View original post found on ReadWriteWeb authored by Bernard Lunn
February 12th, 2010 — web20
The short answer is “as much as you need”. The more tactical answer is “as much as you can raise cheaply”. The latter is a pragmatic view. Raise more than you need when times are good. Just because you raise it does not mean you need to spend it – capital efficiency is always good!
In this post I look at what VC are saying SaaS ventures need to raise to get to scale and profitability. But I’ll also look at what VC are doing – what SaaS deals they are funding currently. I look at the capital efficiency drivers, what you can do to reduce your need for capital. And finally, I show you which VC are active in SaaS today.
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What Are VC Saying?
The answer according to Bruce Cleveland of Interwest is about $40m.
Take that seriously. Cleveland is a SaaS specialist with serious operational experience who has done his research on this subject. But as he points out, the details matter. There are two points of caution:
- This is looking in the rear view mirror at ventures funded some time ago that did an IPO in 2007 or earlier. It is a different world today – less capital available and less need for capital.
- VC are happy with models that require a lot of capital. Capital is what they have to offer and if you need a lot they are in the driving seat.
Lets look at the operational details, the capital efficiency drivers, in a minute. First, lets see what VC are actually funding today.
What Are VC Doing?
We looked at the Series A round for 17 SaaS ventures that closed after January 2007:
- Clarizen
- Maxplore
- Loopfuse
- Jive Software
- SlideRocket
- Elastra
- Syncplicity
- SocialCast
- AriaSystems
- Lavante
- Lithium Technologies
- Maxplore
- PivotLink
- SmartTurn
- Zuberance
- InsideView
- Bill.com
These 17 ventures raised $90.25 million total, an average of $5.3 million. That sounds like the “old normal” $5 million Series A. You can see how you would get to $40 million for a venture that is getting traction and can do a series of larger rounds at higher valuations. Lets say, a) $5 million; b) $10 million; c) $25 million; and total: $40m.
If the C round is pre IPO, everybody does well. But that is the old normal. The new normal is different. First, those 17 deals had two outliers: Jive raised $15 million and Bill.com raised $17 million.
Now let’s start with a later date. If we filter by Series A deals that were done after the market meltdown in Q4 2008, the average more than halves to $2.55 million. Those five deals are:
- Maxplore
- Loopfuse
- Syncplicity
- Zuberance
- SocialCast
Capital Efficiency Drivers
There are two numbers to obsess over.
1. How much does it cost to acquire customers? Cleveland defines this as CAC/ACV, or Customer Acquisition Cost divided by Annual Contract Value. If this is less than one you are in good shape. You can take this further. If you can get your customers to pre-pay for the year and your CAC/ACV is less than one, you can self-finance growth at least on the marketing side. Charging annually rather than monthly will slow down growth but that would be a small price to pay for controlling your own destiny. In some markets, customers will pre-pay in return for a discount and that is certainly the cheapest capital you will ever get.
2. How much do you need to spend per customer on infrastructure? The SaaS pioneers made a big play out of having their own data centers. When SaaS/Cloud was new, this was essential. Today you will be courted by lots of big, deep-pocketed, credible cloud vendors selling PaaS, IaaS and HaaS on a pay-as-you-go basis. The pay-as-you-go basis means you don’t spend precious capex on infrastrucure.
But more important is the total ICC or Infrastructure Cost per Customer. If this is low enough you can afford to be more creative with your freemium strategies – which will reduce your CAC/ACV if done right. In other words, your R&D guys had better pay attention to performance engineering from the get go. The days of throwing sloppy code out there and covering your mistakes with huge dollops of cash later are probably over.
Who You Gonna Call? SaaS Funders!
You need capital to build a SaaS venture. You can self-finance using the cash flow from another business. (Typically a professional services business as this requires no capital.) This is what both 37 Signals and Zoho/Advent did. But that is still capital, it is just your own capital!
If you have a small niche, you might need very little capital as it is easy to reach your market. Which is a good thing as no VC will fund a small niche. If you are have a venture that is in that rare magic quadrant that is both viral and monetizable… well you are one lucky dude!
For SaaS ventures that are going after a big market and have normal marketing characteristics, VC (probably preceded by Angel) is the conventional route. If you do decide to raise VC for your SaaS venture, it is better to go to a SaaS specialist.
We know this is not an exhaustive list. It is not meant to be. We have seen many VCs do one or two SaaS deals. We want to highlight the VCs that have done more than that, and that have an active focus on SaaS (a section on their site, a partner focused on SaaS, some interesting research, etc.). These are the ones that made that cut:
- Bay Partners
- Benchmark
- Bessemer
- Emergence
- HummerWinblad
- Interwest
- Northbridge
- TrueVentures
- Venrock
What you really need to know is, who is funding SaaS ventures right now. Here is the much shorter list of VC that have done two or more SaaS A Series deals since the start of 2007:
- Emergence
- TrueVentures
- HummerWinblad
- Venrock
OK, let’s make a really fine filter. Who has done SaaS A Series deals since the market meltdown in Q4 2008? That list is down to two firms:
In raising money, relationships matter – a lot. So if you know a VC that is not yet active in SaaS, call them. If your venture puts them on the SaaS map, they will love you. For most VC that like Internet or software like SaaS, the business model attractions are screamingly obvious.
Photo credit: Mokra
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View original post found on ReadWriteWeb authored by Dana Oshiro
February 2nd, 2010 — startup
Earlier today Venture Hacks announced the launch of the AngelList – a curated list of angel investors with an interest in early-stage funding pitches. According to a blog post by Venture Hacks cofounder Babak Nivi, legendary investors like FF Fund angel Dave McClure, Techstars’ Brad Feld and SoftTech VC’s Jeff Clavier are among the site’s first participants. ReadWriteStart caught up with Nivi to find out why he was moved to create the resource.
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“Entrepreneurs are always asking us if we know any angel investors.” He says, “It’s one of the most common questions in the startup world. So we decided to make a list of the ones we know and also open it to ones we didn’t know. We also needed a place to keep track of the angels we know for our own reference. Hence AngelList!”
Anyone who has made $25,000 dollars in investments in 2009 and plans to do the same in 2010 is eligible to apply for the list. Participating investors receive information on three vetted startups per week and a place on the Venture Hacks blog and AngelList Twitter account. While some Angels may shy from displaying their contact info to the public, the list is actually a much better way to manage the pitch process as entrepreneurs are made well aware of investor objectives and interests. Startups can browse the site for contact information, investment criteria, trusted referrers and an investor’s current portfolio.
Explains Nivi, “Entrepreneurs spend a lot of time trying to get intros to investors – even the entrepreneurs who end up raising money from Ron Conway, Fred Wilson or Sequoia. We want to make it easy for qualified entrepreneurs to get the intros.”
To check out the list, visit venturehacks.com/angellist or to make your angel financing needs known, add yourself to the VentureHacks Startup List at venturehacks.com/startuplist.
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View original post found on (Obsolete Feed) authored by Anand Rajaraman
June 15th, 2008 — startup
Greg Linden was one of the key developers behind Amazon’s recommendations system, which recommends books, movies, and other products to Amazon customers based on their purchase history. He subsequently went to Stanford and picked up an MBA, and in January 2004, he launched a startup named Findory, which offers personalized online newspapers. It’s hard to imagine anyone more qualified to make a startup like this a success, yet Findory shut down in November 2007. In a brilliant post-mortem, Linden says his big mistake was to bootstrap his company while trying to raise funding from venture capital firms — he just couldn’t convince them to invest. He should have raised his funding from angel investors instead.
Where to raise funding is an important decision every startup founder has to make. The three viable sources at the very early stages of a company are:
- Venture capital.
- Angel investors. Usually wealthy individuals, but includes outfits such as Y Combinator.
- Friends and family. Yourself, if you can afford it.
To decide which option is best for your startup, you need to understand how investors evaluate companies. There is a range of criteria, of course, but the three most important ones are team, technology and market, and angels and VCs evaluate them in different ways. Here’s how.
How Venture Capitalists Evaluate Startups
- Market — VCs want to invest in companies that produce meaningful returns in the context of their fund size, which typically is in the hundreds of millions of dollars. To interest a VC firm, a company needs to be addressing a large market opportunity. If you cannot make a credible case that your startup idea will lead to a company with at least $100 million in revenue within 4-5 years, then a VC is not the right fit for you. It’s often OK to use consumer traction as a substitute for market opportunity; many VCs will accept a large and rapidly growing user base as sufficient proof that there is a potentially large market opportunity.
- Team — VCs use simple pattern matching to classify teams into two buckets. A founding team is deemed “backable†if it includes one or more seasoned executives from successful or fashionable companies (such as Google) or entrepreneurs whose track record includes a least one past hit. Otherwise, the team is considered “non-backable.â€
- Technology — VCs aren’t always great at evaluating technology. To them, technology is either a risk (the team claims their technology can do X; is that really true?) or an entry barrier (is the technology hard enough to develop to prevent too many competitors from entering the market?) If your startup is developing a nontrivial technology, it helps to have someone on the team who is a recognized expert in the technology area, either as a founder or as an outside adviser.
Here’s the rule of thumb: To qualify for VC financing, you need to pass the market opportunity test and at least one of the other two tests — either you have a backable team, or you have nontrivial technology that can act as a barrier to entry.
How Angels Evaluate Startups
There are many kinds of angels, but I recommend picking only one kind: someone who has been a successful entrepreneur and has a deep interest in the market you are targeting or the technology you are developing. Here’s how angels evaluate the three investment criteria:
- Market — It’s all right if the market is unproven, but both the team and the angel have to believe that within a few months, the company can reach a point where it can either credibly show a large market opportunity (and thus attract VC funding), or develop technology valuable enough to be acquired by an established company.
- Team — The team needs to include someone the angel knows and respects from a prior life.
- Technology — The technology has to be something the angel has prior expertise in and is comfortable evaluating without all the dots connected.
Here’s the angel rule of thumb: You need to pass any two out of the three tests (team/technology, technology/market, or team/market). I have funded all three of these combinations, resulting in either subsequent VC financing (e.g. Aster Data, Efficient Frontier, TheFind), or quick acquisitions (Transformic, Kaltix — both acquired by Google).
Friends and Family, or Bootstrap
This is the only option if you cannot satisfy the criteria for either VC or angel. But beware of remaining too long in “bootstrap mode.†An outside investor provides a valuable sounding board and prevents the company from becoming an echo chamber for the founder’s ideas. An angel or VC can look at things with the perspective that comes from distance. Sometimes an outside investor can force something that’s actually good for the founder’s career: Shut the company down and go do something else. That decision is very hard to make without an outside investor. My advice is to bootstrap until you can clear either the angel or the VC bar, but no longer.
But back to Greg Linden and Findory. By my reckoning, Findory passes the team and technology tests from an angel’s point of view — if you pick an angel investor who has some passion for personalization technology. But it doesn’t pass any of the VC tests. Given this, Greg should definitely have raised angel funding. My guess is that this route would likely have led to a sale of the company to one of many potential suitors: Google, Yahoo or Microsoft, among many others. Of course, hindsight is always 20-20. I have deep respect for Greg’s intellect and passion and wish him better luck in his future endeavors.
Anand Rajaraman is a co-founder of Kosmix.com and a founding partner of Cambrian Ventures. Full disclosure: He is also an investor in GigaOM.
View original post found on (Obsolete Feed) authored by Guest Column
May 24th, 2008 — startup
I work as an attorney to a lot of company founders, and I know from experience that when the time comes to negotiate a round of funding, entrepreneurs often find themselves at a disadvantage. Much of it has to do with language. There is an array of terms and issues that investors and lawyers work with regularly and understand, but that entrepreneurs deal with only once in a while. It would take many posts to cover all of them, but here is a Crib Sheet of 10 Key Terms that clients most often ask me to explain when they receive term sheets from prospective investors.
Let’s start with the basics of valuation. The three biggest questions I get are: How much is my company is worth? How much of my company will I have to give up? How is that calculated? Three valuation terms you need to know are:
1. Pre-money valuation: Investors will assign a valuation to the company and its shares before they even think about dropping a dime on it. Your “pre-money valuation†is what your company is worth before the VC deal happens.
If the pre-money valuation is $10 million and there are 4 million shares outstanding, the investors are offering to pay $2.50 a share for the company.
2. Post-money valuation: This is what your company is worth after the deal. If the investors then put in $5 million, the post-money valuation will be $15 million and the investors will own one-third of the company.
3. Fully diluted capitalization: This is how that 4 million share number is calculated. It’s not necessarily obvious. You may have issued 3 million shares to your co-founders and early employees. However you’ll need to issue more shares (in the form of stock options) to future employees, so you budget for those by creating a share pool consisting of 1 million shares. The 1 million shares have not been issued, but they are treated as if they’ve been issued when the valuation is calculated. Thus, 3 million issued and outstanding shares plus 1 million reserve shares set aside for future stock options grants equals 4 million fully diluted shares.
Once you have a command of the valuation being placed on your company, you’ll need to comprehend the many other preferred rights you’ll be asked to give your investors in exchange for their money. This will matter when you get to a liquidation event, because not all shareholders will get paid equally.
4. Preferred stock: Founders and employees of companies get common stock, which gives them bare ownership rights. Investors get stock with rights that are in some way superior to those of common stock; we call this preferred stock. At a minimum, preferred stock gets its money out first, so if there isn’t enough to go around, preferred has dibs and common gets the scraps.
5. Liquidation preference: This is the right to “get out†(get paid) first if the company is sold, merged or otherwise liquidated. What someone is paid usually starts as the amount invested per share ($2.50, in our example).
6. Liquidation multiple: Investors may ask to be paid a premium on their liquidation preference, meaning the company may have to pay back $5 for every $2.50 invested, before common stockholders get anything. That’s a liquidation multiple.
7. Participating and non-participating preferences: A liquidity event produces the potential for a “double dip†for the preferred shareholders. They get paid once in their liquidation preference, and then have the option to get paid again as if they are common shareholders. There are two buckets of money: After the liquidation preference is paid, whatever money is left over gets distributed among common shareholders and those preferred shareholders who wish to “participate.†Non-participating preferred holders take their preference payment, then let the common stockholders take what remains.
So, if the company from our example is bought for $20 million, the preferreds will get their $5 million back (this is without a liquidation multiple) before the remaining $15 million goes to common shareholders. And if they’re “participating preferreds,†they’ll get a share in the remaining $15 million, too. Bottom line: You want non-participating preferreds if you’re a founder!
Bear in mind: liquidation multiples and participating preferreds are most common in high-risk, troubled company situations. If your VCs are using these terms, be careful.
8. Right of first refusal: Investors want to make sure (i) a company’s shares stay within a small group, (ii) that they get an advantageous crack at additional financing rounds. They’ll ask for a clause in your investment documents saying that before you can sell additional shares, you must first let the company and/or the investors buy them at the price offered by the third party.
9. Co-sale right: This further locks things up by saying that if for some reason both the company and the current investor pass on the next round, the current investor can still benefit by selling his shares to a third party, alongside the founder.
10. Participation right: This says that the investor has the right to invest in any new offerings the company conducts.
These are some of the key terms that appear in VC term sheets. I’ll add to this crib sheet over time, so: What terms do you need help understanding?
Jay Parkhill serves as outsourced general counsel to startups and growth-oriented companies, and writes on legal and business matters at his blog, StartupToolbx
View original post found on The Next Web authored by Mark Schiefelbein
April 9th, 2008 — startup
Another Wednesday, another post in the series “After the Funding“. While previous posts have looked at strategy, sales, roadmap and releases, I will today look at people. At the end of the day it’s people that make or break startups. And you need to have the right team on board to succesfully unlock growth.
Build a Team that is Smart and Gets Things Done
The early team is built up of founders and a close circle of trusted employees that have often worked together previously and that become close friends. The team has natural chemistry and complementing skills. You need few management skills and early employees wear many hats, filling in as office manager or accountant when needed.
To expand the business, the team needs to be expanded. Expansion means bringing in seniority as well as volume. The team of founders and early employees needs to determine which management roles can be assumed by the current team and which need to be brought in from the outside. And the founders need to create a recruitment process that consistently lands the startup additional talent.
The founders must realize that it is time to bring in the professionals when they are spending more time learning than leading and the staff starts losing confidence. At the same time, they must avoid bringing in too much senior staff with high salaries and low hunger for success. As for expanding the team, the key lies in hiring people that are smart and that get things done. Read and apply Joel Spolky’s “Guerrilla Guide to Interviewing†and never hire someone if there are any doubts or you are having a hard time make a “hire or no hire†decision.
After the Funding
In the first post of the series I explained that decision-making needs to be based on long-term strategy. Owners need to spend time defining a clear and concise strategy and enable others to make day-to-day decisions based on their roles in the company.
Then I cautioned about the risks of premature expansion of the sales force. Owners must set-up a repeatable sales process first and then expand the sales force.
Then followed a post about the importance of a product roadmap to create alignment between teams, to help business define its target market and to guide technology in setting priorities and allocating resources.
And last week I made the case for your product heartbeat – a continual rapid-fire release plan that provides customers with new features at short, predictable intervals and gives focus to the development team.
Interesting Reads
Here are some interesting articles and posts on hiring:
View original post found on The Next Web authored by Mark Schiefelbein
March 26th, 2008 — startup
Welcome back to “After the Funding“, the series about key management challenges for startups that have secured funding and now must focus their energy on flawless execution.
Today I will talk about the importance of a product roadmap to create alignment between expanding departments.
Align Business and Technology around a Product Roadmap
Business and technology align easily for early startups. The team is small; business and technology work side by side, often in the same office. There is no standard product to sell and no history of successfully closed deals, so business will want to discuss every deal with technology. And the number of prospects and customers is low so technology will value being involved with many of them to get necessary feedback. All in all, communication lines are direct, there are few opportunities and commitments and hence few challenges to maintain alignment.
As business grows, the sales force will start focusing on volume and there will be pressure to go after prospects that fit the product value proposition poorly. This is especially true when expanding geographically or selling indirectly through partners and resellers. And as technology advances, there will be less and less tacit market knowledge within the expanding development team. Communication will get more complex as more specialized roles such as marketing, support and consulting are created. From now on the company needs to work hard at maintaining focus and avoiding becoming a disoriented “jack of all trades, master of noneâ€.
You will need to introduce a product roadmap to align business and technology. The roadmap will map out product direction over the following six to twelve months. It will help business defining its target market and get an early start at pitching future products and features. It will provide guidance to technology in setting priorities and allocating resources. The roadmap will assure consistent communication which is essential for survival as Steve Johnson explains convincingly by comparing it to NASA’s Capsule Communicator (CAPCOM), the single communication agent between space shuttle and mission control.
After the Funding
In the first post of the series I explained that decision-making needs to be based on long-term strategy. In a rapidly growing company, the owners need to spend time defining a clear and concise strategy while day-to-day decision making shifts to others based on their roles in the company.
And last week I cautioned about the risks of premature expansion of the sales force. Owners must set-up a repeatable sales process first and then expand the sales force.
Next week I will turn to release planning and explain how heartbeat release schedules improve productivity.
More on Product Roadmaps
Here are two good pointers to learn more about product roadmaps:
- The Pragmatic Marketing site with its hundreds of relevant articles is a good starting point. You can also follow their blog, sign up for webinars or subscribe to their newsletter.
- Or read about perspectives on the technical and commercial aspects of software at “Business of Software†– a conference cum blog like TheNextWeb. The conference features Joel Spolsky who I will write about in a future post about creating teams.
View original post found on ReadWriteWeb authored by Josh Catone
December 11th, 2007 — ui
Earlier this year game designer Kyle Gabler put up a just-for-fun side project called Human Brain Cloud – a massively multiplayer word association game that started with a single word (”volcano”) and has since taken on a life of its own. Players are given a word, which is culled from the database of previously entered words, and asked to enter the first thing that comes to mind. As people interact with the game it collects data about word associations that can be formed into a giant network (the cloud).
As Gabler explains, “For instance given the word ‘volcano’, a common word people might submit would be ‘lava’, and this would result in a very strong connection between ‘volcano’ and ‘lava’. On the other hand, given the word ‘volcano’, fewer people might associate it with something like ‘birthday party’, resulting in a very weak connection or no connection at all. Over time and with many players, I hope the cloud will gradually grow to represent words and phrases people tend to associate with other words and phrases, assuming it doesn’t get inundated with spam.”
Since the site’s launch, over a third of a million people have made 5.6 million connections between half a million words. It would appear that Gabler got his wish of many players and a large map of word associations.
In July, Gabler posted some preliminary findings on his company’s blog about what Human Brain Cloud had learned so far. At the time, with about a fifth of the total amount of data that the site has since gathered, the most oft-submitted word was “sex” followed by “me” and then “money.” Gabler concluded snarkily, “If this experiment had an scientific credibility, I’d say humans were more horny than narcissistic or greedy.”
The direction and use of Human Brain Cloud is completely controlled by the people who use it, and interestingly they took the site in some rather unexpected directions. Fairly shortly after launching the experiment, Gabler began to notice that people weren’t just using the site to associate words with other words, but also phrases. Such as, “I am…” with “…a human.” While playing a few minutes ago I was served up “shall inherit the earth,” which I unimaginatively connected with “the meek” (a connection also made by 18 other people).
The strongest connections? "Mona" -> "lisa," "ping" -> pong," "and found" -> "lost" (the latter suggesting that people have no problem making connections even when common phrases are spoken out of order — "found" -> "lost" is also on the top 10 strongest list).
While Gabler likes to joke that the site has no academic value (”This isn’t academically rigorous or anything, so set your expectations accordingly,” he warns on Human Brain Cloud’s about page), recent research indicates that the type of connections the site is revealing may actually have worthwhile academic implications. Researchers at the University of California recently conducted a study in which they found evidence to suggest that our brains catalog and rate the relevance of information by forming connections between data. The researchers compared the brain’s system to Google’s PageRank algorithm, but there are obvious similarities to the massive word association map that the Human Brain Cloud is compiling as well.
Regardless of whether Human Brain Cloud will ever help spur advances in neuroscience, it is a fun way to waste a few minutes.
View original post found on ReadWriteWeb authored by Marshall Kirkpatrick
December 4th, 2007 — ui
Social news site Digg is a love-it or hate-it phenomenon. Here at ReadWriteWeb, we love Digg, but I’ve got to admit that new competitor Mixx is worth a real close look. Mixx announced today that it’s taken a strategic investment (meaning a small one with a bunch of influence anyway) from the giant newspaper the LA Times. It’s just the latest in a series of deals that the little company has signed with outfits including USA Today, Reuters.com and The Weather Channel. This deal is a strange one though, because in addition to Mixx functionality being live on the Times site, LA Times stories will now be favored in the Mixx search results. That’s the first thing I don’t think I like about Mixx, but there’s a lot that I like about it very much.
Mixx was clearly built by people paying attention to user demands at Digg. Its popularity algorithm is said to be a simple one, according to Matt Marshall’s coverage of the LA Times deal today, but there’s a lot that’s interesting about the site.
Here’s my list of favorite features that you’ll find at this very compelling site…
- There’s OpenID login, something Digg said it was going to do over a year ago.
- There’s a bookmarklet to submit a link from off-site. I cannot imagine why Digg hasn’t offered one of these yet.
- There’s extensive personalization of the home page, including drag and drop ordering like an AJAX startpage. It’s nice.
- There’s been a photos section from the very beginning and there’s video too.
- Your location or the location of the event you are linking to is important throughout throughout the site.
- There’s extensive use of tagging, which is nice for site navigation and story skimming.
- There’s private groups, something people are often disappointed to find not available in Digg or Del.icio.us. Maybe your group alone would like to use a social news service internally and this is reason enough to use the site.
- Content filtering through a 3rd party service attempts to keep out spam, that’s a great idea. Can you imagine if Digg did this kind of thing at the point of link submission? The upcoming stories page would be vastly improved, more people would use it and the whole experience would change.
- You can see what people voted against any item and what people have voted for or against. This has been a big complaint about Digg – that there’s an anonymous ‘Bury Brigade’ who vote down anything they don’t like based on politics or brand. On Digg there’s no way to know who voted against something, it just dies and there’s no accountability. Not the case on Mixx, every story displays both up and down voters in the sidebar.
- The site encourages users to upload oversized avatar images. That’s great, avatars are a tactile medium and all about facial recognition – so bigger is better and it really is important.
- You can change your mind in Mixx. Vote things up, down, then up and then down again. It’s great.
We’ll see if this combination of post-Digg smarts and Reddit marketing strategy works well for Mixx. AOL’s Propeller is reported to be growing surprisingly fast – I think there’s some real potential outside the Digg niche for Digg-type sites to thrive. I hope they’ll reconsider selling the integrity of their search to investors, though.
In the end, the Digg algorithm is a smart one and the number of people there (20m unique visitors a month) won’t be beat by a site with cool features…at least probably not. Who knows? I like the new Digg images section a lot, but I really like the Mixx user experience.
View original post found on ReadWriteWeb authored by Josh Catone
November 9th, 2007 — tech
There are a lot of ways to send large files online. One my favorites is Senduit from Davidville (the Tumblr guys), which I wrote about in April. I like its simplicity and how easy it is to use. Unfortunately, Senduit, which is built on the back of Amazon’s Simple Storage Service, has a 100mb file limit and though speedy on the download, requires that the file first be fully uploaded before downloading can begin.
PipeBytes is a new service that cuts out the middle man. The service has no file size limits and lets recipients begin downloading before the file is finished uploading — in fact, that file doesn’t begin to upload until someone starts downloading on the other end. While files are being transferred, a YouTube video plays in the browser window to keep you occupied, and an animated status indicator shows you the progress of your transfer.
I was able to successfully send an 80mb MP3 file to Marshall Kirkpatrick via the service. Though we were both shown different videos, they seems uncannily matched content-wise to the file I was sending — which was a DJ mix, and I was shown a video of a turntable routine. I’m not sure if PipeBytes read the file note I left, which mentioned what type of music the MP3 was, and tried to match up a like video or if it was a coincidence (I think I’d lean toward the latter).
It’s not clear how PipeBytes works, but my guess is that the site is establishes a direct connection between the uploader and downloader. There are a few reasons I think this: 1. Your file doesn’t start uploading until someone is downloading, 2. It can only send to one person at a time, 3. Their FAQ says files “are sent directly to your peer.”
If that’s the case, PipeBytes should be spending virtually nothing on bandwidth. Though it does raise some questions about the usefulness of the service. If all it is doing is establishing a direct connection, what is the advantage over doing the same thing via instant messenger, Skype, or IRC (DCC Send)? The advantage of file sending sites like Senduit is that they allow the downloader to get quicker speeds on their end as a result of getting the files through a faster pipe. Also, they are asynchronous, so uploader and downloader don’t have to be online at the same time. When both of those advantages are removed, why not just use IM?
View original post found on ReadWriteWeb authored by Josh Catone
August 15th, 2007 — music
Nugs.net is the biggest network of music sites you’ve probably never heard of. Created in 1993 as a place for founder and CEO Brad Serling to keep his growing collection of live Grateful Dead and Phish tapes, the site has since grown into a major force in online music sales, having sold over 50 million paid downloads of live music.
Nugs.net currently powers the online download stores for over 300 artists, including Metallica, Dave Matthews Band, Phish, the Grateful Dead, Widepread Panic and moe. The company also runs download stores for major US music festivals like Bonnaroo and Lollapalooza. Via compilations (such as the environmental benefit album “Music for the Planet“) and festivals, Nugs.net has provided live download services for over 400 bands.
How Nugs.net Got Started
When Serling launched the original Nugs.net back in 1993, he had no plans to turn it into a business — he just had a overwhelmingly large tape collection that was getting harder and harder to manage. Because it was getting more and more difficult to trade tapes (and later DATs and CDs) with other fans while on the road following the Grateful Dead and Phish, Serling set up his website as a place for people to download MP3s of his taped concerts. He got permission from the bands to set the site up as long as he wasn’t profiting from it. By 2000, the site was serving 3 million downloads per month and the Grateful Dead took notice, contacing Serling about turning Nugs.net into a business.
In October of that year, the popular touring band Phish was preparing for their last show before what would become a two year hiatus. The band’s management had heard about Serling and his work on Nugs.net from the Grateful Dead and set up a dinner with him on the night of what fans fondly refer to as “The First Last Show Ever.” Serling tells me he and the band “hit it off immediately and saw eye to eye on many important themes (no DRM, allowing tape trading to continue, offering lossless audio) and we made plans to stay in touch during Phish’s hiatus.”
Fast forward two years and Phish was ready to return to touring. The band and Serling cooked up a plan to release every one of the shows from that tour as downloadable MP3s via what would become Live Phish, Nugs.net’s first branded band website.
“I officially created Nugs.net enterprises as an LLC with my attorney/partner Jon Richter in November of 2002, and we charged are first credit card for a download on December 20, 2002, ushering in what is now a common practice of releasing paid downloads of live shows. At the time, no band had ever released every night they played as a download the next day. In fact, iTunes wouldn’t launch for another 7 months.” — Brad Serling
Present and Future
Since that time, Nugs.net has sold over 50 million downloads across their network of paid download stores. The original collection of free audience tapes still exists as the Stash and attracts 3 million downloads per month. Nugs.net operates an online streaming radio station that goes out to over 50,000 listeners and Serling’s live music “nugscast” podcast reaches 70,000 people each month.
Phish was not the first act to release an entire tour as a live set. In 2000, Pearl Jam released their entire tour via a set of officially sanctioned “bootleg” CDs. Serling tells me he met with Pearl Jam in 2001 and advised them to release their tour via the Internet as downloadable media, which they eventually did starting with their 2005 tour via a partnership with basecamp productions. I asked Serling what he thought of Pearl Jam’s early efforts in the live music business that he has helped pioneer. “I think it was ballsy and should certainly be applauded,” he told me, “but it was ultimately problematic that all those live masters were property of Sony and not of the band. Many of the more established artists I work with learned that lesson from Pearl Jam.”
Recently, Nugs.net has begun offering live video alongside their traditional audio product. This is an area that the company plans to explore more in the future, but because there is no standard licensing rate established for music in video, the situation is tricky from a legal standpoint, and Nugs.net has been forced to keep their video library fairly small.
DRM
Though Nugs.net offers custom DRM solutions to its clients, most of them appear to opt not to encumber their downloads with digital rights management. Serling himself takes a rather indifferent view toward DRM. “I’ve often said DRM stands for ‘Doesn’t Really Matter,’” he told me. “While I certainly wish that more people bought than stole from my company and my clients, the reality is that DRM does not solve the problem. People who want to steal will steal and people willing to pay will pay.”
Serling favors a value added approach to selling music. Nugs.net, he says, offers products that consumers can’t get elsewhere (professionally mastered live music the day after a show and live concert videos), and the service also includes “value adds” like downloadable CD and cover art, photos from the shows, and in many cases, high quality FLAC files and an option to purchase a CD copy.
Conclusion
I asked Brad Serling to sum up his thoughts on the future of online music distribution. “Ubiquity,” he said. “All your music everywhere. True music fans will happily pay for the privilege.” And I think he’s right — that’s something I would gladly lay out cash for.
Disclosure: I’ve bought more live Phish shows from their Nugs.net-powered site than I care to admit.
