Coming on the heels of a recent report we did on how more investments outside of the Valley, Dow Jones VentureSource released a report about how Web 2.0 startups may have hit their peak - primarily in the Valley.
While the number of investments in these types of ventures increased 25% in 2007 - up from 143 to 178 (primarily in social networks, social applications and blogging), these pale in comparison to the growth rates from 2002-2006, which was after a big bubble burst and the investments doubled almost every year.
Some of the reason for the decrease in investments has to do with the lack of product (good ideas) to invest in. While Facebook accounts for the vast majority of investment dollars that were put into Bay Area deals (22% of all Web 2.0 funding), there is not much else out there. Yes, these VC’s are putting out dribs and drabs but again, there is seemingly very little if any return on these investments and hopefully this sign is actually a positive one which will force more companies to develop sustainable businesses as opposed to just novel ideas.
The whole “Facebook effect” that we have mentioned on a few occasions is still completely unproven as a sustainable business. Building applications off of an anomaly and asking for inflated valuations is not something these investors can continue to maintain doing.
With the downfall of Bear Stearns and other banks who are starting to become tinder boxes built on a deck of cards, VC’s have got to become more disciplined in their investment strategies and start insisting that these investments can actually support a sustainable business model before they invest. There are some VERY smart guys in the Valley who have done incredibly well but there are a lot of people who made money by cashing out of a company there were once with, created a fund with their proceeds and bam, now they are an investment portfolio manager. It’s just not a practical extension. With the exception of a few (FoundersFund to name one) investors and companies alike need to start taking a better look at their investments and recognize that there is increasing diversity amongst where businesses are being developed and funded.
We recently came across a very unique means of pitching your company called FundingUniverse. The clever speed pitching event is designed to let select pre-qualified companies have 7 minutes to sell their business idea one-on-one to a pre-qualified angel investor. After 7 minutes is up, you are on to the next angel investor. All in all you have a total of 2 hours (you meet with 15-25 accredited investors) to keep refining your pitch along the way and potentially land some angel money. It really is a brilliant strategy.
Lets face it, if you cant pitch your business to someone and get them excited in 7 minutes, you need to go back and re-think what you are doing. This takes the K.I.S.S. model to a whole new level and really puts it to test for the entrepreneur.
For the Investor, the benefits are:
• See several investment worthy deals in just a few hours
• Opportunity to support and mentor entrepreneurs
• Networking with other investors and angel groups
• New deal flow….many of which have not been seen before
• Take away materials including copies of one-page company profiles
For the Entrepreneurs, the benefits are:
• 2 hours of personalized coaching/feedback on how to pitch to angel investors
• Access to dozens of active investors
• Efficient use of time and limited resources for bootstrapping entrepreneurs
• Networking opportunities with investors, service providers and other entrepreneurs
• Valuable feedback from investors emailed to you after the event
If you are interested in registering as an investor, all you have to do is register here.
For Entrepreneurs:
1. Register (or if you are a member, simply login) on FundingUniverse as an entrepreneur. Fill out the profile and post your executive summary .
2. After you have posted your plan, register for the event by clicking the button at the top right of this page. Your application should include the following: an executive summary (a two-five page description defining and positioning your business idea).
Right now FundingUniverse does these Speed Dating/Pitching events in Utah, Florida, Arizona, Northern California, Sothern California, Texas, and Idaho. The next event is being held in Utah on April 2.
WeGame (San Francisco, CA) just reported that they have pulled in $3M in Series A financing for its video based gaming site that allows users to upload screencasts of their favorite in-game moments. Think of it as a YouTube like interface that lets you brag about your mad gaming skills to others in a video format as opposed to text so people can really see that you did what you say you did.
While capturing screencasts of gaming has not been easy in the past, WeGame provides a free client that works with DirectX which allows you do this without degradation of the speed of the game too much - often times a problem in the past.
The company was founded by Jared Kim who is all of 19 years old and a dropout of Berkley to pursue his web dreams which seem to be working since this is his third startup. This latest round comes on top of the $500k Kim used to start the venture just about six months ago. It was led by True Ventures with participation from HitForge and SoftTechVC and also included several individual investors as well.
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True Ventures (Palo Alto, CA) is one of the most highly regarded early stage VC that really focuses on entrepreneurial spirit and growth opportunity. They are all about partnering with people who passionate and committed to their idea and business. While that may sound basic 101 in VC lingo, since True Ventures likes to get in very early, they are usually the ones who see the good, bad and the ugly (hopefully less of the latter) so they know what they are looking for.
With $150+M under management, they sure arent the biggest group in the Valley but since they are such early stage investors, they dont need to be either. As they put it, “We target the newest entrants into the largest emerging technology markets, including software, Internet, mobile, and digital media. The long-term growth potential of these markets are outstanding. We see it all around us in the global adoption of high-speed internet infrastructure, next generation open API architectures, vast shifts in the way people create, share, and consume media, and the proliferation of mobile technologies.”
Like all other VC’s who are early stage investors, they are all about the people. The idea is somewhat secondary in that if you dont have the right people to execute the idea is worthless. The firm has invested in over 60 early stage companies so they have seen a lot of the younger ideas out there and helped seed many to get them started.
Their mantras are actually pretty good to live by for the early stage company and they are:
Show us your bold ideas, not an incremental improvement.
If there are four other players in your market, find another market.
We target an investment amount that’s right for your company.
We don’t like buzzwords. No, we really don’t. Be authentic.
It is important to note that these guys are one of the most highly regarded firms out there and traditionally get very high marks for their strategy, process and commitment. They are often times referred to as the most entrepreneur friendly firms out there - which is a major statement.
While the firm as a whole is stellar, the individuals you want to seek out are Tony Conrad and Jon Callaghan.
Contact:
530 Lytton Avenue, Suite 303
Palo Alto, CA 94301
Telephone: (650) 330-7330
The video search engine actually goes into private beta today but you can sign up to get an invite. Unlike other search engines which typically just return text results ala Google and others, Searchme does it in a graphic manner with pictures and videos. Think of it like the way iTunes displays their selection of videos or albums where you can flip through the selections in a visual manner.
Using predictive technology that tracks the word typed into the search box (e.g., Madonna), Searchme will also suggest categories of content for visitors to browse (e.g., the religious figure or the pop star).
According to Searchme CEO, Randy Adams, “With Searchme, you can thumb through 30 pages of the Web in the time it takes to read one page of Google.” It’s clear that this latest innovation may reshape the way advertisers look at and value search - and Sequoia partner Mark Kvamme (also Chairman of Searchme) has been pitching that as a concept to the advertising community in NYC this week. Amazingly, the company only has 35 employees and seems to run a very lean shop especially with the amount of funding they have gotten - although that may all change with the new windfall.
_________________________________________________________ Sequoia Capital (Menlo Park, CA) is the premier VC firm on the west coast. Boasting investments in some of today’s most widely used sites (24/7, Apple, EA, Google, Yahoo!, Mahalo), there is probably no bigger or better confirmation of your great idea than an investment by Sequoia. The firm is really focused on growth and leveraging its team to help the companies it invests in. They offer three type of financing:
Seed Stage ($100k - $1M)
Early Stage ($1M - $10M)
Growth Stage ($10M - $50M)
The only drawback to the company’s philosophy is that they are really keen on investing in companies that are close to their offices. This makes it very hard for those companies that have great ideas, opportunities and management who live elsewhere. The fundamental rationale here is proximity allows Sequoia the ability to “touch and feel” its investments as opposed to relying on information remotely (Companies like YouTube, Plaxo, Cast Iron and Mark Logic actually worked out of Sequoia’s offices in the early stages to get going and the access to people is invaluable). I do get the reasoning and it has worked for them so hard to knock it.
They are very focused on what they refer to as their “four staples” services, software, systems and components. It’s their sweet spot and again, they have had a lot of success with the formula.
It is important to note that whoever you pitch there make sure you are 100% on your game. Best chances of getting a meeting are to be introduced but don’t think that will get you funded. These guys are here to make money first and friends second. Also, expect them to critique the plan very hard as they have seen a lot and know what works and what doesn’t. If you believe you know more than they do, go to a different firm. If you are open minded to the guidance and hope they dig your plan, stop reading and call anyone you know to get a meeting.
One of the guys who seems to have a lot of respect and gets rave reviews for his professionalism is Roelof Botha .
Contact:
3000 Sand Hill Road
Building 4, Suite 180
Menlo Park, CA 94025
T: 650.854.3927
