Why Steve Jobs Matters

In 1981, Inc. put Apple founder Steve Jobs on its cover next to this headline: "This man has changed business forever."

The accomplishments of Jobs, who passed away last night, have been well-cataloged. He popularized the personal computer, created Pixar, revived an ailing Apple, revolutionized the way people consume music, bequeathed the Jesus Phone, and invented the tablet computer. But there's another aspect of his career that is getting less attention, and that may prove to be even more significant than any of his gadgets: Jobs created a world where it was okay to be Steve Jobs.

We take the idea of the hero-entrepreneur, personified by someone like Mark Zuckerberg, for granted these days. But before Jobs, entrepreneurship as a career path was entirely suspect. Entrepreneurs were not worthy of our admiration; they were hucksters, social deviants, or even criminals. 

Jobs was all of these things—he dropped out of college, dropped acid, and earned a reputation as a petutalant, out-of-touch, micromanager—and he somehow managed the build the most valuable company in the world. His success proved that strong-willed, visionary entrepreneurs could succeed, and that they had something to teach us. Zuckerberg, in his remembrance of Jobs, calls the Apple founder a "mentor," and it's hard to imagine that he would ever have been able to maintain control of Facebook if Jobs hadn't shown how effective a hard-headed founder can be.

There's another way that Jobs helped entrepreneurs. His products—beginning with the early Apple PCs—brought computers, once the exclusive domain of corporate America, to small companies. Over the past three decades, the price of starting a company—any company—has fallen dramatically thanks to the widespread availability of cheap PCs and free software. There are now hundreds of start-ups coming out of accelerators like TechStars and Y Combinator, which have proven that $20,000 is all you need to seed a billion-dollar idea.

It's fitting that Jobs's most recent products, the iPhone and iPad, have done so much for the entrepreneurial ecosystem. The App Store has already paid out some $3 billion to developers, allowing indepedent entrepreneurs nearly instant access to tens of millions of customers. Not all of those entrepreneurs will go on to create big, world changing companies, but its a fair bet that some will. And that could be Steve Jobs's greatest legacy.

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An Accelerator Grows Up

Two years ago, when I first wrote about accelerator funds, they were something of a curiosity. Give a team of smart engineers enough money—usually between $15,000 and $50,000—to keep them in ramen and air mattresses, mentor them, and then put them in front of investors. 

Today, the model is attracting some serious money. This morning, Boulder-based TechStars announced that it had raised $24 million from a collection of VCs that includes the Foundry Group, DFJ Mercury, and SoftBank Capital. The upshot is that in addition to getting their normal seed stage investment, start-ups accepted into TechStars, which now operates in four cities, will have the option to take an extra $100,000 in the form of a convertible note. 

"This additional funding will allow TechStars companies to stay focused on making progress during the three-month program instead of spending that valuable time on early fundraising in order to make ends meet," says TechStars CEO David Cohen in a press release.

The deal puts TechStars companies on the similar financial footing as those of the accelerator pioneer Y Combinator, which announced a similar deal earlier this year whereby graduates of the program could opt to take $150,000 in funding from a consortium of angel investors that includes Ron Conway and Yuri Milner.

 

 

 

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Lessons from Argentina: Tax Holidays

The Wall Street Journal reported yesterday on the latest plan to shore up our country's finances and jumpstart the economy: A new tax-repatriation holiday. The holiday would involve drastically lowering taxes on corporate profits for companies that choose to bring assets back into this country. (It's common practice for big companies to store most of their cash in tax havens in order to avoid paying the 35 percent corporate profit tax. This is how large companies like GE and Google manage to pay almost nothing in taxes.)

On the surface, a tax holiday sounds pretty good. After all, if it works, at least the U.S. treasury gets a little bit of money, and the rest of the cash that comes home could, in theory, stimulate the economy. But there's a problem, which Republican Senator Orrin Hatch hinted at in the Journal piece:

"I'm not against bringing it back this time, but we're going to have to get something back for it," Sen. Orrin Hatch, (R., Utah), the top Republican on the Senate Finance Committee, said Thursday. "It's not right every five years to bring repatriated funds back at a 5% tax rate."

Hatch's concern—that granting tax holidays on a regular basis incentivizes companies to cheat on (or at least artfully avoid paying) their taxes—is one I heard from a lot of Argentine entrepreneurs when I wrote about the country for this month's issue of Inc. Argentina has regularly offered various amnesties and holidays as an incitment to bring tax evaders into the open. But they have the opposite effect:

Bilinkis is a man who takes his responsibility to society seriously, but he admitted to me that when he sold the company, the thought of hiding the proceeds from the sale in a foreign bank account flitted through his mind. Every few years, Argentina's tax authorities, desperate for more revenue, announce a tax amnesty, allowing wealthy individuals who have evaded taxes to report their income and pay as little as 1 percent in tax instead of the standard 35 percent income tax. Bilinkis paid the full rate. "I felt like such an idiot," he says. "I knew at some point there was going to be a tax moratorium."

In other words tax holidays can exacerbate budget problems by effectively rewarding companies for avoiding their taxes. It's, in short, unfair to companies that have paid their taxes, and it might bad long term policy.

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A Country Without Credit

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IPO Craziness, Pandora Edition

It's nice when good things happen to good companies. After a more than decade of struggling to turn its streaming music service into a viable business (for a good primer check out Stephanie Clifford's 2007 story), Pandora is profitable and poised for a blockbuster IPO. Today, it announced that it is raising the price of the offering by roughly 50 percent:

Online radio station Pandora increased the share price for its initial public offering today, bringing the company's valuation to nearly $2 billion, according to a recent filing with the Securities and Exchange Commission.

Pandora's shares will now debut on the New York Stock Exchange and sell at a price between $10 and $12, up from the company's original IPO pricing of between $7 and $9. That gave the company a valuation of $1.3 billion. LinkedIn also followed a similar strategy, ramping up its IPO pricing to increase its claimed valuation from $3 billion to $4 billion in less than two weeks.

The comparison to LinkedIn, which had a monster IPO a few weeks ago, is interesting. Although pundits have been quick to brush aside the idea that we are witnessing a Netscape Moment, LinkedIn's success, even slightly tarnished by a drop in its stock price over the past couple of weeks, does seem to be factoring in Pandora's bullish pricing strategy.

It's a fair bet that the founders of other IPO hopefuls—Facebook, Groupon, and Yelp, among others—will be watching closely.

 

 

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LinkedIn Soars

This is a what investors call a pop. LinkedIn, the social network founded by Reid Hoffman in 2002, went public with a bang, opening at 84 percent above its offering price of $45 per share. (That figure was itself higher than expected. Just a week ago, the company said it was pricing its IPO at $32 a share.) An hour before the markets closed, the stock was trading at close to $100 a share.

So how did Hoffman do? GigaOm puts his current net worth at a staggering $2 billion; other big winners include Sequoia Capital and Greylock Partner's, which now each hold stakes worth over $1 billion. LinkedIn's CEO is worth a cool $400 miilion.

That's all great, but Henry Blodget, in full cranky glory, points out that in cases like these, founders clearly set their prices too low. 

The value of LinkedIn-the-company, it seems safe to say, has not appreciated by 90%+ in the past 12 hours.  And that means that, on its underwriters' advice, LinkedIn sold its stock way too cheaply. It also means that the institutional investors who bought LinkedIn's stock last night are high-fiving each other this morning, celebrating their instantaneous 90% gain.  (Lots of them are probably also dumping some stock).

Still, this should be fantastic news for other start-ups mulling IPOs.

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Will LinkedIn's IPO Start a Frenzy?

Remember all the talk about how there's no money in social networks? Well, it now seems strangely academic. LinkedIn has priced its IPO, which it announced in January, and the numbers are big. TechCrunch has the details:

The company expects proceeds from the sale of the shares of stock in the offering will be approximately $146.6 million (in total the company will be raising $274 million but some of this money goes to fees etc.)...LinkedIn's IPO should debut on the NYSE fairly soon and it will be interesting to see how the Street reacts to the offering. One factor to consider is that LinkedIn is growing revenue—the company just reported that Q1 revenue in 2011 was up 110 percent to $93.9 million. Net income increased to $2.08 million, from $1.81 million in Q1 2010. The increase in sales came from the company's hiring solutions, a paid offering which helps recruiters search for professionals and list jobs on the site.

This is, of course, part of something much larger. For years, the IPO market has been all but dead. Now successful companies that waited to go public during the depths of the recession, such as Pandora, Skullcandy, and, most recently, Yelp, are looking to take advantage of the much improved market conditions. As Burt Helm reports in this month's Inc., there's even a cupcake company, Crumbs Bake Shop, aiming for a public listing.

Part of the rush, no doubt is that valuations for tech companies are ridiculously high. As the New York Times noted last week, Renren, the Chinese social network, went public at a valuation of 86 times its revenue. That's great news for Renren's founders, but it could bode ill for other start-ups if investors sour on the company:

“I don't know about some of these valuations,' said Peter Falvey, a managing director at Morgan Keegan. “People are getting really excited, but it could end badly at some point.'

Start-ups that miss this frothy moment may find themselves unable to go public later. Hence the mad rush to IPO.

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Color: Brilliant or Bubble?

I spent 20 minutes at lunch playing with a cool new iPhone app called Color, which automatically shares photos you've taken on your phone with other people who are close by. What's the point of this? Why can't you just show your phone to the person sitting next to you? Why do I need to look at pictures of the very room I'm standing in?

I don't know. And neither does anyone else, it seems. "It's difficult to explain what Color does with a bullet list of features," admits TechCrunch writer Jason Kincaid, who spends over 1000 words on the task. It's generally not a good sign when it takes that long to describe a company's value proposition, but Kinkaid tries gamly.

Nguyen [Color's founder] has visions of fundamentally changing some aspects of social interaction and local discovery with the app, which he considers part of the so-called Post-PC movement. Using all of the data being collected (remember, the app is taking advantage of all of your phone's sensors), Color hopes to eventually start recommending nearby points of interest, and maybe even interesting people.

Got it? Now here's the kicker. This brand new product with no revenue stream has already raised $41 million from some of the biggest names in venture capital. The apparent disconnect has people calling a "bubble," which seems fair given the amount of money that's going into an unproven company.

On the other hand, Twitter seemed even more useless when it launched five years ago, albeit with a lot less money than Color has.

For those who've downloaded the free app (who needs to charge money when you have $41 million in the bank?) and have had a chance to use it: What do you think? What's the business here?

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