Wednesday, May 31, 2006

53,651 and The Valley

Most of you poor souls reading this (poor, of course, because you're reading this) probably have no idea the significance of the number 53,651, and that's my point.

53,651 is the number of people subscribed to Michael Arrington’s TechCrunch, a popular tech-talk blog, as Josh Kopelman pointed out in his Red Eye VC blog a few weeks ago. Josh, a Philly-based VC, goes on to wonder just how big the chasm is between Silicon Valley and, well, the rest of the world.

His point struck a chord with me, as a (unfortunate) member of both coasts, depending on time of year. But it didn't really hit home until dinner that night, when I asked my Dad about his feelings on Web 2.0 and such. His answer: "yeah, I've been wondering, what is that really?" Wow. I knew that Web 2.0 was a geek-only thing, but since when was my Dad less of a geek than me?

So this chasm exists. And it's huge. Just how big? As we ooh and ahh over others' brilliant new start ups and plot our own, the least coast is only now realizing what craigslist and stubhub are. It's not really a bad thing: if everyone had our enthusiasm, we'd be in the middle of another bubble before we knew it. But it does seem that their mass adoption takes longer than necessary, largely due to the cultural divide between here and there.

The question then becomes, how do we bridge the gap? We must, because we know, we see it coming. Web 2.0. The 2nd revolution. We get it. We just need to expedite the process of the slower ones catching up since, ultimately, we're going to need their business.

So what to do. There is definitely not one right answer. I think, above all, the trick will be to keep it simple, especially early on. We need to make sure we're not getting too far ahead of ourselves because it will take time for mass adoption to catch up. But then again, what do I know?

Tuesday, May 30, 2006

Vonage IPO

So, seeing as everyone has been talking about Vonage's IPO, I figured I'd spare you all the trouble of doing the same. That was before I saw this article on Motley Fool.

What? Most successful? Ok, first, a recap for the technically challenged: Vonage, the celebrated broadband phone company (i.e. calls over the internet), went public last Wednesday at the price of $17 per share, and then immediately fell to below $13, where the price sits now.

As a side note, wow. Looks like the underwriters really dropped the ball. As I've been introduced to the world of selling your soul, I mean investment banking by my esteemed colleagues at the University of Wharton, I mean Pennsylvania, I find it funny that some of our brightest young minds at Citigroup (and others) messed this one up. And $17 was middle of the range? Baloney.

For weeks now we've been reading about how Vonage is doomed. Operating losses. Skype taking over. No future. No hope. (Another side note: to quote the President in the movie Independence Day, "Isn't it amazing how quickly everyone can turn against you?" Weren't we sitting here talking about Vonage as the next Google last year?) So how did this happen?

But wait, Bill Mann of the Motley Fool argues, who really lost out in all this? The investors did. Not Vonage. Incredible. They squeezed more money out of this IPO than they were worth - they convinced the public that they were worth $600 million more than their current valuation of $2 billion, a whopping 30%. Or to put it more eloquently, as Mann does,

I stand in awe of this level of salesmanship. I'll bet they [the Vonage guys] are high-fivin' all around in the executive suites in Holmdel. After all, they took a company that has lost nearly half a billion dollars from its inception (with more than 25% coming in the last three months alone), $250 million in debt, and no clear plan to profitability, and they turned it into a mid-cap.

Which brings me to my ultimate (and fortunately, last) point: is overvaluation necessarily a bad thing? From this standpoint, the guys at Google are probably kicking themselves. $85? All that lowering of the opening price, from somewhere in the 100s to 95 to 85? How much cash did they lose out on? Knowing what we know now, they could have set their IPO twice as high, or more! Throwing it way back, what if Netscape wasn't valued so low when it had its IPO. They crossed 400 early on, much like Google, and probably could have fetched a higher IPO price, in hindsight. Maybe they could have withstood Microsoft's onslaught with all that extra dough (yeah you're right that's unlikely).

But still, it's funny how these things play out. In the end, underwriters have to maintain their reputation, and can't monkey around, and yada yada yada, so it renders this all moot. But it makes you wonder, is it really better if your IPO is undervalued, or overvalued? Why do we celebrate the Googles of the world, who really just lost out by undervaluing, when their stock takes off right after the IPO? Just how different is reality from our perception?