Emerging Enterprise Center Blog : Boston Startup Lawyer & Attorney : Foley Hoag Law Firm : Startup Financing, Venture Capital

I am no Peak Oil maven, but I read some commentary about it in the comments to one or another blog that I read regularly (perhaps Fred Wilson’s blog or Brad Feld’s or Don Dodge’s, I am not sure). Anyway it the issue was what the effect of peak oil would be on technology companies. Aside from placing a huge premium on all sorts of energy related technologies (that is why some massive percentage of investment is going into this space), I am not sure why technology should be affected differently from other industries. Anyway, it caused me to read a little about peak oil and the various debunkers of the peak oil theory. No surprises there. But it reminded me of something I have thought from time to time. I bet that all the peak oil theorists and their debunkers have their facts wrong. I can’t believe this is an original observation, but here is why:

In my capacity as corporate/securities lawyer, I have been watching clients, investment bankers, and others (by they way back in the days of oil and gas limited partnerships – the people who put those together) put together projections and financial statements. I don’t think any (perhaps a few) ever put together projections or financial statements in bad faith. But, whenever you put together these kinds of numbers you have to make choices. They can be totally legitimate and appropriate choices. Here is an example, in determining the net present value of a future payment, you have to pick a discount rate. This is a judgment call. Within the range of fair and proper, almost everyone errs on the side that benefits them.

I am guessing that the calculation of oil reserves is not an exact science. It involves judgment calls like the one I just described. Within the range of what is fair and proper, what kind of estimates do you think big oil is making?

My guess is that nobody knows what the world’s oil reserves really are (or even has a reasonably accurate guestimate). The same, by the way, applies to the calculation of demand. My guess is that nobody knows what the demand will be (or even has a reasonably accurate guestimate). The inaccuracies, of course, compound each other (that is my guess anyway). I would guess that the world reserves are less than anyone thinks (including OPEC). We may, or may not, find additional new and vast reserves – who knows?

My theory is that people who are making big bets on new enery technologies are going to get a pleasant surprise. (Although the rest of us may not find it so pleasant.)

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Marc Theermann has this to say about the acquisition of Quattro by Apple,

If I hear another quote that contains any part of the “year of mobile” sentence I will jump out of a high window. Just like the “local Starbuck coupon” example it is heavily overused, and profoundly misunderstood. The reality is that mobile advertising died today. Not because consumers will not use it, or because advertisers will not spend money. Quite the opposite. Mobile advertising will be huge. However, with the acquisition of Quattro, the pure mobile advertising industry died. As a result, there might never be “a year of mobile”. From now on, mobile advertising will become another check box in the interactive/online advertising budget. Tom Burgess, Omar and Andy have done everything right: they brought our industry to the point that it should be — But the harsh reality is: “the year of mobile” coincides with the year that mobile died (as a stand alone industry).

While Marc clearly thinks this is a regrettable event, with the continuing convergence of mobile, desktop, pads and whatever else comes along, I wonder if it was probably inevitable.

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David Wessel’s recent article in the Journal, “A Prozac Economy has its Costs,” asks: If we were able to invent the economic equivalent of Prozac – something that would take away the high-highs and the low-lows of our current economy (think the tech bubble of the late 90’s and the current recession) – would we elect for a prescription? Would we, given the choice between a dynamic, volatile economy with painful depressive phases, and a more mellow economy with fewer crises but a slower growth rate over the long term than its manic doppelganger, settle for a calmer existence? Though my understanding of economics is limited to my college-level macro and micro courses, from an entrepreneur’s and VC’s point of view, I think my answer would be: give me manic any day.

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A lot of people think cloud computing is one of the next big things.  It is obviously here, and there is a lot of hype and a lot of real activity.  MassNetComms is holding an event at the EEC (our offices in Waltham) on the topic.  Sim Simeonov wil the be the moderator.  John Considine (CloudSwitch), David Skok (Matrix), Omar Trajman (Vertica Systems) and Michael Werner (Microsoft) will be on the panel.  This promises to be an informative event. 

The cloud represents, I think, a significant economic opportunity not just for companies (and entrepreneurs who learn to use it) but for entrepreneurs that build it out.  The event is on 9/23 and starts at 8:00.  If you only attend one cloud related event this fall, it should be this one.

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As everyone in the tech world knows, California has a statute making employment related noncompete agreements illegal. There is now a movement afoot in to make them illegal in Massachusetts. For reasons that I have noted before, I don’t think making these agreements illegal in Massachusetts will make much, if any, difference in the tech community. On the plus side, it will take one irritating concern off the table for employees seeking to move. But will it really change the east coast tech culture to make it more like Silicon Valley? I don’t think so. Having said that, Paul Boutin in a recent article in Wired described the Silicon Valley employment culture with these words, "Worker mobility gives the tech industry fluidity, velocity, and energy. It creates a culture in which people routinely jump from one job to another, looking to get in on the next must-have product or service. As it happens, that lack of loyalty has been a key driver of the Valley’s rapid innovation over the past three decades…" As evidence he sites AnnaLee Saxenian to the effect that job hopping facilitates the flow of knowledge between individuals and firms. I am guessing that New England has certain cultural traits that make a culture of job hopping unlikely, and doing away with noncompetes, while it will take an important irritant off the table for employees seeking to leave companies, it will not turn New England into Silicon Valley. Much more likely to have this result is for local VCs to start behaving more like west coast VCs – but that is a topic for another post.

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Here is a link to the Wall Street Journal blog post on Vinod Khosla’s comments at a recent conference. Mostly what Khosla has to say is interesting because he says it. To me the most interesting thing about the WSJ blog post is that Khosla did not appear to say anything remarkable (except perhaps his comment about setting aside 3 billion acres to test various energy technologies). In fact he seems to state the obvious such as “the cheapest thing ends up winning.” Well, that is a problem for investors in new energy technologies because oil continues to be cheap (or at least cheaper than the alternatives). There will be a price per barrel at which this statement will no longer be true. I don’t know what that price is, but that price is way up there (perhaps well north of $100 per barrel). I think Khosla has been credited with actually calculating that price, but a quick internet search did not yield it. Anyway, as I (and others) have pointed out before, it could be many years before oil approaches that number. This is not a reason not to pursue alternative fuels, but it is a reason to believe that the returns on investments in alternative fuels may be farther off than say investment in social media or other technologies. By the way, from a venture perspective, if the returns on funds raised today are not expected for more than ten years, VCs wont invest. So, an alternative financing method (an alternative to the customary 10 year venture fund) needs to be found for some (maybe all) of these projects.

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For those of us with businesses or clients in one social networking space or another, Don Dodge has a sobering post on how much traffic it takes to reach $1 million.

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I did not attend the conference, but here is an informative post  that I just ran across together with, I think, accurate observations on the current and future state of cloud computing. One take away is that adoption is here now (but perhaps there is still some resistance from IT excecs.  As the post says:

It is, however, unlikely they’ll be able to stop the cloud from coming into their companies. Just as PCs, wireless networks, and smartphones have come into the enterprise, and most importantly latched onto corporate networks behind firewalls, cloud services are coming into business as non-IT personnel pay for services on their credit cards and hook them into their workflows.

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I attended the very successful Cloud Computing event sponsored by MIT on Wednesday, which Sim Simeonov and others organized. At this point the event itself may be yesterday’s news, but a few of things came out of it that seemed noteworthy to me. Some are “micro” things about the cloud itself, how it drives innovations, pricing etc., but perhaps the most compelling is that the cloud it here and people are building great profitable companies around it today compared to energy and cleantech, which get all the mindshare, but who knows when economic conditions will reach a point where these technologies will actually be profitable.

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I am usually a sucker for predictions about the future, especially with things having to do with the Web, and all the more so because I am particularly bad at predicting it myself. I need to admit that when I first heard about Twitter, my reaction was that it was just one too many. Things keep going in one direction until they have self-evidently gone too far, and I thought Twitter was evidence of having gone too far. But, there it was on CNN on election day. How much more mainstream can you get than the “best political team on television?”  With Wolf using Twitter and God only knows how many grandparents on Facebook, where will the social media world go next?  Well, Read Write Web has one guess as well as a number of embedded links to various social media sites that are heading off in various directions.

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This morning  I attended a “CEO Breakfast” with Don Bulens, former CEO of EqualLogic (here's a video interview of him from YouTube), sponsored by The Massachusetts Network Communications Council. He commented on a couple of things that are recurring themes in this blog. 

Don made reference to slide 49 from the now famous (infamous?) Sequoia Capital’s 56 slide presentation of doom. This slide has a red line labeled “Death spiral” which shows a hypothetical company that does not trim its burn rate falling off a cliff to presumed extinction some time in ’09. It also has a green line that shows a hypothetical company that trims its expenses right away, then grows at a slow but steady rate and survives the downturn. Don’s point was that the same kind of thing happened at the end of the dotcom bubble. He notes that some companies did hunker down and survive. Constant Contact was an example that he pointed to.   His general advice is don't fall into the trap of thinking you will be the one who captures the market by maintaining spend -- if you don't make it to the other side you will be the red line.

Don also made reference to the difference between east coast and west coast VCs. As he put it (1) Silicon Valley “celebrates” risk taking in a way that is foreign to New England and (2) the significance of this difference of style between the two coasts is way overplayed. 

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Further to cloud computing as one of the next hot things, take a look at this article on Rackspace in TechDirt and this article from Always On.

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