Family Learning Center

Posts Tagged ‘Vc’

2010 VC market outlook: No cash for clunkers

(Editor’s note: Don Rainey is a general partner at Grotech Ventures and author of the  “VC in DC” blog. He submitted this column to VentureBeat.)

Throughout the financial crisis of 2008-09, most venture capitalists wisely advised startups to hunker down. The best bet, they said, was to lower expenses and, above all else, avoid fundraising in 2009, since all eyes were on 2010 as the proverbial light at the end of the tunnel. 

The advice, as it turns out, was somewhat short-sighted.

We are now 18 months past the height of the financial crisis. Back then, it didn’t require a doomsday-oriented PowerPoint presentation to know that difficult times lay ahead. The same, frustratingly, can be said today. This is a different capital environment, but it’s not necessarily any better. It’s just different – and it may be worse.

Because so many companies avoided fundraising last year, there is currently a glut of companies that likely need cash. Accordingly, the competition is fierce, and it includes many companies that didn’t grow much (if at all) in 2009. Many companies seeking funding in 2010 are (or soon will be) out of money, and as a result they’re in poor negotiating positions. Even good companies are fighting for one of history’s toughest investment pools.

For all the back and forth, thrust and parry, and plain old bitching by, between and about entrepreneurs and their investors, we all are sailing in the same boat. Most investors were once entrepreneurs and many entrepreneurs will become investors.  And, together, we are facing a great shakeout at a time when the country needs the innovation and the job growth that startups provide to the economy. It demands that we, as VCs, exercise great caution in identifying companies to back or continue backing in 2010.

In this environment, there is no cash for clunkers unless, of course, we’re talking about the government. The downward pressures of a year like 2009 push good companies (meaning ones that would have done well or reasonably well in a typical year) and the bad ones (meaning ones that wouldn’t have done well even without the downward environmental variable) into the same pool.

You could argue they’re always in the same pool and that only the great companies stand out. That’s true. It’s just truer right now. And distinguishing the two is the difficult task faced by VCs.

If your startup needs cash in 2010, present the facts to potential investors without apology and don’t gloss over the need. You may not get the deal you had hoped for, but you will keep your dream alive.

Look for investors that have complementary portfolio companies, which heighten the chances of an exit via merger or acquisition. And if you’ve previously secured initial funding, you’ll always do better staying with your current investors, since they have already supported the vision.

VCs, in the meantime, need to look forward, not back. Companies need to be judged, above all else, on their potential to succeed in the future. The past is important, but as all good investors know, past performance does not guarantee future results.  The companies that are most likely to succeed are the ones that did the most with the least in 2009. They typically have a nimble business model, a clear vision for success and an obvious market need – and those qualities should be at the fore of any 2010 investment discussion.

Photo by shawn.miller via Flickr

Tags: Venture Capital

Companies: Grotech Ventures

Read the whole story…

Backupify’s CEO On Wooing Investors: "It’s Like Dating"

Here at ReadWriteStart, we’ve been following the Open Angel Forum closely as Jason Calacanis’ project moves from city to city bringing angel investors and worthy startups together in one room. The first event in Los Angeles was of particular success to Backupify, which provides backup for your online social network data, including Facebook, Twitter, Delicious, Wordpress, Gmail, Basecamp and many other services. Following the event, the company raised a Series A round of $900,000 from Calacanis, Chris Sacca, First Round Capital and a few others.

Sponsor

Earlier this week, CEO Rob May posted his take on the process of raising funding from VCs, which he likens to dating. According to May, pitching to VCs is not about forcing your idea down their throat and convincing them why they should invest in it; if a startup and a VC are meant to be, it will be more like love at first sight.

“They either like you and your idea, or they don’t. It’s like dating because your goal in dating is not to convince someone who is a bad match for you that somehow you are really a good match. That’s a recipe for divorce,” says May. “It’s really about finding the person that is naturally a good match. Same way with investors.”

One thing that May did much differently than other entrepreneurs seeking funding is that he approached investors without a business plan. While he doesn’t recommend this as a solution for every startup, he does find that in his case, not having a business plan did not really hinder his efforts.

“I sat in front of VCs who thought I was crazy for not having a business plan. I was asked ‘how can you run your business if you don’t have a written plan?’,” says May. “I also sat in front of VCs who said ‘glad you didn’t waste time writing a plan, because we wouldn’t read it anyway.’ It’s really more of an art, not a science.”

Another less standard practice May chose to include in his presentation at the Open Angel Forum was not a special slide on his pitch deck or a certain phrase; May drank a beer while presenting. Again, he doesn’t suggest this is a solution for everyone, but he uses it as an example of how to relax and “be yourself” when pitching to VCs. They are very experienced at talking to startups and any good VC knows how to spot when you are full of hot air, and they will call you on it.

“It’s never easy, not even when you have a good idea. That’s the point. That’s why so few people ever do it,” says May. “If you want to learn to raise money, the best thing to do is go try to raise money.”

Photo by Flickr user apol3.

Discuss

Read the whole story…

Why VCs Should Take Their Own Advice

The way venture capital firms are structured makes it almost impossible for outsiders to see what’s really going on inside those 1970s lodge-like Sand Hill Road offices. A firm is nothing more than a collection of partnerships around certain funds that run for ten years or more. So if a partner gets fired? Well, he or she is still technically a partner in an earlier fund, so firms don’t really have to talk about it if it isn’t in their best interest.

And if a firm was one of many that couldn’t raise a new fund last year, who needs to know they were even trying? Unlike a startup, any firm that’s been around for a cycle or longer still has enough money under management from previous funds to keep the lights on. If they failed to raise a fund in 2009, they can always try again in 2010. It could take decades for even the worst firms to “go out of business.” Like generals, bad VCs don’t die, they just fade away.

It’s an industry perfectly structured for sweeping problems under the rug, and as its fundamentals have declined over the last decade, that’s just what it’s been doing. But those big, lumpy problems are getting harder and harder to hide. Aside from rumors, it’s hard to know exactly who couldn’t raise a new fund in 2009, but we know the numbers were down precipitously. And slow economic recovery aside, it’s not going to get easier in 2010.

Limited partners, the institutions that invest in venture funds, are finally accepting what almost every VC I know has been saying for a decade: There’s too much money in the industry and it’s killing the kind of early stage investing the asset class was founded on. And that’s killing returns.

But just as we’re finally starting to see limited partners make the hard decisions to throttle back investments in private equity, so too are some VCs grappling with their own hard decision: Stick with a broken asset class and try to fix it or just leave and start anew.

Vinod Khosla was one of the first to make that decision: Leaving Kleiner Perkins Caufield & Byers at the peak of his and the firm’s power to get back to real, risk-taking early stage investing. Of course, his recent $1.1 billion fund flies in the face of the too-much-money argument, but it bears noting that Khosla invests in some capital intensive sectors like cleantech. Web 2.0 is a different matter. The capital needs are low, and, YouTube aside, the returns are low too.

In the last few weeks, another investor who I respect has made a similar move. Simon Levene of Accel’s UK offices has resigned the firm, despite an impressive track record that includes investments in MyHeritage, Seeking Alpha and Etsy. I spoke with Levene this week about the decision and unfortunately for me, it’s not a particularly juicy story. This wasn’t an intercontinental Accel battle royale. This wasn’t an issue where he wanted to invest in sectors the firm deemed dead. Nor was it a case where Levene wasn’t pulling his weight. And, of course, with investments in as varied and successful companies as BBN Technologies, Marvel and Facebook, Accel itself isn’t in any trouble.

It simply boiled down to the fact that, like many of the world’s best Web investors, Levene doesn’t see the best deals out there needing many millions of dollars. And structurally, a small partnership investing a $525 million fund with $1.5 billion actively under management can’t do a large number of tiny deals and still give each investment the attention it needs. As he puts it: “You see something that needs half a million or a million and you think, ‘That’s a good investment,’ but there are only so many you can do given the structure of these larger funds.”

In London, Accel takes a classic VC approach of putting at least $15 million in each company. That doesn’t leave a lot of room for the kinds of micro-deals that Levene saw netting better returns and frankly, the ones in which he had more fun investing. “I enjoy the bigger deals too, but they are fewer and far between, and they tend to be very competitive, so you have to pay up for them,” Levene says. “When it comes to early stage I’m just seeing a bigger market opportunity in Europe and Israel.”

That VC angst—while similar to what you hear about in the Valley—has a different twist in markets like Europe and Israel. In the Valley, it’s largely a reaction to more nimble angels and seed funds beating traditional VCs in the market. Funds have been forced to adapt or lose.

Witness Greylock’s hiring of uber-angel investor Reid Hoffman. Indeed, even before Hoffman’s arrival, forward-thinking partners like David Sze had been doing less-traditional deals. In 2006 Sze did two deals that didn’t seem to fit with the venture model and had peers scoffing that he’d never make money off either. One was Digg, where he could only invest $2 million, a fraction of the normal-sized series A deals at the time. The other was Facebook, where he invested at a whopping $500 million pre-money valuation. At the time, he shrugged and said, “I don’t know how I’ll make money, I just believe in the teams and believe it’ll work out.” In hindsight, he looks like a genius on both.

Sze’s approach —not just downscaling to do seed-deals, but investing without spreadsheet-induced restrictions at all — is similar to that of newer firms like Andreessen Horowitz, which does tiny deals as well as mammoth deals like the recent investment in Skype. Andreessen has said he wants a piece of the best tech companies in the world—no matter when they’re started, what stage he can get in and what price is necessary to make it  happen. (After all, it was pure, math-based investing that helped wreck the public markets.)

But in Europe and Israel, there’s not that same level of experimentation on the part of venture funds, nor are there many investors like Andreessen or Hoffman who have the clout, confidence and star power to say they’re just going to invest in what they want and trust it’ll work out.

The closest is Saul Klein’s firm Index Ventures, which has had plenty of traditional venture hits with Skype, MySQL and Last.FM, but has been open to plenty of experimentation too—much of it lead by Klein himself, a long-time angel investor and entrepreneur. Index has not only supported Klein in continuing to do investments from his seed fund, The Accelerator Group, it’s encouraged him on a project called Seed Camp, that scours Europe and Israel for good companies and makes Y Combinator-style investments in them.

So far Seed Camp has invested in 21 companies and mentored nearly 300. Klein brought a crop of them over to Silicon Valley this week to meet with investors, get grilled by the press, and get mentored by success stories like Google. “Given that the raw natural material for venture capitalists is entrepreneurs, I find it strange that the venture community does nothing to help develop those raw materials,” Klein says. (There’s much more on his blog about this topic here.)

For Levine’s part, he sees the venture industry in Europe and Israel as “still a work in progress.” He continues, “There’s more of an opportunity to pioneer and strike new ground. That’s part of what was exciting to me when I moved back here seven years ago.” Not surprisingly, Levene spent a lot of time talking with both Hoffman and Klein as he was mulling the ballsy decision to leave one of the top firms in the venture universe.

What’s he going to do now that he’s unemployed? He’s not saying yet. (My guess is he’s not saying because raising a seed fund takes some time, but that’s only a guess.) But the more investors who follow their heart in this uncertain time for the asset class, the better for startups here and in Europe and Israel. After all, that’s what top investors would advise entrepreneurs to do during a downturn.

Read the whole story…

Boxee Box officially announced: under $200, Flash 10.1 support

The Boxee Box has already been semi-announced once, but it’s making a much more grand debut here at CES — and it’s coming with a spec list this time. Just as we’d heard, the asymmetrical streamer will be sold by D-Link for under $200, and it’ll support a wide range of formats, including DivX, VC-1, WMV, H.264 MKV, and Flash 10.1. Service support is equally broad, with Pandora, Last.fm, Facebook, Twitter, Picasa, and Flickr all integrated — and there’s obviously Boxee’s app platform for additional apps, plugins, and games. Unfortunately we don’t know what’s powering all this under the hood just yet, but we’ve got a sneaking suspicious there’s some NVIDA action going on here — we’ll keep digging. Full PR after the break.

Continue reading Boxee Box officially announced: under $200, Flash 10.1 support

Boxee Box officially announced: under $200, Flash 10.1 support originally appeared on Engadget on Tue, 05 Jan 2010 11:25:00 EST. Please see our terms for use of feeds.

Permalink   |   | Email this | Comments
Read the whole story…

Touchtable mixer takes conventional PMP design for a wiki-wiki-twist

Not that we haven’t seen turntable capabilities shoved into production and concept devices alike before, but there’s something curiously seductive about this one. Dreamed up by Sir Thomas Mascall, the Touchtable is a pocket-sized PMP that boasts a digit-friendly surface meant for scratching, mixing and all manners of interacting. Aside from playing back your favorite MP3s, this bugger can (in theory, anyway) also mix jams on the fly, cue outputs and even connect with a second Touchtable wirelessly in order to establish a more traditional DJ setup (at 1:8 scale). Plug it into a PC, and now you’ve got a MIDI controller. Pop that source link if you’re looking for a few more images and details, and feel free to contact your local VC if interested in seeing this fast-tracked to the commercial realm.

Touchtable mixer takes conventional PMP design for a wiki-wiki-twist originally appeared on Engadget on Sun, 06 Dec 2009 15:45:00 EST. Please see our terms for use of feeds.

Permalink   |  Yanko Design  | Email this | Comments
Read the whole story…

London VC: European Startups Need To Work Much Harder
This is our third guest post written by a London-based VC. To allow them to speak plainly without jeopardising their fund or their career in the small village that is the London VC scene, I’m allowing them to post anonymously. FYI, LondonVC is a genuine VC and TechCrunch Europe has met them face to face.

One of the biggest challenges for any investor (regardless of the stage/type of investment they target) and founders alike is hiring great talent. In early stage investing the team may be the single criteria upon which an investment decision is based (considering how many times when that’s all there is to go by) and even in later/growth stages, while the founding team has been historically crucial, bringing someone new in to help “get the company to the next level” can be the difference between investing or not.

Something I’ve realised and have to admit is that while obviously the absolute pool of talent is smaller here in the UK/Europe than it is in the U.S. (and that cannot be disputed nor is it anything more than a function of population) another factor. It is one which I keep hoping will change, because if it doesn’t it threatens to make a small pool even smaller. And that is a cultural and behavioural issue: work ethic.

Read the whole story…

The Funded Publishes Ideal First Round Term Sheet

Adeo Ressi, founder of The Funded, a site where people rate venture capitalists and the Founder Institute, an incubator of sorts, has long ranted about what he calls “the atrocities of investors.”

Now, a lot of people, including prominent angel investors and venture capitalists, are starting to listen to him. Tomorrow Ressi will announce a new, basic term sheet for use by investors and founders. The goal is to protect founders and reduce legal fees, which average $50,000 or more per venture round.

Earlier this month angel investor and Hunch founder Chris Dixon wrote a blog post requesting that venture capitalists start to use standard, founder-friendly deal terms for venture rounds. He set out the terms he proposed in that post. Said Dixon: “My preference is to keep all terms as above and only negotiate over 2 things – valuation and amount raised.”

Investor Fred Wilson agreed with Dixon. In a post titled The Ideal First Round Term Sheet, Wilson said: “Chris laid out the ideal set of first round terms and I agree with them. What’s interesting is that Chris is a serial entrepreneur and I am a VC. And yet we agree on what the term sheet should say. That’s progress.”

Now Ressi has published an actual term sheet that investors and founders can use that reflect those basic terms. The term sheet is here, and is also embedded below.

The key terms include the elimination of participation with preferred stock, a 1x liquidation preference, and single trigger vesting acceleration on acquisition.

What this means: VCs try to increase returns by asking for large liquidation preferences. A 3x liquidation preference, for example, means the VC gets to take out 3 times his/her initial investment before founders and employees get anything. So if you raise $10 million at a 3x liquidation preference and then sell for $25 million, founders and emplyees get nothing. With a 1x liquidation preference, the VC is only able to get the initial investment back before others take their share.

More importantly, participation is eliminated. VCs often ask for this. What it means: Participation rights means the VC gets to take a pro-rata share of money in a sale even after the liquidity preference. With it eliminated, the VC has to choose – either take their 1x liquidation preference or convert and share with common pro rata. For any large deal, they will convert and be treated like the founders and employees.

The single trigger vesting provision is also important. VCs like to keep their founders locked up so they have to keep working even after an acquisition. The provision, called double-trigger acceleration, usually requires a sale followed by a firing without cause. VCs want this because it’s easier to sell a company if the founders are locked into staying on. Founders don’t like it because it sucks.

Most importantly, though, is the cost savings. VCs really need to move to a deal structure that doesn’t burn up so much lawyer time negotiating provisions that are almost never used. I could write 10 posts on how this nonsense works, and may in the future. A term sheet like this can be closed with $10k – $20k in legal fees. When you’re only raising $1 million, that’s a big deal.

Also see the Y Combinator investment docs that they published a year ago. Their documents are ideal for small angel rounds, and strip out a lot of the stuff covered in Adeo’s term sheet here. There are some terms included below that are needed in larger deals and which aren’t absurd for VCs to ask for. So both documents are highly relevant. Start with the Y Combinator docs for your first early angel round, and move to Adeo’s document in your first real round of venture capital.

We’ll highlight VCs that we talk to who indicate that they are willing to negotiate deals under these terms.

FFI Plain Preferred Term Sheet –

Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.

Read the whole story…

Nabaztag can’t make RFID cool, has to file for bankruptcy

We always knew that any company courageous enough to take a technology designed to help mega-corps monitor their inventory levels and make it mainstream would face an uphill battle, but we never envisioned Nabaztag caving entirely to the pressure. If a snippet in a recent issue of Les Echos (a French financial paper) is to be believed, the creator of the rabbit-inspired Violet RFID Mirror has filed for bankruptcy, giving any company interested in keeping the brand alive until September 4th to toss out a cash infusion. Not like we’re looking at you, Mr. VC, but we’re definitely hoping to not be sobbing about this in just under a month. Tick, tock.

[Voa Loic Le Meur]

Filed under: Misc. Gadgets, Wireless

Nabaztag can’t make RFID cool, has to file for bankruptcy originally appeared on Engadget on Tue, 11 Aug 2009 02:27:00 EST. Please see our terms for use of feeds.

Read | Permalink | Email this | Comments
Read the whole story…