What about an equity bailout?

Why cannot our Government trust in the power of entrepreneurship? Fundamental businesses and jobs are created by hard working entrepreneurs. So, shouldnt the US $700 billion bailout package also setup an innovation equity fund or small business equity fund to infuse equity capital into deserving businesses as opposed to debt? While credit takes center stage, the US Congress seems to have simply ignored the need for lowering the risk for able minded entrepreneurs to create new companies that later turn into large corporations. Now we know that this bailout package is an aimless one with no one willing to elaborate if the outcome will be successful. We at least know that innovative entrepreneurs produce enormous IP and thousands of new jobs. Write to your House Representative/Senator and demand that they believe in the power of entrepreneurship and set aside at least$20 billion toward an equity fund.

Size Matters

If you want better multiples when valuing your firm, you need a larger sized firm. Studies have shown that smaller websites and web-based businesses sell for lower multiples (between 0.5 and 2 times revenues) whereas larger websites/web-based revenues sell for 3-10 times revenues. Yes, there are still some businesses that sell for as high as 9 or 10 times revenues. A security software firm sold for 9 times revenues in 2007. A game & entertainment software developer trades for 33 times revenues even in these depressing markets. Bottom line is that there is still value to be discovered and better values to be got by building the right mix of business. For start-up firms, it is better to look at a strategy of building larger businesses as your exit multiples would be a lot higher.

Can "sustainable" business models be valued?

At AccuServe, we are currently valuing a company that is a wholesaler of fish and related products that is operating under a sustainable development model. While "sustainable" business models are one where environmental concerns take some precedence over a purely profit-seeking businesses, it is important that these companies through a verifiable measure prove what "sustainable" really means. Sustainable business should lead to less green house gases (GHGs) footprint, at the least, and not just simply "humane" ways of doing business, which is more difficult to measure. We are establishing a valuation model where green businesses can be valued for the sustainable element they bring into the business model and not penalize them for it. Many businesses and investors are resorting to premium prices as a way for justifying such business models. But it should not have to be that way. If investors are able to access subsidized government funds to promote green businesses, then the reduction in GHGs footprint should serve as incentive enough to warrant a higher valuation. Fortunately, mechanisms exist to measure CO2 footprint in dollar terms and this additional dollar value should be added to the value of the business either through a reduction in discount rates or through a net addition to the overall enterprise value.

Xobni may be the best makeover that has happened to MS Outlook

We all know that MS Outlook is a bloatware with features that make it tough to sort, organize and search. Well..those days maybe over. A new company called Xobni ('Inbox' spelt backwards) has developed a downloadable software that allows a user to organize email data in way that enables social networking quickly, right within the Outlook framework. It also displays aggregated information in a bar chart, for instance, the days and times emails were received from a specific person or organization. The social network is instantly generated based on who your email senders associate with through CCs and BCCs. The application also provides a list of files exchanged with your conversant going all the way back in time when your conversation first started. The tool also actively crawls through emails to actively populate phone numbers, photos and other information that maybe missing in your contacts database. Overall, the tool is extremely useful for heavy email users who have had enough of the Outlook Bloatware.

Cuil - the next best thing in search engine technology?

Cuil, a company floated by former Google search executives and financed by the venerable venture firm Greylock Ventures, promises a lot. But will it catch on? The search engine is capable of searching triple the number of web pages than Google can, according to its founders. Cuil, an old Irish word for knowledge, seems like a formidable competitor. But will it be, really? The way we assess a search engine's functionality is based on areas such as:

1: reasonable aggregation/presentation of information
2: presentation of relevant and updated information
3: employ a targeted advertising model for revenue generation
4: ability to link to specific information within web pages and buried documents

How many of us ever cross page #2 of Google, MSN or Yahoo! search results? Do we really need so many result pages?

So when Cuil claims that it can search more using less hardware, we are not sure how the results will be more relevant or how a very relevant result missed out by Google may magically show up in Cuil's search engine. Or for that matter, we are not clear how Cuil will go one up against Google in all 4 of the parameters presented above. It appears to us that the goal of maximizing advertising revenues may conflict with the goal of serving up pertinent results. For the goal of pertinent results, the effective use of resources would be to screen all irrelevant pages and present only pages that are most relevant. But this would mean that advertising real estate on several million pages would be rendered valueless. Our question to Cuil is: is anybody of relevance complaining today that they dont appear in search results?

SaaS software's re-emergence

We believe that the resistance to adopting SaaS as a software solution is diminishing. In the FY 2007 Goldman Sachs technology Report, SaaS came in at #18 out of 30 investment priority areas by CIOs of large firms. In FY 2006's report, SaaS came in at #30 - dead last. In the SaaS category, the CRM/marketing & sales automation category commands the best valuation - both in IPOs and M&As. Broadly speaking, this category fetched almost twice as the average multiple for the entire SaaS category. Advancements in areas such as virtualization servers and cloud computing solutions are prompting start-up firms to design solutions for various verticals using the SaaS way. A note of caution is that many companies have still not figured out what the real costs of integration of SaaS with legacy systems are and therefore, in our opinion, valuation multiples will stay depressed for the overall SaaS category. Sensitive applications such as security software continue to be a no-no for deployment on SaaS platforms. The other risk factor is pricing. There is no set pattern of pricing in this industry and prices vary widely contributing to significant cash flow volatilities. On a review of their business plans, some small businesses are forecasting optimistic revenues per license/seat/user/subscriber and operating margins . We believe that conservative operating margins and average revenue per subscriber should be the norm in this industry . Visit www.accuserveus.com to learn more about us.

The Idea Game

Welcome to Shiva Badruswamy's Idea Blog. I have created this blog to write about trends I and my partners evaluate in the innovative technology, health care and energy-related industries. We have reviewed and valued hundreds of business plans in these industries. This gives us the ability to condense idea generation trends into broad market movements that may trigger venture capital fund flows into these ideas in the immediate future. While some of our views maybe speculative, most of them are based on a solid understanding of what the market participants are evaluating when it comes to next generation of technologies.

Disclaimer: Our information is designed to help readers understand what and how innovative ideas are generated. Our information should not be used in any form or manner as prospectus material to solicit offers for investment capital, buy or sell securities, or as an analyst's guidance in evaluating performance of public and private companies. Our permission is needed for reuse of our material. Please contact us at info@accuserveus.com for more details.