Learn German from VW ads

Volkswagen Ads

“Schade, dass man nach Amerika nicht fahren kann” probably means “what a pity that a man can not drive to America.” At first, I thought that it meant “what a pity that a man can not travel to Americal” which does not make sense, because a man can travel to America by an airplane. The important verb word here is “fahren” which means “travel.” Then, I realized that the “fahren” word could mean “drive” as well. Then, it made sense to me.

Scarce and Abundance

First of all, I am not an expert in economic. I just write what I think. It maybe incorrect.

I remembered that I attend the Informatics Entrepreneurship II course, and there was a student asking a teacher about how could the music industry deals with the copyright infringement problem. The music industry was losing money, because people do not buy their CDs. The guest speaker introduces the concept of scarce and abundance. At any given time for something, there are something a little (scarce), and there are something a lot (abundance). For example, for the music industry, the abundance is the music available from the Internet, and the scarce could be the concert ticket.

In my opinion, it is necessary for an entrepreneur to detect what is scarce and abundant. I agree with the guest speaker on the scarce and abundance concept. 

In 1997, there was  an economic crisis in Thailand. Before the crisis, the real estate was bubble. People bought real estate (houses or land) for investment, but they did not buy real estate for living or do something. They hoped that the prices would increase. The prices of real estate were indeed increased. However, after the economic crisis, the prices drop significantly. People do not have money to pay back to the bank. When people can not pay back, the banks took the real estate properties. The abundance would be a lot of cheap real estate. The scarce would be the money. If anyone had bought the cheap real estate properties at that time, they could sell at very high price now, because the real estate business has improved. The situation is similar to the credid crisis occurred in USA recently. If any one has money, they can buy a house cheaply. 

 

 

 

If I remembered correctly, the guest speaker also mentioned about the situation in 2001 for IT companies. A lot of companies laid out software developers. Abundance would be the programmers. If anyone with money, they can start an IT company cheaply by hiring those laid out  programmers cheaply. When the economic is back, they can sell their IT products.

Mcafee

It is quite interesting that John MaCafee send his Mcafee copy to pirate software in Asia to help widespreading of his software.

John Mcafee did have a good vision when he spoted a rumor about virus on a newspaper. He though that one day the virus would become real, and it did.

source : http://www.stanford.edu/class/msande273/resources/McAfee%20Case.pdf

Choosing the right source to finance a start-up firm II (Evaluation and debt converted to equity)

Giving an equity to angels in the early stage could not be a good idea. Giving an equity requires the an evaluation of the company. An evaluation of non-IPO* high tech firm can be calculated by 10 times the revenue. However, a start-up firm does not have or have a little revenue. An evaluation is very difficult.

If the value of evaluation is higher than reality, then an angel loses money. If the value of the evaluation is lower than reality, then an entrepreneur loses money.

For example, let’s that a firm will actually be worth 100,ooo USD in 5 years.

If the value of evaluation at the start-up is 100,000. If an angel puts his money for 25,000 USD at the start-up, then the angel could get at least 25% of equity. As a result, an angel and an entrepreneur could have 25,000 USD and 75,000 USD worth of equity at the end of year five respectively. Fair.

If the value of evaluation at the start-up is 50,000 (lower than reality). If an angel puts his money for 25,000 USD at the start-up, then the angel would get 50% of equity. As a result, an angel and an entrepreneur will have each 50,000 USD worth of equity at the end of year five. When an evaluation is lower than reality, then an entrepreneur loses an opportunity to make some money. Not fair for an entrepreneur.

If the value of evaluation at the start-up is 200,000 (higher than reality). If an angel puts his money for 25,000 USD at the start-up, then the angel would get 12.5% of equity. As a result, an angel and an entrepreneur will have each 12,500 and 87,500 USD worth of equity at the end of year five respectively. When an evaluation is higher than reality, then an angel loses an opportunity to make some money. Not fair for an angel.

So how do angels deal with this problem?

In the beginning, an angel finances a start-up firm in a form of debt. Then evaluation is done later on when a firm makes some solid revenue. After the evaluation, a debt could be turned into an equity.

IPO – Initial Public Offerring – when a firm is publicly traded on a stock market.

Angel – an investor who invests smaller amount of money compared with VCs (Venture Capitalists)

I am just a student, so I do not have any real experience. Knowledge is from the talks (Edinburgh Entrepreneurship club), guest speaker from the course Informatics Entrepreneurship I & II and the book (Technology Venture: Idea to Enterprise).

Choosing the right source to finance a start-up firm

why VCs (Venture Capitalists) is better than FFF (Friends, family and fool) or perhaps a bank?

FFF is suitable when a firm is in a start-up process. For a bootstrap company (start from a beginning), VCs are not really interestet to invest, because they don’t see anything solid (patent, products, team, etc) except ideas. Entrepreneurs have to find seed money from FFFs. When a firm is grown a little bit, a firm may seek funding from an angel. An angel is a wealthy person. An angel has some knowledge in the industry. An angel may help guiding a firm as well based on the angel’s knowledge. The scale that the angel can invest is smaller than VCs can. Still, there are many ventures get funded by an angel. Later on, a firm may need funding from VCs to grow. Further info on financing by an angel.
VCs are professional investors. VCs often demand a lot of equity in your company. VCs are the most expensive, but they can provide the most value. They know a lot about business. They will serve on the board and make sure that the company is heading in the right direction (in term of making money). They may have a connection in the industry. While FFF or Bank just give you the money, and they can not provide any other value to grow the company.

Bank has its pro and con as well. Bank does not help you to do the business unlike angels and VCs. A bank does not want an equity or ownership in a company. An entrepreneur does not have to share his or her company with someone else. On the other hand, no matter if you are success or not, you still have to pay back to the bank. Banks usually do not lend out to a start-up firm. If an entrepreneur does not put his money in, then VCs do not have a confident to invest.

VCs are usually MBAs. Entrepreneur background is usually technology. One guest speaker points out that MBAs think differently from technologists. MBAs calculate the profit a firm in the future. MBAs would expect a firm to make xxx amount in xxx years period. VCs may invest in 10 firms. Half of them may not work. Just few (3-4) of them are needed to return high profit. From calculation, if the firm will not be able to make that xxx profit, then they may terminate that firm. Even though they would lost the money for sure, but it would give them more time to work on other firms. On the other hand, technologists have a passion in technology. They keep working until it works. To become successful, it may requires the process of keep working and keep working. VCs may stop this process in the middle.

I am just a student, so I do not have any real experience. Knowledge is from the talks (Edinburgh Entrepreneurship club), guest speaker from the course Informatics Entrepreneurship I & II and the book (Technology Venture: Idea to Enterprise).

Market Drives Design

Today in class, we have a guest speaker talking about the design. I would like to summarize his speech now.

The design which is driven from technology or innovation may have a hard time marketing.
The life would be easier if we design something that the market wants. Design for the market. Design something filling users’ need. Design helps differentiating the product from others. If you do not differentiate the product, you will end up compete with competitors by prices which the horrible place to be.

How can we obtain an idea?
- bug list – list of things that annoy you
- trend watching
- R&D
- industry knowledge
- product adaptation
- need finding

Design process
- identify a niche. choose a niche.
- identify users
- need driven
- design a solution
- get real fast
- iterate
- feedback loop

Use flash, matlab or development kit to fake development at the begining. To make a fake product at the begining to get real feedback.

Asia – has know-how
- has expertise
- lack knowledge of the market
- lack design

You can develop a prototype on your own to get user feedback, for the production, you can shift to Asia.
Try to develop something with low effort but has high value perceivable by customers.

Market drives design, not design drives market.

Recruiting human resource for a start-up company

Today in Informatics Entrepreneurship II course, a guest speaker spoke about how do a start-up companies attract people to work with them.

I would like to summarize it down, so I remember it.

Business is a dictator not a democracy.

For a big company, they have a budget and resources. Then they figure it out what they will do with their resources and the budget. For a start-up company, it is up side down. They know what they will do, but they do not have resources and a budget.

For a start-up company, the founder must have a compelling reason to recruit people.
A company is divided into shares (equity). Founders have shares in the company.
They usually offer an equity of the company or a stock option to a start-up team member. An equity of the company means shares in the company. A stock option is an option to buy stock later on with a fixed low price. Let’s say, if the stock is worth 10 USD, and you have a stock option to buy a share for a price of 1 USD, then you can make 9 USD out of it. Joining a start-up company is high risk, but high reward. If the company is successful, they can cash out from the equity or stock option. Working for a big company is low risk but low reward.

25-40% of equity of the start-up company is usually reserved for the team. 6-10% may need to attract CEO. Less than 10 % that one of the founders becomes CEO. It is prefer to hire someone to run a company (doing a management and helping raising fund). There is a phrase from the guest speaker, “if you talk to an idiot, he will bring you to his level and beat you with his experience.” Let go your ego, and hire a CEO who is smarter than you to lead the company.

Sign for a Bad CEO
- people who ask up front how much will you pay for them, because it is a start-up company. They may not be able to earn cash for a while.
- people who has no network for raising money
- can not deal with the hardship
- depend too much on you
- does not take charge immediately

In Silicon Valley, the environment is promote people to start a business whereas it is harder to start a business in Europe, because it is more costly to fire someone in Europe. In a startup company, if a CEO, VP or whoever goes on the wrong way (becomes a bad guy), we need to fire them and hire a good one. It’s easier to find someone in USA.

Another reason for the Silicon Valley to be good place to start a business is that when an entrepreneur fails, he or she tries it again and again, and finally he or she gets it right. Entrepreneur got reused. Entrepreneurship is a skill which occurs in a few people. If an entrepreneur fails, and he or she does not do it again, then his or her skill is wasted.
I don’t know whether this fact applies to Europe.

OK, so now we attract some people to form a team for a start-up company. How do we manage a Cap Table (how many shares given to each member in the team, Cap is capitol).
Teams : 25-40% and reserved 6 – 10% of total for a CEO.
VC : 20-30 %
Founders : probably the rest

VC is a venture capitol who got money from someone and invest that money.
In Silicon Vally, there are a lot of VC companies.

Besides the team, a company also needs a board. Five member is enough for the board. One is the founder. One is the CEO. One to two are from VC. One to two are industry experts who has a connection. A company may give stock option or 1% share for each person in the board.

Now, comes the problem.
1) What if someone quit?
We are all in this together. Usually a share given to a team member or founders can not be sold immediately. They can sold certain amount after period of time. This is done to keep team members together. It helps preventing somebody to quit in the middle and withdrawing his or her investment back. It would badly damage your Cap table and you need to spend time raising fund if someone can pull out his or her investment.

2) what if a CEO or VP or whoever does a bad job and you need to fire them. How would you fire them? How would it affect your Cap table?
You need to convince the board that the bad guys is doing the wrong thing. We need to fire them and recruit a new one. Therefore, you need a voting right more than half in the board. This is where the board can help your company. Use the board to fire the bad guy.
You do not want to leave shares in the company whose owners are not committed to the company anymore. It is a real problem. For example, if a guy quiting has a company has 20% stake in the company. What would you do protect investors. The guest speaker introduces the concept of Silicon Vally Back Tactic or Reverse-Split. First, the board set a new price for a share. For example, if a share worths 10 USD, the board can reverse 10 to 1 (means reducing the price of each share to 1 USD). Then split which is an issuing a lot of new shares. The reverse split could turn a 20% stake into a 1% stake. If a company is listed in the stock exchange (public traded), they can not do that.

Technology Venture Formation

In Stanford, there is a class called Technology Venture Formation which is basically similar to Informatics Entrepreneurship I and Informatics Entrepreneurship II in University of Edinburgh where students learn a business opportunity assessment and a business plan. It is quite interesting is that there are some companies sprung up from that course in Stanford.

Last last week, we had another guest speaker who taught a class in Stanford about computer stuff. I could not remember the name of the class exactly. From that course, students do a facebook app. The result was impressive, 20 millions installations world wide for the whole class. A lot of users used facebook apps from that course.

I think that the environment in Stanford is kind of encouraging students to start a business.   There are lots and lots of companies started from Stanford. There are some started from university of Edinburgh too, but Stanford has a lot more successful started up companies. Perhaps, it is a good reason why would you go to Stanford.

The university of Edinburgh has some kind of a program to help support a new start up company.  They want to keep bright and brightest for their local economy as well. Graduated students from Edinburgh usually go to London or perhaps USA.

Intellectual Property

In Informatics Entrepreneurship class, there was a presentation on IP (Intellectual Property) from a lawyer. He was talking about the copy right, patent and open source license as well.

There are two kinds of level for intellectual protection: copyright and patent.

Copyright comes automatically. You do not need to apply for. Copyright is the right for you to copy something and sell it. If I take a lecture, I automatically have the copyright to sell it. However, the idea behind the lecture is not protected by the copy right, but it can be protected by the patent.

Patent is an important asset for a company sustainable advantage according to the seven model from …..(forget his name).

If a company hire a consultant to build a website, who owns a website. The consultant really owns the website, but he may sell the right to use it to the company. That’s mean the company may not have an access to the source code or the ability to redistribute the website. Thus, the company may seek to secure this asset (website).

If a researcher in a university invented something, who owns it. In UK, the university usually owns it. The university may use patent to secure loan.

MySQL case …