Archive for the ‘Enterprise’ Category

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DotEEBubble is one of the most controversial startup
blogs in the world and you’ve probably never heard of
it. In the rah-rah world of entrepreneurs, accelerators,
and incubators, it’s rare to see much talk about the
problems with the government-funded VC model and
how the biggest players look more like scamsters than bootstrapping entrepreneurs. That’s just what
this blog is – a cold, hard look at the problems that
come when you throw big money at little ideas. The blog, written by an anonymous commenter in
Estonia, is a cross between a research-heavy
economists report and a jeremiad against what looks
to be a EU-funded startup bubble. With excitement
rising about ventures throughout the EU, the site’s
calm, reasoned take on Estonia’s darlings is stirring up quite a bit of controversy in the small country. One startup that we prominently covered, Fits.me, a
clothing fit “startup” that uses robotic mannequins to
show you what clothes will look like on your body,
took 3,773,456 euros of government money over the
past few years. The company has been in business
for seven years in total and its customer implementations are either well-hidden or nonexistent.
In short, the company looks like a dog. DotEEBubble
writes: In summary, we have a company that has been
around for many years with little success, a
questionable product, and few customers. This
doesn’t seem like a recipe for success.We could be
wrong of course. Maybe a large retailer like Amazon
will just buy them out. Maybe robot mannequins will take over the world, and form the new ruling class.
The future is hard to predict.
The blogger who runs the site refused to be named in
this piece but he took a bit of time to explain his
methodology, his beliefs, and the reasons behind his
thorough takedowns of what he sees as excesses in the Estonian startup market. It would be interesting to
see a similar tack taken in other markets. His model
could be exported but it’s clear his style and intensity
can’t be matched. John Biggs: Why are you doing this? DotEEBubble: Many in Estonia have been trying to
pitch the country as the “startup nation,” but the
details paint quite a different picture. In talking with
some other business people in Estonia, I started
realizing a lot of this is not quite what they make it
out to be. A lot of the startup community and companies are propped up through taxpayer money,
much of it from the EU. What’s worse is that no one in the media was
bothering look under the covers to realize how much
of this was built through public funds. I decided to
start the blog to bring some of these companies to
light. Estonia receives a massive amount of EU funding
(more than 18% of the 2012 budget), and I think
they’ve chosen to spend too much of it on risky
startup companies and startup incubators. It reminds
me of the .com days in the US in the late 90’s, when
there was too much money chasing too few good ideas. The difference is that in Estonia, the money is
coming from taxpayers and not private investors. I would not be so critical of this use of public funds if
everything else was going well in Estonia, but it’s not.
Estonia has the lowest GDP (per capita) in the
eurozone, and its people are the second poorest
among eurozone members when measured by assets
held per person. There is a television show (Kodutunne) on an Estonian television channel that is
similar to Extreme Makeover : Home Edition in the
US. They pick out a needy family in a rural area and
renovate their house. The difference is that in the
Estonian version, most of these families live in
homes without indoor plumbing or hot water! It’s unconscionable that there are people living in these
conditions while at the same time the government is
giving millions to risky startup companies. I think they
need to reconsider their priorities when it comes to
public spending. It was eye-opening what we uncovered. In one case,
a company set up in both Estonia and the UK at the
same time, in order to take advantage of taxpayer-
funded support intended for companies in each
region. Another company we wrote about got millions
of euros, over the course of many years, to fund robotic mannequins. In many cases, the companies that received
government money were being run by people with no
experience in the field. We wrote about an incubator
for gaming startups, where none of the people running
the incubator had ever worked in the gaming industry!
Then there was the incubator that received nearly 700,000 euros from the government to set up in a
small town of 20,000 people to promote creative arts
startups, which as far as we can tell was just a few
women making dresses and jewelry. We also wrote about a private equity fund with more
than 100 million euros under management, that
received over 100,000 euros from the government to
market their fund abroad. Do they really need this
kind of aid? The main criticism is this is all being done with
taxpayer money. If private investors want to spend
their money on these companies, that’s fine with me.
That’s how it seems to work in almost every other
country. JB: Who are you? DEEB: There is more than one person behind the
blog, though I am the primary author of most of the
posts. I own a successful Estonian software
company, and we built it through hard work and
without government handouts. I’ve been in the tech
industry for many years, so I was around to witness the dot-com crash in the US that happened a number
of years ago. None of the people behind the blog have any stake in
any of the companies profiled on the blog, so we have
nothing to gain or lose when these companies do well
or poorly. I like to see startups in Estonia do well,
which is why I mentor some companies and also give
training sessions. I never accept any payment or stake in the company for it. It’s my way of giving
back to the community. JB: What can governments do to fix these sorts of
problems? Should they be investing at all? DEEB: One of the co-founders of TechStars, Brad
Feld,wrote a good post about why the government
should not be in the incubator business, and I agree
with him. As for the government investing in startups, I can
only see it being necessary in rare cases, like in
cases where there are externalities involved that
benefit the public. One example would be a new type
of clean energy technology that may not be profitable
on its own, but with environmental benefits to society that make it worthwhile. This isn’t what is happening in Estonia though. The
companies we have profiled on our blog include a
social network for household pets, and a browser-
based e-book reader. The government shouldn’t be
wasting money on these types of ventures. By our
estimates, the largest investor in Estonian startups in 2012 was the taxpayer. They poured more money into
Estonian startups than all private equity combined. Some will say that the reason the government is
stepping in is that there is no private equity market. I
disagree. Good ideas will always find funding, and
there’s even an Estonian Venture Capital Association
with plenty of members. JB: What is the primary problem in the .ee
environment? Is it widespread? DEEB: Imagine opening up the newspaper every
summer and reading about how many schools will not
open their doors again in September due to lack of
enrollment. That’s actually what happens in Estonia. The Estonian population is rapidly declining, through a
mix of emigration, low birth rate, and low life
expectancy. It ranks 228 out of 232 countries when it
comes to population growth. Net emigration last year
was over 6,600 people, and the majority of those were
people in the 20-34 age group i.e., people in their prime working years. This may not seem like a large
number, but Estonia is a small country with a
population of less than 1.3 million. Last year, the total
number of students in 12th grade was 7,810. Imagine
if 85% of all fresh high school graduates in the US left
the country the day after graduation, and that gives a better idea of the impact. The government isn’t doing much to address the
problem, though I think this is common in many
countries with long-term demographic problems. It’s
easier to ignore it since the impact is not immediate
or sudden. Admittedly, it’s a tough problem to solve. My theory
is that a lot of the emigration is driven by quality of
life issues. That’s not easy to fix, but throwing money
at startup companies does not seem like the solution. JB: Are people mad at you? DEEB: The main criticism we receive is that the
blog’s authors are anonymous, but I think this is from
people eager to attack the messenger because it’s
difficult to attack the message. We’re very careful
with our fact checking and post links to our source
material. As for the reason we’re all anonymous, it’s important
to understand that Estonia is a small country, and all
members of the startup community could easily fit in
a high school auditorium. The community is too
close-knit to write what we do any other way.
Besides, none of us need the fame. We’d rather readers focus on the message not the messenger. Other than the criticism about anonymity, the
feedback we’ve received has been quite positive, and
readers tell us that this is the first time anyone has
bothered to analyze the startup community in Estonia
with a critical eye. We’ve heard that many high-
ranking Estonian government officials are regular readers of our blog, and it’s also required reading in
some entrepreneurship courses in Estonian
universities. JB: So what do you like in Estonia? DEEB: Estonia is a great place to first launch a new
product or technology, because the country’s small
size makes it easy to implement. For example, let’s
say you’ve come up with a personal finance tool that
requires access to the user’s spending details from
their bank account. In Estonia, there are only five consumer banks, so it’s easy to set up those
relationships since you only have to talk to five
banks. One cool thing in Estonia is how the government is so
open and online. It makes it easy for people to track
what’s going on and get information. In fact, so much
data about government spending is online that if we
can’t find information about government spending on
a project after 5 minutes of searching, then that’s a sign that the project manager may be trying to hide
their spending, and it makes us more likely to write
about them.

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Cloudscaling has raised $10 million from Trinity
Ventures, Juniper Networks, and Seagate
Technologies in a deal that shows how software
defined networking has become a focal issue for
companies building out their own clouds. Cloudscaling delivers an OpenStack-powered cloud
infrastructure system for enterprises, SaaS providers
and cloud service providers. The company
foreshadowed a deal with Juniper when it announced
the company would provide Cloudscaling with its
virtualized networking controller. That deal was precipitated by Juniper’s acquisition of Contrail
Systems. The startup raised $10 million last July
from Khosla Ventures. By December, Juniper had
snatched up the company for $176 million. Network controllers have become a hot topic as more
cloud projects get underway. The importance stems
from the need to scale out networks in an affordable
manner. Adding more hardware just gets too
expensive. Virtualizing the controller means that the
data flowing through the pipes can be managed in a granular way, optimized through software so the
network can be used efficiently without lots of
spillover costs for additional hardware. Contrail points to how Cloudscaling has positioned
itself with a focus on providing networking for its
customers building out enterprise and SaaS clouds. It
puts the company in the same space as VMware-
owned Nicira and BigSwitch. The difference for
Cloudscaling comes in its dual focus on software to build out programmed cloud systems and SDN to give
it scale and better manageability. Juniper, for its part, has spent a lot of time focusing
on advancing its silicon and keeping on pace or even
in front of the likes of Intel, Bias said. The company
has also hired top-talent. For example, they hired Bob
Muglia, a lead executive at Microsoft who oversaw
the development of Windows Azure. Muglia now heads an entire division at Juniper dedicated to
software. For Seagate, a traditional hard drive company, the
opportunity is in providing the storage infrastructure
and partnering with Cloudscaling and other providers
such as Egnyte. It is also active in OpenStack and
OpenCompute, the Facebook-led effort to open
hardware to make it more adaptable for the new, cloud oriented infrastructures of the world. Cloudscaling represents the demand for scale out
infrastructures. Data is spreading but for companies
to keep up, they need the networking to extend but
without adding a sprawling array of big hardware
boxes. Instead they need software to virtualize the
network so it can spread far and wide.

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BitPay, the startup with ambitions to become the
PayPal of the bitcoin world, is today announcing that
it has raised another $2 million. And in a kind of
poetic justice, the round is led by none other than the
Founders Fund, the VC started by what’s commonly
called the PayPayl Mafia. The Atlanta-based startup says that it was not
planning to raise any money at the moment — it
announced an initial raise of $510,000 only in
January. That was its first outside funding after being
bootstrapped internally. However, the company also
says that it couldn’t say no, considering who was asking: “We were not looking to raise any capital until later
this year, but we could not ignore the opportunity to
have Founders Fund involved with BitPay,” Tony
Gallippi, co-founder and CEO of BitPay, notes in a
news release on the deal. “There’s no single
investment firm we would rather have on our team right now than Founders Fund.” Nevertheless, it looks like the extra money will be
used for hiring: there are currently two jobs open for
node.js developers “who are excited about bitcoin.”
BitPay is also looking for a UX designer. There will
also be more investment in its platform and further
product development. Founders Fund partners know a thing or two about
payment platforms — given their past experience as
founders and senior execs at PayPal and other
companies. Their interest in BitPay comes from the
fact that it, and bitcoin, in general, appear to be
growing like wildfire. “BitPay’s ambitions have been global from the outset,
and at Founders Fund we have been impressed with
the company’s tremendous growth as they sign up
hundreds of new customers a day, turning the
potential for opportunity into a reality,” said Brian
Singerman, a Partner at Founders Fund, in a statement. When we covered the company’s first raise in
January, we noted it had already signed up 2,100
businesses that were using its platform to process
bitcoin payments. In April, it added nearly that many
again: 1,900 merchants, and they are now processing
$5 million per month in bitcoin transactions covering areas like electronics, precious metals, “and other
low-margin products.” The promise of using bitcoin
over dollars is lower fees, and companies are seeing
“a large increase in profitability by accepting bitcoin
payments,” the company notes. In addition to Founders Fund, Max Keiser’s fund
Heisenberg Capital, a London-based fund focused on
bitcoin companies, is also involved in this seed
round. It comes as a number of other VCs are also
jumping into the bitcoin landgrab. The terms of this most recent round were not
disclosed, the company notes, “although 100% of the
existing seed shareholders exercised their pro rata
rights to maintain their ownership percentage in
BitPay.” Previous investors in BitPay included Shakil
Khan (the Path and Spotify former head of special projects, who has also launched his own bitcoin
information resource, Coindesk), Barry Silbert, Jimmy
Furland and Roger Ver.

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Google’s stock price came close to its 52-week high
on the first day of Google I/O today, hitting $915 per
share at close. In comparison, Apple today dropped
15 points to close at $428 per share, 277 points off its
52-week high. This morning, Google stock jumped to $909 per
share from its opening price of $895 when Co-Founder
Larry Page hit the stage at around 11:45. It is now
trading at $916.50 in after-hours trading. One analyst I
talked to attributed the increase to Google’s
announcement of its “all access” streaming service and the rotation out of hardware makers such as
Apple and HP. The difference between Google and Apple’s share
price is a barometer of the tech landscape. Google is
a data company. Apple is more about design, creating
beautiful devices. The difference is evident here at Google I/O. Google
has built its infrastructure to manage more data than
arguably any company in the world. It uses ths data
to provide services that it highlighted today in its
keynote. This includes its Google Translate APIs and
the next generation of its Google Maps. The iPhone will always be elegant. As my colleague Josh
Constine points out, the beauty of a device is just not
as important, as the entire world becomes a fabric of
data objects.

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Google announced today at I/O that it made Google
Cloud Platform generally available, marking a
milestone for the cloud community and the real arrival
of a giant to contend with Amazon Web Services
(AWS) and its pay-as-you-go pricing. The service, now with 3 million apps, is now open to
any developer or business. In its post announcing the
news, Google revealed a bit about new pricing,
instance types and other features: Sub-hour billing charges for instances in one-minute increments with a 10-minute minimum, so developers
don’t pay for compute minutes that you don’t use. Shared-core instances provide smaller instance shapes for low-intensity workloads. Advanced Routing features help create gateways and VPN servers and enables developers to build
applications that span local network and Google’s
cloud Large persistent disks support up to 10 terabytes per volume, which Google says translates to 10X the
industry standard
Google also announced a new data store for non-
relational data and availability of a PHP runtime. The new App Engine 1.8.0 includes a limited preview
of the PHP runtime – the top requested feature with
customers. PHP is one of the most popular web
programming languages, running open source apps
like WordPress. According to Google, only whitelisted
applications may be deployed on App Engine if they use the PHP runtime. When the restrictions lift,
Google will nnounce it on the App Engine blog. For a good part of last year, Google had engaged
users in a limited beta of the platform, which allows
developers to run their apps on Linux virtual machines
hosted on Google’s massive infrastructure.
Developers had to either get an invitation or go
through Google’s sales teams to get access to the service. Starting in April, developers who subscribed to
Google’s $400 per month Gold Support package with
24/7 phone support were able to access Compute
Engine without the need to talk to sales or receive an
invitation. Google also announced it dropped its instance prices
by 4 percent (that’s after it already dropped storage
prices by 20 percent last November). Google is emphasizing its cloud platform this year.
There are 25 sessions for the Google Cloud Platform
at Google I/O. Only Chrome and Android have more. Google is increasingly relying on its data-center
infrastructure to attract developers. It offers the APIs
to integrate with apps and now the capability to use
the data centers for compute and storage. That’s an
important shift if Google wants to attract more
developers and compete with the AWS ecosystem.