APR 17th 2013 (Recap): Crowd Funding – Magic or Tragic?

Is crowd funding on the investment level a good idea? Is it even possible? In this event doubts on the reliability of using crowd funding for investment were expressed. And though the outcome for this large scale innovation appeared bleak, positive reactions to minor crowd funding, such as Kickstarter campaigns, were met with great excitement.

Welcome to our discussion on crowdfunding!

What is crowdfunding? Aside from being a buzzword related to technology and entrepreneurship, it is also a source of funding for businesses, musicians, charities (and other entities) with two major subcategories.

On the one hand, crowdfunding is a way to fund a project. In the music and business worlds, for example, crowdfunding is often packaged as a way to pre-purchase a product that the project will be creating.

In other cases, such as on Watsi, crowdfunding can be a way to fund specific charity projects that you want done. What you get in return is the good feeling of having helped someone (or karma, or treasures in heaven–however you want to measure those intangible benefits).

The second (pretty different) thing that the word crowdfunding is used to describe is when a company raises money for their company in exchange for small amounts of equity. This is a new thing in the United States which was supposedly made legal by the JOBS act, but unfortunately for any entrepreneur who wants to raise money this way or for anybody else who wants to invest this way, you still can’t do it, because crowdfunding regulations that are supposed to dictate how this crowdfunding/micro-investing thing will work are still in limbo, and people aren’t allowed to start crowdfunding campaigns until they are released. The SEC was supposed to release them at the beginning of this year, but they are dragging their feet. Or should we say fortunately?

At the SVII April event (“Crowdfunding: Magic or Tragic?”), two of our speakers–Riaz Karamali, of Sheppard Mullin and Larry Udell, of the Licensing Executives Society–expressed some doubts about whether crowdfunding as an investment model will actually be a good thing.

From Udell, the concerns were mostly about whether there will be enough transparency in the fundraising process to ensure that investors will be protected.

This was also a concern of Karamali’s. He pointed out that when angel investors and venture capitalists invest in a startup, they are told upfront that they should only invest if they can afford to lose the money (because investing in startups is inherently pretty risky). When early stage investing is opened up to the public through the jobs act, there will of course be some clause in the paperwork that says this, but the likelihood is that some investors will not fully read the paperwork or perhaps not take this warning as seriously as it should be taken.

The JOBS act will likely allow individual investors to invest up to 5% of their net worth in crowdfunded ventures. (This is just speculation right now, but that’s all we’ve got until the actual rules come out.) If some individual invests 5% of his/her income into a startup that he thinks is really promising and then it goes kaput, he could be really harmed.

Of course, there are plenty of ways to lose money in the current economy as well (gambling, investing in the stock market, buying a house at the wrong time), but investing in startups may be the kind of risk for which individuals with no experience in startups are unprepared and not properly calibrated. All of this points out the need for good financial advisers, but the naked truth is that there are many people out there that invest without the advice of a financial adviser (think: why should I pay someone to help me with my money; isn’t that counter-productive?). Just because a course of action is a bad idea doesn’t keep people from following it.

Another concern expressed by Karamali was that the regulations (when they come out) will also hamper businesses that try to use crowdfunding. For example, with so many initial investors, there are going to be a lot more constituents who want to influence the way a company is run (now you have a thousand backseat drivers). Also, nobody knows yet, but it’s possible that after a company has raised money using the crowdfunding method, traditional venture capitalist firms won’t want to get in after that. It’s concerns like this that are likely making the SEC not very excited about releasing the JOBS act regulations. They may think that the world is better off without crowdfunding (as micro-investing), so the longer they wait the better.

But not all is doom and gloom in the crowdfunding world. Not only are some people excited about micro-investment crowdfunding, but the other kind of crowdfunding (as a project funding mechanism) is going gangbusters, which is part of the reason why investment crowdfunding got proposed in the first place.

Our other speaker, Justin Bailey, from Double Fine Productions, showed us the bright side of crowdfunding.

Double Fine is famous for having one of the most successful kickstarter campaigns to date. They set out to raise $400,000 with just the description that they were going to make a point and click action game and the fact that their CEO, Tim Schafer, is a well-known and beloved game designer. The campaign was so popular that they raised over $3 million. Until just recently, they were the kickstarter campaign with the most backers (87,000–just recently edged out by the Veronica Mars movie campaign).

The key lesson that Double Fine took away from that experience, says Bailey, is that community is the key to discovery. Discovery (the game industry’s way of saying, “how users find us and vice versa”) is a very pressing problem in the game industry, mostly because it is a crowded space with a winner-take-all type of dynamic (successful games are likely to be very successful; everyone else languishes in the shadows–similar to the movie industry).

With a crowdfunding campaign, gaming companies can short circuit two related problems: seeing if anyone wants the game, and spreading the word about the game. A crowdfunding campaign determines demand before the company invests a huge amount of time and money in the game, reducing the need for careful prediction and also the accompanying stress. Likewise, a crowdfunding campaign is a perfect vehicle for spreading the word about a game. If people want the game (see previous dilemma), then they will spread the word about the kickstarter campaign for you, and your discovery problem is halfway solved (contingent on the success of the crowdfunding campaign).

Not all kickstarter or crowdfunding stories have had that happy ending. The game Haunts, for example, was promoted via kickstarter and raised over $29,000. However, that wasn’t enough, and the game was never finished–adding an ironic twist to the chosen name.

Let’s come back to the original question: Crowdfunding–magic or tragic? As in all good mind-bending dilemmas, the answer is yes. In fact, the question should be much more nuanced, but isn’t that always true? When it comes to investment crowdfunding, the jury is out (because we have no data), but there is a good likelihood that there will be success stories and failures. Whether investment crowdfunding as a whole is considered a success or a failure likely depends on how well it’s success rate compares with the success rate of startups funded by angel investors and venture capitalists (hard to measure, but considered to be anywhere from 1 in 4 to 1 in 10). Crowdfunding as a project funding mechanism has been in general successful, but still, within the space, there are successes and failures.

Bottom line: crowdfunding can be very rewarding, but you would be wise to proceed with caution.

FEB 19th 2013 (Recap): How Much Is It?….How Much Is…What? (The Nightmare of Valuating Intangibles)

Welcome to Pillsbury! Our good hosts know that it is always good to start good conversations off with a happy stomach!
So…How DO you value intangible assets? It’s a great question that you could probably discuss for a whole day and still have more ground to cover. Last Tuesday, thirty or so business minded individuals gathered to hear three people with varied perspectives tackle this question on the campus of Pillsbury Law.
The first to speak was David Jakopin, JD, a lawyer from the Pillsbury firm.  He gave an overview of what intangible assets are from the point of view of the law. In general, those are considered to be your ideas, and from the perspective of the law, the best way to protect them is to patent them–or perhaps file a patent but leave it as pending on purpose (which protects your idea by law but also leaves it a secret). Jakopin presented an outline of the timeline of many companies in the Silicon Valley. Years one and two are for idea and product development (including patent application); years three and four are when the product is introduced and (hopefully) gains momentum in the marketplace. If the patent (or patents) was applied for early enough, it should be issued sometime during years four and five. In an ideal world, the IPO happens sometime during or after year eight. If this happens, then you know that you probably handled your ideas and patents pretty well.
After Jakopin gave his presentation, our moderator for the event, SVII founder Howard Lieberman, opened the floor to the audience for questions. “Innovative people tend to deviate from linear ways of doing things,” he said.
One question that came up was whether it’s sometimes better to skip the patent process because of the high cost in time and money (paying the lawyers). Yes it can be, said, Jakopin. It depends on  the timeline that you are working on and the potential to build competing products using existing technology that you didn’t patent. However, it’s still good to consult a lawyer to see whether they recommend seeking a patent or not. A good lawyer will give you an honest answer about whether or not it is worth it.
One thing for entrepreneurs to keep in mind is that patent laws in the US are changing. The rights to an idea will soon be going to whoever files a patent first, rather than whoever has the idea first. This has some theoretical pros and cons, but most of the world does it this way already, so at least consistency in that area will make some things easier. The pro argument is that this prevents people from inventing something and then hiding it and then bringing it out after someone else has developed it also. The con argument is that the legal costs of patenting things may be going up, because a premium will be placed on patents that are filed quickly.
One of the ideas that Jakopin does recommend for certain things is what is known as a “submarine patent.” This is where you file a patent, but purposefully keep it as “pending” for a long time by periodically filing continuations. The idea is that you can legally guard your idea, but also guard the privacy of it by not having the patent be public (as granted patents are).
While there is a lot to be said for patents, the system still has some controversy, and most people who work with it wish that it was much more efficient.
Our next speaker was an economist: Joel Jameson of siliconeconomics.com  who focuses on innovation in the accounting space. He focused on value from a broader perspective, later bringing it to bear on the idea of intangible assets.
The value of something is highly dependent on its context. (E.g. water in the desert is more valuable than water to someone eating spicy food, which is more valuable than water to the average person in their own home.) This also applies to the context of time. Money now is more valuable than money in the future (why people will pay to borrow money). This applies generally to most assets.
A key component of intangible assets is numerical uncertainty. This is what makes them so difficult to grapple with: assessing their value will fall somewhere in the spectrum of hard to impossible, but that is also an aspect that makes them fascinating.
In considering the value of an intangible asset, says Jameson, you should make sure to consider three things: cost, market, and income potential. Income potential is generally the most difficult of those to predict, so you use the market to help (i.e. look for comparable products already on the market). Then you use the cost vs the income potential to determine if the intangible asset is worth exploiting (turning into a product).
Another angle to approach valuation is to consider these valuation drivers: Time–how long will it take to turn your intangible asset into tangible money? Scarcity–How rare or unique is the product you will be making with your intangible asset? The pain-killer vs vitamin factor–“pain killers” are more valuable, because people will pay a lot to get rid of pain, but “vitamin” type products need a lot more selling and convincing. Big companies buying other companies that they view as a threat to their business is another example of this: they buy the company to eliminate a threat (get rid of pain), but they won’t spend nearly as much to pursue an opportunity. Risk–what kind of risks are you taking on if you try to turn your asset into a product. Complementariness–I.e. does your product work well with the rest of the world; if not, it may be before its time. Build the necessary infrastructure first; that could be a product of its own.
Then we moved back into the nitty gritty with our next speaker: Neil Sherman, an engineer who founded his own company (Tag-Connect) that builds serial connectors for circuit boards.
From his perspective, the patent process was not very helpful because it cost him so much money to get patents for his project. He also brought somewhat of a new perspective on the idea of intangible assets by saying that people are the most important intangible asset. That’s an important point because it is quite difficult to quantify the value of individual people in your company, but you know that no company can function without people. This has some important off-shoots as well. Trust within a company is another huge intangible asset. The fact that it is an asset is indisputable, but trying to quantify it can be very difficult. Teamwork and other relational qualities are other intangible assets with similar qualities. These assets defy traditional accounting principles, and perhaps accounting will always ignore them because they are so difficult to quantify. But this shows a flaw in the accounting paradigm, because they affect the value of a company greatly. Perhaps a first step in grappling with this conundrum is to acknowledge that accounting will only partially illuminate the true value of a company.
Intangible assets is a broad category, and the different assets in it each have their own complexities. However, the main thing to remember about them is to not forget that they’re part of the equation and that they need to be considered when you are evaluating a company, a person, or a project.
Don’t forget to join us on our next conversational adventure coming up this Wed: Achieving Intimacy AND Reach Through Social Media! (7pm at Sheppard Mullin Law, 379 Lytton Ave., Palo Alto 94301)(Pre-Registration Tickets ($20)  – on SALE NOW!)

FEB 19th: How Much Is It? (The Nightmare of Valuating Intangibles)

“Every thinker puts some new portion of an apparently stable world in peril.”  – Thomas Dewey, Characters and Events, 1929

ENGINEERS: If you are so smart, why are all the honors club rejects who flunked organic chem…also the ones passing out all the gold?

ACCOUNTANTS: How the heck do you certify that a company without revenue, eyeballs, product, alliance, IP deal, or even a marquis team is worth its valuation on paper? 

LAWYERS: To you, reputation IS gold.  If the initial valuation is too low, then the founders are screwed. If the initial valuation is too high, then future investments may not be possible without a reverse stock split.. which rarely happens.  How do you decide?

ECONOMISTS: If you call youself one, we know you have something to say.

Come find out how the alligator can wrestle with the cobra while the monkey steals back its banana from the cobra’s den, and all three can still come out alive… and winners!

Join us this Feb 19th, at the offices of Pillsbury Winthrop Shaw Pittman LLP:

2550 Hanover Street
Palo Alto, CA 94304

*Refreshments (besides bananas..) will be provided.

Pre-Registration Tickets ($20)  – on SALE NOW!

6:30 – Registration
7:00 – Refreshments & Networking
7:15 – Panelists’ Presentations
8:00 – Panel (moderated by Howard Lieberman!)
9:15 – Wrap-Up (Networking till close at 9:30)


Mr. Jakopin has 24 years of experience in IP litigation related matters. He also advises clients on strategic IP issues and licensing issues, particularly in the context of mergers, acquisitions and investments.

Mr. Jakopin spent the first 10 years of his practice in Washington, DC, dealing primarily with IP litigation matters, particularly those involving complex matters relating to high technology electronics in the patent and trade secret arena. After moving to Silicon Valley in 1997 to lead the efforts in building the firm’s IP practice there, he expanded his practice to also include strategic IP matters for the firm’s private and public companies. He was the head of the Silicon Valley IP Group from 1997-2003.

With a strong technical background in electronics, Mr. Jakopin brings a unique combination of talents when litigating IP disputes, having particularly significant experience in Reexamination proceedings relative to technically complex electronics matters. This technical background also proves highly valuable to clients on licensing strategies, intellectual property acquisitions and sales, IPO’s, cross-border issues and other strategic IP issues.

In addition, Mr. Jakopin has broad experience on matters that have an international focus. Over his career he has spent significant time in Europe and Asia dealing with a wide range of IP issues, and continues to represent multinational companies as well as those based in the United States.

Mr. Jakopin is a member of the U.S. District Court for the Northern District of California Intellectual Property ADR panel and is a member of Arbitration and Mediation Committee of the American Intellectual Property Law Association. He has also served from time to time in the capacity of an expert witness.

Founder & CEOSilicon Economics
Joel Jameson, founder and president of Silicon Economics, is an economist. His specialty is developing and applying mathematical computer models to enhance economic decision-making. He has developed and enhanced software systems for bank merger and acquisition evaluation, residential mortgage-portfolio valuation, cost accounting, probabilistic electrical-generation costing, national accounts (import/export), manufacturing and construction scheduling, strategic weapon systems, and consumer preferences. Some of his consumer preference work was with Richard Johnson, a primary developer of consumer choice modeling, and Booz-Allen & Hamilton.

Mr. Jameson founded Orchard Associates, Inc., a software company specializing in market research software, which was subsequently acquired by a British multinational, AGB Research.

Mr. Jameson is an advocate for accounting reforms, with commentary appearing in The Financial Times, Accounting Today/WebCPA, and Research in Accounting Regulation.

Mr. Jameson studied postgraduate economics at the University of Chicago and has an A.B. in Mathematics and Economics from Occidental College. He served as a Peace Corps volunteer in the Fiji Islands, heading the trade section of the Bureau of Statistics. He was an All-American distance runner in college and currently runs.

A member of the American Accounting Association, the Small Business Entrepreneurship Council, TechAmerica, and the Silicon Valley Intellectual Property Association, Mr. Jameson resides in Los Altos, California.

Founder & CEOAdvanced Bitnology
Neil Sherman has years of expertise developing products containing all kinds of embedded processors. Neil is an Embedded Systems Consultant specializing in getting the most out of a little and excells especially in the area of low power.

Neil is one of an informal team of independant consultants who regularly work together and can bring a high level of skills and competancy to most any project.

Neil spent 11 years as Druck’s first software engineer and developed the firmware and electronics for a range of Digital Pressure Calibrators, Controllers and Instruments. Druck (now part of GE) has become a name synonymous with precision pressure measurement and calibration. After moving to the USA, Neil founded Advanced Bitnology, a software, firmware and product development consulting business and has helped launch many commercially successful products including Swiss Army Startech Altimeter Watches, Robotic ICU beds, Implantable Medical Devices, Control and Image Processing Systems for BD’s Flow Cytometers (biological cell sorters), various Temperature and Environmental Dataloggers, Robotic Material Handlers, TrailTech’s Vapor and Vector ATV computers, Pickering Labs’ Pinnacle HPLC Liquid Chromatography system, Tag-Connect and many other successful products.

Neil was a Hi-Tech Certified Consultant (now incorporated into Microchip’s Design partner program) and specializes in MCU development using various families of MCU including PIC, MSP430, ARM CM3 for ultra-low power applications, Real-Time Systems, C/C++, ARM, Windows, Device Drivers, Communications Protocols, USB, Zigbee, TCP/IP, Floating Point math implementations, and has specialist 4-bit EPSON MCU expertise.

Pre-Registration Tickets ($20)  – on SALE NOW!

OCT 3rd 2012 (recap): Greased Lightning!

A car can be sexy in the same way a person can be sexy — although the trait is a bit harder to define when you’re talking about sheet metal versus flesh. Part of a sexy car’s appeal is purely physical: proportions and curves, size and muscle. Humans have eyes, lips and hips; cars have headlights, grilles and fenders. But then there’s the truly intangible — the animal attraction that turns mere mortals into drooling buffoons. For this, a machine must be bold, distinctive and aggressively elegant. And there’s the sound, too — a car’s voice. A beautiful car you admire. A sexy one you desire.” – Marc Lachapelle

At SVII this month, we parted the curtains of Angelica’s Bell Theatre with an opening act by German “comedian”, Sven Beiker, also known as the Executive Director of CARS (Center for Automotive Research at Stanford):

Sven had started his illustrious career at BMW, stationed at a variety of locations including the BMW lab here in the Silicon Valley. The CARS institute currently deals with a lot of the electronics research, mechanical engineering, and even legal aspects of cars. Among the interesting tidbits that Sven shared are innovations in the area of secondary use for car parts (such as the battery), especially relevant in light of the relatively short 13-year lifespan cars have to their manufacturers; These folks seem to also be carving a space in the legal and governmental playgrounds as well. After an energetic Q&A, we lifted our glasses to Sven, as he waved goodbye to celebrate German reunification day.

Our intermission was provided by Jessie Chen and Roland Van der Veen – a swing dance showcase with a little bit of cheek and sass to the program’s namesake musical hit “Greased Lightning”:

Missed it? You can check out the original video here:

Next up was Peter Oliver of Switch Vehicles, located in Sebastapol (just across the Golden Gate Bridge):

From a background in software and hardware, Peter had decided to combine his passion for cars and his propensity to have fun into a new project involving electric power conversion. His aspiration? To make an automobile with a 100 mile range, that can carry 3 to 4 people, and cost only $15,000. And thus, “The Switch” was born.

The Switch is a three-wheel vehicle with 33% of the weight on each tire. (The decision to use 3 wheels was inspired by the desire to be classified by the FMVSS (Federal Motor Vehicle Safety Standards) as a motorcycle.) Putting his business sense to work, Peter also realized that the hardware industry could give him an edge by allowing him to buy standard parts, and farm out more specialized components to contract manufacturers. The audience was dazzled by the Switch’s many possible configurations… and even superhero qualities, such as one version’s ability to carry 600 lbs of hay. In addition, the building of the Switch also leaves its mark as the crux of various training programs for high schools and prisons.

Finally, Brad Templeton, Google’s car consultant and board member of the Electronic Frontier Foundation painted a vision of Robocars:

At first, he cited the many reasons why cars really should be automated and electronic. For example, humans are bad drivers and 34,000 people are killed in America and 1.2 million worldwide every year as a result, many useless hours are spent driving in traffic, 25% of CO2 emissions today are from cars, and 8 cents per mile is continuously being spent on accidents and even more on gas. He also demonstrated that 60% of the land area in LA is dedicated to cars from driveways to parking lots to highways. Brad suggested that if we had small electric robocars they could be called up whenever they are needed, they can also self park 3X tighter and in areas that are mostly out of sight. For this seemingly futuristic system to be implemented, the AI systems needed are not the omniscient ones of science fiction lure, but actually rather simple collision avoidance systems that are fairly attainable. Brad also showed a convincing video of a Google robocar picking up and driving a blind man to and from the store without any human intervention. The video was created by Google-hired Stanford students who had won the DARPA challenge for off road and urban driving, the day after Gov. Jerry Brown signed into law the legal ability to have robocars on the road.

We ended the evening with a lively panel discussion moderated by Max Sims (our auto-savvy presenter from the Images Speak event):

…and discussed issues ranging from the business models around car and battery ownership, to the Minority Report scenario of being betrayed by your robocar. (And can a Jewish man have a robocar drive him to the temple on the Sabbath?)

All in all, our impressive cast of speakers presented compelling perspectives on how the Silicon Valley is innovating in the area of transportation, and in the spirit of SVII, each broke out of conventional thinking in his own unique ways.

Be sure to join us on our next adventure: Design for Experience! (Innovations in User Experience and Product Design)

Pre-registration Tickets ($20) on SALE now!