Bevan Anderson and Simon Hackett accepting the award at the Avalon Airshow Aviation software developer AvSoft Australia has taken out Australia’s top prize for civil aviation innovation, with the electronic flight bag (EFB) app also winning a major contract with the Australian Army. The company, backed by entrepreneur Simon Hackett, has developed an EFB for the iPhone called AvPlan EFB that allows pilots to view the maps, charts and other information they traditionally needed to hold in a heavy flight book. A version called AvPlan Lite is also available for Android devices from the Google Play store. AvSoft chief executive Bevan Anderson told StartupSmart the software saw AvSoft win the Aerospace Australia Civil Industry National Innovation Award for 2015 at the biennial Australian International Airshow at Avalon Airport in Victoria. “They do three award categories in civil and three in defence. We applied when they asked for entries for the civil innovation award, and of the many entries, we were the winner. This is the big one for commercial aerospace awards in Australia – we’ve run out of awards to win,” Anderson says with a chuckle. There’s big news on another front for Anderson, with AvPlan recently securing a major contract with the Australian Army. “The Army has been conducting trials for the past two years of various platforms. Recently, they passed the product selection space and chose our product to equip all their pilots with,” Anderson says. The deal will see around 200 Army helicopters equipped with iPads running AvPlan EFB. Anderson says the Army is leading the way in terms of technology with the move, and that he is not aware of another defence force anywhere in the world that has adopted an EFB app. “There have been additional challenges going into the defence space, and that’s something they’ve helped us with,” he says. “We needed to do EMI (electromagnetic interference) testing of the devices, clearing the iPad for use in all the helicopter models including with weapons systems. Obviously, you can’t have weapons going off because of electromagnetic interference from a tablet!” There’s also good news for the company on the civilian front, having partnered with a Boeing subsidiary called Jeppesen in a deal that has led to significant interest from ad-hoc charter and business charter flight companies. The deal allows AvPlan EFB to access Jeppesen’s international data, while pilots will be able to undertake flight preparation and submission in AvPlan and then transfer that information to a Jeppesen device. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Google has announced it is going to begin introducing paid search results for apps into its Google Play app store, with the news drawing a mixed reaction from Australian app developers. Under the changes, sponsored results will soon begin appearing at the top of search queries in Google Play in a manner similar to Google’s web search results. The move is designed to help the search giant to monetise the global installed base of its Android operating system, which runs on around 1 billion devices globally. According to figures published by Kantar Worldpanel last year, smartphones running Google’s Android operating system account for around 58.1% of the Australian market, meaning the Google Play app store is also a significant gatekeeper in the local market. David Mah, co-founder of mobile shopping app BlueSky, told StartupSmart he was among the app developers approached to participate in a trial of the paid ads, but turned down the invitation. “They approached us to do just that, but we didn’t go ahead with it. Apple also approached us for something similar by putting us at the top of their app store on the front page. We were their top shopping app for 2014, and [Apple] didn’t charge us for that,” Mah says. Klyp mobile lead Tyson Bradford told StartupSmart if the ads work like Google’s existing search ads, it will be advantageous for app developers to look at the ads as a channel to build exposure. “The apps stores can be hard to navigate and get to new content on. You’re trying to view over a million apps on a four-inch screen. Especially if Google gets the contextual part right, this is going to be valuable for app developers,” Bradford says. “It’s not going to cost you millions of dollars to get an ad on there, but if they put down $50 their ads won’t be there as long as someone with a million dollar budget. So it could be more cost-effective for app developers than other mobile channels.” Zoom2u cofounder Steve Orenstein told StartupSmart the benefits of advertising will vary depending on what marketplace each app serves. “In our instance there could be some relevance – gaming apps might be more relevant because people search for those a lot. If it’s good, it will give Google a new revenue stream while adding value for app developers,” Orenstein says. Meanwhile, Freight Exchange co-founder and chief executive Cate Hull told StartupSmart she hopes the news prompts Apple to improve its search results. “Anything that improves Apple’s search results will be great for users and developers,” Hull says. In a post on Google’s official Android Developers Blog, Google Play product management director Michael Siliski said that in the coming weeks, selected users will begin to see ads in the app marketplace from a pilot group of advertisers. “With more than 100 billion searches every month on Google.com, we’ve seen how search ads shown next to organic search results on Google.com can significantly improve content discovery for users and advertisers, both large and small,” Siliski said. “Search ads on Google Play will enable developers to drive more awareness of their apps and provide consumers new ways to discover apps that they otherwise might have missed.” Image credit: Flickr/ashkyd Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Eye tracking devices sound a lot more like expensive pieces of scientific research equipment than joysticks – yet if the latest announcements about the latest Assassin’s Creed game are anything to go by, eye tracking will become a commonplace feature of how we interact with computers, and particularly games. Eye trackers provide computers with a user’s gaze position in real time by tracking the position of their pupils. The trackers can either be worn directly on the user’s face, like glasses, or placed in front of them, such as beneath a computer monitor for example. Eye trackers are usually composed of cameras and infrared lights to illuminate the eyes. Although it’s invisible to the human eye, the cameras can use infrared light to generate a grayscale image in which the pupil is easily recognisable. From the position of the pupil in the image, the eye tracker’s software can work out where the user’s gaze is directed – whether that’s on a computer screen or looking out into the world. But what’s the use? Well, our eyes can reveal a lot about a person’s intentions, thoughts and actions, as they are good indicators of what we’re interested in. In our interactions with others we often subconsciously pick up on cues that the eyes give away. So it’s possible to gather this unconscious information and use it in order to get a better understanding of what the user is thinking, their interests and habits, or to enhance the interaction between them and the computer they’re using. Practical uses outside the lab There are lots of useful applications. For example, in marketing and usability studies, eye trackers are commonly used to study the impact of an advertising campaign or the design of a website. For people who cannot use their arms or are completely paralysed, eye tracking can be used to operate a computer or speech synthesiser: eye-based applications allow them to move a mouse cursor and spell out sentences using only their eyes. Other more futuristic-sounding applications have been explored, such as appliances that listen to your commands when you look at them: imagine speaking “on” and “off” commands to your lamp, your hi-fi system or your television, which until you looked at them had been in standby. Other examples include automatic scrolling when you have reached the bottom of a screen of text, or automatic pausing of a movie if you look away. While there are uses for eye tracking in industry and among researchers, firms are now looking seriously at how to make them useful for the general public. Tobii – the same firm that brought us pizza ordering by mind control – recently launched a consumer-priced remote eye tracker, the Tobii EyeX (US$139) with the aim of encouraging games developers to build eye tracking support into their products. For comparison, research lab-grade eye trackers cost around US$20,000. Another large eye tracking company, SMI, has announced a partnership with Sony to integrate eye-tracking into games for the PlayStation 4. Interactivity at the cutting edge There’s a lot of potential for eye tracking in video games. For example, in the popular first-person view (“3D shooter”) style of games, eye tracking can be used to automatically pan the screen to where the player is looking, replacing a task usually performed by the mouse. The eyes can be used to target weapons, too. One of the most interesting applications is interaction with game characters. When using eye tracking video game characters can be made to react to the player’s gaze the same way a human would. Imagine entering a shop and letting your eyes rest on a sword you find interesting: the merchant could tell you directly about this item, making the interaction that bit more real. Or a character might get upset if, instead of looking at him while he’s talking, your eyes rest on his wife. The eyes are very powerful means of nonverbal communication. Implementing human-like reactions in virtual characters could mean a whole new level of immersion in video games. Beyond games, there is another range of applications where eye tracking is becoming a hot topic: smart glasses. Because of its shape, a lot of people think Google Glass also tracks the eyes, but it doesn’t. But it wouldn’t be surprising to see the next generation of smart glasses including eye tracking capabilities. This could provide further ways of interacting with the head-up display projected onto the glasses, adding automatic scrolling and navigation that leaves the wearer’s hands free instead of having to use the manual control. There’s already an eye tracking upgrade for the Oculus Rift virtual reality headset. If users are willing to wear something on their heads, why not add an eye tracker too and enhance interaction using all that information that’s being given away by the eyes? Using the eyes as a tool opens up the possibility for more natural, subtle interaction. This article was originally published on The Conversation. Read the original article.
Think you’re good at classic arcade games such as Space Invaders, Breakout and Pong? Think again. In a groundbreaking paper published today in Nature, a team of researchers led by DeepMind co-founder Demis Hassabis reported developing a deep neural network that was able to learn to play such games at an expert level. What makes this achievement all the more impressive is that the program was not given any background knowledge about the games. It just had access to the score and the pixels on the screen. It didn’t know about bats, balls, lasers or any of the other things we humans need to know about in order to play the games. But by playing lots and lots of games many times over, the computer learnt first how to play, and then how to play well. A machine that learns from scratch This is the latest in a series of breakthroughs in deep learning, one of the hottest topics today in artificial intelligence (AI). Actually, DeepMind isn’t the first such success at playing games. Twenty years ago a computer program known as TD-Gammon learnt to play backgammon at a super-human level also using a neural network. But TD-Gammon never did so well at similar games such as chess, Go or checkers (draughts). In a few years time, though, you’re likely to see such deep learning in your Google search results. Early last year, inspired by results like these, Google bought DeepMind for a reported UK£500 million. Many other technology companies are spending big in this space. Baidu, the “Chinese Google”, set up the Institute of Deep Learning and hired experts such as Stanford University professor Andrew Ng. Facebook has set up its Artificial Intelligence Research Lab which is led by another deep learning expert, Yann LeCun. And more recently Twitter acquired Madbits, another deep learning startup. What is the secret sauce behind deep learning? Geoffrey Hinton is one of the pioneers in this area, and is another recent Google hire. In an inspiring keynote talk at last month’s annual meeting of the Association for the Advancement of Artificial Intelligence, he outlined three main reasons for these recent breakthroughs. First, lots of Central Processing Units (CPUs). These are not the sort of neural networks you can train at home. It takes thousands of CPUs to train the many layers of these networks. This requires some serious computing power. In fact, a lot of progress is being made using the raw horse power of Graphics Processing Units (GPUs), the super fast chips that power graphics engines in the very same arcade games. Second, lots of data. The deep neural network plays the arcade game millions of times. Third, a couple of nifty tricks for speeding up the learning such as training a collection of networks rather than a single one. Think the wisdom of crowds. What will deep learning be good for? Despite all the excitement though about deep learning technologies there are some limitations over what it can do. Deep learning appears to be good for low level tasks that we do without much thinking. Recognising a cat in a picture, understanding some speech on the phone or playing an arcade game like an expert. These are all tasks we have “compiled” down into our own marvellous neural networks. Cutting through the hype, it’s much less clear if deep learning will be so good at high level reasoning. This includes proving difficult mathematical theorems, optimising a complex supply chain or scheduling all the planes in an airline. Where next for deep learning? Deep learning is sure to turn up in a browser or smartphone near you before too long. We will see products such as a super smart Siri that simplifies your life by predicting your next desire. But I suspect there will eventually be a deep learning backlash in a few years time when we run into the limitations of this technology. Especially if more deep learning startups sell for hundreds of millions of dollars. It will be hard to meet the expectations that all these dollars entail. Nevertheless, deep learning looks set to be another piece of the AI jigsaw. Putting these and other pieces together will see much of what we humans do replicated by computers. If you want to hear more about the future of AI, I invite you to the Next Big Thing Summit in Melbourne on April 21, 2015. This is part of the two-day CONNECT conference taking place in the Victorian capital. Along with AI experts such as Sebastian Thrun and Rodney Brooks, I will be trying to predict where all of this is taking us. And if you’re feeling nostaglic and want to try your hand out at one of these games, go to Google Images and search for “atari breakout” (or follow this link). You’ll get a browser version of the Atari classic to play. And once you’re an expert at Breakout, you might want to head to Atari’s arcade website. This article was originally published on The Conversation. Read the original article.
With more health information going online every day, it has never been easier to proactively manage our health. The problem is, the people who would benefit the most seem to be using it the least. Older adults typically have a greater need for health-related information but their health literacy – their capacity to obtain, process and understand health information to make appropriate health decisions – is the lowest among all age groups. Research shows that only about 3% of the elderly know how to access health-related information. And of those older adults who seek health information online, few are careful to evaluate its credibility. This points to the need for interventions to assist older adults’ use of computers and the internet. There are clear benefits, both at a personal and social level, to teaching the elderly how to access health information and to use the internet generally. Efforts have been made to address this skills gap, but with limited success. What works? Sometimes the best solutions to behavioural problems are those that graft naturally onto people’s instinctive behaviours. The European Union has done just that with the Grandparents and Grandchildren program that puts old and young together so that the old might learn from the young. This approach is working, probably because it taps into the natural instinct we have to connect with our blood relatives. School and college-age people are spending time with their grandparents for the purpose of learning how to use technology. Beyond the family benefits, there is the potential for great savings to be made on health-care costs, keeping people in their own homes and out of hospital; a win-win situation. Several health literacy programs are being trialled that involve helping the elderly to use the internet to find and appraise web-based cancer information. The participants in these programs reported getting better at doing this. Follow-up studies show that once having learnt, the participants continued to use the internet to search for health-related information. Benefits of digital literacy Google heads recently announced they will improve the validity of health-related searches by creating a database of commonly searched medical conditions that have been fact-checked by doctors. When consumers search for these conditions, these pre-vetted facts will appear at the top of the search results. It is hoped that this will get people the right information faster. Once the elderly know how, they can proactively manage their health by accessing a wealth of information on many topics. A person with type 2 diabetes, for instance, could learn how to live on a low-glycaemic index diet, thus reducing the need for medication and lowering their risk of heart attack. They could also make use of the many health and fitness apps now available. SmartWatch technology is taking the whole business to a higher level of sophistication. Important for healthy ageing is keeping the social bonds of family and friends strong and maintaining a sense of social connection. Not an easy thing to do in today’s world with friends and family living far and wide for employment. Skype, email and social media can go a long way to making people feel connected with those they love. With an ocean of knowledge just a few key-strokes away, there is plenty of scope for people to explore their interests. No matter how specialised they might be, you can find a community of interest to get involved with. It is well-known that keeping one’s mind active helps to delay cognitive decline and the on-set of dementia. Many elderly people have lived interesting lives. They have things to say, but no-one on hand who is prepared to listen. These folks might want to record their experiences for posterity by writing their richly-textured biographies. Who knows what gems of wisdom might be contained in such accounts? Next steps It takes a village to raise a child, as the old saying goes, but we might also add that it is a two-way street – it takes a community to look after the elderly. We need to put in some time and effort into finding better ways to do this. One of the best things we can do for the older members of our community is to give them the means to better look after themselves by teaching them how to use the technology that the rest of us take for granted. An Australian pilot study to adapt the Grandparents and Grandchildren would be a good start. It is true that not everyone in this age group will want to learn. Some will be content to let it pass them by. But others will see the possibilities and eagerly embrace the potential for improvements to both quality and quantity of life. This article originally appeared at The Conversation.
The purpose and implementation of the Australian government’s proposed metadata retention scheme is making less sense as political pressure mounts to get the legislation passed. So what’s going on? The bill, as written, suggests it can be easy for criminals to “opt out” of data collection, while the remainder of Australians still have their personal communications spied on, retained for two years and kept in commercial data centres at taxpayers' expense. The Australian Greens senator Scott Ludlam recently raised a number of such concerns about the bill which has already met opposition from privacy advocates. But the bill’s worth as a tool to specifically fight terrorism, or any other serious crime, seems dubious if potential terrorists and criminals in Australia can easily “opt out” of having their data retained simply by choosing any internet messaging service where the persons operating the service do not own or operate “in Australia, infrastructure that enables” that service. So what does that mean for the apps commonly used on smartphones today? Whatsapp, the popular mobile messaging app with 700 million users, around 10% of which come from the Middle East, or Viber, a similar app with 20 million users in Pakistan alone, would both be excluded from data retention. These are some of the apps that the UK’s prime minister David Cameron recently mused about baning in the UK. According to answers given by Australian Attorney General’s (AG) department staff during the Senate Legal and Constitutional Affairs Reference Committee, the “in Australia” provision also means that even Google’s web-based Gmail service is excluded from data retention. So what does the bill call for? With all the reports of what the bill leaves out and doesn’t do, no one seems to acknowledge what is actually in the draft bill, and how that language might affect policing, government and privacy. So what is at play? One possible explanation is that Australia is carrying out its obligations as part of the “five eyes” network of English speaking intelligence partners. The logic here is that it makes economic and political sense to have Australian internet service providers (ISPs) such as Telstra and iiNet retain what originates in their infrastructure rather than have the US’s National Security Agency (NSA) collect it. A more plausible explanation is that, contrary to the PM’s politiking, the data to be retained is not valued by the Australian government for its national security or anti-child abuse value. Instead, Australians are to be spied on for data that will become valuable for other state functions including the expanded reach of civil litigation. The expanded value considers normal policing, civil subpoenas and even copyright disputes. A look inside the bill The Australian government is not explicitly interested in the internet protocol (IP) addresses that you visit. The bill in its current form states in section 187A that the government: […] does not require a service provider to keep, or cause to be kept […] [information that] states an address to which a communication was sent on the internet, from a telecommunications device. In more detail, the helpful “explanatory memorandum” codifies that: Under proposed paragraph 187A(4)(b), the retention obligation is explicitly expressed to exclude the retention of destination web address identifiers, such as destination internet Protocol (IP) addresses or uniform resource locators (URLs). So what are we talking about then? It’s all about the destination What the government does seem to be after is “destination” data that basically amounts to an assortment of dummy variables that help identify you, and who you are communicating with. Instead of IP address or web pages, it is interested in retaining email accounts, Skype handles and phone numbers, etc. for the connections you have made. The government’s “destination” is in many ways more invasive than IP addresses or web URLs alone. For instance, think about how each person in Australia connects to the IP address 184.108.40.206. That’s the IP for Facebook.com, and is physically located in the US. Retaining the metadata of time spent at that address would not produce much actionable intelligence on you or the other 8 million Australians who browse Facebook each day. Nor would it be all that invasive to privacy. “Destination” data is different. “Destination” data seeks to capture who, specifically, you’re spending time with online; who is the destination that you are messaging through email, Skype or possibly even Facebook’s real-time apps and services? Think of it this way: two “destinations” pass data through the same communications service at a series of very specific times, again, again and again. No other two “destinations” share this unique pattern of time and connection. The government’s definition of “destination” is multiple click here, search for “destination”), but we can isolate a key phrase: This information can then assist with determining the subscribers who sent or received relevant communications. That is to say, who you’re talking to online, not where you went. Analysing how these “destinations” link together with other metadata (geo-location, device type/operating system, etc.) allows the government – or anyone else who snoops in on the retained data – to predict, for instance, that these communications were yours, and whether you targeted them to, let’s say, your spouse, or an “old friend” across town. And whether you meet up with that person from time to time. And where. And for how long. Geolocation data alone is incredibly powerful when we all carry smartphone and other devices that connect to the internet in our pockets. People are just starting to learn how powerful this type of metadata is. Retaining all of that metadata provides an incredible amount of information for civil litagants that can ask for it through a subpoena. As an former iiNet lawyer wrote: The Data Retention Bill does not impose any limitation on access to the retained data by other legal avenues. This means there’s nothing stopping your ex-husband, your employer, the tax office or a bank using a subpoena to get access to that data if it is relevant to a court case. All this data also creates a very valuable target for hackers, including “adversarial intelligence agencies” trying to infiltrate your identity, ransom you for your secrets, or run some form of economic espionage. Can we trust Australian service providers can keep all the data safe once they’ve accumulated two years worth of intimate connections for each Australian who uses any sort of telecommunications device? Sadly, recent security breaches at companies as diverse as Apple, Target, and the latest heist from “100 banks and other financial institutions in 30 nations” suggest otherwise. The flawed explanations of what good the bill does, what privacy risks it creates and the reality of how our retained data will be used, offers many red flags on why this legislation should be reconsidered. This article was originally published on The Conversation. Read the original article.
Google has begun a trial of a Google at Work version of its Inbox by Gmail app, with the search and mobile giant also rolling out new warnings on websites that contain malicious software. Inbox, first unveiled in October of last year, is a new interface for the company’s Gmail service that integrates additional information from the web into a message inbox and has a range of features to help keep users organised. Inbox highlights the key information from important emails without needing to open each message and adds in additional useful information from the web that wasn’t in the original message. The service is now open to selected early adopter companies, with businesses able to apply by emailing email@example.com from their Google Apps for Work administrator account. Google warns not everyone who emails will be invited into the early adopter program and that it will work closely on gathering feedback from companies in the program. On a separate front, Google is rolling out new malware warnings in Chrome, with Google also flagging sites with malware in its search results and disabling ads that contain malware. Google recommends website owners sign up with Webmaster Tools in order to access up-to-date alerts of when it detects malware on a website. Full details are listed under the Diagnostics tab in Webmaster Tools. This story originally appeared on SmartCompany.
YouTube has launched a platform for children with the aim of making it safer and easier for pre-schoolers to find fun and educational videos online. The family-focused app, which is currently available on the Google Play and Apple stores in the US, also allows parents to limit their kids’ screen time and search settings. YouTube’s kids group product manager, Shimrit Ben-Yair, said in a statement the new app will allow children to search for everything from maths tutorials to how to build a model volcano. “For years, families have come to YouTube, watching countless hours of videos on all kinds of topics,” she said. “Now, parents can rest a little easier knowing that videos in the YouTube Kids app are narrowed down to content appropriate for kids.” Microsoft allows third-party developers for its fitness wearable Microsoft today announced updates to its Microsoft Band and Microsoft Health apps, meaning third party developers are now able to create apps for the company’s fitness wearable. Matt Barlow, general manager of new devices marketing at Microsoft, said in a statement the updates were made in response to customer feedback. “This feedback is at the heart of the decisions we make, and today we’re pleased to take our first steps in launching new features and functionality for Microsoft Band and Microsoft Health that address what we’re hearing,” he said. The update was released today and will roll out on Windows Phone, iOS and Android devices in the coming days. Facebook data protection practices questioned: report Facebook’s data protection practices have come under fire in a report commissioned by Belgium’s data protection authority. The report examines Facebook’s privacy policies and, in particular, slam’s the social network’s approach to “freely-given”, “informed” and “unambiguous consent” when it comes to customer data. “Given the limited information Facebook provides and the absence of meaningful choice with regard to certain processing operations, it is highly questionable whether Facebook’s current approach satisfies these requirements,” the report reads. A Facebook spokesperson told TechCrunch the company recently updated its terms and policies to make them “more clear and concise” in order to reflect new product features. “We’re confident the updates comply with applicable laws,” they said. “As a company with international headquarters in Dublin, we routinely review product and policy updates including this one with our regulator, the Irish Data Protection Commissioner, who oversees our compliance with the EU Data Protection Directive as implemented under Irish law.” The report comes as the European Union is in the process of updating its data protection directive, which was made in 1995. Overnight The Dow Jones Industrial Average is down 0.14%, rising 25.01 points to 18,115.43. The Aussie dollar is currently trading at 78.03 US cents. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
The founder of online community Product Hunt has learnt the value of empathetic copy after being called out online for an automated message that implied all founders are male. Product Hunt is a message board updated daily that lists exciting new products and startups – everything from a website that sends your enemies glitter to apps that change people’s lives. The site’s founder, Ryan Hoover, is a graduate of the Y Combinator program – an accelerator responsible for startups such as Reddit and Dropbox. Towards the end of last year Product Hunt raised a Series A round of $US6.1 million ($A7.7m). Three days ago the startup was alerted to the fact its uses masculine pronouns in certain automated messages to users when they add details about a product – such as the identity of a founder. Allyson Downey, the co-founder of product advice platform weeSpring, posted a photo of an automated message from Product Hunt on Twitter and asked: “What’s with the assumption that all makers are a ‘he’?” .@producthunt I love you and am totally addicted, but what’s with the assumption that all makers are a “he”? pic.twitter.com/nyMfxlZuEU — Allyson Downey (@AllysonDowney) February 19, 2015 Hoover responded within a matter of minutes, apologising and explaining that the message was “an embarrassing typo”. He later posted an apology on Medium where it was shared widely on social media and Product Hunt was praised for addressing the issue so quickly. The website’s copy now uses gender-neutral language. “In the past year I’ve become increasingly aware of gender inequality and more empathetic of what many women have gone through, thanks to events like YC’s Female Founders… stories shared by women, and conversations with female friends of mine,” Hoover wrote. “It may appear like a small typo, but the pronoun ‘his’ subtly shouts disregard for women makers, particularly to those that have been mistreated because of their gender. Going forward we’ll be more careful in how we communicate and hopefully this is a reminder to others of how important it is to be thoughtful and empathetic when crafting copy.” Impressed with @rrhoover and @ProductHunt for making this fix super-fast. #ChangeTheRatio pic.twitter.com/4MUTBh0hKA — Allyson Downey (@AllysonDowney) February 19, 2015 Awareness around diversity issues in tech startups has increased as the industry has grown, with giants such as Twitter and Google as well as smaller players admitting female representation and cultural diversity in their workforces is not up to scratch. In July last year, women made up 30% of Twitter’s overall workforce but only 10% of tech employees. According to the StartupMuster survey, the results of which were released last month, 19% of the more than 500 startup founders who responded were female. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Despite the rise of social networks and messaging apps, email continues to be the dominant mode of written electronic communication. Over the next few years, email use will continue to grow in the business world and decrease by less than 4% each year for consumers. The average business worker will have to deal with 140 emails a day by 2018, up from 120 emails a day now. Although perhaps not surprising, the fact that we will continue to have to deal with unmanageable amounts of email is a testament to the fact that behaviour significantly lags technology and that technology still hasn’t come up with a particularly good way of dealing with the deluge of email we all have to manage. Like dieting and getting rich quick, there is no easy and foolproof path to an empty inbox. The trouble with any of the schemes like “inbox zero” and “Getting things Done” or “GTD” is that it still requires discipline, effort and more importantly, time. None of it guarantees that the email arriving will be dealt with efficiently nor that it won’t cause the receiver undue amounts of stress. Email software that claims to assist with this process is therefore likely to be overstating the benefits that it can actually deliver. The problem with email is not that you have something sitting in queue that requires clicking, dragging, deleting, archiving or saving until later. It is that you have requests sitting in a queue asking for an action from you which may require anything from the time it takes to read the email and respond, archive, delete, file, etc. to initiating a major piece of work that takes days, months or years. Dealing with email becomes a process of actually assessing how much work is being asked of the recipient. The difficulty is that these requests don’t come from a carefully considered project manager who knows what your current work obligations are; they are largely random requests that could arrive from anywhere. Each request is usually independent of all others and the sender of the email is expecting a response as if their request was the only one sitting in your inbox, instead of the hundreds that are likely to be there. This means that the only effective strategy that we have to deal with email is to find ways to either say no or yes to each email that arrives. If the answer is no, then the question becomes, do you delete with no reply, or delete after replying with a courteous “no”. If the answer is yes, then the question is whether to deal with it immediately, delegate or set it up as something that will be dealt with in the future. From a software perspective, the primary feature needed in an email application is the ability to delete. There is little point in ‘archiving’ these emails because you have decided it is something that you are not going to be able to do. In a worst case scenario in which you delete something that later does become important, the person requesting can always re-issue that request by sending a new email. Given that every other action in dealing with email is secondary to being able to delete, it is surprising that Google in particular has built its email around the concept of never having to delete emails. In the “Trash” feature of Gmail, they declare: “Who needs to delete when you have so much storage?!” Google, and other cloud email providers, have a vested interest in getting customers not to delete their emails and archiving them instead. For a start, their aim is to get people to have to pay for extra space when they fill up their free allocation. A second motivation is the ability to use the information stored in archived email for analysis and marketing purposes. Gmail Google’s latest email application Inbox, which is currently in an invite-only beta, is another attempt at re-arranging email that has not been discarded. Although a “pretty” update on the more utilitarian Gmail application, it does nothing to help with actually what matters, which is to get rid of as many emails in as short an amount of time as possible. Inbox emphasises bundling of emails into categories like travel, finance and “purchases”. Unfortunately, this simply groups things together in a largely superficial way and doesn’t distinguish on the basis of what is important and not important, what needs to be actioned and what can be ignored. Deleting an email is a two step action, with the delete function being accessed through a menu. Dropbox is another company with a vested interest in getting people to archive emails rather than delete. Like Google, they make the email functionality free on the basis that it will encourage people to use space that they will eventually have to pay for. Their email product Mailbox again sets default actions to emphasise archiving, “snoozing” to have emails reappear later, and filing. Finding out how to delete an email and even setting this up as the default action is made more difficult than necessary. The only way email will become less burdensome and manageable is for people to stop sending it in the first place. Perhaps two key features for an ideal email application would be a large question that comes up every time you send an unsolicited email that asks “Do you really need to send this email?” The second feature would be to make it extremely easy to delete emails. Everything else is going to be largely surplus to requirements. This article was originally published on The Conversation. Read the original article.
Even as the US economic recovery remains subpar with employment gains in only the lowest-paying jobs – and sluggish gains at that – one segment is surging: the still-nascent app industry. Apple’s latest earnings report, in which it posted a record $18 billion in profit in its first quarter, offers a glimpse of what we can achieve with this app economy. The iPhone maker passed two important milestones: it reported the largest quarterly earnings of any publicly traded company in history and paid, it said, a record $10 billion to developers in 2014 as total App Store revenue rose 50%. The first record is primarily significant to Apple and its shareholders and is due to strong sales of the iPhone 6, the latest iteration of the company’s flagship product. The other milestone goes much deeper and reaches far more of us. When fully developed, the entire app ecosystem will be able to help drive the US economy, providing high-paying jobs to a growing number of Americans. During Apple’s earnings call, CEO Tim Cook reported that his company sold its 1 billionth device running iOS, providing developers with a huge customer base. That has helped the developers earn $25 billion since the iPhone’s launch, with almost half of that coming in just 2014. Could app development become a significant pillar of growth in the US for the foreseeable future? Could these high-tech, higher-paying positions be more self-sustaining than the other jobs created during the economic recovery? Let’s take a closer look. Welcome to the App economy To put this into perspective, the tremendous growth in the iOS ecosystem has allowed its developers to earn slightly more than the US box office revenues of every Hollywood studio combined. And that’s just one app store, in the US, and excludes related revenue from ads, services like data storage and other sales not processed by Apple. The Google Play Store, the other major player in the app economy, pays out billions more. Developer Economics forecast the global app market to be worth $143 billion by 2016, more than double the $68 billion estimated in 2013. That compares with about $300 billion for the global PC and tablet market. Even more impressive than the revenue statistics is the number of jobs it supports, tallying 627,000 in the US, close to double the 374,000 in Hollywood. About 77% of these app developers are start-ups and small companies, and more than half say they are hiring, according to a survey by ACT | The App Association, a Washington, DC-based think tank for mobile software companies. The report also shows that the app economy is thriving in every region of the US. While 22% of developers are based in Silicon Valley, the rest are spread across the country, with more than 20% each in the South and Northeast. So where is all this growth coming from? More than an economy, a cultural shift With the growing number of smartphones, tablets and other devices in consumer hands, you would naturally expect more apps to be downloaded and developers to make money money. But that alone isn’t enough to explain what is happening in the marketplace. The app economy is more than just a collection of applications. It represents a significant cultural force in society as consumers increasingly want and developers deliver on-demand services. For instance, Uber provides chauffeurs in an instant, while Handy can send cleaners your way. Need a doctor to make a house call? Try Medicast. How about a lawyer? Use Axiom and an attorney will be knocking on your door in two hours. The list goes on. The app economy simply provides the fuel for an on-demand culture that has transformed every industry it has touched. As the saying goes: if there is a need, there’s an app for that. We all have smartphones in our pockets, and we use them in more ways that we can count. That means the incredible growth Apple reported in iOS developer earnings in 2014 could continue for years to come, resulting in more high-skilled, high-paying jobs that are more likely to stick around during the next economic downturn. This article was originally published on The Conversation. Read the original article.
Bugs and a lack of information account for a large number of app rejections by Apple’s App Store. Apple recently published the top 10 reasons for app rejections for the 7-day period ending February 12, 2015, and incompletion information and apps that exhibited bugs accounted for 24% of rejections. Apple has reminded developers to make sure their app descriptions and screenshots clearly convey the app’s functionality. The company also asks developers not to mislead consumers. “Your app must perform as advertised and should not give users the impression the app is something it is not,” Apple says. “If your app appears to promise certain features and functionalities, it needs to deliver.” Apps also get rejected from the App Store because they do not have enough “lasting value”. “If your app doesn’t offer much functionality or content, or only applies to a small niche market, it may not be approved,” Apple says. “Before creating your app, take a look at the apps in your category on the App Store and consider how you can provide an even better user experience.” Danny Gorog, director of Australian app development company Outware, told StartupSmart he welcomes Apple becoming more transparent about the app rejection process. “It’s great that Apple are opening up and providing more transparency around the reasons for app rejections,” he says. “Developers should use this information to ensure that when they submit an app they have provided all the required information. This way they can have more confidence that their app will make it onto the store.” Gorog says this approach will provide a better experience for customers, which will in turn drive user engagement – a win for both developers and the App Store. “We pay close attention to the design of each app we create and ensure that they follow the guidelines mandated by Apple and Google, because ultimately we strongly believe that a great user interface is critical to creating a great app experience.” Top 10 reasons Apple rejected apps (taken from 7‑day period ending February 12, 2015) 14% More information needed. 10% Guideline 2.2: Apps that exhibit bugs will be rejected. 4% Guideline 10.6: Apple and our customers place a high value on simple, refined, creative, well-thought-through interfaces. They take more work but are worth it. Apple sets a high bar. If your user interface is complex or less than very good, it may be rejected. 3% Guideline 22.2: Apps that contain false, fraudulent or misleading representations or use names or icons similar to other Apps will be rejected. 3% Did not comply with terms in the iOS Developer Program License Agreement. 3% Guideline 2.1: Apps that crash will be rejected. 3% Guideline 3.3: Apps with names, descriptions, screenshots, or previews not relevant to the content and functionality of the App will be rejected. 2% Guideline 3.8: Developers are responsible for assigning appropriate ratings to their Apps. Inappropriate ratings may be changed/deleted by Apple. 2% Guideline 3.1: Apps or metadata that mentions the name of any other mobile platform will be rejected. 2% Guideline 3.4: App names in iTunes Connect and as displayed on a device should be similar, so as not to cause confusion. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
If you thought it has been a while since you heard any more rumours about the long-awaited Apple TV, they are about to be replaced by even more exciting possibility that Apple may be about to build an electric car. The Wall Steet Journal kicked things off with a report that Apple had been hiring “hundreds” of staff with automotive design skills to work on a project called “Titan” that may be a self-driving electric vehicle configured in a (not-so-exciting) mini-van design. There are several back-stories to this potential move by Apple. In one, we see continuing competition with rival Google, who has been working on a driverless car for some time and are saying that they will be launching a commercial version onto the market between 2017 and 2020. Google’s motivation behind the self-driving car has been the development of the artificial intelligence software capable of pulling off this feat. Even if the car is not successful, the AI software will have a range of applications and possibility that would make the project still worthwhile. Increasingly, Apple has shown its willingness to develop its own capability in a range of competitive technologies that it can incorporate into products. In another back-story, there is electric car company Tesla whose CEO, Elon Musk, has claimed that it will be as big financially, as Apple, within a decade. This will in part be based on the release of the Model 3, an affordable (US $35,000) family car with a range of 200 miles. Part of Tesla’s strategy appears to include the poaching of numerous Apple staff. Although it seems that Apple has been reciprocating by offering Tesla staff large signing bonuses to move to Apple. And finally there is the view that electric cars, self-driving or otherwise, represent the future of transportation, especially a climate-friendly and sustainable one. At first sight, this may be a bit hard to believe when you consider that the top 3 selling vehicles in the US in 2014 were “pickup trucks”. At the same time, hybrid electric vehicles represented less than 3% of all cars sold. Still, there is continuing interest by the car manufacturers in producing electric cars, if only as a hedge. GM has announced their new 200 mile range Chevy Bolt that will retail at around the same price as Tesla’s Model 3. There is little doubt that Apple could move into car manufacturing. With US $180 billion in cash, it could buy Fiat Chrysler, Tesla, General Motors and Ford outright. There is also no doubt that with its ability to bring design and innovative computing to an industry employing technology that significantly lags that found in an iPhone. Apple and Google have both made moves to create in-vehicle media interfaces based on their systems. Apple’s CarPlay will start to appear in cars this year. Customers who can’t wait can buy after-market devices from Pioneer. Apple’s motivation to build an electric car may be driven by competition with Google, Tesla and others. It may be also finding a new business that doubles its value to $1.3 trillion as predicted by Carl Icahn. Alternatively however, it may be genuinely interested in building a technology that makes driving more sustainable and less dependent on oil. Apple is set to invest $3 billion in new solar farms in California and Arizona to provide energy for its operations there. Apple CEO Tim Cook recently told investors: “We know that climate change is real,” Cook said on Tuesday. “Our view is that the time for talk has passed, and the time for action is now. We’ve shown that with what we’ve done.” Whether Apple’s electric cars are aimed at combating climate change will depend on how they are manufactured and how the recharging infrastructure, which is still largely to be built in the US and globally, is run. Apple throwing its weight behind this infrastructure being built at all would certainly help making electric cars a more popular possibility. This article was originally published at The Conversation.
An Australian IT company has built a prototype that may give voice recognition technology a much needed shot in the arm. The algorithm, developed by Sydney-based Thinking Solutions, works on any device, understands all languages, and gives voice recognition technology the ability to understand context. Chief executive officer Beth Carey says that the prototype, which has been in the works for eight years, has shifted away from a command-based model to one that mimics conversations perfectly. “Translation services usually provide a word salad rather than a coherent structure of the language being translated,” she says. “We have overcome context tracking, removed the strong ambiguity inherent in translation services such as Google Translate and added a speech layer where the computer accurately translates what you are saying.” She credited the breakthrough to the integration of company founder John Ball’s Patom Theory and Professor Robert Van Valin’s work on developing linguistic frameworks. A review conducted by the University of Sydney and Thinking Solutions newly appointed chief scientific advisor Dr Hossein Eslambolchi has given it the all clear to proceed with bringing out the final product in a year’s time. According to Carey, big technology companies are sceptical about her company’s success but she is confident that the breakthrough will allow people to talk and text in any language with any device, in a far more effective manner. “I am very optimistic about securing funding during those 12 months. We are going to industry parties to secure Series A investments and project-based investments,” she says. “We are targeting $6.9 million and have a two-year plan to develop six or more languages to produce a developer’s API for natural language understanding, language learning apps and machine translation apps. The industry will only get better as accuracy improves.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
A Sydney startup is looking to make it faster and easier for people to book casual group fitness classes online. Fitness Calendar, launched in October last year by sisters Deborah Laurence and Abigail Holman, offers users discounted single-class visits to nearby fitness studios. Co-founder Deborah Laurence told StartupSmart the idea for the website came from wanting to help businesses promote their fitness classes, as well as remove as many barriers as possible for consumers. “We’re not into the traditional gym one-size-fits-all approach,” she says. “We love doing more boutique things like yoga and Pilates. However, we found it so hard to find all the information we were looking for with these specialist studios in the one place – you have to spend hours on Google trying to find them and their timetables. We also wanted to make it more acceptable for people, so that’s why we offer the discounted passes because some of the studios could be $35 for a single visit and through the website we might sell those for $10.” The startup currently has 60 suppliers signed up in Sydney, and that number is “growing every week”. “Obviously there’s Fitbits and things like that but in the online space there hasn’t been much change,” Laurence says. “We definitely see an opportunity for fitness and impacting the market and changing the way we workout. What we are also working on is a subscription model which will launch in 2015 and really shake up the Australian market.” As for what 2015 holds for the startup, Laurence says an expansion is being planned for later this year as well as a possible seed round. “We are already feeling out the Melbourne market and have made connections there, so this year we will be definitely growing into Melbourne and then other cities.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Building a technology company isn't easy; a huge range of specialist skill sets are needed – software developers, data scientists, designers, product managers and engineers to name a few. However in the Western world we have a crisis in education with declining enrolments in science, technology, engineering, and mathematics (or STEM for short). This is remarkable given we are in one of the greatest economic gold rushes of all time, thanks to the internet and software eating the world. So startups and technology companies everywhere are scrambling for talent and they increasingly need to offer a variety of incentives to attract and retain that talent; the most powerful of those incentives is giving employees the chance to earn a part of the company and become owners themselves. To understand how this works let’s step back and consider how shares are divided up in a company from the very beginning. Companies are started by founders, who are the people who originally come up with a great idea to start a business. Typically, this group numbers somewhere between two and four people. Even though one person might originally come up with that idea, they will still need a founding team around them with complementary skill sets to turn this idea into a real company. Two people in a founding team is ideal. Greater than four people founding a company starts to become unwieldy in figuring out who is in charge. So founding teams will usually be between two and four. The founders are the people who take all the risk in a venture, they are the people that put everything on the line. They quit their jobs, work for no pay, and have to risk being thought of as a fool. In fact, the bigger the potential opportunity, the bigger the fool you can look as a founder, because the biggest potential ideas are ones that no one has thought of yet, that go against the prevailing wisdom. The vast majority of startups will fail miserably, and these founding teams might spend years with no income toiling away for no result. But if the idea works out and becomes a huge success, they receive the lion’s share of the reward. They took the biggest risk, and therefore they share the biggest reward. So let's say we have a startup with four founders: Alice, Bob, Carol and Dave. If we look at the equity pie, the easiest way to start a business is to divide all the shares equally between the four founders, so they each get 25%. Vesting A huge number of complications can occur in early stage businesses. Alice might lose interest in the business and quit after only a few weeks, Bob and Carol might have a fight and one of them walks out, or Dave might not pull his weight and the three others might want to replace him. Well if you just gave the shares out without some sort of agreement to deal with these situations then you might have someone who leaves after a few weeks, doesn't put any effort in, who still keeps their 25% years down the track. That wouldn't be fair on the others, so startups usually put in place an agreement between each other to deal with what happens when something goes wrong. This agreement is called a vesting agreement, and it is designed to deal with all the tricky situations startups get themselves into when something goes wrong. And believe me, with early stage companies a lot of things can go wrong. A typical Silicon Valley-style vesting agreement lasts for four years with what is called a one-year cliff. Under a vesting agreement, instead of automatically being granted all your shares where you can do whatever you like with them straight away, a vesting agreement instead restricts your shares so you are granted them over time, in this case over four years. At time zero, all the shares are unvested, and nobody can do anything with them if they leave the company. With a four-year vesting agreement with a one-year cliff, nothing happens for a year. This is what they call the cliff. If you leave the company before a year, you get nothing. This is fair because if you are meaningfully going to contribute to a company you should be at the company for at least a year. If for some reason you quit or are asked to leave, the company can still continue without an unworkable share structure where all the people left working hard are resentful that a large shareholding is owned by someone who isn't doing any work. On the anniversary of the original grant date, 25% of the shares will vest. At this point you own them and can do whatever you want with them, even if you leave the company for whatever reason – the shares have been earned. After the first year, vesting typically proceeds, so that every month 1/36th of the remaining unvested stock vests. So after two years, 50% of your stock will have vested; three years, 75%; and after four years, your stock is fully vested. Vesting is not just a good idea; it solves a whole bunch of messy problems for when things go wrong. And believe me, a lot of things go wrong in startups! So if you're going to start a company, it's really important you put a vesting agreement in place. So let's look at what happens to the capital structure when investors start to come in. Let's say along the way our startup finds an early stage angel investor who is willing to invest $500,000 for 20% of the company. This means he thinks the company is worth $2.5m after he invests, because his $500k is worth 20%. We call this the post-money valuation of the company, because it is the valuation after the money is invested. The pre-money valuation of the company is the valuation before the money goes in. Since $500k was invested this means that the pre-money valuation of the business was $2 million. Everyone, all four of the founders and the new investor in the company, now owns 20%. Taxation At this stage our company probably wants to start hiring its first employees. It finally has some money in the bank and can afford to pay some salaries, but it's not a lot of money. The market for hiring staff is tough and it’s a very competitive and global market. The company has to compete with very well-funded companies who can offer much more than what our startup can afford, and this is in addition to all the other perks big companies are offering like free food, a great office and free gym membership. Not only that but Silicon Valley is even more desperate for talent, and companies like Google and Facebook are paying even more and have even better perks. On top of all that our startup is very risky and based on statistics, more likely than not is going to fail. So the only way it can attract staff to join such a risky and low paying endeavour is through stock; it’s something that the startup can hand out today, and even though it might not be worth a lot right now, it could be worth a fortune later on if the company is successful down the track. This is why equity is the primary means in which startups attract and retain talent, and this is why it is so important. So our company wants to make its first hire, and given it’s such a risky proposition, the cost in terms of equity will be high, maybe a few percent. As time goes on and the company gains traction, the risk involved with the business will become lower, and as such, the equity compensation decreases. At the same time, the company becomes more and more valuable, so the dollar value of the equity already granted will increase. Typically, an early stage startup might reserve 10% or 15% of its stock in a special pool for employees. So let's carve out this pool in our capital structure; 15% is reserved for the staff, and each of the four founders and investors each end up with 17%. At this point you might think it's all very straight forward. But if only it was! The big problem we've neglected so far is the issue of taxation. While these shares are actually worth real money – we're giving out 15%, and remember our seed investor paid $500k for 17% of the business. So they're worth a little under half a million dollars right now. If you gave out the shares directly as stock grants, that means the staff in total would have to treat those shares as income, and pay income tax on almost half a million dollars in this financial year! Can you see the problem here? You're trying to attract people to join your company by handing out shares because you can't afford to provide a good salary, but by doing so you're burdening them with a huge tax bill! Not just that, but those shares you are handing out won't be worth anything if the company isn't a success. On top of that there's no active market in which they can be sold because it's a private company – a market won't exist until the company goes public or gets bought out in a trade sale. Who in their right mind would want to be given stock then? Stock options Fortunately there's a way in which this problem can be solved, and that's by handing out a stock option rather than the stock directly. An option is a contract which gives the owner the right, but not the obligation, to buy or sell an underlying asset, which might be a share, at a specified strike (or exercise) price on or before a specified date. A stock option is what's known as a derivative, which means that it derives its price from something else, in this case the value of the stock. As the value of the stock goes up, the value of the stock option goes up as well. As the price of the stock goes down, the value of the stock option goes down as well. But for the option to have any value at all, the underlying share must be worth more than the strike price, because this is the amount of money someone has to pay to exercise the option, which grants them the underlying shares. So our payoff diagram looks a little like this: if I buy an option while the stock is trading below the strike price I'm down the purchase price of that option, but once the underlying stock reaches the exercise price, the value of the option steadily rises in a straight line. Once the underlying stock reaches the value of the strike price plus what I paid to purchase it, I'm making money – and my ability to make money is limitless, if the stock keeps rising, I keep making money. This means that by owning an option I share in the upside of the company. If things go really well, I make money as fast as all the shareholders do, but if the stock doesn't rise or it drops then not only do I not make any money but I'm only out of pocket what I paid to buy the option. The reason why giving options to staff works out better than giving out shares is because if I grant options that only provide upside from today then basically the value of that option today is pretty much zero. This means if we hand out options then we don't have a big income tax problem because the value of the options are pretty close to zero. The way this is achieved is by the company setting the exercise price of the option to be the same as the fair market value of the shares as of the date of grant. So if for argument's sake each share is currently worth $1, then the company would set the strike price of those options to also be $1. This means that effectively the options are worth zero today because I would need to pay a dollar to exercise the option into a share which would also be worth $1. The great thing about having the options worth zero is I can give them away to staff without having them receive a big tax bill, because there's no value in the options today. The staff share in the upside success in the company as much per share as shareholders do, but the value of the company has to improve for them to become valuable. This is a great mechanism for attracting new staff – if the company does well, then they do well, but they don't get burdened with a tax bill upfront. However, it's a little more complicated than that. Options actually have two components of value in them. They have what is known as intrinsic value as well as time value. Intrinsic value is the value you would normally think would be in an option – it's the difference between the market value of the underlying share and the strike price of the option. So let's say our share is worth $1 today and the strike or exercise price of the option is also $1. When the stock trades below $1, then the option is also zero. If the stock was worth $2 and the strike price $1 then the option would be worth $1, and if the stock rose to $3 for the same strike price, then the value of the option would be worth $2. Now here's where the complication is – options also have a time value. The time value of an option is the discounted expected value of the difference between the exercise price and the stock price at expiration. In layman's terms, even though the intrinsic value of an option today might be zero, there is a probability that by expiration of the option that the stock might have risen. So even though the intrinsic value might be zero, the value of that option isn't exactly zero, it's instead worth a small amount, which is a reflection of the probability that at some time in the future it might be worth something. It's fairly complicated to calculate the time value of an option. Companies usually use either one of two ways: the binomial method or the Black-Scholes method, although there are other methods, but all the methods use a lot of complicated maths (if you want to know the difference between the two, here's a great video). The main way is the Black-Scholes model. The development of this model by Stanford academics was so fundamental to the creation of modern financial markets that the economists that developed it won a Nobel Prize in Economics for it. The model takes into account something known as the volatility of the stock, which is a statistical measure of the variation of price of the stock over time. The more volatile the stock is, or the more it moves up and down, the higher the time value is of the option. This makes a lot of sense intuitively, because the more it moves up and down the greater than chance it might actually be above the strike price at the time of option expiry. So it's important to remember that even though the company is giving out stock options to staff that has the strike price equal to the market price of the stock, even though the intrinsic value of the option is zero, the time value of the option will still be worth something, and as such the option will have some value which the staff will receive as income and have to pay tax on in the current financial year. So let's now talk about taxation of employee stock and why it's so important to get this right. We know so far that when you're granted either a share, or an option, that you're going to have to pay income tax on the fair market value of that grant in the financial year in which you receive that grant unless the grant is subject to deferred taxation, that is, among other things, subject to vesting conditions. Not all shares in startups are the same Now the first thing to remember is that not all shares in a company are the same. Investors rarely buy common (or ordinary) stock in a company – they buy instead a class of stock known as preferred stock. The stock is called preferred because it comes with a number of special rights and privileges. A common right is something known as senior liquidation preference. Liquidation preference was originally designed to provide downside protection to investors that put hard cash into the business, as opposed to just the hard work that founders and staff put in. We call that hard work "sweat equity", because the equity is paid for in sweat, rather than hard cash. Financial investors in startups like venture capitalists are not just smart, they are in a powerful position; there's a rule in startups called the golden rule – he who has the gold rules. These financial investors invented senior liquidation preference to ensure that if the company goes belly up that in a liquidation scenario that they get their money back before any of the people who earned sweat equity get anything. This is why it is called "senior" in a liquidation. So if a venture capitalist invests $2 million dollars in a company with a 1x liquidation preference, then if the company doesn't go very well and winds up, that the venture capitalist will take the first $2m out of what's left before any of the people with sweat equity see a cent. Now this was originally supposed to only provide downside protection, so that if a company didn't set the world on fire that the investor could get first claim on the assets, but if the company did well that in a distribution of returns in a sale of the business for a lot of money they would have to convert their preferred stock to common (or ordinary) stock and share like everyone else. So in a trade sale there are two options – you either chose to be paid out as a preferred stockholder, who only gets back their money up to the terms of the liquidation preference in the case of a wipeout, or you could convert to common and share with everyone else if the company did well. This is called a non-participating liquidation preference. However, over time, and because of the golden rule, venture capitalists twisted liquidation preference to become participating preferred stock. What this means is that in a sale of the business they got both the liquidation preference and after that they get to share with everyone else. So let's say our venture capitalist invests $2m in a company giving it a $6m pre-money valuation, so that they take 25% of the stock, but their stock is preferred stock with a 1x participating liquidation preference. This means that if the company sells for $8m, they first get their $2m liquidation preference and then they get 25% of the remaining $6m, for a total of $3.5 million! So you can see that even though the venture capitalist owns only 25% of the company, they get almost 50% of the returns in a sale of the business! So you should be able to see right away that the taxation of the common stock on par with the preferred stock in the case of liquidation preference is quite unfair because the returns are not equally distributed between the two classes of stock. It can get much, much worse than this. Sometimes the multiple on the liquidation preference for participating preferred is more than 1x, sometimes it's 2x or 3x, or more. If we go back to our VC's $2m investment in a company at a pre-money valuation of $6m to get 25% of the shares outstanding, that if the multiple is 3x then the VC would get $6m off the top before anyone else got anything. So if the company sells for $8m, then the VC takes $6m and then they share in 25% of the remaining $2m so they end up with $6.5m of the $8m which is over 80% of the returns even though they only had 25% of the shares outstanding. These egregious terms are more common than you think. The US law firm Fenwick & West publishes a quarterly survey on financing terms in venture deals and for example in Q1 of 2013, 23% of senior liquidation preferences were multiple liquidation preferences, and of those 29% were between 2x and 3x and 14% were over 3x. Right before I floated Freelancer.com, one of the term sheets I received from a US late stage venture capitalist had a 3x liquidation preference. To make matters even worse, liquidation preference stacks; later investors will always want at least the multiple that the earlier investors got. So if the company takes in $2m at a $6m pre-money with a 2x liquidation preference, then $5m at a $20m pre-money and finally $50m on a $200m pre-money, all with a 2x multiple, then the total amount of liquidation preference in the company is $114 million dollars. That's right, in a sale of the business, the investors take $114 million right off the top, and if the company sells for less than that, the founder and staff get nothing at all. If it's participating preferred, then on top of this they get to share in the rest. Sometimes there might be a cap on the total amount of liquidation preference that can be received, but in the latest Fenwick & West survey for Q3 2014, 63% of participating liquidation preferences were not capped. Participating preferred liquidation preference, senior multiples and uncapped liquidation preferences are common tricks of the trade that venture capitalists and other financial investors use to bridge valuation gaps between what the valuation that founders place on their business and what investors are willing to pay. Taxation of grants So again you can see it's grossly unfair to tax grants to founders and staff as if the value of the common and preferred stock are the same. The problem is that when your startup is still a private company that there is no active market price for your stock, in fact, the only price you'll typically have is the last price that an investor bought preferred stock at. That's why in the US it is common in the treatment of taxation of common stock to discount the market price of the preferred by 90%. It's illiquid, it's subordinated, there might be a tonne of liquidation preference on top, and I'm not going to even get into all the other rights and privileges that VCs will have as a result of owning preferred stock – including the ability to pretty much fire you at will. Now let's look at how the taxation of grants works with respect to vesting. Let's say for arguments sake that an early employee is granted 200,000 shares which at the beginning of the life of the company, when there is no value in it, are worth 1 cent per share. Let's say these shares vest with our standard Silicon Valley-style vesting agreement, which is over four years with a one-year cliff. On the one-year anniversary of the grant, 25% or 50,000 shares vest, and after that each month, 1/36th of the remaining or 4,166 shares vest until the four years are up and the grant is fully vested. Let's say that after the first round of investment in the company, or the Series A, happens sometime in the first year and that the shares are now worth 20 cents each. On the one-year anniversary 50,000 shares vest which is worth $10,000 at 20 cents a share. On that date, the early employee would have to pay income tax on $10,000 in that financial year. Let's say the company then goes through another round of funding and the shares are now worth $1 each. Each and every month now, the employee would have additional income of $4166 that they would have to pay tax on – and there are 12 taxable events in that financial year! Let's say the company does really well and the shares end up being worth $20 each – that would be 12 taxable events per year on income of $83,320 each! Granting options where the strike price of the option is equal to the fair market value of the stock at the time of grant might be slightly better, but remember that the value of this option will never be zero due to the time value of the option. If the company does really well, this rapidly becomes a nightmare from a taxation standpoint! If the company is still privately held, the staff member might not be able to sell any stock to cover their tax bill because there is no active market for the shares. The company might not even be generating any revenue – just think of how Snapchat is valued at over $10 billion and not making any money yet. 26 U.S.C. § 83(b) In the US, luckily the IRS has realised the problem of vesting of employee stock, and has created a special exemption called an 83(b) election. 83(b) allows founders and employees to decide at the start of your vesting agreement to be taxed for the entire amount that will eventually vest at the present value. Rather than paying tax each year then, you pay all the tax up front based on the value of the stock or options as and when it is granted to you. The two important conditions of 83(b) is that the stock or options granted to you need to be at risk, that is to say be subject to a vesting agreement, and that you have to file a 83(b) election within 30 days of receiving the grant. If we go back to our example of the early employee receiving 200,000 shares at 1 cent each under a standard Silicon Valley vesting agreement, then under 83(b) the employee could just elect to pay income tax on the total value at the start, which is $2,000. This is significantly better than the nightmare scenario I talked about before, when you have to pay tax as and when each share vests. Of course, if the company ends up being valuable, the employee will still pay capital gains tax when they sell the shares down the track on the difference between what the stock is worth then and now. If they've held for more than a year they'll pay long term capital gains rather than short term, which is a bonus. At the end of the day, the tax department still gets their tax, it just gets their tax when the stock has crystallised real value and the employee can actually sell the stock to pay for the tax bill. Click here to read part two. This story originally appeared on SmartCompany.
Prepare to open your wallets, ladies and gentlemen: Microsoft has announced the release of an augmented reality (AR) headset called HoloLens. Although having been announced only a fortnight ago, tech media are already dreaming feverishly of the potential applications for such a device. Meanwhile, Microsoft’s own press images seem to promise a benign utopia replete with living room Minecraft games and attractive, tech-savvy white people. It might look rather like an excitingly chunky pair of wrap-around sunglasses, but Microsoft promises that it is entirely self-contained, with speakers, lens and CPU housed entirely within the chassis. Being substantially smaller than the Oculus Rift, and intended to be less invasive than Google’s much-maligned Glass, HoloLens provides perhaps the most credible attempt to introduce augmented reality into our homes. What is augmented reality anyway? Even though HoloLens is new, the idea of augmented reality is certainly not. First proposed by L. Frank Baum (author of the Wizard of Oz) in his 1901 novel The Master Key, AR has a long and illustrious history, at least in theory. But what is it, exactly? Augmented reality is a form of “mediated perception”: an AR device overlays a virtual world on the real one. It does this by taking a live video feed of the external world and then supplementing it with computer-generated sensory input. In this sense, it is unlike virtual reality, which entirely replaces the external world with a virtual one. Instead, AR embellishes the real world to make it more fun, clear or informative. Already there is a huge number of AR apps, most of which have been built for mobile devices. One such is Layar, which synchronises camera input with data from Google Maps in order to let you see the world with the digital marginalia built in. Meanwhile, games like Ingress enable smartphone users to win points and compete with other players by “hacking” with virtual nodes that are attached to real-world landmarks. In order to hack the node, they need to actually stand near the landmark, giving it a distinctly physical dimension. Some of these AR programs are genuinely remarkable, and carry with them the seeds of a changing paradigm. The new version of Google Translate, for example, can perform real-time spoken-word translation, as well as translating written words almost instantaneously. The Babel fish from The Hitchhiker’s Guide to the Galaxy gets one step closer. However, HoloLens provides you with something a little different. Unlike mobile phone apps and Google Glass, the sensory overlays provided by HoloLens are interactable digital objects. They don’t merely provide parenthetical or additional information about things in the world; instead, those objects serve to further populate the world around us. The futures of where we live and work If you’re interested in Microsoft’s vision of a future filled with digital objects then check out its publicity video: the promises may seem overwhelming (one might even say “unbelieveable”). According to Microsoft, with a liberal application of augmented reality, the home and office become deeply and richly interactive in a way that has been hitherto impossible. Objects are designed and tested on the fly. A single pinched finger or flicked wrist enlarges or crumples or dismisses instantly and organically. Meanwhile, entire classes of consumer items are rendered completely redundant, collapsed into HoloLens and products like it. If Microsoft realises the future it proposes, AR products will see televisions, gaming systems, music players, desktop computers and even cosmetic objects like wall art and decorative carpets consigned to the dustbin of history. We will no longer have a need for these physical objects; instead, they will be projected into our field of perception as strictly digital entities. To be clear: this is not a prediction on my part. Far be it from me to make predictions about the purchasing habits of other people (I can barely keep track of my own). This, however, appears to be Microsoft’s vision. Although varnished into a high gloss, what is perhaps most telling about its vision of the future is not what isnew, but more what is missing. Televisions, gaming consoles, paintings: these objects have no place in Microsoft’s future. The future of consumption If this outcome is realised, it seems obvious to expect radical shifts in manufacturing and other secondary industries. Already there have been murmurs of concern and excitement about the possible economic ramifications of cheap 3D printing, particularly with regards to what it means for the manufacture of simple items. If Microsoft is successful in killing off the television and other media apparatuses, we may well also see manufacturing shrink from the other end. If the HoloLens and products like it do supplant other consumer electronics, we will be witness to the slow, awful collapse of what is currently a highly speciated consumer landscape into a homogeneous field of kooky-looking headsets. However, even as manufacturing will be forced to grapple with greater decentralisation and greater automation, not to mention potential market erosion at both the top and bottom ends of the sector, those who create, market and sell entertainment content will almost certainly find AR technologies an enormous boon. Marketers and content producers will have a window into our habits and tastes, sharing material funded by consumer commitment to almost-negligible microtransactions. Meanwhile, consumers will almost certainly fight back. Already a great many web browsers come installed with native ad and pop-up blockers. Moreover, having tired of product placement in movies and the indignity of “advertorials” in magazines, several designers and developers are working on products that block ads in the real world. It seems fair to expect that this presages a subtle, extremely sophisticated arms race between those who consume content and those who produce it. The sky is not falling These developments might sound like the first stages of a miserable Gibsonian future, but there’s no need to panic just yet. Indeed, there’s plenty of reason to think that the widespread uptake of AR technologies will, on the whole, make life easier. However, just like the internet dramatically changed the way business is conducted (such as the slow demise of brick-and-mortar bookstores), it seems reasonable to expect that the spread of AR technologies will introduce its own difficulties. But we should not take our own predictions too seriously. After all, we’ve been privy to these kinds of statements before. People who visited Norman Bel Geddes' Futurama exhibit at the New York World’s Fair in 1939 were awarded a souvenir pin upon departure: “I have seen the future”. Now, with the benefit of hindsight, we can look back upon this claim, along with some of the more outlandish predictions made by our forebears (flying cars, robot servants, Jetsonian spaceflight, post-scarcity economics) with an indulgent smirk: chrome, finned cars and bakelite have swung seamlessly into fashionably kitsch; ill-fated relics of a future that never was. There is, of course, a lesson here. In our own era of social networking, genetically modified foodstuffs and tawdry capitalism, it behoves us to be a little cynical about the promises and drawbacks of an augmented reality, in much the same way that we mock the promises of the Atomic Era. Of course, I’d be lying if I said I weren’t excited. I am, and very much. There’s too much of the techno-utopian in me not to feel a subtle thrill that the future we’ve been promised is finally arriving. But nonetheless, I worry, and I reserve judgement. Not very much, granted, and not very loudly, but amid the excitement there is a subtle sense of disquiet, and the sly hint of a disdainful sneer. Follow StartupSmart on Facebook, Twitter, and LinkedIn. This article was originally published on The Conversation. Read the original article.