ripple always tries to stay ahead of the trends for you). In my personal house-hold we have more computers then family members. To be exact we have 5 members that have access to, 4 desktop PC’s, 2 Laptops, and 5 palm sized mobile PC’s. I understand our family may be an exeption, but the point is everyone has access to a computer, so why do we need to buy more. The market has moved on and consumers are looking to be more nomadic.
Is there money to be made in developing new technology or implementing new ideas?


Convergence, broadly speaking, includes not only the blending of hardware devices like the PC, television, telephone, and stereo, but also the melding of media enterprises into powerful, synergistic combinations. And we will soon see the convergence of broadband with CPU power.
Richard Baskin, co-founder and chairman of Intertainer -- which provides interactive-television services such as video on demand for the entertainment industry -- says, "We are now in this adolescent phase of broadband and interactivity. But make no mistake about it: The child will grow up. Imagine having a video store in your home with all the TV, movies, and music videos you could possibly want. You get to choose what you see and play it instantly. That's what we're trying to do."
Of all the arguments given for the AOL Time Warner merger, it is this belief in convergence and the inherent potential for targeting consumers and cross-selling packaged advertising deals across brands that has investors salivating.
Is AOL Time Warner, with Warner Brothers Pictures, HBO, Time and cable properties, an Internet service provider, a content provider, or a content distributor? Is Microsoft (MSFT), which has moved aggressively into the portal business with MSN and into game consoles with the Xbox, a software company, a media company or a hardware company?
And what about AT&T (T)? How will it leverage its assets in the pipe business?
Intertainer's Baskin says, "The real economic value lives in content and services, because that's the one thing that can't be commoditized. That's why AOL is so successful. If AOL was just an ISP, nobody would care, but what's happened is that AOL has provided a service to people that they've become addicted to."
Source: http://www.upside.com/DigitalMedia/3b7846fb57c.html (check out the full article for a great business analysis)
Kettner's Comment
Microsoft has been on trial for a long time due to its monopolistic practices and situation. However; who is watching AOL? They seem to have a monopoly on communication. They have our magazines, internet, movies, television, and music. The only thing that they don’t have is a radio station, but that may be in the working. They have the largest sphere of influence. Pretty soon they will have to power to inform us of what to eat, what to wear, and how to act; then again, they probably already do. :)

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