Ben Rooney has an article up today on the Wall Street Journal reporting that European tech companies are valued on lower multiples than US businesses in M&A transactions:

The amount paid for a company as a multiple of earnings before interest, taxes, depreciation and amortization, or Ebitda, for U.S.-based companies rose from 11 times in 2011 to 11.3 times in 2012. Over the same period, European multiples fell from 10.6 to 9.9,  according to the report by American Appraisal, a global valuation consultancy.

In other words there’s a buying opportunity in European for global tech companies. And we should tell the world about it so that everyone comes shopping and rights this market imbalance. I might blog this data again on Monday!

As Ben points out This buying opportunity counts double for companies like Apple, Oracle, Microsoft and Cisco because they have substantial overseas cash reserves which will get taxed if they bring them back to America.

    

There is a great opinion piece by Lawrence Lenihan on Business of Fashion today arguing that we are killing many fashion startups by over-capitalising them relative to their market opportunity. Right-sizing funding is a topic that is dear to my heart, but the interesting point here is why over-funding is becoming a problem. Over funding is becoming a problem because the current generation of fashion companies are more niche focused than their predecessors. Here’s why:

The Internet completely changes the model of building a fashion company by enabling the creator of the brand to find customers first rather than finding a gatekeeper who controls the access to customers first. It removes the huge capital barriers to entry of building a physical store and the previous constraints around accessing a geographically diverse set of customers. It also provides a platform for community that enables a brand’s customers to participate in the building of the brand.

But, to stand out above the noise created by massive corporate brands, a new fashion brand needs to mean something more than the incumbents for a customer to switch. How can Nasty Gal succeed against H&M or Zara or Forever 21? By having a point of view! The brilliance of these new companies is that they recognised that people were craving for a point of view, something special and different and they gave it to them in a new form and in a way in which their customers participate almost as intimate friends rather than mere consumers…..

This sounds great except for one thing: by meaning something so much more to a given customer, they mean so much more to a far fewer number of customers (and might even alienate others who don’t share similar values, interests and aspirations). It has to be so: you mean more because you mean something more specific, something more special, something more intimate. Because they are so specific, by definition, the maximum market size for these companies must be smaller than the market sizes for traditional store-based concepts that must target more generally to survive.

This isn’t only true for fashion. There are also opportunities in other consumer industries to create intimate connections with customers by building community and having a point of view. Look at MakieLab in toys, Local Motors in cars, or DIY Drones in unmanned aerial vehicles. Success in this new world requires better products than of old and a passion or zeal that speaks to customers and that they can carry with them as part of their own identity. Authenticity and great communication skills have also become more important than they were before.

    

As you can see from the latest Pew Internet research Facebook is still used by far more teenagers than any other social sites, and that they were used by more teenagers in 2012 than in 2011. It is of course possible that more teenagers are using Facebook, but they are doing so less frequently, but from this data it doesn’t appear that Facebook is losing the battle for young users.

Also of note is the rapid growth in the popularity of Twitter amongst teenagers. It’s great to see they are getting use out of the platform and interesting that young people are flocking to a social media site that was first popular with adults. Usually it’s the other way round.

Note that the percentages in the table are percentages of social media using teenagers, which is only 81% of the total number of teenagers.

Finally, Pew also looked at how teenagers’ sharing habits have changed since 2006. They found that they are sharing more personal data, but that they are careful about what they share and who they share it with. That was pleasing to read as I like to think we are headed towards a more open world where people share more information, but do so in a considered and responsible manner.

There is more detail on the sure

    

Following Yahoo’s $1.1bn acquisition of Tumblr Pandodaily published an article asking why Tumblr and Foursquare, New York’s top consumer web startups, haven’t had the same success as Twitter and Facebook. First the numbers, as measured by 2012 revenues Foursquare and Tumblr are a long way behind:

Pando points out that one would expect Tumblr and Foursquare’s proximity to New York’s strong advertising industry to give them an advantage over their Valley competitors when it comes to building an advertising business, but then comes to the conclusion that the reason they fell behind is more likely to do with access to cash and talent. Valley based companies are more easily able to raise money and have a larger pool of people with scaling experience to recruit from.

That argument makes sense, and I’m sure explains part of the discrepancy in performance, but for me the bigger reason is that the use cases for Twitter and Facebook are important parts of our every day lives whereas Tumblr and Foursquare are more nice-to-haves. Keeping up with news and staying in touch with friends are more important for more people than self expression and checking in/restaurant discovery. More important use cases means more people coming back more often and greater tolerance for ads, and hence much bigger opportunity.

    

Venturebeat has an article up this morning titled Startups and big corporations embrace the maker movement which reports that the annual Maker Faire has this year introduced a ‘Startup Pavillion’ which it cites as evidence that the maker movement is moving beyond hobbies to being a ‘rich source of economic potential’. Here’s a selection of the 20-odd startups at Maker Faire:

• SeeedStudio, an “open hardware company develops and brings to market innovative and cost-effective prototyping solutions for hobbyists and aspiring inventors.”
• RedBearLab, which makes a wearable BlueTooth 4.0 board you can use to interface with an iPhone or Android device.
• Formlabs, makers of a high-resolution 3D printer aimed at engineers and design professionals.
• Deezmaker, another 3D printer vendor, this one aimed at making an affordable printer called the Bukobot.
• BioLite, a company that aims to reduce third-world pollution with a small wood-fueled stove that converts heat from the fire into usable electricity, improving combustion while allowing users to charge small devices.
• BlinkM, makers of multicolored, programmable LED lights for use in your electronics projects.
• Smitten, a maker of handmade “artisan truffles.”

For the last couple of weeks I’ve been asking myself if we are witnessing the beginning of a major trend here or whether there will only ever be a small number of successful ‘maker-centric’ or innovative hardware companies.

Here are my observations and emerging thoughts:

1. the number of startups in this space is definitely increasing – there are a small number that have been around for a few years, like Jawbone, Micro Mobility Scooters, GoPro, and DFJ Esprit portfolio company Graze, and a much larger number that have been founded more recently, including Nest, Sphero, Local Motors, and Pebble.
2. A number of factors are combining that enable faster product iteration in hardware
• 3D printing is reducing the cost of prototyping
• Short run manufacturing is getting cheaper and cheaper due to robot manufacturing and improved supply chain management techniques
• The labour component of manufacturing is falling increasing the feasibility of local manufacturing
3. Kickstarter and other crowdfunding platforms are radically improving capital efficiency because customers are now paying for product months in advance and because first demand validation is now virtually free
4. Arduino and other open source hardware platforms are reducing costs in the same way open source software reduced costs for web companies
5. Companies are aggregating global audiences and selling direct making new product categories viable which wouldn’t have worked when national distribution limited customers to single countries – companies which build communities around their interest area are particularly powerful in this regard – e.g. DIY Drones
6. Consumers like buying from companies that embrace the ‘maker’ ethos – i.e. companies that have a human face and a genuine interest in delighting their customers
7. In contrast to other investment themes that turned out big it is unclear how many opportunities there are in innovative hardware – most of the companies listed above look obvious in hindsight, but it isn’t easy to list large numbers of new opportunities in the way it was for ecommerce or mobile, or to see how these companies will transform the world in the way social media has
8. It is still unclear how much capital these businesses will require or what the exit market will be like

Writing and reading back this list it strikes me that whilst it is too early to know how big this wave will be there is more than enough going on to want to start making some investments.