Ahtisaari to take new role at Dopplr

My buddy Marko, one of the founders of Blyk and Dopplr, has been elevated to Chief Executive of Dopplr, the social travel network for networked social travellers.

More here.

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Mmm…this feels like the botto-o-o-o-o-o-o-o-o-o-o-o-m

Thank god for ROH!

I wonder does it get worse than this? (Probably).

Living on the hedge

Sorry for the terrible headline but this is makes terrible reading and pretty much unpicks the shakiness on which much alpha was grounded. The one stand out, apart from the dog having its day, short bias, is managed futures, the most successful of which has thrived on the volatility.

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People response to incentives, shock and bankers sweep mess under carpet, horror

Don’t blame the tool, blame the incentives says a study on the causes of the debt bubble causing such a headache today, according to a study reported in Reuters. (Hat tip, Alea)

“The incentive to expand securitisations was upheld by the fact that the management pay-off was cashed out as a bonus well before the externality was felt in the profit/loss of the bank,” it said, describing such incentives as “perverse”.

In ordinary language, bankers were paid bonuses on the today–for getting the deal done–not for the overall risk-adjusted outcome of the deal. This is as true in M&A deals which generate huge fees for dubious shareholder outcomes; but was especially true during the credit-securitization boom.

These securities had Black-swan tail risk. In other words, they look very nice but have a small (and potentially unquantifiable) risk of blowing up. This risk is an externality which wasn’t priced in to the original deal. The externality having occurred, the structurers have already made off like bandits. Worse, the correlation between these small, unlikely risks was actually rather high. With one setting off another and another, primarily because we couldn’t assess (i.e. price) the remaining risk.

The structurers were not incentivised to think about or price this tail risk, so of course they didn’t respond to it. In other words, they didn’t have to live with the consequences of the deals they made so why bother. Like a naughty child, they swept the rubbish under the carpet hoping they wouldn’t be found out.

In a way that is a rational path. The incentive schemes were wrong and we could hope and pray that nothing went awry. Whoops.

More sagacious advice, or should that be bodacious

Whiner Jerkins All Hands 10/13/08 – Get more Business Plans

Tip of the hat to Fred Destin.

Two types of businesses for the downturn

Morning CommuteImage by Jeroen Krah via FlickrAs austerity takes over from ostentation, sensible investors are telling their companies to knuckle down and reduce burn. Hat, tip Nic.

As I have argued, this is still a time to be looking at building new ventures but what kind of businesses make sense in this environment?

I think the first type are austerity businesses.

Austerity businesses are businesses which help people make their way through declining consumer spending and declining income. Businesses that build on shareability, like Streetcar and CityCar, which allow us to free up tied capital, spend on what we use and track our expenditure become more valuable. Price comparison, discounting and couponing will grow in importance.
Pay by the house, like Amazon Web services, will make sense for businesses as finding capital to build infrastructure will become nigh on impossible.

The second are hibernation businesses.

During a down turn, people will stop going out. At a BLN dinner last night, Alain Courtine from Intel Capital suggested peopled were about to hibernate. That is they were going to cut going out and cut vacations, think twice about travelling, and hunker down at home. Alain cited anecdote that there has been an upsurge in purchases of games consoles and games over the summer, perhaps as people prepare for an autumn/winter without foreign holidays.

Stuck at home, a broadband connection is so versatile-in fact the lifeline to a world of intellectual, emotional and social pursuits–it is hard not to imagine people turning online increasingly over the coming months.

Hibernation businesses will include online media and gaming for consumers. They aren’t going out so they need something to do. This is a great opportunity to build an audience and customer relationships that will be valuable for incumbent companies when they stop cost-cutting and think about expanding (which will happen in 2-3 years)

At the same time, business models need to reflect the new realities. Online advertisers will become more demanding. If you can’t support your business today through advertising, you probably won’t do it over the next year or so.

The freeconomic model will start to come under-pressure. Subscription and micropayments will work. We know they work on music services and online games. We also know that during a downturn, people continue to spend albeit more parsimoniously. Online businesses, run towards break even, have generally more attractive economics than multi-channel businsses, hamstrung as they are with a higher cost base and rapidly declining physical assets. Entrepreneurial businesses have an approach to parsimony that no established business can hope to match. So the economics may yet make sense.

Answers vs search

Ask.com today rolled out an ‘answers feature’ which is a long line in innovations they are bringing to the search space. I am a big believer that there is lots more innovation to come in search. In fact, I am deeply involved in True Knowledge which is an open-domain question answering system designed to answer questions.

True Knowledge has a number of interesting components which make its question-answering capability stand out:

  1. It has an inference model which means that we can deduce facts (answers) even if we haven’t been told them a priori
  2. We assess facts and weigh their accuracy based on system and user assessments
  3. Our knowledge is stored in a knowledge representation which means we try to understand the question and can confirm if we understand it and if we have the right answer. This eliminates a step of human processing–the one where you try to figure out whether the machine has misinterpreted you or not.
  4. We provide direct answers. So if you ask ‘how tall is the eiffel tower?’ we’ll answer ‘324m’
  5. We are open-domain so can answer queries which cross many domains of knowledge

True Knowledge can do really well answering certain queries which traditional search engines may choke on. The new Ask.com does a good job on some questions; Google less so. (TK is in beta so I can’t link directly to the answers, I have linked to screenshots.)

We are at the early stages of developing True Knowledge but it is very exciting. If you want a beta invite, then email me. If you want to join the team, then we are hiring. In particular, I am looking for a product manager. Let me know.

Revisiting the recession for start-ups

Three months ago I asked what the recession would mean for start-ups.

Since then, we sort of know what has transpired. The wholesale funding model (which provided an ample supply of credit) has died and VC investment activity and exits have fallen off a cliff. According to Mike Butcher, an 81% decline in M&A activity to the first three months of this year. And that was before the nasty real-world collapses of the past six months. There is no doubt that tech is in the toilet (and likely to get worse if Google doesn’t beat estimates.)

Calacanis was in sombre mood and Techcrunch has argued that firms with less than $25m will probably fail.

But I am with Fred Wilson who argues:

I don’t think we are in a “depression” in startup land. We are in a down cycle driven by a bad global economy. I think the web and information technology is one of the few bright spots in an overall gloomy economic outlook. So if you are working on a web technology company, be happy that you aren’t working for a bank, a brokerage firm, an automobile company, or in many other industries. The tools and services that are made in the web technology business are only going to increase in demand over the next five years. But we are going to have to service that growing demand with leaner and more focused businesses and it’s time to start thinking more about profitability and how you are going to get there.

During the last start-up winter I witnessed the business model for my start-up, esouk.com, an incubator, dry up within a few months. It was always a shaky business model, in hind sight but being in the seed game when seed investing was expensive is ugly when bigger VCs have to focus on their existing investments.

I then joined a deep-tech firm which suffered from a dot-com hangover. Albert Inc had a dotcom bubble burn rate just as our enterprise customer’s IT spending was heading down to zero. It took as a year of restructuring the focus the business on a single proposition and start to rebuild credibility with customers. The company has survived and developed a niche serving medium size organisations.
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Wachovia: I don’t think so…

An advert I happened across on Marketwatch.com the day after Citi bought out Wachovia:

Dopplr announces stage two

Dopplr has announced stage two of its funding which includes a decent roster of angel investors. I was lucky enough to get involved in this round, alongside Esther, Tom, Saul and others.

I think Matt and Matt have done a great job at Dopplr. Both are capable of producing a product that is very sympathetic to what users want. And the whole team (inc Lisa, Marko and Dan) has done a great job in keeping the main thing the main thing.

Well done!

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