Why tech M&A fails so often: The three most common mistakes

  |   Allegis News, The Latest

 

 

 

By Bob Ackerman | November 1, 2016 | PE Hub

 

It was a failure. That’s what we learned in September about semiconductor giant Intel’s acquisition of antivirus software maker McAfee five years ago. Intel agreed to sell a majority stake in its $7.7 billion acquisition to a private equity firm at a price that showed that McAfee’s assets had increased only marginally, if at all.

There is an important message here.

Far too many technology companies are doing a poor job pursuing acquisitions. Strategic planning is insufficient and integration is largely bungled, and companies usually value acquisitions based on project potential and end up overpaying when that “potential” fails to materialize.

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Robert R. Ackerman Jr., founder and managing director, Allegis Capital. Photo courtesy of the firm

A technology company should acquire another only if the acquisition is highly likely to enable or enhance growth prospects indefinitely. Acquirers sometimes say this will be accomplished, but it usually turns out to be a pipe dream.

Most experts say the failure rate of acquisitions is at least 50 percent. Harvard Business Review has estimated it to be 70 percent to 90 percent.

It’s not as though companies decide to pursue an acquisition out of thin air. Their motivation is usually reasonable.

Companies may turn to M&A to embrace a new or emerging market opportunity or, concerned about their deteriorating competitive position, as a means to reinvigorate themselves. In other cases, a company may decide that it is better to buy new technology than to make it, or that it needs an outside company under its wings to enhance its domain expertise. Some acquisitions are sparked by several of these factors.

Too often, however, the strategy is flawed and key tactical steps miss the mark. Companies put on blinders and conclude that their particular deal will somehow buck the negative historical trend.

More often, the result is that the wrong companies are purchased for ultimately an unrealistic reason, and deals are improperly priced. If the marriage doesn’t fail outright, the financial performance of the acquirer declines.

Why deals fail

Even if the right acquisition is made, lots of things tend to go wrong. Corporate cultures clash. Or too much attention is focused on tactics and too little on strategy. Or, in the case of startups, new employees who are unwilling to swap the dream of being a key player in the growth of a successful startup to merely become a cog in a corporate wheel don’t buy into the deal and depart.

Consider another, recent technology acquisition that has looked shaky from the get-go. Microsoft’s purchase in the summer of LinkedIn for more than $26 billion, almost 50 percent more than the value of LinkedIn’s stock. Synergy is lacking. Small wonder given that Microsoft’s M&A track record is weak. It has written down multibillion-dollar purchases of the Nokia handset business and the aQuantive advertising business. And its $8.5 billion purchase of Skype is widely viewed as disappointing.

In many cases, mergers and acquisitions don’t flat out fail. They just underperform. According to an analysis last month of acquisitions by the S&P Global Market Intelligence team, post-deal returns among Russell 3000 companies making significant acquisitions generally did worse than their peers. Profit margins, earnings growth and return on capital all declined, relatively speaking, while interest expense rose as debt soared.

The three most common M&A mistakes

So what happens most often to undermine M&A deals?

  1. Integration is weak. The strategic partnering and business development executives who find companies and negotiate the deals are notthe executives who actually manage the acquisition or integrate the target company. Most of the time, it is the acquirer’s chief technology officer or the operating executive who wanted the acquisition who determine the fate of the startup. The success of an acquisition often depends on whether the acquiring company wants to keep the new company as a standalone division or integrate it into the corporation. Standalone divisions tend to have a better shot at success. The reality, however, is that if a company is being acquired for its intellectual property, typically the case, the usual strategy is to integrate the company and quickly assimilate it.
  2. Executives fail to distinguish between deals that might improve current operations from those that could dramatically improve the company’s growth prospects. Companies then pay the wrong price and integrate the acquisition poorly. A deal designed to boost a company’s performance is generally insufficient to significantly change a company’s growth trajectory. It usually requires something seldom done, working to successfully integrate the acquisition in terms of its business model.

Business models are multifaceted, but their most important component is the resources, such as employees, customers and products, used to deliver customer value. In an ideal case, these resources can be extracted from an acquired company and plugged into the parent’s business model. The problem is that additional business model components, such as the profit formula and business processes such as manufacturing, R&D and sales, are imbedded and generally not transferrable.

  1. Acquisitions don’t have a specific mission and targeted goals. Much more typical is the Microsoft-LinkedIn acquisition, in which the corporate combination simply hopes to improve corporate prospects by scooping up a new business.

M&As that have worked

It’s not impossible for corporate combinations to work. Some have.

One example is Apple’s purchase of chip designer P.A. Semi in 2008. Before then, Apple procured its microprocessors from independent suppliers. But as competition with other smartphone companies increased the importance of battery life, it became imperative for Apple to optimize power consumption by designing processors specifically for its products. Apple had to purchase the technology and talent to develop an in-house chip design capability. Predictably, the combination fared well.

Another successful example was EMC’s acquisition of VMware in 2003. EMC is a manufacturer of hardware storage. Its marriage with VMware substantially strengthened the company’s reach into its customers’ data centers. This merger turned out to be a stunning success.

The bottom line is that executives need to become far more discerning in eyeing potential acquisitions. This is precisely why Salesforce.com, Walt Disney Co and Google parent Alphabet Inc recently took a hard look at acquiring Twitter and, in each case, walked away.

Robert R. Ackerman Jr. is founder and managing director of Allegis Capital, a Palo Alto, California-based early-stage venture capital firm specializing in cybersecurity.

 

Article found here: Pehub.com

 

Photo of logos taken in June 2016 when Microsoft announced its $26.2 billion purchase of LinkedIn. Reuters/Dado Ruvic

 

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TMO Background Mode: Interview with Allegis Capital Partner Jean-Louis Gassée

  |   Allegis News, The Latest

By John Martellaro  |  October 3, 2016  |  The Mac Observer’s Background Mode Podcast

 

jean-louis-gassee-300sqJean-Louis Gassée is currently a V.C. partner with Allegis Capital. He’s best known, however, for taking over the Macintosh division in 1985, his startup of Be Inc. and his highly respected Monday Note, a technical commentary. Jean-Louis tells the story about how, as a precocious youth in Paris he built crystal AM radios and vacuum tubes. Later, after some “interesting jobs,” he joined Hewlett-Packard (France) in 1968 to launch HP’s first desktop computer, the 9100A. Jean-Louis’s success as an electronics geek eventually led to a job at Data General then the lead executive job for Apple France. Jean-Louis then came to the U.S., and his time in Cupertino is legendary. Join me as this computer pioneer chats about Apple and Macs, past and present.

 

 

 

 

 

 

TMO Background Mode: Interview with Allegis Capital Partner Jean-Louis Gassée

Jean-Louis Gassée is currently a V.C. partner with Allegis Capital. He’s best known, however, for taking over the Macintosh division in 1985, his startup of…

 

Article found here: Macobserver.com/podcasts 

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RSA Conference | The Rise of Nation-State Cyber Attacks Makes Encryption More Crucial Than Ever

  |   Allegis News, The Latest

 

By Robert R. Ackerman Jr | Founder & Managing Director of Allegis Capital

 

global_security_blogNo entity is immune from a cyber attack. A successful, jaw-dropping cyber assault against a seemingly impenetrable target occurred again last month. This time, the humbled target was the National Security Agency, the nation’s premier electronic eavesdropper. Three hundred megabytes of sophisticated code developed by the NSA to penetrate computer security systems was posted online for all to see. Shortly afterward, the NSA web site went down for almost a full day. In both cases, Russia is the suspected culprit.

Encryption is Crucial

I’ve argued before and today feel even more strongly that ubiquitous, top-flight encryption of data and communications is crucial to a healthy Internet, and that it should be continually strengthened, notwithstanding naysayers who say that law enforcement and other authorities should have a back-door key into systems. I respect the challenges confronting law enforcement, but this particular goal is unacceptable. The United States, its companies and its allies are being breached relentlessly, and the number of high-profile targets is rapidly escalating. We must do everything possible to mitigate this.

Nation-state actors—the world’s best-financed and most sophisticated culprits—have become extremely effective. Even presidential campaigns are being infiltrated, apparently driven by intense interest in how candidates would treat foreign countries and construct trade policies, and in who they would appoint to high-level positions. Campaigns also have lots of sensitive information on donors and internal deliberations.

 

Nation-State Cyber Attacks

Other prominent and successful nation-state cyber attacks, perpetrated by Russia, China and Iran, include:

  • The recent attack on the Democratic National Committee that stole and posted emails showing that former Democratic National Chairman Debbie Wasserman Schultz undermined Bernie Sanders’ chances of garnering the Democratic presidential nomination—an unprecedented cyber intrusion into national politics.

  • A breach of the Democratic National Committee earlier in the year in pursuit of the email accounts of Hillary Clinton and other luminaries as part of an intelligence-gathering operation. (Researchers say Donald Trump and the Republican National Committee weren’t targeted in this email phishing campaign because if focused on Gmail users, and the RNC doesn’t use Google for its email accounts.)

  • The penetration of the State Department’s unclassified email system in 2014 by Russian hackers. The culprit remained locked in on the government server for months.

  •  China’s targeting last year of the United States’ Office of Personnel Management computer systems, from which it stole information about roughly 23 million current and former federal employees. In so doing, China bypassed a federal government multi-billion-dollar intrusion detection and prevention system.

  •  An attack by Iran in 2013 on the computerized controls of a small dam 25 miles north of New York City, a test of the quality of U.S. infrastructure protection, as well as a series of cyberattacks in 2013 and 2014 on dozens of U.S. banks.

  • North Korea’s cyberattack on South Korea earlier this year, an attempt to hack into the nation’s railway control system and the computer networks of financial institutions. Separately, South Korea also accused North Korea of trying to hack into the smartphones of 300 foreign affairs, security and military officials. Forty phones were compromised.

Encryption Must Be Expanded

To more effectively combat these players and others, encryption is a necessity, not a luxury, and a technology that must be expanded and improved to protect against the sort of attacks cited above and others that target intellectual property. That’s why Mozilla, the creator of the Firefox browser, has always taken encryption seriously, and it’s why Google recently tweaked its search engine to favor web sites that encrypt. Google also changed its email system to offer users the ability to more easily encrypt email. Internet users depend on encryption every day, often without realizing it, to safely shop and bank online, among other things, and we must continue moving in this direction.

In addition, we must fight government agencies and law enforcement officials who propose policies that will harm user security through weakening encryption. They contend that strong encryption helps bad actors. The truth is that it helps everyone who uses the Internet. Their proposals to weaken encryption— especially requirements for backdoors—amounts to a big, exploitable flaw that would erode the security of everybody on the Internet.

The brouhaha earlier this year between the FBI and Apple—an attempt to force Apple to open up an iPhone used in a terrorist attack—has come and gone. But the Justice Department continues to take an aggressive stance toward software companies that use end-to-end encryption. The Justice Department is currently debating how to resolve a similar standoff with WhatsApp, the world’s largest mobile messaging service, in a dispute similar to the FBI-Apple affair.

The Latest Challenge: WhatsApp

In the past year, WhatsApp has been adding encryption to user communications. This has made it nearly impossible for the Justice Department to read WhatsApp messages related to a criminal investigation in which a federal judge approved a wiretap but investigators have been unable to circumvent encryption. Those who say a judge should force WhatsApp to help the government get the information it wants are flat-out wrong.

Fortunately, encryption technology is moving in the right direction overall. WhatsApp, Facebook (which owns WhatsApp), Google, Snapchat and others plan to extend encryption services in the near future.

Encryption is not above vulnerabilities. So financial institutions and others must remain diligent in discovering and fixing encryption implementation weaknesses that present possible attack avenues. They also must get ready for the day when the bad guys make huge strides in their ability to thwart an encryption algorithm. At that point, they will need to take new approaches to encryption. A new encryption paradigm may even be required.

The latter, in particular, would be a daunting task, but if push came to shove would have to be accomplished. At stake would be nothing less than the future of a freely used and ubiquitous Internet.

Robert R. Ackerman Jr. is founder and managing director of Allegis Capital, a Palo Alto, CA-based early stage venture capital firm specializing in cybersecurity.

Read more: The Rise of Nation-State Cyber Attacks Makes Encryption More Crucial Than Ever  | RSA Conference | September 20, 2016

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Introducing WithMoji™ and WithMoji App – The First and Only Animated Emoji

  |   Allegis News, The Latest

By Lindsay Aamodt  |  September 8, 2016  |  IMVU News & Commentary

 

 

 

WithMoji logoIMVU today announced the standalone WithMoji app, the first and only app that gives users personal animated emoji for the new iOS 10 Apple iMessage App Store. IMVU also announced a whole new 3D mobile experience that makes socializing and messaging friends more fun and immersive than ever before.

As the leader in expressive communication and 3D animated emoji, IMVU has skyrocketed to #3 in the top grossing social applications, leveraging their proprietary SSR technology to become an emoji platform .

The free WithMoji app allows users to customize their own avatar, then select from hundreds of emotions to bring their avatar and their conversations to life with animation. The result is the user’s own 3D animated emoji, which is more expressive than typical cartoons and stickers, to share with friends in the new iOS 10 Apple iMessage app.

“IMVU avatars are the vehicle for users to uniquely express themselves to make emotional connections,” says Brett Durrett, CEO of IMVU. “Now, using our WithMoji platform, which couples animated expressions with infinitely customizable avatars, and our 3D mobile experience, we will change the way people communicate universally.”

With over six billion emoji sent worldwide each day in 2015 , and growing 20 percent month-over-month in 2016, emoji as a visual digital language enables the expression of a nuanced range of thoughts and complex feelings. IMVU brings to life that otherwise static sticker or yellow smiley face through the animation of a user’s personalized avatar – their infinitely customized self representation (ranging from a dancing banana to the high fashion self they always dreamed of). The result is an incomparable way for users to convey what words and static emoji cannot.

Also announced today, IMVU is releasing a whole new 3D mobile experience with the following updates:

  •  Group WithMoji – The first and only personal animated emoji coupled with friends to communicate cooperative actions, like cheers, giving a hug, dancing together, and more.
  • WithMoji Shop allows users to buy themed packs of WithMoji like Romance, Celebration, Dance, Attitude, and many more to be released monthly.
  • To continue the immersive chat experience that IMVU users enjoy on the IMVU WebGL platform, IMVU iOS users are now able to keep up with their friends in 3D rooms where they can chat, move about, and have a 360 degree view of their IMVU experience at their fingertips.

IMVU Mobile is available for free on iOS and Android. Additionally, iOS users can now enjoy sending personal animated emoji using the free WithMoji standalone app available in the iOS 10 Apple iMessage App Store. For more information, visit the WithMoji website.

News distributed by IMVU Inc.

Article found here http://blog.imvu.com/

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WSJ | Investors Turn Cautious Toward Cybersecurity

  |   Allegis News, The Latest

Venture capitalists wait longer to make deals but remain optimistic as enterprises keep adding to security budgets

 

By Cat Zakrzewski  |  Aug. 1, 2016
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Investors say they’re waiting longer to make investments in cybersecurity startups but remain optimistic about the sector as enterprises continue to increase their security budgets.

 

Venture investment in cybersecurity rose modestly in the first half of 2016, according to data from Dow Jones VentureSource. Investors bet $1.39 billion on the sector, vs. $1.03 billion in the same period last year.

“We’ve been more cautious,” said Asheem Chandna, a partner at Greylock Partners. He added that this was true across all sectors.

Many predict the current investment climate will be a prominent topic of conversation as the cybersecurity industry descends on Las Vegas this week for the annual Black Hat conference.

The rise in fresh capital was modest and follows several years of larger year-over-year growth. In 2015, the sector saw a boom in investment in the third quarter, driven by mega-rounds of financing for later-stage companies. Some investors said they don’t expect that kind of activity to hold up the rest of this year, but added that it won’t be a sharp slowdown either. Most enterprises continue to increase their security budgets, they said, even as other information-technology allocations are lowered.

“In 2015, there was a level of irrational exuberance on the part of the investment community as it related to cybersecurity companies,” said Allegis Capital Managing Director Robert Ackerman. “Now we’re seeing some moderation, which is a very healthy and constructive thing.”

Experienced security investors say the segment saw so much interest in recent years that companies without legs were funded. Now they say the hype around the sector is cooling off.

“The tourists are going to pack up and leave,” said Ten Eleven Ventures Founder Alex Doll. “I think a lot of the larger funds that weren’t good in security had started to try to play in this space.”

Several large, later-stage deals led the way in attracting new capital, including a $100 million investment in Cylance Inc., and a $76 million round in ForeScout Technologies Inc. Both companies reached billion-dollar valuations with these rounds.

But overall, venture capitalists say they’re seeing valuations in the segment readjust, much as they have done broadly across the tech sector. The decline in valuations has led to a steady amount of mergers and acquisitions in cybersecurity, which investors seems likely to pick up as a more diverse group of buyers have been assessing the industry for potential deals.

In recent months, Symantec Corp. said it would acquire Blue Coat Systems Inc. for $4.65 billion. Cisco Systems Inc. bought security firm CloudLock Inc. for $293 million.

Some venture capitalists said they expect private-equity firms will continue to play a role in security acquisitions. Vista Equity Partners announced in June it would acquire Ping Identity Corp. Legacy tech firms will also likely be active acquirers, investors said, because they rely on such acquisitions for innovation and see security as a growing area of their business.

Trident Capital Cybersecurity Managing Director Alberto Yepez said the influx of mergers and acquisitions is also driven by an influx of nontraditional acquirers, like General Electric Co. and industrial companies, as more devices become connected and security becomes more core to their business. He also said telecommunications service providers have become more active in the segment.

“The universe of acquirers has expanded,” he said.

In recent years, much of the activity in security investment has been driven by emerging technologies. Some investors think many of those changes haven’t been addressed yet and will continue to draw investment.

“I think we’re just beginning to see the mobile tsunami in security,” Mr. Yepez said.

 

 

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http://www.wsj.com/articles/investors-turn-cautious-toward-cybersecurity-1470051006?mod=wsjde_finanzen_wsj_barron_tickers

 

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Allegis Capital, Leading Early Stage Cybersecurity Venture Investor, Becomes a Strategic Partner of DataTribe

  |   Allegis News, The Latest

 

Venture Firm Catalyzes Development and Growth of DataTribe Startups

PALO ALTO, Calif., July 26, 2016 –  Allegis Capital, a seed and early stage two-decade-old venture capital firm focused on cybersecurity and analytics, announced today that it has become a strategic partner of DataTribe, a unique “startup studio” formed to create and grow technology startups by leveraging the most advanced technologies forged by U.S. government R&D projects.

Robert Ackerman Jr., the founder and a managing director of Allegis, is also one of three co-founders and directors of DataTribe. DataTribe is co-headquartered in Fulton, Md., in the Washington D.C. Beltway, and in Silicon Valley.

DataTribe is drawing upon the Beltway and Silicon Valley to build new companies at the cutting edge of innovation in cybersecurity, data and analytics. The Beltway has 3.5 times as many cybersecurity engineers as the rest of the country combined according to the Bureau of Labor Statistics. The region has a minimal startup ecosystem, however. Its ties to Allegis Capital and the Silicon Valley venture ecosystem are intended to close that gap.

About DataTribe

DataTribe will co-create, develop the focus and strategy of two to three startups annually, refine their execution and hand-pick their entrepreneurial teams, primarily from the ranks of engineers working on successful government R&D projects. The foundations upon which startups will be based will be sizable government R&D projects, often conducted in national laboratories, which have been implemented, tested and validated.

DataTribe will then license and commercialize this technology, develop it via open source or turn to highly select engineering teams to transform the technology into commercial applications.

In addition, the startups will follow leadership precepts developed by the Navy’s elite Seal Team 6 to develop an intimate understanding of asymmetric engagement with commercial adversaries, enabling them to more effectively overcome the challenges startups typically face.

When DataTribe-backed startups become ready for Series A venture financing, Allegis is likely to become one of their investors.

DataTribe Strategic Partners

Allegis has joined a small team of additional strategic partners, including Deloitte, the prominent financial consulting firm and Yahoo Japan. The partners’ own business demands require operating at the forefront of innovation in cybersecurity, data and analytics. They will work with DataTribe executives to help evaluate potential startup market opportunities and provide “go-to-market” validation and product roadmaps. They will also help startups recruit key executives.

Allegis, in particular, will support all aspects of the development and growth of DataTribe startups.

“DataTribe represents an opportunity for us to leverage our 20 years of start-up expertise, deep market knowledge and extended Silicon Valley networks to leverage world-class expertise resulting from government R&D in its areas of focus to create disruptive start-ups in cybersecurity data and analytics,” said Spencer Tall, Allegis Managing Director. “The breadth and depth of DataTribe’s expertise in select areas of government R&D will be unparalleled.”

DataTribe has three co-founders and directors. In addition to Ackerman, they are Mike Janke, founder and former CEO of Silent Circle, a leading secure communications service, and a former member of Navy Seal Team 6; and Steve Witt, the co-founder and former CEO of Onyara, the commercial developer of the Apache NiFi, a high-level open source project originated at the NSA, and a former CIA information technology officer.

DataTribe

DataTribe is a “startup studio” formed to create and help build technology startups focused on breakthrough innovation in cybersecurity, data and analytics. Co-based in Fulton, Maryland and Silicon Valley, DataTribe operates at the forefront of emerging commercial market needs by leveraging advanced research and applied development efforts from U.S. and aligned government labs in combination with Silicon Valley experience and networks to create cutting-edge startups. The goal of these startups is to define and lead new market segments. For more information, visit www.datatribe.com

Allegis Capital

Allegis Capital is a seed and early-stage venture capital investor in companies building disruptive and innovative cyber security solutions for the global digital economy. Founded in 1996, the firm has more than $700 million in capital under management and has been active in cyber security investing since 2000. Allegis cybersecurity investments include SYNACK, CyberGRX, Platfora, Shape Security, vArmour and Red Owl, Area 1 Security, E8 Security, Bracket Computing, IronPort Systems and Solera Networks. For more information, visit www.allegiscap.com

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SV Biz Journals | Funding sea change has pushed startups to new strategies and locations, VCs say

  |   Allegis News, The Latest

Funding sea change has pushed startups to new strategies and locations, VCs say

cromwell By: Cromwell Schubarth | TechFlash Editor – Silicon Valley Business Journal

Jul 7, 2016, 11:26am PDT  Updated Jul 7, 2016, 4:11pm PDT

 

 

Bain Capital Ventures partner Indy Guha said most of the companies he invests in don’t have engineering in the Bay Area anymore because it has become too expensive. They are now doing that part of their business in places like Canada, Russia, China, India and less expensive parts of the U.S. like Phoenix.TechFlash Editor Silicon Valley Business Journal

“The latest trend is that sales offices — which is the other big center of gravity for headcount in a hypergrowth company — are not in the Bay Area anymore,” he said at the Pitch event I moderated at Google. “You can get an inside sales rep for 50 grand fully loaded and ready in Phoenix, especially after all the layoffs at Zenefits. Or you can get that person for $120,000 in the Bay Area. Guess what? When you run the math on cost of customer acquisition, that makes a difference.”

The panel came as early data on first half and second quarter startup investments showed activity in the Bay Area continued at six-year lows and most top venture firms have done fewer deals.

Cybersecurity investor Bob Ackerman of Allegis Capital said the market is recalibrating and that has forced founders to take a closer look at costs.

“The last few years have been driven by autopilot and momentum and the ‘greater fool theory,’” he said. “People seemed to believe that things only move up and to the right. Everybody tried to index off of the unicorns. It was a totally distorted valuation environment. The bloom is off that rose and everything is recalibrating.”

Companies are going overseas and to other parts of the country, Ackerman said, not because they want to, but because that is where they are finding large pockets of talent at a reasonable price.

“What we don’t find is entrepreneurial DNA or product management DNA. Never heard of it,” he cautioned. “The challenge is that with that lower cost of doing business there are some compensating expenses. There are some things you have to bring to the table to build a viable company.”

Kristina Shen, vice president at Bessemer Venture Partners, said she hadn’t done a funding deal yet this year. Normally she does between two and four.

“We’ve been talking about a downturn for a really long time,” she said. “VCs encouraged entrepreneurs to raise early and make sure they have extra runway and that is what companies have done. Everyone loaded up the cash chest. So now it has been slow.”

The customers of her portfolio companies haven’t cut their spending and are still purchasing software, Shen said. “Nothing significant has changed, but the fear dynamic has set in with founders.”

Sara Thomas, a principal at Maven Ventures, said funding deals are taking longer today than in recent years.

“There are a lot more meetings to get to a yes,” Thomas said. Deals used to go to a full partner meeting after a couple of preliminary meetings.

“That’s not what is happening any more,” she said. “It is more and more conversations and due diligence before taking it to a partner meeting. It has taken longer to get to a Series A round and because of that we have been reflective of the number of seeds we have invested in.”

Bain Capital Venture’s Guha saw an upside to the new funding climate.

“With growth equity investing and others slowing down a bit, probably for the first time in two years traditional venture capital investors can take a look at doing Series C and Series D rounds. We are quite excited about being able to go back to being stage agnostic,” he said.

“For the better part of the last two years we were pretty much only looking at doing Series A and Series B. Beyond that point, the second a company started to get momentum, the valuations were really high,” he said. “During the last two years anytime somebody had a good idea, you had eight copycat companies that got funded by venture firms that missed out on the first company. That sounds like it is fine when capital is cheap but it prolongs the pain. It makes hiring harder, it makes finding office space harder and salaries go way out of line.”

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RSAC | Small Business: Wake Up to Growing Cyber Threats

  |   Allegis News, The Latest

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A few months ago, Rokenbok Education, a Solana Beach, Calif., maker of educational toys, was facing perhaps the quintessential nightmare of the 21st century. Cyber criminals had encrypted the company’s computer files, rendering them useless.

The hackers were deploying ransomware. If Rokenbok wanted the data unlocked, it would have to pay a ransom. As the New York Times reported, the company ultimately managed to find a creative way out, sidestepping the ransom by laboriously reconstructing its key systems.

This was, in fact, the company’s second cybersecurity battle, and it underscores a fact that doesn’t get much attention: Small and mid-sized businesses are being breached more than big businesses, notwithstanding the apparent lack of motive and certainly a lack of widespread attention.

Studies and surveys show that 60 percent of cyber attacks on business target small and medium-sized businesses. About 40 percent of small businesses have been victims, at a cost averaging $9,000 to $36,000, depending on which survey you believe. These estimates don’t include reputation damage.

Many small businesses believe that cyber criminals are interested only in data from big companies, which obviously isn’t true. What they don’t take into account is that they have more digital assets than individuals, who are also commonly attacked, and sometimes inferior protection.

All too often, small businesses don’t update antivirus software, update firewalls or strengthen passwords. They could also put data in the cloud, rather than on company servers, but they usually don’t bother.

Cyber theft typically involves employee and customer data, bank account information, and access to the business’s finances. Small business also often provide access to supply chain networks.

Small and medium-sized businesses are most typically breached through malicious software delivery via email. People click on links from malicious email all the time. Chief financial officers and accounts payable employees are often sent well-worded emails falsified to look as though they were sent by the company’s owner, ostensibly approving wire payments to falsified bank accounts.

Among those increasingly concerned about the trend is the U.S. Small Business Administration, which says America’s 28 million small businesses create about two out of every three new jobs in the U.S. each year. Like all businesses, the SBA says, small businesses are increasingly reliant on information technology to store, process and communicate information. Protecting this information better is critical, the SBA says.

What should small businesses do? For starters, they should seriously consider hiring a cybersecurity specialist. They can make application recommendations for encryption, scanning, malware and safe browsing. They can also show a small business which digital information systems require enhanced protection, create and manage backup databases, and block the installation of external applications that make a small business vulnerable.

With or without a cybersecurity consultant, all small and mid-sized businesses must proactively adopt measures to mitigate cybersecurity threats.

Here are 8 tips from the Small Business Administration about what to do:

  1. Protect against viruses, spyware, and other malicious code:Make sure each of your business’s computers are equipped with antivirus software and antispyware, and updated regularly. All software vendors automatically provide patches and updates to correct security problems and improve functionality. 
  2. Secure your networks: Safeguard your internet connection by using a firewall and encrypting information.  If you have a Wi-Fi network, make sure it is secure and hidden. To hide your Wi-Fi network, set up your wireless access point or router so it does not broadcast the network name, known as the Service Set Identifier (SSID). Password protect access to the router. 
  3. Establish security practices and policies to protect sensitive information:Establish policies on how employees should handle and protect personally identifiable information and other sensitive data. Clearly outline the consequences of violating your business’s cybersecurity policies.
  4. Educate employees about cyber threats and hold them accountable: Educate your employees about online threats and how to protect your business’s data, including safe use of social networking sites. Employees should be educated about how to post online in a way that does not reveal any trade secrets. Hold employees accountable.
  5. Require employees to use strong passwords and to change them often: Consider implementing multifactor authentication, which requires additional information beyond a password to gain entry. Check with your vendors that handle sensitive data, especially financial institutions, to see if they offer multifactor authentication for your account.
  6. Make backup copies of important business data and information:Regularly backup the data on all computers. Critical data includes word processing documents, electronic spreadsheets, databases, financial files, human resources files, and accounts receivable/payable files. Backup data automatically if possible, or at least weekly, and store the copies either offsite or on the cloud. 
  7. Control physical access to computers and network components:Prevent access or use of business computers by unauthorized individuals. Laptops can be particularly easy targets for theft or can be lost, so lock them up when unattended. Make sure a separate user account is created for each employee and require strong passwords. Administrative privileges should only be given to trusted IT staff and key personnel.
  8. Create a mobile device action plan:Mobile devices can create significant security and management challenges, especially if they hold confidential information or can access the corporate network. Require users to password protect their devices, encrypt their data, and install security apps to prevent criminals from stealing information while the phone is on public networks. Set reporting procedures for lost or stolen equipment.

Small business should act today—not tomorrow—to improve their cybersecurity. A breach in security can put a small business at great legal liability. And a single attack, such as one that compromises a customer’s financial information, can freeze operations or even put an organization out of business. It makes no sense for any business to take such avoidable risks.

Small business should act today — not tomorrow — to improve their cybersecurity. A breach in security can put a small business at great legal liability. And a single attack, such as one that compromises a customer’s financial information, can freeze operations or even put an organization out of business. It makes no sense for any business to take such avoidable risks.

Robert Ackerman Jr. is Founder & Managing Director of Allegis Capital – a San Francisco, CA-based early stage venture capital firm specializing in cybersecurity.

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Bloomberg | The One Group Not Freaking Out About Brexit: VCs

  |   Allegis News, The Latest

Logo_bloombergBy: Lizette Chapman  |  June 28, 2016

 

The U.K.’s decision to leave the European Union is still shooting shock waves across global financial markets, but one investor group remains unruffled: venture capitalists.

 

This is partly because of the numbers and partly because of the nature of venture investing.

 

European businesses have captured between 10 percent and 16 percent of total global venture capital annually since 2006, according to data from Dow Jones VentureSource. Although 2015 was a banner year — European startups secured $12.9 billion — it was still just 10 percent of the year’s global total. Of that amount, U.K. startups commanded just $4.5 billion, or 3.5 percent of the world’s total venture capital. Germany nabbed 1.9 percent, and France took in 1.3 percent, according to VentureSource.

Because Europe isn’t a big recipient of venture capital dollars, Brexit is less of a threat to the industry. “It’s a big deal geopolitically, but for venture-backed startups, and for venture capitalists, the impact for us is zero, zilch, nada,” said said Venky Ganesan, chair of the U.S. National Venture Capital Association and managing director at Menlo Ventures.

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Saul Klein, a partner at London-based venture firm LocalGlobe, agreed that investors in U.K. tech companies are likely to stay the course. “If they were interested yesterday, they should be even more interested today, and if they are not, they were probably tourists anyway.”

Venture investors spend months or sometimes years getting to know founders before backing their startups. Bets are long-term, with the average return not happening for seven to 10 years. During that time, a lot happens: investors typically help teams build product, hire, market, and sell in a bid to outmaneuver the competition. All startups learn to adjust to new changes in fast-paced technology markets, or risk perishing. New regulations governing the role of U.K.-based startups may not arrive for at least two years — an eternity in the startup world.

“As early investors, we are used to dealing with uncertainty, and so are entrepreneurs. Their whole makeup is about assessing new risks,” said Neil Rimer, co-founder of Index Ventures, which has raised the most of any European fund so far this year at $550 million.

Rimer is based in Geneva. Index has backed gaming startup Helsinki-based Supercell Oy, payments company Adyen BV, in Amsterdam, and on-demand services including Paris-based BlaBlaCar, Just Eat and Deliveroo, both in London. He said he and his firm are still assessing how Brexit could affect their U.K.-based startups. Early stage companies are agile, Rimer said, and can relocate if need be while mature companies like Supercell and King Digital are global in nature and not overly dependent on the U.K.

“The ones I worry about are the middle ones that are dependent on the U.K. and aren’t nimble enough to do something about it over a two- to three-year period,” said Rimer.

Rimer and others said they expect Brexit’s primary impact will be on how companies recruit employees and scale operations. Although it’s still too early to say how that will change, investors will be watching those areas closely.

“We are just 96 hours in,” said Bob Ackerman, founder of Allegis Capital. “We are still determining what it means.”

While the impact is muted in the U.S., there’s some anxiety in the European tech scene. Jeff Lynn, CEO of the crowdfunding platform Seedrs and co-founder of the U.K. tech advocacy group Coadec, said many entrepreneurs are concerned the referendum will make it harder to raise money and recruit employees.

He said some startups had investments scrapped because of Brexit, with at least one company he wouldn’t name having a “Brexit clause,” allowing the investors to back out after the U.K. vote. “The uncertainty is profound,” he said.

SoftTech VC partner Andy McLoughlin said Brexit could make it easier for other growing hubs like Berlin, Paris and Amsterdam to outshine London.

“This is an opportunity for them to step up,” he said.

 

— With assistance from Jeremy Kahn and Adam Satariano.

Find more: http://www.bloomberg.com/news/articles/2016-06-28/the-one-group-not-freaking-out-about-brexit-vcs

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Mercury News | Silicon Valley startups stumble, forced into cost cutting

  |   Allegis News, The Latest

By: Marisa Kendall | mkendall@mercurynews.com

Once it seemed there was nowhere to go but up.

Today, with fears of bloated valuations, a rocky stock market and the worst IPO climate since the financial crisis of 2008, startups are coming down from the clouds. And to woo venture capitalists, they are talking about profitability and high gross margins to prove they are building sustainable businesses — not just sexy ones.

“Bottom line is that entrepreneurs and investors alike have discovered that gravity exists after all,” said Robert Ackerman Jr., managing director and founder of Allegis Capital.

Reflecting a more sober Silicon Valley, at least a dozen Bay Area startups have cut costs by laying off staff since November. Others in the saturated on-demand industry, like San Francisco’s Zirx, are changing their focus. And a few have simply shut down, with Berkeley-based SpoonRocket becoming the latest victim.

Those changes are signs of healthy market correction after years of frenzied overspending, said Paul Boyd of San Francisco-based wealth management firm ClearPath Capital Partners. But that doesn’t mean they’re not painful — for everyone. As startups spend less, the slowdown will be felt in other areas as well, he said.

“It’s almost like ink,” Boyd said, “it’s going to slowly spread.”

His team keeps a close eye on the VC and startup ecosystem as an indicator of the health of the overall economy. Right now, the signs aren’t pointing in a positive direction.

Venture capital funding in the U.S. dropped by about 30 percent in the fourth quarter of 2015 compared with the quarter before, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association. Meanwhile, IPO activity has all but dried up. The cash raised by IPOs in the first quarter of 2016 was down almost 90 percent from the quarter before, according to data from Renaissance Capital, and only eight companies went public. The only Silicon Valley offering was a Burlingame pharmaceutical company.

Last month Optimizely, which helps companies test and improve their websites and mobile platforms, announced it was laying off 40 people, or 10 percent of its team. Despite raising more than $146 million in funding from some of Silicon Valley’s most prestigious venture capital firms, the company was struggling to break even. In a blog post announcing the layoffs, CEO and co-founder Dan Siroker pointed to a “wake-up call” in February when public cloud companies collectively lost $28 billion in market value in one day, signifying that “the market has clearly shifted.”

Insurance software startup Zenefits announced it cut 250 jobs in February, after revelations that some of the company’s employees were selling insurance without a license. The company, which sells health insurance and provides companies with software to manage employee benefits, once had been revered as the software industry’s fastest-growing startup. In two years the company ballooned from 15 employees to 520, and CB Insights reports it’s now valued at $4.5 billion.

“It’s no secret that Zenefits grew too fast, stretching both our culture and our controls,” CEO David Sacks wrote in an email to employees announcing the layoffs.

Other San Francisco companies that reportedly cut staff in recent months include wearable tech company Jawbone, mobile and web analytics company Mixpanel, dating website Zoosk and Practice Fusion, which digitizes health records. Jumio, a Palo Alto-based credit card authorization company, announced last month that it’s filing for bankruptcy and selling its assets.

The market shift caught Foster City resident Erica Halverson off guard. She spent just four months as marketing director for SenStay, a property management startup for home-sharing rentals, before she was laid off in February along with a handful of other employees.

“It put me literally into a panic,” 39-year-old Halverson said, “because I had a commitment from the company and I had expectations that I was helping them build and get to a certain level. And I felt like the rug was ripped out from under me.”

Now Halverson spends most of her time job hunting, sending out 10 to 15 résumés a day.

The shift is especially noticeable in Silicon Valley’s on-demand industry, where dozens of mobile apps compete to deliver everything from meals to baby sitters. San Francisco restaurant delivery startup DoorDash recently had to slash its valuation in order to raise another round of funding. The company reported a $127 million Series C round in March at a $700 million valuation — falling short of its reported goal to hit a $1 billion “unicorn” valuation.

Berkeley-based SpoonRocket, which prepared and delivered meals to customers, shut down last month. The company failed because it expanded too quickly, said Rahul Ramakrishnan, president of UC Berkeley-based consulting group Venture Strategy Solutions.

Ramakrishnan worked with SpoonRocket to optimize its delivery routes in Berkeley about three years ago. He said the company was doing well in Berkeley, but its business model fell apart when it expanded into San Francisco. The demand was too high, the company didn’t have enough drivers and the couriers had a hard time navigating the city’s traffic, he said.

“They expanded at a rate in which they couldn’t keep up with their promise to deliver food in under five minutes,” Ramakrishnan said. “That made customers very angry.”

San Francisco-based Bento, which prepares and delivers customized Asian meals, recently shifted gears to avoid a fate similar to SpoonRocket’s. Bento’s original on-demand model was too expensive to be sustainable, said CEO Jason Demant, so now the company requires customers to pre-order their lunches in the morning.

“We decided to try something else before we ran out of time,” Demant said. “It’s really tough to raise money.”

Other companies couldn’t distinguish themselves from the competition. In January ride-booking platform Sidecar announced it was shutting down and selling its assets to General Motors.

“We were unable to compete against Uber, a company that raised more capital than any other in history and is infamous for its anti-competitive behavior,” co-founder and CEO Sunil Paul wrote in a blog post.

In February San Francisco-based Zirx shut down its consumer on-demand valet parking service because it was too expensive to buy parking spaces, CEO and co-founder Sean Behr said. Zirx pivoted to a business-to-business model, which includes parking for employees, as well as some new features Behr has yet to reveal.

“Given where I believe the funding market is headed, and has been headed,” Behr said, “it was a tough decision, but the best one for the company.”

Kendall, Marisa. “Silicon Valley startups stumble, forced into cost cutting.” Mercury News. 5 April 2016. Web. 6 April 2016.

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