Eastern European Champions & the 4 V’s of Big Data

Eastern European Champions

I had the opportunity to do a keynote at the IDCEE conference in Kiev last week. It was my first time in the city and I must say that I was immediately taken by the energy of the city and of the entrepreneurs that I met at the conference.

It took me some time to figure out a title and I eventually settled for “Building European Champions” as the region has proven its ability to generate very successful venture outcomes and will continue to be the birthplace of many successful technology companies. I would categorize these champions in two camps: the “Local Champions” and the “Global Champions”. The first category includes companies that have a dominant position in their national market and are often internet or ecommerce companies. This category would include among others Yandex, Mail.ru, KupiVIP and Avito in Russia as well as Allegro in Poland. The second category is composed of companies that have developed a unique IP locally and marketed it worldwide - typically in the gaming, software, security or mobile sectors. Skype is probably the most famous of them, but there are a lot of other examples including Game Insights, Kaspersky and Parallels in Russia, LogMeIn and Prezi in Hungary and Avast and AVG in the Czech Republic.

Why Eastern Europe?

Looking forward, Eastern Europe has several assets and macro trends that will contribute to foster more innovation and create successful technology companies:

• 400m+ people in the region
• GDP of $3T+ with most countries growing 2-5%+
• “Runet” (Russia Internet) is the largest market in Europe with 53m internet users and given its under-penetration (37%) it is still growing at double digits, increasing the gap with Germany which is currently number two and growing at 2% per annum. Out of these 53m internet users, 15m are shopping online, creating a fast growing $11B ecommerce market in Russia alone (expected to reach $19B by 2015)
• The mobile penetration is among the highest in the world with 1.7 mobile phone per person for the Top 4 EE countries (vs. 1.2 in GE, 1.3 in Brazil and 0.8 in India and China)
• The region has an exceptional talent pool: Eastern Europe was the first country to send a man into space in 1961 and has a very strong network of universities. It is not by chance than a Moscow team won the 2012 FB Hackathon with Boostmate, a tool to analyze social interactions and rank your closest friends.

In addition, the availability of cloud and open source technologies has further reduced the cost to get a technology business started as now anyone can get computing and storage capacity in the cloud or build a LAMP stack for a few hundred dollars. This low entry barrier should accelerate the pace of innovation.

A few facts on Big Data

I took advantage of this keynote to highlight a few areas where we see a lot of opportunities globally and in particular for Eastern European start-ups: Big Data, Cloud Computing and Mobile. I will elaborate a bit on the first one – Big Data.

Big Data is a key area of focus for our firm to the point that we even created a $100m “Big Data Fund” recently. Going through several reports, I found a few mind-blowing stats on the growth of structured and mostly unstructured data. Here are a few examples:

• 247B emails are sent every day (and the scary bit is that 80% is spam!) 
• It costs $600 to buy a disk drive that can store all of the world’s music
• 30B pieces of content are shared on Facebook every month
• Projected growth in global data generated annually is 40%. By 2020, the production of data will be 44 times what we produced in 2009
• 15 out of 17 sectors in the United States have more data stored per company than the US Library of Congress

Big Data is indeed…big! And getting bigger and bigger.

The 4 V’s of Big Data

Big Data is different from "large amount" of data. We have tried to define Big Data around a framework of four V’s that explain the essence of the concept: Volume, Variety, Velocity and Value:

• Volume: the first V is easy to grasp as it is about quantity. The proliferation of mobile phones, social media, machine data, web logs has led to large amounts of data being generated, stored and processed and this volume is increasing exponentially with the growth of new computing platforms and the shift of activities from offline to online
• Variety: this is where big data starts to differ from “a lot of data”. Big Data is not only about volume but also about the type of data. Large volume of structured data can stored in relational databases and accessed quickly by queries. Big Data contains structured data but mostly unstructured data (which is the key driver of growth as shown in the graph above). And this unstructured data contains valuable information that can now be extracted if the right infrastructure is in place (e.g., sentiment, preference, mood, purchasing intent)
• Velocity: Time is of the essence with Big Data. Business users need faster and faster response rate to derive the most value from information. Sometimes it needs to be in real time. The more data to analyze and the more challenging this becomes as all the pieces of the infrastructure needs to be perfectly tuned
• Value: This last V’s characterize the underlying purpose of storing Big Data – to derive business value. This means that on top of the technical aspect of storing and managing Big Data, there is a need for a strong BI and visualization engine to drive insights beyond data scientists

Looking at these four V’s helps define the underlying opportunities around Big Data: there is a need for larger and cheaper storage, fast access, data management tools, platforms (like Hadoop), BI and visualisation engines and new business applications that can help businesses capture, organize and derive the most value from Big Data.

I will finish this post with one example that came out of a discussion with the IT executive of a large US bank. One of the big data team collected and analyzed all the data of accidents on Route 101 linking San Francisco to San Jose. They found that a large part of the accidents were due to random objects falling from trucks on the road. Digging deeper, they found that a large part of these objects were real estate signs and they were able to correlate spikes in the number of accidents on route 101 with a shift in the real estate market in the bay area in quasi real time. Impressive! 

And this is just the beginning.

French Tax Law for Start-ups: Ringing the Alarm Bell

 

Accel has already invested over $60 million in French start-ups and we would like to invest more – but will there be enough entrepreneurs left if the new Tax laws are voted in? 

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This post is a translation of the article: « Pigeons » : le cri d'alarme d'un fonds américain published on LaTribune (12/10/2012) and is a response to the proposed tax law proposed by the government of Francois Hollande, suggesting to tax all capital gain at the same level than salaries or 60%.

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While France has been a fertile ground for innovative start-ups, the new fiscal law threatens to disrupt an ecosystem that has slowly emerged over the past 12 years. Instead of increasing the tax burden on these companies driving job creation, why not take full advantage of this evolution of the tax law to position France as the most attractive country for entrepreneurs in Europe?

France has proven its ability to develop innovative internet models

 

Over the past three years, we have invested over $60 million in French technology start-ups with Showroomprive (number 2 in Europe for online private sales), BlaBlaCar (Covoiturage.fr the European leader in ride-sharing) and Shopmium (offering coupons via a mobile app) and as a result have contributed to creating close to 600 jobs. While our investment focus covers all of Europe, we consider France to be a very important market for our business and we are actively seeking new investment opportunities.

France is indeed a country with a proven track record of developing innovative business models.

Here are a few examples: the “flash sales” model was launched by VentePrivee and Showroomprive, the two European leaders and has been copied in the US by several companies such as Gilt Groupe; “online retargeting” was invented by Criteo, who currently operates in 30 countries with over 3,000 customers and whose success relies, among other things, on its 10,000m2 R&D centre located downtown Paris. Since its launch, Criteo has created 800 jobs, 40% of those in R&D; France has also been a pioneer in the space of ride-sharing with the creation of covoiturage.fr, a company that has built a strong community of over 2 million members and transporting a number of passengers equivalent of 1,000 high speed trains every month. And the list of success stories continues with companies such as Free, Meetic, AuFeminin.com, PriceMinister, SeLoger…

The second strength of France resides in its talent pool of entrepreneurs. With the experience accumulated during the first internet boom, this talent pool has grown considerably and gained in strength over the past few years. Those who have enjoyed success have given back to the community as business angels, through the creation of seed funds such as ISAI, Kima Ventures or Jaina Capital, or by sharing their personal experience through forums, conferences or teaching. A good example is the creation of École Européenne des Métiers de l'Internet (EEMI) in September 2011, founded by Marc Simoncini (Meetic), Jacques Antoine Granjon (Vente-privee.com) and Xaviel Niel (FREE).

Finally, another notable strength of France resides in its Telecom infrastructure. Indeed, France enjoys the highest penetration rate for broadband in Europe (32.7% for France vs. 26.5% on average in Europe according to Eurostat, Jan. 2011).

Amendments proposed to the 2013 Tax law are insufficient and threaten to destabilize the ecosystem

 

I will not go over the initial regulation proposal, which recommended a 60% tax rate on profits made by entrepreneurs after an exit (basic idea is to apply same tax rate on salary and capital gains). Instead, I will focus the discussion on the recent amendments suggested by the minister of economy and explain why these amendments are insufficient and threaten the growth of a booming ecosystem that has already proven to be and should remain a source of job creation.

The first amendment relies on the definition of « founder » and imposes a minimal ownership of 10% of the company and a holding period of two to five years to benefit from a lower tax rate. Let’s examine first the ownership constraint proposed by the amendment: the ownership level of a founder in his / her company depends on two key factors: the number of founders in the start-up and the potential dilution that occurs with fund raising (needed to sustain the company’s growth). Imposing a minimum ownership threshold on founders penalizes teams with several co-founders, while the combination of talents and skill sets coming from having several co-founders is usually core to the success of a start-up. This proposal also penalizes companies that have struggled to grow and had to raise several round of funding before reaching a critical mass, and have therefore been diluted more than they would have liked. Finally, it puts a break on the fast growing start-ups that could benefit from an additional injection of capital to fuel their growth but won’t do it to avoid further dilution. In our portfolio, we have companies with founding CEOs who own less than 10% of their companies for some of the reasons I just listed. Why should they be penalised in such an arbitrary way? The duration criterion is also very punitive for start-ups playing in the dynamic technology market. Let’s take an example in our portfolio: Playfish, a “social gaming” company, was launched in London in 2007. It enjoyed explosive growth, created 200 jobs in two years, and was acquired in 2009 by the American giant Electronic Arts. If that company had had to comply with the proposed regulation, its founding partners would have faced the following dilemma: either forfeit 60% of their gains in tax, or … ask Electronic Arts to come back later. Why should rapid success stories be penalised more than companies whose success is slower to come?

The second amendment proposes to apply tax rebates on capital gains applicable over a six years period for those who cannot meet the founder status. While this measure also relies on an arbitrary duration, which does not account for the dynamic environment in which start-ups operate, it will also create inequalities among start-up teams by dividing them into three “classes”: the “founders” who will be protected in some instances, the employees who have received stock options (and will fortunately not be impacted by this regulation) and the employees who have received shares and will be subject to a complex tax waiver scheme. Is this the “social justice” announced by the government?

To conclude, the ecosystem of internet start-ups is based on three key stakeholders: the entrepreneurs, who create the start-ups, the employees, who contribute to their success and the investors (business angels and venture capitalists), who invest capital to fuel growth. Those three constituents share the risks and play a key role in the development of start-ups. The proposed law, instead of bringing more cohesion to the ecosystem and aligning stakeholders’ interests, will in fact introduce inequalities that will ultimately lead to disequilibrium and conflicts… in addition to adding unnecessary complexity to the model. 

Why not take advantage of this law to make France the champion of Entrepreneurship in Europe?

 

Instead of introducing extra layers of complexity and penalising both start-ups and entrepreneurs, why not going back to simplicity and proposing positive changes that would position France as a beacon for innovation and entrepreneurship in Europe?

If we all agree that start-ups need to be protected given they are a unique vector of economic growth and job creation, why not take a step further and give them an attractive tax rate that could apply equally to all shareholders independently of any ownership level or duration? Why not apply a 15% tax rate on all capital gains coming from start-ups? Not only would such a measure boost the French technology ecosystem, but it would also attract entrepreneurs and investors to France.

One way to create boundaries for this proposal, would be to apply it only to shares acquired during the first twelve years of a start-up’s existence, after this date all transactions would be taxed at the current capital gain tax rate (regardless what the rate is – although I personally do not agree with the tax rate currently proposed by the government).  So why twelve years? While that threshold should be thought through, it would apply well to our current portfolio: among the 250+ active companies we have funded, the proportion of those founded before 2000 is minimal.

Such a change would play to France’s advantage and give a boost to the start-up ecosystem. Why not take a chance?

 

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The Accel 5 Mantras of Ecommerce in Turkey

I was lucky to enjoy the sun, warmth and excitement of Istanbul in the past couple of days to attend the Webrazzi Summit, which is the poster child of Turkey’s vibrant start-up scene. I have been to Turley several times in the past 18 months, and find the region very exciting. There is a lot to like in this country with a large and fast growing internet market still very underpenetrated:

• Strong macroeconomic trends with a 2011 GDP growth of 8.1% and a GDP per capita which grew from $6k in 2001 to $14k in 2011
• Good infrastructure with 38m internet users (5^th European country), mobile penetration above 90% and a very strong logistics and payment networks (45m+ credit cards)
• Very attractive demographics with half of the population below 30 year-old and very active online (5^th country on Facebook, 8^th on Twitter)

As you can see, I am Istanbul-lish!

Being invited to speak at the conference, I decided to present some of the things that Accel learned after speaking to dozens of internet and ecommerce companies in the region. I summarized these learnings into 5 “Mantras” that are developed in the presentation embedded below:

1. “Me too” is not enough: don’t be the 50^th private shopping club or Groupon clone. There is no room for you in the market. Think “differentiation”
2. eCommerce is not a cheap journey: be prepared! Most successful ecommerce companies raise more than $50m during their lifetime, so watch every penny you spend and pay specific attention to (1) Inventory and working capital and (2) marketing costs (in particular a repeat basket is not free!)
3. Run your business with numbers: eCommerce is all about numbers and doing a 100 small things right
4. Build your brand by focusing on user experience: a strong brand is necessary to reduce your CAC and increase your profitability and the best way to build it is to focus on providing a great user experience (product, service and payments)
5. Mobile will be bigger than you think: mobile will represent 20%+ of you sales before you realize it!

The Accel 5 mantras of e commerce in Turkey from Philippe Botteri

Tired of paper and pen?

Who is not tired of having to sign a document on paper and then send a copy by fax or scanner? Or even worse, have to travel for a signture: last month, I had to sign a notarised document for a family matter and the only way to make this happen was to travel to Paris and show up at the notary's office to sign one single document. Very expensive signature both in terms of time and travel costs....Isn't this crazy XXIst century?

Hopefully, this will be over soon as Docusign expands its network of 20m users, who have already signed more than 150m documents in 188 countries. Venture is all about investing in disrupting technology and Docusign is disrupting a very basic process: signing a document. It sounds very simple but the complexity is to make this service as easy and simple as is a signature on paper, while being able to manage the flow of the document and provide the required security to make signatures reliables.

This technology is impacting nearly all the areas of a company: from human resouces employment contracts and onboarding documents, to procurement, sales, legal and finance. Signatures are everywhere and with a digitized workflow, documents can travel across department, subsidiaries and countries within seconds, shortening the execution cycles from days to minutes. In addition, the rise of tablets and mobile devices will accelerate the growth by making the signature process ubiquitous.

Facebook is your social network, LinkedIn your professional network and Docusign will be your identity network.

As several sites announced last week, Docusign raised a large $50m round to fuel its growth, in particular in Europe and Accel participated alongside Kleiner Perkins and existing investors. I look forward to work with Keith Krach, Mike Dinsdale, Tom Gonser and the rest of the Docusign team on this great adventure!

Apple in numbers

Apple posted some interesting numbers that I thought I would share with you, as some of them are mind-boggling:

400m card accounts linked to iTunes (this is now more than any other store on the planet, larger than the US population and close to 6% of the worldwide population!)

There are over 650,000 apps on the iOS app store, of which 225,000 are iPad only apps (this is an amazing stat show developers are now just focusing on iPad instead of iPhone)

Over 30B apps have been downloaded – with consumers downloading more than 50M apps a day. This represents more than 4 app per person on the planet

Over its lifetime, Apple has paid $5B to iOS developers compared to $12B to music labels – Apple now pays more to developers than music labels and will generate $5B in gross income this year.

By Q1’2012, there were 365M iOS devices in the market

Amazingly, apps are sending 7B notifications a day! Close to 20 per device...

SMS businesses are hurting – of the 365M devices, 140M use iMessage (Apple free messaging platform), sending 1B messages a day or close to 3 per device

130M devices now connect to GameCenter (which is basically Apple’s attempt to harmonize leader boards/stats across games


So, does this justifie a $560B market cap?

Perspective on gaming and mobile apps on Bloomberg

I was invited for the second time by Maryam Nemaze to talk about investing trends in technology. It was a but surprising to see the first question starting with Apple earnings but that's part of the game! It was a fun session. I did talk about software but unfortunately this part was cut in the online video. I guess the gaming and mobile sectors are more consumer friendly.

BlablaCar - Travel Revolution

Some countries in Europe may have lost their AAA ratings, but they have not lost their appetite to innovate and create new online services. Blablacar is one such example of innovation: with a fast growing community of 1.6m members in France (www.covoiturage.fr), the UK (www.blablacar.com) and Spain (www.comuto.es), this company is changing the way people travel on the old continent, becoming a very compelling alternative to trains and planes.

The website connects drivers and passengers who are willing to share a journey in their car. While the site addresses all kind of trips, from short commuting to long distance, most of the activity is around trips of 150+ miles. The passengers compensate the driver for the gas and toll costs, making it a fair trade. For example, a trip from Paris to Lyon (290 miles) would cost €25-30 compared to €100+ for the train. On top of being cheaper (cost is of course an important driver), people are also using the service because it is more social (a lot of people don't like to drive alone), more granular (with the scale, you can find a driver closer than the nearest train station!), and of course more environmentally friendly.

Blablacar is to cars what Airbnb is to houses: a way for people to monetise their unused assets on one hand and to consume differently on the other hand. This trend, described by Rachel Botsman in her book "The Rise of Collaborative Consumption" is growing as people becomes more and more inclined to use things rather than to own things. This explains the success of companies like Netflix or Zipcar, but like Airbnb, Blablacar is pushing the concept further with the assets being owned by the consumer instead of the company.

It is interesting to note that this model has been invented in Europe (Blablacar started in 2006) and while there have been some similar and more recent initiatives in the US (e.g., Zimride, Ridejoy), they have not yet seen the explosive growth that the service has observed in Europe with more than 1 Billion miles shared by the community and more than 8m passengers transported!

As Techcrunch announced earlier today, Accel led a $10m round in the company to help them develop their service across all Europe. We are happy to jump on board this rocket ship and help the company change the lives of millions more people!