Venture Capital Confidence Improves

Published: 4/29/2011 9:49:57 AM, comments: 0

According to a survey of venture capital sentiment by the University of San Francisco, on the scale of 1 to 5, VC confidence has increased from 3.75 in Q4 2010 to 3.91 - the highest score in the last three years.

The index focuses on Silicon Valley only, so it is not applicable nationwide. However, the trend follows an increase in venture capital-backed IPOs and a general improvement in the M&A exit environment.

Mark Cannice, a University of San Francisco professor, is the author of the index.

Raising Capital from Secondary Markets Versus Venture Capital Firms

Published: 4/28/2011 9:07:13 AM, comments: 0

There is talk these days of some of the secondary markets beginning to offer the ability for startups to raise money from a wide variety of participating investors - crowdsourced financing.

While this sounds interesting to contemplate, entrepreneurs should be wary of these marketplaces in at least one respect: if you think you will need additional financing later on from institutional VCs, having dozens or even hundreds of small investors may permanently preclude institutional venture capital from coming in.

The reason is straightforward - VCs generally prefer simple capital structures and the cost and complexity of getting a large number of disconnected investors on the same page for additional follow-on rounds could be a deal killer.

So, as these "crowdsource" funding opportunities arise in the near future, consider all the possible ramifications before sourcing funds in this manner.


Venture Capital Startup Evaluation

Published: 4/27/2011 9:38:45 AM, comments: 0

Nic Brisbourne is a well-known VC at DFJ Esprit and he is writing a series of posts on the 50 questions you should ask before raising venture capital.

His current post is on how a VC evaluates the quality of a technology startup management team. While there are many different approaches to this and even some VCs who don't care that much about the management team (if there is a large enough market size), most would say that having a good quality management team is important.

View article here

The above post is #18 in a series of weekly posts on various topics related to the process of venture capital raising. I think you find it thought-provoking.


Venture Capital Opinion: Product Business vs. Service Business

Published: 4/26/2011 8:49:26 AM, comments: 0

Mark Suster is a colorful venture capitalist from GRP Partners and he has a great article up on Techcrunch on the mistakes that service companies make when trying to "productize" their business.

View article here

It's a long piece, but it is chock-full with his advice, based on personal and professional experience. He also includes some strategies about how you would go about productizing your service business if you do have a good opportunity.


Bubble in VC-Backed Consumer Internet Companies?

Published: 4/25/2011 7:47:41 AM, comments: 0

Noted venture capitalist Fred Wilson has a good post out on where we stand in the current venture capital investment cycle for consumer Internet companies.

Read post here

What is even better are the comments to his post.  Fred has one of the best and liveliest communities of commenters and he is an active participant in the comments, which really adds value to his blog posts.


Venture Capital IPO Pipeline

Published: 4/21/2011 1:18:36 PM, comments: 0

Below is a link to a great article in the Wall Street Journal - Venture Capital Dispatch on the current status of venture capital backed companies in the IPO pipeline.

View article here

It tracks companies by industry, state of location, revenue & profits, company age and their investors.

VentureDeal tracks IPOs as they occur and while we see a gradually improving market for venture capital backed companies, many of these companies have been waiting for a long time to go public.  Accessibility to public markets remains a significant issue for early stage companies.


An Original VC - Bill Draper

Published: 4/20/2011 10:59:31 AM, comments: 0

Great interview of pioneering venture capitalist Bill Draper.  He talks about the early days of venture capital investing in Silicon Valley and how it has changed. interview of Bill Draper

He's also got a new book out, The Startup Game, on the same topic.


Venture Capitalists and Angel Investors

Published: 4/19/2011 9:10:20 AM, comments: 0

Longtime VC Bob Pavey said in a recent article that the venture capital community needs to not only coexist with Angel investors but to embrace and encourage their activity.

Recently, there's been some tension between so-called Super Angels and the venture capital community over the competition for hot early stage deal activity.

Pavey says that Angel investors fill a critical funding gap between the "friends and family" money - typically sub-$100,000 and the $1 million or above territory of institutional venture capital.

In spite of the lower cost of starting some types of technology companies, entrepreneurs simply cannot get to institutional venture capital unless they have achieved a certain set of milestones. Angel investment facilitates that achievement.

Pavey goes so far as to say that Angel investor capital gains taxes should be lowered for investments in very young, pre-revenue companies.


Venture Capital: Technologists vs. Bankers

Published: 4/18/2011 10:09:09 AM, comments: 0

During boom of the late 1990s, so much money was made by institutional venture capital firms that the industry attracted a large number of new participants. Many of these new participants at venture capital firms had primarily a banking background, rather than a technology background.

This development, combined with the flood of money that continued into VC firms until the end of 2008, conspired to effectively "dumb down" the venture capital industry as a whole. These banker VC partners focused more on financial engineering rather than making the necessary risky bets on world changing technologies.

In the process, the venture capital industry suffered from a bad image problem between partners and entrepreneurs due to bad behavior on the part of some VC partners. We have been seeing the fruit of this as entrepreneurs in certain segments look to Angel funding or secondary/private market funding to avoid having to deal with venture capital firms.

However, due to the inevitable feedback from the entrepreneurial market, I believe we are seeing a reversion back to a more technologist-oriented venture capital firm membership.

If I'm right, I think this will result in a generally more balanced, entrepreneur-favorable environment.


Venture Capital Startups

Published: 4/15/2011 10:13:09 AM, comments: 0

A lot has been written over the past few years about how inexpensive it is to start up a consumer Internet company.

The complexities have generally been reduced at the initial stage of development, due to the availability of cloud infrastructure rather than having to source and manage server hardware.

However, it doesn't take long for a startup to need to hire additional talent, and talent is not cheap. An 8-10 person company can easily cost $60,000 per month in salaries alone, especially if it is engineering intensive.

So while I agree that when a company is at the stage of two founders and some code it is relatively inexpensive, the notion that small consumer startups are cheap to build into great companies is largely a myth.


Venture Capital IPO Market

Published: 4/14/2011 9:41:41 AM, comments: 0

The venture capital backed IPO market has been in the doldrums for several years now, although it has recently shown signs of life.

The reasons for a broken IPO market are varied and depending on who you talk to, you will get any of the following reasons:

- Lack of a blockbuster IPO

- Sarbanes-Oxley and the cost of going public

- Lack of research on small cap public companies

- Exchange decimalization reducing the desire for market makers to participate

- Institutional investors burned during the .com boom of the late 1990s

- Generally bad current economic environment

- A high revenue bar and growth/industry dominance requirement

- Lack of boutique tech investment banks for whom a smaller IPO is a worthwhile deal

- Availability of large private equity investors such as DST and others who buy out early investors.

I'm sure there are many more reasons why the IPO market is not what it used to be. Perhaps this explains the recent rise of private markets to provide liquidity for early shareholders and employees such as SecondMarket and SharesPost.

Whatever the reasons, the long-term health of the technology industry and innovation in the United States depends on properly functioning private and public financial markets.


Angel Investors Fund More Venture Capital

Published: 4/13/2011 7:44:31 AM, comments: 0

Two recent reports indicate that Angel investing is seeing a significant uptick in activity.

According to the Center for Venture Research at the University of New Hampshire, its annual Angel Market Analysis showed that Angel investment increased 14% during 2010 versus a down year in 2009.

The report said that total Angel investment for 2010 was $20.1 billion allocated among 61,900 entrepreneurial ventures. In addition, the number of businesses receiving funds was up 8.2% over the previous year.

In a separate report, Silicon Valley-based law firm Fenwick & West police report that indicated that more Angel investors are pursuing startups and raising institutional-type funds.

The Angel/Seed Financing Survey indicated a significant change in the Angel/seed financing environment for the Internet, digital media and software industries as a result of a variety of factors including: lower capital requirements for starting companies, development of new programming technologies, a larger pool of experienced and successful entrepreneurial talent in the greater difficulty of obtaining institutional venture capital.

Together, these reports indicate that as the economy heals, Angels and "super-Angels" are steppingin to fill a void for financing startups.


Venture Capital Fund Raising Improves

Published: 4/12/2011 9:22:38 AM, comments: 0

According to numbers released yesterday by Dow Jones LP Source, US-based venture capital firms raised $7.7 billion in the first quarter of the year.

The firm stated that this tally was almost double the $3.9 billion committed in Q1 of 2010.

What is interesting about the $7.7 billion is that in my view it does not indicate a broad-based recovery in venture capital fund raises. This is because it is largely due to a few top-tier VC firms raising very large funds, which skews the numbers.

That said, VCs are generally feeling in a brighter mood due to an improving economy, a slowly healing IPO market and the prospect of limited partners that will invest in firms that show solid performance.


Private Markets and the SEC

Published: 4/11/2011 8:50:59 AM, comments: 0

A recent letter by SEC Commissioner Mary Schapiro seemed to open the door to relaxing the 500 shareholder requirements for private companies to begin issuing public reporting.

Given the generally poor IPO environment over the past several years for technology startups, I am cautiously in favor of this concept.

The result of relaxing the rule would probably be to increase the activity on the secondary or private exchanges, such as SecondMarket or SharesPost. Since those markets are relatively new and somewhat opaque, I would also favor increasing the amount of information that startups need to disclose in order to remove some of the opacity of those markets.

Fred Wilson, a prominent venture capitalist, has a short post on the topic as well.


Entrepreneur Corner: Brian Chesky, CEO of Airbnb

Published: 4/8/2011 2:48:38 PM, comments: 0

Whether you already are an entrepreneur or want to become one, read this piece about Brian Chesky, cofounder and CEO of rapidly growing Airbnb which was funded by venture capital firm Greylock Partners:

The Entrepreneur Questionnaire


Venture Capital M&A Report by VentureDeal

Published: 4/7/2011 8:40:02 AM, comments: 0

   National curated venture capital database VentureDeal is pleased to announce the availability of its Venture Capital M&A Report for Q1, 2011.

The report contains aggregated data, notable individual transactions and historical graph information.

The M&A report is available free of charge, with no registration required.

2011, First Quarter - Venture Capital M&A Report

Slow Down to Speed Up

Published: 4/6/2011 8:38:21 AM, comments: 0

Brad Feld is a top-notch Internet venture capitalist and his post on "Product Cadence" is worth the read.  He has a background in software development and recommends that startups think about where they want to be in a year and work backwards to a product cadence that works for them:

What's your product cadence?

Don Jones

Don Jones
CEO, VentureDeal

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