NetEqualizer News: August 2016


We hope you enjoy this month’s NetEqualizer Newsletter. Highlights include Release 8.4 feedback, a preview of our new Quick Start Guide, an update on our 20 Gbps unit, and DDoS news.

 

August 2016

 

Release 8.4 feedback, and more!
Greetings! Enjoy another issue of NetEqualizer News.

art photo for NL

As the end of summer nears, here at APconnections we are basking in the glow of our latest 8.4 software release. Since our last newsletter, which announced that our 8.4 Release was generally available, we have been fully focused on deploying it. Our updated 8.4 GUI has been well-received, as you can read about in this month’s newsletter.

Also this month, we officially release our latest Quick Start Guide, updated for 8.4. Stay tuned for more to come on 8.4 documentation in next month’s newsletter.

Never one to rest on our laurels, we are now focused on the future – and this month you can read about our push for 20Gbps shapers. We also are enhancing our DDoS Firewall offering, to continue to bring you state-of-the-art protection.

We continue to work with you to solve some of your most pressing network problems – so if you have one that you would like to discuss with us, please call or email me anytime at 303.997.1300 x103 or art@apconnections.net.

And remember we are now on Twitter. You can follow us @NetEqualizer.

– Art Reisman (CTO)

In this Issue:

:: Release 8.4 Feedback

:: Release 8.4 Quick Start Guide

:: Is a 20Gbps NetEqualizer in Your Future?

:: More DDoS News

:: Best of Blog: Bandwidth Shaping Shake Up

Release 8.4 Feedback

Release 8.4 has been a hit!

Release 8.4 has been well received! We have had a good number of compliments so far on the new interface. Here is a sampling…


Thanks for chiming in early on holiday Sunday. We do know we can count on you guys! The new interface looks fantastic. Easy access to often used information. It’s clean, neat and modern. Well done!

Your instructions were great! The upgrade is complete… very smooth!

Still haven’t taken the time to thank you for the wonderful GUI upgrade – BIG IMPROVEMENT, THANK YOU!

The new release offers a complete overhaul of the previous user interface and enhances all of our setup and reporting screens. Here are just a few of the improvements we’ve made:

1) Bulk editing of your configuration. You can now make any number of changes to the configuration with one save!

mpxGG3D

2) New dashboard interface. The Release 8.4 dashboard offers a new real-time report, information about your NetEqualizer and running processes, as well as quick links to setup, reporting, and maintenance screens. 

78942211-3c78-4d37-9836-05ecb982e1f7

3) Perform quick edits without restarting Equalizing. If you just need to make a minor change, you can do so without impacting your busy network!

8.4 perform_quick_edits

Contact us today to update your NetEqualizer to Release 8.4! We also love hearing feedback from those of you who have been using Release 8.4!

As with all software releases, the 8.4 Release will be free to all customers with valid NetEqualizer Software and Support (NSS).

Release 8.4 Quick Start Guide

 Our new Quick Start Guide is here!

We are excited to announce that our Quick Start Guide has been updated to incorporate our recent 8.4 Release! Screenshot at Aug 22 14-27-51

This short guide contains 4 key sections to help you to set up & configure your NetEqualizer:

Step #1) Cabling the NetEqualizer into your Network
Step #2) Configuring the NetEqualizer
Step #3) Setting up Equalizing
Step #4) Validating & Backing up your Configuration

We also include three appendices, to further help with your setup:

Appendix #1) Viewing your Traffic
Appendix #2) Troubleshooting your Setup
Appendix #3) Syncing NetEqualizer to a Time Server

While used mainly to set up new equipment, this is a good reference if you want to revisit your settings. In addition, if you have not started using Real-Time Reporting (RTR), use Appendix #1 to get started.

We also recommend that you take a look at this to set your date/time and time zone (see Step #2), as well as to sync your NetEqualizer to a Time Server (see Appendix #3).

Stay tuned to our newsletter for updates on all of our 8.4 documentation releases!

Is a 20Gbps NetEqualizer in Your Future?

More Breaking News!

One of the advantages of the NetEqualizer and our underlying technology is that we do our shaping based on heuristics that can be collected quickly without requiring massive amounts of CPU resources. Traditional packet shaping technology that relies on heavy packet inspection cannot keep up with speeds over 5 Gbps without a complex set of parallel processors, which tend to drive product costs out of practical reach.

Hot on the heals of our Release 8.4, we are turning our attention toward a new class of bandwidth shaping solutions capable of handling 20 Gbps of throughput – while keeping the price tag well below anything else on the market. We will have more details in the coming months as we continue our in-house testing. Look for a formal announcement this fall, and feel free to contact us for more details before then!

airportMore DDoS News

Exciting enhancements to our DDoS Product!

More news on the DDOS front. We will be making some enhancements to our DDOS firewall this fall! Specifically, we will be adding a new feature to block/warn on external IP’s based on their total number of incoming connections. Currently our DDOS warning system triggers on the rate of data coming in from unknown external entities, however we do not have a total concurrent connection count alert specific to outside IP addresses. Stay tuned for more details in the coming weeks, and please email us your ideas for additional DDoS protection as you encounter any suspected issues on your network.
Best Of Blog

Bandwidth Shaping Shake Up

By Art Reisman
 
If you went to sleep in 2005 and woke up 10 years later you would likely be surprised by some dramatic changes in technology.
Smart cars that drive themselves are almost a reality
The desktop PC is no longer a consumer product
Wind farms now line the highways of rural America
Layer 7 shaping technology is now clinging to life, crashing the financials of several companies that bet the house on it
What happened to layer 7?

Photo of the Month
 

SANYO DIGITAL CAMERA

Remember those great roadside attractions?
This cheesy roadside attraction near Oakley Kansas off I-70 has come to end. I drove by it this summer and noticed the signage was down. The elderly operator had mentioned a few years ago that “times were not what they used to be” in the heyday of the 70’s. People were just not stopping anymore. Not only did it feature the world’s largest prairie dog as depicted in the photo, they also had a five-legged cow, a rattle snake pit, and a variety of North American animals in small cages. Although I felt bad for the animals and did not like to see them cooped up like that, I’ll miss the nostalgic charm of an era gone by.
APconnections, home of the NetEqualizer | (303) 997-1300 | Email | Website 

China Where Citizens Get around Internet Censorship


Screen Shot 2016-04-05 at 10.07.59 AM

By Art Reisman
CTO http://www.netequalizer.com

 

 

Over the years I have written a few articles on the perils of investing in deep packet inspection, and its coming obsolescence . One of my main points has been that, tech savvy users in the US, can by-pass attempts to identify their traffic using encryption, thus reducing deep packet inspection firewalls into semi comatose paper weights.

Sources  for my blog articles came mostly from talking to hundreds of customers based in the US.  I  have had scant information on China. My understanding of Chinese bandwidth shaping  comes mostly from what I read in the papers. I have read about government sponsored censorship plus,  a few of my US ex-pat customers in China have told me  that there are many Websites where they have been blocked .  They  also have to be careful about what they say on-line.  I really had no idea if the average Chinese citizen resisted  Internet censorship.

 

That was until a chance meeting last week.

On a plane flight from Denver to Charlotte,  I had the privilege to sit next to a recent Chinese College Graduate who is currently teaching Chinese at a school here in the US. She was not a techie by any means , but obviously familiar with all the electronic social media tools that we use in the US. I asked her if there was any problem with Internet censorship when she was in china, and before I could finish my sentence, she shrugged and half scolded me for being so western stupid. “ We have very easy way to by-pass the censorship, we use the …. she stammered trying to come up with the English word… “ and then I finished her sentence . “ You mean the VPN”, and then I showed her the VPN icon on my computer and she said “yes yes everybody does this.”

Wow what a windfall of a data point, she obviously had no idea I had been preaching  that layer 7 was dead because VPNs cannot be easily cracked.

Even though this was just one data point and one person, I think I can infer that the use of VPN tunneling is probably wide spread to avert China’s censorship. Another nail in the coffin of Deep Packet Inspection technology.

Bandwidth Shaping Shake Up


If you went to sleep in 2005 and woke up 10 years later you would likely be surprised by some dramatic changes in technology.

  • Smart cars that drive themselves are almost a reality
  • The desktop PC is no longer a consumer product
  • Wind farms  now line the highways of rural America
  • Layer 7 shaping technology is now clinging to life, crashing the financials of a several  companies that bet the house on it.

What happened to layer 7?

In the early 2000’s all the rave in traffic classification was the ability to put different types of bandwidth traffic into labeled buckets and assign a priority to them. Akin to rating your food choices  on a tapas menu ,network administrators  enjoyed an extensive  list of various traffic. Youtube, Citrix,  news feeds, the list was only limited by the price and quality of the bandwidth shaper. The more expensive the traffic shaper , the more choices you had.

Starting in 2005 and continuing to this day,  several forces started to work against the layer 7 paradigm.

  • The price of bulk bandwidth went into a free fall, much faster than the relatively fixed cost of a bandwidth shaper.  The business proposition of buying a bandwidth shaper to conserve bandwidth utilization became much tighter. Some companies that were riding high saw their stock prices collapse.
  • Internet traffic became invisible and impossible to identify with the advent of encryption techniques. A traffic classifier using Layer 7,  cannot see inside HTTPS or a VPN tunnel, and thus it is essentially becomes a big expensive albatross with little value as the rate of encrypted traffic increases.
  • The FCC ruling toward Net Neutrality further put a damper on a portion of the Layer 7 market. For years ISPs had been using Layer 7 technology to give preferential treatment to different types of traffic.
  • Cloud based services are using less complex  architectures. Companies  can consolidate on one simplified central bandwidth shaper, where as before they might have had several on all their various WAN links and Network segments

So where does this leave the bandwidth shaping market?

There is still some demand for layer 7 type shapers, particular in countries like China, where they attempt to control   everything.  However in Europe and in the US , the trend is to more basic controls that do not violate the FCC rule, cost less, and use some form intelligent based fairness rules such as:

  • Quota’s ,  your cell phone data plan.
  • Fairness based heuristics is gaining momentum, lower price point, prevents congestion without violating FCC ruling  (  Equalizing).
  • Basic Rate limits,  your wired ISP 20 megabit plan, often implemented on a basic router and not a specialized shaping device.
  • No Shaping at all,  pipes are so large there is no need to ration bandwidth.

Will Shaping be around in 10 years?

Yes, consumers and businesses will always find ways to use all their bandwidth and more.

Will price points for bandwidth continue to drop ?

I am going to go against the grain here, and say bandwidth prices will flatten out in the near future.  Prices  over the last decade slid for several reasons which are no longer in play.

The biggest driver in price drops was the wide acceptance of wave division muliplexing on carrier lines in the 2005- present time frame. There was already a good bit of fiber in the ground but the WDM innovation caused a huge jump in capacity, with very little additional cost to providers.

The other factor was a major world-wide recession, where businesses where demand was slack.

Lastly there are no new large carriers coming on line. Competition and price wars will ease up as suppliers try to increase profits.

 

 

NetEqualizer News: June 2016


We hope you enjoy this month’s NetEqualizer Newsletter.  Highlights include our Release 8.4, an update on the ASCUE conference, a note about a possible 20Gbps NetEqualizer, and also a testimonial from one of our airport customers.

June 2016

Release 8.4 is here!
Greetings! Enjoy another issue of NetEqualizer News.

art photo for NL

Wow! It has been hot here in Denver the past few weeks. We went from May snow, to temperatures over 100 in just over 30 days. I prefer the snow, as I am not much of a hot weather person.

Speaking of heat, the pressure has been on us to get our 8.4 Release out this month. Breaking news – just in, the test team has just sent me a note that we are are ready for delivery on 8.4!

If you have feedback, ideas, or questions for me, please email me anytime at art@apconnections.net.

And remember we are now on Twitter. You can follow us @NetEqualizer.

– Art Reisman (CTO)

In this Issue:

:: NetEqualizer Release 8.4 Is Here!

:: ASCUE Update

:: Is a 20Gbps NetEqualizer in Our Future?

:: NetEqualizer at the Airport

:: Best of Blog: Virtual Internet Presence in the Netherlands Thwarts TV Blackout

NetEqualizer Release 8.4 Is Here!

8.4 is now Generally Available

We are excited to announce that Release 8.4 is now Generally Available! You can read all the details on Software Update 8.4 in our 8.4 Release Notes. And for those of you that have not heard already, here are the key updates to look forward to in 8.4:

#1) Graphical User Interface (GUI) Redesign

8.4 introduces a complete GUI redesign, finishing the GUI transition that we started with our 7.1 Real-Time Reporting (RTR) offering. Our new GUI is easier to navigate and more intuitive. Our logical groupings, such as Setup and RTR, make it easier than ever to find what you need. We now also enable you to select the units that you want to see for your entire GUI via Preferences. And now the GUI includes error checking to look for common data validation errors such as properly formed IP addresses and valid positive integers where required.  Additionally, we have expanded our warning and error messaging, to help ensure that your configuration is valid.

#2) The Updated NetEqualizer Dashboard 

The new NetEqualizer Dashboard gives you a quick view into the state of your NetEqualizer and your network, while providing access to all the key features of your NetEqualizer. From here you access our four core areas:
  • Setup – Use this to configure your NetEqualizer
  • RTR – Use this to monitor network connections and report traffic history
  • DDoS – Use this to view possible DDoS attacks
  • Maintenance – Use to view documentation and troubleshoot your NetEqualizer.

You can also utilize shortcuts to four Common Tasks (Start/Stop Equalizing, Show Configuration, View Active Connections, and Run Diagnostics). On our new Dashboard, all icons are clickable, so that you can drill into each area to view more details and edit as needed. We also think that you will enjoy seeing your current network traffic right on the dashboard via our new ticker tape type live monitor.

#3) Batch Configuration!

You now will have the ability to add, delete, and most importantly, modify, all of your Traffic Limits in a spreadsheet-type format from the GUI using Manage Traffic Limits.  This capability is a great feature to have in place when you are initially setting up your NetEqualizer, and also allows you to modify rules as your network changes. Manage Traffic Limits includes defining Hard Limits, Pools and VLAN Limits (Shared Limits), Masked Hosts, and User Quotas.

We also offer batch configuration for your P2P Limits (via Connection Limits) and Priority Traffic.
During batch configuration, we highlight all field changes to help you identify unsaved changes, and also include data validation error checking against your fields.
Please note: Batch Configuration changes require a full Equalizing Restart in order for your changes to take effect.  

#4) Perform Quick Edits

While batch mode can help you to initially configure your NetEqualizer and also support network changes, we also wanted to maintain your ability to make quick changes on the fly without bringing down your NetEqualizer process. Perform Quick Edits enables you to do just that. We have kept the ability for you to delete and add Individual Rules across all areas (Hard Limits, By Pool, By VLAN, Masked Hosts, User Quotas, P2P Traffic, and Priority Traffic), without needing to stop and restart Equalizing.

Please note: Perform Quick Edits do NOT require a full Equalizing Restart, as changes take effect upon saving.  For this reason, Perform Quick Edits does not include rule modifications – for that you use Manage Traffic Limits, Limit P2P Traffic, and Manage Priority Traffic.

8.4 perform_quick_edits

#5) Usability Enhancements

In addition to all the other great features in 8.4, we have added or enhanced the following:

  • You can now set the Date and Time, as well as the Time Zone, via the NetEqualizer GUI.
  • Run Diagnostics now offers the ability to save the generated data as a .txt file, that you can download and email to Support.
  • We have removed the information-only penalty threshold from the NetEqualizer Log, as it was confusing.
  • We have changed the Default Penalty Unit to 1, which works better with video traffic.
  • We have added DNS name resolution to all tabular reports in RTR via DHCP.
  • We have added Password Verification to the GUI.

Contact us today to update your NetEqualizer to Release 8.4!
As with all software releases, the 8.4 Release will be free to all customers with valid NetEqualizer Software and Support (NSS).

ASCUE Update

 Shaping Bandwidth – Learning to Love Netflix on Campus

As we mentioned in last month’s newsletter, one of our long-time customers, Hollis Townsend, Director of Technology Support and Operations at Young Harris College, spoke about his experience with the NetEqualizer in his talk at ASCUE.  Hollis’ presentation was titled “Shaping Bandwidth – Learning to Love Netflix on Campus”.

In case you missed Hollis’ presentation at the ASCUE Conference (June 12th-16th, 2016), I have enclosed some of the best excerpts here. Hollis presentation is a great case study into how the NetEqualizer can be used to affordably solve network congestion issues in campus environments. 

When Young Harris was looking to replace their Packeteer in 2007,
their wish list for their new solution was the following:

  •  Needed to be inexpensive to buy
  •  Inexpensive to maintain
  •  Web interface
  •  Easy to Maintain or Self Maintaining
  •  Expandable

After reviewing the market, in July 2007, Young Harris purchased a NetEqualizer to solve their network congestion issues and to replace their Packeteer. They have since upgraded their NetEQ as their network has grown over the years, and currently run an NE3000 with a 1Gbps license.  Here are their results:

They have significantly reduced costs.
  • They have spent significantly less than what they did on Packeteer.
  • They took advantage of our Lifetime Buyer Protection Policy of 50% trade-in credit towards new hardware, when they upgraded.
They find the NetEqualizer self-maintaining.
  • Virtually no time spent running the machine
  • About a 1 hour set up from the box to the rack and fully operational
  • Can view reports when desired
  • Literally months will go by with out anyone checking on it  
Students don’t complain and video can run. They had zero File Sharing notices in 2015 & 2016.
  • Students do not complain about bandwidth, just wireless coverage
  • System looks at flows, when bandwidth is over 80 percent, it starts shaping only the heavy users
  • Email, web surfing, gaming never gets shaped at all
  • Netflix, and most streaming services will adapt to low bandwidth on the fly
  • Most never see that they have been shaped, as once the peak is past bandwidth is returned to normal
  • Encrypted payloads don’t matter as it looks at the stream, not the content
  • File sharing is eliminated / reduced as it also is set to not allow a user to exceed multiple streams (over 45) from any single source.

Thank you Hollis for sharing your experiences with the NetEqualizer! 

ASCUE fitbit_winnerWe are also happy to announce that the door prize winner of the Fitbit fitness watch was Jacqueline Stephen of Mercer University in Georgia. You can see a picture of our happy winner here.

ASCUE is the Association Supporting Computer Users in Education and they have been around since 1968. Members hail from all over North America. ASCUE’s mission is to provide opportunities for resource-sharing, networking, and collaboration within an environment that fosters creativity and innovation in the use of technology within higher education.

Is a 20Gbps NetEqualizer in Our Future?

More Breaking News!

Hot on the heels of our newly-released 8.4 Software Update, we have begun testing a couple of new hardware configurations for our NetEqualizer systems. In our next generation systems, we hope to achieve a commercial version capable of shaping 50,000 subscribers at speeds at or above 20 gigabits.

Look for an update in next month’s NetEqualizer News!

airportNetEqualizer at the Airport

Airport Congestion – No Problem for the NetEqualizer!

eiaThe next time you are waiting in the terminal trying to send a few last minute e-mails over the public WiFi, please don’t blame us.
If your connection is dragging, you are probably dealing with an installation where congestion control was an afterthought.

Airports with NetEqualizers at their head tend to be very responsive. Here is what Edmonton Regional Airport Authority, one of our customers, had to say…

Their NetEqualizer Configuration

“We presently use two NE3000 units for internet traffic control and monitoring in a redundant setup. At present we have a maximum of 600Mbps internet throughput with over 300 IP addresses in use in some 120+ address Pools.

(NetEqualizer is)… A very useful tool for us for monitoring and setting speeds for the many users. Most of the feeds come straight off our Campus network, which is spread over a seven kilometer distance from one end of the airdrome to the other. We also feed a number of circuits to customers using ADSL equipment in the older areas were fiber is not yet available.

Everything runs though the “live” NE3000!”

How the NetEqualizer has helped EIA 

Controllability and monitoring is key for our customers as they pay for the speed they are asking for. With the RTR Dashboard we continually monitor overall usage peeks to make sure we provide enough bandwidth but more importantly with individual customers. Many customers are not sure of how much bandwidth they need so using the Neteq we can simply change their speed and watch the individual IP and/or Pool usage to monitor.

This becomes especially useful now as many customer including ourselves use IP telephony to remote sites, so we need to maintain critical bandwidth availability for this purpose. That way when they or we have conference calls for example, no one is getting choppy conversations. All easily monitored and adjusted with the Dashboard and Traffic Management features.

We also have used the Neteq firewall feature to stop certain attack threats and customer infected PCs or servers from spewing email or other reported outbound attacks, not a fun thing but it happens.”

“Overall a very critical tool for our success in providing internet to users and it has worked very well for the past 8 or more years!”

Willy Damgaard 
Network and Telecom Analyst 
Edmonton Regional Airport Authority, IT Department
 
Thanks for the kind review, Willy!  
Best Of Blog

Virtual Internet Presence in The Netherlands, Thwarts TV Blackout

By Anonymous Guest
 
A few months ago I got rid of my Cable TV.  Other than a few sports networks, I never watched the other 507 channels.  Once free from that expensive local bundle, I  subscribed directly to MLB.tv for 1 year for about $100 a year, less than one months cable bill. It turned out there was one small hitch in my plan. Whenever I tried to watch my local Rockies , it is blacked out on the MLB.tv service in deference to their contractual obligations with their other distributor. ( my old cable company).  It seems the MLB.tv is smart enough to know where you are watching from based on your IP address…

Photo of the Month
 
lebronLeBron James
This photo is a copy of an acrylic painted by one of our staff members, and hangs in the office here in Colorado. Although it is LeBron James with his Miami Heat colors and number, it is a nice reminder of what hard work and perseverance can accomplish.
APconnections, home of the NetEqualizer | (303) 997-1300 | Email | Website 

The DDoS industrial Complex Just Keeps on Growing


DARPA (Defense Advanced Research Projects Agency) is now awarding projects to vendors so they can proliferate the security industry with next-generation tools to mitigate DDoS attacks.

In the article main points are:

DARPA says the XD3 program looks to develop technologies that:

  • Thwart DDoS attacks by dispersing cyber assets (physically and/or logically) to complicate adversarial targeting
  • Disguise the characteristics and behaviors of those assets to confuse or deceive the adversary
  • Blunt the effects of attacks that succeed in penetrating other defensive measures by using adaptive mitigation techniques on endpoints such as mission‐critical servers.

How about instead of creating infinite complexity, just stopping them.  I wrote how this could be done back in December in 2015.

Or better yet, how about stinging and arresting people who initiate them? Perhaps we don’t have the police powers to do so.  Maybe the FBI has the manpower to do this. Hopefully it will not get to the point where we need to just cut off those countries from the Internet.

Am I just stupid? Or am I missing something?  What would be the cost to the security industry if we actually found a non labor-intensive way to put and end to this nonsense?

By  Art Reisman
CTO www.netequalizer.com

 

 

NetEqualizer is Net Neutral


The NetEqualizer has long been considered a net neutral appliance. Given the new net neutrality FCC regulations, upheld yesterday, I thought it would be good time to reiterate how the NetEqualizer shaping techniques  are  compliant with the FCC ruling.

Here is the basic FCC rule that applies to bandwidth shaping and preferential treatment:

The FCC created a separate rule that prohibits broadband providers from slowing down specific applications or services, a practice known as throttling. More to the point, the FCC said providers can’t single out Internet traffic based on who sends it, where it’s going, what the content happens to be or whether that content competes with the provider’s business.

I’ll break this down as it relates to the NetEqualizer.

1. The rule “prohibits broadband providers from slowing down specific applications or services”.

The NetEqualizer makes shaping decisions solely based on instantaneous usage and only when a link is congested. It does not single out a particular application or service for throttling. The NetEqualizer does not classify traffic, instead looking at how the traffic behaves in order to make a shaping decision.  The key to remember here is that the NetEqualizer only shapes when a link is congested, and without it in place, the link would drop packets which would cause a serious outage.

2.  The FCC said “providers can’t single out Internet traffic based on who sends it, where it’s going”.

The NetEqualizer is completely agnostic as to who is sending the traffic and as to where it is going. In fact, any rate limiting that we provide is independent of the traffic on network, and is used solely to partition a shared resource amongst a set of internal users, whether they be buildings, groups, or access points.

I hope we have finally seen an end to application-based shaping on the Internet.  I see this ruling being upheld as the dawning of a new era.

The Exploitation of the American Tech Worker


Screen Shot 2016-04-05 at 10.07.59 AM

By Art Reisman
CTO http://www.netequalizer.com
I know what you might be thinking ,”Really? High tech workers being exploited?” And my answer is yes.  I’ll concede that this exploitation is not like the indentured servitude of the rubber barons of the late 19th century.  The players are more sophisticated, but the motives are the same.  Get a bunch of naive, young, impressionable people and waive a carrot with the possibility of riches and game on. Here is how it works.

Many top tech companies of today have started as more or less small unfunded garage shops, such as Google, Facebook, etc.  Venture capitalists have taken note of this, and they have also noticed how some of these young engineers will work day and night once they get sucked into thinking that their idea is the next Facebook.

The odds of any company growing into a valuation of a billion or more is quite small. What products will take off, what idea will get picked up on social media?  You just can’t predict this, but you can improve your odds by spreading your investment across a large number of infant startups.

From the investor standpoint, the equation makes sense. If you have a million dollars, you could perhaps fund one marginal existing company and hope they blossom; or you could take 50k and waive it front of 20 early stage startups who have not accomplished anything yet and are most likely running on fumes.

I see the articles 2 or 3 times a year in the local papers.  Boston alone has 50 start up incubators.  A typical investment company trolls these incubators, often sponsoring them, looking for promising, hard-working tech people with an idea and a prototype.  They offer them a small amount of cash, perhaps a nicer work space, advice, and so forth in return for a percentage of the fledgling company. Is this evil or wrong?  No, of course not. But there is the concept of subtle but very real exploitation going on here.  I’ll get to that part shortly.

A typical deal works something like this. Come to our incubator for the summer, we will give you office space, advice, and 50k for the three month period.  You’ll also get your company featured in a few newspapers and journals.  Local newspapers love giving free publicity to these incubators, especially if some big name VC is behind them.

Most likely 18 of these startups are going to fail through no fault of their own, it’s just their idea/product will go nowhere. One out of twenty might struggle along and create a small viable company with a niche market. And perhaps, just one will return 1000 fold or more on their 50k investment. That is the game.  Even that is a long shot, and you may have to play this game for several years before you hit that jackpot.

So now let’s take the 50k investment. Divide it by 3, for 3 months of summer and divide it again by 4, assuming the start up has four employees.  That breaks down to about 4k per person for three months, and most of these blokes are working 80+ hour weeks minimum, because they are chasing a dream. That is the culture of a tech startup.  Somehow, if you beat yourself into a tired frenzy, you are more likely to succeed, right?

Not really.  There are some people who do these insane hours, but the good ones are knocking off at 40 and are much more productive. But that is another article for another time.

Conservatively,  I can assign 300 hours a month per employee. That breaks down to about $4.50 an hour. Now granted, many of these tech startup people were working for free anyway before they struck a deal. So is this exploitation?

I don’t know, but take this into account – many of these investors are worth 100’s of millions or more and have multiple houses, boats, planes, etc. Essentially, when they buy a big stake in these start-ups, the engineers working for them now become their indentured servants.  Yes, the company employees are also driven by the potential of a big payout, but the odds are stacked against them.  Most will end up with a pile of credit card debt, and an old newspaper clipping for their resume.  I would hope that if I were the investor in this scheme I would make sure the people in the trenches made a living wage, perhaps $20 per hour?

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