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Twenty-First Century’s Best Venture

Posted on Tuesday, Jul 19th 2005

Twenty-First Century’s best venture is the Harry Potter franchise. Starting with a great set of thrilling stories, J.K. Rowling’s marvelous boy-hero has started off a whole generation of youngsters on paths of reading, courage, friendship, adventure, and Rowling herself, on a path of great riches.

Traditionally, Venture Capitalists did not finance content plays. But if you look at the numbers, one begins to wonder whether or not they should start … books, music, films, toys, games …

Projections: (BBC News)

“The global popularity of the books, films and games is estimated to have made the Harry Potter brand worth $1bn. More than 265 million copies of the books have been sold in 200 countries. Author J.K. Rowling, whose rise to fame in itself is a marketing executive’s dream, is reputedly now Britain’s wealthiest woman [not Queen Elizabeth]. Waterstone’s booksellers estimates that on the first day of its release, the Half-Blood Prince will sell at least two million copies in the UK and more than 10 million worldwide. Meanwhile, supermarket giant Tesco estimates that it will sell 300 copies a minute when the book finally goes on sale in the early hours of Saturday morning. ”

Actuals: (BBC News)

“The new Harry Potter book has beaten sales records on both sides of the Atlantic, selling almost nine million copies in its first 24 hours. Harry Potter and the Half-Blood Prince sold 6.9 million copies in the US and more than two million copies in the UK, beating all previous Potter records. Estimates from Nielsen BookScan revealed 2,009,574 copies of Half-Blood Prince had been sold within 24 hours of release. US sales of the sixth Harry Potter book have generated more than $100m (£57m) in revenue across the weekend – more than the combined box office sales of hit films, Charlie and the Chocolate Factory and The Wedding Crashers. ”

The first weekend’s sales numbers came out ahead of forecasts. Wonder how many ventures claim such performance?!

ps. Half Blood Prince, the new Harry Potter book is the best yet of this series!

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Starbucks and the Music Business

Posted on Tuesday, Jul 19th 2005

I wrote an earlier piece called What’s After Starbucks? in which I speculated about entertainment business opportunities modeled after Starbucks.

Today’s Wall Street Journal article At Starbucks, a Blend of Coffee And Music Creates a Potent Mix talks about how Starbucks is impacting the sale of carefully selected music CDs and reviving careers of musicians who had faded into oblivion.

“After receiving a commitment that Starbucks would help Concord license the album, “Zucchero & Co.,” from its Italian distributor, Mr. Barros signed the artist. The 14-song album, which pairs the singer with a lineup of stars including Eric Clapton and Luciano Pavarotti, went on sale at thousands of Starbucks locations and other retail outlets this month.

Mr. Barros knows how powerful a boost from the coffee chain can be. Last summer, his independent jazz label joined with Starbucks to produce and distribute “Genius Loves Company,” a collection of duets between the late Ray Charles and performers such as Norah Jones. Helped by the biographical film, “Ray,” and attention about his death, the record sold nearly three million copies — about a quarter at Starbucks stores — and in February won eight Grammys. No new Ray Charles release in decades had come close to that sales level.”

Perhaps, a natural extension would be to start having live-music and dancing at Starbucks cafes as well, with carefully selected musicians, in carefully selected musical genres!

Collin Powell & the Roadmap for John Doerr’s political career

Posted on Wednesday, Jul 13th 2005

Collin Powell joins KP.

“As a limited partner, Powell will offer strategic advice to KPCB and its portfolio companies, but he will not participate in the firm’s day-to-day activities. “I don’t consider that I’ve taken a full-time job,” Powell told the San Francisco Chronicle, but added, “Don’t think of me as sort of a board member who’s there on a quarterly basis to sit in a meeting. Think of me as an adviser who’s always available.” Powell’s understanding of defense contracting and government budgeting are sure to prove a boon to KPCB as it sharpens its focus on security and defense start-ups.”

Sure, Defense contracts are a lucrative area for KP to target via Powell. But is there something more than what meets the eye? John Doerr has long had his little finger in Politics. US Education is his greatest passion, evidenced in his New Schools Venture Fund endeavor. Perhaps, continued hob-nobbing with the political stalwarts also starts to position John Doerr for a Cabinet level role in the not-so-distant future, especially in the Education realm.

Whatever it is, bridges and cross-pollination between the business world and the political leadership of the world is eminently desirable. It would be refreshing to see some business leaders with the reputation of getting important things done take on political responsibilities, while politicians cash in on some dough using their connections via the business world.

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Professor Calculus triggers an LBO?

Posted on Friday, Jul 8th 2005

Need Help With Calculus? Tutors Coach U.S. Students Online — From India is an article from the Wall Street Journal.

Tanu Basu lives in Boston, but when she wants extra coaching in math, the 16-year-old American gets online and spends an hour reviewing calculus with an Indian teacher who is based in a suburb of New Delhi.

Enter the next phase of outsourcing: online math education. Not only does the U.S. increasingly lag behind other countries on international math scores, it’s also short of qualified math teachers. This could make it tough for America to improve its grade and retain the competitive edge that keeps good jobs at home.

Nearly 40% of U.S. high schools reported difficulty filling math openings this year with qualified instructors, according to the American Association of Employment in Education.

Career Launcher (Founder: Satya Narayan) charges between $20 and $30 an hour, with rates rising for more complex material, on par with U.S. companies like and Of these, e-Sylvan is the online tutoring arm of the highly successful Sylvan Learning franchise that has not been quite so successful in its online incarnation, that I view as a strong LBO opportunity.

Most of Mr. Satya’s 300 tutors don’t have education degrees, but they all have a bachelor’s degree, mainly in math or physics from Indian universities. Many also have graduate degrees. He pays $8 to $10 an hour — a fortune in India. Career Launcher recently began offering online tutoring to U.S. college students for $35 an hour — which is more costly than many U.S. online services. “You find very few companies offering college-level tutoring because of the lack of teachers,” says Mr. Phadke. “But here in India, we have so many Ph.D.s and people doing doctorates, so we think we can actually charge a premium.”

Leveraging the Indian labor arbitrage model is not the only opportunity for eSylvan, of course. Breaking away from the shackles of Sylvan would give them the ability to focus on more profitable and lucrative segments like Private Schools where the students are motivated, the teachers are not unionized, and the Sylvan franchise-owners are not ruffled by eSylvan stealing away their students.

Sylvan, of course, has benefitted enormously, from the No Child Left Behind (NCLB) Act, to the extent where the Act has been called “Sylvan Act”. Underperforming public schools often spend good chunks of their Supplemental Education Services (SES) budget on Sylvan. The public school teachers are a highly unionized bunch, who would demand the death of eSylvan if they found out that their jobs are being outsourced. It is no surprise that the two US clients of Career Launcher that are currently outsourcing have requested anonimity!

I would venture to guess, one of them IS indeed eSylvan, and when NEA (National Educators Association, one of the two main Teacher’s Unions in the US) finds out, they will throw a fit!

And if it isn’t it ought to be, or else the business is not viable!

Oracle: Next stop, Manhattan

Posted on Wednesday, Jul 6th 2005

Venture Wire reports: Software giant Oracle Corp. said it agreed to acquire retail software maker ProfitLogic Inc. for an undisclosed sum – its second acquisition in the retail software sector this year – as it bolsters its challenge to publicly traded SAP AG. Oracle and SAP, bitter rivals in the $9 billion business -management software market, have made the retail industry a primary battle ground, because of strong growth potential and the lack of a clear leader. The purchase of ProfitLogic follows the acquisition of Retek, which Oracle bought in April for about $669 million after outbidding SAP. A closely held company with about 250 employees, ProfitLogic makes software that analyzes sales data in order to help retailers better promote and price their wares.

The next acquisition for Oracle, therefore, ought to be Manhattan Associates (MANH). It’s a well-run company hadquartered in Atlanta, GA, specializes in Warehouse Management systems and the likes, claims the who’s who of the retail business as customers, and is quite a cheap deal @ $600M Market Cap. [2004 Sales: $215M; Gross Margin: $125M; Operating Margin: $93M; Net Income: $22M].

Wonder what all the extra Enterprise Software sales people in the market ought to retrain for, as Ellison’s chariot continues to run over them!

[For additional analysis, read this Business 2.0 article:
The logic of ProfitLogic.]

Intel gets inspired by Apple in more ways than one!

Posted on Wednesday, Jul 6th 2005

Intel in movies? Mercury News reports: Intel is getting into the movie business, and fighting illegal downloading at the same time. The Santa Clara chip giant said today that it’s investing in a venture set up by actor Morgan Freeman that will encourage legal distribution of independent films over the Web. Intel didn’t say how much it was investing. The venture, ClickStar, will aim to release the indie films on the Internet at the same time they’re shown in theaters. “Our goal is to deliver first-run premium entertainment to film fans around the world and to make film easier to buy than to pirate,” Freeman said in a statement. Not to mention all the microprocessors Intel will sell when all those indie movie fans upgrade their computers.

MovieLink, CinemaNow, and now ClickStar are all movie download sites. The Movielink service is owned and operated by Movielink, LLC, a joint venture of Metro-Goldwyn-Mayer Studios, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros. Studios. Movielink draws its content offerings from the vast libraries of those studios as well as Walt Disney Pictures, Miramax, Artisan and others on a non-exclusive basis.

MovieLink has apparently not got much traction for two reasons:

(1) It takes way too long to download a film
(2) Once you download on your PC, there is no wireless PC-to-TV connection to watch it on the TV easily

Wonder what is going on in Intel’s head, to fix these two adoption road-blocks on the Video-on-Demand roadmap and what Morgan Freeman knows, that the major studios don’t!

Tech Buy-Out: Skill gap analysis

Posted on Monday, Jul 4th 2005

Until recently, LBO has been a fairly straightforward financial re-engineering game. Now, with Tech LBOs, however, the business will need to be quite different.

The Buy-out funds that are eyeing Tech lack expertise beyond financial re-engineering. Typically, the LBO fund managers are transactional people, and do not have operating backgrounds – the recent recruitment of Vivek Paul, former CEO of Wipro by TPG being an exception to this general rule. Hence, the leverage points via organizational surgery, market strategy changes, channel strategy revamping, company / product line repositioning – are somewhat foreign concepts, and considered too risky. But, Tech being the fast-moving beast that it is, all these techniques are necessary to maneuver the turbulent waters of the business.

Add to that the potential of acquisition-leverage. The excessive availability of venture money chasing a few good deals has created an enormous number of venture-funded little companies that have not a prayer of offering returns on the investments of their VCs. These, however, are fertile grounds to hunt in, for an aging or ailing company, looking for an infusion of potency drugs. But to figure out which drug will work on what patient, one needs to be a savvy strategist – a skill more present in the traditional early-stage venture investment world.

Rumbles can be heard on both sides of the business today, as both the VCs and the Buy-out guys are waking up to the potential of Tech Buy-outs. The larger venture funds are trying to figure out LBO methods, while the Buy-out guys are assessing how to bring strategic leverage into their portfolios.

This trend leads me to separate out Tech LBO as a category, so that I can address specific deal ideas, as well as surgery methods more concretely.

Stay tuned!

Rage of the tortured child

Posted on Sunday, Jul 3rd 2005

“That tiny ember of rage flared bright and on dry regrets caught hold.”

I went to an opening at Hosfeld gallery in San Francisco recently. The art did not register in me. This strand of poetry did.

The Leadership literature is rife with stories of children from broken homes, tortured childhoods, abuse and abandonment, all leading up to destinies larger than average lives. Many psychiatrists say that it is almost necessary to have a feeling of inadequacy in the past driving you, to continue performing and reaching for more, more, and more.

Imagine this. A boy of five waits for his mother after school. All the other children from his kindergarten class have left at least an hour back. The mother does not show up. She has forgotten. The scene gets repeated day after day after day … She is not quite there. She is never there.

This child grew up to become one of the most admired CEOs in the technology business.

Examples abound. Steve Jobs and Larry Ellison are both raised by adopted parents, subconsciously longing for validation and belonging. Along the way, over-compensating, both with extraordinary achievements, and unbearable antics.

Said once, a monk in Calcutta: Discontent is Divine.