I visited the entrepreneurs week at Stanford this week where many MBAs were walking around with new business ideas. Since we raised a fair amount of money ourselves in the last 10 years we've been focused on startups, I wanted to give some advice that may be helpful to any first time entrepreneur:

1) Define the end goal of the company in a newly defined market
The determination of pre-money valuation, even for the first round, should be based on the disruptiveness of the company when it grows up. The goal is to find the investor that understands the path to that goal, not an assessment of the current value of the company. The starting valuation then becomes a reverse calculation from that goal.

2) Don't set a valuation, but have one in mind
The valuation is usually suggested by the investor, but ofcourse, you don't have to take it. Ask your potential investor to value the company after you give them the pitch, the outcome of that tells you whether the investor really understands your unique proposition. If it is too low, it may be because the clarity of your pitch. If not: walk away.

3) Have an operating plan ready
An operating plan defines how you turn technology into a business, without it there is simply too much room for debate and depreciation. Show investors you know how to run the business. The more you do the easier it is to cement your use-of-proceeds.

4) Find an investor you truly like
Every entrepreneur deserves to be treated with respect. Waste no time talking to deep pockets with awful personalities, but don't be afraid to get some straight talk. Check TheFunded.com for war stories and ask around. Later, when business gets tough bad guys usually get a lot worse.

5) Define business disruptiveness
Building technology is one thing, but yielding a disruptive business value is even more relevant. The latter is defined by macro-economics, not just a more clever way to improve existing technology.

6) Take passion over domain expertise any-day
Find a lead investor that has passion for the business problem you are about to solve. An investor that claims to have domain expertise is usually the one that doesn't understand disruption within or across that domain.

7) Don't get squeezed
Investors like to put investments into past investment categories and make an assessment of how much it costs to build your business. Don't let them stray too much from what is in your operating plan, if you do you will get punished for it later, both on the execution side as well as in excessive dilution.

8) Know the investment allocation
Usually a little harder to do with angels but VCs should have a total investment amount allocated to the business. Ask them for the total allocation upfront, so you know when you need to go shopping somewhere else. Also, don't be afraid to ask who else needs to sign off on this deal within the VC firm, in most cases it is a very democratic process internally with a primary sponsor. After your first meeting you should get in front of a General Partner, talking terms.

9) Control your own eco-system
Investors like to wiggle around and determine how much money should go into R&D, Sales, Marketing, Business development, Support and G&A. Too much money in marketing is usually an indication the product or service lacks real viral adoption and that should be avoided. If the balance of this eco-system is not guarded heavily by the entrepreneurs the result is an excessive bleeding and further dilution in subsequent rounds.

10) Balance your board
A board without a balance of technical and business expertise can really bring a company down when the going gets tough. The technical board members will spend too much time validating deep technology progress without real affinity for the bottom-line. On the flip side a demand for too early revenues can have disastrous effects on product or service readiness and customer experience. Keep them both in check.

Be honest and transparent, too much talk without real interaction with a prospective investor is a bad sign. Paint a realistic risk-management picture, in which you describe both the pluses and minuses, not unlike the way a VC sells their risks in a Private Placement Memorandum (PPM) to its limited partners. Feel free to e-mail us if you need help.

Tags: Investment, VC, Angels, Markets, Eco-systems, Business Model, Innovation

Getty-Images pulled it off as we indicated would happen, and sold itself to private equity group Hellman & Friedman LLC in San Francisco (and the "network of the private equity group" which apparently includes the Getty empire) for a little over 2x revenues, assuming also an additional $300M in debt. Someone clearly felt that was an accurate price for its organic growth business: "Wall Street was paying more attention to the stagnating core business than to its emerging segments."

Indeed, non-organic growth is hardly ever a sustainable endeavor, lacks core competency and focus and often hides many skeletons in the closet. Now the fun part of discovering its real value starts, although the company does not forecast a lot of changes according to this interview with Jonathan Klein, Getty-Images' CEO and PDN. We could suggest a few fundamental changes along the lines of my blogs and then some.

But anyway you cut it, this will turn out to be good for photographers and the market. New competitors will spring up and VCs will now perhaps see the value in supporting imaging marketplaces. So for that, we need to congratulate Getty-Images.

Tags: Getty-Images, Investment Banks, Revenues, Wall-Street, Debt, Organic growth

I bought the Apple TV the moment it came out about 9 months or so ago. Initially surprised by the tethering requirement to a computer running iTunes, I used it quite a bit as a giant picture frame (showing off on a 50" plasma), playing music during parties and watching kids shows with my daughter. Now, with Take 2, Apple has stepped it up and provides HD quality movies (and 5.1 Dolby Digital audio) and, less talked about, removed the need for a separate Airport Express to stream any iTunes audio through your Entertainment center.

But very interesting to see is how a technology called Bonjour (formerly Rendezvous - 13 year old Apple technology, first available in AppleTalk) automatically finds and connects iTunes capable devices on the network and staving off the need for central media management. And it does so quite well and transparently. Movies, music purchased on the Apple TV show up on the iTunes on your laptop and vice versa. When Comcast showed off a central media server for the home at CES 2007 that could stream content to any of your cable connected devices, I thought it was going to give Apple a run for its money on the movie rental business. But more than one year past and still product from Comcast in sight. Don't even start about the current Comcast DVR mess, possibly the worst UI experience I've ever encountered (the Tivo deal may ease the pain a little, but the early news is not encouraging). With Apple TV, no more runs to Blockbuster, or mailing DVDs to and from Netflix, just sit at home and watch whatever you want.

What I admire most about Apple is its ability to not just create new products but that it adjust its business and operating model so those products can succeed. That is a gift bigger companies like Oracle (my former employer) and Microsoft can learn from. Media and content are the new Consumer Packaged Goods of this century and if technology vendors don't invest in the ecosystem around it their technology solutions will continue to yield mediocre user experiences and sub-par adoption.

In converging media markets, the new leaders are going to be the ones that build disruptive business models first and great technology products to support that, second.

Can't wait for Apple to strike a deal with Comcast and similar to the iPhone strategy, replace the Comcast DVR with an Apple TV capable of receiving regular broadcasts as well as tap into the power of iTunes. All Apple needs to do is use its cash war-chest to "threaten" ComCast to go at it alone, just like it "convinced" AT&T it would be better for AT&T not to let Apple become a Mobile Virtual Network Operator.

Tags: Apple, Broadcast, Comcast, Consumer Packaged Goods, DVR, Netflix, Media, Entertainment, ITunes, HD, Mobile

We could debunk every statement Getty-Images made with regards to its recent earnings call but we've essentially done so in our extensive blogs about the company. Apart from the negative outcome of the call, we instead want to highlight the systemic attitudinal problem of the company.

First off, Getty's success is based on the fact that it believes it can predict how images (or other media assets) are going to be used by the buyer. It continuously re-purposes images and image rights to meet a supposed buying trends it is never going to be able to predict. With massive changes in photography Getty has frequently trailed trends rather than enabled them. The usage of the image should be determined between seller and buyer, with Getty's infrastructure merely supporting that transaction.

Second, the usage and type classification in the earnings call is the kind of double dipping I've seen many companies in trouble do. There is a dramatic overlap between editorial, creative, rights managed, royalty free, royalty ready and a myriad of other popular image definitions. The sole metric of success for the company is number of images sold at what ASP, and at what cost. No Wall-Street investor will be able to make sense of the fog Getty has put up in the conference call to hide the fact that organic growth is miserable.

Third, Getty arrogantly describes their (lackluster) performance as the market trend, as if they are the market. No, Getty, the market of image usage is actually growing faster than you are able to support. The real news is that Getty is losing market-share.

The lack of transparency makes Getty-Images an un-investable business, both from a market and acquisition perspective. The bottom line from the call simply confirms that, forget about everything in-between.

Tags: Getty-Images, Growth, ASP, Wall-Street, Content, Organic growth, Investment Banks, Images

While there may be some value left in Getty-Images, remodeling an "old-house" in this case appears to be much more expensive than building a new one. We just completed a formal business plan to build a real photography marketplace for less than $5M first round (est. $13M total, less than 1 fiscal quarter of Getty's capital expenditures, to shed light on Getty's inefficient business model).

The "body" of the Total Addressable Market is $22B / year, ignoring the size of the Long Tail of photography Getty-Images has no penetration in, we will. So, a $13M investment would yield $600M in annual revenues based on 30% market-share (even if we were to cover "the body" only). A darn good business, and best of all, it will help great new photographers get "free" and transparent access to buyers. So good karma too. The walled gardens of the imaging marketplace will be torn down. Call or e-mail me if you want to play.

Tags: Getty-Images, Free-market, Funds, Photography, Long Tail, Marketplace, Markets, Revenues

Apple has just released Aperture 2.0 today. A nice product to manage your photographs has gotten even nicer. But -- there should not be a need for Aperture.

Digital asset management, which is the predominant function of applications like Aperture and Adobe Lightroom, should not need to exist, especially not if you are Apple. If Steve Jobs were to take his own media hub strategy serious, advanced asset management capabilities should be available right in the file-system, as a function of the OS. Asset management for photographs is why people buy computers today, so why still does a separate application need to deal with our most precious assets. Incremental revenues perhaps?

Today's proprietary photo management systems eat disk space like nothing else. Non-destructive editing is supported by making superfluous copies of originals (especially when using an external editor). The derivatives are usually many times larger in size than their originals (especially when stored in TIFF or PSD), which forces you to stock up on hard disk space. I will keep using LightZone as my main photo editor and save precious disk space by leaving my photographs right where they are. Can't wait till the operating system innovates and supports photographs natively.

Tags: Adobe, Photography, LightZone, Aperture, OS X, Asset Management

Getty-Images appears to be having trouble getting sold for $1.5B according to an article in The New York Times today. Perhaps the 40+ investment banks on Wall street and an equal amount of large private companies that visited our website really took our Puffer Fish analogy to heart.

So what could be done with Getty-Images? The problem with finding an acquisition partner is Getty-Images' hybrid business model. For a technology acquirer the services business with staff photographers is a burden they will not want to swallow. On the flip side, very few other services companies than perhaps the Associated Press can find solace in the photographer factory that is an integral part of Getty-Images.

1/ Buy company at a decent value
2/ Separate content producer business from content distribution
3/ Privatize each
4/ Sell content production business
5/ Revamp content distribution

ad 1/ To establish a fair price I am eager to see the operating plan metrics separating content production from content distribution in order to find out to what extend both lines of businesses have suffered from being under one roof (there may be some opportunity hidden in there)

ad 2/ Content production is a business model that, in today's world, needs to be separated from distribution. With the internet in place as the conduit for distribution, very few company can still afford to compete with the content produced by a "free-market". There is some remaining value left in the production of "premium" content for a "premium" audience, in the same way the Associated Press is able to provide this service to a confederation or co-op of newspapers.

ad 3/ Build companies that focus on what they do best, one produces content - one distributes it. Not within a single company or P&L or board. Each with its own growth trajectory.

ad 4/ Just like in the "premium" production of news articles (where bloggers compete), the news media will require a "premium" production of editorial photographs that has some trust associated with it. Perhaps a deal can be struck with AP - or a new version of AP can be created with identical goals. Getty-Images already has established a large installed base of agencies who can lease resources on a subscription basis.

ad 5/ Long term, content distribution is where the money is. The Long Tail of photography is massive, much larger in total image exchange than any Super-Store will ever be. Thanks to the Internet. But to build an effective free-market, a core of premium supply is needed to create its initial pull, Getty-Images certainly has that. To make this new company a winner though, it needs to truly support free-market principles, something very few companies can pull off.

We'd be happy to assist in the assessment of the Getty-Images acquisition value along the lines of the aforementioned strategy and even more in the post-acquisition execution. Our passion for photography, the ever increasing reach of the internet, and the value produced by all photographers around the world creates a fantastic new opportunity.

Tags: Getty-Images, Wall-Street, Investment Banks, Associated Press, puffer fish, Hybrid, Business Model, Content, Premium, Bloggers, Free-market, Super-Store, Long Tail

So, if you've read my blogs on the imaging market here .... why would you plunk down $1.5B to acquire an Image Super Store like Getty-Images (alias Getty).

Consider this:
1/ Non-agency images are always owned by photographers not by Getty
2/ Getty's assets can vaporize quickly, photographers can switch their assets to a better marketplace instantly
3/ The vast majority of images in the world are not transacted through Getty
4/ Getty qualifies premium photographers not premium images
5/ Getty needs to cannibalize its business model in order to meet the Long Tail market requirements
6/ Getty is diluting focus to higher margin media like film and music, fat chance
7/ Getty has the expensive overhead of an agency, with declining image ASPs
8/ Hundreds of new and competing sites indicate Getty's non-supremacy

There is value in Getty-Images, as an agency or as an image store, but I would not put two diametrically opposing business models on the same P&L. Neither one is worth $1.5B. The imaging Puffer Fish is about to deflate.

Tags: Getty-Images, Super-Store, ASP, Agency, Images, Photographers, Media, Margin

The Puffer Fish of the imaging market, as described in my previous blog have large volumes of fleeting image assets. Yes, dear Wall-street analyst, they may have been experiencing double-digit growth temporarily but we believe that originates from non-organic growth and growth attributable to the incorporation of that non-organic supply into the global brand, in Getty-Images' case for example. If you keep buying stock photography companies you delight existing buyers with an ever increasing supply, but the novelty of that supply wears off real fast. In the end that apparent growth comes at a high cost. So witnessed by the most recent disappointing earnings reports.



Jupiter-images is literally pursueing an image super-store strategy, a copy of Getty-Images' strategy. They too have been buying stock companies. Stock companies strike deals with photographers to create a good looking selection. Yet most images have a value that is completely photographer agnostic. The value is in the photograph, not the photographer. So, a super-store of images by definition contains a small amount of sellable images.

But the real interesting fact about the imaging industry (and many related to it) is that all images have fleeting value, especially after they have been sold for the first time. Photography is the ultimate Long Tail market, with a very, very long tail and a tiny body. A great reason why any player with a "premium" imaging strategy is relegated to selling to very small and concentrated set of buyers.

Not unlike the music industry where we are used to buying music collections on CDs, a large part of the stock photography market still sells collections of photographs to artificially increase the number of images sold and the average sales price (ASP) per image. As a result, investors may think the ASP is somewhat stable and predictable and the value of the super-store may not be as grim as it seems. But Super-stores will never contain enough image variations to meet Long Tail demand. As a result, commissioned photography is still going strong.

Most photographers that produce sellable images still sell their images offline and commissioned. The ones that do sell online, literally use a total of hundreds of photo-sites today to tap into a Long Tail demand. All these factors are hardly evidence that Getty Images is indeed meeting the needs of the photography market.

On a side note: MacNN reported this week that Adobe has halted its stock photo library, perhaps it is getting ready to buy Getty-Images? I think they are smarter than that.

Tags: Getty-Images, Wall-Street, Non-organic, Stock, Earnings, Long Tail, Premium, Images, ASP, Adobe, Stock, Super-Store