Silicon Valley Frontlines

And The "World's Most Intriguing Startups" Are ... Here!

According to BusinessWeek's latest issue it's official - the place with the largest concentration of the "World's Most Intriguing Startups" is .... Silicon Valley (or the San Francisco Bay Area, if you want to be picky). BW identified 25 young companies from as far away as China, India, Ohio(!) and Europe. Of those 25 a whopping 13 - over half!! - are here, in or around the Valley.

This thrills me because when you look at the broad range of ideas being developed here and the fact that these are just the tip of the Valley iceberg you realize yet again how the Valley continues to be the world's technology leader and will be far into the future. It's not semiconductors. It's not computers. It's not networking equipment. It's a whole set of interesting new areas where we take the lead. So, here are the Valley companies making the grade!

BioFuelBox

San Jose, Calif.

Funding to date (in dollars): $9,500,000
Investors: Draper Fisher Jurvetson

BioFuelBox converts grease and fat from food waste into biodiesel. Its first plant converts waste from potato processing facilities in Idaho.

BrightSource Energy

Oakland, Calif.

Funding to date (in dollars): $160,000,000
Investors: VantagePoint Venture partners

One of the world's leading developers of solar thermal technology, BrightSource Energy won the contract for an enormous solar project in California's Mojave desert.

Bump Technologies

Mountain View, Calif.

Funding to date (in dollars): $3,020,000
Investors: Y Combinator, Ron Conway, Sequoia Capital

One of the hottest free iPhone apps, this software from Bump Technologies lets users share personal contact information and photos simply by bumping two phones together.

Coulomb Technologies

Campbell, Calif.

Funding to date (in dollars): $3,750,000
Investors: Estag Capital

Electric car drivers in San Francisco and Europe can plug in at Coulomb Technologies charging stations, which are about the size of a parking meter.

Driptech

Palo Alto, Calif.

Funding to date (in dollars): $100,000
Investors: Scott Petry

Driptech's low-cost irrigation technology is designed to help millions of poor farmers in the developing world struggling with water scarcity.

Fitbit

San Francisco

Funding to date (in dollars): $2,050,000
Investors: SoftTech VC, True Ventures

FitBit sells a $99 gizmo that tracks movement, exercise, and sleeping patterns. The data zips wirelessly to a Web site, where you can chart your progress.

FreeWheel

San Mateo, Calif.

Funding to date (in dollars): $14,750,000
Investors: Foundation Capital, Battery Ventures

Hatched by former DoubleClick execs, FreeWheel helps big media companies such as Warner Music manage and monetize ads for online videos.

Justin.tv

San Francisco

Funding to date (in dollars): $6,200,000
Investors: Y Combinator, Alsop-Louie

Justin Kan launched the site as a live video "lifecast" of himself. Now Justin.tv is one of the largest live video-sharing communities, with 40 million monthly visitors.

Permuto

Palo Alto, Calif.

Funding to date (in dollars): $6,030,000
Investors: Onset Ventures, Rembrandt Venture Partners

Permuto aims to bring the precision targeting of search advertising to display ads, by tracking consumers' online shopping behavior.

Scribd

San Francisco

Funding to date (in dollars): $12,800,000
Investors: Charles River Ventures, Redpoint

A sort of YouTube for publishing, Scribd lets 40 million users upload digital versions of reports and other printed matter and share them easily across the Web.

SolarCity

Foster City, Calif.

Funding to date (in dollars): $56,000,000
Investors: First Solar, Draper Fisher Jurvetson

The largest provider of residential solar systems in California, SolarCity provides financing, installation, and monitoring services for homeowners and companies.

Xobni

San Francisco

Funding to date (in dollars): $15,100,000
Investors: Atomico Investments, Khosla Ventures

Can't stay on top of your e-mail? Xobni overhauls Microsoft Outlook to make all that information more searchable and easy to organize.

Zynga

San Francisco

Funding to date (in dollars): $39,000,000
Investors: Clarium Capital, Foundry Group

Social game juggernaut Zynga is riding high on the sales of virtual goods, such as the digital crops purchased by players of the popular game FarmVille.

Have a Software Startup? Make Sure You Manage Some Business Basics ...

If you're running an early stage company (particularly software companies) and you're in the process of closing your first, hard-earned customers and starting to ramp up revenues then you must pay attention to a couple of key areas.

One is revenue recognition - how you manage, record and account for these results. The second is to start the process of establishing key success metrics. The latter you have time to do as your client base develops and I'll talk more about that in future posts. The former you need to get right from day one. 

Now, most CEO's of startups find their eyes rolling into the back of their heads when you talk revenue recognition. Its a desperately arcane and difficult area, yet if you screw it up you can materially misstate the results of your business to your investors, Board and others. And fixing it can be expensive and time consuming. More than that, getting it right from day one establishes a discipline of pricing, process and operating that can be hugely beneficial to the ongoing business. 

On the face of it revenue recognition has just four key components. A transaction is revenue if:

• You have persuasive evidence of a business arrangement (typically a signed contract defining all the terms and conditions)
• You've shipped the product or delivered the service (earned the revenue)
• You believe you have a high probability of getting paid (and if not why are you doing business with these wasters?)
• The price being paid is "fixed and determinable" (which is not always clear if there are ways the price scales with transactions, users etc)

in the old days this was simple enough. You got the contract, you agreed the price and got a purchase order, the customer passed a credit check and you shipped the box (often on a truck at 11.59 pm on the last day of the quarter) and - bingo! - its revenue. Yes, it all had to be clean. No contingencies (contract still waiting for Board approval, future deliverables), no side agreements .... 

Then along came software. Software sold via a perpetual license, then on a subscription term, and now via SAAS (software-as-a-service). Then there is where the software resides - on the customer site, hosted on your site, or via a shared, single instance (the SAAS model). Then there's implementation and professional services. And training. And software maintenance and upgrades. And customer service and support. The combination of many of these elements in one business relationship can create huge challenges for proper revenue recognition. My friends at PriceWaterhouse have published a manual on software revenue recognition - rather tongue in cheek subtitled "a user-friendly guide" at over 300 pages!

Even the hardware guys got in on the game as software has become a bigger and bigger component of their sales. In many cases now the hardware is simply the physical container - a server with a specially programmed chip. The software programmed into the chip is the real value add and, in rev rec terms, is more than incidental to the operation of the product. So for quite some time now the software component - along with services - has become a key factor in revenue recognition for these products. So now companies like Aruba, Riverbed and others have had to follow these rules. You may not know this but until some rules changes just last month Apple has had to recognize iPhone revenues not upon delivery of the phone to you but over the useful life of the phone and the underlying AT&T service contract - in other words, two years (in this case its complicated by the subsidization of the phone price by AT&T).

So its ugly, complex and hard to manage and track properly. In my next post I'll offer some suggestions as to how to make it simpler and more manageable within the startup environment.

(By the way, with Apple I mentioned the rules have recently changed. From now on Apple will be recognizing revenue upon shipment, not over two years. So on a reported basis heir revenue will appear to grow even faster. And, for the next two years there will be all that deferred revenue for prior periods to be added back in as well. Yes, I own Apple stock!)