Silicon Valley Frontlines

Presentation Secrets of Steve Jobs!

Or, how to be insanely great in front of any audience! I found this on SlideShare and it reminds me of one of the big things I learned this year (I'll do a post soon on some of the other things). That is, realizing just how hard it is for most people (myself included) to prepare and deliver a compelling presentation.

While that's not a new revelation it certainly struck home this year when I watched dozens of pitches by startup founders to VC's in their search for funding. The vast majority - frankly - were pretty awful, and some wretchedly so. Having observed all these pitches this year I could certainly say that a significant proportion of the ideas pitched were ones which should never get funded, at least as pitched. But many did have enough merit to warrant investment to at least develop the opportunity - but even then the presenters struggled to get that across to their audience in a compelling enough manner.

It's truly a combination of an art and science with hard work. Yes, it helps if you are Steve Jobs and you have your brilliant Apple products - but, as the presentation shows, he was not always as "insanely great" at it as he is now. Very few people are pure naturals at this - and he isn't either. I tend to do the same as most people - jam up slides with bullet points for example. Check out the presentation attached from Carmine Gallo, a BusinessWeek columnist who does a good job of capturing the Jobs approach. Yes, 77 slides seems like he's going against his own advice - but you can zip through these in 5 minutes and grab the key messages easily. Which, after all, is really the point, isn't it?

Happy New Year!

A Beacon of Hope This Holiday Season ...

Every now and then I come across something touching, sharply contrasting - something that reminds me that there are many other human stories that serve to put a better perspective on my own life. It seems particularly appropriate to share this during the holiday season and after such a tough year for so many less-fortunate people.

Whenever I'm in San Francisco I head over to Coffee Bar on 17th St. and Florida to check my email and  catch up with friends on Twitter. A block or so away on 18th St. I often pass a building with the sign "Homeless Prenatal Program". There's a wonderfully touching 8-minute video on the site that really captures the spirit and hope this organization has provided to homeless women and children whose lives have been turned around with their help. Check it out at Homeless Prenatal Program.

To donate to their highly-regarded and effective programs please click here! Here is the video - it's worth watching the entire segment:

I hope you and your family have a happy and joyous holiday season and, no matter what your circumstances, I hope you find a space in your heart to help someone less-fortunate than yourself in some small way.

Best regards and many thanks for reading my blog this year.

Philip

IPO Boom Coming to the Valley ....!!

A friend of mine who is a partner at one of the Big 4 public accounting firms tells me that there are perhaps forty Silicon Valley venture-backed technology companies lining up to file for their IPO's. By "lining up to file" he means these companies have selected their investment bankers and other advisers and have at least held their "organizational meeting" - this is the formal kick off to the process. The first visible public step is the filing of the company's registration statement (the "S-1") with the SEC, usually a month or so after the org meeting.

As if to prove the point one of these filed last week - Financial Engines out of Palo Alto, looking to raise $100m to finance growth at their $50m annual revenue business. If you want to keep an eye on these companies and see who's filed, who's about to price (actually start trading) and so on then go to Hoover's free site (you can also sign up for their weekly email update).

Forty is a phenomenal number and, if these companies complete the process which itself may take a couple of months or more, indicates a boom IPO period in the first half of next year. In context, in 2008 there were only 6 venture-backed IPO's and only 8 through Q3 in 2009. What's more, many (but not all) are substantial businesses, profitable and high caliber.

Some will not complete the process. Many "dual-track", meaning they are using the IPO process to also bring potential acquirers out of the woodwork looking to buy the business before it gets too expensive as a public company. Others will fall by the wayside for various reasons, including probably those who will find the deluge results in investor fatigue. And all this of course assumes the market really has sufficient capital ready to pile in (more correctly, this is a psychological rather than physical hurdle)

But lets suppose the majority do complete the process. What are the implications? Well, some of the capital raised certainly makes it's way back into the startup ecosystem via angels, VC's and others. Some of it will percolate back into the broader Valley economy - buying houses, cars and so on. And - most importantly from my point of view - there will be a substantial change in the philosophy of the typical venture investor. Remember my post of July 9th? Silicon Alley Insider had just published a report that noted that the thing that worried most VC's was "Exit Markets - when will they return?"

Well, suddenly the entire picture changes, doesn't it? What you can be pretty sure of is that if there is a barrage of exits then the investor mood will shift dramatically - and hopefully in favour of substantially increased investment in Valley startups! We can certainly hope so!

 

More On The Canopy Financial Fiasco ...

As expected the SEC has filed suit against Canopy Financial as a company and against one of the founders, Jeremy Blackburn, who was also Chief Operating Officer. The lawsuit filing makes interesting - and rather sad - reading. In it, and I quote the lawsuit verbatim in passages in italics below, the SEC alleges:

"During the period from at least October 2008, through at least August 2009, defendants Canopy Financial, Inc. (“Canopy”) and Jeremy J. Blackburn (“Blackburn”) engaged in a fraudulent scheme to raise $75 million from investors in a private placement offering for the Canopy preferred securities (the “2009 Canopy Offering”). To induce investors to invest in the offering, Canopy, through Blackburn and others, provided unsuspecting investors with documents misrepresenting the Canopy’s financial condition. Before the 2009 Canopy Offering, Canopy and Blackburn provided falsified financial statements, a falsified audit report, at least one falsified bank statement, and inaccurate monthly operating reports to investors."

And ...

"As part of the 2009 Canopy Offering, Canopy received approximately $75 million and Blackburn received approximately $1.625 million after redeeming 250,000 shares of Canopy common stock. As part of the scheme, Blackburn also misappropriated at least $1.17 million in investor funds into his personal bank accounts. After the payouts in the 2009 Canopy Offering, on information and belief, Canopy retains approximately $8 million."

The suit then goes on to detail numerous alleged misrepresentations by the defendants when raising $75m in their Series D funding from Spectrum (a major VC) and others. These include:

• Faking the existence of an independent financial audit by KPMG and forging a related KPMG audit report and audited financials.

"Blackburn knew that KPMG had never audited Canopy’s financial statements and that the KPMG Audit Report was forged and Canopy’s audited financial statements were false" and

"Blackburn sent Kashyap an email dated June 30, 2009, attaching the KPMG Audit Report and the audited Canopy financial statements, with an email subject heading of “Audit Finally Complete,” and email text stating “I never wanna [sic] go through this again!!”" and

"Blackburn reminded Banas to lie about the existence of the KPMG audit in two emails from Blackburn to Banas dated April 13, 2009"

• Provided false information to prospective investors in Canopy Monthly Operating Reports

"The Canopy Operating Reports provided to investors show an increase in the number of client accounts, increasing from 214,735 in February 2009, to 1,012,002 in May 2009." and

"Blackburn knew or should have known that the Canopy Operating Report entries showing the number of client accounts were false. As of June 2009, Canopy’s internal records show that it only had 81,618 client accounts"

• Forged a material bank statement

"Canopy, through Blackburn, provided to Spectrum a Northern Trust Company (“Northern Trust”) account statement purporting to show Canopy’s cash balance for the period June 2009 was approximately $8.9 million." and

"Blackburn forged, or caused to be forged, the June 2009 Northern Trust bank statement he provided to Spectrum before the 2009 Canopy Offering. The forged statement misstated the ownership of the account, the real bank account number and the real account balance. The forged statement showed the account as a Canopy account ending in -9601 with a balance of $8.9 million. The real account was a custodial account for the benefit of a Canopy client, Coventry Health, with an account number ending in -9602, and a balance of approximately $86,000 in June 2009."

So what exposed the alleged fraud? Apparently the hiring of it's new General Counsel (chief in-house legal officer).

"In or about November 2009, Canopy, through its newly-employed General Counsel, began a search for a Chief Financial Officer and contacted an acquaintance at KPMG for possible candidates. Canopy’s General Counsel sent what he understood were the KPMG Audit Report and “Canopy’s audited financial statements” to his KPMG acquaintance." and

"KPMG quickly responded to Canopy and advised Canopy in a “Cease-and-Desist Demand” letter dated November 3, 2009, that Canopy used KPMG’s name without KPMG’s authorization and consent. Further, KPMG told Canopy that it: (1) had never been retained nor agreed to audit any of Canopy’s financial statements; and (2) did not issue the audit opinion dated June 29, 2009."

You can download a copy of the full suit below, but you get the picture. This alleged fraud should have been exposed a lot earlier - or, better, never have happened - if the company had hired a CFO early in the year as apparently it started to do in some informal manner (despite the statement above - beginning a search in November 2009 - it was certainly under consideration much earlier).

More key questions:

• Where was the existing Canopy Board of Directors in all this They should have had an Audit Committee who appointed and met independently with auditors. Where was this oversight?
• Where was the due diligence by Spectrum and the other investors beyond relying on a few reports?
• Why did the young CEO, Vik Kashyap, not do a better job of really understanding what was going on, particularly in Chicago where Blackburn and most others were based while he was in San Francisco?
• What on earth makes someone think they can actually get away with this stuff? If indeed bank statements, audit reports etc were forged it is surely only a matter of time before such things are found. It is just not possible without widespread collusion (Madoff?) to keep up such a sham by forging more and more documents.

Oh dear ....

Download 23541745-Canopy-113009

IDC's Top 10 Predictions for 2010

Yes, it's that time of year again. Prognostications and predictions from "experts" all over the world and, my guess, most of them will be saying how next year will be better than this. Er, I guess that's also a prediction! One thing I think will be true - a burst of tech IPO's in the first few months of 2010 unless the markets tank big time. A post coming up on that.

I was able to get a copy of IDC's predictions for technology in 2010 today and I'll reproduce their summary (in italics) below. High level, very general. But sets the tone for a more positive and highly interesting year, I think. All of them augur well for Silicon Valley, one way or another.

"2010 will be a year of modest recovery for the IT and telecommunications industries. But the recovery will not mean a return to the pre-recession status quo. Rather, we'll see a radically transforming marketplace — driven by surging demand in emerging markets, growing impact from the cloud services model, an explosion of mobile devices and applications, and the continuing rollout of higher-speed networks. These transformational forces will drive key players to redefine themselves and their
offerings and will spark lots of M&A activity.

1. Growth will return to the IT industry in 2010. We predict 3.2% growth for the year, returning the industry to 2008 spending levels of about $1.5 trillion.
2. 2010 will also see improved growth and stability in the worldwide telecommunications market, with worldwide spending predicted to increase 3%.
   
3. Emerging markets will lead the IT recovery, with BRIC countries growing 8–13%.
4. Cloud computing will expand and mature as we see a strategic battle for cloud platform leadership, new public cloud hot spots, private cloud offerings, cloud appliances, and offerings that bridge public and private clouds.
5. It will be a watershed year in the ascension of mobile devices as strategic platforms for commercial and enterprise developers as over 1 billion access the Internet, iPhone apps triple, Android apps quintuple, and Apple's "iPad" arrives.
6. Public networks — more important than ever — will continue their aggressive evolution to fiber and 3G and 4G wireless. 4G will be overhyped, more wireless networks will become "invisible," and the FCC will regulate over-the-top VoIP.
   
7. Business applications will undergo a fundamental transformation — fusing business applications with social/collaboration software and analytics into a new generation of "socialytic" apps, challenging current market leaders.
8. Rising energy costs and pressure from the Copenhagen Climate Change Conference will make sustainability a source of renewed opportunity for the IT industry in 2010. 
9. Other industries will come out of the recession with a transformation agenda and look to IT as an increasingly important lever for these initiatives. Smart meters and electronic medical records will hit important adoption levels.
10. The IT industry's transformations will drive a frenetic pace of M&A activity."

For a full copy of the report you can register with IDC and download here

Evil Mad Science! Get Some for the Kid (or the Kid in You)!

One of the great things about what I do is getting to meet interesting, sometimes wacky people. Sounds corny but true. I spend a lot of time at Plug and Play Tech Center in Sunnyvale among the 180 or so startups there and I had heard a while back of one tenant called "Evil Mad Science". Who, or what could this be? No-one running Plug and Play seemed to know (which is not unusual as it happens).

Today I ran into one of the founders, Lenore Edman, at a community meetup at the Center. She came to sit at our table and plonked down a device which seemed to consist of a printed circuit board, a row of sequentially flashing yellow LED's and four legs.

Now you will probably never guess what this is. A miniature road safety device for warning other cars about your breakdown? An electronic signpost prototype? Nope, you are completely wrong. It's an electronic menorah (of course!!). Celebrate the holidays! C'mon, only $14 from their online store!

Lenore and her husband started Evil Mad Scientist Labs ("DIY and open source hardware for art, education, and world domination") a while ago as a kind of hobby to provide amusing electronic projects and kits and it's grown into a big enough business to employ her full time and her husband part time.

Why here in Silicon Valley? Even though they could do this from anywhere, this is where the people are who enjoy and support this kind of thing. Everyone from open-source geeks to robotics interest groups. As Lenore said - not in Portland, not in Austin, not in Boulder Colorado (she has lived in all three) but right here!

Here's my favourite EMSL kit. In this LED clock kit (from their site): "The basic Bulbdial clock kit ($65) comes complete with three custom circuit boards, 72 ultrabright LEDs, pre-programmed ATmega168 microcontroller with Arduino bootloader, tactile button switches, aluminum standoffs, 20 ppm quartz crystal, custom clock face, gnomon spike, universal-input plug-in power supply, stainless mounting hardware, plus the resistors, capacitors and other little parts needed to build the Bulbdial clock."

Isn't that lovely? Order one here! I have to get one just to see what a "gnomon spike" actually is!

Now, you might say this is cute and fun, but not really TECHNOLOGY as we tend to think of it. Not so. For example, the clock kit includes Arduino technology that is one of a new breed of very low cost, open-source-based microcontrollers now emerging on the market and providing little building blocks for controlling all kinds of things - lights, switches, motors etc - that could, for example, make interesting and useful household gadgets in the future.

EMSL has lots of other fun stuff on their site that isn't "productised" but are fun things to reproduce at home with your kids (or just by yourself if you want). Here's one I love - the Bristlebot, a "tiny directional vibrobot". Watch how this sucker goes!

Shocking Stuff At Canopy Financial - And Why You Should Always Have A Strong CFO On Board ...

I don't know if you've seen the shocking stuff that has jumped into the headlines about Canopy Financial, until recently one of the hottest startups in the Bay Area and potential IPO candidate for next year. Long story short, this company just filed for bankruptcy protection after raising $75 million in venture capital funding in July (of THIS year) and a total of $105m in its relatively short (4 year) existence. The bankruptcy filing says it owes creditors between $50m and $100m. Read this WSJ article for more background.

So, how could this possibly happen? Let's get to that in a minute. First, why am I focused on this? Well, I got introduced to the Canopy story at an investment banker conference in San Francisco early this year. At that event Vik Kashyap, the young founder and CEO, presented the company in a 20-minute session, alongside many other companies. I was blown away by the pitch - specifically the numbers. Here are some extracts from my notes from his presentation:

• The company provides services for the management of health savings accounts (HSA's), flexible spending accounts (FSA's) and health reimbursement accounts (HRA's)
• Working with 12 of the top 25 health plans in the country including 85% of covered Americans
• He claimed they had 400,000 accounts under management handling 8 million claims a year
• His revenue (he claimed) went from $9m in 2007 to $20m in 2008 (and a $3m profit) and projected $47m in 2009 (with a $17m profit) and forecasted $126m in revenues and a $72m profit in 2010. He actually said all this (which, frankly, is a big red flag - more on this in a moment)
• 50% of revenues are payments-based (fees for transactions processed)
• 4th fastest growing company in the Valley

Now, if you see numbers like that presented by a private company you have two conflicting reactions. One is "Holy crap, this is a HOT company". And the other is "Someone needs to advise this kid that you don't go around putting this kind of thing in black and white - not in this kind of climate - unless this is all rock solid. And certainly no public forecasts". Oh yeah, and the "this is too good to be true" reaction as well.

Anyway, so my investment banker friends have already told me that Vik is looking for a CFO to fill out his team. And based on his pitch and the way he presented it - yes, he needs one, for lots of reasons. So I approach Vik after the pitch and suggest we talk about the position. He's in a hurry but says "send me the resume".

After a few months we get to talk on the phone for 15 minutes and the net is that he wants a CFO, yes, but someone with payments systems experience. OK, that's not me. No problem. But its still a hot company and I keep it in the back of my mind. Fast forward to a month ago. Another investment banker friend tells me they has still not found a CFO - maybe I should get back in touch with Vik. As I'm about to do so, everything blows up.

So what's going on? Obviously I don't know for sure but I'll tell you what I suspect. I think this is a young, inexperienced CEO with a rapidly growing business that got way out of his control and he got way out of his depth. And the key missing link was (not having) an experienced, strong CFO. Fraud? Don't know, though I hear the SEC is planning to file fraud charges. Can fraud happen without a CEO's knowledge? Yes, absolutely, though not altogether likely - unless you really don't know what your job is as a CEO.

On top of all this you have to wonder something else. What were the VC's thinking when they invested in this thing? Did they do the detailed due diligence they should have? Surely you don't give $75 million (with an "m"!) to someone without really taking an in-depth look. Apparently not, judging how quickly this thing went belly-up.

Lessons from the story - so far:

• Very few young founders are right to continue as CEO's of rapidly-growing, complex businesses. Some can, but the vast majority cannot. Experience matters.
• Always have a strong, experienced CFO no matter how good you think you are, the rest of your team is and how much it costs
• Always do your due diligence ... on an investment, on a job opportunity ... etc!