On July 23, 2014, Facebook reported its Q2 2014 earnings, blowing away expectations on the top and bottom lines. Revenue went up 61% to nearly $3 billion and earnings per share were $0.42 — 12 cents more than analysts predicted.
Facebook's gross margins increased dramatically. In essence, the company makes way more in sales this year than it used to, but its cost-base for generating those sales increased only modestly. Income from operations was a staggering $1.4 billion — this time last year it was just $562 million.
The stock went up and flirted with $74, a rise of 4%, after the market closed, hitting an all time high.
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Here are the highlights:
Revenues: $2.91 billion (analysts were expecting $2.81 billion). That's a nice beat.
EPS non-GAAP: $0.42 (analysts were expecting $0.32) that's also a good beat.
Monthly active users (MAUs): 1.32 billion, up 14%.
Mobile MAUs: 1.07 billion, up 31%.
Mobile revenue was 62% of ad revenue.
To give you a better idea of just how well-run a business Facebook has become, here's the top of the income statement. I've highlighted the way margins are expanding dramatically:
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And now for some charts!
Revenues: (Remember when people used to say Facebook has stopped growing?) Sales were up 61%:
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This is where that revenue comes from. America and Europe leading the way:
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Here's the picture regarding the users. Facebook added 41 million users last quarter:
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Facebook's mobile-only base is still growing:
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The following audio is from a conference call between Mark Zuckerberg, CEO, Facebook, Sheryl Sandberg, COO, Facebook and David Wehner, CFO, Facebook and Wall Street stock analysts that was recorded on July 23, 2014 beginning at 17:00 PM ET. This audio was previously a live stream, and can be replayed anytime.
Raj Rajaratnam, Galleon Group fund manager and co-founder, is arrested by U.S. marshals at his office in Manhattan in October 2009 for alledged violations of fraud and insider trading laws (Click Image To Enlarge)
Chiesi, who did a 15-month stint at a West Virginia prison camp for passing illegal stock tips to hedge-fund manager Raj Rajaratnam, returned in January to New York City and has been living at a federal halfway house in the north Bronx.
A svelte Chiesi, wearing a white sleeveless peplum top, jeans and pink and white scarf, said May 16 as she left a residence she shares with other newly freed prisoners. (Click Image To Enlarge)
She said of her new found freedom from federal prison on being found guilty f fraud and insider trading laws.
“It’s good to be back. I feel good. I feel great.”
The halfway house in the Bronx New York where Danielle Chiesi will spend six months in a community-based 're-entry' program before being placed on two-year probation. (Click Image To Enlarge)
Chiesi, giving her first post-prison interview, is one of more than 70 stock traders, analysts, lawyers and executives who have been convicted of insider trading since August 2009.The former teenage beauty queen, who once showed up at technology conferences wearing form-fitting clothes and low-cut tops, is among the most flamboyant defendants to be ensnared in the sweeping federal crackdown.
Two years ago Raj Rajaratnam, co-founder of the Galleon Group LLC, a NY hedge fund firm, received the longest-sentence ever handed down for violating insider trading laws. (Click Image To Enlarge)
The probe initially centered on Rajaratnam, the Galleon Group LLC co-founder who was convicted in 2011 of conspiracy after an eight-week trial.The Sri Lankan-born money manager, who allegedly earned at least $45 million on tips from corporate insiders, is serving an 11-year prison sentence.
Courtroom drawing shows Raj Rajaratnam, right; assist US attorney Andrew Michaelson, left, and Judge Richard Howell, top right, listening to Anil Kumar witness testimony during Rajaratnam's trial. Photograph: Shirley Shepard/AFP/Getty Images (Click Image To Enlarge)
At Rajaratnam’s trial, prosecutors played wiretapped recordings of his conversations with Chiesi, who worked as an analyst at New Castle Funds LLC in New York. In one, they speculated why another trader bought 1 million shares of Advanced Micro Devices Inc. (AMD) before the public disclosure of a transaction between Sunnyvale, California-based AMD and Abu Dhabi’s Mubadala Development Co. Prosecutors said they had a tip.
Chiesi said on the recording.
“That’s a very bold move to make. Do you think somebody knows what we know?”
Robert Moffat, a former senior executive of IBM whose phone conversations were recorded by the FBI in the Galleon hedge fund insider trading probe, pleaded guilty to securities fraud and conspiracy charges in March 2010 (Click Image To Enlarge)
Chiesi pleaded guilty to conspiracy before the trial and went to prison in October 2011. In her guilty plea, she admitted that she solicited inside tips from technology industry executives. Among them was Robert Moffat, a former International Business Machines Corp. executive with whom she had an intimate relationship, he said in his guilty plea. Moffat got a six-month sentence.
Chiesi said in the May 16 interview.
“I was complicit.”
Chiesi did her time in Alderson, West Virginia, at a minimum-security camp in the foothills of the Allegheny Mountains. Martha Stewart was once jailed there for lying to authorities about her sale of stocks.
Aerial View of Alderson Federal Prison Camp in Wesst Virgnia, the same facility where Danielle Chiesi did her time and Martha Stewart served time for lying about insider trading. (Click Image To Enlarge)
Chiesi’s home was an 8-foot by 10-foot cubicle. Her cellmate was doing time for a drug offense, as were many at the prison. She spoke to family on brief phone calls and tutored other inmates in math. She went running and tried to exercise in a sparse gym that lacked weights.
Chiesi said she earned respect from fellow inmates because she hadn’t cooperated with prosecutors.
“Not being a rat works. I didn’t talk, I didn’t speak, I kept to myself."
Chiesi said of a term she described as “very difficult.” Her cellmate was “an inspiration” who “really helped me get through.”
Chiesi left Alderson in early January after shaving time off her sentence for good behavior and participation in a drug and alcohol program. She headed for the community-based “re-entry” program in the Bronx, where she’ll spend six months before returning to an apartment in Manhattan.
“When my family picked me up, you cannot even believe the feeling. I had my mom, my brother, my sister, my nieces. They drove outside of the Alderson gates, and I jumped out of the car. It was surreal.”
She told her family.
“All I could say was, ‘I did it,’”
Now Chiesi is living on a tree-lined Bronx street that’s a far cry from the tony midtown Manhattan neighborhood that was once home. She has a room in a five-story facility housing men and women which is staffed by security officers guarding the entrance. Nearby are shuttered storefronts and a jeans shop selling $6 tank tops.
Chiesi, who is working for her brother in a job she declined to identify, comes and goes without an escort.
“Life is hard. I didn’t come back to something that’s perfect.”
At her sentencing, Chiesi’s lawyers argued that her former boss, Mark Kurland, co-founder of New Castle Funds, had used their “toxic” sexual relationship to manipulate her into feeding him tips. In the May 16 interview, Chiesi asked about Kurland, who was sentenced to 27 months in the case.
Mark Kurland was Danielle Chiesi's boss at hedge fund firm Galleon Group. On May 2, 2009, he departs federal court in New York after being sentenced to 27 months in prison for fraud and insider trading. (Click Image To Enlarge)
“I want to know what Mark Kurland is doing now.”
Chiesi’s lawyer, Don Buchwald, said in an interview on May 16 that Chiesi must serve an additional two years on supervised release, a form of probation, after she leaves the halfway house.
Chiesi says she’s resilient and is eager to move on with her life.
“I don’t have a career anymore, but I have drive and ambition, and I will make it work. I’m back.”
The case is U.S. v. Rajaratnam, 09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).
COMMENTARY: In a blog post dated May 15, 2011, I blogged about the trial of Danielle Chiesi for fraud and insider trading and how she cunningly manipulated numerous individuals into providing her information that she fed Galleon Group co-founder Raj Rajaratnam to help him make millions on securities trades.
Let's look at the key players in the insider trading trial of Galleon Group co-founder Raj Rajaratnam, and how much money he made from the securities trades.
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He stood trial in U.S. v Rajaratnam (09 Cr. 01184) in the United States District Court for the Southern District of New York, and on May 11, 2011 was found guilty on all 14 counts of conspiracy and securities fraud. On October 13, 2011, Rajaratnam was sentenced to 11 years in prison and fined a criminal and civil penalty of over $150 million combined.
Raj Rajaratnam was found guilty on all 14 charges against him for fraud and violatons of insider trading. (Click Image To Enlarge)
Rajaratnam is a very sick prisoner, suffering from Type II diabetes. Because of his medical condition, as of January 14, 2013 Rajaratnam is incarcerated at Federal Medical Center, Devens in Ayer, Massachusetts, an administrative facility housing male offenders requiring specialized or long-term medical or mental health care. Rajaratnam's release date is July 4, 2021.
The Danielle Chiesi case is absolutely incredible. It's difficult to believe that this bitch went to such lengths like sleeping with her victims to extract insider trader information to make a few bucks. The only other case I can compare it to is fictitious, from the blockbuster film "Wall Street" starring Charlie Sheen and Michael Douglas. In this film, Bud Fox, the a young stockbroker played by Sheen in the film, is hired by Gordon Gekko, a character very similar to Raj Rajaratnam, to get "information," by any means necessary. My only hope is that Hollywood makes a film from Ms Chiesi's exploits. I am looking forward to it, and will cover this bitch's exploits after she is finally given her freedom from justice.
Here's a short video clip of Danielle Chiesi and her attorney Alan Kaufman following her sentencing. Get a load of this bitch.
Courtesy of an article dated May 17, 2014 appearing in Bloomberg
Facebook depicted as the enemy is pecked to death by an armada of Twitter "Blue Birds" (Click Image To Enlarge)
In the early days of Twitter, founder Biz Stone says he turned down a huge offer from Mark Zuckerberg. It is now worth $23bn.
Twitter founder Biz Stone has told how he turned down a $500m (£290m) offer from Facebook to buy the firm – and watched as its value later soared to billions.
He told Sky News Digital View that on October 11, 2011 he and co-founder Evan Williams travelled to a meeting with Facebook boss Mark Zuckerberg several years ago.
Twitter Co-Founders (Left-To-Right): Evan Williams, Jack Dorsey and Biz Stone (Click Image To Enlarge)
Neither really wanted to sell the company, he said, so they decided to come up with a number "so big", that "no-one would ever say yes to it".
He said they came up with $500m, and "laughed so hard at that".
But despite Mr Zuckerberg saying it was a "big number", an offer was drawn-up later that day.
The pair turned it down, saying they felt like they were "just getting started" with the business.
He added that he did not get on with the Facebook founder. He told Sky's Ian King.
"I like him, and I respect him, it's just that we didn't click. I'm a jokey guy and he's a very serious guy so every joke I made – it was a tough crowd."
He also commented on the use of Twitter by extremists in Iraq and beyond, saying he still believed the social network was a tool for good rather than evil.
"When you create a large-scale platform where hundreds of millions of people have freedom of expression, you have to take the good with the bad. If you're going to tout the fact you're encouraging free speech then you can't curate it. As soon as you do that you lose the trust."
He also said the growth of Twitter into a $23bn (£13.5bn) company feels "strange". He said.
"I've come to terms with it but I wouldn’t call it surprised - it feels strange in a good way to go to the shopping mall and see the little bird I drew. It doesn't seem that long ago that we were just a rag tag group of guys."
The book alleges that Zuckerberg first went through "official channels" before approaching Twitter CEO and founder Jack Dorsey with a $500 million deal. (The price was Twitter's, not Zuckerberg's.)
Apparently, Dorsey took a meeting with Zuckerberg and suggested to the board that the deal would be great for Twitter. The board disagreed and later Dorsey was pushed out of his chief executive position to a largely symbolic role. It was then that the other founders, Evan Williams and Biz Stone, had a meeting with Zuckerberg, too.
This was in October 2011, just before Twitter was a household name, so saying no to $500 million took some chutzpah -- or arrogance, but the board believed it was a "billion-dollar company." However, the rumor was that Zuckerberg told the Twitter founders that they needed to sell to Facebook or deal with a "clone" that his company would create and strangle Twitter in its crib.
The Road To Twitter's IPO
On October 3, 2013, San Francisco-based Twitter filed its S-1 prospectus for an initial public offering seeking to raise $1 billion. Twitter pegged the fair value of its common stock at $20.62 a share in August. According to an unnamed source familiar with the IPO filing, this gave Twitter an implied book value of $12.8 billion based on the 620 million shares outstanding. The share price was 28.6 times Twitter's annual revenues compared to Facebook's 26 times revenues and LinkedIn's 14.5 times annual revenues during their IPO's.
The following infographic tells everything you need to know about Twitter at the time they filed for their IPO with the SEC:
Twitter -- The Road To The IPO (Click Image To Enlarge)
On November 7, 2013, Twitter's had its IPO. Shortly after the opening of trading, Twitter Inc. (NYSE:TWTR) shares rose 73 percent in a frenzied trading debut that drove the seven-year-old company's value to $25 billion and evoked the heady days of the dot-com bubble.
The stock closed its first trading day at $44.90 a share from the initial public offering price of $26 set late on Wednesday, falling back from a near-doubling in price at a session high of $50.
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Investor enthusiasm for the microblogging company defied traditional valuation analyses. The shares traded at about 22 times forecast 2014 sales, nearly double the multiple at social media rivals Facebook Inc and LinkedIn Corp, even though Twitter is far from turning a profit and posted a loss of almost $70 million for its most recent quarter.
Yet fans believed that Twitter, which boasted it had 230 million users globally and had revenues of $253.6 million for the first six months of 2013, and $316.9 billion for the year ending December 31, 2012, had established itself as an indispensable Internet utility, alongside Google Inc and Facebook, and that it has only scratched the surface of its potential as a global advertising medium.
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Mark Mahaney, an analyst at RBC Capital Markets, said.
"When people use Twitter they are following certain people, they're searching for specific information. There are powerful marketing signals that are almost Google-esque, something that Facebook doesn't really have."
The IPO was shadowed for months by Facebook's troubled 2012 debut, in which the shares quickly fell below their offering price amid trading glitches and subjected the company and its lead banker, Morgan Stanley, to accusations that they had been greedy in pricing the deal.
Twitter's opening appeared to go off without a hitch, prompting Anthony Noto, the Goldman Sachs banker who led the IPO, to write a simple Tweet: "Phew."
Still, Twitter found itself subject to the opposite criticism, that it had priced the shares too low and left more than a billion dollars on the table.
Ken Polcari, director of the NYSE floor division at O'Neil Securities, said.
"In my mind they certainly could've raised the price on this thing and gone into the low 30s. From an outsider looking in I would say they were overly cautious because they didn't want a disaster on their hands ... I'm sure the company didn't want a Facebook debacle, I get that, but I think they were overly cautious and it cost them some money."
Heavy demand for the IPO shares was apparent before the final pricing. Market sources said investors had asked for 30 times the 70 million shares on offer in the IPO, representing about 13 percent of Twitter's outstanding common shares.
Twitter could've raised $2.1 billion if an underwriters' over-allotment had been exercised making it the second largest Internet offering in the United States behind Facebook Inc's $16 billion IPO in 2012 and ahead of Google Inc's 2004 IPO, according to Thomson Reuters data.
The NYSE, which snatched the listing away from its tech-focused rival, Nasdaq, marked the occasion with an enormous banner with Twitter's bird logo along its Broad Street facade.
Twitter executives including Chief Executive Dick Costolo and the three co-founders - Evan Williams, Biz Stone and Jack Dorsey - appeared on a packed exchange floor to witness the debut.
Twitter CEO Dick Costolo (far right), and co-founders Jack Dorsey, Evan Williams and Biz Stone (l-to-r) cheer as trading begings on the floor of the NYSE. (Click Image To Enlarge)
At current valuations, the stakes owned by Williams and Dorsey would be worth around $2.7 billion and $1.1 billion, respectively. Costolo, who invested $25,000 in the fledgling company in 2007, holds a 1.4 percent stake worth about $360 million.
They hefty valuations were cause for celebration for some insiders but they sounded alarm bells for some investors who cautioned that the froth was unwarranted.
Pivotal Research's Brian Wieser wrote in a note cutting his rating on the stock to "sell" from "buy".
"With a price that pushes into the high 30s and beyond, Twitter is simply too expensive. One way to justify a $45 price in our model would involve presuming that Twitter could generate more than $6bn in annual revenue by 2018. However, we think that would seem overly optimistic."
British actor Patrick Stewart, of Star Trek fame, rang the opening bell at Big Board together with nine-year-old Vivienne Harr, who started a charity to end childhood slavery using the microblogging site.
Stewart said, adding that he had only been tweeting for about a year.
"I guess I represent the poster boy for Twitter."
In San Francisco
At Twitter's headquarters in San Francisco, offices opened early and hundreds of employees flocked to the 9th floor cafeteria to watch the festivities on TV while eating "cronuts," a croissant-donut hybrid, made by Twitter's resident chef, Lance Holton.
The public debut was the latest milestone for a service that was born out of a nearly-defunct startup in 2006 and was derided by many in its early years as a silly fad dominated by people talking about what they had for breakfast.
But Twitter quickly began to penetrate popular culture in unexpected ways, with its open design and broadcasting format attracting celebrities, athletes, politicians and anybody who wanted to share short, punchy thoughts with a digital audience.
Its business potential developed more slowly, and the company appeared to be floundering as recently as three years prior to the IP, when it was riven by management turmoil and frequently crippled by service outages.
Under Costolo, who took over as CEO in October 2010, the company rapidly ramped up its money-making engine by selling "promoted tweets," messages from marketers that are distribute to a wide-ranging but targeted group of users. In the third quarter 2013, Twitter made $168 million in revenue, it said, more than double the third quarter 2012.
The company said in its investor prospectus that more than three-quarters of its users were outside the United States. Despite its early reputation as a hangout for Silicon Valley early adopters and tech geeks, some of its most active markets now include Japan, Indonesia, Brazil and Saudi Arabia.
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The three most-followed accounts belonged to a trio of pop stars: Katy Perry @katyperry, Justin Bieber @justinbieber and Lady Gaga @ladygaga. (U.S. President Barack Obama@barackobama came in fourth.)
P.J. Crowley, the former U.S. State Department spokesman, said.
"Twitter has, when coupled with the increasing distribution of smart phones and reach of the Internet, an impact on global connectivity and transparency. It has definitely contributed to the acceleration of the news process and helped to expand the availability of information sources to a wide range of people."
The 140-character messages have spawned an Internet culture of its own. The "hashtag," a pound symbol devised by early Twitter users to denote the topic of a conversation, has became ubiquitous, with the word even becoming an ironic expression parodied by the likes of "Saturday Night Live."
As Twitter's stock soared after the opening, the company's market value, including restricted share units and other securities that could be exercised in the coming months, was over $28 billion.
Fund managers who got small allocations at the IPO were hopeful the stock would trade down after Thursday's pop.
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Mark Hawtin, portfolio manager of the GAM Star Technology Strategy, said.
"We have a target of $40 and we won't buy more as long as it is trading above that."
Jerry Jordan, manager of the $48.6 million Jordan Opportunity Fund, who got a small allocation, said he would buy more of Twitter if it trades down around $30-$35.
"A lot of these sexy IPOs have a big pop on the first day and then they grind sideways."
Twitter's successful debut is likely to stoke interest in other up-and-coming consumer Internet companies such as Uber, Pinterest, Airbnb and Square, all of which boast private-market valuations well north of a billion dollars and could go public in the coming years.
Still, two early social media success stories, Groupon Inc and Zynga Inc, have suffered major reversals since going public last year. Groupon, despite big gains in its shares this year, still trades at less than half its 2011 IPO price. Zynga is worth about a third of its 2012 IPO price.
And first-generation social media firms such as MySpace have all but vanished as fickle users moved on to the next big thing.
On April 29, 2014, Twitter released its first quarter financial performance, reporting revenues of $250 million for the quarter, a net loss of -$132.4 million, and earnings per share of $0.00 on a non-GAAP basis. The street had expected Twitter to report revenue of $241.5 million, and a three cent per-share loss.
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That non-GAAP $0.00 EPS is slightly occlusive — the company in fact had non-GAAP net income of $183,000 in the period, or about the cost of one engineer’s yearly cost to a tech company. However, when you stretch $183,000 across more than half a billion shares, it doesn’t go far.
Twitter’s revenue is up 119% year-over-year. On a GAAP basis, Twitter lost a stunning $132 million in the period. That amounts to a GAAP net loss of $0.23 per share.
Twitter Net Losses Pile-up
Twitter has yet to generate a net profit in any quarter since it began operations. For the years ending December 31, 2013, December 31, 2012 and December 31, 2011, Twitter reported net losses of -$645.3 million, -$79.4 million and -$164.1 million respectively. Twitter also reported a net loss of -$132.4 million for the 1st Quarter ending March 31, 2014. All together, Twitter is carrying cumulative net operating losses of $1.127 billion since it began operations in 2006.
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Twitter Operating Expenses
Twitter operating expenses during the 4th Quarter 2013 were a record $752.4 millon -- exceeding the combined total of $548.4 million spent during first three quarters of 2013. Most of this went into research and development (R&D) and sales and marketing expenses. These two constitute the majority of Twitter’s operating expenses and stood at a combined 62.5% of revenue in 2013.
Twitter’s R&D expenses as a percentage of revenue has come down from a massive 91.7% in 2010 to about 32.2% in 2013. However, the figure stood way above Facebook’s 9.6% which suggests that the company has a long way to go in terms of improving monetization and reducing the cost burden.
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Twitter’s sales and marketing expenses as a percentage of revenue increased from 21.4% in 2010 to about 30.3% in 2013 as it ramped up its sales force to sell ad inventory slots and acquire customers. In comparison, the figure for Facebook stood at around 10.5% during the same year.
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Twitter reported that it had 255 million monthly active users. In the sequentially preceding quarter, Twitter had reported 241 million monthly active users. That’s growth of 14 million in the three-month period, or around 5.8%.
Twitter Monthly Active Users
While sharing its financial results for its first quarter 2014, Twitter announced a number of new milestones that showed the service’s user growth has slowed while its mobile advertising share has grown. The social network has now passed 255 million monthly active users, 198 million of which were monthly active mobile users as well.
The company’s monthly active user count has only grown 25% in the past year. Monthly mobile active users have grown by 31% in the past year. However, this growth remains modest. 78% of Twitter’s users access the site from a mobile device. Investors appeared concerned that despite quickly expanding revenue, Twitter’s days of massive user growth were over. That meant lower future top and bottom line growth.
Twitter Share Prices
When Facebook went public in May 2012, the company's shares were priced at $38. On the first day of trading, the stock price didn't jump as anticipated and would likely have fallen below the IPO price of $38, if the IPO's underwriters hadn't stepped in to support it. In subsequent weeks though, the share price quickly fell below $30 and continued to slide for months. It took the stock more than a year to return to its IPO price, clearly indicating that the IPO had been priced too high by Facebook's underwriters.
18 months later, Twitter, having witnessed first hand how hard Facebook's reputation had been hit by its disappointing IPO, was desperate to avoid making the same mistake as its big rival. The company's IPO was priced at $26, which was above its initial price range, but still modest according to many experts who anticipated massive demand for Twitter's shares. When Twitter finally made its trading debut on November 7, the share price jumped more than 70 percent, creating a lot of positive press for the company. The fact that Twitter's shares have continuously traded above $40 since the IPO and are currently approaching $50 indicates that conversely to Facebook's IPO, Twitter's IPO was significantly underpriced.
In the end it seems that Twitter avoided Facebook's IPO mistake, overpricing, by making another mistake, underpricing. To figure out which is worse, one needs to remember what the goal of an initial public offering is. Normally, a company goes public in order to raise money that can be invested in the company's growth. By pricing its IPO very high, Facebook squeezed every dime out of the investors waiting eagerly to get in on the hottest IPO of all times. The company ended up raising more than 16 billion dollars in return for lot of bad publicity and some disgruntled investors. Twitter chose the opposite route. Selling 80 million shares at $26 a piece, the company raised $2.1 billion when it easily could have raised more. Assuming a possible IPO price of $40, Twitter left more than a billion in investment capital on the table or rather in the accounts of its early investors. Twitter sacrificed that money in return for a lot of goodwill, but filling the pockets of banks and investors has never been the purpose of an IPO. So in the end, by avoiding Facebook's mistake, Twitter may have made an even bigger one: losing out on a billion dollars worth of additional capital.
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Twitter's share price has been on a steady decline since the start of 2014. Twitter shares peaked $73.31 on December 26, 2013 and ended the year 2013 at $63.65 per share. Twitter shares hit a low of $30.66 on May 7, 2014. Twitter's share price has rebounded some since its low, and ended at $37.84 at the end of trading on July 10, 2014.
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Twitter Revenue Forecasts for Q2 2014 and Full-Year 2014
Twitter expects its second quarter revenue to come in between $270 and $280 million. Full year 2014 top line should be between $1.20 and $1.25 billion, coming in on the low end of expectations.
That aside, Twitter’s $2.2 billion in cash and equivalents is right where it was before the quarter started, meaning that the company has plenty of runway to execute on whatever its plans may be.
Conclusions and Ending Comments
I am really disappointed in Twitter. From the size of its R&D and sales and marketing expenses, I see a public company that is still trying to develop a predictable and successful business model. This is a company went to public much too soon, but in hindsight chose the IPO route to take advantage of the recent popularity of social networks going public, and the success of Facebook in monetizing mobile and rising share price.
Facebook was able to successfully monetize desktop users, then quickly switched its platform to successfully monetize its rising mobile users. Facebook was able to do this, and it did this quickly, with much success, and has been rewarded by Wall Street and Main Street investors with a stable share price.
I am not too sure that Twitter will be able to repeat the success of Facebook, and prop up its share price to its high of $73.31 in late 2013. For one thing, Twitter users were already predominantly mobile, and it has monetized them with its line of "promoted" advertising products. However, how much more can it squeeze out of those mobile users.
User participation is also a huge issue with Twitter. Less than 5% of Twitter users actually tweet on a regular basis (once a day). So what if they have 255 million monthly active users. Only 5% of them are active on a regular basis. The recent Twitter redesign may help increase user participation, but not without giving users an incentive or sense of urgency to tweet. The limit of 140 characters per tweet really limits user participation. Facebook places no such limit on user timeline posts, and this is a huge competitive advantage. It is no wonder that average revenues per user are one-fifth of Facebook.
Courtesy of an article dated June 10, 2014 appearing in Sky News, an article dated October 4, 2013 appearing in Bloomberg, an article dated November 5, 2013 appearing in NBC Bay Area, an article dated November 7, 2013 appearing in Reuters, an article dated April 29, 2014 appearing in TechCrunch, an article dated March 13, 2014 appearing in Forbes, an article dated April 29, 2014 appearing in the TNW Blog, and an article dated December 10, 2013 appearing in Statista
Alibaba filed paperwork on Tuesday, May 6, 2014 for a $1 billion public offering. It is expected to increase significantly and could become the largest tech IPOof all time.
If your first thought reading that is "What the heck is Alibaba?", you're probably not alone.
Alibaba is a household name in China and well-known among certain tech industry watchers and investors abroad, but it doesn't exactly have mainstream recognition among consumers in the United States. That might change after its IPO.
To help you get a head start learning about this fast-growing tech company, we've put together a primer on what Alibaba does, how it got so big and what impact it might have on other U.S. businesses.
What exactly is Alibaba?
The Alibaba Group is the largest ecommerce company in China and, according to some reports, the largest in the world. It primarily consists of two big shopping websites: Taobao, which launched in 2003 to compete with eBay in China, and Taobao Mall (or Tmall), an online shopping marketplace.
So basically it's just China's version of Amazon?
Not quite. Unlike Amazon, Alibaba doesn't actually handle any of the logistics — like fulfillment centers — for online shopping. It just creates the platform and user experience for consumers to shop from various brands.
Even that user experience is notably different. Kelland Willis, an analyst with Forrester Research says.
"When you are buying something on Amazon, you are engaging with Amazon. When you buy on Tmall, you are engaging with the brand."
Alibaba's investments also extend well beyond traditional ecommerce. It has invested in a Chinese department store operator, mobile messaging app Tango and Weibo, China's version of Twitter which recently went public. It is also reportedly in talks to get back a stake in Alipay, a payment service like PayPal.
Screenshot of Alibana's Taobao Mall ecommerce site (Click Image To Enlarge)
Just how big is it?
Alibaba generated more than $3 billion in revenue for the fourth quarter of 2013, an increase of 66% from the same quarter a year earlier. Its gross profits for the quarter shot up by an even higher percentage to just under $2.4 billion.
The Wall Street Journalreports hearing from sources that the combined sales volume on Taobao and Tmall hit $240 billion in 2013. On Single's Day, which is essentially China's version of Cyber Monday, Taobao and Tmall topped $5.75 billion in sales. That's more than double the sales of all online retailers on Cyber Monday.
Alibaba is expected to go public with a market cap of around $165 billion, though some analysts think it may top $200 billion.
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How does someone even build up a company that big?
Alibaba was founded in 1999 by Jack Ma, an eccentric English teacher-turned-entrepreneur who became interested in building Internet companies after going online for the first time in 1995 while on a trip to Seattle.
Alibaba Group CEO Jack Ma (Click Image To Enlarge)
The secret to Alibaba's success, according to Forrester's Willis, is a combination of launching when the ecommerce market was still small in China and going out of its way to build trust with consumers in the country.
"What Taobao did from the beginning was they created a set of regulations that absolutely ensured consumers get the product they ordered. It builds trust with the brand. As a result, consumers thought of Alibaba Group as a whole as one they could trust to interact with."
One example of that is the option to pay cash upon delivery, after the shopper has had a chance to inspect the item in person.
Why is one of the largest companies in China doing a public offering in the U.S.?
Initially, Alibaba reportedly wanted to go public on the Hong Kong stock exchange, but decided otherwise because regulators in the country would not greenlight its proposed governance structure. But Alibaba stands to gain other benefits from listing in the U.S. as well.
R.J. Hottovy, senior analyst with Morningstar says.
"By listing in the U.S. you open up the doors to a lot more potential investors. There are some question marks about accounting and security rules outside the U.S. and European markets. The U.S. listing will add a layer of creditability."
Alibaba Group's headquarters in Hangzhou, China (Click Image To Enlarge)
Will the Alibaba IPO have any impact on U.S. tech companies?
The Alibaba IPO is coming at a time when investor sentiment for the tech sector has weakened thanks in part to sky high valuations. That could change if Alibaba proves to be a strong IPO.
"If it was successful and did well and was priced with a premium valuation, I think that could have a halo effect on the broader tech space. It could spur some renewed interest in the space."
At the very least, it will have a notable impact on Yahoo, which as a 24% stakein Alibaba and stands to net as much as $10 billion from the Alibaba IPO, depending on how it prices. That could give Yahoo and CEO Marissa Mayer the additional resources needed to make some big acquisitions.
COMMENTARY: Among the biggest shareholders set to profit from the IPO is Yahoo, which holds a 22.6 per cent stake, and SoftBank, the Japanese telecoms group which has 34.4 per cent. While SoftBank executives have said it plans to retain the stake, Yahoo will sell part of its holding and its current director on the Alibaba board will step down.
Other known investors include Singaporean sovereign wealth fund Temasek and US fund Silver Lake. Mr Ma himself holds 8.9 per cent of the company.
Corporate governance activists, however, have questioned the board structure that Alibaba is proposing. Under the terms, a 28-member management partnership of senior executives from Alibaba and affiliates has the “exclusive right” to appoint a majority of the board.
With that level of control kept by the partnership, “it really all comes down to what is the quality of those independent board members,” said Gary Hewitt, head of research for GMI Ratings, a governance analysis group.
The company named only three members of a board that will have nine people: Mr Ma, Joe Tsai, the executive vice-chairman, and Softbank’s Masayoshi Son.
The company’s Chinese retail platforms had 231m buyers last year, just shy of one-fifth of China’s total population, and nearly 40 per cent of the number of Chinese who use the internet. Its ambitions are expanding, however, both across other sectors of China’s internet and outside its borders.
Its many operations include a small business loans division, a group buying site, cloud computing business and an online advertising exchange. It is affiliated with China’s largest online payments processing network, Alipay, although that business was spun off in 2011 to a separate vehicle and is not part of the listing.
Alibaba has also embarked on an ambitious, multibillion-dollar string of deals to broaden its reach beyond ecommerce. So far this year, it has taken stakes in companies ranging from China’s largest video hosting site, Youku Tudou, to the US start-up Lyft, a car ride-sharing service.
Jixun Foo, a partner at venture capital group GGV Capital, which had been an early investor in Alibaba said.
“You should think of them beyond an ecommerce player, just as Amazon is going beyond ecommerce to compete with Netflix, for example, in the so-called online video space. They are testing the water on many fronts.”
Most of its revenue comes from online marketing, commissions on transactions and fees for its services. In the nine months to December 31, it generated revenue of $6.5bn and net income of $2.8bn, according to the filing.
Twitter's (TWTR:NASDAQ) stock fell in after hours trading on April 29 after the company reported weaker than expected user growth numbers during its Q1 2014 earnings call conference. The next day the stock fell -5.61 or -12.9% in early trading, before recovering to close at 38.97, down -4.51 or - 10.37%.
Twitter stock (TWTR:NASDAQ) plunges in early trading on April 30, 2014 after reporting dismal user growth numbers during its April 29, 2014 earnings conference call with analysts. (Click Image To Enlarge)
Here's a look at Twitter's Q1 2014 highlights, with earnings versus expectations:
Revenues: $250 million versus analyst expectations of $241.47 million.
Earnings Per Share: $0.00 versus analyst expectations of -$0.03.
Monthly active users (MAUs): 255 million, up from 241 million the previous quarter. Analysts were looking for 257 million.
Mobile MAUs: 198 million in Q1 2014 – a jump of 31 percent year-on-year, account for 78 percent of all MAUs.
Q2 Revenue Guidance: $270-$280 million, versus analyst expectations of $272.94 million.
Timeline Views: 157 billion timeline views for the quarter.
Click Image To Enlarge
The stock is down 11% in reaction to the numbers, dragging it to its all-time lows.
Monthly users were lighter than the Street wanted, which killed the stock.
Twitter CEO Dick Costolo (Click Image To Enlarge)
On the earnings call, CEO Dick Costolo said he was "really happy" with engagement in Q1. Favorites and retweets were up 26% in the quarter, which is a sign that people are using Twitter more and more. Costolo also said that net new users were just as engaged as older users.
Costolo also tried to convince analysts that despite the small user numbers, Twitter's reach is much bigger. He said that MoPub, Twitter's mobile ad network, reaches 1 billion users across iOS and Android devices.
Costolo also rejected the idea that Twitter is a niche service. He said that there were 3.3 billion views of tweets related to the Oscars. They happened all over the place, on TV, and elsewhere.
He used this as proof that Twitter is a well-known, mainstream service. Now, all Twitter has to do is convince people that there is value in using Twitter on a daily basis.
Costolo's explanations were admirable, but fell short. When the call started, Twitter was down 8-9%. By the end of the call, it was down 10-11%.
Here's a chart looking at Twitter's user growth deceleration, via BI Intelligence:
COMMENTARY: I don't know why investors are so concerned about a slowdown in Twitter's user growth. Facebook has experienced a similar slowdown in user growth. This is a trend that will continue for both social network leaders.
What is more revealing is average revenue per monthly active user (ARMAUs). If you compare the ARMAU for both Facebook and Twitter, you see that both are experiencing declines (see graph below). The U.S. continues to be the largest advertising markets for both social networks. Facebook's average revenue per MAU has consistently been a bit more than twice that of Twitter. What hasn't been mentioned is that Facebook and Twitter both experienced similar declines in Q1 2013. It's just a theory, but users tend to use social networks quite heavily during the holiday period to exchange holiday greetings and pass along gift recommendations and deals to their friends and followers. As a consequence, usage and engagement declines in the first quarter of the year. The same thing happened this past quarter.
As with Facebook, Twitter uses three metrics to measure users: user growth, engagement and monetization. Below are the aforementioned metrics for Twitter for Q1 2014 compared to Q1 2013:
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When compared to Q1 2013, Twitter experienced decreases in user growth and engagement, but was able to increase monetization for Q1 2014.
Twitter provides occasional glimpses at its daily active users (DAUs) per MAU, for example in its S-1 filing and again on its Q1 2014 earnings call. But there’s too little data here to see long-term trends, and what little we do have compares unfavorably to Facebook’s equivalent metrics:
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On other metrics, too, Twitter compares unfavorably to Facebook. There’s sheer scale, where Twitter’s base of MAUs is just barely catching up to Facebook’s annual growth in mobile MAUs:
Click Image To Enlarge
The reason for that is that Twitter’s growth is plodding along very consistently at between 65 and 70 million net MAU adds year on year each quarter, a number that’s remained consistent for the last two years:
Click Image To Enlarge
The problem is, whereas 70 million represented 100% growth two years ago, it now represents less than 40% growth, so that the growth curve everyone is obsessed about looks like this:
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At this rate, Twitter will reach about 400 million users in two years from now, which is equivalent to Facebook’s current base in Asia alone. And then there’s monetization, where Twitter’s ad revenue per user, though growing rapidly, is still about half of Facebook’s on a global basis:
Click Image To Enlarge
The challenge for Twitter is that Facebook feels like the most comparable company out there, but in almost every respect Twitter looks inferior. Twitter is fundamentally a much smaller business than Facebook, and it’s unlikely it will ever be able to bridge that gap unless something fundamentally changes.
It’s for that reason, then, that Twitter has started to play up its MoPub ad exchange and the 1 billion or so users it can reach with ads. It recognizes that its upside as a company and as a stock is fundamentally limited by the Twitter user base, which is growing slowly and generating relatively small spend per user. As such, Twitter is trying to get them to see the bigger picture in the form of MoPub. The fundamental challenge, though, is that Twitter is providing absolutely no data on this part of the business. And all its key metrics – number of monthly active users, ad revenue per user, timeline views per user and so on – are increasingly irrelevant to this part of the business.
Above: Richard Price, founder of Academia.edu, has raised $16 million
I was 27 when I raised my first round of venture capital for Academia.edu, around $600,000 from some London investors. Since then, I’ve raised close to $18 million from investors like Spark Capital, True Ventures and Khosla Ventures. I’ve learned a few lessons along the way that I thought might be beneficial to entrepreneurs starting out.
Rule number one: You should be embarrassed by the sheer audacity of your vision! Think big about what the company you’re building may be like in ten years if all your dreams come true. What kind of world would you want to create if you had a magic wand? That is what you want to be pitching to a VC, as that is the outcome that matters to them.
An entrepreneur will be thinking about today’s problems, and maybe thinking 6 months out, but you have to train yourself to look into the crystal ball and become eloquent about the ten year view. VCs know there is a lot of risk and they want to see what wondrous things will happen in return for the amount of risk that you are offering them. So offer them a lot of wondrous things.
When I first wrote down the mission statement for Academia.edu, I was embarrassed. We aspire to accelerate scientific research and help find cures for diseases by building a completely new system for scientists to share their papers and peer review each others work. It felt self-aggrandizing and arrogant to say that a tiny company with five employees could accelerate science. And yet, after saying it a few times and thinking through the narrative of how we get to that point, you start to get comfortable with the audacity of the mission. You will stop being embarrassed as the words trip off your tongue.
VCs are looking for the ten-year level of discourse, rather than the six month level of discourse.Being in an investor meeting is actually the one environment where you can let you imagination rip. It’s not only acceptable to do that but its expected.
Master the Macro Stats
Many entrepreneurs start by solving a problem they experience themselves. They feel the problem intuitively and have an intuitive feeling that there is a decent number of people who experience the problem. But that’s not enough. When pitching a VC, you need to have at your command the macro stats for the industry, because that is how they compare your problem with another idea that someone else is pitching. Intuitions are not enough to make the comparison, and for the partner to pitch his/her colleagues – there needs to be some market data about the size of the market etc.
The reason entrepreneurs often skip this step is that it can be really hard to gather market sizing data. As far as I can tell, the only person who’s ever calculated the number of academics in the world is me. Collecting that data took a decent amount of time.
Many entrepreneurs who haven’t done this work will bullshit or semi-bullshit when a VC asks a market sizing question, and the VC is very used to this, and is very good at detecting lack of expertness “um, yeah, er, the market size is $9 billion’. A VC sees straight through that because they get exposed to it so much. You need to answer in a really confident way with as much material as possible to overcome any feelings of doubt from the VC.
Resist the temptation to be overly obliging
You are asking for capital, but don’t think of yourself as a supplicant, and don’t let that control your intellectual approach. You are a busy person who is an expert on your space, and make sure they realize that. If there is a poorly thought-out question or suggestion, don’t humor it just because you want to be polite. Be confident and treat it just as if one of your colleagues suggested it as opposed to some higher being. I.e. don’t be rude, but don’t give it any time if it is not worth any time. Feel free to say ‘that’s not a scalable way of solving this problem; you just aren’t going to get the buy-in from users’. You want the VC to realize that you are a formidable person who is going to impose their vision on the market place and nothing is going to get in your way. So be dominant in the room with the VC about your area of expertise, and don’t be meek and obliging.
On a second, but related note, if someone offers help and it is moderately useful but not that useful, don’t pretend it will make more of a difference to your company than it will. When a VC is romancing you, and telling you about the advice they can bring to the table, the temptation is to romance back:
“Thanks! That would be so great! It’s a match made in heaven.”
Better to call it as it is – if the advice is helpful, great, but don’t go overboard in your enthusiasm.
Projecting a strong, independent stance is actually more powerful than being overly enthusiastic about the help or suggestions coming your way. I only realized this point after Ben Ling at Khosla Ventures said,
“One of the thing we liked about you Richard is you’ve got your own clear vision of the company and you’d be open to ideas from Khosla, but not dependent on ideas from us, and that you’re going to be running the business as you see fit. We like that kind of founder.”
Lock eyes with everyone in the room
With some VCs you are in competition either with their iPhones, or with meeting fatigue, or both. It’s frustrating to pitch to a room of VCs where some people are checking their iphones, or their eyes are drooping.
How do you avoid this? A few tips. You want to lock eyes with VCs and just move around the room and continue to lock eyes, and never let your eyes hit the floor as you transition between points.If someone is looking at their iPhone you can continue to talk to them directly until they feel sufficiently embarrassed as they hear your voice coming in your direction to put their phone down and look up.
Interestingly enough I have never experienced this from a top tier VC – not once. Top tier VCs uniformly give the entrepreneur their full attention, and it’s a rewarding experience to pitch them.
Another tip is that you don’t want the deck to control the flow. Too much slideware and people’s eyes start to glaze over. You should master the narrative and have every transition in your head, so that the deck just serves as a backdrop to the narrative you are offering, all of which fits together like a jigsaw puzzle. Ideally from the moment you walk in the room you have people’s attention, and they are looking at you, with their eyes locked on your eyes, and your eyes going from one VC to another, and you want to maintain this state till the end of the meeting.
VCs like investing in people who know the value of their own time. They will actually respect you more if you make it clear that you know your stuff and you are a busy person and that you will be respectful towards them and expect that they will be respectful towards you.
Richard Price is the founder and CEO of Academia.edu, a platform used by nearly 7 million academics to share their research freely. Backed with $18 million in venture funding from VCs like Khosla Ventures, True Ventures, and Spark Capital, Academia.edu’s goal is to get every single science PDF ever written available for free on the internet. One of Richard’s major passions in life before starting Academia.edu was philosophy. He wrote his PhD at Oxford on the Philosophy of Mind.
Follow him on Twitter @richardprice100
Endless articles, books, and blogs have been written on the topic of business plan presentations and pitching to investors. In spite of this wealth of advice, almost every entrepreneur gets it wrong. Why? Because most guides to pitching your company miss the central point: The purpose of your pitch is to sell, not to teach. Your job is to excite, not to educate.
Pitching is about understanding what your customer (the investor) is most interested in, and developing a dialog that enables you to connect with the head, the heart, and the gut of the investor. If you want advice about pitching, you can ask a venture capitalist, but you probably won’t get a very good answer. Most VCs are analytic types, and so they will give you a laundry list of topics you should cover. They won’t tell you what really floats their boat, mainly because they themselves can’t articulate it in useful terms. “I know it when I see it,” is about the best answer you’ll get.
What is the investor most interested in? Contrary to popular belief, the venture capitalist sitting at the other end of the table glaring inscrutably at the presenting entrepreneur is not thinking, “Is this company going to make a lot of money?” That is the simple question that most entrepreneurs think they are answering, but they are missing the crux of the venture capital process. What the investor is really thinking is, “Is this company the best next investment for me and my fund?” That is a much more complex question, but that is what the entrepreneur has to answer.
To win over the hearts and minds of investors, your pitch has to accomplish three things:
Tell a good, clear, easy-to-repeat story—the story of an exciting new startup.
Position your company as a perfect fit with other investments the investors have made and their firm is chartered to make.
Beat out the other new investments the firm is currently considering.
These latter two issues are beyond the scope of this modest guide. So for now, let’s just concentrate on telling a good story.
Tell a good story
Most of the articles on pitching are generally right about the topics, even if they miss the nuance (sell, don’t explain). But don’t take any template as graven in stone. Your story may require a moderate or even a dramatic variation on the list of slides below. You may need to explain the solution before you can explain the market; or if you are in a crowded space you may need to explain why you are different than everyone else early on in the conversation; or you may want to drop some very impressive brand-name customers before you explain your product or your market. The one thing you may not do is expand the number of slides to 20 (or 30 or 50)! Other than that, let the specifics of your situation dictate the flow of your slides.
Nevertheless, it is useful to have a guide. With the caveats above in mind, here is a basic outline for your pitch:
Cover Slide: Company name, location, tagline, presenter’s name and title.
If there are multiple team members participating in the pitch, put names on the next slide instead. Key objective: Everyone in the room should know the basic idea and value proposition of the company, including the target market, before the next slide is shown. All the words should not be on this slide, but with one or two sentences orally, reinforcing and extending the tagline, everyone should have a foundation for what is to come. Cardinal sin: Launching into your presentation with an investor at the table thinking, “I wonder what these guys do?”
Intro Slide: Team.
The three or four key players in the company. For some reason, everyone puts the team slide at the end, but investors almost always want to know this at the beginning, and it is just common courtesy to make sure everyone is introduced. But make this short, crisp and relevant. This is not the time to share everyone’s life story, or detail the resumes of all six members of the advisory board. Focus on a significant, relevant accomplishment for each person that identifies that person as a winner. In 10 to 15 seconds, you should be able to say three or four sentences about your CTO that says everything the investors want to know about him or her at that moment. Key objective: Investors should be confident that there is a good credible core group of talent that believe in the company and can execute the next set of milestones. One of those milestones may be filling out the team, and so it is important to convey that the initial team knows how to attract great talent, as well as having great domain skills. If there is a gap in the team, address it explicitly, before investors have to ask about it.
Slide 1: Company Overview.
The best way to give an overview of your company is to state concisely your core value proposition: What unique benefit will you provide to what set of customers to address what particular need? Then you can add three or four additional dot points to clarify your target markets, your unique technology/solution, and your status (launch date, current customers, revenue rate, pipeline, funding needed). Key objective: Flesh out the foundation you established at the beginning. At this point, no one should have any question about what it is that your company does, or plans to do. The only questions that should remain are the details of how you are going to do it. Another key objective you should have achieved by this point in your presentation is to make sure that if there are some compelling brand names associated with your company (customers, partners, investors, advisors), your audience knows about them. Feel free to drop names early and often—starting with your first email introduction to the investor. Brand name relationships build your credibility, but do not overstate them if they are tenuous.
Slide 2: Problem/Opportunity.
You need to make it clear that there is a big, important problem (current or emerging) that you are going to solve, or opportunity you are going to exploit, and that you understand the market dynamics surrounding the opportunity—why does this situation exist and persist, and why is it only now that it can be addressed? Show that you really understand the very particular market segment you are targeting, and frame your market analysis according to the specific problem and solution you are laying out. In some cases, however, the problem you are attacking is so obvious and clear that you can drop this slide altogether. You do not have to tell investors that there are a lot of cell phones out there, or that teenagers like to socialize. Save yourself, and the investors, the pain of restating the obvious.
Slide 2.1: Problem/Opportunity Size.
Even if your market opportunity is not obvious, in most cases you can assert the size of your opportunity on slide 2. But sometimes you may need a dedicated slide to clarify the factors that define the size and scope of the opportunity, particularly if you are going after multiple market segments. Or there may be a unique emerging trend that requires explanation. Do not use this slide to quote the Gartner Group or Frost & Sullivan; show that you really understand where your prospective customers are from the ground up.
Slide 3: Solution.
What specifically are you offering to whom? Software, hardware, services, a combination? Use common terms to state concretely what you have, or what you do, that solves the problem you’ve identified. Avoid acronyms and don’t try to use these precious few words to create and trademark a bunch of terms that won’t mean anything to most people, and don’t use this as an opportunity to showcase your insider status and facility with the idiomatic lingo of the industry. If you can demonstrate your solution (briefly) in a meeting, this is the place to do it.
Slide 3.1: Delivering the Solution.
You might need an extra slide to show how your solution fits in the value chain or ecosystem of your target market. Do you complement commonly used technologies, or do you displace them? Do you change the way certain business processes get executed, or do you just do them the same way, but faster, better and cheaper? Do you disrupt the current value chain, or do you fit into established channels? Who exactly is the buyer, and is that person different than the user?
Slide 4: Benefits/Value.
State clearly and quantify to the extent possible the three or four key benefits you provide, and who specifically realizes these benefits. Do some constituents benefit more than others, or earlier than others? These dynamics should inform your go-to-market strategy, and your product/service roadmap, which you will discuss later.
Slide 5: Secret Sauce/Intellectual Property.
Depending on your solution, you might need a separate slide to convince investors that no one else can easily duplicate or surpass your solution (assuming that’s actually true). If you are in a business sector in which intellectual property is important, this is where you drill down into your secret sauce. This is usually some combination of proprietary technology, unique team domain expertise, and unique partnership. Boil this down to simple elements and terms, devoid of jargon. Do not walk the audience through a detailed tour of your product architecture. Instead, highlight the elements of your technology that give you unique potential for leverage and scale as you grow. If you do slides 4 and 5 well, it will be easy to make the case for your …
Slide 6: Competitive Advantage.
You may be good, but are you really better than everyone else? Most entrepreneurs misunderstand the objective of this slide, which is not to enumerate all the deficiencies of the competition (as much fun as that may be). Just because you have really cool technology does not mean you will win. You need to convince the investor that lots of folks will buy your product or service, even though they have several alternatives. And don’t forget that the toughest competitor is often the status quo—most prospective customers can muddle on without buying your solution or your competitor’s solution. The best way to convince an investor that you really do have a better mousetrap is to have referenceable customers or prospects articulate in their own words why they bought or will buy your offering over the alternatives. Use this slide to summarize the three or four key reasons why customers prefer your solution to other solutions. Many entrepreneurs have been coached to use a four-square matrix that shows that they are in the upper right-hand quadrant, but this has become a joke in the venture community. Check-boxes are better, if they are not abused. Make sure your check-box criteria reflect the market’s requirements, not just your product’s features.
Slide 6.1: Competitive Advantage Matrix.
Depending on how important the analysis of competitive players is in your market segment, you may need a detailed list of competitors by category with their strengths and weaknesses in comparison with your company. Preferably, you develop this as a “pocket slide” to be used for Q&A, if necessary. Whether or not you present this slide, it is important that you do your homework on the competition, and that you don’t misrepresent their strengths or their weaknesses.
Slide 7: Go to Market Strategy.
The single most compelling slide in any pitch is a pipeline of customers and strategic partners that have already expressed some interest in your solution—if they haven’t already joined your beta program. Too often this slide is, instead, a bland laundry list of standard sales and marketing tactics. You should focus on articulating the non-obvious, potentially disruptive elements of your strategy. Even better, frame your comments in terms of the critical hurdles you need to get over, and how you are going to jump them. If you don’t have a pipeline, and there is nothing unique or innovative about your strategy, then drop this slide and make the elements of your sales model clear in the discussion of your business model (next slide).
Slide 8: Business Model.
How do you make money? Usually by selling something for a certain price to certain customers. But there are lots of variations on the standard theme. Explain your pricing, your costs, and why you are going to be especially profitable. Make sure you understand the key assumptions underlying your planned success and be prepared to defend them. What if you can’t sustain the price? What if it takes twice as long to make each sale? What if your costs don’t decline over time? Many investors will want to test the depth of your understanding of your business model. Be ready to articulate the sensitivity of your business to variations in your assumptions.
Slide 9: Financial Projections.
The two previous slides above should come together neatly in your five-year financial projections. You should show the two or three key metrics that drive revenues, expenses and growth (such as customers, unit sales, new products, expansion sales, new markets), as well as the revenue, expense, profit, cash balance, and headcount lines. The most important thing to convey on this slide is that you really understand the economics and evolution of a growing, dynamic company, and that your vision is grounded in an understanding of practical reality. Your financials should tell your story in numbers as clearly as you are telling your story in words. Investors are not focused on the precision of your numbers; they’re focused on the coherence and integrity of your thought process.
Slide 10: Financing Requirements/Milestones.
It should be clear from your financials what your capital requirements will be. On this slide you should outline how you plan to take in funding—how big each round will be, and the timing of each—and map the funding against your key near-term and medium-term milestones. You should also include your key achievements to date. These milestones should tie to the key metrics in your financial projections, and they should provide a clear, crisp picture of your product introduction and market expansion roadmap. In essence, this is your operating plan for the funds you are raising. Do not spend time presenting a “use of funds” table. Investors want to see measures of accomplishment, not measures of activity. And they want to know that you are asking for the right amount of money to get the company to a meaningful milestone.
This slide is almost always wasted. Most entrepreneurs just put up three or four dot points about how wonderful their investment opportunity is. Generally the words are the same words that investors hear from scores of other entrepreneurs, such as, “We have a huge opportunity, and we will be the winners!” Your key objective on this slide is to solidify the core value proposition of your company in words that are memorable and unique to your company. If the venture investor in the room has to give a short description of your company to his partners, these are the words you want used. This is a good place to reinforce your tagline, or mantra—the short phrase that captures the essence of your message to investors. The best solution to creating your summary slide is to imagine that this is the only slide you will ever be able to present. If you had to do your whole pitch in one slide (with 30 point font), this is that slide.
So here we have a good general outline for pitching your company. But remember, it’s about selling your investment proposition, not about covering points. Don’t get fixated on using this or any other template. You should know the issues about your company that investors are most concerned about. Those are the issues you need to concentrate on. Make sure you address all the predictable “burning questions” as early as you can in your presentation, even if it means violating the sequence above.
Tips on effective pitching
How do you turn a pitch from a monolog to a sale? Make sure every point you make connects with your audience. Keep your text very, very short. Really. Please. Use charts and pictures if you can. And engage your prospect. Ask questions. “Do you think this market opportunity is interesting?” “Have you seen anyone else addressing this problem?” “Do you think CIOs would be interested in a solution like this?” You may get some tough responses, but you will know a lot more about what is going on in the investor’s mind, and you will be engaging them in your story—instead of letting them play with their Blackberries under the table.
Some additional tips to improve the effectiveness of your pitch:
Make sure that everyone in the room is introduced. Rarely do entrepreneurs ask the investors in the room to introduce themselves. While it is appropriate to be familiar with each investor’s bio (assuming it is on the web), it’s fair to ask something like, “What investments have you been looking at recently?” And if there are some other faces in the room, you should absolutely have them introduce themselves and provide a little background.
Don’t use a feel-good, visionary “Mission Statement” on your overview slide. Mission statements have also become a joke in the venture industry. It’s like saying, “Our projections are conservative.” Focus on making sure your statement of your company’s value proposition is crisp, clear, and unique.
Prepare good use cases. Sometimes, no matter how simple and clear the description of a product, what the investor really needs is a concrete example of how people will actually use it. In some cases there will be multiple different use cases. You may need to explain these to get your point across.
Drop names, early and often. If you really have some brand names involved in your company — as customers, as partners, as members of the team — don’t keep them a secret for the first nine slides; make sure the investor knows about them early in the presentation. But be prepared for the investor to contact every single name you drop — whether it’s a person or a company. If you are going to drop names, they had better be real.
Make sure you can tell the entire story in 10 to 15 minutes. Even if you have time, your total presentation should be no longer than 20 minutes. You want to have time to engage the investors and discuss their questions or concerns. If you think you have additional critical points that have to be made, prepare “pocket slides” that you can put up if the topic arises.
Average entrepreneur pitch: 38 slides. Average VC attention span/cranial capacity: 10 slides. Do the math.
Learn how to control the flow of the meeting, without seeming inflexible or anxious. Watch and listen. Body language and questions will tell you if you are okay deferring a point or if you need to address it immediately. If you let your audience take over the flow, you will probably wind up creating a confusing, incomplete impression of your company. But if you don’t address the “burning questions” early and effectively, the investors won’t hear anything else you say.
Don’t lie. You would think this goes without saying, but in their enthusiasm for their creations, entrepreneurs tend to slip across the line all too often. Please do not interpret our exhortation toas an endorsement of hype, exaggeration, misrepresentation, spin, or lying. The best salespeople are credible and trustworthy. It is more important that investors trust you than that they understand every nuance of your business.
Pitching investors is different than pitching customers. If you have a sales presentation for customers, do not think you can simply modify it slightly for pitching to VCs. Start from scratch, keeping in mind with every slide that an investor has a very different perspective than a customer.
You don’t have to be “conservative,” but you do have to be realistic. Almost every entrepreneur fails to be realistic about how long things take in the real world (vs. the spreadsheet world). Whether it’s the time to complete product development, or the time to close the next ten sales, entrepreneurs are pathologically optimistic. As with your financials, find examples of comparable challenges addressed by other companies, and use that data in your model.
Never ever put so much text on a page that the investor has to read it. Everything should be short, content-rich bullets in a font large enough to read without squinting. The words are simply reinforcement of the points you are making orally. Pictures, graphs, and charts should be uncluttered and make clear, compelling points. If they have to be deconstructed and explained piece by piece, you will lose focus and momentum.
And never use your presentation stack as a standalone document. It is perfectly okay if it is not readable when you are not around. That’s the job of your executive summary or your business plan.
A good pitch is very rare. It is so hard executing on everything else that has to be done to build a successful company, pitching often suffers. But the ability to pitch is a key indicator for investors—if the entrepreneur doesn’t know how to sell, how can he or she build a great company?
These companies are part of a growing wave of venture capital investments into branded consumer goods predicated on using information technology to reduce costs and the Internet to market directly to customers. It’s all with an eye on replacing entrenched industry players, rather than selling those players the tools they’d need to compete against young upstarts.
One venture investor who is backing the eyeglass retailer Warby Parkersaid.
“It used to be that tech went into the vertical and sold to everybody in the vertical. Now companies are saying ‘No. I’m going to directly compete with you,’”
That glasses company has set the standard for how startups can try to carve out a market in old-line industries with entrenched competition, according to a number of investors.
The Warby Parker investor said.
“This is a big thing in e-commerce. You can’t compete selling stuff that Amazon has. Where you can compete is when you sell stuff that can’t be on Amazon.”
It’s the same realization that Fab.com came to in April of last year, when it decided to acquire the custom furniture shop Massivkonzept. The investor said.
“To be unique in e-commerce means you’ve got to own products, not just sell products.”
As a thesis, consumer product companies aren’t attracting the same amount of capital as technology offerings in enterprise software, security, or mobile, but the number of investments into companies selling low-tech or no-tech products like razors, soaps, glasses, or clothes, is growing.
For these companies, even grabbing 5 percent of the total market means billions of dollars in sales, investors said.
In 2012 and 2013 there were at least 26 investments made into consumer products companies, according to data from CrunchBase. That’s up from 16 in 2011, and 13 in 2010.
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The companies that have raised the largest rounds in this category include Harry’s, the razor blade manufacturer and retailer; Fab.com, which is now making its own furniture; VANCL, the Chinese online clothing retail behemoth; and Bonobos, which has its own brand of preppy upscale casual wear and suits for men. All told, the five companies have raised in excess of $1.1 billion.
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It’s also worth nothing that of the investors who are active in the consumer market, none is investing more aggressively in the sector than hedge fund investor Tiger Global Management, according to CrunchBase data. The hedge fund first invested in consumer retail branding in China with VANCL before applying the strategy in the U.S. with Warby Parker and Harry’s.
“It’s most importantly about leveraging technology to create new brands or extend markets into places where they haven’t existed before. Now you have distribution channels, social media, and a lot more ways to touch consumers and establish relationships with them.”
Ten Keys to Successful New Consumer Products
Creating and launching new products successfully isn't easy. In fact, the industry track record for new product success is dismal. A couple of recent studies place the failure rates as high as 95% in the United States1 and at 90% within two years in Europe.2 Getting beyond the five-year mark with a strong, profitable business is an accomplishment. While there are no golden paths to new or existing product success, there are a number of principles that greatly improve the odds. This is designed to outline some of the most important factors in marketing new and existing products successfully.
Key #1: Meet a genuine consumer need. Too many products are in search of a market. Consumer research is critical. Products that meet a genuine consumer need have a basis for long-term consumer interest and purchase. Sometimes those needs are latent and are created with an innovation in the market, such as with the invention of the internet or cell phones. Do your homework. Talk to consumers. Make sure there is a genuine consumer need to fulfill and that the market need is large enough to warrant the introduction.
Key #2: Make sure product performance measures up. Products that don't fulfill on their promise or fulfill the wrong need miss the mark and the market. Test the product in the lab and with consumers to ensure that the product not only delivers on the need but that the consumer perceives it to deliver on the need. Prospecting for new customers is expensive. Keeping good customers who are satisfied with the product's performance and who will tell their friends is invaluable for the long-term health of the product. It is also critical that the product is in step with the competitive market. If it performs well but another product is superior, product life may be short.
Key #3: Ensure strong price-value relationship. Consumers generally want to make the best buying decision possible for the money. If the product solves a need and performs well but the cost is too high, the customer will look elsewhere. The price of the product must be in proportion to the problem or need it meets. Consumer research is critical here. Don't forget the competitive assessment. Price/value is usually relative to the other choices consumers have. Great value for the consumer enhances prospects for market longevity.
Key #4: Proper positioning and differentiation. Many times there is a great product that performs well, but the message to the customer is wrong. In a voyage to the moon, missing the target by just 2% will be disastrous for the astronauts. Likewise, precise positioning of the product to the customer can make the difference between success and failure. Many companies are too consumed with where they will advertise before carefully determining what to say-the message. Advertising needs to be focused on a meaningful benefit to the consumer. It also needs to clearly help the customer understand and feel motivated to buy this product rather than any other one available on the market. When you are done, you want them to feel there is no better alternative than to buy your product.
Key #5: Carefully targeted advertising. Once the proper message is determined and to whom it should be communicated, sometimes the media used doesn't communicate the message well, doesn't reach the target market, or is too poorly targeted to reach the target economically. The message and the media need to be carefully planned. There also needs to be enough critical mass in media levels to get above the general noise in the market. Reach and frequency are both important. At any given time, prime prospects for your product may be at varying stages of readiness to buy. You must be ready with your message when they are ready to enter the marketplace. Some purchases are considered more carefully than others. Make sure you can inspire the appropriate level of confidence in your product and be at the right place at the right time with the right message for your customers.
Key #6: Strong product economics. Some products with a 30% margin can be successful while others with a 75% margin fail. Considering the entire equation of the product's economics is essential. What percent of sales will it require to reach and win customers? What is the lifetime value of a customer? What will it cost to deliver the product to the customer and then provide superior service to support customers? Don't miss the hidden costs. Make sure the margins are appropriate for the product.
Key #7: Effective distribution channels. Finding the correct channels to get the product to the customer can be as important as the product itself. Many superb products fail because they don't reach the customer or enough customers. If a customer loves the product but has difficulty buying it, success will be evasive. Consider not only where the customer can conveniently purchase the product, but also the competitive environment it will be in and whether the image of the channel will be consistent with quality of the product. The servicing of the product is also important. In the intensively competitive grocery aisle, being on the shelf near eye level to be seen can be the difference between life and death. Many successful products have been built on a store-door delivery sales force that was constantly ensuring good presentation of the product. Likewise, many products have been successful on the web by distributing through established successful online merchants rather than trying to create their own fulfillment system.
Key #8: Being on the right timing. Being early to market is valuable. Many successful products were established by being the first to market. However, it is equally important not to be too early before the market is developed. Being a later entrant to market works best if you can improve on what is available. There needs to be a reason for customers to want to buy your product over others that are available. It is hard to start the race late with a horse that won't race as well as the leader. Likewise, it sometimes requires stamina to develop a new market. Patience may be the price of success.
Key #9: Sufficient funding. Most businesses take longer and require more funding than anticipated. An investment banker once counseled us on a new venture to calculate how much we expected to need to launch a new business and then double it. Three or four times the estimate is often in order. Make sure you have enough resources to launch and sustain the product. It may be the best product introduction in years, but it takes time and resources to let people know about it. Don't sell yourself short. Running out of gas part way across the desert is very unsatisfying. Make sure you have plenty of fuel. Cultivate stakeholders in the business who will help endure the ride.
Key #10: Organizational support. People create products, and they are needed to ensure their long-term success. The organization becomes an extension of the product. Great products with an organization that doesn't service the customer well are very vulnerable. In addition, failure to see new threats or opportunities on the horizon such as new competitors, product innovation, major technology change, new governmental regulations, channel shifts or major changes in the economy could make the product obsolete. A great organization, like a good commanding officer, will be scanning the horizon and have good sources of intelligence. It will also provide great support for those in the trenches with their product.
Product marketing can be highly successful. Stack the odds in your favor by applying the ten keys to successful product marketing.
Once again investors underestimated the size of Facebook's business — the company posted a huge beat over expectations on revenues and earnings per share in its Q4 announcement.
Shares went up immediately nearly 10% in after-hours trading. (Facebook closed at $53.53 before the call.)
This time, Facebook's billowing mobile ad revenues were the factor. Mobile ad sales rose to 53% of revenues from 49% in the previous quarter. That's Facebook's first ever $1 billion-plus mobile ad revenue quarter.
Facebook is basically a mobile company right now — a majority of its revenues come from mobile, not from the desktop product. And the vast majority of its active users are mobile users.
It's not the first time Facebook has posted bigger numbers than Wall Street expected. It happens pretty regularly — that's probably a function of the fact that Facebook's ad business remains poorly understood among investors. (And, to be fair, it's quite a complicated business with a variety of revenue bearing products that can be used in dozens of different ways.) Facebook has more than 1 million advertisers in total.
Here are the big numbers:
Revenues: $2.59 billion, up 63%.
Earnings per share: 31 cents.
Monthly active users: 1.23 billion, up 16%.
Mobile monthly active users: 945 million, up 39%.
Mobile ad revenue was 53% of total revenue.
Net income: $523 million, up from $64 million.
Revenue for the full year 2013 was $7.87 billion, an increase of 55% year-over-year.
That's a huge beat on the top and bottom lines.
Here is the overall revenue breakdown:
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Facebook CEO Mark Zuckerberg said.
"It was a great end to the year for Facebook. We're looking forward to our next decade and to helping connect the rest of the world."
Here are some exerpts from the January 29 conference call with Wall Street analysts:
CEO Mark Zuckerberg:
172 million new monthly actives added in 2013.
Facebook is seeing 6 billion likes a day.
"Only one third of the world's population has access to the internet today ... helping more people to get connected is important to developing the global knowledge economy." (Note that a recurring theme with Zuckerberg is that to get future growth for Facebook, the entire internet has to grow.)
"Standalone mobile apps like Messenger and Instagram are important to Facebook."
70% increase in Messenger usage in last three months.
Instagram: ... Zuckerberg doesn't give any new user numbers. Hmm.
500 million people using Facebook groups every month.
Ads: He wants to improve quality of ads rather than quantity.
Zuck thanks everyone who works at Facebook.
"I'm grateful that so many talented people are part of our team."
COO Sheryl Sandberg:
... the first time we crossed 50% in mobile ad revenue and first $1 billion-plus mobile quarter.
Simplification of ad products has worked. Small/medium businesses are converting from free page users to paid advertisers.
Mobile app install ads "small but quickly growing category." This particular type of ad is one of the most important to Facebook management.
She declines to talk about the third party mobile ad network in which ads run in other apps powered by Facebook targeting.
Custom Audiences: ... no numbers but all good news.
8X ROI on certain types of ads.
"Facebook is the only place where 750 million people visit every day."
CFO David Ebersman: ... discussion of users ... engagement per user increased in 2013 ...
"Instagram doubled its user base in past year." (No numbers given.)
(He does NOT mention teens!)
Questions from Wall Street analysts:
What is Zuck's vision for standalone mobile apps? (This is an important question in terms of Facebook's new business development and acquisition strategy.)
"In terms of the focus on building new and separate experiences .... [people want different ways to share and communicate different things] ... [we will] build a handful of great new experiences that are separate from what you think of as Facebook today. ... we're going to keep on working on this over the next few years." Messenger has been given "room to breathe and blossom."
"Standalone experiences" is becoming a theme! He has said that more than once now.
Zuck: ... some vague stuff, no numbers on new video ads.
"We recently started testing an autoplay video ad test, it's a very small test."
It's all about proving the ROI to clients, client by client. (Sales chief Carolyn Everson gets a shout out!)
Ebersman: News Feed ads are performing so well that they continue to drive up the price per ad.
Instagram question: Will ad load increase?
Answer ... a lot of vague verbiage about user experience. Nothing concrete. Facebook is taking it slow, basically.
(Slightly frustrating that no one has yet asked how many monthly active users Instagram now has. Facebook hasn't update its 150 million stat for months.)
Algorithm tweak to favor news over cat memes, is it working?:
"A lot of things like memes scored high in terms of getting people to like them but didn't score highly in terms of what people wanted to see."
"In terms of teens we don't have any new data to report today."
(FB holders breath huge sigh of relief — last time Ebersman talked about teens he said usage was down and the stock dropped 15% instantly.)
Question: How is Graph Search coming?
Zuck: It's based on a trillion different pieces of Facebook content.
"A trillion pieces of content is more than the index in any search engine." ... "we look at this on a three to five-year period."
Mobile ad network test, how is it going?
"It's a small test we just started ... so we don't have results yet. We are very excited about the mobile app space in general." She mentions mobile app download ads — again. (Sandberg has been hammering on these things for months now.)
Question: meandering query about "contextual" ads. (This appears to be a question about how Facebook targeting data might be used in off-Facebook venues, i.e. via its Atlas ad server.)
"If you look at what's happening with our direct response business, which has been very strong for us, we offer the opportunity to get people before they search. ... to find consumers before they search, so they can then move consumers all the way down the funnel to purchase." (This is a key point for Facebook, and one of the reasons Wall Street so frequently gets Facebook wrong — a huge portion of Facebook advertisers are DR clients, meaning they more sales they make the more ads they buy. They are not traditional budgets that are set once a year. They can increase exponentially with sales. Hence the big revenue beats.)
Zuck: A.I. research unit, will operate over a 5-10 year period, to understand how everything on FB is connected. "what do the posts people write mean?" "The real value will be if we can just understand the meaning of all the content people are sharing."
And ... we're out!
Here is what analysts were expecting prior to the call:
We're also looking for news of Facebook's acquisition strategy. Facebook failed to acquire Snapchat and DeepMind recently — so we know it's in the market for new companies but it has problems pulling the trigger at the right price.
She's a venture capitalist with O’Reilly AlphaTech Ventures, which has helped fund companies including LittleBits and Misfit Wearables (see below videos). She is also organizing a conference called “Solid” which is all about the future of manufacturing, with a focus on the industrial Internet of things. During a recent event at Smart Design, we asked DiResta to talk about what it takes to "win" in the connected device space. Here's what she said.
NAIL THE USER EXPERIENCE
“One of the things I see frequently do is Arduino-style projects that grow organically out of the maker ethos being pushed into the mainstream market before a lot of thought has gone into what the market segmentation’s going to look like, what the user is really going to need, and to what extent you can make the product intuitive out of the box. I myself have received Kickstarter projects where I’ve taken it out, plugged it in and said ‘I can’t make this connect to the Internet. I have a computer science degree, and I have no idea what I’m doing wrong.’"
Keep in mind that companies like Apple have set the bar incredibly high.Consumers are now accustomed to taking a gadget out of its box, pushing one button, and having everything just work.
“I was asked to do some advising at two of the hardware accelerators around here. One of the things we see very commonly is people will believe that they have an idea and then the Kickstarter will take off and they’ll find themselves unable to handle fulfillment or come up with an accurate timeline. A lot of the mistakes I see as a seed stage investor are the mistakes of just naivety. Not making a thing that can be made. Here’s this beautiful design, but where the rubber meets the road it’s simply not possible to have a bill of materials come in at a price you need to see."
The easiest way to overcome that problem: Find a mentor, and invest the time in doing real research on the manufacturing process. She says.
"I came from quant finance and from software before that. I found that literally just emailing people saying ‘Hey, I saw you were a buyer at Walmart in the home electronic department. Would you sit down with me and walk me through what it actually takes to wind up on your shelves?’ Not this theoretical, ‘Oh, we’ll have this massively successful Kickstarter raise, then they’ll reach out to me.’ Oftentimes it’s quite the opposite. Just emailing people and saying ‘Hey, I’d like to buy you coffee and sit down for an hour and tell me about what it is you do.’”
GET A DESIGNER ON YOUR TEAM
“At the seed stage, one of the things we specify is that we like to see several different types of prototypes. That you have your model side of it: This is what it’s going to look like, this is an approximation of what we envision shipping to the end audience. Versus what often comes in, which is the Arduino hooked up to the laptop. So we can kind of see the functionality and maybe see how it interacts with the software on one side of it, and also on the flipside see that you at least have a sense of what the design is going to look like. If there’s no designer on the team, which is quite common, we want to see that they have a relationship in place with an industrial designer who is helping them and that it’s an industrial designer who’s produced a product that’s come to market before and has an understanding of where their costs have to be.”
DO REAL-TIME PRODUCT TESTING
“Misfit Wearables is one of our portfolio companies. They did the Shine. They actually raised money prior to launching on Indiegogo. The Indiegogo launch was partially for marketing purposes. Indiegogo was selected in part because they offer flexible perks. And the really interesting thing about flexible perks is that you can adjust your customer offerings in real time. So you can put out like ‘Hey, we’re going to offer 50 black Shines and see how quickly those turn over. Or people started writing in to them and saying ‘Hey, I’d really like my Shine to connect as a necklace.’ What Misfit was able to do is say we’re going to use this as a channel to reach our early adopter customers and really get a sense of what they want. They had already designed it. It was already made. There was already the core design of the Shine which was made in Korea, Vietnam, and the U.S.--it was a fairly complex process that went into manufacturing that device--they were able to take that and then say, ‘What do we need for our go to market strategy?’"
Misfit was able to do that in part because they had already raised funding.
ITEMIZE YOUR SPENDING
“I see some interesting things come in with financials. Everyone will tell you seed stage VCs discount financial models, that we don’t pay attention to them. In software that is more true than it is in hardware. In hardware there’s nothing that terrifies me more than seeing ‘Oh, we’re raising $3 million of which $1.5 million is for hiring these four people and $1.5 million is how we’re going to get it made.’ We do look to see: Have you secured a contract manufacturer? Are you making it here in Asia or Mexico? What does your bill of materials look like? What’s the margin you’re building in? Are you going to retail or direct to consumer? What’s your distribution channel? Have you given a substantial amount of thought to the business side? How are you taking this to market? What’s your market segmentation? Where’s your demand? Does your price tie into that demand? We do want to see evidence of a business plan and the fundraising ask tied to a plausible plan for execution.”
PREPARE A MARKETING STRATEGY
One area that startups constantly get wrong is marketing and branding, says DiResta.
"I think this comes partly out of the maker ethos, maybe the software startup ethos which is ‘if you build it they will come’--and that’s not really the case. Unless you have phenomenal SEO and this is the first one of its kind to ever be made…typing ‘baby monitor’ in is not going to pull up your brand new widget baby monitor, it’s going to pull up something made by Belkin. If you’re selling a thing to somebody, it’s understanding that your fundraising ask should be tied to a marketing strategy and understanding what that’s going to cost as well.”
MAKE IT SMARTER
The connected device space is full of potential, but it's often at odds with entrenched consumer behaviors. That's got to change. DiResta says.
“One of the things that we tend to see is that humans are still very much the routers of the Internet of things. Like your Nest tells you that something is wrong, but it doesn’t necessarily automatically address the problem by itself by talking to another control system. So one of the things we’re interested in seeing is that point at which instead of it alerting you to the problem, it fixes the thing and then sends you a push notification ‘Hey, I changed your temperature’ or ‘Hey, I talked to your vent.’”
“I think Lowes is trying to go this route with their Iris system. I think Smart Things is doing some really interesting stuff. We’ve also been watching it as what’s coming from the top down--the big company approach versus what comes up out of startups. Some of the things Kevin Lee from Samsung spoke to about lack of standards, lack of interoperability is a concern. So it’s an area that we’re watching and saying ‘what is going to continue to develop here?’”
HAVE A KILLER FEATURE
“In software it's the idea of a minimum viable product. We encourage companies to articulate: What is your differentiating feature? What makes someone switch away from another product and use you? We see it the same way in hardware which is: Why would I use a Nest when I have a functional thermostat--what is the one killer feature that’s going to offer me?”
It’s better to roll out a version 1.0 that’s simple and let the product evolve over time. She says.
"You don’t have to have every feature. It’s like, your cell phone used to be an actual phone. I don’t remember the last time I used it to make phone calls.”
So how do you know when your connected device is ready for market, or at least an investor pitch? DiResta says.
"It’s done when you’ve identified that one killer differentiator that someone is willing to pay money for that solves a meaningful problem that’s big enough to make them switch away from their old method of behavior--whether that’s flipping a light switch or adjusting the thermostat with a dial. And then rolling out that product, building it so that it’s modular enough that you can release some additional features through software rather than requiring a new hardware component is a fantastic way to build some modularity into that and save yourself the cost of having to produce a new run each time.”
COMMENTARY: If you are an entrepreneur or startup with a great new technology product, I highly urge that you read "The Innovation Secrets of Steve Jobs" by Carmine Gallo before you launch your product or begin prototyping your product. I mentioned these innovation secrets in my blog post dated October 6, 2011. I also highly recommend that you learn how to properly pitch your idea to investors by viewing Dave McClure's "How To Pitch A VC" slide show (See above).
Courtesy of an article dated December 10, 2013 appearing in Fast Company
The Nobel Prize in Physics 2013 was awarded jointly to François Englert (left) and Peter W. Higgs(right) "for the theoretical discovery of a mechanism that contributes to our understanding of the origin of mass of subatomic particles, and which recently was confirmed through the discovery of the predicted fundamental particle, by the ATLAS and CMS experiments at CERN's Large Hadron Collider"
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François Englert and Peter W. Higgs are jointly awarded the Nobel Prize in Physics 2013 for the theory of how particles acquire mass. In 1964, they proposed the theory independently of each other (Englert together with his now deceased colleague Robert Brout). In 2012, their ideas were confirmed by the discovery of a so called Higgs particle at the CERN laboratory outside Geneva in Switzerland..
The awarded theory is a central part of the Standard Model of particle physics that describes how the world is constructed. According to the Standard Model, everything, from flowers and people to stars and planets, consists of just a few building blocks: matter particles. These particles are governed by forces mediated by force particles that make sure everything works as it should.
The entire Standard Model also rests on the existence of a special kind of particle: the Higgs particle. This particle originates from an invisible field that fills up all space. Even when the universe seems empty this field is there. Without it, we would not exist, because it is from contact with the field that particles acquire mass. The theory proposed by Englert and Higgs describes this process.
On 4 July 2012, at the CERN laboratory for particle physics, the theory was confirmed by the discovery of a Higgs particle. CERN’s particle collider, LHC (Large Hadron Collider), is probably the largest and the most complex machine ever constructed by humans. Two research groups of some 3,000 scientists each, ATLAS and CMS, managed to extract the Higgs particle from billions of particle collisions in the LHC.
Even though it is a great achievement to have found the Higgs particle — the missing piece in the Standard Model puzzle — the Standard Model is not the final piece in the cosmic puzzle. One of the reasons for this is that the Standard Model treats certain particles, neutrinos, as being virtually massless, whereas recent studies show that they actually do have mass. Another reason is that the model only describes visible matter, which only accounts for one fifth of all matter in the cosmos. To find the mysterious dark matter is one of the objectives as scientists continue the chase of unknown particles at CERN.
François Baron Englert was born in 1932 and is a Belgian theoretical physicist and 2013 Novel prize laureate (shared with Peter Higgs). He is Professor emeritus at the Universite libre de Bruxelles (ULB) where he is member of the Service de Physique Théorique. He is also a Sackler Professor by Special Appointment in the School of Physics and Astronomy at Tel Aviv University and a member of the Institute for Quantum Studies at Chapman University in California. He was awarded the 2010 J.J. Sakurai Prize for Theoretical Particle Physics (with Gerry Guralnik, C.R. Hagen, Tom Kibble, Peter Higgs and Robert Brout), the Wolf Prize in Physics in 2004 (with Brout and Higgs) and the High Energy and Particle Prize of the European Physical Society (with Brout and Higgs) in 1997 for the mechanism which unifies short and long range interactions by generating massive gauge vector bosons. He has made contributions in statistical physics, quantum field theory, cosmology, string theory and supergravity. He is the recipient of the 2013 Prince of Asturias Award in technical and scientific research, together with Peter Higgs and the CERN.
Peter W. Higgs CH, FRS, FRSE was born in 1929 and is a British theoretical physicist, Nobel laureate and emeritus professor at the University of Edinburgh. He is best known for his 1960s proposal of broken symmetry in electroweak theory, explaining the origin of mass of elementary particles in general and of the W and Z bosons in particular. This so-called Higgs mechanism, which was proposed by several physicists besides Higgs at about the same time, predicts the existence of a new particle, the Higgs boson (which was often described as "the most sought-after particle in modern physics". CERN announced on 4 July 2012 that they had experimentally established the existence of a Higgs-like boson, but further work is needed to analyse its properties and see if it has the properties expected from the Standard Model Higgs boson. On 14 March 2013, the newly discovered particle was tentatively confirmed to be + parity and zero spin, two fundamental criteria of a Higgs boson, making it the first known fundamental scalar particle to be discovered in nature (although previously, composite scalars such as the K had been observed over half a century prior). The Higgs mechanism is generally accepted as an important ingredient in the Standard Model of particle physics, without which certain particles would have no mass.
Nobel Prize in Chemistry for 2013
The Nobel Prize in Chemistry 2013 was awarded jointly to Martin Karplus (left), Michael Levitt (middle) and Arieh Warshel (right) "for the development of multiscale models for complex chemical systems".
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Chemists used to create models of molecules using plastic balls and sticks. Today, the modelling is carried out in computers. In the 1970s, Martin Karplus, Michael Levitt and Arieh Warshel laid the foundation for the powerful programs that are used to understand and predict chemical processes. Computer models mirroring real life have become crucial for most advances made in chemistry today.
Chemical reactions occur at lightning speed. In a fraction of a millisecond, electrons jump from one atomic to the other. Classical chemistry has a hard time keeping up; it is virtually impossible to experimentally map every little step in a chemical process. Aided by the methods now awarded with the Nobel Prize in Chemistry, scientists let computers unveil chemical processes, such as a catalyst’s purification of exhaust fumes or the photosynthesis in green leaves.
The work of Karplus, Levitt and Warshel is ground-breaking in that they managed to make Newton’s classical physics work side-by-side with the fundamentally different quantum physics. Previously, chemists had to choose to use either or. The strength of classical physics was that calculations were simple and could be used to model really large molecules. Its weakness, it offered no way to simulate chemical reactions. For that purpose, chemists instead had to use quantum physics. But such calculations required enormous computing power and could therefore only be carried out for small molecules.
This year’s Nobel Laureates in chemistry took the best from both worlds and devised methods that use both classical and quantum physics. For instance, in simulations of how a drug couples to its target protein in the body, the computer performs quantum theoretical calculations on those atoms in the target protein that interact with the drug. The rest of the large protein is simulated using less demanding classical physics.
Today the computer is just as important a tool for chemists as the test tube. Simulations are so realistic that they predict the outcome of traditional experiments.
Martin Karplus was born in 1930 and is an Austrian-born American theoretical chemist. He is the Theodore William Richards Professor of Chemistry, emeritus at Harvard University. He is also Director of the Biophysical Chemistry Laboratory, a joint laboratory between the French National Center for Scientific Research and the University of Strasbourg, France. Karplus received the 2013 Nobel Prize in Chemistry, together with Michael Levitt and Arieh Warshel, for "the development of multiscale models for complex chemical systems".
Michael Levitt, FRS was born in 1947 and is an American-British-Israeli biophysicist and a professor of structural biology at Stanford University, a position he has held since 1987. His research is in computational biology and he is a member of the National Academy of Sciences. Levitt received the 2013 Nobel Prize in Chemistry, together with Martin Karplus and Arieh Warshel, for "the development of multiscale models for complex chemical systems".
Arieh Warshel (Hebrew: אריה ורשל, was born in 1940 and is an Israeli-American Distinguished Professor of Chemistry and Biochemistry at the University of Southern California. He received the 2013 Nobel Prize in Chemistry, together with Michael Levitt and Martin Karplus for "the development of multiscale models for complex chemical systems".
Nobel Prize in Medicine for 2013
The Nobel Prize in Physiology or Medicine 2013 was awarded jointly to James E. Rothman (left), Randy W. Schekman (middle) and Thomas C. Südhof (right) "for their discoveries of machinery regulating vesicle traffic, a major transport system in our cells".
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The 2013 Nobel Prize was awarded jointly to three scientists who have solved the mystery of how the cell organizes its transport system. Each cell is a factory that produces and exports molecules. For instance, insulin is manufactured and released into the blood and signaling molecules called neurotransmitters are sent from one nerve cell to another. These molecules are transported around the cell in small packages called vesicles. The three Nobel Laureates have discovered the molecular principles that govern how this cargo is delivered to the right place at the right time in the cell.
Randy Schekman discovered a set of genes that were required for vesicle traffic. James Rothman unravelled protein machinery that allows vesicles to fuse with their targets to permit transfer of cargo. Thomas Südhof revealed how signals instruct vesicles to release their cargo with precision.
Through their discoveries, Rothman, Schekman and Südhof have revealed the exquisitely precise control system for the transport and delivery of cellular cargo. Disturbances in this system have deleterious effects and contribute to conditions such as neurological diseases, diabetes, and immunological disorders.
How cargo is transported in the cell
In a large and busy port, systems are required to ensure that the correct cargo is shipped to the correct destination at the right time. The cell, with its different compartments called organelles, faces a similar problem: cells produce molecules such as hormones, neurotransmitters, cytokines and enzymes that have to be delivered to other places inside the cell, or exported out of the cell, at exactly the right moment. Timing and location are everything. Miniature bubble-like vesicles, surrounded by membranes, shuttle the cargo between organelles or fuse with the outer membrane of the cell and release their cargo to the outside. This is of major importance, as it triggers nerve activation in the case of transmitter substances, or controls metabolism in the case of hormones. How do these vesicles know where and when to deliver their cargo?
Traffic congestion reveals genetic controllers
Randy Schekman was fascinated by how the cell organizes its transport system and in the 1970s decided to study its genetic basis by using yeast as a model system. In a genetic screen, he identified yeast cells with defective transport machinery, giving rise to a situation resembling a poorly planned public transport system. Vesicles piled up in certain parts of the cell. He found that the cause of this congestion was genetic and went on to identify the mutated genes. Schekman identified three classes of genes that control different facets of the cell´s transport system, thereby providing new insights into the tightly regulated machinery that mediates vesicle transport in the cell.
Docking with precision
James Rothman was also intrigued by the nature of the cell´s transport system. When studying vesicle transport in mammalian cells in the 1980s and 1990s, Rothman discovered that a protein complex enables vesicles to dock and fuse with their target membranes. In the fusion process, proteins on the vesicles and target membranes bind to each other like the two sides of a zipper. The fact that there are many such proteins and that they bind only in specific combinations ensures that cargo is delivered to a precise location. The same principle operates inside the cell and when a vesicle binds to the cell´s outer membrane to release its contents.
It turned out that some of the genes Schekman had discovered in yeast coded for proteins corresponding to those Rothman identified in mammals, revealing an ancient evolutionary origin of the transport system. Collectively, they mapped critical components of the cell´s transport machinery.
Timing is everything
Thomas Südhof was interested in how nerve cells communicate with one another in the brain. The signalling molecules, neurotransmitters, are released from vesicles that fuse with the outer membrane of nerve cells by using the machinery discovered by Rothman and Schekman. But these vesicles are only allowed to release their contents when the nerve cell signals to its neighbours. How is this release controlled in such a precise manner? Calcium ions were known to be involved in this process and in the 1990s, Südhof searched for calcium sensitive proteins in nerve cells. He identified molecular machinery that responds to an influx of calcium ions and directs neighbour proteins rapidly to bind vesicles to the outer membrane of the nerve cell. The zipper opens up and signal substances are released. Südhof´s discovery explained how temporal precision is achieved and how vesicles´ contents can be released on command.
Vesicle transport gives insight into disease processes
The three Nobel Laureates have discovered a fundamental process in cell physiology. These discoveries have had a major impact on our understanding of how cargo is delivered with timing and precision within and outside the cell. Vesicle transport and fusion operate, with the same general principles, in organisms as different as yeast and man. The system is critical for a variety of physiological processes in which vesicle fusion must be controlled, ranging from signalling in the brain to release of hormones and immune cytokines. Defective vesicle transport occurs in a variety of diseases including a number of neurological and immunological disorders, as well as in diabetes. Without this wonderfully precise organization, the cell would lapse into chaos.
James E. Rothman was born 1950 in Haverhill, Massachusetts, USA. He received his PhD from Harvard Medical School in 1976, was a postdoctoral fellow at Massachusetts Institute of Technology, and moved in 1978 to Stanford University in California, where he started his research on the vesicles of the cell. Rothman has also worked at Princeton University, Memorial Sloan-Kettering Cancer Institute and Columbia University. In 2008, he joined the faculty of Yale University in New Haven, Connecticut, USA, where he is currently Professor and Chairman in the Department of Cell Biology.
Randy W. Schekman was born 1948 in St Paul, Minnesota, USA, studied at the University of California in Los Angeles and at Stanford University, where he obtained his PhD in 1974 under the supervision of Arthur Kornberg (Nobel Prize 1959) and in the same department that Rothman joined a few years later. In 1976, Schekman joined the faculty of the University of California at Berkeley, where he is currently Professor in the Department of Molecular and Cell biology. Schekman is also an investigator of Howard Hughes Medical Institute.
Thomas C. Südhof was born in 1955 in Göttingen, Germany. He studied at the Georg-August-Universität in Göttingen, where he received an MD in 1982 and a Doctorate in neurochemistry the same year. In 1983, he moved to the University of Texas Southwestern Medical Center in Dallas, Texas, USA, as a postdoctoral fellow with Michael Brown and Joseph Goldstein (who shared the 1985 Nobel Prize in Physiology or Medicine). Südhof became an investigator of Howard Hughes Medical Institute in 1991 and was appointed Professor of Molecular and Cellular Physiology at Stanford University in 2008.
Nobel Prize in Literature for 2013
The Nobel Prize in Literature 2013 was awarded to Alice Munro"master of the contemporary short story".
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Alice Ann Munro (néeLaidlaw); was born in 1931 and is a Canadian author writing in English. Munro's work has been described as having revolutionized the architecture of short stories, especially in its tendency to move forward and backward in time. Munro's fiction is most often set in her native Huron County in southwstern Ontario. Her stories explore human complexities in an uncomplicated prose style. Munro's writing has established her as "one of our greatest contemporary writers of fiction," or, as Cynthia Ozick put it, "our Chekhov." Alice Munro was awarded the 2013 Nobel Prize in Literature for her work as "master of the modern short story", and the 2009 Man Booker International Price for her lifetime body of work, she is also a three-time winner of Canada's Governor General's Award for fiction.
Nobel Prize in Economics for 2013
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2013 was awarded jointly to Eugene F. Fama (left), Lars Peter Hansen (middle) and Robert J. Shiller(right) "for their empirical analysis of asset prices".
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There is no way to predict the price of stocks and bonds over the next few days or weeks. But it is quite possible to foresee the broad course of these prices over longer periods, such as the next three to five years. These findings, which might seem both surprising and contradictory, were made and analyzed by this year’s Laureates, Eugene Fama, Lars Peter Hansen and Robert Shiller.
Beginning in the 1960s, Eugene Fama and several collaborators demonstrated that stock prices are extremely difficult to predict in the short run, and that new information is very quickly incorporated into prices. These findings not only had a profound impact on subsequent research but also changed market practice. The emergence of so-called index funds in stock markets all over the world is a prominent example.
If prices are nearly impossible to predict over days or weeks, then shouldn’t they be even harder to predict over several years? The answer is no, as Robert Shiller discovered in the early 1980s. He found that stock prices fluctuate much more than corporate dividends, and that the ratio of prices to dividends tends to fall when it is high, and to increase when it is low. This pattern holds not only for stocks, but also for bonds and other assets.
One approach interprets these findings in terms of the response by rational investors to uncertainty in prices. High future returns are then viewed as compensation for holding risky assets during unusually risky times. Lars Peter Hansen developed a statistical method that is particularly well suited to testing rational theories of asset pricing. Using this method, Hansen and other researchers have found that modifications of these theories go a long way toward explaining asset prices.
Another approach focuses on departures from rational investor behavior. So-called behavioral finance takes into account institutional restrictions, such as borrowing limits, which prevent smart investors from trading against any mispricing in the market.
The Laureates have laid the foundation for the current understanding of asset prices. It relies in part on fluctuations in risk and risk attitudes, and in part on behavioral biases and market frictions.
Eugene Francis "Gene" Fama (/ˈfɑːmə/) was born in 1939 and is an American economist and Nobel laureate in Economics, known for his work on portfolio theory and asset pricing, both theoretical and empirical.
He is currently Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. In 2013 it was announced that he would be awarded the Nobel Prize in Economic Sciences jointly with Robert Shiller and Lars Peter Hansen.
Lars Peter Hansen was born in `1952 and is the David Rockefeller Distinguished Service Professor of economics at the University of Chicago. Best known for his work on the Generalize Method of Moments, he is also a distinguished macroeconomist, focusing on the linkages between the financial and real sectors of the economy. In 2013, it was announced that he would be awarded the Nobel Memorial Prize in Economics, jointly with Robert J. Shiller and Eugene Fama.
Robert James "Bob" Shiller was born in 1946 and is an American economist, academic, and best-selling author. He currently serves as a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center for Finance. Shiller has been a research associate of the National Bureau of Economic Research (NBER) since 1980, was Vice President of the American Economic Association in 2005, and President of the Eastern Economic Association for 2006-2007. He is also the co‑founder and chief economist of the investment management firm MacroMarkets LLC. Shiller is ranked among the 100 most influential economists of the world. On 14 October 2013, it was announced that Shiller, together with Eugene Fama and Lars Peter Hansen, would receive the 2013 Nobel Prize in Economics, “for their empirical analysis of asset prices”.
Nobel Prize For Peace 2013
The Nobel Peace Prize 2013 was awarded to Organisation for the Prohibition of Chemical Weapons "for its extensive efforts to eliminate chemical weapons".
The Norwegian Nobel Committee has decided that the Nobel Peace Prize for 2013 is to be awarded to the Organisation for the Prohibition of Chemical Weapons (OPCW) for its extensive efforts to eliminate chemical weapons.
During World War One, chemical weapons were used to a considerable degree. The Geneva Convention of 1925 prohibited the use, but not the production or storage, of chemical weapons. During World War Two, chemical means were employed in Hitler’s mass exterminations. Chemical weapons have subsequently been put to use on numerous occasions by both states and terrorists. In 1992-93 a convention was drawn up prohibiting also the production and storage of such weapons. It came into force in 1997. Since then the OPCW has, through inspections, destruction and by other means, sought the implementation of the convention. 189 states have acceded to the convention to date.
The conventions and the work of the OPCW have defined the use of chemical weapons as a taboo under international law. Recent events in Syria, where chemical weapons have again been put to use, have underlined the need to enhance the efforts to do away with such weapons. Some states are still not members of the OPCW. Certain states have not observed the deadline, which was April 2012, for destroying their chemical weapons. This applies especially to the USA and Russia.
Disarmament figures prominently in Alfred Nobel’s will. The Norwegian Nobel Committee has through numerous prizes underlined the need to do away with nuclear weapons. By means of the present award to the OPCW, the Committee is seeking to contribute to the elimination of chemical weapons.
COMMENTARY: Congratulations to all recipients. The 2013 Nobel laureates include six Americans. Here's a YouTube video of the Nobel Prize Ceremony: