The topic of discussion quickly changes from the original reason for the meeting (which may become moot as the conversation progresses), to brainstorming around other creative ideas to help one another. The most helpful interactions I’ve had have really been with other entrepreneurs – they’re in your shoes, walking your path and they know how hard it can be. They’re always the first to say “how can I be helpful?”. It’s generally because they don’t have spare cash to invest in your startup, but they like you and they want to help you be successful.

So, when people ask “How can I be helpful?”, what they are really saying is : Can I make introductions for you (to investors, partners, employees etc)? Do you need some advice with any part of your business? How can I support you in doing what you are doing and helping you become successful? How can I connect you with the people that can really help make a difference in your business? Are there people higher up in the food chain in your segment of the market that you need to know (CEO’s etc)?

This support structure is the strongest fabric that runs through Silicon Valley. The willingness to help build relationships and create connections is really a differentiating cultural facet of Silicon Valley which I don’t believe has permeated anywhere else. It’s the culture that binds startups together and it helps breed success. I’ve been to many places around the world and I have yet to see the same level of engagement and willingness to give back. It’s no wonder that LinkedIn was conceived and created here.

Entrepreneurs from halfway around the world have contact me on LinkedIn, asking for introductions to people who work literally down the road from them, and who their own investors and board members know, but who are not being very helpful with introductions. And I’m not making that up! The support offered by investors (angel and institutional) is unparalleled in the valley. Give and you shall receive.

So, as I begin my new journey with gyft, I just want to take this opportunity to thank everyone who has been helpful to me (too many to mention) in my journey!

This post was inspired by Arjun Sethi – thanks for being helpful today!

Published May 2012 in South Africa – Brainstorm Magazine

It’s an hour long video session, but the audience rated it as one of the best sessions of the day! Here is the recording of the session:

Creating Africa’s own Geek Valley

Link: Putting Tendulkar’s Hundredth Ton in Perspective – NYTimes.com via india.blogs.nytimes.com

The guys over at Memeburn have the scoop here.

Also, here is a link to the official press release.

Congratulations to Trevor Harries-Jones (my former Chief Operations Officer) who will step into my shoes at Yola as the new CEO. I will continue to be a shareholder and board member of the company and will still work with the management team to ensure that the company continues to grow from strength to strength.

Gyft is a mobile wallet for gift cards, and we’re launching the app in the Apple Store sometime in May 2012. If you want to get onto the waiting list for early access or to be notified, please signup at gyft.com

I am going to start blogging a lot more often from now on – the past 2 years have been extremely busy for me, and I neglected my blog. Since my last post, I’ve had baby (two year old son, Kavin) and I’ve moved from San Francisco to Palo Alto (where gyft is now based).

In the Facebook post, I analyzed Facebook’s business model, using my background in search & online marketing, to justify why as a business, the valuation made sense.

Now, 2 years later, a new player has arrived in the online world, Twitter. The valuation of $1bn on Twitter as a business is potentially not as strong as the rationale behind the investment at that price. In order to explain briefly – I’m going to go light on the business model and heavy on the investment rationale.

As a business, Twitter has about 50m users and is becoming a major player in the Real Time search market. I use it more often than Google sometimes, to figure out what’s happen, in real time. Search is a $20bn market. If Microsoft (through Bing) and Google really wanted to get serious about this space, paying $1bn for Twitter would be a paltry sum of cash or stock for either of them. Twitter’s volume easily justifies it (read the leaked Twitter docs). Facebook already made moves to acquire Twitter for $500m, earlier this year.

So, without delving into the business model behind Twitter, let’s just assume that there is acquisition value for Twitter, if it were sold tomorrow to either Google, Facebook or Microsoft. even at a 80% discount to the Facebook price, I don’t think anyone would argue that Twitter is worth at least $100m.

And that’s my point. Twitter has just raised $100m from a number of investors. What (most) journalists, don’t understand, is that the way the term sheets and documents are prepared and signed off, investors typically receive preferred stock in the company that they are investing in.

Note: I have no inside information on Twitter and this is purely speculation, based upon best practices and my experience in investing and the startup world.

Let’s assume the terms of the deal were typical:

Investors receive 10% of Twitter for a $100m investment.
This 10% constitute Series “C”? preferred stock.
The preferred stock has a liquidation preference of 1x (which means no matter what Twitter is ultimately sold for, the investors get the first $100m back + interest (2-5%?) – sometimes you can get 1.25-2x liquidation preferences, which would sweeten the deal even more for investors (e.g. 2x their money back upon exit/sale before anyone else gets anything).

So, for a mere $100m, these savvy investors realized that investing in Twitter to receive a 10% share in the upside (above $1bn – which is very possible), with limited downside (they always get their money out first + interest), it was better than leaving the money in the bank.

The reality of the situation right now is that money in the bank is not attracting any real interest in the developed markets (typically 1%).

So, if you could get a piece of the upside in a fast growing tech company, with very limited downside and interest in the bank – why would you not invest in Twitter on a $1bn valuation? In fact, depending on the liquidation preference, even a $5bn valuation would make sense!

From an investment point of view, this is a great investment with good upside and low risk – these investors are not crazy, they just understand time value of money. The current state of the world’s fixed interest income markets means that we’re going to see a lot more deals like this, where investors take small stakes in fast growing companies at high prices but first money out.

As long as the company is worth AT LEAST what you are putting in ($100m in this case), the downside is very limited and the upside exceeds the current cost of capital.

Great investment – win-win for everyone, and overall, well done to Evan & the guys at Twitter.

Virtual goods are essentially digital items – which I’m sure everyone is familiar with, like the “gifts” on Facebook or buying “weapons” on World of Warcraft. We’re extending this idea to the website building world – and now looking at styles as a virtual good that can be created and sold. The demand for people trying to create a website has risen massively in the past few year and it’s trend that is not slowing down.

For those who may not know, Yola.com is a free platform, focused on enabling SME’s to create their own websites and establish a presence for themselves on the Internet. Our goal is to become the largest destination for enabling small and medium enterprises worldwide to participate and transact on the web. In pursuit of this goal, we decided from the very beginning that we wanted to create a business where the basic services are all free (website hosting, free site building software, free bandwidth, and no advertisements) and we charge our customers for add-ons and other value added services (domain names, premium styles, subscription packages for extra features – coming next month).

The way we think about our business is that the basics of having a website is really commoditized these days (there are a million hosting companies out there, for example). What differentiates us from them? Well, for starters – hosting is absolutely free – why charge for something that doesn’t really cost us much – and I’m not going to delve into the virtues of the free model here, I’ll leave that to Chris Anderson, author of Free!

Where we feel that we can absolutely differentiate our services is by allowing users to customize their websites and instill a sense of individuality and uniqueness. The cost of creating great looking themes and styles for a website built on any CMS (Content Management System) platform often costs hundreds, if not thousands of dollars. Traditional companies that provide CMS, blogging or website building tools have a limited selection – for good reason, the costs are prohibitive – and therefore this is an area with a problem looking for a solution. One of the challenges faced is that there is a point of saturation – some companies with a million users only have 50 styles/themes for their users (20,000 users/style). Everyone’s website starts to look the same – and that’s a big problem. So, how do you then scale the business profitably when you have 10m or 20m users? You cannot possibly building all those styles for free and Yola now has nearly 2.5m users and we’re growing so quickly, that we simply cannot afford to keep creating free styles for our users.

Our virtual goods business model is to launch a premium styles store – filled with expensive designs – but instead of paying hundreds of dollars – users can spend as little as $29.95 (once off) to get access to a better looking style for their website. Right now we have about 18 premium styles and will be adding many, many more in the months to come.

We think that this is a very innovative way of creating a sustainable revenue model for a SaaS business. Jeremy Liew from Lightspeed Ventures wrote a good post for the Wall Street Journal on Virtual Goods recently, and Susan Wu from Charles River Ventures also contributed a good post in Techcrunch, calling Virtual Goods – “The next big business model“. We agree.