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10 Strange Things about Being a VC

Published: 5/31/2011 8:48:17 AM, comments: 0


Humorous tongue-in-cheek post by a Cambridge, MA-based VC about the contradictions of being a venture capitalist and how it is different from a typical business:

View post here

I especially liked #2 and #7.  What about you - which are your favorites?

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VCs Get Scared Sometimes

Published: 5/27/2011 9:51:28 AM, comments: 0


Bryce Roberts is afraid that the venture capital industry is consolidating too much among a small number of top firms, meaning a relatively small number of firms are raising new funds and represent a threat to a diverse ecosystem.

View post here

He thinks if this trend continues it will result in fewer riskier investments on new technologies and less local capital outside of established VC hotbeds such as Silicon Valley.

Food for thought.

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Venture Capital Analysis - All Revenue Is Not the Same

Published: 5/26/2011 8:44:01 AM, comments: 0


Excellent if long piece by noted VC Bill Gurley about how to value startup companies when there are so many future variables involved. This post is particularly relevant given the recent IPO of social network LinkedIn.

View post here

He discusses a variety of key business characteristics that can be used to separate high-quality revenue companies from lower quality revenue companies:

  • Sustainable competitive advantage
  • Network effects
  • Visibility & Predictability
  • Customer lock-in with high switching costs
  • Gross Margin Levels
  • Marginal profitability calculation
  • Customer concentration
  • Major partner dependencies
  • Organic Demand
  • Growth Trajectory

Happy reading...

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Venture Capital Book Recommendation

Published: 5/25/2011 10:37:46 AM, comments: 0


Fred Wilson is a successful Internet venture capitalist and recently recommended the book "Technological Revolutions and Financial Capital".

I haven't read it yet, but it is high on my list of books to purchase. Fred is at the forefront of recent technological revolutions in the Internet space and anything he recommends in this area I would read.

On a different topic, I'm currently reading Henry Kissinger's just published "On China".  I'm no China expert, but I have found the book fascinating to learn about the world outlook of Chinese leaders and how it relates to China's long history.

Happy reading... summer is around the corner.

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Venture Capital: A New World

Published: 5/24/2011 8:23:55 AM, comments: 0


Early-stage investor Manu Kumar of K9 Ventures has written a great post about the different types of investors available to technology startups.

View post here

Starting from "Friends and Family" and going all the way up to institutional venture capital firms, Kumar explains the different levels of investment amounts, valuations and involvement in startup companies for each investor type.

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Venture Capital Returns Are Improving

Published: 5/22/2011 1:59:38 PM, comments: 0

Venture capital industry return percentages are improving, according to a recent report by Cambridge Associates and the National Venture Capital Association.

After a recent downtrend of industry performance due to the expiration of late 1990s funds and the 2008 recession, the report indicated that more favorable valuations are impacting venture performance in a way that is surpassing public market indices for a variety of short and longer time horizons.

Recent IPO successes and a generally favorable M&A environment due to large corporate buyers flush with cash may help in continuing this trend.

If this trend continues, I think it will assist more venture capital firms in their fundraising efforts which have been significantly hampered by limited partners shunning the asset class since the beginning of the 2008 recession.


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On Deck: Small Business Credit Score

Published: 5/20/2011 7:55:10 AM, comments: 0


Small businesses of all kind usually need financing and lenders these days are leery of high risk, low dollar amount loans.

On Deck is a company founded in 2006 to provide startups with a business credit score developed with the credit reporting company Equifax.

The score takes into account a variety of customer, financial, employment and demographic data. Potential lenders can then access this profile in order to assist them in underwriting loan. Lenders have an incentive to use the system because it reduces their costs in evaluating smaller loan amounts.

If your business is in need of debt financing, On Deck may make it easier to find.

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Venture Capital IPO: LinkedIn

Published: 5/19/2011 7:56:34 AM, comments: 0


Venture capital-backed business social networking service LinkedIn (NYSE: LNKD) has floated its initial public offering today and by all accounts the IPO is a rousing success.

Prior to the IPO there was significant buying activity in the secondary markets, which are no doubt breathing a sigh of relief.

There could have been shareholder dissatisfaction and potential lawsuits against insider sellers in the secondary markets if the prices paid were more than the IPO debut. That seems to have been avoided... in this instance.

So, secondary markets are going to get a boost from this success story, but beware, social networking is the current hot space and it would be dangerous to extrapolate that today's success could be applied to many other secondary market opportunities.

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Q1 Canadian Venture Capital Investing Flat

Published: 5/18/2011 7:52:04 AM, comments: 0


Canadian venture capital investments tallied approximately $325 million in Q1, 2011, representing a roughly flat performance when compared to the same period a year ago, according to a report (PDF) by the Canadian Venture Capital and Private Equity Association and Thomson Reuters.

During the period, investment went into 111 companies with an average round size of C$2.8 million.

CVCA president Greg Smith said that the environment for startup investment continues to be poor.

Western Canada and Ontario were responsible for the majority of VC investing during the quarter.

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7 Elements of Good Startup Marketing

Published: 5/17/2011 8:30:33 AM, comments: 0


Here's an interesting post from venture investor David Feinleib, who works for the well-respected venture capital firm Mohr Davidow Ventures.

View post here

He says that the most successful marketing strategies have seven components:

Product
Viral
Social
Buzz
Search
Mobile
Brand

It's a long post but well worth the read - Feinleib has invested in Doxo, VirtuOz and RootMusic, among others.

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Entrepreneurs Show Increased Confidence

Published: 5/16/2011 9:06:18 AM, comments: 0


Startup company entrepreneurs are reporting improving business conditions, according to a recent report by Silicon Valley Bank.

According to the Startup Outlook 2011, published in late April, startup executives are increasingly optimistic about business opportunities and will continue to hire to support their optimistic outlook.

The two areas of greatest concern however are access to equity capital and the uncertainty about the regulatory environment.

The Startup Outlook surveyed 375 private and venture capital-backed technology companies.

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Government Helping VC-Backed Startups?

Published: 5/13/2011 10:58:46 AM, comments: 0


I'm usually skeptical of any government "help" for technology startups. But Brad Feld is a VC heavyweight who is allocating some of his time to work with the White House-sponsored Startup America Partnership.

He's got an excellent blog post about the various ways that the government can materially impact entrepreneurship:

  • Tax Policy
  • Immigration Policy
  • Regulatory Policy
  • Investment
  • Customer

If you want a good overview of his views on how the government can help startups, check out the post.

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Venture Capital Industry Cycles

Published: 5/12/2011 9:04:27 AM, comments: 0


There is an interesting blog post by noted VC Nic Brisbourne that says that the venture capital industry is subject to primarily two cycles: the macroeconomic cycle and the assets cycle.

The macroeconomic cycle can drag down startup performance due to general economic conditions which affect exit valuations both at the IPO and in M&A situations.

The second cycle that he discusses is the "asset cycle". He refers to this cycle as the "weight of money" in the market - when there is less money available, the balance of supply and demand of capital shifts in favor of investors, resulting in lower valuations paid for investment stakes and thus higher returns.

He also mentions a third driver of returns, tech bubbles. These bubbles have more of an effect on the performance of venture funds than the two other cycles. However, the problem is that they emerge periodically and cannot be predicted.

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VentureBeat DEMO Deal

Published: 5/11/2011 10:34:43 AM, comments: 0


Tech blog VentureBeat runs the well-known series of DEMO conferences that allow startups to launch their service in front of a high quality audience of VCs and technology press.

They just announced that they will also have a DEMO Asia conference and will allow startups that launch at any of their other conferences to also present at the DEMO Asia conference which will be held November 29-30 at the Sands Expo and Convention Center in Singapore.

If you can afford the entry fee for one of the DEMO events, it appears to be a pretty good deal since it now also gives you exposure to the all-important Asia market.

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Venture Capital Financing Tips

Published: 5/10/2011 8:57:26 AM, comments: 0

Chris Dixon is a very knowledgeable entrepreneur on the subject of obtaining financing from venture capital firms. He's got a great post that lists 10 tips for new entrepreneurs on how to go about getting venture capital financing.

I particularly liked tips #7 and #9.  Tip #7 emphasizes that the earlier stage your company is the more you should focus on the quality of investors rather than the valuation. Too often entrepreneurs get hung up on trying to squeeze out a higher valuation, while their deal becomes stale or they create negative impressions with investors. This tactic is a classic example of "penny wise pound foolish" thinking. You should be more focused on getting the best people to help you build your company rather than valuation at the earliest stage.

Tip #9 recommends that you get to know prospective VCs by talking to entrepreneurs that they've already funded, checking out their success rate in general doing significant due diligence on them, just as they are doing on you. You'll be far happier knowing exactly with whom you are getting into a long-term business relationship.

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New York Venture Summit

Published: 5/9/2011 9:03:14 AM, comments: 0

VentureDeal is proud to be a media partner for the upcoming 11th Annual New York Venture Summit by youngStartup Ventures, being held July 20-21, 2011 at the Digital Sandbox in New York City.

Click here to find out more

The venture capital conference promises to bring together more than 400 venture capital firms, private investors and CEOs of early-stage growth companies.

There will be numerous panel discussions over the two day conference and will include more than 40 individual venture capitalists and presentations by 50 emerging technology companies.

If you register by May 31, you'll save 50% off the ticket ($495).

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Late Stage Venture Capital Having a Good Year

Published: 5/6/2011 7:51:09 AM, comments: 0

Thomson Reuters is out with its Private Equity Performance Index and the picture looks quite good for venture capital firms investing in late stage companies.

More info here

According to the index, late stage investor returns have averaged 35% over a 12 month time period, probably due to investments in skyrocketing Internet companies such as Facebook, Zynga and Twitter.

Overall however, venture capital investments provided lower returns across all stages when compared to buyout and PE firms.

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Entrepreneurs as Angel Investors?

Published: 5/5/2011 9:11:01 AM, comments: 0

There is a tongue-in-cheek blog post over at Fortune about why entrepreneurs make bad Angel investors, at least according to this entrepreneur:

View post here

The writer, Marc Randolph, is a successful entrepreneur (Netflix) and confesses to be so enthusiastic about new ideas that he can't be as critical as he would need to be as investor.

He's got a point. To be a successful entrepreneur you have to have a can-do attitude on steroids, and think that there is nothing that can stand in your way.

I'm always amused about VCs who were previously entrepreneurs. I'm sure there are successful examples, but many of the most successful VCs have very little entrepreneurial experience in their background. They seem to thrive by being professional skeptics.

Maybe one is the "yin" to the other's "yang"?

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A Venture Capital Revival?

Published: 5/4/2011 7:57:04 AM, comments: 0

Veteran VC William Quigley has produced a report - The Quigley Report - that is generating some discussion in the tech world.

View post here

The main take away that I have from report is that as institutional investors (pension funds, endowments, etc.) pull back their investments in venture capital firms, this will paradoxically lead to a period ahead of superior returns for the industry.

He has an accompanying 61 page slide deck that is chock-full of data to support his conclusions.
While industry exit conditions are indeed promising due to record cash hoards by acquisitive large companies, the shrinking of the venture capital industry base and a vibrant entrepreneur ecosystem taking advantage of recent technology advancements in software and hardware industries, the future is always an unknown.

Geopolitical upheaval, possible financial stagnation in the US due to political gridlock and other potential sources of uncertainty always affect the macro environment.

Nevertheless, Quigley presents a compelling bullish argument for venture capital industry going forward.

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VCs and Entrepreneurs: Let's Work Together

Published: 5/3/2011 8:11:22 AM, comments: 0


This is thought-provoking commentary from a relatively new venture capitalist:

View post here

One of the things that I've never understood about the recent VC-bashing in some quarters is that in order to scale a startup company from early stage to mature company, 99% of the time it requires $20 million-$30 million of venture capital.

Entrepreneurs and even some angel investors who speak ill of VCs are doing themselves a disservice since they are biting the proverbial hand that will feed them in future rounds.

I think the venture capital industry is steadily getting back to its roots of being more technology-focused rather than financial engineering/banker-focused, as I've written about separately.

Ultimately, both entrepreneur and VC need each other and there's far more to gain by working together than by an adversarial relationship.

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The State of Venture Capital: Paul Maeder

Published: 5/2/2011 8:29:18 AM, comments: 0

There is a good interview of long-time VC Paul Maeder in the Mass High Tech Business publication.

In the interview, Maeder said basically four things:

  1. New York is giving Boston a run for its money in East Coast predominance, primarily because of the rise of media startups in NYC.
  2. The venture capital industry is still facing a liquidity challenge because public markets are not open to companies with annual revenues in the range of $30 million - $60 million.
  3. The venture capital industry has shrunk by 40% since its height in 2000.
  4. Technology itself is becoming less important in IT startups - business models are where the new innovation is.

Paul Maeder cofounded Highland Capital Partners and is the incoming chairman of the National Venture Capital Association.

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Don Jones
CEO, VentureDeal

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