Daily Tech Snippet: Thursday, December 24, 2015

• Indian Regulators Suspend Facebook’s Free Basic Services:  Telecommunications regulators in India have ordered the suspension of Facebook’s controversial program to bring free basic Internet services to mobile phone users in the country. Facebook’s program, called Free Basics, is one of the signature projects of Internet.org, the company’s ambitious plan to bring the Internet to the billions of people around the world who do not have it. Under the initiative, the company works in partnership with local telephone carriers in 35 countries to offer free access to a text-only version of the Facebook social network as well as to certain news, health, job and other services. The idea is to give novices a taste of the Internet and encourage them to buy paid data services when they want to explore the Internet more widely. But critics say that by offering a free package of handpicked services, Facebook and its partners are discouraging people from using competing services and violating the principle of net neutrality, which calls for telecommunications carriers to treat all Internet services equally. In India, for example, the program offers free web searches using Microsoft’s Bing service but Google searches incur a charge. Mark Zuckerberg, Facebook’s chief executive, has been particularly keen to expand Free Basics in India, which already has more Facebook users than any other country except the United States. Facebook has waged an aggressive advertising campaign in newspapers and on its own social network to build support for the program. But Facebook has encountered a series of setbacks, including intense opposition from net neutrality advocates, the poor marketing efforts and weak network of its Indian phone partner, and skepticism from regulators. One of those regulators, the Telecom Regulatory Authority of India, has now told Reliance Communications, Facebook’s partner in India, to stop offering Free Basics. The order — which was quietly issued about two weeks ago but leaked to the Indian news media this week — came after Reliance failed to turn over information about the terms and conditions of the service, which it had planned to expand across the country beginning last month.

• When a Unicorn Start-Up Stumbles, Its Employees Get Hurt:  On Sept. 4, employees of Good Technology, a mobile security start-up in Sunnyvale, Calif., awoke to discover that their company was being sold to BlackBerry, the mobile device and software maker. Some workers immediately began trying to figure out what it meant for Good to abandon its long-anticipated plan to go public — a move that would have potentially turned their shares in the start-up into gold. They didn’t get firm answers that day, but the prospects did not look great. In an investor document about the sale that was distributed to shareholders, employees discovered their Good stock was valued at 44 cents a share, down from $4.32 a year earlier. In contrast, preferred stock owned by Good’s venture capitalists was worth almost seven times as much, more than $3 a share. The paperwork also showed that Good’s board had turned down an $825 million cash offer just six months earlier, in March. For some employees, it meant that their shares were practically worthless. Even worse, they had paid taxes on the stock based on the higher value. A few nights after the investor document went around, a glass conference room wall at Good’s headquarters was broken, according to an incident report. At a subsequent company meeting, Ms. Wyatt told employees that counselors were available to talk to people who needed to vent. “Many employees may not recover what they’ve lost,” said Matthew Parks, Good’s director of cloud products, who has worked at the company since 2006. His Good shares are now worth a fraction of the six-figure tax bill that he paid for the stock allotted to him before the company was sold. What Good’s employees experienced is an example of who loses out when a company backed by venture capital goes south. While plenty of people — including founders, top executives and investors — are involved in the rise of a start-up, those hit the hardest during a company’s fall are the rank-and-file employees. Investors and executives generally get protections in a start-up that employees do not. Many investors have preferred stock, a class of shares that can come with a guaranteed payout. Executives frequently get special bonuses so they will not leave during deal talks. In Good’s case, the six investors on the board had preferred shares worth a combined $125 million. After the sale to BlackBerry, Ms. Wyatt, who has since left the company, took home $4 million, as well as a $1.9 million severance payment, according to investor documents. In contrast, start-up employees generally own common stock, whose payout comes only after those who hold preferred shares get their money. In Good’s case, the board’s preferred stock was worth almost the same as all 227 million common shares outstanding. Missing out on the upside of the sale was bad enough, but that wasn’t the half of it. Some Good employees actually lost money when BlackBerry bought the company. Good was a unicorn, that is, a private company with a valuation of more than $1 billion. The high valuation increased the paper value of employee shares — and thus the income tax bills levied on their stock when they received the stock grants, or when they bought and sold shares. To pay those taxes, some employees emptied savings accounts and borrowed money. Some of Good’s common shareholders have sued most of the board for a breach of fiduciary duty, asserting that directors looked after the interests of only preferred shareholders.

• Palantir Technologies raises $880 million from investors: Palantir Technologies, a data analytics and security company that helps government agencies track down terrorists and uncover financial fraud, said on Wednesday it has raised $880 million in its latest financing round. Founded in 2004, Palantir, which is considered Silicon Valley's most secretive company, does highly confidential work for U.S. defense and intelligence agencies. Its data mining system, which uses algorithms to search for patterns and connections, helped the U.S. government track down al Qaeda leader Osama bin Laden. The company's large staff of consultants also work with large businesses, police departments, banks and branches of the U.S. military. Palantir has raised close to $2 billion from investors. Its valuation earlier this month reached $20 billion, up from $15 billion in late 2014, making it the fourth-highest-valued, venture-backed private tech company in the world. The company has bucked growing skepticism among late-stage investors about plowing millions into highly valuable companies. Other "unicorns," or venture-backed companies ostensibly worth $1 billion or more, have watched their valuations come under heightened scrutiny. Palantir's strong government ties and an annual revenue estimated by some at more about $1 billion likely set it apart from other cash-burning startups. The company was co-founded by Peter Thiel and Joe Lonsdale, two of Silicon Valley's more influential investors and entrepreneurs.