Archive by Author - Sarah Lacy

Blonde 2.0 Tries Hard to Get Me in Trouble

by on July 20, 2009 at 6:18 pm

One thing I've noticed during my six months of jet-setting is that entrepreneurs around the world want to be compared to Silicon Valley, but frequently get upset when you do it. Michael Arrington jokingly asks how I intend to piss off a whole country this time before I leave for any trip. (At least, I think he's joking…)

So, note the tap dancing below as Ayelet Noff asks me to compare Silicon Valley entrepreneurs to London entrepreneurs and Israeli entrepreneurs.

Wonga: How the Net Should Kill the Finance Industry

by on July 20, 2009 at 6:08 pm

[Cross-posted from TechCrunch]

What’s awesome about the Internet is how it breaks up monopolistic markets where middlemen unfairly gobble up outsized fees, leaving us little choice but to keep paying them. It happened with software, it happened with music, and it’s happening now with media. But there are a few sectors of our economy that have stayed mostly undisrupted—one of them is banking.

Sure there are companies like eTrade that opened up the market for buying and selling stocks. But it didn’t fundamentally change the market that much, it just moved part of it online. The thought for a long time was that banks needed to be too controlled, too regulated to be turned over to the Wild West of the Net. Then the credit meltdown hit and we saw just how reckless these so-called safe and regulated institutions were.

The time is right for the Web to unleash its full market-destroying power on the finance world and while I was in the UK I found a company making a promising start: Wonga.

Now, Wonga would hardly say its role is to upend the world’s financial institutions. But it’s one of the most dramatic examples I’ve seen of a Web company using what the Web does well to remake lending.

Wonga gives people a way to borrow small amounts of money quickly, between £50 and £200 for first time borrowers to be repaid between five days and 30 days. (Returning customers with a good repayment record can borrow up to £750.) A would be borrower gives Wonga just eight pieces of personal data online, and its algorithms find 1800 data points based on that within 2 seconds, making a rapid decision about whether that person is a good or bad short term credit risk. If approved, the money is wired into the borrower's account within the hour. And, the borrower gets to decide when to repay the money, with no penalty for early repayment. One of the most notable things about the UI is a sliding scale, which shows exactly what fees someone would owe Wonga for every dollar borrowed and extra day before its repaid. No fine print and formulas to calculate; the cost of every dollar you borrow is calculated for you.

Wonga was founded by Errol Damelin, a serial entrepreneur who previously started a supply chain software company named Supply Chain Connect. He sold that company in 2005 and decided he didn’t want to build another enterprise software business. (Smart move.) So he traveled around the world looking for ideas. In the U.S. he became captivated with payday lending companies—an industry of strip mall storefronts that generates a whopping $12 billion in fees.

There was a clear demand for short-term loans to tide people over or take care of emergencies. But it was a polarizing industry, seen as predatory and exploitative. Damelin spent more than a year digging into it, and brainstorming with well-known UK angel investor Robin Klein on how to rethink it and make it better.

Two things excite me most about Wonga. The first is that it isn’t peer-to-peer lending. Peer-to-peer lending in a social sense, like Kiva, is one thing, but I’m not convinced peer-to-peer lending for profit works or scales. It feels a bit like trying to apply Web 2.0 ethos of wisdom of the crowds and social networking somewhere that it just doesn’t fit. Instead, Wonga has raised $28 million from Balderton Capital, Greylock Ventures, Accel Partners and Dawn Capital and is loaning out its own cash. In its first year of business it did more than 100,000 loans, for an average of £250 each, and it’s already profitable. “This is the best business I’ve ever been in,” Damelin says.

Second, it’s the first time I’m aware of that a bank that has actually aligned its incentives with what’s right for the customer. Put another way: Wonga makes its money when you repay the loan, not by keeping you in debt longer. Think about it: Credit card companies make the most of their money from people just able to make their minimum payments every month. And payday advance chains make most of their money by rolling over your debt to the next payday.

Critics have said that Wonga is usurious by charging a 1% interest fee per day. But that’s a knee-jerk response. Wonga is simply charging a premium because it allows borrowers quicker access to cash than any other service, the same way a town car is going to charge you more than a cab off the street. And because it only makes money when a borrower repays the amount, there are no tricks to keep you in debt longer. Wonga’s ideal customer is someone who uses the service two to three times a year and always repays on time, Damelin says. If more financial institutions had this basic orientation to doing business, we wouldn’t have had the credit meltdown because people would have known exactly the risks of agreeing to ARMs and zero-down mortgages.

Sure, you can say Wonga is dangerous because it's giving people an easier way to live outside their means. But that's a bit like arguing giving kids condoms encourages teenage sex. You can't change human behavior, but you can help make people safer.

Now here’s the downside on Wonga: It’s only available in the UK, and it will likely stay that way thanks to a bevy of licenses and regulations entailed in getting near the finance sector. It’s even worse in the US, where each state has its own laws. Even a copy cat business might be cost-prohibitive in the U.S. because of all the state-by-state regulations and red-tape.

As our taxpayer dollars continue to bail out the same lousy institutions, it’ll take innovators like Wonga to force real change in the finance world. But in this country, it’ll need an assist from the government as well.

Why Zynga Is Worried about Playfish

by on July 20, 2009 at 6:07 pm

[Cross-posted from TechCrunch]

When I wrote my BusinessWeek column on Zynga a while back, every venture capitalist in the Valley told me that Playdom was the company’s biggest competitor.

After all, it competes game-to-game, with similar mob-style and
poker games, and was said to be doing the same revenues as Zynga with
much higher profitability. (As my column pointed out, Zynga’s revenues
are more like double Playdom’s—and since I’ve heard the discrepancy is
even greater.)

As you’d expect Zynga’s CEO Mark Pincus pooh-poohed Playdom as any
sort of threat. But tellingly, he said the company he was worried about
was UK-based Playfish. So, while I was across the pond, I decided to
see what the fuss was about and sat down with Playfish’s founder and
CEO Kristian Segerstrale. I came away convinced this was one of the
hottest companies to watch in the UK. Here are five reasons why.

1. Not “The UK Zynga.” Playfish is very much running its own
race in this market, and this may be a case where distance from the
Valley is actually healthy. It doesn’t try to compete on specific games
with Playdom, SGN, and Zynga. For instance, it doesn’t have a mob game,
the most popular genre right now, and it doesn’t have a poker game,
Zynga’s top earner. “That’s such short term thinking,” Segerstrale
said. “Something is wrong if your route to success is copying
competitors’ games.”

2. Platform Development Doesn’t Have to Mean Half-Ass Development.
Playfish is not about building a game in a week or so and throwing it
up on Facebook. Playfish spends six months to a year designing a game,
and they’ve only produced seven of them. While everyone else talks up
how quickly and cheaply you can build a game on social networks,
Playfish still employs the same artistic discipline of a console game
with a Wii-like look and feel. The plus with platforms like Facebook
and the iPhone isn’t speed to market for Playfish, it’s easier
distribution and greater social engagement.

3. Traction. The painstaking design process appears to be a
hit. Every one of Playfish’s games has been a top ten hit on Facebook.
Across all platforms, those seven games have yielded 100 million
installs and 30 million monthly uniques, says Segerstrale. Playfish
pays “practically nothing” for customer acquisition and makes money
through virtual goods, ads and premium versions of games.

Playfish is profitable and hasn’t spent a dime of its recent $17
million funding round. That’s gotta be some top line given Playfish has
200 employees across several offices. In fact, TechCrunch Europe’s Mike
Butcher speculated that
Playfish could be the $1 million-dollar-a-month Facebook app maker,
back in September 2008. It certainly puts the company in an enviable
position given the paucity of venture funds in the UK.

4. Proximity to the Valley Insiders via Investors. While
Playfish enjoys distance from the one-ups-man-ship or developer
poaching of SGN, Playdom and Zynga, it’s connected into the Valley
where it counts. One of its main investors is Accel—also one of the
main backers of Facebook. Yes, that matters. (See Sequoia
Capital-backed Google’s purchase of Sequoia Capital-backed YouTube.)

5. Segerstrale Knows Games. This is the fuzziest one, but
also probably the most important. As a CEO, Segerstrale comes to this
industry from a different point of view than Pincus. Pincus has said he
was never really much of a gamer—Segerstrale on the other hand has
loved games since he was three years old playing Pong with his older
brother. He always got a visceral rush from playing, especially with
other people. So he’s spent much of his career working towards two
goals: Decoding what makes a game “fun” and deconstructing the concept
of a “gamer” so games are just something everyone plays.

His first attempt was at mobile, thinking that with phones in every
pocket, everyone would essentially have a game console. Indeed, the
company he cofounded, Glu Mobile, went on to a successful IPO. But
gaming was still a niche activity on phones.  There were too many
barriers set up by the telcos and it wasn’t as easy for people to find
and download games. Facebook turned out to be a much greater platform
for this kind of democratization of gaming because users could market
games to one another.

Segerstrale’s macro theory is that we’re in the first shift of a
move from physical games and goods to digital ones, and from games as a
product to games as a service. It’s a theory that seems right-on to me.
For one thing, we already saw it with the transition from enterprise
software to software as a service. For another, sales of console games
are down 20% year-over-year according to NPD, while comScore says
social gaming is up 20% year-over-year. It’s nice to see a CEO who can
articulate not only a product vision, but a clear industry vision.

All the positives above aside, I’m still not convinced that
Segerstrale will succeed in his mission to democratize games. I still
mainly use Facebook as a way to connect with friends, not to build
virtual restaurants and I don’t necessarily see that changing. In fact,
Facebook has so de-emphasized apps in its new all-feed iteration, I
spent nearly an hour trying to find a listing of games, before someone
finally told me it was on the throw-away bottom bar of the profile
page. And by emphasizing the social stickiness of a game, there’s a
chicken-and-egg risk that the games are boring for people who don’t
have enough friends already playing.

But these are execution risks and every promising startup has them.
When it comes to business model, financing, vision and product,
Playfish is certainly a formidable competitor to Zynga. With hundreds
of millions in real dollars already swarming around social gaming, this
will be fun space to watch.

UK Entrepreneurs: Get Your Funding While You Still Can

by on July 20, 2009 at 6:06 pm

[Cross-posted from TechCrunch]

You think you have it bad,
Mr.-Silicon-Valley-entrepreneur-trolling-Sand-Hilll-Road-for-cash? Try
life on the other side of the pond.

Out of 39 firms that were active investors in British start-ups over
the last five years, only thirteen venture firms have £5 million or
more left in their coffers to invest, according to NESTA, the UK agency that advocates for start-ups and also sponsored the recent Traveling Geeks blogger tour.

That’s right: All but thirteen firms in the United Kingdom are
either completely tapped out or have committed the rest of their funds
for follow-on investments in existing portfolio companies. In total,
NESTA estimates there’s about £400 million left that’s uncommitted
among the thirteen, with only half of that available for brand-new
series A deals. To put that into perspective, there’s roughly the same
amount of money in the fund Marc Andreessen just closed than there is for new companies in the entire United Kingdom right now.

This is coinciding with a precipitous drop in UK firms closing on
new funds thanks to the global credit crunch. In 2008, only seven firms
closed new funds, and NESTA expects fundraising to be even weaker in
2009.

As most people know, I’m a pretty big advocate of the idea that many
of the next great high-growth companies will be founded outside of the
U.S., but these stats starkly demonstrate a undeniable advantage of
being Valley-based. Even when fundraising slows and VCs save bigger
reserves than usual for current investments, there are still billions
sloshing around to fund new deals. Sure, it’s hard during times like
these even in the Valley, but raising venture capital should be hard.

As with most research reports on the venture business, it’s the
trend line that’s important to note here. It’s probable that NESTA
isn’t counting a firm here or there. But it can’t be too far off.
Indeed, the stat explains a lot of the anecdotal evidence that hit me
in the face as soon as I arrived in London two weeks ago. Many of the
entrepreneurs who’d pitched me on my last visit to London in November
have already shuttered their companies and were unsure of what to do
next. I have exactly one friend in Silicon Valley who has been forced
to that point.

Even the good UK early stage names are struggling to close deals. It took AlertMe—a hot energy home monitoring company that won The TechCrunch Europa
for best clean tech company last week—a whopping nine months to raise
money almost landing the company in bankruptcy. (Index Ventures and
others finally snapped up the deal a few months ago.) “I don’t want to go through that again,” the very polite and British CEO Pilgrim Beart demurred.

It’s that kind of bleak desperation that lead the infamous Paul Carr to pronounce the UK Internet scene dead….just before his own column in the Guardian became its own victim of the economy a few days later. (See Mr. Butcher's TechCrunchEurope rebuttal here.)

Indeed “the scene” may be dead, but there’s an upside here. The
companies that are still around have a much greater emphasis than
Valley companies on making money. The Traveling Geek contingent went to
Accel’s London office to meet with a handful of start-ups, and each one
emphasized revenue and profits in their five-minute elevator pitches.

One that caught me by surprise was Michael Smith’s Moshi Monsters,
a social network/ virtual game for kids. Cute idea, but sounds like it
should be road kill in this environment, right? Nope. Its revenues are
growing 35% month-over-month, it has 85% gross margins, and just five
months after launching the site is cash flow positive. Nicely done,
gents. (BTW, Smith isn’t all business. His house was the setting of those famous Scoble pictures…)

Indeed, there’s always something healthy about startups having to
work within constraints. There will be fewer of them, but it’s possible
that the companies that make it in this environment could well make up
one of the most promising crops of UK companies we’ve ever seen. After
all, Skype was laughed out of VCs’ offices when it started in the wake
of the dot com bust.

In the coming days, I’ll be writing several more posts about the London companies that impressed me the most. Stay tuned.

Staying Put for a While

by on July 19, 2009 at 7:21 pm

5372_116225402937_561367937_3052162_5256958_nI'm about one-third of the way through my 18-month death-march around the world seeking its best entrepreneurs, or as I call it in polite conversation, work on my new book. It's time for a break. Aside from a few day trips here or there I'm sticking in San Francisco for the next six weeks where I'll try to be a better blogger for TechCrunch, a more reliable columnist for BusinessWeek and get more actual writing on the book banged out. I'm going to keep working on learning Portuguese and Mandarin. I'm going to cook dinner for my husband. I'm going to reintroduce myself to my much-stood-up Pilates trainer. And I may even attempt to have a social life again.

I feel mixed about it. Most of me is screaming out for a break from 20-hour flights, endless meetings and the frustration that comes with interviewing someone from a totally different culture, who is frequently speaking a totally different language. (See photo to the right– just moments before a speaking gig. See sadder photo below. Human rights groups are investigating.) On Thursday as I was packing up to leave my hotel in London, scouring for every stray sock or earring, wondering what I'd leave behind this time (sunglasses as it turned out), and hoping I'd allotted enough time for customs, security and the like– I had a crushing feeling of I desperately, desperately need a month off!

3734304250_a2f375fe5c But as I reflect on everything I've seen and experienced during the 10 weeks I've spent in Israel, Rwanda, China and London, another part of me can't wait to get back on the road. When I set out to write this book, I didn't totally know what I was getting into, aside from the hope that it'd be important and the certainty that it'd be life-changing on a personal level. The first few months I felt a bit lost and concerned, but now, six months in, it's coming together. I've written several thousand words, discovered stories so dramatic they could be made into films and the big macro themes of book are shaping themselves in my head every day. The book is becoming less of an epidsodic travel narrative and more of a, well, book. As much work as there is ahead, I know now I've got something, and that's a huge relief. (See photo to below taken in a happier, more rested moment. Although note my sad, tired computer is missing an "R" key.) 3701043555_d0048be548

So as I pause for a bit, I wanted to thank everyone who's made the whole thing possible thus far: Dan Nova for introducing me to Rwanda, Roi Carthy and Orli Yakuel for being my den mothers in Israel, Tom Limongello for, well, everything in China, and Paul Carr for being my unofficial personal assistant in London, while Rachel Bremer set me up with some of the most impressive companies I've seen in the UK to date. Huge thanks also to Endeavor– the experts in emerging world entrepreneurship, and to BusinessWeek and TechCrunch for being endlessly supportive of this suicide-mission. And, of course, Olivia for taking care of the kitties in my absence, and Mr. Lacy for somehow putting up with all of this.

After the break, I'll finish the year with Brazil, China, India, and back to Israel. As always, let me know anyone I must meet.

[PHOTO CREDITS: Ayelett Noff, JD Lasica, Craig Newmark]

Life in London: Does Fun Have an ROI?

by on July 17, 2009 at 11:03 pm

I did very little blogging while I was in London, but it wasn't because I didn’t find anything interesting to write about. It’s because I was talking, laughing, eating or drinking nearly every moment of my two-week trip. I proudly announced to my husband that I hadn’t taken a single Ambien during the visit. Unfortunately, it wasn't because of some no-jet-lag magic, it was because I only got about two hours of sleep a night.

Every time I visit London I find a city with zero downtime filled with entrepreneurs, investors and the like who are offering to take me for afternoon tea or a drink to talk about the industry or well, just talk into wee hours of the morning. One Oli Barrett even serenaded me with several songs from Mary Poppins and Chitty Chitty Bang Bang late after the TechCrunch Europa awards. After all, that’s how we Americans all think the British talk, right? That’s pretty accommodating stuff.

And look no further than these pictures to see how much fun Scoble was having. Even Last.fm had a sense of humor when a TechCrunch editor stormed their offices somewhat unannounced. (Michael Arrington? Less of a sense of humor about that post. Sorry, Mike.) People are intense about their companies, but there’s a sense in the UK that it’s not the only thing that matters.

The joviality is all the more surprising given the rough times UK start-ups are having, as I detailed today on TechCrunch. Money available for early stage start-ups is perilously low and good many entrepreneurs I know have already closed their companies or sold them on the cheap. But here they are all still hanging out, supporting one another, having wild parties and enjoying life. It’s as if (gasp!) the world doesn’t revolve around the Internet.

As a business reporter, I’m of two minds on whether this is a good thing or a bad thing. I’m a big believer that there’s no such thing as work-life balance when it comes to start-ups—a view that frequently gets me in trouble especially when I’m talking about why there aren’t more women in the business. But sometimes the Valley takes the macho-look-at-me-working-24-hrs-a-day thing too far. Startup or no, I’m not sure I know anyone who works just 40 hours a week here, and I know I don’t know anyone who isn’t checking their email every minute of the day. The debate about whether that’s healthy is one thing—but does it actually make us more successful?

Up Next: London

by on June 23, 2009 at 5:15 pm

God forbid I sit still for more than two weeks. I've still got my Africa jet lag, but I'm already planning my time in London July 4-16.

The first week I'm traveling with a group of videographers, bloggers and authors called "The Traveling Geeks." I went on the first Traveling Geeks trip last year, which was also my first trip to Israel. Most people know I usually like to travel alone, but every once in a while experiencing another culture's tech scene with people from slightly different media disciplines can be eye-opening. Plus, they needed someone in charge of pub crawling. (Ahem, London readers, leave your suggestions in the comments…) I'll also get to present an award and do my best Michael Arrington impression at the UK TechCrunchies, or as they're actually dubbed the "Europas." I'll be blogging here and on TechCrunch, as I try not to step on Mike Butcher's capable TechCrunch Europe toes.

If you want to hang with us, get your ticket to the UK Crunchies or come to our Tweet-up. Tweet-up tickets are half-price until Friday, if you say you read about it on SarahLacy.com. (Just kidding, they're half-off for everyone until Friday.) Our full agenda is here in case you want to just STALK us the whole time.

Our statement of ethics is going up on the site soon, and I wanted to bring it up since I've been pretty harsh on Pay-Per-Post. No one on this trip is recieving any payment in exchange for coverage. We do have sponsors paying our travel costs, so we could get a diverse group of attendees without worrying about income or travel budgets. We disclose those sponsors here. Our only obligations are to go to the events we've committed to and write about whatever we find interesting.

I love London and spent a good deal of time there last year, so I padded five extra days onto the trip so I can reconnect with friends and meet new ones. I've always got a list of startups to meet, but this trip, I'm particularly interested in ferreting out some London investors who are doing deals in China, India, Africa and South America. Most of the ones I know do more Western-centric early stage tech venture capital. Would be great to mix some European investing perspective into the book, so please let me know any suggestions.

Also, in case you were about to comment about the un-American-ness of my leaving on INDEPENDENCE DAY to go see the very people we declared independence from in the first place, Mr. Lacy has already beat you to it.

Completely Lame

by on December 13, 2008 at 5:00 am

exhaustion from three countries in a week’s time and too late of a saturday night conspired to make me feel lousy today. fever, pukey. apache web server . website down . i cloud where is domain hosted air distance calculator it wasn’t pretty. so my apologies for no brilliant post about the day’s events. because my day events, well, you just don’t want to read about them- trust me!

big day tomorrow so i’m hoping a day of rest helps!

btw- one cultural observation: no one in this hotel has heard of ginger ale and soda crackers!

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My Israeli Education, Day 1

by on December 12, 2008 at 5:00 am

last night, my plane landed in tev aviv, and passengers erupted into applause. the Israeli-born guy sitting next to me said, “Bet you haven’t been to many places where they clap when the plane lands.” i’d been in Israel about 30 seconds, and it was already clear this was a very different place.

we exited into a almost-totally empty airport, thanks to Shabbat. at
the hotel, i couldn’t order most of the room service menu, again
Shabbat. and just a few moments ago, i returned to my room hoping for a
diet coke and some nuts from the mini bar. it’s been cleaned out for Passover. never
mind that my room hasn’t been made up and my tray from last night is
still here.

in less than 24 hours here, i’m continually struck by how many cultural
things are exactly the same in Israel (down to the american tv on
nearly every station!) and how many things are deeply different. it can
be disarming and frustrating all at once. it’s in many ways exactly how
i expected Israel to be, and also very different.

i’m honored to be here for a week as part of a group of Silicon Valley
bloggers and techies exploring Israel’s culture and technology scene.
we’re guests of the Israeli consulate, and our blog posts will all be
collected here. aside from our own impressions we’ll take from this culture, it’ll
be fascinating to see how each blogger processes the things we see and
do differently.

i am one of the few in the group who has never been to Israel before, although i’ve
frequently interviewed Israeli venture capitalists and entrepreneurs. i
am also one of the non-Jews on the trip. as a result i’m not exactly
clear on why i can’t have a mini-bar at passover, even as i could order
any of the exact same items to be brought to me via room service. so i apologize in advance
if anything
i write is offensive, naive or just drenched in wide-eyed
enthusiasm. it’s going to be an exciting and perplexing week for me, and you’ll just have to bear with me! hopefully, i’ll leave with a much greater appreciation and understanding of this culture and its entrepreneurs. website down . similar sites . word cloud

What a Horrible Day of Travel!

by on December 11, 2008 at 5:00 am

JD came from New York and beat me by THREE HOURS. beer now. coherent blog after. politika . domain owner parental blocker . dns information where is domain hosted domain dns server . ip tech info i cloud web archive . website down . apache web server word cloud .

Do NOT follow this link or you will be banned from the site!