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“We are in the middle of a $600 billion disruption, but hardly anyone has noticed. The once-staid world of enterprise computing is in silent convulsions, with incumbent giants being assaulted by startups that are building from scratch for a new era in which the cloud, mobile, and on-demand software will dominate. Hot companies such as Dropbox, Asana, and Atlassian will ascend to the throne, while the corpses of the old rulers – Microsoft, Oracle, SAP – will lie rotting in the gutter. The Great Replacement is beginning.”

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- Hamish McKenzie, The Great Replacement: Microsoft, Yammer, and a New World in Enterprise Computing via PandoDaily

One of the hot companies at TechCrunch Disrupt in New York this week was the real-time people-powered translation service Babelverse. Quite often, though, Google Translate-style machine translation is good enough and there is clearly a huge market for all kinds of translation services. SayHi Translate, a $0.99 iOS app that focuses on machine translation, just announced that it has now translated over 10 million phrases since its launch just four weeks ago. To celebrate this milestone, SayHi is releasing version 2.0 of its app today, which features a redesigned and easier to use interface, as well as new controls over how its spoken translations sound.

SayHi Translate speaks 24 languages and dialects, including English, Spanish, French, German, Mandarin and Russian. The app can translate between all of these. One of the nicest features of the services is that it uses a Nuance-powered voice recognition engine. Thanks to this, you and the person you are talking to don’t have to write text into the app, which makes for a significantly more natural interaction if you are trying to get directions in a foreign city, for example.

With today’s update, the app now features an improved user interface and it also gives its users more control over how spoken translations sound. You can now also choose between male and female voices and adjust the speed of the spoken translations.

SayHi Translate’s CEO Lee Bossio tells me that the service uses a blend of “translation magic” on the backend, meaning that it using its own engine as well as a number of third-party services.

In my tests, the translations were surprisingly fast and accurate. Like most of these services, it works better with short sentences, but it also did a pretty good job with longer and more complex sentences as well.

Before launching SayHi Translate, the company focused on providing a similar service to enterprise customers in corporations, hospitals and government organizations. Since March, however, the company has focused on its consumer app and given that it’s been used over 10 million times now, this strategy is clearly paying off.

I’ve heard quite a few people describe the first time they use Expensify as almost unnervingly impressive. Compared to what most of us are used to, Expensify’s super slick web and mobile apps make it seem almost too easy to file expense reports. Where before maybe you were very likely to just personally swallow the cost of a few work-related lunches and taxi rides per month to avoid the time-consuming expense filing process, it quickly becomes ridiculously simple to send them right along to your employer with the click of a button.

But even with that already solid user experience, it seems that Expensify is not done with its mission of making “expense reports that don’t suck” quite yet. Today, the San Francisco-based startup will launch new features aimed at making the whole process even easier. Expensify has updated its entire suite of mobile apps with a new feature called “Trips,” which lets people file work-related travel expenses and itineraries with Expensify as they book their trips.

This lets people keep all their work travel expenses — from pre-ordered things such as flights and hotels, to on-the-spot things such as taxis and meals — in one place, organized by trip. Once the trip is done, a user can send the full itinerary off for employer reimbursement from his or her mobile device with one click.

The Overall State Of Expensify

On the whole, Expensify’s founder and CEO David Barrett tells me that the company’s growth has been quite strong since the product first launched to the public several years ago. It now has 950,000 users across 140,000 companies, and is processing $2 million in expense reports each day. The company, which counts hot companies such as Square, Evernote and Uber among its customers, expects to become profitable by the end of 2012.

At four years old, backed with a relatively modest $6.7 million in outside funding (much of which Barrett says is still in the bank), and 17 full-time employees, Expensify seems to punch above its weight in a lot of ways.

So we were pleased to sit down with Barrett at TechCrunch TV to get the rundown in person on Expensify’s growth thus far and its plans for the future. Watch the video embedded above to hear about the new mobile updates, why Expensify prefers to hire engineers that are generalists instead of specialists, why starting Expensify in a relative state of ignorance ended up leading to the company’s current bliss, and more.

Randi Zuckerberg is one of the biggest names connected to Silicon Valley, a Bravo reality show centering around the technology startups and movers and shakers in and around the San Francisco Bay Area.

And last night, Ms. Zuckerberg took to the web to defend her involvement in the series and explain why she thinks the show is a good idea.

The concept and the stars of the show have been roundly criticized in recent days by many members of the tech community, from bloggers to ego-driven entrepreneurs — and a lot of that criticism smacks of jealousy or just plain snobbery, with tech insiders giving Bravo, Zuckerberg, et al. the “how dare they” treatment for “selling out” or not including big enough names.

“I completely understand that there will be skepticism and detractors,” Zuckerberg wrote in a Facebook post Friday evening. “But I think this show comes at an important time.”

Zuckerberg herself was deeply involved in some of Facebook’s most formative years, particularly as it moved from a youth-dominated social network to its current position as one of the most powerful tech companies on the planet. Due to her familial connection to the company (Randi is Facebook founder Mark Zuckerberg’s sister), she says she has “[struggled] to have people view my successes as my own.”

As a result, she wrote, “I respect that the people cast in this show are all trying to make something of themselves. Some are newcomers to Silicon Valley. Some were anonymous cogs within bigger companies who chose to leave and create their own path. While you may not know them yet and while they may not be involved with Pinterest, AirBnB, Dropbox, Square or one of the other hot companies of the moment, it certainly doesn’t make their journey any less authentic or worth following.”

So much for criticisms about the star caliber of the series’ main characters, including The Next Web video guru Hermione Way, former Googler David Murray, and a handful of startup founders.

Zuckerberg also addresses the “sellout” criticism, writing, “Given the current economic climate, I think it’s really positive that mainstream media is celebrating the entrepreneurial spirit and portraying people who pursue innovation and startups as being aspirational for the general public.”

Zuckerberg is acting as executive producer for Silicon Valley, and she describes her position as an advisory role.

Filed under: media

Habits Are The New Viral: Why Startups Must Be Behavior Experts – Nir Eyal via TechCrunch:

Eyal makes a good argument: that virality — users inviting their friends to try an app — is less important (and more annoying) than habitual use of apps: habit is the new viral.

Nir Eyal via TechCrunch

The Curated Web Will Run On Habits

Increasingly, companies will become experts at designing user habits. Curated Web companies already rely on these methods. This new breed of company, defined by the ability to help users find only the content they care about, includes such white-hot companies as Pinterest and Tumblr. These companies have habit formation embedded in their DNA. This is because data collection is at the heart of any Curated Web business and to succeed, they must predict what users will think is most personally relevant.

Curated Web companies can only improve if users tell their systems what they want to see more of. If users use the service sparingly, it is less valuable than if they use it habitually. The more the user engages with a Curated Web company, the more data the company has to tailor and improve the user’s experience. This self-improving feedback loop has the potential to be more useful – and more addictive — than anything we’ve seen before.

However, I think Eyal’s characterization — helping users ‘find only the content they care about’ — is too limited. Steve Jobs said the users don’t know what they want, so by extension, they don’t know what they care about.

Getting back to Eyal’s habituation remark, these new tools will have to meld into the user’s existing behaviors and amplify them in some adjacent way.

For example, I’ve started to experiment with the user of Timely.is instead of Bitly as a way to publish Tweets. It ‘fits the hand’ in the sense that it works much like Bitly: a bookmarklet in the browser that creates an editable tweet with a shortened URL back to the source. Like Bitly, it provides stats on clickthroughs, but adds one additional feature: the ability to queue tweets and have them post over time.

So, I am able to develop a new Timely habit because it is similar to my habituated use of Bitly, but adding an additional capability. And there is a viral vestige: the promotion of Timely in the footer of the tweets.

As our DEMO world tour rolls on, we continue to add more stops along the way.  Next up is Chicago where we’ll be on February 27.

We know Chicago has turned into a hive of startup talent, so it seemed like the logical place to go to meet up-and-coming innovators. This will be our first time out that way, so if you’re building the next big tech company in Chicago, we want to meet with you.

While in town, we’ll be partnering up with Tom Hawes and Millie Tadewaldt of Sandbox Industries, the new Chicago-based incubator and investment firm.

Like us, Sandbox wants to see the best new companies the city has to offer, so if you’re interested in meeting with Tom, Millie, and me (I’m with VentureBeat and DEMO), please fill out this form, and we’ll be in touch with more details shortly.

We’ve been traveling the globe for the past few months and meeting with as many entrepreneurs as possible along the way, all in preparation for the upcoming DEMO conference in April. Last week, we visited Boulder and Palo Alto, and soon we’ll be making trips to Boston, Austin, Detroit, and LA. DEMO’s Executive Producer, Matt Marshall, will actually be off in Singapore while I’m exploring the Midwest. More information on all of those trips is soon to come.

We’re looking forward to seeing you in Chicago on the 27th!

Tom Hawes

Millie Tadewaldt

Filed under: DEMO, VentureBeat

In today’s funding environment, hot companies are gaining the upper hand in negotiating deal terms that would have been unheard of a few years ago. One such term we’ve seen recently in venture deals is partial liquidity to founders.

Many investors have come to recognize the benefit of reducing founders’ personal finance pressures before the “big exit” to free them up to focus on building bigger and better companies over the long-term.

Interim founder liquidity is achieved in two primary ways (usually in conjunction with a preferred stock financing):

Founder Share Redemption: Redemption of a portion of a founder’s shares by the company, using proceeds from the preferred stock investment to fund the redemption.

Direct Sale: Direct sale of a portion of the founder’s shares to investors as part of the preferred equity round.

Founder share redemption

In a founder share redemption, investors invest more money in the company than is needed to fund operations. The additional cash is used to buy back a portion of the founder’s shares, typically at a negotiated premium to the current price of the common stock. Here are some issues to consider with this approach.

Corporate governance: For a company to lawfully redeem shares, it must first comply with corporate laws concerning shareholder distributions. State laws have specific restrictions relating to corporate solvency, corporate waste and other fiduciary issues. Boards of directors often determine that companies’ interests are well-served by retaining founders though a liquidity incentive, but boards should always consider these issues carefully.

Anti-dilutive effects: When a company repurchases founder shares, the total number of outstanding shares decreases, leaving existing shareholders with a marginally larger ownership percentage in the company.

Tax reporting: Founders and the company must take a tax reporting position with respect to the share redemption. Depending on the redemption price, there may be a discrepancy between the fair market value (FMV) of the shares as determined for option granting purposes (discussed below) and the redemption price. In some share redemptions, any proceeds above the then-current FMV of the common stock are treated as compensation and taxed at ordinary income rates. Other times, the premium paid for the founder shares is treated as capital gains, recognizing that this approach may have more of an impact on the company’s common stock valuation after the redemption. Founders should consult with their own tax advisors prior to the redemption to ensure appropriate tax reporting.

Direct Sale

In a direct sale, investors agree to purchase a portion of a founder’s shares directly from the founder in addition to purchasing preferred stock from the company. Investors typically disfavor this method because they end up holding common stock, which lacks preferential rights. However, for companies with leverage to dictate structure, buying common stock may be the only way for the investor to acquire more equity. Here are the issues to consider with a direct sale.

Waivers and consents: If a company has previously taken in venture capital, its financing documents will typically require consent or waiver from shareholders with rights of first refusal and co-sale.

Fewer governance issues: Since a direct sale occurs directly between the investors and the founder, the company bypasses governance issues concerning insolvency, corporate waste and other fiduciary concerns.

Tax reporting: Generally, the same tax issues mentioned above apply.

Option pricing

Companies and investors often struggle with how to price shares in a founder liquidity transaction. While this exercise is more art than science, we’ve seen investors apply a 10 to 25 percent discount to the preferred stock price, which usually results in a much higher price than the current option strike price. Companies won’t want to peg their option FMV to the price at which founder stock was purchased, since the high price could “blow” option pricing and create challenges incentivizing employees.

One way to mitigate this impact is to characterize a portion of the amount paid to the founders as “compensation” income. However, founders may find this approach undesirable. To address this, we’ve seen companies obtain an appraisal of their common stock by an independent valuation firm immediately after the transactions that takes into account the founder liquidity event but does not rely solely on that price for valuation purposes.

Valuation firms often view the founder liquidation event as a “one-off” transaction where the company (or the investor) agreed to pay a premium for the founder shares. The valuation analysis may also distinguish the event if the founder sold a controlling stake. These arguments, while prevalent, are not immune to challenge by the IRS.

How much founder liquidity?

Typically between $500,000 to $2,500,000 depending on the size of the financing, how long the company has been in existence and its growth trajectory. The liquidity should be just enough to alleviate founders’ financial pressures but not enough to de-motivate them.

More founders, more problems

While it is customary to see interim liquidity reserved for a small number of core founders, companies may be tempted to expand the group to share the wealth. U.S. securities laws — specifically the tender offer rules — come into play when the founder group grows beyond a handful of people and may trigger a host of unanticipated timing and disclosure compliance requirements.

Companies and founders are well-advised to engage skilled legal counsel to help them navigate the pros, cons and other considerations of founder liquidity transactions.

Caine Moss is a partner at Goodwin Procter LLP where he specializes in representing technology companies and handles venture capital financing, M+A and public offering transactions. Alon Rotem, an associate at Goodwin Procter, assisted in drafting this article.

[Image via Christos Georghiou/Shutterstock]

Filed under: Entrepreneur Corner, VentureBeat