Stop listening to your bankers and go public, says top late-stage team

Technology Crossover Ventures has become a major investing powerhouse over its 22-year-old history by funding relatively undiscovered but mature companies; buying sizable stakes in later-stage, venture backed companies; and acquiring positions in publicly traded tech companies that TCV sees as undervalued.

The firm, which is headquartered in Palo Alto, has done so well that it just wrapped up its ninth fund with a cool $2.5 billion. It also now features offices in New York (opened in 2005) and in London (opened in 2011).

Late last week, over coffee at a San Francisco bistro, I sat down with TCV’s founding general partner, Jay Hoag, and general partner Woody Marshall, to talk about some of the firm’s latest hits, which include recently acquired Dollar Shave Club and LinkedIn, some of whose shares TCV acquired in February when they plummeted more than 40 percent.

We also talked about why mutual fund companies (with which TCV sometimes competes on deals) don’t make great private company shareholders, and what can be the bad advice of investment bankers, who are largely telling companies to wait until 2017 to go public. Our chat, edited for length, follows.

TC: You’ve invested roughly $700 million in Europe since opening an office in London, including deals in Spotify and World Remit. That’s a lot of capital.

JH: In London and Berlin and the Scandinavian countries, there was lots of activity we were seeing, and we thought it better to see it from quasi-local office.

WM: In Europe, [the investors on the ground are] very much early stage or buyouts or else guys who may call themselves growth equity investors but are really doing growth-buyout deals with a lot of debt. In terms of minority investments that startups can spend on product and sales and tech and marketing, we don’t have a lot of [competition].

TC: What about other U.S firms? Doesn’t Insight Venture Partners do a lot of deals in Europe?

WM: Insight does everything globally out of one office in New York. We’re pretty active, so we don’t necessarily like to be a tourist. We like to be part of the local community, so we felt like it was important to plant our flag in the ground and hire local people.

TC: One of your more recent investments was in Believe Digital, a Paris-based next-generation music label. What does that deal tell us about your style?

WM: It’s a growing, profitable business that’s already achieved significant scale with hundreds of employees. Our co-investors are two little French funds, and we were the largest and only investor in the financing we did, which is pretty typical. Also, the company has been around long enough that some of the funds will be thinking about selling some of their stock going forward. Most of our deals are a mix of primary and secondary stakes.

TC: Five of your portfolio companies have been sold this year, including the data marketing firm Merkle, which just sold a majority stake to Dentsu. You also invested in LinkedIn, which turned out nicely for you. 

JH: We didn’t see that [Microsoft acquisition] coming; it was a nice surprise. But if you’re going to deploy a dollar, why wouldn’t you look at a public company as well as private companies and assess, “Well, this appears fully valued, but this other one is discounted by 70 percent,” as long as you have the right insight. And the public markets tend to overreact on a quarterly basis.

TC: Why aren’t more venture funds investing in discounted publicly traded companies, especially given that so many of them got socked earlier this year? My understanding is that most firms aren’t restricted from doing these deals here and there.

JH: Generally, it’s  because the [universities and endowments and other] sources of capital for all of us want to think of us as being in discrete [buckets]. Either it’s, “I’m in investing in a private manager” or “I’m investing in a public manager.” So it’s not an easy sell.

WM: It’s also hard. A lot of times you don’t have access to perfect information. It’s a different process. But your private activity informs your public activity and vice versa. Even when we aren’t looking to deploy money in the public market, we probably spend more time listening to quarterly conference calls than most private investors, because when you’re thinking about diligence, that’s some of the best information out there. You can spend a gazillion dollars for [repackaged intelligence] or just go online and look at whatever calls you 

TC: You mentioned that you buy a mix of primary and secondary stakes. Can you talk about some of the discounts you’re seeing?

WM: Off of what? It depends on the last round and the structure of the last round. A lot of people have said, “Stay away from unicorns.” But there are a lot of great companies out there that are looking to raise money. Maybe [their last round was] lavish [so the price is now] maybe a little bit up or down, but in the meantime, the business has materially executed since that last round. So even though the [valuation is] similar, your multiple is half because the business has doubled. You have to look at these opportunities on a relative basis.

TC: Mutual funds have gotten into your business in recent years. I still see them popping up here and there in late-stage deals.

WM: Sometimes we don’t see anybody. Sometimes, if there’s a more formal process, we do. One deal we looked at earlier this year, we thought the discount was appropriate, and one of the T Rowes or Fidelitys did a flat round. But you’re generally seeing less aggressive behavior from the Baillie Giffords and the BlackRocks. You’re definitely seeing people pulling back and reevaluating the bets they’ve already made. 

TC: Reevaluating and literally re-valuing — and publicly — which I think has surprised some of the companies these managers have backed.

JH: If we hear a company is talking with T Rowe and Fidelity and BlackRock, I understand why. The company probably wants a high price and a quick process. But we [know we] should probably spend our time elsewhere. Full stop.

[Mutual funds] are buying [private stakes] so they can have lower costs at the IPO price, etc. But the moment [their portfolio companies] underperform their competitors, that activity stops. These private investments have to have a return associated with them. If they’re buying high and selling low, that’s not good.

TC: Could you see action being taken against any of these managers?

JH: Mutual fund and hedge fund guys have been sued in the past over valuations. Even if it’s just 5 percent of your activity, with [people on Main Street] going in and out of your fund, your [net asset value] is a very important measure. These investors are buying in, assuming the valuations [they are paying at any single moment in time] are correct.

WM: Some of these guys, they have deep pockets but they get those alligator arms sometimes. And management teams are starting to say, “I got it.”

TC: We’ve seen more M&A. In addition to your deals, Walmart just paid $3.3 billion in cash and stock for e-tailer Jet. What did you think of that deal? Did they just pay billions of dollars for Jet founder Marc Lore?

JH: Well, you can see he’s signed up for five years, so there’s some part of the value that is: Marc can help us compete mano a mano with Amazon. Part of the value is the underlying metrics. It seemed like a forward leaning price tag; if I were an investor in that deal, I’d be super happy.

TC: Why are IPO numbers still so pathetic?

JH: Frankly, I’m baffled. There’ve been what – six tech IPOs this year? The worst year on record was 2009, with eight [IPOs], but that followed a global financial crisis.

That we’re in extremely low numbers owes in part to bankers advising companies to wait, [telling them] that after the election, uncertainty will be reduced and 2017 will be a great year. I think that’s consensus.

TC: It sounds from your tone like you don’t agree with that consensus. Are you telling your portfolio companies to go out now?

JH: Yes. Even last year, we had [just] three [portfolio companies go public] and there were just 22 total companies altogether. It’s a little baffling with the markets hitting highs, interests rates at zero, [and] companies growing well. I’m not sure why bankers are so hesitant.

Either way, if you’re an investor on the board of a company, you need to be thinking independently. What investors will value six or 12 months from now might be totally different than today. Right now, bankers are telling companies to get profitable even if they’re not growing because “that’s what the market wants.” Well, that’s bad advice. Our job is to sort through all that and make sure the company is making the right trade-offs.

TC: I do wonder if certain companies have missed their window already, including in your portfolio.

JH: I guess I’d bounce the premise back. Going public is just part of the battle. In an IPO, you’re selling 5 to 10 percent of the company. If you’re going to own between 90 to 95 percent post IPO, you shouldn’t care what the IPO price is. You should care a lot about what life as a public company will be one, two, three, four years down the line.

In terms of  missing the window, if you go public and six months later you fall apart, that’s a really unpleasant thing for all and in particular the CEO. I’m not a big believer in windows. You always have to be reinvesting in the next act to sustain your growth. But if you think you missed your window, that’s another way of saying your best days are behind you.

Netflix launches iOS and Android apps for its internet speed test service

Netflix began helping its users test their internet connection for streaming speeds in Maywhen it introduced Fast.com. Now it is bringing that service to mobile with the launch of apps for iOS and Android, as first spotted by 9to5Mac.

Just like the Fast.com website for desktops, the “Fast Speed Test” apps give you a reading on the kind of speed you can expect Netflix to run at using your connection. There’s a grey counter clock which changes while recording the speed, and the app offers to show your connection speed on Speedtest. When clicked, that link sends you to a page to download the Speedtest mobile apps.

Its super basic app with a clean UI and no ads because it is literally only about getting that speed reading.

As we explained at the launch of Fast.com, the service tests downloads direct from Netflix’s servers and not upload and downlink speeds like others such as Speedtest.com, to give a direct reading on your Netflix experience.

The other side to the coin is that the readings are good for Netflix and the quality of its service.

The company is a fastidious collector of data. Right from building algorithms to surface the right suggested content for users, to providing the best related recommendations and analyzing internet connection speeds.

Netflix runs its own ‘ISP Speed Index’ which is chock-full of data about which ISP are best to use its service, average running speeds, etc. With users increasing streaming via mobile devices, that adds new variable — including mobile carrier services — which these new mobile apps can help it measure and, most importantly for paying Netflix customers, learn from to optimize its service.

The threats and challenges for Netflix in Asia

You might call it a Hollywood makeover of the tech industry; Netflix, a company that used to send you DVDs by mail and was almost sold to Blockbuster for a paltry $50 million, is now a juggernaut staring down big TV networks as it makes their programming and business models seem almost archaic for today’s world.

The streaming service effected a culture of entertainment being “anywhere, on anything and anytime you like” as the benchmark expectation for an entire generation, forcing other networks out of their comfort zones and making them up their games.

But to Asian internet users, Netflix seemed like another among many of the wonderful first-world luxuries that kept making waves on the news but never seemed within reach. Even today, being a native South Asian, it’s difficult getting used to the idea that one can get aNetflix subscription where high-speed internet access is still not available to everyone. The service was, until recently, available in only a select few regions with varying limitations on its library.

The past two years have witnessed a renaissance of worldwide expansion in tech companies. The services that had been exclusive to the U.S. and Europe swept through Asiawith unprecedented efficiency. You can now summon an Uber cab in New Delhi or ask Google Now to help you navigate the wild valleys of Swat in Pakistan. This is because these companies aren’t unaware of the fact that Asia is currently the driver of the world’s economy, while other continents’ financial conditions are ever-increasingly strained. The continent’s snowballing growth is showing no signs of stopping, thanks to domestic supply and demand.

Against well-adapted local players

When Netflix set foot in developing and emerging markets such as India, it was greeted by stiff competition, long-established and deeply rooted among local audiences from the get-go. Players such as HotStar, a streaming service run by STAR India, and Eros, a company that both produces and distributes a large selection of Bollywood movies and Indian TV shows online, had seized the opportune power vacuum early while Netflix had been fixated on U.S. and European markets.

These upstart players found success by catering to local tastes while keeping the price-of-entry in line with the region’s socioeconomic expectations. HotStar understood the mania that drew a large viewership for live cricket in India, while Eros Entertainment brought its offerings to the masses with free basic plans.

Netflix, meanwhile, currently offers its most basic subscription for 500 INR (or around US$7), more than twice the cost for a monthly subscription to HotStar. Considering the fact that Netflix is still severely lacking when it comes to licensed local content available for streaming, the asking price falls somewhere between luxury and redundancy. Given the massive amounts of popularized content being churned out by Bollywood and Indian television every year, the Netflix library immediately loses its premium label and luster for the average user in India.

In South-East Asia alone, the video-on-demand streaming market is projected to generate up to $42 million in subscription revenue in 2016. — Media Partners Asia

No longer the first to market

In other parts of Asia, there are more than 35 different streaming services catering to local markets with similar strategies. iFlix, available in Malaysia, Thailand and Philippines offers licensed content from U.S. studios to a subscriber base surpassing 1 million viewers. In Indonesia, the situation becomes bleaker for Netflix, as some ISPs are outright blocking its services, while iFlix has forged partnerships with local satellite services such as Ooredoo. Indonesia has the fourth largest population in the world, with more than 100 million internet users, a number that is projected to grow to 133 million in the next 3 years.

The great walls of China

Other challenges the streaming giant faces range from political to regulatory. The proverbial elephant on the list of countries in which Netflix has yet to launch is China, where it may take years for the service to get greenlit, if at all.

China represents the second largest theatrical market in the world, and is quickly becoming the benchmark for international success for movie studios. When big budget risks such as Terminator Genisys and Pacific Rim failed to spark at the box office in western markets, they found resounding success among Chinese audiences, where moviegoers are not only accustomed to Hollywood’s over-the-top flare and spectacle, but outright expect it. It’s needless to say that catering to the Chinese market is becoming increasingly important for studios producing global content these days.

There are caveats, though.

In China, Netflix cannot operate without specific permission from the government, and even then it has to walk a razor-thin line over the nature of content it can and cannot distribute in the country. The Chinese government monitors, moderates and censors all content its citizens can access online.

Netflix’s “House of Cards” found an unlikely audience on Chinese streaming site Sohu, to the extent that it became the most popular show at the time before censorship authorities caught wind of it and took it down. Chinese censorship laws prevent not only violence and sexually explicit content, but also dictate that any content based on anti-authoritarian, anti-military, religious or political themes be blocked altogether.

“Recently, China’s online entertainment censorship regulations have actually become stricter and must officially meet the same standards met by more conservative television stations,” says Aynne Kokas, an Assistant Professor of Media Studies at the University of Virginia. “In practice, online content is much more difficult to regulate because of the vast numbers of distribution options available. But I don’t foresee a more formal liberalization of online censorship happening in the near term.”

When I asked her whether Netflix had the capacity to adapt to such restrictions, she added: “I do envision Netflix altering, or at a minimum, expanding, its content to cater to China. We can already see that happening with Netflix original programming like Marco Polo and Crouching Tiger, Hidden Dragon: The Sword of Destiny. The film was partly funded and distributed by Netflix in the U.S., but was also produced and distributed by the China Film Group in China. Netflix is already working with Chinese partners on content and distribution.“

What does not help Netflix’s case is the fact that most successful streaming services operating within China’s walled-off internet are funded by the government itself, adding to the list of hurdles that Netflix must vault over before it can even begin operating within the region. Other limitations include regulations like the mandatory government requirement for all broadcasters to host no more than 30 percent of foreign content, something thatNetflix already struggles with when it comes to content licensing (as noted in previous examples).

What would success look like?

In order to break into the largest markets in Asia alone,Netflix not only has to convince the governments to allow its operations, but also dance around regulations, censorship, finding appropriate content partners for licensing and original content.

To put things into perspective, it took a juggernaut like Apple Inc. six years just to forge a partnership with China mobile before they were able to launch their products in the region. Similarly, Uber spent an exorbitant amount of time, money and effort to set up its operations in China.

The fact that these companies still took on these challenges and investment risks to break in to these markets, however, stands as a testament to the lucrative nature and the shifting benchmark for successful globalization that Asia represents to the world. And here we have a company that has single-handedly declawed traditional TV and cinema’s monopoly on entertainment, and has transcended into millennial culture like no other brand before it. If there’s anyone that can make lightning strike twice, it’s probably Netflix.

Netflix may soon let you download movies and shows for offline viewing

You may soon be able to download some of your favorite shows and movies from Netflix if rumors swirling around the streaming service are true.

Netflix users have long wanted to have the ability to save titles for offline viewing. Such a feature would allow subscribers to watch specific movies and shows offline, and would make the company more competitive with alternatives that do allow downloads. That feature may be available before 2017, Dan Taitz, COO of Penthera, told Light Reading.

Why the rumor may be true

"My expectation is that by the end of the year Netflix will be launching download-to-go as an option for their customers," he said.

This isn't an outlandish claim, as fellow online streaming titan Amazon offers the ability to download movies and episodes of shows for offline viewing. To further support the rumor, in an interview earlier in 2016, Netflix CEO Reed Hastings said the company should keep an open mind about offering the ability to download content for later viewing. 

For people who travel often, have long commutes on public transit, or just don't live in an area with a reliable Internet connection, this would definitely be an attractive option that could boost Netflix's numbers.

Frost & Sullivan principal analyst Dan Rayburn corroborated the new download rumor, telling Light Reading that this feature possibly coming to Netflix is "something of an open secret in the streaming video community."

Why the rumor may not be true

Although these signs point toward Netflix bringing a new download feature to the service soon, there are other signs pointing the other way.

Penthera is involved with video-downloading software, so it makes sense Taitz would like to believe Netflix is looking at offering a download feature soon — what's good for downloads is good for his company. Because he didn't offer anything in the way of evidence that Netflix is introducing the feature soon, his statements could simply be wishful thinking.

There is also the fact that, in September 2015, Netflix specifically listed reasons why it didn't offer a download option — namely that the feature would add too much complexity for users.

“Every time you add a control, you reduce the total number of users who use them,” Netflix COO Neil Hunt told Gizmodo UK. So it may actually hurt Netflix even further, something they can't afford to do given the expected drop in subscribers after its price increase. 

Even if Netflix introduces the feature soon, you likely won't be able to download everything on the service. Studios make deals with Netflix for streaming only, not for downloads, so Netflix would presumably have to make new deals with all the studios it works with to get the rights to offer users the ability to download content.

Netflix declined to comment on the rumors.

Netflix and Amazon may have to make more content in Europe

BY THE ASSOCIATED PRESS4 hours ago

BRUSSELS (AP) — The European Union on Wednesday unveiled a raft of proposals to make it easier to buy online across its borders, set quotas for European films with providers like Netflix and protect children from harmful content.

EU consumer affairs commissioner Vera Jourova said the package "is an important step to bring consumer protection up to speed with the online world and to give legal certainty to traders."

The measures would ensure that Netflix and other on-demand video providers like iTunes and Amazon offer at least a 20 percent share of European-made content on their catalogs.

But the quota plan is not popular in the industry and was immediately criticized by some.

"Cultural quotas are outdated and unnecessary — video-on-demand providers are already investing heavily into European local content," said James Waterworth, vice president of Europe operations for the CCIA computer and internet industry association.

However, European Commission officials say that Netflix's library is already made up of 21 percent European content, while other providers have up to 30 percent.

"These percentages are not going to represent a major effort," said Guenther Oettinger, the commissioner responsible for Europe's digital market. "We are providing a certain degree of security for the European film industry."

Other rules would combat geo-blocking, which can result in online shoppers being rerouted to a country-specific platform when they try to buy abroad.

Those measures were mostly welcomed by Europe's main consumer organization, although BEUC said they could go much further.

"It flies against the logic of a single market when consumers are prevented from buying a tablet, a sweater or a video game because they live in another EU country or because they are paying with a foreign credit card," said BEUC director general Monique Goyens.

But she said it is "regrettable that consumers can still be blocked from buying digital products such as ebooks and music from sellers based in other countries. TV series, films and sport events will also stay off-limits. It is time the EU puts the final nail in the coffin of geo-blocking."

The EU measures also aim to better protect minors from content like pornography or violence and crack down on incitement to hatred. New tools would allow users to flag harmful content, check the age of users and provide access to parental control systems.

For television, the proposals would boost the powers of audiovisual regulators, making sure they are independent from government and industry, and give broadcasters new flexibility in the way they screen advertising.

Netflix has revealed the official title and poster for the 'Gilmore Girls' revival

Get ready to spend a year with the Gilmore Girls. 

Lauren Graham stopped by Ellen Degeneres' talk show on Thursday to tape a surprise appearance during which she revealed the upcoming Netflix revival will be titled Gilmore Girls: A Year in the Life. 

Netflix also unveiled the first poster for the series, which as the title hints, will be comprised of four 90-minute episodes, each covering a different season (spring, summer, fall, winter). 

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"It's been the most incredible experience," Graham gushed to Degeneres about filming the revival, which like Ellen films on the Warner Bros lot in Burbank, California. "I cry trying to talk about it because ... I feel so lucky to get to do it but it's also been so bizarre because I open the door — we're across the street from you, which wasn't the case before but the set is the same but we're in a different place. So it's like it was yesterday but also it was not yesterday."  

No premiere date has been announced for the series, which will feature returns from all the major cast members. (Yes, even Melissa McCarthy.) 

TVLine reports Graham's Ellen appearance will air Monday. You can watch a preview below.

ESPN's new ads try to guilt you for checking Facebook

Why binge-watch Netflix or post on Instagram when you could be watching the game?

That's the oddly premised question ESPN asks in a new ad campaign that takes on some of the many new time drains competing with it for your attention, including streaming services like Netflix and Amazon and social media networks like Facebook and Twitter. 

In the first ad, a woman scoffs at a suggestion from a streaming service (clearly meant to be Netflix, though the company is never named) that she might enjoy a movie about a diamond heist.

"Silly algorithm," she chides it, as she wraps herself in a Steve Kerr blanket and settles in to watch a sideline interview with ESPN's Doris Burke — apparently the much more exciting option.

In another, a man stands alone in a dark apartment, photographing a sandwich.

"Your life's so worth sharing," a narrator mocks.

But when he sees that the Instagram-like generic social network he's posting to is already saturated with sandwich pictures, the banality of his existence dawns on him. He flips on Sportscenter on his smartphone and feels fulfilled.

Never mind that market research shows that many people browse and post on social media on a second screen as they watch sports on TV.

The idea is to stoke a sense of FOMO among prospective ESPN viewers; while you're busy posting sandwich pics or streaming diamond heist movies, you're missing out on the exciting moments happening live on the Disney-owned channel.

But it's not just your attention that ESPN is competing for. The sports media juggernaut has been struggling lately as a growing number of cord cutters opt to throw out traditional cable TV packages in favor of streaming services like Netflix, Hulu and Amazon.

And while live events like the games ESPN airs are still the biggest draw of the traditional bundles, that may soon change. Earlier this year, Twitter won the hotly contested rights to stream Thursday night NFL games through bidding that also reportedly involved Facebook, Amazon and Verizon.

These commercials are ESPN's recognition that as the lines blur between traditional media companies and all manner of digital upstarts, everyone's a competitor

The best companies for new dads in 2016

The new dream for working fathers is to Netflix and chill.

Netflix is the best workplace for new dads, according to a new report from online parenting guide Fatherly. 

The study, released Tuesday, ranks the 50 best businesses for new dads in the U.S. based on surveying companies directly about their paid leave policies, on-site childcare, workplace flexibility and other factors.

The video company, which had not even ranked among the top 50 on the previous year's list, shot to the top this year thanks in large part to its decision to provide unlimited paid leave to new parents for the first year after their child's birth.

The improved benefits at Netflix, though more generous than most, mirror a broader improvement among large U.S. businesses. Case in point: The average amount of paid time off for employees of the 50 companies on the list nearly doubled from the previous year, according to Fatherly.

Tech companies like Netflix, Facebook and Spotify have helped pave the way for that by introducing expanded perks and accommodations for new parents as part of a benefits arms race to vie for talent in a hyper-competitive market. 

Mark Zuckerberg, the founder and CEO of Facebook, made headlines for taking a high-profile two-month paternity leave after the birth of his first child. 

"Last year when we looked at it, the list was primarily dominated by tech and finance," said Simon Isaacs, cofounder of Fatherly. "Now we are seeing more and more companies understand and value it."

That said, the top of the list is still dominated by the tech industry with Netflix followed by Spotify and Facebook. Patagonia, an outdoor apparel brand, edges out the fourth spot. 

Then comes more tech and finance: Pinterest, Google, Microsoft, Bank of America, LinkedIn and Twitter round out the top 10.

Facebook is praised for providing new parents with a $4,000 "new child benefit" on top of its generous paid leave. 

Pinterest is highlighted for offering a fifth "transition" month for new dads to ease back into the office with a reduced schedule after their four months on paternity leave. 

And Google goes so far as to provide employees with counseling to plan for parenthood.