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With Exits Barred, VCs Keep Investments Flat
If you believe the venture capitalists on Friday’s conference call about the latest MoneyTree Survey results, which covers venture investing in the second quarter, now is the best time to contact them with your ideas. Just because the exit environment is brutal doesn’t mean VCs won’t continue to put their time and dollars into seed and early-stage deals, two of them said. And so far the data bears that out. But if the exit environment stays grim, early-stage fundings will drop as well.
Venture capitalists invested $7.39 billion in 990 deals in the second quarter of 2008, according to a report from PricewaterhouseCoopers and the National Venture Capital Association based on data provided by Thomson Reuters. That’s slightly less than the first quarter of 2008, when $7.5 billion was invested in 977 deals, and flat compared to the second quarter of 2007, when VCs placed $7.37 billion into 1,033 deals.
John Taylor, VP of research with the NVCA, said that there’s no need to sound the alarm on the exit environment just yet. He also noted the fact that IPOs are more difficult to complete than they used to be. Taylor tied the inability to take a company public or sell it to “fears of the macro economy” and a market that’s unwilling to bet on early-stage companies. But he expressed confidence that once investors realize that the overall tech sector is strong and resilient, in part because it has global exposure, “the slowdown in the exit market will stop.”
Meanwhile, the MoneyTree data shows a buildup of companies that have raised later-stage financing, with 318 late-stage deals getting money in the second quarter, the highest number ever. If those companies don’t exit within the next two to three years, VCs will have to start selling at a loss or pushing firms into bankruptcy. Those types of decisions take up a lot of time and effort on the part of general partners. And that’s why it soon may not be a great time for early-stage companies.
Trevor Loy, a managing partner with Flywheel Ventures, a seed-stage firm focused on cleantech and hardware deals, said that if a VC can carve out the time and allocate the capital, seed investments made now will reach their full potential in five to seven years’ time and will be strong contenders for exits. However, he also noted that “venture capital is a return on time rather then just a return on capital,” and that it can be hard to juggle a lot of late-stage investments while undergoing the rigors of starting new businesses.
So as VCs are trying to negotiate exits and attend board meetings for companies that they need to get off their plates, they also need to be finding and guiding new deals to fruition — a time-intensive process in and of itself. And if exits aren’t forthcoming, VCs may find they have less time to put into new deals while they shepherd their old ones out the door.
image from the MoneyTree Survey
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iBuzzPro And Voice Broadcasting Business Opportunity
http://www.youtube.com/watch?v=36CvGQ00L50
iBuzzPro and Voice Broadcasting is a powerful new business opportunity.
http://www.How2SucceedOnline.net http://www.iBuzzProSite.com http://www.NewJobKiller.com
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Will Firefox Mobile Make It in Time?
Sure it’s early days in the mobile browser wars, but early days have a tendency to fly by quickly, and by the time Firefox introduces a beta version of its upcoming mobile browser later this year, it may be too late. Last night Aza Raskin, head of user experience for Mozilla Labs, posted a demo of the forthcoming mobile browser along with some ideas and features he’s thinking about. He has some good ones. But he also has a large blind spot in that he says it’s designed for a touch phone.
Touch, and Raskin’s realization that fingers are fat and so buttons need to be big, are what makes the demo so compelling. However, even as touch spreads as a user interface, plenty of people may never have such an advanced device at all. Jay Sullivan, VP of Firefox Mobile, said the company is developing for other interfaces as well, but it’s difficult. “The non-touch devices present a super design challenge, especially those without QWERTY keyboards. No existing browsers are very usable on those devices, so there’s a lot of room for innovation there,” Sullivan said.
Still, it’s hard to hear Mozilla CEO John Lilly talk about the value of bringing an open web to mobile users, rather than a web experience filtered through carriers to cell phone subscribers, and not hope for success. But even aside from the relative dearth of touch phones out there, Firefox mobile has several barriers to overcome.
The mobile browsers using WebKit as their platform are farther along, and as Om points out, WebKit (unlike Firefox on the desktop) results in a smaller footprint when compared with other mobile browsers. There’s also the grand champion of mobile browsers in Opera Mini, which had 11.9 million users as of March, to fight off. And let’s not forget startup browsers such as Skyfire for Windows Mobile devices. I think Firefox would be well-advised to get the lead out and start wowing with innovations beyond touch.
John Waters: “Moving [to New York] proves that you believe in irony”
On New York’s facsimile driven aesthetics. via Buzz
GigaOM Interview: John Lilly, CEO of Mozilla Corp.
Last week I got a chance to sit down with John Lilly, the newly appointed CEO of Mozilla Corp. We were slotted to chat a long time ago, but unfortunately life got in the way of our plans. He appeared on The GigaOM Show in February, and was interviewed by Joyce Kim and Liz Gannes.
Still, the two of us always wanted to chat. And that’s what we finally did, discussing everything from shortcomings of today’s browsers, Mozilla’s late entry into the world of mobiles and Firefox 3.0, which according to Lilly will go final and be ready to download in June 2008. (Mozilla just released the RC 1, which our sister site, OStatic, reviewed.) One of a few things we agreed on was that browsers need to find a better way of handling media - not just photos but the video clips that are becoming prevalent all over the net. He took a little swipe at iPhone as well, which was kinda cool.
Now this isn’t a produced video segment, and I captured the chat using my Macbook Pro’s built-in camera using the PhotoBooth. There are a whole bunch of people walking around in the background, and there are moments of questionable audio quality. Nevertheless, it is still fun and edited down to a consumable time length. Check it out.
The F|R Interview: Turn Co-founder, Jim Barnett
Jim Barnett is co-founder and CEO of Turn, a three-year-old online advertising firm that uses an eBay-like auction to improve the way advertisers are matched to web publishers. Previously, Jim was president of AltaVista, and later, of Overture’s search division, which Yahoo bought for $1.6 billion in 2003. Jim talks to us about why he finally became a founder, why bootstrapping is not always the answer, and why sometimes co-founders need to part ways.
F|R: When did you first get the startup bug?
Barnett: Unlike some of your contributors, I’m a serial CEO. Historically, my passion and expertise has been taking entrepreneurial companies and scaling them into professionally-run companies. I did that with several companies, but ever since I was a kid I wanted to run a company from scratch.
F|R: Many founders find themselves in David vs. Goliath contests. Conventional wisdom is the only way to win is with superior technology. Turn is in a space dominated by DoubleClick, aQuantive, Advertising.com and Google. How do you compete?
Barnett: The Internet space doesn’t require you to have dramatically better technology, but there is no question that you have to be exponentially better at something. It might be technology, or maybe just a better product strategy.
In the ad space it depends on what part of the market you’re going after. Better technology is Turn’s approach because we’re going after the broad, more developed market in display advertising – it’s worth $30 billion now, and growing 20 percent annually. If you’re going after emerging categories, like mobile or video advertising, a lot of innovation comes from strategy; it is not necessarily a requirement to have better technology. Personally, I like to attack mature markets because even a small piece of a big market can lead to a big company, and I always want the vision of a big company. But for most startups, pursuing an emerging market where there is not an entrenched Goliath is a better path. So it’s about finding a new market (eBay, Yahoo, Netflix), a different product (Facebook) or simply a better product (Google).
F|R: Many of our founders are fond of bootstrapping. You’ve raised $22.5 million in venture capital for Turn. Why was this necessary?
Barnett: Bootstrapping is a fine strategy for consumer applications that don’t require deep technology or where a lot of your technology will be off-the-shelf. At Turn, we had to build both a team of PhDs focused on ad-selection algorithms and a best-in-class ad serving platform. It was capital-intensive. Whether you bootstrap or not, keeping your staff small until you get it right is absolutely the right thing to do. The truth is most startups struggle. Very few open their doors and experience life “up and to the right” every day afterwards. Often you have to evolve your strategy midstream, and that almost always requires tremendous persistence and time. We changed our strategy at Turn. If you don’t have capital, you won’t have the time to get it right. Selling equity to get some runway is the right thing to do.
F|R: How did Turn evolve its strategy from Plan A to Plan B and why?
Barnett: When we started we were focused on the long tail in advertising, but around year two, we changed our strategy to focus on larger advertisers and publishers. The problem with the long tail is that it’s the tail, it’s not the heart or the body…it’s not where the mass is. Our service is about aligning advertisers’ needs with publishers’ needs. Higher-quality advertisers want to be on higher-quality publishers and vice versa. The long tail gets a lot of visibility, but the real tonnage in terms of users and revenue is with the larger players.
F|R: Was this change difficult? What consequences did it have on Turn?
Barnett: Initially I had a co-founder at Turn. He’s a brilliant technologist, and he focused really deeply on our technology. But at a certain point I wanted to aggressively move to our new strategy and he had different opinions. So we parted ways. The lesson there is sometimes you have to make a change for change’s sake.
F|R: How do you know when change for the sake of change is what’s needed?
Barnett: You don’t know — you’ve got to trust your instincts. Most of the time there is no proven path, particularly if you’re in an emerging space. You want a collaborative environment, but at critical junctures most organizations ultimately need one leader to make the call, to stand up and say, “Nope, this is what we’re doing and here’s why…” That’s what good CEOs need to do.
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VCs Start the Year With a Whimper
The latest set of figures related to venture capital investing in the U.S. indicates that the growth will continue. But venture firms are battening down the hatches to prepare for a rough 2008, as the number of deals by stage shows a steady rise in late-stage rounds.
Because market conditions were ripe for public offerings of venture-backed startups for only a short time in 2007, there are still plenty of later-stage companies unable to make an exit. Sure, the M&A markets are still going strong, but according to Nina Saberi, a managing general partner with Castile Ventures, valuations are facing a lot of downward pressure.
Castile will continue funding companies with those facts in mind, she noted. In other words, if you’re after a Series C, a big bundle of cash may be hard to find, since M&A is the most likely exit and acquirers are going to be more miserly. That’s a shame, because a bundle of cash is what startups are going to need through any prolonged recession, especially if it stops businesses from buying software and hardware.
The money is still flowing. Venture capitalists invested $7.1 billion in 922 deals in the first quarter of 2008, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association. But it was a decline from the $7.5 billion invested in first quarter of 2007 when VCs funded 861 deals. Quarterly investment activity was down as well, falling 8.5 percent from the fourth quarter of 2007, when $7.8 billion was invested in 1,045 deals.
John Taylor, vice president of research with the NVCA, pointed out the deal volumes in the first quarter tend to be lower than those in the rest of the year. As the number of deals done in the fist quarter of this year is still above those of previous years, he’s optimistic that the industry will continues its slow and steady growth, even despite an economic recession.
Most industries received less money than they had in the fourth quarter with 11 of the 16 industries experiencing a decrease in the level of investment and 14 of the 16 experiencing a decline in deal volume. Only semiconductors saw an increase in both the number of deals and dollars, with $556 million invested in 50 deals. Although when asked specifically about the future of mature industries such as chips, Saberi wasn’t as optimistic, saying it wasn’t an area that was good for early-stage investing. Given the expense and technical difficulties that come with designing chips, she’s probably wise to steer clear.
Will eBay Hang Up on Skype?
The Financial Times thinks so. The British paper quotes eBay’s CEO John Donahoe as saying the online auction firm will test Skype for “synergies” this year and if those synergies aren’t strong, reassess the division. eBay purchased Skype in 2005 with a potential payout of $4.1 billion. However, last year eBay wrote down the value of the acquisition by $1.4 billion, essentially admitting it overpaid.
Now, under the new leadership, it looks like eBay didn’t merely overpay, but also overreached with the buy. At the time, CEO Meg Whitman prophesied that Skype would allow eBay users to click-to-call during auctions. Why this feature was worth $4.1 billion puzzled the media and analysts alike. Skype is growing, but eBay hasn’t figured out what to do with the growth for the betterment of the company, which probably means that a divestment is the right thing to do.
Sprint Wants to Tell You Simply Everything
Having been excoriated for its poor customer service and monumental financial losses, Sprint is reaching out and trying to make amends. It’s offering up an online chat with its chief marketing officer, John Garcia, who will field questions about Sprint’s Simply Everything unlimited plan, the Xohm launch, as well as other ideas submitted by the audience. The chat will run from 11:30 a.m.-12:30 p.m. ET (8:30 a.m.- 9:30 a.m. PT) on Monday March 17th, and it will be accessible at www.buzzaboutwireless.com. Garcia is going to need the luck of the Irish to make it through this one, I bet.
Sprint’s $99 Unlimited Plan Ups the Ante
As expected, Sprint has announced its Hail Mary Simply Everything plan, offering customers $99 unlimited calling, premium services and DATA! That’s a better bang for your buck, especially for those of us paying $40 a month for unlimited data. Meanwhile, the party line from the top two carriers is basically, “Customers don’t care about price because our services are so much better.” AT&T’s telecom head John Stankey and Verizon’s CEO Ivan Seidenberg should tell that to the millions of Americans who shop at Wal-Mart.
