Stephen Marcus had an interesting piece on the New Atlantic Ventures blog (disclosure: I am currently a summer intern at NAV) about seed financing. After drilling down into institutional seed financing between January 2006 and June 2009 by region (New England, NYC, San Francisco, and DC - the four regions with the most VC money floating around) his data showed that while seed financing - which he defines as less than $1m - is down an insane 80.2% in Silicon Valley in the first six months of 2009 versus the same period in 2008, it’s up in both DC and NYC. See the graph for a better picture - it seems that the Valley and New England have put more capital toward larger rounds and have cut back on seed-stage deals.
Why the shift toward larger rounds? Safety. If a company is getting a $5m+ round of VC financing, chances are they are fairly established and therefore less of a risk (or rather, a different *type* of risk) for the investor. I see it as a knee-jerk reaction to the economic crisis - VCs were more inclined to put money toward more “proven” investments.
As a new admirer of the NYC startup scene, I’m happy to see New York (and DC as well) embracing seed financing - it only adds to the argument that Silicon Alley is booming once again.
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(Image Credit: Stephen Marcus)
I put together a piece for change.org this weekend on dealing with rejection. I’ve been meaning to write on the topic for a few months - I think you can tell a lot about someone based on how he/she handles rejection.
Remember: if everyone wanted to drink your kool-aid, it would be water.
Thanks to Flybridge Capital, I was able to attend the AlwaysOn Venture Summit East today at the Mandarin Oriental in Boston.
I am not exactly a veteran of VC get-togethers, so I am subtitling this post “confessions of a VC conference newbie.”
Highlights:
1. Widespread and unabashed optimism. I watched probably 5-6 panels and despite the pervasive and hard-charging recession going on for everyone else, many panelists said they believe it’s a “great time to start a company.” I’ve heard that phrase now so many times at so many different events and conferences that I wonder why my friends haven’t quit their steady jobs to become cloud experts (see next topic!).
2. Love of the cloud. I had not heard the phrase “pay-by-the-drink” before (shame on me) to describe cloud computing - though apparently Bezos has been throwing it around since at least 2006 and probably way before. It makes sense and is catchy, so I am excited to welcome the phrase into my lexicon of buzzwords. For those of you not hip to cloud computing catch-phrases, “pay-by-the-drink” refers to one of the most compelling parts of the cloud business model: dynamic/horizontal scalability and the customer’s ability to pay for only what they use.
Example - server space. You could buy an entire server for your startup and use some of it or all of it. When you get that spike in traffic that you were hoping for (viral social media marketing success!) your server might crash, negating any benefit that might have come as a result of the traffic spike. OR, you could sign up with a nifty “cloud” service like Amazon Web Services (AWS), Rackspace or Mosso. They charge based on how much server space you use. When you need a lot, the capacity is there and they just charge your credit card - see the “SmugMug” case study for more info.
There’s a lot of momentum surrounding cloud computing and “software as a service” and additionally, these businesses generally fit the capital-efficient + huge upside potential model that VCs look for, so it’s not surprising that talk of “the cloud” was so pervasive.
3. Quality of deal-flow is better. One quote I wrote down: “There are a lot of people who want to start companies, but they’re not necessarily entrepreneurs.” When VC money was more free-flowing (ahem, 2000) many of these wantrepreneurs got funded and the “noise” level became unmanageable. Now, the combination of tighter VC wallets, folding funds and newly unemployed former entrepreneurs has resulted in an increased number of serial entrepreneurs getting back in the game and putting together quality early-stage companies.
4. The importance of angel networks. My favorite panel of the conference was about the state of Angel and Early-Stage investing moderated by Michael Greely from Flybridge. The panelists were John Landry (Lead Dog Ventures), Elon Bloms (LaunchCapital), Bijan Sabet (Spark Capital) and Paul Maeder (Highland Capital). A surprising amount of VC deal-flow comes from Angel networks. This shouldn’t be too shocking - how many people are there in any one city with piles of cash (their own or others’) to invest in startups? My point: it seems like many startups seek VC funding too early - take advantage of the Angel groups in your city first and if you’ve got a winner that will likely lead to VC anyway.
5. Changing the VC model. There was also much chatter around the idea that huge mega-funds are on the decline and the VC model will move toward smaller funds and continue to favor capital-efficient business models (ie it doesn’t cost you $1m a month to stay in business). YouTube-type exits simply are not the norm; average VC exits are around $70 million. One of the panelists on an afternoon panel suggested reading a memo about the formation of Valhalla Partners. I found it on the Valhalla website and although it’s dated May 2002 it’s surprisingly relevant to the current pains in the venture industry and definitely worth a read.
Overall - good energy at AlwaysOn. Now if you’ll excuse me, I’m going to get back to writing my world-changing cloud-computing business plan.
One thing I’ve learned after serving as an organizer for the MIT $100K: great entrepreneurship competitions offer more than just prize money.
Sure, $100,000+ is an awesome carrot (and actually, the most any team could win in the 2009 $100K is actually $340,000), but startups need more than just cash to succeed. I now completely understand why VCs demand (and rightfully deserve) board seats - navigating how cash is spent and how to actually run a business is a different skill set from raising money or developing a cool technology.
As an MBA student, I get asked semi-frequently whether I believe entrepreneurship can be taught. Here’s my stance - you can’t teach passion, hustle, drive and attraction to risk. Entrepreneurship to me is like dancing - there’s the technical part and the “other”.
The technical part is teachable - financial statement analysis + accounting, basic business law and capital structure. I am NOT someone who believes it’s valuable to learn these lessons the hard way. It’s totally tragic when a perfectly viable and compelling business is driven into the ground because of accounting naivete, in-fighting or massive lawsuits over IP.
What I’ve learned after getting an insider’s look at the $100K is that the value for the teams comes in the lead-up to the final awards ceremony; all semi-finalist teams meet with industry, legal and VC mentors to refine their plans and attend workshops on negotiating term sheets, properly assessing market opportunities and refining their product.
One thing that surprised me was how many entrepreneurship competitions globally are modeled after the $100K. Now in its 20th year, the competition has produced companies like Akamai, Harmonix, Brontes Technologies and Visible Measures. And I don’t think any of these companies were $100K winners (they were either finalists or semifinalists) - just by participating in the process they were able to get their companies off the ground. It’s not about the winners - it’s about the ecosystem.
I am so excited for this year’s finale - this year’s ideas are kick-ass and it’s going to be a great show.
Hope you can join us –
The MIT $100K finale is next Wednesday, May 13th at Kresge Auditorium in Cambridge, MA. There will be a showcase at 6pm highlighting all the semifinalist teams and the awards show will start at 7pm. It is open to the public and no tickets are necessary - seats are first come, first serve.
I have been thinking a lot about bit.ly’s funding round that was announced a few weeks ago. There has been a lot of attention lately on URL shortening, especially with the explosion of Twitter (Twitter on Oprah!) and the introduction of the Digg bar.
Why did bit.ly get money? There are a ton of URL shorteners out there - and my initial thought was that if Twitter ever introduced the ability to hyperlink I would stop using services like bit.ly completely.
But bit.ly’s appeal to investors rests not in its URL shortening, but rather its tracking system and analytics. By using a bit.ly link one can tell how many clicks his/her links are getting and where the clicks are coming from - even inside of social networks like Twitter and Facebook. Bit.ly can get where Google Analytics cannot, which is great for bloggers/content creators.
If the original Google search algorithm was constructed based on a system of hyperlinks/pagerank, there is potential in the data collected by bit.ly to create a collection of “live hyperlinks” where you can track how a link is passed among people/websites. This would dovetail nicely with the [somewhat] burgeoning “semantic web” (ok, burgeoning since 2001, but still) in that it would provide more human, dynamic, and real-time input on hyperlinking.
That type of data, if presented right, has huge potential for online advertising.
OK, I’m convinced.
