Innocuous Ben

Innocuous is a word which springs to mind when one finishes reading the Ben Bernanke prepared text. He did not add anything to our store of knowledge regarding monetary policy.

The economic climate and its credit backdrop has improved but each remains fragile and tentative.

The labor market remains quite week and reduced levels of income could pose problems for consumption.

Inflation is not a problem and with weak labor markets and plenty of excess capacity, there is little cause for worry.

Against that backdrop, the funds rate will remain low for “an extended period”.

Not much new in any of that.

I think,though, that he broke a bit of new ground on the budget and his exhortation to put the country on a “sustainable long term fiscal path’. That cannot please the apparatchiks in the Administration and if Mr Bernanke were campaigning for another term at the helm, I suspect that he would have been more circumspect in his utterance.

He also noted that Congressional oversight of the Federal Reserve should not encroach on the Fed’s ability to independently cobble together monetary policy.


Miscellany

TheTreasury market is having a huge move to lower yields as we speak. i will eventually get to Bernanke but there is not enough substance in his testimony to justify the price action.

There has been central bank buying throughout the morning in the 3 year through 7 year part of the curve.

The Open Market Desk is intervening in the market as I pen this by purchasing 2016 through 2019 paper.

The market is very thin and the combination of central bank buying and Fed buying has shorts on the run.

Traders continue to report that the market is thin and illiquid and small blocks will cause sharp price movements.

And we traded yesterday morning at 3.72 percent on 10 year notes. I  suspect that the move into the mid 3.50s emboldened some to establish short positions which now look less than propitious.


Citi

The Citibank 30 year priced yesterday at T+380. I have just seen a quote in which the bid side is 366.


Bond Market Open July 21 2009

Prices of Treasury coupon securities are exhibiting mixed changes in overnight trading with most benchmark issues registering very modest losses.

The yield on the 2 year note increased a solitary basis point to 0.98 percent. The yield on the 3 year note is dramatically unchanged at 1.53 percent. The yield on the 5 year note edged higher by a basis point to 2.46 percent. The yield on the 10 year note and the yield on the Long Bond increased in each instance by a basis point to 3.62 percent and 4.52 percent,respectively.

The yield curve has steepened a tad since I wrote my late in the day summary yesterday. The 2year/10 is year spread is 264 basis points and was 262 basis points when I wrote previously.

The 10year/30 year spread is 90 basis points and was 88 basis points late yesterday.

The 2year/5year/30 year spread has richened 2 basis points to 58 basis points this morning.

There was very little noteworthy economic news overnight. Consumer prices in Hong Kong declined 0.9 percent YOY which was the first time they have registered a decline since 2005.

There are no high profile economic releases today but trading in all markets will wait with bated breath for the testimony of Chairman Bernanke this morning.

He wrote an Op-Ed piece for the WSJ regarding exit strategies and I posted that earlier. It is interesting in that he emphasized manipulation of the liability side of the Fed’s balance sheet and deemphasized direct sales of assets.

He noted that the Fed could sell assets or in the case of mortgages experience prepayments which would also reduce assets.

However he principally focused on the liability side of the equation and noted that the new tool which allows the Federal Reserve to pay interest on reserve balances can be a very effective monetary policy instrument.

He also noted that the Fed could go the traditional route and use old fashioned matched sales to jack up the funds rate.

I would also be remiss if I did not reiterate a point I made in my original posting on this topic. The Chairman noted that he did not expect to use any of these tools soon as he expects that the funds rate will remain low for an extended period of time and that the exit strategy colloquy is a bit pedantic and unnecessary at the current time.

It is such because I believe Mr Bernanke will also strive to emphasize that the economy is still sliding, albeit at a reduced rate. I think he will note that the Committee expects the unemployment rate to stay at troublesome levels well into 2011 and that this will be another “jobless recovery”.

The Federal Reserve also has a keen interest in capacity utilization and I am sure he will note the slack in the economy generated by historically low levels of capacity utilization.


Libor

Libor (three month) opened at 0.50313 today versus 0.50500 yesterday.


Bernanke in the Wall Street Journal on Exit Strategies

Chairman Bernanke (in an unusual move ) discusses exit strategies from the Fed’s current policy stance. I thought it was unusual as the piece is in the Wall Street Journal on the day that the Chairman will testify before Congress on the economic outlook and monetary policy.

The article is rather pedestrian and does divulge any novel approaches. It is pretty standard stuff with reliance on paying higher rates of interest on reserve accounts or employing traditional matched sales.

I would also be remiss if I failed to note that at both the beginning and the end of the article that the Chairman noted that funds would remain low for an extended period of   time and economic conditions did not warrant shrinkage of the Fed balance sheet at the present time.


Bond Market Close July 20 2009

Prices of treasury coupon securities opened with weakness but have spent the remainder of the day rebounding and are closing with robust gains.

Why did the market shift direction? As always there is more than one reason.

I think the principal reason is deal flow and heavy demand for a variety of quality fixed income assets in a very thin markets.

As I mentioned in the previous post Citibank was busy today issuing $ 2.5 billion of 30 year bonds. Investors clamored for that debt. Conventional wisdom holds that the deal was swapped and that would have created demand from a swap desk.

I also noted that sprads were in as much as 10 basis points for quality BBB paper. When a customer buys that paper,the trader who made the sale generally will have to buy something against that sale. That type of transaction would have prodded the market to new heights.

In general the salespersons and traders with whom I spoke provided testimony that there had been buying but most believed that the buying was not large enough to have precipitated the substantial price gins with which we are closing the day.

Most believed that vacation induced staffing encouraged thin markets and illiquidty and exacerbated the price movements.

One trader with a technicians bent noted that the 3.72 percent level on the 10 year note was approximately a .618 Fibionacci retracement of the 4.00 percent to 3.25 percent move.

Finally, Chairman Bernanke will speak (ex cathedra) tomorrow before Congress when he will enlighted the assembled lawmakers about the FOMC outlook for the economy and interest rates over the remander of the year. In advance of that testimony trading shorts are busy covering.

The yield on the 2 year note has slipped 3 basis points to 0.96 percent. The yield on the 3 year note has also declined 3 basis points and rests at 1.53 percent. The yield on the 5 year note tumbled 6 basis points to 2.43 percent. The yield on the 10 year note also fell 6 basis points and it trades at 3.58 percent. The yield on the 30 year bond declined 7 basis points to 4.46 percent.

The 2year/10 year spread narrowed 3 basis points to 262 basis points.

The 10 year/30 year spread narrowed a basis point to 88 basis points.

The 2year/5year/30 year spread is 56 basis     points.

The breakeven on 10 year TIPS continues to widen and sits at 189 basis points. That spread had been as narrow at 153 basis points last week.


MBS and VOL and Swaps and Corporates and Agencies

Swap spreads have tightened several basis points from levels which prevailed when I wrote about them earlier today.

Two year spreads are 1/2 basis points tighter on the day at 47 1/4. Five year spreads are 1 1/4 basis points wider at 50 3/4. Earlier they had been at 52. Ten year spreads were at 25 basis points earlier in the day but are closing unchanged at 23 3/4. Thirty year spreads are at NEGATIVE 20 which is 1 1/4 basis points tighter on the day. Earlier in the day when I wrote they were at NEGATIVE 19.

MBS are 2 ticks wider to swaps.

The three month /ten year ATM swaption straddle is 638 basis points.

Corporate bond spreads continue to ratchet tighter and the greatest gains (on spread) are in credits with incremental yield. One salesman noted that AAA and AA paper is just a couple of basis points tighter.If one marches down the credit curve to solid BBB names some of that stuff is 10 basis points tighter.

Citibank was offering $ 2billion 30 year bonds at T+ 3 7/8 . Investors flocked to the issue and the deal size is now $ 2.5 billion and the spread talk is now T+380. Participants report that there are $ 7 billion to $ 9 billion of orders for the bond of that financial cripple which stands because of the largess of the taxpayers.

In a less caustic vain, a paper products company named BEMIS is issuing 5 year and 10 year paper. I believe that the total is $ 1billion. The company is A3/BBB+ and sources report that there are nearly $ 10billion in orders for that deal.

The salient point is that there is tremendous demand for that which is perceived as a quality asset.

Agency spreads are mixed. Two year sector paper is unchanged to a basis point wider. Five year sector paper is 2 basis points tighter and 10 year paper is unchanged. One trader noted some bank demand in the 3 year sector.

The same trader note that as the Open Market Desk Hoovers in paper the market has become less and less liquid.


MBS and Swaps

Mortgages have opened about 1 1/2 basis points wider to swaps. There has been selling of low coupons by servicers. There has been light selling only from originators.

The Federal Reserve has been a buyer and regional banks have joined them in that endeavor. The banks have been better buyers of seasoned 4 percent and 4.5 percent paper.

Swap spreads are mostly wider. Non-chronologically 30 year spreads are flat at NEGATIVE 19. Ten year spreads are 2 basis points wider at 25. Five year spreads are 3 basis points wider at 52.  Two year spreads are 2 basis points wider at 49.


Administrative Note

I had to transport my wife to the airport so there was no opening post this morning. Serious blogging begins in a few minutes.


Breaking into the venture capital industry

While the topic of career counseling is not the focus of this blog, I get enough requests from people who want to break into the VC industry, I thought it was worthwhile to write a blog entry about it so I can refer people to my viewpoint. There are plenty of articles (Seth Levine has two posts on this topic that are relatively popular – first, second) on the web you can find through a quick search on tips and advice on this subject but I’ll add in my two cents. Just a note – this is specific for early stage tech VC which is my experience (not as relevant for later stage VC/private equity or healthcare VC). Before diving into some thoughts around how best to break into the industry, I will assume you have done your homework on exactly what being a VC entails and you still want in. I think plenty of people are attracted to VC for various reasons – many of which only scratch the surface of what being a VC is really all about. There is an aura around VC that doesn’t really reflect accurately what it can be like on the inside. Rather than trying to dissuade you or confirm whether you really know what you are getting into, I’ll spend most of this entry with just the practicalities of preparing yourself for trying to break into the industry. Some quick bits of information to start that will set the stage for this topic
  • VC is a small industry (and getting smaller). I believe there are on the order of 1000 venture capital firms with less than 10,000 total investment professionals in the entire industry. Just to put this in perspective, Microsoft alone has around 80,000-90,000 employees. Google has 20,000-30,000. Apple has 30,000-40,000.
  • Most VCs have educational degrees from very select schools – Harvard, Stanford, Wharton, MIT, Yale, Princeton, Berkeley, etc. Most have advanced degrees – MBA, JD, MD, Ph.D., MS.
  • Most VC firms are relatively small in terms of number of investment professions – 5-10 being the most common. Cultural fit is paramount as its often a small team.
So given this, what are my tips and why?
  • One question I get quite often from people what want to get into VC, don’t think they have an opportunity immediately, but want to know what job to take that would position them best for VC down the line – should they join a startup or join a larger “brand name” company or go into investment banking or go into consulting. My advice is there is no one perfect career path….but whatever you do, just do it REALLY WELL. To get evidence of this, do your homework. Take a look at the bios of as many VCs as you can on the web (almost everyone has a bio on their website or LinkedIn) and see if you see a trend. From my experience, there really isn’t one. Early stage
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Partners vs non-partners – clarifying their role and importance

I was at a Dealmaker Media event the other week and was asked a question about the role of entrepreneurs dealing with partners vs non-partners at venture capital firms. Its a very interesting and relevant question for many entrepreneurs starting out who are unfamiliar with the fund raising process. Since I’ve been in both roles, I think I have a pretty good perspective on this dynamic. To differentiate the roles, I’ll actually split them into two groups, not based on title, but on their “authority”. From my experience, it really comes down to check-writers and non-check-writers, Hopefully this distinction is fairly self explanatory but really comes down to  do they have the authority to decide (obviously with the general agreement of the other partners in the fund) on whether they will fund a startup or not and serve on the board. Rarely do even check-writers decide completely on their own – that’s why they call it a partnership since there is a level of trust, influence, and sharing of responsibility. Titles, just like in companies, often mean very different things in venture capital firms. With titles ranging from Analyst, Associate, Senior Associate, Vice-President, Principal, Senior Principal, Operating Partner, Associate Partner, Venture Partner, Principal Partner, Partner, General Partner, Managing Partner, Managing Director, etc – it can get confusing very very quickly. Basically, its really hard to tell who is a check-writer vs not. VERY GENERALLY, if forced to bucket them, the breakdown is (not 100% across firms but maybe 90% accurate)
  • Check-writers – Managing Director, Managing Partner, General Partner, Partner
  • Non-check-writers – Analyst, Associate, Senior Associate,  Operating Partner, Associate Partner
  • Can go either way – Vice-President, Principal, Venture Partner, Principal Partner
The unfortunate thing (or fortunate depending on your perspective), even VCs (not just entrepreneurs) themselves often can’t tell the different when it comes to another firm unless they are very familiar with that particular firms structure and the individual’s involved. It gets even more complicated because many non-check-writers at firms want to project to the outside world that they can write-checks (trying to boost their credibility and influence in a firm to the entrepreneur) even though they can’t. Essentially, if you want funding, you need to get to a check-writer (pretty obvious at this point). They will be the one who champion’s your deal in their partnership and can push to get it funded – putting their own reputation on the line with their decision. The area that is less clear is the role of the non-check-writer. Simple advice – they are valuable and can be your greatest ally or your worst barrier to getting funding, but they are often a necessary and intermediate step to get to the check-writer. To get into more detail, the non-check-writer (typically an associate) is often the “first line of defense” for a VC firm. They are responsible for screening deals so they at least pass the initial sniff test. Unless you get a trusted referral directly to a partner in a firm, the
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Valuation optimization vs maximization – what is the real goal?

One of the most confusing and misunderstood concepts to entrepreneurs is around valuation – not only in how it is determined (that is an entire post itself which I won’t try to tackle right now) but more importantly, what should the goal be? I think for entrepreneurs who haven’t been been through fund raises already, the first and obvious reaction is the get the highest valuation possible and if you do, you’ll have “won the battle”. I guess it makes sense that this viewpoint is commonly held – in many other areas of negotiations, auctions, grades, sales deals, etc, the goal is to get to the extreme (either lowest or highest) and the closer you get, the better you did. Its how they got to where they are now – by winning and excelling in everything they did. They view the “valuation negotiation” with a VC just another competition to win. So, why isn’t this the right approach for entrepreneurs? (and the answer is not because I’m the VC writing this and I’m trying to convince you to take a lower valuation – but good try!). The reason is because a) the funding is a financing event, not an exit (the exit is when its decided whether you win or lose) and b) the prior valuation has a significant impact if and when another financing round is required. The exception to this is if this is definitely the last financing round the company will need before exiting – and even this has it pitfalls when it comes time to exit (see my earlier post about entrepreneur and investor alignment specifically regarding exits and the VCs need for high returns and a multiple on their investment). For the entrepreneur, the financing event and resulting valuation merely puts a number on the company value which then affects the percentage ownership the founder has in the company – but this doesn’t translate to real money that the owners can walk away with (I’m sure those of you who were at startups during the dot.com bubble but didn’t exit before the crash can relate to this quite well…). Its paper wealth. Funny-money. Remember 100% ownership of nothin’ is still nothin’… Valuation becomes a real issue for those companies that need to raise another round of financing (this may be where many of the entrepreneurs who raised money in the last 18 months before the market crash last fall start to perk up…). A high valuation (which 12 months ago seemed like a huge success) is now feeling like a huge albatross – a heavy burden on the company that may stifle their ability to raise money from an outside investor. This occurs because the prior round investors want to be rewarded for putting money in earlier through getting a higher “step-up” valuation in the next round. The new investor is often wary of companies with valuations too high as their expectations for a smooth round getting done is put at risk as
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Seeing Eye To Eye – Entrepreneur and Investor Alignment

Having seen many different start-up situations from both the VC side as well as the start-up side, the importance of investor and entrepreneur alignment is often under-estimated in its impact on everyone involved. For inexperienced entrepreneurs, this issue is not well understood and often leads to some of the biggest areas of disagreement and tension between the entrepreneur and investor. While there are numerous areas where this can occur, I’m going to focus on one where I find the most tension and misunderstanding of the issues. Exit options, VC fund sizes, VC/entrepreneur alignment, and founders’ outcome (in a future post, I will address some of the other issues such as CEO/Founder replacement, VC fund raising cycles and LP ). Before diving into this discussion, for those of you that are less familiar with VC fund economics, some background reading may be helpful. The first is more of a VC industry analysis by Fred Wilson of Union Square Ventures and the second dives more specifically into the economics of an example fund by Josh Kopelman of First Round Capital. These issues are well understood by VC’s as that is their industry and reflects directly on their own personal economics as it relates to carried interest in their fund (i.e., think about a sales persons understanding of their own compensation/commission structure and how it affects their own motivations and economics). So, how do the different fund sizes affect VC and founder alignment? Lets first look at it from the VC side and take 2 examples – a large fund of $400-500M and a smaller fund of $50-100M. If you read the background material and/or already understood VC economics/dynamic, there is a difference between how partners at each of those funds will look at exit sizes that are considered worthwhile/successful/attractive. Much of this really boils down to the amount of time each partner has to sit on boards and work with their companies if they consider themselves active investors. With the number of boards that can reasonably be held by one partner in the 6-8 range, this limits the number of investments he can make, which then dictates the average amount of money he typically needs to put into a particular investment, and ultimately drives the need for the size of exit he needs to make the economics work for the fund and himself. In the 2 example fund sizes, obviously larger funds typically need to put in more money (often $10-15M per company) and thereby requiring large exits (in the multiple hundreds of millions per company minimum) vs a smaller fund (often $2-5M per company and with exits in the sub-$100M range reasonable from a fund and personal return perspective). The constant here is that both investors have the same amount of time and bandwidth and will typically do the same number of investments per fund. For an entrepreneur, it is fairly straightforward to see the differences between the 2 types of funds just based on fund size and number
2x2
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My version of the elevator pitch – a 100 story highrise with multiple stops along the way

In meeting with entrepreneurs, especially those that I haven’t met or heard about before, I often ask them to give me the 5 min overview of the business before we dive into any details or the formal presentation deck. I typically ask for this before I ask for the entrepreneurs backgrounds – for reasons which I’ll get into shortly. The commonly heard 30 sec or 1 min elevator pitch is ok when an entrepreneur is pitching a customer or for PR or other audience that isn’t looking at the business holistically but is only interested in 1 or 2 aspects of the business. For a VC though, it is just not enough time to cover the information to get me interested. In the 30 sec or 1 min pitch, there is barely enough time to cover the market and product let alone competitive differentiation, business model, industry trends, financing plans. and key metrics such as customer acquisition and average revenue per user. The entrepreneurs’ ability to convey the business concisely in a compelling manner is a huge indicator of their understanding of the business as well as how they will think and act when running the business. What surprises me is how many entrepreneurs are so bad at this. In a startup, one of my favorite sayings is “you can do anything, but you can’t do everything.” With limited time and resources, entrepreneurs must cut through the clutter and focus their time and attention on the most critical issues. A founder or CEO who can’t explain the key aspects of his business concisely and rambles on about un-important details worry me that he will behave similarly when running the business. The 5 min overview should be a mini version of the entire pitch but forces the entrepreneur to really hone in on the most critical aspects of the business that will influence its success or failure. Like Mark Twain’s famous quote, “I would have written a shorter letter, but I did not have the time,” the ability to quickly and concisely explain the business indicates to me that the entrepreneur has really thought about and understands his business. The reason I ask for the 5 min pitch before the entrepreneurs’ bio is that I actually like to judge the attractiveness of the business independent of the team. When I hear the bios of the founders first, it obviously sways me (which it should) as I hear the rest of the business. While the fit/capability of the team is paramount to my decision, I find it is better left until after I understand the basic premise of the business so that I can really assess the business purely on its own merits. After this, hearing the entrepreneurs’ backgrounds allow me to then assess their ability (and hopefully their clear advantage) in executing on the business. In VC, when I am assessing the “fundability” of a company, I find that out of the many many factors that can influence the business,
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To advertise or not to advertise

This recent NYTimes article is worth a read and sparked some thoughts. http://www.nytimes.com/2009/05/25/technology/start-ups/25startup.html With the market tanking, the pendulum for consumer internet space monetization, which has largely relied on advertising as their primary business model, is quickly swinging the other way – to direct user charging methods such as subscriptions or virtual goods. I think this is a good, necessary, and inevitable outcome. While I wholeheardly still believe broadly in the internet advertising model, I think too much emphasis had been placed on this single form of monetization at the expense of billions of dollars of venture capital, private equity, and public offerings which funded money losing businesses for years. The biggest problem I foresee though is that many consumers’ expectation have now been set – that people believe that internet services should be free. The last decade of internet companies has established this precedence and this will not go away easily or quickly. I personally think of one of the most widely used and under-monetized applications on the web – free online email accounts. This is a prime example of a product that created tremendous value but was not able to capture value. The issue becomes pronounced for entrepreneurs when many newly established companies emerge without the benefit of huge and multiple venture capital rounds willing to keep funding money losing businesses. So, what should entrepreneurs do when they are faced with the situation of a) needing to generate revenue quickly because there is less funding available but b) having to compete with so many free services that already exist which may eventually die away but are still plugging along in a desperate race to the bottom. While I don’t promise to have the answer, here is how I’ve been thinking about the problem and what kinds of business I’ve been looking at recently.
  1. Look at markets whose customers have been used to paying in the past such as marketing services, gaming, enterprise, SMB, etc. – generally originating from non-internet based roots.
  2. Think about niche audiences from a monetization perspective but build the platform for wider application to make investors believe in the ultimate size of the opportunity.
  3. Timing is everything – be thoughful not only about why your business is right but why NOW is the right time for it.
  4. Focus on product. Great products overcome the odds.
  5. Live and breathe metrics. The two most important for many of the businesses I look at are the balance of a) customer acquisition cost and b) lifetime value of the customer. Make sure your funding aligns with this ramp.
While most business I see now have multiple revenue streams, many are knee-jerk reactions to the market and haven’t really been thought through to see if they are realistic and viable. Do your homework and don’t force fit a model that doesn’t work. But opportunity is ripe and I do believe the next couple of years will be a wonderful time of innovation around business models.

Office hours

With the recent expansion of Baroda Ventures and my efforts to help build the Southern California entrepreneurship ecosystem, I am going to be testing an open office hours format for anyone who would like some advice for 30 min by phone. This should be used as a way to get feedback on an idea or advice on how to approach a business vs being a formal pitch to raise money. This is especially suited for anyone who is thinking about starting a business or trying to decide how to think about fund raising. My intention is to provide a safe way to ask the “dumb” questions. For many new entrepreneurs, its hard enough to get facetime with a VC (especially in Southern California where there are just fewer firms), let alone being comfortable asking general questions about the process and to see if you are at least thinking about the right things. Go to my shared Google Calendar (switch to Week view – not sure how to make this view default – if anyone knows, send me an email) and look for any time slots labeled “OPEN”. Send an email to officehours [at] barodaventures [dot] com and let me know a 30min time slot that fits in one of the OPEN slots and send me a phone number where I can reach you and a quick overview of what you’d like to discuss. I will continually be updating new time slots on an ongoing basis so keep checking back and let others know. I hope this format will be useful and helpful for any entrepreneurs looking for a safe forum to get advice. NOTE 1 : After your session, please go back to the Baroda Ventures homepage and click on Entrepreneur Feedback Form and leave me some comments on how I can do my job better NOTE 2 : This should be used for entrepreneurs looking for advice (i.e., not for people looking to get a job in VC or general career advice)

Head in the clouds

With the relaunch of Baroda Ventures, I’ve started to slowly but surely move my existance into the cloud….and I love it but still a little more to go. These are some of the apps I am using
  • Google Apps hosted email, calendar, and contacts for Baroda Ventures
  • Dropbox (backup and syncing to the cloud)
  • WordPress
  • Fidelity and Mint
  • Facebook, LinkedIn, and Twitter
The biggest area that I still don’t fully use the cloud is my dependence on Microsoft Office. While I like Google Docs for some things, its not quite there for me to fully move over but with Dropbox, I’ve been able to keep much of the cloud access functionality.

The best video content delivery network on the planet!

With all of the new companies surrounding video these days, I felt compelled to point to a company that I haven’t seen reviewed on TechCrunch (and ti is not in the product/company index). It is simply the best content delivery network on the planet! It is pretty amazing, and I can download songs, movies and other video content, store them, and and even download them and save them locally to watch later. I can even connect it to my TV and watch High Definition videos or listen to songs through the TV. The downloads start very quickly and the resolution is amazing, with no jitter, flicker, or any other issues. I ordered an apple TV (which has apparently been delayed) to test out how it works, but I suspect that this is already better! I understand that the Google engineers also have done some research and determined that this technology has a significant lead on their approach and even Google may not be able to catch up (perhaps Google will buy them?) My only complaint is that the UI for choosing the content is not great…they appear to be working on it, although they could probably use some better approaches for indexing and search for the content (perhaps the combination with Google does make some sense?) The company has a sophisticated business model that allows video advertising on some of the content, allows subscription for other content, and even has some content that is paid for per file. They are even experimenting with video classifieds and are adding a significant amount of new content daily! Here is the link to the company!