This is how much VCs are paid

Venture capital is known for being an opaque industry, so it’s no surprise most of us have no idea what the average VC earns in a year.

I got a closer look at the survey results of J. Thelander Consulting‘s annual venture firm compensation survey and, unsurprisingly, VCs make a lot of money.

Just how much? Well, of the 204 VCs surveyed (172 male and 32 female), the average general partner expects to make roughly $634,000 this year, including a bonus for 2017 performance.

The averages varied a bit depending on the size of the firm. VCs at firms with less than $250 million assets under management (AUM), for example, earn less than their counterparts at larger firms.

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GPs, who sit at the top of the ranks at VC firms, have the largest compensation packages. Their yearly bonuses are, on average, larger than an associate’s, or entry-level investor’s, average base pay.

The survey didn’t parse out data from firms with billions AUM, aka the Sequoias, NEAs or Kleiner Perkins of the world. Those folks, if the above is any indicator, earn more.

Take note: This is all in addition to a VC’s carried interest, or percentage of a fund’s profits paid to firms’ partners.

Alibaba continues to gain cloud momentum

When Alibaba reported its earnings yesterday, the cloud data got a bit buried in other stories, but it’s worth pointing out that its cloud business grew 93 percent in the most recent quarter to $710 million. That’s down a smidgen from the gaudy triple digit growth of last report, but their market share has doubled in just two years, and they are growing fast.

As John Dinsdale, principal analyst at Synergy Research, a firm that keeps a close eye on the cloud market points out, the dip in growth is all about the law of large numbers. Alibaba couldn’t sustain triple digit growth for long.

“Microsoft Azure and Google Cloud Platform have recently seen similar reductions in growth rates, and if you go back far enough in time, AWS did too. The key thing is that the market for cloud infrastructure services is now very big, yet is still growing by 50% per year — and the leading players are either maintaining or growing their market share,” he said.

Back in 2015, when the Chinese eCommerce giant launched a big cloud push as part of an effort to expand beyond its eCommerce roots, Alibaba Cloud’s president Simon Hu bragged to Reuters, “Our goal is to overtake Amazon in four years, whether that’s in customers, technology, or worldwide scale.”

That is obviously not happening, but the company has managed to move the market share needle, doubling from just 2 percent of worldwide cloud infrastructure market share in 2016 to 4 percent today. That’s nothing to sneeze at, according to Dinsdale, but it’s also worth pointing out that most that business is in Asia, and of that, most of it is in its native China.

Like all its cloud competitors, the company is concentrating on some key technologies to drive that growth including big data analytics, artificial intelligence, security and Internet-of-Things, all of which are resource intensive and help grow revenue quickly.

To sustain its growth, however, Alibaba needs to begin to develop markets outside of China  and Asia. Dinsdale thinks that could happen as Chinese customers expand internationally. He also recognizes the political realities that the company faces as it tries to move into western markets. “Alibaba has what it takes to seriously challenge the top four cloud providers — despite some inevitable political headwinds that it will face,” he said.

While Alibaba might not reach the lofty heights of catching AWS any time soon, or probably ever, it has a good shot at IBM and Google Cloud Platform and for a company that just started taking the cloud market seriously in 2015, that’s amazing progress.

Alibaba shrugs off China concerns as revenue jumps 61%

Tencent had an unexpected miss this week, but Chinese rival Alibaba experienced no such issue today as it beat analyst expectation after clocking 61 percent annual revenue growth.

The Chinese e-commerce giant reported total sales of 80.92 billion RMB ($12.2 billion) for its Q1 2019, fractionally beating Bloomberg’s estimate of 80.88 billion RMB. The firm record a net profit of 8.7 billion RMB ($1.3 billion) for the period.

Diluted earnings per share of 3.30 RMB was down 42 percent annually but still ahead of Bloomberg’s project of 2.57 RMB. The market has taken that as good news and shares are trading up three percent in the pre-market.

Alibaba’s core e-commerce business is its most lucrative and revenue in Q1 rose 61 percent annually to hit 69.2 billion RMB ($10.5 billion), while growth for it cloud computing business continues to impressive albeit at a slowing rate as the unit grows up. Alibaba Cloud recorded total sales of 4.7 billion RMB ($710 million) but a year-on-year growth rate of 93 percent is down slightly on 103 percent in the previous quarter.

Also in the last quarter, Alibaba took up an option to acquire one-third of Ant Financial, its financial services business that’s tipped to go public as soon as next year, and that deal weighed on this quarter since it means an end to “royalty and technology service fees” that Alibaba had earned from a previous agreement with Ant. Ant is valued at over $100 billion and some analyst estimates that the quarterly fees paid to Alibaba were in the region of one billion RMB, or roughly $160 million.

Looking at customer numbers, Alibaba said its active customer base in China grew to 576 million — an increase of 100 million per year and 24 million on the last quarter — while monthly active users reached 634 million, up 20 percent year-on-year and three percent sequentially.

The company doesn’t give international user numbers, but it said e-commerce revenue from outside of China grew 64 percent to reach 4.3 billion RMB, or $652 million.

Beyond e-commerce, Alibaba confirmed media reports that it has combined its Koubei local services platform with its newly-acquired business. The entity has raised over $3 billion in new financing from Alibaba, Softbank and others, Alibaba confirmed, as it continues to compete with Meituan — the on-demand platform that is preparing to go public in Hong Kong.

Xiaomi posts $2.1B profit in its first quarter as a public company

Chinese smartphone firm Xiaomi has posted a $2.1 billion profit for its first quarter of business as a public company on account of growing smartphone and hardware sales.

The firm listed in Hong Kong in July in an IPO that raised $4.7 billion, but Xiaomi’s share price has steadily fallen since then. The company announced today that it grew revenue 68 percent in Q2 2018 to reach 45.2 billion RMB, or $6.6 billion. Xiaomi posted a net profit of 14.6 billion RMB ($2.1 billion), but it recorded an operating loss of 7.6 billion RMB ($1.1 billion) for the period due to significant administration costs around the listing. Costs had also weighed it down in the lead up to the IPO.

Those initial results raise the firm’s shares by 1.6 percent at the time of writing. But it remains some way from the HK$21.55 peak reached last month.

The bulk of Xiaomi’s revenue is from smartphone sales and the firm said it shipped 32 million during the quarter, up 44 percent year-on-year, which brought in 30.5 billion RMB ($4.5 billion). That’s 67 percent of all revenue, although it is worth noting that gross profit on hardware sales slipped to 6.7 percent from 8.7 percent last year.

Beyond phones, sales of other smart products, which includes TV and fitness bands, grew by over 100 percent to reach 10.4 million RMB. That’s around $1.5 billion and Xiaomi’s next largest revenue source.

Internet services, a segment that Xiaomi has long forecast as a financial differentiator against other phone brands, saw total sales grow by 64 percent annually to hit 4 million RMB, $585 million. Xiaomi has only recently begun to focus this division on markets outside of China, which accounts for the bulk of its 206.9 million monthly active users. That’s a figure that Xiaomi said it up on 146 million one year ago.

Look more broadly at its globalization strategy, 36 percent of Xiaomi’s revenue for the quarter came from outside of China, which the firm said represents 151 percent year growth year-on-year. That’s predominantly from India, but Xiaomin said it has seen progress in Indonesia, Southeast Asia’s largest economy, while it also recently expanded into Europe.

In India, the firm is shooting for additional growth after it released the first device from its new Pocophone sub-brand. The Poco F1 is designed to offer high-end specs at just a snip of the cost, zooming in on a market segment that fellow Chinese outfit OnePlus has seen much success within in India.

The F1 is priced below $500 and it’ll debut in India before going on sale in Hong Kong, France and Indonesia later this month.

Tesla lost nearly $8 billion in shareholder value this week and its board should be ashamed

Over the last five days, Tesla shareholders watched the value of their stock decline by roughly 16 percent and saw nearly $8 billion in value erased, as the company’s celebrity chief executive, Elon Musk, had what amounts to a very public breakdown.

However, Musk is not the only person responsible for the collapse of Tesla’s stock price. As The New York Times article which precipitated the latest slide in Tesla’s value on the public markets makes clear, the company’s board is also to blame.

For months, Musk has been showing signs of strain (generously speaking), and has been accused of making questionable decisions to drive growth and stifle criticism or dissent at the revolutionary electric vehicle company he founded.

During that time, as Shira Ovide notes in her piece from Bloomberg, Tesla’s board (primarily composed of Musk’s friends, relatives and initial investors) took no public steps to control or manage the situation.

Privately and on background the board (or certain members) expressed concern over Musk’s recent behavior, drug use (both medicinal and recreational) and Twitter habits.

Those concerns should have been aired at the board level and the company’s directors should have exercised their ability to manage the mercurial Musk as his public actions became increasingly unmoored.

Something could have happened after the disastrous earnings call with analysts. It could have happened around the time of the strange active shooter allegations that were made against a Tesla whistleblower. It could have happened after Musk called a diver involved in the rescue of trapped and starving children a “pedo.”

At any of those moments the board could have stepped in and demanded that Musk face the consequences for actions that cost his company billions of dollars. They did not, and now Tesla’s position is more precarious than ever.

The Securities and Exchange Commission is investigating Musk for his public statements around privatization plans for Tesla that may or may not have been real.

It’s another distraction for the company’s chief executive at a time when he is already under tremendous pressure to meet production targets for the company’s troubled Model 3 rollout (even as it begins to hit its targets).

The problem is that Musk’s cult of personality is so intertwined with Tesla’s corporate identity, there’s a fear that as Musk goes so goes Tesla. That’s no way to run a business, and it’s no way to ensure long-term value for shareholders (either as a public or private company).

Ultimately the board at Tesla needs to step in and take a more active role in overseeing the company, before the next decision they find themselves confronted with is the company’s liquidation.

Cisco’s $2.35 billion Duo acquisition front and center at earnings call

When Cisco bought Ann Arbor, Michigan security company, Duo for a whopping $2.35 billion earlier this month, it showed the growing value of security and security startups in the view of traditional tech companies like Cisco.

In yesterday’s earnings report, even before the ink had dried on the Duo acquisition contract, Cisco was reporting that its security business grew 12 percent year over year to $627 million. Given those numbers, the acquisition was top of mind in CEO Chuck Robbins’ comments to analysts.

“We recently announced our intent to acquire Duo Security to extend our intent-based networking portfolio into multi- cloud environments. Duo’s SaaS delivered solution will expand our cloud security capabilities to help enable any user on any device to securely connect to any application on any network,” he told analysts.

Indeed, security is going to continue to take center stage moving forward. “Security continues to be our customers number one concern and it is a top priority for us. Our strategy is to simplify and increase security efficacy through an architectural approach with products that work together and share analytics and actionable threat intelligence,” Robbins said.

That fits neatly with the Duo acquisition, whose guiding philosophy has been to simplify security. It is perhaps best known for its two-factor authentication tool. Often companies send a text with a code number to your phone after you change a password to prove it’s you, but even that method has proven vulnerable to attack.

What Duo does is send a message through its app to your phone asking if you are trying to sign on. You can approve if it’s you or deny if it’s not, and if you can’t get the message for some reason you can call instead to get approval. It can also verify the health of the app before granting access to a user. It’s a fairly painless and secure way to implement two-factor authentication, while making sure employees keep their software up-to-date.

Duo Approve/Deny tool in action on smartphone.

While Cisco’s security revenue accounted for a fraction of the company’s overall $12.8 billion for the quarter, the company clearly sees security as an area that could continue to grow.

Cisco hasn’t been shy about using its substantial cash holdings to expand in areas like security beyond pure networking hardware to provide a more diverse recurring revenue stream. The company currently has over $54 billion in cash on hand, according to Y Charts.

Cisco spent a fair amount money on Duo, which according to reports has $100 million in annual recurring revenue, a number that is expected to continue to grow substantially. It had raised over $121 million in venture investment since inception. In its last funding round in September 2017, the company raised $70 million on a valuation of $1.19 billion.

The acquisition price ended up more than doubling that valuation. That could be because it’s a security company with recurring revenue, and Cisco clearly wanted it badly as another piece in its security solutions portfolio, one it hopes can help keep pushing that security revenue needle ever higher.

The greedy ways Apple got to $1 trillion

For being the richest company ever with $243 billion in cash, Apple sure cuts corners in the stingiest ways. The hardware giant became the first trillion-dollar company week. Yet it’s tough to reconcile Apple earning $11 billion in profit per quarter with it still screwing us over on cords and keyboards. The “it just works” philosophy has slipped through the cracks of the money-printing machine. It’s not that Apple couldn’t afford to fix the problems, it’s just ensnared in hubris such that it doesn’t see them as important.

We still turn to Apple because it makes the best core products. But the edges of the customer experience have frayed like the wires of a Lightning cable. The key to Apple’s fortune is obviously selling high margin iPhones, not these ways it nickels and dimes us. But the company has an opportunity to raise its standards after this milestone, and win back the faith that could push it to a $2 trillion market cap.

1. Frayed Charging Cables

Apple gives you that tingly feeling in the worst way. Can it not build Lightning cables and MacBook chargers a little sturdier? If you avoid losing one long enough to put in some serious use, it inevitably ends up splittling where the cord meets your iPhone or exits the laptop power supply. Whether it’s wrapping them in electrical tape or the spring of a retractable pen, people have come up with all sorts of Macgyver methods to make their Apple chargers last. It got so bad that Apple was sued into offering a MacBook charger replacement program, but that expired years ago. If these are what allow us to play with the fancy devices it invents, shouldn’t they get the same quality of industrial design?

Image via Sophia Cannon

2. Buried iTunes Subscriptions Cancellation

Want to cancel your Apple Music subscription or some other service you got roped into with a free trial? It’s SUPER easy. First, click the totally unlabeled and generic circle with a blotch in it that’s supposed to be a profile picture icon. You should see a “Manage Subscriptions” option…but you don’t. Instead, you’ll have to know to tap “View Apple ID”. Once you auth in with the same face or thumbprint that opened your phone in the first place you’ll find the option to cut them off. And as thank you for this convenience, you’ll get to pay 30 percent extra on some subscriptions if you pay through Apple. It’s clearly exploitative dark pattern design.

3. Keyboard Claptrap

The MacBook keyboard is the on-ramp to the information superhighway, yet a single grain of sand can cause a pile up. Renowned Apple pundit John Gruber called it “one of the biggest design screwups in Apple history”. The new butterfly key design Apple rolled out in 2016 can get jammed by dust, requiring a lengthy disassembly process often requiring a professional to fix. Suddenly your work grinds to a halt. Apple wouldn’t always cover this repair, even under warranty. It took a lawsuit and tons of public backlash for Apple to offer free fixes, and that still typically leaves you without a laptop for a few days. I’m typing this article on a cracked-screen 2013 MacBook Pro because I refuse to upgrade until they make the keyboard design more resilient.

4. Killing Affiliate Fees Blogs Rely On

Apple benefits from a legion of blogs obsessing over its hardware and software, hyping up everything it sells. Just this week it returned that favor by announcing it will cut off one of their core sources of revenue. Websites would previously earn a 7 percent commission from Apple in exchange for affiliate link clicks leading to purchases on the App Store. But over the past few years, Apple has begun to sell ads inside the App Store too, competing for advertisers with those external blogs. It’s also built up its own editorial team that curates what’s featured, and apparently doesn’t want competition in being a king-maker. So in October Apple is shutting down the affiliate program that app review sites like TouchArcade and AppShopper depend on, potentially spelling their doom.

5. Dongle Hell

What’s the opposite of “it just works”? Paying extra to lug around a slew of gangly cord connectors you need just to plug things into your laptop or phone. Dongles are the emblem of Apple’s abandonment of the user experience. A Thunderbolt 2 to Thunderbolt 3 dongle runs $50 while it will cost you $9 to plug in any pair of headphones from the past half-century once you’ve inevitably lost the Lightning dongle you’re allocated. Apple loves pushing us towards its vision of tomorrow, like Bluetooth headphones (that it sells) and USB-C fast-chargers (that it sells). But ditching headphone jacks and old school USB ports makes Apple’s latest devices incompatible with sanity. Even its own commercial shows musician Grimes struggling with her dongles. Sorry you can’t pass me the aux cord. I’m from the future.

Image via Notebookcheck

[Featured Image via Instructibles]

Nintendo’s profit jumps 88% as it nears 20 million Switch sales

Nintendo released its latest earnings report today and the headline is that the company has now sold nearly 20 million Switch consoles. The actual number is 19.67 million as of the end of June, so add July sales and the 20 million milestone is likely to have already been hit. Either way, it has easily surpassed its predecessor, the much-maligned Wii U.

Overall, the business recorded a 30.5 billion JPY ($275 million) operating profit, up 88 percent year-on-year, as revenue grew 9 percent to reach 168 billion JPY, or $1.5 billion.

The Japanese firm sold 1.88 million Switches in the most recent quarter, which is actually down from 1.97 million one year ago, although this quarter tends to be a slow one ahead of the holiday season. That slip was made up for on the software side as sales of Switch games jumped from 8.1 million last year to 17.96 million in the most recent quarter.

Nintendo has a bunch of new titles incoming — including Super Smash Bros. Ultimate and two Pokémon titles — while its Nintendo Switch Online service is due to launch in September so there’s plenty more to come. That said, Nintendo has some work to do if it is to hit its target of 20 million Switch sales during the current financial year.

Elsewhere, Nintendo said it sold 1.26 million of the NES Classic Edition when it was relaunched in June, while it sold 1.39 million Labo kits for the Switch.

The companies mobile gaming business continues to do well, grossing nine billion JPY, $81 million, in the quarter. That’s likely to spike when the company introduces Mario Kart Tour (huzzah!) and new title Dragalia Lost for mobile before March 2019. Although Nintendo suggested that the pipeline for new mobile games will slow once these two new arrivals are released.

Samsung reports Q2 profit slowdown, says Galaxy S9 sales were lower than expected

Struggling against competition from Chinese smartphones, Samsung Electronics posted a lackluster second-quarter earnings report with its slowest profit growth in more than a year. On the bright side, the Korean tech giant said its semiconductor business is doing well.

Operating profit rose 5.7% year-over-year to 14.9 trillion won (about $13.3 billion), representing Samsung Electronic’s slowest quarterly profit growth since the first quarter of 2017. Net income was 11 trillion won (about $9.8 billion), almost the same result Samsung posted in the same period a year ago. Sales revenue dropped 4% to 58.5 trillion won (about $52.3 billion).

Samsung blamed lower-than-expected sales of the Galaxy S9, its flagship smartphone, seasonality and competition from lower-priced handsets. Two Chinese companies in particular, Xiaomi and Huawei, have emerged as formidable rivals, putting pressure on Samsung in China and India.

As in previous quarters, Samsung’s semiconductor business posted strong performance even as its smartphones suffered. Samsung reported that second-quarter operating profit for its chips rose 45% year-over-year to 11.6 trillion won. The company said it anticipated strong demand for chips during the second half of the year thanks to demand from high density data centers. It expects smartphone and tablet demand to continue lagging, however, thanks to competition from lower-priced devices with strong specifications.

Alibaba beats forecasts with 61% growth and predicts more of the same for the next year

Alibaba is forecasting yet more growth for its business after it beat analyst forecasts with its fourth-quarter results.

Revenue came in at 61.9 billion RMB ($9.9 billion), an increase of 61 percent year-over-year, which topped a 59.6 billion RMB prediction from analysts polled by S&P Global Market Intelligence. The company’s net income for the quarter did drop, however, to 6.6 billion RMB ($1.1 billion) from 9.9 billion RMB one year previous on account of increased investment activity.

Alibaba earned 24.51 RMB per share for its full fiscal year 2018, with total revenue of 250.3 billion RMB and 58 percent annual growth.

The firm expects that impressive rate to be held into its next financial year. Alibaba CFO Maggie Wu said she expects “overall revenue growth above 60 percent, reflecting our confidence in our core business as well as positive momentum in new businesses.”

The company said its annual base of active years rose by 37 million to reach 552 million; its monthly active user count reached 617 million, up by the same factor of 37 million.

Breaking things down it was a familiar story. The company’s core commerce business delivered the bulk of the revenue — 214 billion RMB, $34 billion for the quarter — while its cloud computing business was again the star performer, notching 100% growth to record its first $2 billion (13.4 billion RMB) revenue quarter.

Alibaba has always been keen to invest, but during the last quarter it doubled down on a range of initiatives.

The firm is taking an option to buy one-third of Ant Financial, which resulted terminated a long-standing revenue-sharing agreement that some analysts believe to be worth as much as one billion RMB ($160 million) per quarter. While other impacting deals included the full buyout of food delivery services, for upwards of $5 billion, as part of an offline retail push in China and, in Southeast Asia, a $2 billion investment in Lazada, which saw original Alibaba co-founder Lucy Peng installed as new CEO.

Costly? Maybe. But these ventures are what makes CFO Wu and others in management optimistic that Alibaba can sustain its growth. That’s been a key question since its blockbuster IPO in 2014 and Alibaba has long invested in international expansion and new revenue channels in China to offset a demand on its core business.

Alibaba Group had an excellent quarter and fiscal year, driven by robust growth in our core commerce
business and investments we have made over the past several years in longer-term growth initiatives,” added Alibaba CEO Daniel Zhang.