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March of the Emperor

Posted on Saturday, Aug 6th 2005

Last night, we saw “March of the Penguins”, a spectacular National Geographic documentary about the mating and breeding cycle of the emperor penguins, over the course of a grueling year, weathering the icy winter in Antarctica. A ritual that repeats itself every year, for thousands of years.

It was a touching, moving, loving piece of work by Director Luc Jacquet. The cinema was full of children, and at the end, I heard some of them say in wide-eyed wonder: “That was a very good movie!”

Imagine kids making that comment about a documentary. A DOCUMENTARY!

When I was growing up, multimedia did not exist. We gathered our knowledge of history, georgraphy, biology from dry pages of books. More often than not, these books, and the teachers who taught from them, lacked imagination in making things come alive for the students. We were also taught that Penguins live in Antarctica. But the generation of kids who learned about Penguins during the summer of 2005, having watched this marvelous film, I am sure, learned their lessons better.

This, to me, is Edutainment at its very best!

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Posted on Saturday, Aug 6th 2005

“When I think of the titanic efforts I made to canalize the hot lava which was bubbling inside me, the efforts I repeated thousands of times to bring the funnel into place and capture a word, a phrase, I think inevitably of the men of the old stone age. A hundred thousand, two hundred thousand years, three hundred thousand years to arrive at the idea of a paleolith. A phantom struggle, because they weren’t dreaming of such a thing as the paleolith. It came without effort, born of a second, a miracle you might say, except that everything which happens is miraculous. Things happen or they don’t happen, that’s all. Nothing is accomplished by sweat and struggle. Nearly everything which we call life is just insomnia, an agony because we’ve lost the habit of falling asleep. We don’t know how to let go.”

—Henry Miller on Writing

Last weekend, we were in a little hamlet called Lucia on the south coast, 25 miles south of Big Sur. Nestled in the Santa Lucia Mountains, where the cliffs drop straight into the Pacific Ocean, Lucia has but a few signs of habitation: a lodge with 10 rooms, an over-priced restaurant, a small store. Close by, further up on the mountains, a monastery of the Italian Camaldilo monks is perched in magnificent silence. A bit North, the Henry Miller Memorial library, from where I acquired the book from which I borrowed the above quote.

Miller’s struggles with writing – are they that different from the struggles of the technology entrepreneur for the next big break through idea?

Indiana Jones & the Quest for Silent Cooling

Posted on Friday, Aug 5th 2005

As electronic systems get faster, they get noisier and hotter. Current thermal management solutions are falling behind. Current solutions do not scale fast enough to keep up with the performance curve. Moore’s Law rates of performance improvement are being capped by limitations of current solutions for high power densities.

Thus begins the copy on Cooligy‘s web site. The problem area they showcase is, today, one of the most significant unsolved problems in the chip industry. Chips are getting smaller and faster and consequently hotter at such a pace, that thermal side-effects are starting to change the functionality of the chip.

This being said, Cooligy has been around. Big name investors including Mayfield made big bets with big expectations. However, they have not been able to make a solution work so far. Most of the top-tier VCs believe that this area is very risky and littered with carcasses.

I have seen a couple of little companies in the last few months, also attacking roughly the same problem, but each with a different approach. The first I saw, back in January, called Nisvara, focuses on silent cooling. This did not seem to me like a real company, and most certainly did not have the team to take on something truly challenging. However, if you are the sort of investor who can tackle raw, mucky stuff, and create order out of chaos, I would not rule this one out. Caution: you will have a hard time taking Nisvara seriously at first blush, so you need to be a real Indiana Jones to touch this one.

The second, Nanoconduction, is very interesting and quite a bit further along. Using technology licensed from NASA (Nano Engineered Thermal Material that is based on carbon nanotube array composites), they expect to deliver super conductive chip cooling components to go inside packages, and attain the holy grail of silent cooling.
Woodside fund has already invested in this deal, and considers it their portfolio’s crown jewel. They believe (rightly), that if this technology works, then they have in their hands an opportunity to build the next Raychem, Paul Cook and Bob Halperin’s Material Sciences world leader that is now a part of Tyco.

Amidst an industry that is today largely dealing with the incremental, why not take on something that is truly fundamental?

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The of Security

Posted on Friday, Aug 5th 2005

Qualys, the leading provider of on demand vulnerability management and policy compliance solutions, helps organizations of all sizes discover vulnerabilities, ensure regulatory compliance and prioritize remediation according to business risk — with no infrastructure to deploy or manage. QualysGuard, the company’s flagship service, conducts automated security audits and provides the quickest route to neutralize worms and other emerging threats.

Software as a Service (SaaS) continues to be a trend, as big domains get shifted over to the ASP model. Qualys is one such proponent of SaaS, following the footsteps of its larger and more successful brethren – and Webex. Qualys counts amongst its customers DuPont, Hershey Foods, eBay, BASF, Hewlett-Packard, Standard Chartered Bank, and most recently, Microsoft, and has as an advisor Howard Schmidt, Former Special Adviser for Cyberspace Security, the White House.

The CEO, Philippe Courtout is a veteran captain of the software waters, having taken Verity (NASDAQ: VRTY) public in 1995, and having sold Signio to Verisign for $700 Million in 2000. Verity was the leader in enterprise search, and Signio’s technology today provides the plumbing for Verisign’s electronic payment system. Verisign handles about 30% of all internet transactions in the US, which amounts to roughly $100 Million per day. Pretty impressive background.

Once again, I would give an A+ to both the market opportunity and the leadership, and since the fish are eating the worms, looks like a good solution attacking a real problem!

One more for the “very” small

Posted on Friday, Aug 5th 2005

In my coverage of the SME opportunities, one that impressed me much is PayCycle.

PayCycle is addressing the 5.5 Million small businesses with employees fewer than 25 people, with a payroll management service including all sorts of taxes and deductions. This is essentially the same space as Paychex, ADP, and Intuit, only going after the very small businesses which fall below the radar of these larger companies. PayCycle has 18,500 customers, did $4 Million is sales last year, expecting to double this year, and growing steadily by 100% year-over-year each quarter.

I have known the CEO, Jim Heeger, for a long time. He was a very successful, long-term executive at Intuit, and then our paths crossed when we were both doing EIRs at NEA towards end 2000 / early 2001. The very fact that Jim joined the company, is testimony to the fact that they know EXACTLY what they are doing, a luxury seldom experienced in venture circles.

Between Intuit and PayCycle, Jim took a detour and cleaned up one of Stewart Alsop’s digital photo sharing companies, and sold it to Adobe. This product has since become Adobe’s photo album offering. Jim also ran Adobe’s Creative Professionals business unit for a few years and achieved exceptional growth.

The rest of PayCycle’s team is just as impressive and pertinent – they are basically Jim’s former team from Intuit.

This is a Market I would bet on. This is a Team I would bet on.

As for the solution itself, from what I have heard, they have really really happy customers, and the proof is truly in the pudding: 18,500 customers don’t just happen, unless there is a good solution in place.

Bought by WHOM?

Posted on Thursday, Aug 4th 2005

Epiphany has been acquired. Finally. By a rather large, little-known Chicago company called SSA (Nasdaq: SSAG). Now, who is SSA?

Here are some financial data:

Market Cap: $916 Million

                                                2004        2003           2002       2001
Annual Sales ($ mil.)                     636        296          160      136
Annual Net Income ($ mil.)            18           52           1         (41)

And here is some History:

Roger Covey founded System Software Associates (SSA) in 1981. Offering products for IBM’s AS/400 computers, SSA went public in 1987.

In 1995 the company bought Softwright, a provider of business object technology and systems in Europe. In 2000 an investment group headed by Gores Technology bought SSA.

In 2002 the company acquired Computer Associates’ interBiz product line, which includes applications for supply chain and human resources management. Later that year SSA also acquired Infinium Software for about $100 million.

In 2003 General Atlantic Partners invested $75 million in the company, joining majority-investor Cerberus Capital Management. Also that year SSA embarked on a string of acquisitions, purchasing Ironside Technologies, Elevon, Baan, and EXE Technologies.

So if you are wondering how all that growth happened between 2001 and 2004, the explanation is in the acquisitions, and it looks like Epiphany joins along in that stream.

The belle has finally been asked to dance!

Saluting the “very” small enterprise

Posted on Wednesday, Aug 3rd 2005

A few weekends back, we were loitering through the street fair stalls at the Fillmore Street Jazz Festival in San Francisco. While buying a piece of handmade soap, we watched the vendor whip out a little mobile payment terminal to swipe the credit card. Struck with curiousity, we asked to see the nifty little device: a Way Systems Mobile Transaction Terminal (MTT).

It turns out, we were scheduled to have dinner with the founders of the company soon after, so I got to hear their story first-hand. The CEO, Will Graylin began his career with nearly six years of service as a U.S. Navy Nuclear Submarine officer and was the first Chinese immigrant to serve as an officer in this program. Well, he also has a couple of degrees from MIT, and so forth, but this Nuclear Submarine background is what VCs found compelling during their financing road-show! Damien Balsan, the other founder, worked at Gemplus before, and was a big deal sales guy in Latin America. One of his ancestors was Madamoiselle Coco Chanel’s lover in Paris. Conversation at dinner was most entertaining!

Anyway, Way Systems has an extremely simple value proposition, to be able to process credit card transactions using cell-phones! Millions of mobile merchants – from Pizza delivery boys to Avon door-to-door reps to taxis to plumbers to massage therapists – can now become networked!

Bill Melton, founder of Cybercash and Verifone, is on the Board, lending credibility and guidance. This is, indeed, “Way Cool” and an elegant little company to watch!

Resurrection of the Living Deads

Posted on Tuesday, Aug 2nd 2005

There have been a few deals this year that make a lot of sense for the shareholders, but make very little sense for the acquiring private equity firm, despite the discounts: Broadvision’s acquisition by Vector Capital is one such. The second one is Golden Gate Capital’s acquisition of Blue Martini, presumably to merge with Ecometry, one of their other portfolio companies.

Both Broadvision and Blue Martini, as independent companies, belong in the ranks of the living dead. Blue Martini’s chance was to merge with Retek, which did not happen, and instead, Retek got bought by Oracle. Broadvision’s chance doesn’t exist, unless I am missing something big!

Make no mistake, both companies needed to go private. Sustaining the costs of being a public company for many of these sub-$100 Million concerns are rather unappetizing.

Nonetheless, it makes me wonder what Golden Gate Capital or Vector Capital have been thinking, or is it that skill-gap I wrote about earlier in display here? To make these two deals turn into anything that produces reasonable return, a very serious surgery will be required. I have a hard time believing that the two investment firms under discussion have the capacity for that sophisticated surgical procedures!