CES 2012 set records for exhibitors, space and attendance.   More than 3100 exhibitors were spread out over 1.8M square feet.  A record 153,000 attended including 34,000 international visitors.

2012 began the same as the 2011 show – the crowd was huge and crawling over all the major booths on the show floor.  The area between Microsoft & Intel leading back to the North Hall was almost impassable at times.

Big themes:  Windows8, Ultrabooks, 2^nd generation tablets, tablet connectivity and applications, bigger and brighter TVs.

On the Microsoft side of the aisle, there was a lot of action and interest around Xbox 360 and Kinect; almost more so than the demonstrations of Windows 8.  On the latter, Win8 will be out in beta next month; and appears to be natural step forward from the successful Windows7 platform.  Most significant is the support for ARM-based chipsets as well as Intel, will give Win8 a large array of devices as target platforms for developers.  Win8 has a “Windows to Go” feature, making it bootable from a USB drive so you can take your setting, environment etc. with you from machine to machine.  Windows8 includes the new Microsoft App Store, to be competitive with Apple for the minds of consumers, and developers.   A new user interface includes a touch-based login, and a high degree of personalization available on the Start screen.   There will also be enhancements in the browser with the release of IE10, faster boot times, and less RAM (<300Mb) to run Windows 8.  It appears they are closing the gap on one platform for mobile, tablet, PC and gaming.  Not there yet.

As for Intel, they showed off new ultrabook reference designs followed up by product announcements by Samsung, Dell and others.   These probably win my ‘gee I want one’ award, and will set you back about $1000 depending on how much memory you want.  Dell, for example, will start shipping in February a 13” XPS unit with an Intel i7 core that weighs less than 3 lbs. and will run 8 hours on a single charge.

The new Thunderbolt interface – a very fast two channel solution is out but doesn’t have a lot of device support yet.  Next year maybe; probably on more external disk drives.  Intel also has an app store, including content such as movies, and TV shows for the ultrabooks.  Really, Intel, an app store? Really?

Lytro introduced a really new idea – a ‘light field camera’.   It’s a first where you take pictures without focusing the camera.  The camera captures the light image in every plane (distance), and then you focus the image using software after the fact.  No autofocus motor or shutter delay.  You can then create several pictures from the same image by focusing at different distances in the field of view.  They will set you back $400-$500 depending on memory configuration.  They fit in one hand and are about the size of a toilet paper roll.

Arcsoft launched Perfect365 last November and introduced it at CES. This software package is for consumers to allow a one-click makeover of your digital pictures.  You can then do all the touchups you want to eliminate wrinkles, whiten teeth etc.  The cameras are so good now we have to use software to take out the imperfections.

Picitup released an iOnRoad app designed as an augmented driving experience.  This app will turn your smartphone into a collision avoidance system, warn you if you leave your lane, read your SMS messages and find your car for you.   If you get one, mount it where you can see it by only moving your eyes, or you will test the collision avoidance system.

Bluestacks introduced their App Player – allows PC or tablet owners to run android applications on Windows.  It’s an alpha version, and available as a free download from their website.  Like OS simulators, if the performance suffers compared to the native environment, this will fail.  On the other hand, many of the android apps are really compute intensive, and this could work out fine.  Business model appears to be an Android store, which combined with their technology makes sense.  Solid investor group.

Netgear announced a competitor to the Cisco Connect product that helps troubleshoot home and SMB networks.  It’s free with purchase of the router, and includes parental controls.   Unfortunately, many of these kinds of solutions aren’t really multi-vendor, and just tell you there’s a problem, no fixes.  As an aside, I recommend a dedicated hub with a cheap electric timer to control internet access time with kids.  They’ll find ways to hack through the software solutions.

Biscotti, a company based in McKinney, Texas; launched their internet TV Phone.  They are targeting video calls made from the living room.  Biscotti’s can interoperate with each other or anyone with a Google chat account.  Each device sells for $199, sits on top of your TV and provides a user interface right on the TV screen.  The unit itself is very small and simple to operate.  Their booth was well put together and always had folks asking questions.  Biscotti has a similar-age competitor called TelyHD who has focused on the skype crowd and audio performance.  It’s a bigger unit and costs about $50 more on each end.  The TelyHD system is also Android-based this could be an application or developer target as an open system.

Casio showed a lamp-free DLP projector at 3000 lumens.  The actual light source combines a laser, ‘fluorescent element’ and an LED to create the brightness.  Green has always been the difficult color to create at high lumen count, so they do it by converting blue to green via the element.  From a performance perspective all this sounds outstanding; except there’s a creepy disclaimer on the product sheet: “The Casio Hybrid Light Source can only be replaced by the Casio Factory Service Center. Disassembly of the projector and/or use of its technology or components for other purposes is potentially dangerous and strictly prohibited.”  Not cheap, the base units start at $1000. Equally disappointing is the fact that the highest resolution available for these units is WXGA.

From the category of good idea, but I hope I never need it,  Scosche introduced a radiation detector for your iPhone and iPad.

SanDisk launched the Memory Vault, a storage device, physically designed to protect your photos and videos long-term.  They claim the devices have been tested to protect your memories for over 100 years.  An 8GB unit will set you back $50 and 16GB $90.  This seems like a good idea, but is woefully undercapacity and how will anyone find a USB reader in 100 years?  I would recommend buying an external drive and putting in the safety deposit box (or a family member’s hands) for a lot less money.  You can get a 1.5TB drive at BestBuy for $140.  Sure, it probably won’t last 100 years on the shelf, but this is a backup, right?

Snaptracs has a pet tracker called tag that is a cellular-enabled pet locator.  You can setup a virtual fence ‘geofence’ and if your dog (or cat) get loose you’ll get a notification and even directions if need be.  The device itself is hardened against water, scratching etc.  It looks just a little big for small dogs, but would be fine for anything over about 25 lbs.  Battery consumption is an issue here – the company’s website has a chart to help estimated it.  It ranges from 3 days to 30 days depending how long your pet is near the charging station.  Essentially the device cuts power consumption when it knows it’s near the charger because your pet hasn’t run off.  You’ll get a notification electronically when the battery runs low.  Clever.  $100 for the first kit then $80 per year for the service.

Bluesky showed their I’m Watch, which you wear on your wrist and is sync’d to your smartphone.  You can make calls, check twitter, email etc.  For $350 I’ll invest in a better phone.

Wilocity showed the first 60GHz chipsets based on 802.11ad designed to reach 7 Gb/s over short distances.  This is targeted to be very high-speed over short distances in-room or adjacent room and to be paired with 802.11 a/b/g/n.  History repeats itself as the company claims it will replace USB, HDMI, VGA, eSATA, Firewire…good luck with that.

Switch75 displayed a 75W liquid cooled LED lightbulb.  They wouldn’t say, and you can’t buy it yet, but press says it’ll be around $20-25.

Everspin has a non-volatile memory based on the magnetism of electron spin with no wear-out mechanism.  Runs at the speed of SRAM.  From talking to the company, they can make the chips in volume, and are developing higher capacity chips.  Current products are 1, 4, 16Mb.

One significant trend apparent from the show was tablet connectivity.  Last year was more about the devices themselves, now they are being loaded with apps to control your TV, move content around, integrated gaming etc.  Equally important, prices are dropping and performance is improving across the ecosystem with very few exceptions.

One new company, Innovega, has a different 3-D solution.  It used 3-D contact lenses with eyeglasses to create an iMAX kind of experience right on your face.  It’s a play in augmented reality, might be better suited for military or industrial needs.

Gameskunk is made by Sensory Acumen and has ‘an olfactory feedback system device that will deliver scents connected to game play for game consoles…” and patents to back it up.

Motorola announced two new phones based on Android, otherwise ho-hum.  The Xoom looks very me-too and at a price point that won’t be as functional as an iPad, nor as cheap as ASUS, Samsung or Acer.

Sony took the opportunity to show not just new but some possibilities at CES.  3-D with and without glasses, a personal 3-D display.  Most impressive was a 55” Crystal LED display that was amazingly bright and sharp. They have a big push on for integration of tablets, phones and TVs, moving content and competing (unspoken) with Apple.  The Sony Reader got little attention.

Samsung had an even more enormous booth this year.  Featured were the new ultrabooks based on Medfield that are extremely thin.  Looking ahead they showed a 70” 4k x 2k ultra-high definition display that looked fantastic running purpose-built content.  Samsung still has LCD, LED, and Plasma TVs available in a broad array of sizes and feature sets.  3-D and internet connectivity is on all the high-end models.  Included in several models is a camera built-in with a skype application for video calling.  Looking backwards, Samsung had vacuum-tube based audio amplifiers as new products.  That was a surprise, but music to the ears of audiophiles.  Like Sony, Samsung was pushing their ‘Allplay’ solution for interconnecting PCs, tablets, TVs etc.

One unique offering in the Sharp booth, every year is a solar panel.  What they show is typically at or near the best commercially available device measured by price and performance.  It also usually sits off in the corner like an orphan child to the TVs.  This year was different.   Prominently displayed was not a panel, but a solar appliance, that is plug and play.  It combines their cells with microinverters and a monitoring system into one 3’ x 5’ panel that can produce 235 watts.  What’s new is you can scale these up from one to many and each panel sync’s up with power phase on the grid.  So if you have a smart meter, you can use them to cut your power consumption or, in theory, sell power back to the utility.  Most U.S. homes are in the 2-5kw range so you’d need somewhere around 8-20 panels to power your house.   No pricing details until 2Q, but each panel comes ready to install with a substantial warranty of 25 years.

The industry is now starting to produce standards on 3-D glasses, in particular for the active glasses that use shutter technology. Too late?

Microprojectors took a big step forward with several companies offering 100-500 lumens based on LED lighting and DLP.   That’s a huge step up from the 30/50 and barely 100 lumen devices from only a year ago.   Resolution is still an issue with WXGA best available.  Butterfly and Vivitek appear to be the product leaders.  The latter has a 500 lumen Q5 projector available mid-year for $800 with wxga or uxga resolution.  Optoma showed a 100 lumen microprojector, with an LED light source, sells for around $450.

For just fun, Sphero has a tablet app that connects to a plastic softball sized robot.  You can drive the ball around on the ground by tilting the tablet.

Aftershokz release a headset based on bone-conduction hearing.  Sound quality by watching people try them was pretty good.  Most important it leaves your ears open so you can hear what’s around you.  x-Military technology, but sells for $70 which is cheap compared to a trip to the hospital.

Buffalo demonstrated an 802.11ac prototype running at 800 Mb/s.  It worked over an RF cable and actually had scotch tape on it holding the boards down.

Wearable cameras are now widely available given the cheap storage and low price points.  Bike/ski helmet, car and bike fixed mounts appear to be the most popular uses.  Swann has a freestyle HD camera for $280.  Midland, the old CB radio company, also has a large product set.

One bomb sniffing dog walked through.  Didn’t stop.

Qualcomm was busy as ever, highlighting the snapdragon mobile processor and a large array of applications.  Healthcare, security, location-based and e-commerce were most prevalent.

Primesense showed a remote control capability using motion.  A small camera is installed under your TV as the motion sensor.   Essentially you are in front of your TV waving your hands, grabbing, moving dropping, selecting instead of a remote control.  It’s a nice idea, but the motion required was generally big, and each demonstration was done standing up.  It also was a little buggy in the demo differentiating between hand gestures.  I think it’s the wrong sensing technology, too coarse-grained.

Verizon had an impressive display based on 4G/LTE applications.  A one-touch senior finder (help! I’ve fallen….), remote doctor visits or check-ins, two-way video, display ads and alerts.  Most interesting was an industrial market application for a wearable headset that put a heads-up display in one eye.  There is a built-in menu and browser system that responds to your voice and head movements to make selections.  It seems too fragile – too much training and narrow in applications that require both eyes.  Finally they had a lot of applications around the tablet market.

X3 microservers (reported on last year), apparently doing very well.  They have a ‘datacenter on wheels’ that’s about the size of a golf cart and includes power, cooling etc.

Internet connected appliances appeared a number of places –  get notifications from your washer, dryer, dishwasher, refrigerator, a/c unit etc. if anything is amiss or your clothes are dry.

Why innovate when you can copy?  At a prototype demonstration of a tablet running Windows8, two guys stood right in front of the display each carrying SLR cameras.  Every time the screen changed its display they took another photo.  As I watched they captured 15-20 Win8 screens very up close.

One of the skills of good executives is pattern-recognition, formed through experience. When it’s working, a single event triggers a chain of experience that leads to an experience backed decision. 

A recent week was filled with face-to-face meetings with startup companies.  The best teams had done their homework and research on our firm and partners.  Then, a pattern emerged.  It appeared several of the prospects had read thru our portfolio and assumed we only invested in communications, service, and semiconductor companies.  That was predominantly true in the past, looking in the rear-view mirror.

St. Brendan, The Navigator

The more important question is what areas are we looking for now, which may or may not be the same.  First, where are we proactively looking for deals?  Silver Creek’s focus is around Next Wave investing where markets, technologies, channels or purchasing behavior is disrupted, moving quickly and growing. 

Today (4Q 2011) we are researching deals in these general areas, in no particular order:

• Wireless applications and platforms (NOT iphone games)
• Storage software and infrastructure
• Video technology, infrastructure and services
• Cloud infrastructure software, services or platforms

Second, and very important, we listen and react to ideas from people, plans and referrals.  Innovation comes in many forms and there’s no claim to own it here.  We want opportunities that can build large, public companies given the right mix of hard work, timing and a little bit of luck.

What’s not obvious is a number of company founders and startups don’t research companies they are considering for investment. Today, I read another email about how we are the perfect investor for a service business – a skin salon. In the entrepreneur’s defense, they used a paid-for matching service that found us; but then didn’t do their own research (reading our website) to validate the match.

- Early. From a stack of slides to profitable, ready to take that next step. Most of our promising companies are ‘at revenue.’ This means, depending on sector, some form of a product, some evidence in the marketplace. That said, we do seed deals behind great founders and/or technologies. We also back companies well into revenue looking to scale beyond lifestyle businesses.

- Technology. Technology provides the source of differentiation and our expertise is in information technology. Sorry, we’re not skilled in real estate, oil & gas, pharma or movie productions. We have invested in both product and services companies.

- Size. No minimums for us, and we typically invest $3-7M over the life of the investment. What’s more important is can your company, if successful; pay back our fund and our investors?

- Do we have a fund to invest? Yes, and we are looking for great deals.

- What areas are of interest? New ideas from entrepreneurs are the best; however, we are actively looking at cloud, video, wireless, storage, and internet networking platforms.

“We have a conservative plan.”

Entrepreneurs use this phrase to reassure potential investors.  In most cases, it’s completely intellectually honest, but often says that the forthcoming plan is a snapshot with no analysis or discussion of what might, could or will happen.

The Three Key Elements

Marketing/sales plans can be so conservative that they don’t capture any market share or interest.  For example, “We’re addressing a billion dollar market,” yet the fourth year of the financial plan is a $7M business.   Worse is the implication that management didn’t bother to do any real work on the addressable market.  “If we get just 1% of our $1B market…”  1% would produce a company ($10M revenue) that will little chance at an IPO.  Overly aggressive consumer plays typically ignore the time and expense of building a brand or a channel.   Enterprise customers can take significant time and effort to close from first contact to first closing of a sale.  Finally, “We have no competition” means management simply does not understand the market.

Development plans have the same dynamic.  If the scope, schedule and resources presented in the plan are too aggressive, management will lose credibility.  Err on the too conservative side and the funding requirements or time-to-market will balloon, driving up capital requirements and resulting in an unfundable proposal.  An unclear process or set of development milestones is a sure sign of execution weakness.

The financial plan is often the result of the market/sales, and development plans.  It shows in plain arithmetic the proposed investment what will happen during the investment horizon.  It’s a scorecard of sorts that adds up all the thinking by management.  The underlying assumptions to the business model reveal themselves through the financial plan.  What investors want to know at this point is “if we invest x, the company y will look like z at this point in time when we can raise more money, sell or go public.”

So what to do?

The right answer is to show the plan that you believe and will be held accountable for.  From there you can show upside and downside possibilities that reflect how you will manage the business in reaction to the market.

Marketing plans reflect the size of the market today, it’s actual growth rate, and what might happen in the future.  In all cases, consider the ultimate market share or growth of the market in the context of the business.  If you think your market doesn’t exist today, but grow by taking wallet from other markets, illustrate that.  A 5-year projection from an analyst is not conclusive.  Review direct or indirect competitors where they are today, and tomorrow. What seems to work well is a segment of an existing market that can be clearly attacked, and then some hypothesis about how to make a big market the company’s strategy is correct and well-timed.

Development plans include some margin of error for changes in scope, difficulties in integration, slower hiring ramp-up and technology risk.  The key is to balance prudent risk and piling up every possible scenario which questions management’s ability to anticipate problems.  For example, software companies have a integration, test, verification, release development flow.  It would be unrealistic to assume a cleanup release would not be necessary.  Semiconductor startups must factor in a chip spin(s) into their development plan and expenses.

The financial plan reflects what you think is going to happen.  A sensitivity analysis considering the market, development or revenue happening at a slower rate should be in-hand.  Anticipate that if revenues happen at half the rate you are planning for, what would you do about it?  In creating the envelopes of potential outcomes, keep a close eye on the total capital requirements needed to get to cash-flow breakeven. A good test of a financial plan is comparables (if available) to contrast gross margin, timing and revenue growth.

Think. Change.

The whole point of the plan is to communicate what management believes will happen, and what management will do if things change.   In this way, investors understand the investment risk and can participate in effecting change to the plan and the business unfolds.

1) The Executive Summary. The summary should include the relevant points of the proposal, and be interesting enough to encourage a potential investor to seek more information from the entrepreneur.

It answers six basic questions:

1. Who? Describe the background and experience of the management team.
2. What? The product or service the company will offer, the financial results it will produce.
3. Where? Location of the company and the offering be in the marketplace.
4. How? The unfair competitive advantage the company will create, and the amount of capital required.
5. Why? The market size, exit strategy and the vision of the company.
6. When? A timeline for the development, launch and growth of the proposed venture.

The summary should be no more than 1-3 pages, and be targeted to a particular investor in the venture firm.

2) The Presentation. The presentation is used in a formal meeting with the investor(s).

The presentation covers:

• Problem / Opportunity
• Solution / Offering
• Team
• Market
• Technology
• Milestones / Timeline
• Financial Plan
• Investment Proposal

Looking past the basic requirements of the presentation, it must capture the attention of the investor so that this becomes the most exciting deal in the pipeline. Typically the meeting is an hour with Q&A, and the presentation is 12-18 slides. Backup slides as needed are fine.

3) The Business Plan.

The business plan is the in-depth analysis, description, and contingency planning that supports the presentation and the summary. It is often a mechanical or checklist item for the investor. More important, the management is required to think through all aspects of the business and how they fit together. Put simply, the exercise of putting together the complete business plan will produce a better presentation and summary. All experienced investors expect the plan will change, often dramatically, over time. A typical business plan is 20-30 pages in length.

Finally, every venture is different and requires more or less emphasis on any one particular part of the summary, presentation or business plan. For example, a technology commercialization proposal often requires more diligence work on the core technology and its development effort.

Other free resources:

www.businessplans.org
http://www.entrepreneur.com/startingabusiness/businessplans/article81188.html
http://www.businessplanarchive.org/whatwecanlearn/tenlessons.html
http://www.myownbusiness.org/s2/
http://images.businessweek.com/ss/08/01/0107_businessplan/index_01.htm

[French, from Old French reconoissance, recognition, from reconoistre, reconoiss-, to recognize.]

Venture capital is best practiced in the field, not in the office. An investor can’t sit behind the desk and read business plans, analysts’ reports, news etc. and make good investment decisions. In a similar fashion, investors must work with their portfolio companies in the field to add value and ascertain the progress of the company. Conference calls are no substitute for a look-them-in-the-eye meeting. Following are some illustrations of venture capital in practice.

Trade Shows and Conferences

These are great places to learn what’s happening in the marketplace, network with entrepreneurs and public companies. By ‘walking and stalking’ exhibit halls, an investor can gain first-hand knowledge of market trends, competitors, and new technologies. You’ll notice a substantial number of these on the calendar every year. It’s a great place to meet an investor away from office distractions and focused on reconnaissance. Investors can also do portfolio work here thru business development and industry contacts. Often, attendees will bemoan the value of a trade show or conference. When that happens, ascertain how much preparation went into the event before the plane landed. Did they have meetings set up? Did they have a plan of action, research or networking? Were there companies or customers they intended to cold call? Like the old saw says, ‘you get out of it what you put into it.’

Meeting with Companies

Meeting with companies at their offices is seeing the animal in the natural setting. Investors get focused, unfiltered exposure to inventors, founders and management teams. Often, little things do make the difference. For example, I visited a company making batteries many years ago. As we toured the pilot manufacturing facility, I noticed there were no manuals, flow-charts, procedures or documentation to be found in any of the manual assembly areas. The emphasis then is on ‘prototype’ not ‘pilot’ as has been suggested by management.

Meeting with Entrepreneurs

When we invest, the expectation is we will work with this management team for years – so trust and chemistry is crucial. The due diligence process is an exercise that evaluates not only opportunity but also the effectiveness of the investor and management team working together. Another major reason for meeting with a lot of startup leaders is to gain knowledge in a particular area of interest (albeit second-hand), to make sound decisions about differing technical approaches, market forces and competitors.

1) Run by engineers, technologists and academia.  This is the formative stage where competing ideas and approaches are fighting to be the solution, standard or idealogical purity.

2) Commercialization shows up.  This season is signalled by the arrival of product managers as participants and the first sales people lurking the halls and hotels trying to setup opportunities.

3) Commercialization grows and needs its own place.  Now there’s usually a ‘conference’ and a ‘trade show’ co-located to make it easy for attendees.  Booths are minimalist and usually banner and just a good place to meet.

4) Maturation.  Marketing dollars start flowing in here.  There is significant promotion and business in selling floor space to the show and registration to the conference.  Technologist start to grumble.  Booths grow in size and height, and marketing professionals appear.  The first financial analysts show up to track big and upcoming companies.

5) Explosive growth.  Now there is a (or multiple) conferences, a huge show floor, private rooms in hotels for stealth products, participants from all parts of the industry.  The show floor has professionals who memorize  their schtick, booth babes, etc.  After show parties become elaborate and expensive.  Salespeople start to grumble.  The pinnacle of an industry show with in the overhype era is…live music acts on the floor.   Over-priced and only satisifying to the show organizer.

What happens next is up to the marketplace.  Consolidation, re-focus, sector rotation or extinction?  How often does a trade show resemble a trip to Abilene? http://en.wikipedia.org/wiki/Abilene_paradox

First, the naysayers speak up.  They cite the game of chicken Google apparently played during the wireless auctions forcing up the bidding, and engaging a discussion about net neutrality, and never spending a dollar.  Next, Google just collected free information about the needs, performance and current state of broadband networks throughout the US, soon after Clearwire finished their first 30 cities.  Surely, Clearwire can use this information to figure out where to go next.  They can use this information to lobby the FCC regarding the stated need and popular opinion for open broadband networks from over 1000 towns and cities nationwide.  Google now has contact information to city leaders that can be used to rally the populace if/when net neutrality comes to the debate.  In summary, a genius PR move with little intent behind it.

Next, consider the case as seen by from the glass half-full mob.  Proponents look at Google’s massive balance sheet and suggest they could build out this network for $50-100M and serve 50,000 residents on the low-side and $500-1B on the high side.  This puts Google in at the FCC as a wireline carrier with a testbed unlike any other in this scale and scope.  An open network, that lets anyone build applications and services on a shared infrastructure.  They can argue that VZ and AT&T need to unbundle (again) their local loop, after the re-regulation of the local loop protected them from competitors riding on their plant on the cheap.  Hence, VZ/AT&T will have been drawn into the canyon for a re-re-regulation ambush. In summary, a genius chess move, with even more to come.

Just technically speaking.  Consider the technical need for an open testbed with shared applications across a 4G wireless network?  With the launch of the iPhone and now the iPad, competition for developer resources is intense. Google can offer an open development community access to hosted processing, storage and networking all the way to consumers on a 1 gigabit wireline and high-speed wireless (Clearwire) access.  This gives them a fundamental competitive advantage over Apple, Microsoft and certainly any of the carriers in luring developers to their platform.

Finally, this is a different field of players than Google has engaged with in prior incarnations.  They are engaging directly with communities and citizens; not just playing a poker game with the FCC and incumbent carriers.   The rewards of public opinion and support are very high, as are the price of failure whether real or perceived.  In today’s open vocal culture, authenticity is rewarded, misinformation and half-truths are exposed.

More on Google’s RFI found here: http://www.google.com/appserve/fiberrfi/public/overview