URGENT: The EU is risking the open internet – take action now

Save the Internet

If you know what this is about and want to take action – scroll down to the end.

One of the greatest accomplishments of the web has been permissionless innovation – anyone can build & distribute services and products over the web; consumers and companies are free to choose and pay for whatever web services and products they prefer.

That’s what net neutrality is about; that’s why it matters so much. It matters even more to European startups (and SMEs) because it allows the smaller entrepreneurial community here to punch above its weight – it allows companies in smaller and fragmented markets to scale quicker, to compete more effectively anywhere.

But the EU is about to adopt net neutrality rules that could put European startups and SMEs at a significant disadvantage to their US peers. To make matters worse – the EU has been claiming that the proposed rules on net neutrality are more pro net-neutrality than in the US (where net neutrality rules are strong; but not without the US tech community rallying the troops) – this is simply untrue; but has led to a situation where already this Tuesday (27th) the EU could sleep walk in to approving potentially detrimental net neutrality rules.

If you want a full run down of the current situation, problems & solutions: I strongly recommend you read Stanford Professor Barbara van Schewick piece “Europe Is About to Adopt Bad Net Neutrality Rules. Here’s How to Fix Them

If you don’t have time to read all of it – here are the key problems with the current EU proposal that is set to be adopted in a few days (taken from Barbara’s post):

The proposal allows ISPs to create fast lanes for companies that pay through the specialized services exception. “Fast Lanes” on the Internet harm innovation, free expression, and democratic discourse in Europe.

The proposal generally allows zero-rating (the practice of not counting certain applications against users’ monthly bandwidth caps. Like fast lanes or other technical discrimination, zero-rating allows ISPs to discriminate against content that users want to see) and gives regulators very limited ability to police it, leaving users and companies without protection against all but the most egregious cases. Zero-rating is harmful discrimination.

The proposal allows ISPs to define classes and speed up or slow down traffic in those classes, even if there is no congestion. This allows ISPs to distort competition, stifles innovation, harms users, and hurts providers who encrypt traffic by putting all encrypted traffic in the slow lane. The proposal allows ISPs to engage in class-based discrimination.

The proposal allows ISPs to start managing congestion in the case of impending congestion. That means that they can slow down traffic anytime, not just during times of actual congestion.

Essentially it means not having a level playing field for EU startups and SMEs. It means they are at a significant disadvantage to large incumbents (incl. large US technology companies) who can pay their way in to a class driven internet. It also means European consumers will have less freedom in how they want to use the web. Both aspects are extremely bothersome and the EU must make amendments to it’s current proposed net neutrality rules.

So here are two things you can do to help:

  1. Send this tweet out right now: “EU net neutrality rules will significantly harm EU startups & SMEs. Take urgent action @EP_President @GOettingerEU http://goo.gl/WKriaa”
  2. Go to savetheinternet.eu and contact an EU representative directly
  3. A lot of you will have contacts to EU politicians, influencers etc – please reach out to them

The EU, more than anyone else, needs and open and free web. The tech community here should be its most prominent advocate.

When “everything is awesome at the company right now” – it really isn’t

When I hear one of our CEOs say “everything is awesome at our company right now; the entire team is in a great mood” – my first thought is “uh-ho”.

Because at great companies things are happening so fast, things are being questioned all the time, things are so at / over capacity – things can’t possibly all be awesome. There is friction, there are disagreements. Great companies live at the edge and it sure as hell does not feel “awesome” – even as an outsider it can be painful to witness.

So when I hear everything is awesome, I know it isn’t.

Architecting valuations (building a house of cards)

In a day and age of valuations as  score card there are in some cases extraordinary efforts being made to forcefully make certain milestone valuations happen (100m, 500m, 1bn etc).

The right way to make a high(er) valuation happen is of course to have someone just pay that price with fair and appropriate growth / later stage financing terms. Lots of companies can pull that off – even to the point where new later stage investors are just getting common stock.

But that is not what is going on in many cases. This is what’s going on:

New later stage investor: “Hey so I don’t think your company is worth $500m; maybe $200m – BUT if we can agree that I can get a 2x liquidation preference on my $50m and a full ratchet I would be ok with it. You should be fine with it because you told me next round will be $1bn+  – so we both win. You get your $500m valuation now, you don’t get a lot of dilution and I know I’ll make a safe 2-3x.”

Basically this means the new later stage investor will still make a 2x return if the company is sold as low as for $100m (!). And later stage investors typically are aiming for just a 2-3x. So the headline valuation nearly doesn’t matter – they’re happy to meet your milestone if they can generate their required returns through other terms (liquidation preferences and full ratchets) + some extra upside if the the company moves beyond the milestone valuation.

Now the bet that is not being made any more here is this: “I think the company is worth X today and I am going to price it exactly as that. I think it can be worth 3X in Y years – that’s the upside / risk profile I’m taking”.  Basically the scenario above is close to pure financial engineering (although you do have to believe the company could be sold for $100m). It’ hedge fund style, not venture funding. It’s very different; I’m not saying it is necessarily a bad thing always.

This approach is working well for some companies. Maybe it’s OK – we’re all adults. Everyone’s knows what they are getting in to. However, in more than enough cases I am sure it will turn out to be a horrific house of cards on the way down.

Cross publisher app constellations & bundles

We all know that folks increasingly prefer to use their favourite app from a specific developer / publisher for a specific use case vs. say using a wide range of apps from a single developer / publisher that is trying to cover all the bases. You can’t be great at everything and user experience on mobile matters so much more than on desktop – so that’s why highly vertical applications are winning.

Most of these vertical apps are freemium services and you can do a lot with them without paying. But once you want to go premium say with a whole bunch of these apps – that can get a little pricey on a per month basis and folks aren’t yet used to that (vs the old world where you paid hundreds up front to have MS Office etc. as part of your new PC).

So Evernote, Lastpass, Pocket and Wunderlist (a portfolio company of ours) teamed up to offer a pretty cost attractive bundle of their premium services for a limited amount of time.

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Now these folks can do that because they have really high gross margins and are experimenting here with a beginning of the year promotion to see how bundles can work. I checked on twitter and I am seeing a lot of folks who weren’t paying for any of these services individually but now are paying for all of them through the bundle. Obviously this bundle made sense to them. It’s caused a little bit of a fuss in the media too:

This is not a coincidence bundle – folks are already using these services together. Also all these apps are clear category leaders in their space and are obvious choices. Now if we were to throw say a certain storage service in there – that would be somewhat harder because a lot of folks will use either DropBox, GDrive, OneDrive and if you don’t offer the service that person uses they will not buy the bundle.

There are of course at least a million other meaningful constellations you can think of.

Creating bundles isn’t going to be easy – you need a sensible scope, need to agree on revenue share, etc. On the other hand these days they can be created on the fly, for a limited time, in different variations, etc.

So I don’t know how this will go but I’m sure we are going to see more of these cross-publisher app bundle experiments. What do you think?