Apple’s acquisition of Primesense and Calcalist’s early coverage of the transaction has sparked the online debate over the impact of leaks to the media in advance of the acquisition signing. For the benefit of readers who have not been exposed to the debate, the Israeli newspaper Calcalist broke out news of Apple’s acquisition of Primesense, an Israeli 3D sensor technology innovator, prior to the deal being announced by the parties (and before they were ready for public disclosure). My good friend Izhar Shai shared his perspective as a member of the Primesense Board (Hebrew version). That post was followed by a few suggestions from Roi Carthy. I share a slightly different perspective. I would like to point out that I am currently a member of Cisco’s Corporate Development Team, and within that role am part of a team that drives M&A for a globally recognized serial acquirer. I have had some experience in acquiring Israeli companies (see Cisco/Intucell), and have seen ‘the other side’ as a former member of the Genesis Partners investment team. I won’t repeat the things that were already discussed - i would only like to offer two perspectives:
- You want to stop leaks? Manage it. Sounds trivial, doesn’t it? The way to stop leaks is to limit the number of people exposed to the transaction for as long as possible. Cisco worked with Rani and his Intucell team for over 6 months before the deal was announced. Never have we seen it speculated in the Israeli press. Why? Was it not material enough? Did people not care? No - it was because Rani successfully limited the number of people who knew about the discussions with Cisco, and we both made sure everyone involved was repeatedly reminded that this must remain absolutely confidential, even if it is a small country populated by people with affinity to spilling the beans. As the transaction announcement became near, the Cisco team working on this could recite the opening sentence to every meeting in their sleep: “this is to remain confidential, and is within a highly volatile, leak friendly environment.” In addition, we took proactive measures to ensure the risk of leak was minimized - pulling in as few people as we could, and limiting exposure of both internal and external entities to the process. I can share a personal note that my extended family didn’t know about why I am travelling to Israel until a week before I arrived - and even then they did not know the name of the acquired company, or the scale of the acquisition. This is even though this acquisition was a material part of my life for the previous 6 months. So bottom line - trust the very few that have aligned incentives with you, delay exposure until you absolutely have to, and keep your mouth shut. Simple, stupid, effective.
- Strategic acquisitions rarely (never?) die because of leaks. An acquisition process takes time and effort on the acquirer’s side - A LOT of time and effort. We don’t throw it away just because it leaks to the press. Are we angry when it happens? Yes. Does it make our life more complex and difficult? Again, Yes. Does it spin into havoc our communication and press plan - Absolutely. But when a company is a strategic value to an acquirer, it remains a strategic value after the leak (unless a first mover advantage is critical, or the process is in its very early days and could change because of the leak). If the acquirer was looking for ‘an excuse’ to get out of a deal - this could very well be a good one - but I would argue that under that scenario, an acquirer will find an alternative excuse if needed. Bottom line here - if you build value in your startup, and can provide that value to the acquirer, a leak only makes the acquisition team’s lives more difficult and irritating - it doesn’t change the economics or outcome.
So Assaf Gilad, Shmulik Shelah, and all the reporters out there, Israeli or not - keep doing your job and honor your responsibility as reporters. You are certainly not to blame for leaks, and in my opinion no ‘enforcement mechanism’ should be put on you,. Entrepreneurs and acquirers need to be smarter, more careful, and manage the process.
And to the Primesense team - Aviad, Inon and the team, as well as its outstanding investors - Genesis, Gemini, Canaan and Silverlake - huge congrats on a great outcome, and may you continue to change the world we live in.
A week ago, Apple reported its third quarter financial results, with iPhone sales beating expectations by a wide margin. But unfortunately for Apple, many of those were iPhone 4 and 4S, and not iPhone 5. The continued momentum of its older product is the sign of the effort Apple is putting in penetrating the growing segment of the mobile market - lower income consumers (both in the US and abroad), for whom price sensitivity is a significant driver for purchasing decisions, and whose mobile replacement cycles are relatively long. In this segment, Apple finds itself primarily competing with Android based devices - but that is a very tough battle to face. Competing with a platform in which the OS is basically given for free, while the hardware is manufactured by cost optimization and operational efficiency specialists like Samsung and LG, is next to impossible for Apple, and is far removed from its innovative core.
Can Apple win the battle of the low end? I recently stumbled across this website, which shows an analysis of tweets coming from mobile phones. It has fascinating data visualization. One of the key takeaways from looking at the data is that Android is already dominant in lower income areas, while iOS is dominant in more affluent areas. Take a look at the New York metropolitan area (red are tweets from iOS, green are tweets from android):
It is clear Manhattan is dominated by iOS (and some Blackberrys - reminding us bankers still live in the past). The surrounding, less affluent areas have a lot less tweets (as it is not as dense an urban area), with a mix of Android and iOS. Exceptions are the richer neighborhoods of Brooklyn, such as Williamsburg & Brooklyn Heights, which are still iOS dominated. Now lets look at a less affluent city. Take a look at Detroit, one of the poorer cities in the US:
Detroit has a downtown business area that is iOS dominated, but the vast majority of the city is dominated by Android - iOS is practically non existent. As you move to the richer suburbs, iOS begins to appear again, and in some locations even dominate. But even Detroit still somewhat reflects a US consumer, which is not where mobile growth is driven from. Can you imagine what the picture looks like in Mumbai? Here it is:
This data shows Apple is between a nail and a hard place. Penetration in the affluent areas is at an all time high, but the growth isn’t there, and the competitive pressures from Samsung who introduced a very respectable offering in the Galaxy product line. Penetration in lower income areas is largely dominated by Android, which has a cost advantage (free OS) and expertise in operational efficiency by its hardware manufacturers. So where will Apple find growth? This questions Apple’s ability to remain competitive in the marketplace, and makes one wonder whether Apple’s mobile product line is sustainable without significant incremental innovation that would once again leapfrog the company ahead of competition. Does Apple need to reinvent its mobile product line? It seems like that’s its only chance of survival.
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In January 2013, Twitter announced the launch of Vine, a mobile video platform that tries to mimic what twitter has done so well with short messages, in a video form. Historically, Twitter tried to make a similar move with photos, with limited success. But this time, it seemed like they nailed it. The user experience was great. It was simple. And very quickly, all of our twitter streams were packed with Vine videos. Personally, I was not a huge fan of the 6 seconds time limit or the automatic restart, but the platform was so intuitive it seemed obvious why it quickly turned into such a success.
Five months later Instagram launched its cinema feature, which they could argue is the way to mimic what they have done so well with photos, in a video form. You could also argue that it is basically an exact copy of Vine, adding a flexible time clock up to 15 seconds, and some Instagram-ish basic filters. Since it learned so much from the Vine launch (and copied the good stuff) - the platform was as intuitive and as friendly, and quickly caught on.
Fast forward 1 month, and while Instacinema usage is skyrocketing, I would guess Vine’s growth has slowed down significantly. This statement isn’t based on scientific proof, but is rather derived from articles I read and mostly from a good look at my Twitter & FB streams. I would also venture a bet that Instacinemas on average get a lot more impressions because they are a natural part of the very popular Instagram feed. Who ever looks at their Vine feed? In any case, both platforms are huge game-changers for mobile video (and that’s for another blog post), but they are particularly interesting in evaluating what did Instagram do right that Vine didn’t? How did Instagram overcome the first mover advantage Vine so clearly possessed? Here’s my attempt at explaining:
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Since publishing my blog post “Building Brands - All about Approach & Execution" yesterday, I have been bombarded with feedback. So first - thank you for responding and providing your points of view - I really enjoy reading them - and am trying to respond to each and every one. Some readers provided feedback on the blog, others chose Facebook, and many engaged me directly. I wanted to respond back to all of you via this post, make a couple of clarifications, and have everyone enjoy the conversation while keeping the anonymity that some of you desired. It would be great, however, if in the future we can try and keep comments and responses on the blog itself, in order for everyone to be able to share in the conversation.
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In the consumer world, making it big is about building brands, not technologies. And from my experience, many Israeli entrepreneurs struggle to recognize what that means. Two encounters with entrepreneurs over the past month helped highlight for me why successful US entrepreneurs are so different from Israeli entrepreneurs when it comes to consumer products, and why the last really interesting consumer product to come out of Israel is the drip irrigation system approximately 50 years ago (ok - maybe I’m exaggerating a little - but you get the point).
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After a 15 months hiatus, I’m back to blogging. It’s been long overdue. And as my life changed, the focus and name of the blog needed to change accordingly, even though the audience pretty much should stay the same - the tech startup community.
One year ago, I left my role as a principal at Genesis Partners, based in Israel, and moved to the US, to join Cisco’s Corporate Business Development team, leading their efforts driving growth in mobile. I am responsible for strategy, mergers & acquisition, and investments in the mobile space. The vast majority of my work thus far has been focused on acquisitions (Intucell, Ubiquisys & Broadhop were all added to Cisco’s mobility portfolio), but these days I find myself aggressively seeking investments that can change the mobile landscape - anywhere from infrastructure & services, to mobile applications and mobile data platforms. If you’re doing something that can move the needle for Cisco (and that’s a big needle), then I would love to talk.
In my spare time, I continue to work with entrepreneurs much of the same way I used to as a VC - making introductions, offering advice, and generally trying to be helpful in any way I can. Having spent the last year based in the bay area, I feel I have a different perspective on things, and on what it takes to build successful companies. I will try to use this blog to share some of that with you.
It’s great to be back writing again. Hope you enjoy and provide feedback as you have been doing.
This post was inspired by the blog post of my good friend Danny Cohen, who in his recent trip to the US noticed that valuations for enterprise/SaaS companies in the valley are 2x-5x valuations for equivalent companies in Israel. His conclusion was that “I am not convinced that Israel has a better financial outcome for startup companies compared to the Valley, but for sure the potential is not 80% lower. In other words, Israel can and should be much more lucrative for investors. Based on current local valuations, real money will be made here." - I have a slightly different opinion.
I think of valuations as a derivative of potential returns. In other words, the formula that looks at risk vs reward should define what is a ‘reasonable valuation’. And if one would agree, then the questions are fairly simple:
1. What is likely successful outcome for the company?
2 What is the likelihood (or risk) that the company will get there?
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I’ve gotten a lot of feedback for my last post - "There’s Nothing Wrong with Buying Traffic" - and have given the subject a lot of thought since writing it. The more I think about it, the more it troubles me. Because while one of my main observations was that the pendulum would swing back toward startups “buying traffic”, it could be argued that the shift to focus on customer development is not a part of a pendulum, but a sign of a second internet bubble about to burst.
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I’m writing this post following a recurring theme I have had when meeting entrepreneurs over the past several weeks. When asked about their go to market and their initial scaling (or - how do you get to 1 million users? - see some examples of successes here), their answer is “community management” or “customer development” - by which they essentially mean nurturing your early adopters, building strong viral loops, improving through feedback and iterations, etc. All of these things will help drive down your average customer acquisition cost to almost zero, which is always great. But while this is the most fashionable modus operandi, it isn’t the answer I would have gotten 4 years ago, and I believe that ‘scale through community management’ is one side of a pendulum that will soon make its swing back to a more level ground.
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This post follows a talk I gave at a Mobile Apps and Beer event a couple of weeks ago (another outcome of that talk is my former post Should we meet pre-traction?). The subject of my talk was financing vehicles for mobile apps, and one of the key messages that I was trying to get across was that as an entrepreneur of a mobile app startup, you need to understand what asset you’re trying to build - in many ways, the type of asset will define the different types of financial vehicles you should use, and the timing/progress you need to achieve before a fund raising pitch should be made.
So I am following that talk up with a post that is trying to dive into the major assets one can build in a mobile app (but in many ways, this is similar in consumer internet). It is important to note that oftentimes, what seems to be the base asset of the company isn’t really what it is trying to achieve. I encourage all entrepreneurs to spend the time and think about the asset that will enable mass scalability for their product and for the company they are trying to build. So without further ado, here are a few assets to think about:
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