Archive for the ‘Government’ 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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“Power is a lot like real estate. It’s all about
location, location, location.” — Frank Underwood,
House of Cards At this very moment, Mark Zuckerberg’s political
lobby, FWD.us, is probably taken aback at how
reviled it has become, both from the public and its
own members. After all, there are countless political
technology lobbies, including Facebook’s own
Political Action Committee, which routinely offer Republican candidates campaign cash for quid pro quo political favor. So, why, after discovering FWD.us indirectly supporting the controversial Keystone
Pipeline initiative, have would-be supporters flooded
their Facebook page with scathing comments, and its
A-list supporters, such as Tesla’s Elon Musk, ditched
the group? Unlike other lobbies, FWD.us burst on to the scene
with a very public op-ed from its celebrity founder,
promising to galvanize the latent civic passions of
Silicon Vally’s netizens in a noble crusade to advance
the knowledge society. While one hand extended
towards grassroots supporters, the other reached into its wallet pocket and discretely doled out funds to
controversial candidates. There’s a reason most lobbies don’t bother with
grassroots activism: communities don’t get excited
about the kinds of soul-crushing moral compromise
necessary in DC politics. So, when FWD.us rolled up
with millions in hand claiming to be the voice of the
technologists, those who felt misrepresented freaked out. Even more confusing, when confronted, FWD.us
chose to do something no other major organization in
technology has done: it remained silent. Even the
notoriously tight-lipped Apple holds a press
conference after public uproar. Californians haven’t been become jaded to the kinds
of secrecy common for Wall Street banks and
campaign SuperPACs. The unfazed backdoor
dealings caricatured in Netflix’s (addicting) House of Cards series may work for lobbies based in our nation’s capitol, but Californians evidently won’t
tolerate it in their backyard. “I revised the parameters of my promise.” – Frank
Underwood Twitter co-founder Evan Williams tweeted a link to a
scathing blog post from former Twitter employee Josh
Miller, explaining, “In service of noble causes, FWD.us is employing
questionable lobbying techniques, misleading
supporters, and not being transparent about the
underlying values and long-term intentions of the
organization. More discouragingly, the leaders of the
technology industry (and of FWD.us) have built their careers on bringing meaningful change to the world.
They should be doing the same in Washington.” FWD.us would-be grassroots supporters agree, “Will
Fwd.us prostitute climate destruction & other values
to get a few engineers hired & get immigration
reform?”, wrote one commenter on their Facebook
page. Folks in San Francisco had a sense that FWD.us
understood technologists’ natural aversion to
Washington culture, “People in tech have often felt a
cultural disconnect from the political process, which
is a shame considering we are naturally idealistic,”
went a press release of FWD.us’s launch last month. True to their word, unlike any other lobby, they were
building tools for grassroots activism, with the
audacious aim of bottling the rare Internet flash mob
protests that brought down the entertainment industry-
funded, Stop Online Piracy Act, and helped
smartphone taxi service, Uber, overcome the Washington DC regulators. But, unlike Mayor Michael Bloomberg, who is actually
planning a social media campaign to push for
Immigration reform, FWD.us’s grassroots promise is
nowhere to be found. “There’s a value in having secrets.” – Frank
Underwood Like many of us at TechCrunch, tech luminaries have
been begging FWD.us for a hint of transparency, “It’d
be easier to believe that FWD.us will be a positive
force if we knew the full breadth of its agenda,” wrote
popular blogger and entrepreneur, Anil Dash.
Unfortunately, they refuse to talk to anyone. Even at our own Disrupt conference, Director Joe Green didn’t
(or couldn’t) be interviewed, instead opting for a
generic story about the value of immigration reform. See, their strategy feels like patronizing, as though us
overly-idealistic Californians can’t possible deal with
the realities of DC politicking. As Dash concludes, not
only can we handle the truth, we’re begging for a dose
of reality, if it’s the best way forward, “It’s already clear that with FWD.us, the tech industry
is going to have to reckon with exactly how real the
realpolitik is going to get. If we’re finally moving past
our innocent, naive and idealistic lack of engagement
with the actual dirty dealings of legislation, then let’s
try to figure out how to do it without losing our souls.” “Friends make the worst enemies.” – Frank
Underwood What have been the results?–near unanimous
condemnation from ever corner of Silicon Valley. Just
last week, superstar innovator Elon Musk, made a
very public departure, after a list of environmental
groups, including the Sierra Club, boycotted
Facebook over FWD.us-funded ads that praised Republicans for supporting the Keystone pipeline
(below) Ironically, the group can’t post a single update on
Facebook without being flooded with angry
comments. Just 18 hours ago, after FWD.us posted
about a congressional immigration hearing, 50% of
the comments are about Keystone, “How can you
justify completely selling out on he keystone pipeline in order to further your own immigration agenda? This
is politics at its worst.” In other words, FWD.us poisoned its only mechanism
for grassroots activism: social media. Forget Twitter,
forget Youtube, forget Tumblr. Every conceivable
social platform permits open dialog, which has now
become the bane of their existence. A Way FWD (Pun Intended) When we first wrote about FWD.us, the reader
comments were largely positive. Most readers
(including myself) were excited to see what a team of
technology titans could accomplish. But, since then,
the suspect secrecy is killing their trustworthiness. Their calculation is clear: a win on immigration reform
will absolve their sins. They’re wrong. Since they’ve
chosen to mimic other lobbies, their accomplishments
will be indistinguishable. So, each of their investors
could just as easily fund a tech lobby employing the
same tactics without the public heat. Personally, I like the organization and its mission. We
routinely advocate for many of the same issues and
carry the voices of their partners. But, evidently,
FWD.us underestimated just how little tolerance their
supporters have for compromising the value of
truthfulness. I understand the consequences of writing this piece:
when Joe Green eventually does speak, it certainly
won’t be with me. But, until then, I’ll leave them with
one thought. If FWD.us is so committed to traditional
DC politics, perhaps they should also take Frank
Underwood’s advice on transparency, “There is no better way to overpower a trickle of doubt than a flood
of naked truth.”

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3D printed guns are reportedly even too scary for the
infamous free-information hacker, Kim Dotcom. After
the U.S. State Department demanded that the
designer of the world’s first fully printable gun remove
the files from his network, New Zealand-based
Dotcom committed to keeping them safely online in his offshore legal safehaven. According to New Zealand’s Newstalk ZB website,
“The plans were available on Dotcom’s Mega website,
but the New Zealand-based entrepreneur asked his
staff to delete the public files. Dotcom says he thinks
they are a serious threat to security of the
community.” We have reached out to Dotcom and will update
readers with more information as we receive it. Last week, Texas law school graduate Cody Wilson
made global headlines for freely distributing digital
blueprints for manufacturing a lethal weapon with a 3D
printer. In a mere week, Senator Chuck Schumer
called for immediate regulation and the blueprints
themselves had been downloaded over 100,000 times. Because of Dotcom’s commitment to guarding them
against U.S. interference, it was questionable whether
any government entity could prevent them from being
distributed. Dotcom is an entrepreneur and hacker,
who became famous for a massive police raid of his
Megaupload site that housed pirated entertainment content. He seemed like a natural ally in the fight for
radical open information. Now that even he’s abandoned 3D weapons, perhaps
there is some information that the Internet and
government can collaboratively reject.

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The technology industry’s newest high-powered
political lobby, FWD.us, is unraveling just a month
after it launched, as two of its biggest partners,
Tesla’s Elon Musk and Yammer’s David Sacks, leave
the organization. Begun with a reported $20 million of
Mark Zuckerberg’s own money, and rare op-ed by the politically shy Facebook founder, FWD.us has faced
a torrent of criticism over funding advertisements that
praise Republicans who support the controversial
Keystone pipeline (below). Environmental groups were up in arms and circulated
a boycott of FWD.us that had, ironically, had more
supporters than FWD.us’s call to action. The Sierra
Club, Progressives United and MoveOn.org were
among a littany of progressive groups that are now
boycotting Facebook avertisements. “Immigration reform – fine. Oil expansion and pipelines? NOT fine.
Where’s the transparency here, rich dudes? Or does
FWD actually stand for Fine With Drilling?,” wrote one
angry commenter on the FWD.us Facebook page. Elon Musk, as founder of Tesla Motors, prides
himself on a sterling environmental record, so it’s
easy to see why he couldn’t tolerate being associated
with a group indirectly funding pro-Keystone pipeline
ads. But, David Sacks doesn’t have as much to lose
publically as Musk, which means that Musk is likely hooking more high-level partners with his departure. Nor is this the group’s first PR disaster. Even before
the group began, FWD.us director and Zuckerberg’s
old Harvard roommate, Joe Green, had to issue a
statement of regret for a leaked perspectus. “Given
the status of our funders and quality of our team, we
will drive national and local narratives to properly frame our agenda,” read the brash strategy note. As we’ve written about before, FWD.us has kept a
tight lid on their funding and tactics. We do know that
FWD.us splits its organization into Democratic and
Republican teams, offering quid pro quo cash in
exchange for support of its key initiative —
immigration. This kind of back-door compromising may work in D.C., but it’s evidently not as well
tolerated in the Valley. In my own off-the-record conversations with
supporters, no one is happy with FWD.us right now. It’s going to become a political landmine to stay on
board, let alone join the group. FWD.us is unraveling,
and we predict it won’t be around much longer unless
it becomes a lot more transparent and ditches the
D.C. tactics. Stay tuned for more.

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Congress is on track to passing a nationwide Internet
retail sales tax, but it has serious flaws that could
majorly muck up the e-commerce industry. We think
citizens are often smarter than the government, and
we want to give you a chance to make the bill better
before it becomes law. So, we’ve teamed up with Congressman Darrell Issa’s Open Government
Foundation, which designed a platform for making
line-by-line suggestions to proposed laws. In
TechCrunch’s version of the “Project Madison”
crowdsourcing legislative platform, our readers can
add, delete, and amend specific passages in the upcoming tax law. Suggestions that are voted up by our community will
get the most attention of Congressional staffers
(which we know are watching our platform). It’s been
claimed that the Internet is “democratizing” the world;
well, here’s our chance to prove it. Senate Bill S.743, the “Marketplace Fairness Act of
2013,” passed the Senate with overwhelming support
and is on to the House of Representatives. But, it
won’t be passed for at least a month, so we have
some time to bubble up the best ideas from our
community of readers. As we promised when we first launched our new
civics channel, Crunchgov, TechCrunch would source
and promote the most insightful ideas from the
technology community. A proactive approach to
improving law is just the next logical step for how we
can support the amazing work you all do.
Encourage your friends, ping your local
expert, and share this opportunity loudly. If we make
an impact on the bill, it’ll a watershed moment in
American democracy. Go forth!