Capital Chaos

So the National Venture Capital Association released a report which looked at the fastest growing regions for venture capital outside of Silicon Valley and the results were interesting to say the least.

While the Valley and New England remain the country’s leading regions for investments, they are not the fastest growing according to the report which was also conducted by The MoneyTree Report by PricewaterhouseCoopers. 

The report disclosed that in the last ten years, smaller pockets have achieved some pretty startling success such as New Mexico and Pittsburgh. 

The analysis focused on the ten-year growth rates for regions across the country and ranked the fastest growing areas based on number of companies funded, excluding areas that had under $100 million in investment in 2007.

In New Mexico for example, the study showed the following:
Top industries: Clean Technology, Life Sciences, Semiconductors
Most Active Investors: Verge, Flywheel Ventures, EPIC Ventures
Stage of Investment: 52 percent of the companies were Seed/Early stage
Largest Investments: Advent Solar, MIOX Corporation, Aspen Avionics

Pittsburgh:
Top industries: Life Sciences, Software, Clean Technology
Most Active Investors: Innovation Works, Draper Triangle, Pittsburgh Life Sciences Greenhouse,
Novitas Capital
Stage of Investment: 66 percent of the companies are Seed/Early stage
Largest Investments: Millennium Pharmacy, Logical Therapeutics, BPL Global

Seattle:
Top industries: Software, Life Sciences, Media and Entertainment
Most Active Investors: Ignition Partners, Madrona Venture Capital, OVP
Stage of Investment: 42 percent of the companies were Seed/Early stage
Largest Investments: Imperium Renewables, Telecom Transport, Dexterra

Los Angeles:
Top industries: Media and Entertainment, Software, Clean Technology
Most Active Investors: Clearstone Venture Partners, US Venture Partners, Draper Fisher
Jurvetson, Redpoint Ventures
Stage of Investment: 41 percent of the companies are Seed/Early stage
Largest Investments: Amp’d Mobile, Ceres, Vantage Media

Washington DC Metroplex:
Top industries: Software, Life Sciences, Telecom
Most Active Investors: Novak Biddle Venture Partners, Columbia Capital, Grotech, New
Enterprise Associates, Valhalla Partners
Stage of Investment: 37 percent of the companies were Seed/Early stage
Largest Investments: Bravo Health, BillMeLater, Gridpoint

What is a bit confusing about the results of the report are that with the exception of LA and Washington, the reason that we tend to see so much invested in the Valley and New England is because of the schools in those areas.  They are breeding grounds for smart, well-educated and often times have a higher concentration of enviornments that are conducive to group thinking because of the proximity of the companies around them.  As well, you dont go to Stanford to just “get by” or MIT and it is that competitive nature which typically results in graduates with a greater passion for making things happen.  It’s not to say the same cant be true in New Mexico or Pittsburgh but the University systems there dont seem to promote the same ideals that a Standford or MIT do. 

It is good to see that the country is becomming more diversified in both the products being created outside the traditional areas of the Valley and NE and it’s equally as exciting to see that investors are supporting them.  With a fully networked country as we are becomming, great ideas are written on a napkin in any of the States and the support of those ideas is encouraging.

Zivity (San Francisco, CA) seems to have broken the barrier between mainstream and adult by securing $7M in VC money from some very reputable sources for an online adult content social network.  The Series A Round led by BlueRun Ventures and FoundersFund (Peter Theil of PayPal fame and co.) comes on the heals of a $1M angel round just last year. 

While the news of a another social networking site getting funded isn’t really news today, the area in which Zivity plays is.  Adult content has always made money online and many believe it is one of the few sectors of the web that generates “real money” - something significant.  Since the online adult model is based on affiliate marketing (and since the demand just keeps growing), the viral effect of online adult content is significant.  You rarely see ads for adult sites on anything other than other affiliate sites (with the exception of Adult FriendFinder which was allegedly sold for $400M). 

There have been other sites that have penetrated the social networking world as it relates to adult content but few have gotten the type of press, and money, that Zivity has achieved.

The site allows professional and amateur models, photographers and videographers the ability to showcase their works.  Registered users vote on what they like and then the talent can get real money for it.  The more votes, the more money.  While the site is free (still in beta under “invite-only” mode) if you want to vote, you will have to pay.  From what we have read, the spilt will be roughly 60/40 with 40% going to the talent.

I’ve played around with the site for sometime now and notice that the community is growing more and more active - in terms of adding more friends to check out Zivity as well as the voting overall.  There also seems to be a growing number of women on the site which I also found interesting since there is no question that will stimulate grwoth to the site and keep men on there longer.

The site is run by Jeffrey Wescott who was formerly with IronPort (sold to Cisco for $830M in 2007) where he led security software architecture.  He started the company with Scott Banister who was also at IronPort and was one of the initial investors in PayPal and also served as a Director.  These guys are not newbies and while the online adult industry is a very tight group which is weary of others treading on their ground, these guys have money, a great idea and a growing universe of users - all of which are attractive to any industry.

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On the heels of closing FoundersFund II for $220M as we reported back in December, ‘07, the guys are at it again.   Having already made investments into Slide and Quantcast, their latest projects seems to come in Zivity. These guys are the real deal in terms of truly understanding and appreciating what it means to start something from scratch. The FoundersFund is exactly what it sounds like, founders who have money they want to put to good use in the form of a fund. They are familiar with every stage in a company’s lifecycle from seeding, to building defensible products to increasing shareholder value through a public offering - you name it, they have seen it, done it and most importantly - been successful at it.

If you get a chance to pitch these guys, make sure you are air tight and not only have a passion about what you are doing but can articulate it in a fashion that makes sense and more importantly makes sense to others. Your team has to be a cohesive engine that has little margin for error in terms of your dynamics - the business may need to be polished but your team should be a unit from day one.

Typical investment size ranges from $500,000-$5,000,000 and they dont just provide cash but the experience and know how to help you make your vision a reality. If you are serious about reaching out to these guys, submit a 10 - 20 page PowerPoint presentation containing an overview of your business, including your company idea, your team, the market, the competition, and your distribution model.

submissions@foundersfund.com

These guys are up there as one of the top early stage VC’s. If given the chance, really try and pitch Peter Thiel (co-founder of PayPal).

Contact:
1 Letterman Drive
Building C Suite 400
San Francisco, CA 94129

Laszlo (San Mateo, CA) pulled in another $6.6M in its latest round of funding which included backers from WI Harper Group, General Catalyst Partners, Mitsui & Co Venture Partners and Sofinnova Ventures.  This $6.6M is in addition to the $8M they had already taken in just last month ago putting the total round at $14.6M.

These guys have been developing an open-source platform concentrated on developing and deploying Ajax applications.  This RIA (Rich Internet Application) development platform has gained a lot of momentum recently and is now used by “tens of thousands of developers” according to the company. 

Hundreds of companies are using the Laszlo technology platform today including Monster, WalMart, T Rowe Price, IBM etc.  We reviewed the application and it really is pretty cool and intuitive.

The company is led by Steve Ciesinski who has some pretty good experience on the management side having served as the former president of Resumix (which was acquired by HotJobs) and also worked at Octel, Applied Materials and P&G.

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 Sofinnova Ventures (San Francisco, CA) is an early-stage Life Science and IT startup VC firm.  Foudned in 1974, these guys have been around the block a few times and seen a great deal of companies and transactions. Even though these guys have been in and around the Valley for over 30 years, they haven’t been involved in many of the big name IPO’s of the web craze that we often see.  Whether it is by choice or they just prefer to focus on less consumer branded technology companies, these guys are not the ones to go to if you are looking to build a major consumer branded company. 

That being said, they have made some very interesting investments into companies like Streamezzo and Phone.com.  What is also good about these guys is that while many of their investments are within the typical “30 Miles Zone”, they are open to exploring outside of the sweet spot and have done so.  

Their typical investment size is $5-8M and will go up to a total of $15-24 during the life of the investment if they are inclined to do so.  While they say they like to be in deals early, they typically co-lead deals with other VC’s.  Also, if you decide to work with these guys, look at some of the management fees they charge and get a good understanding before you do a deal.

Their process is pretty simly and straight forward.  While they typically like you to be referred by someone they already know, they are open to you emailing them an introductory document with your executive summary.   For pure IT companies, contact Eric Buatois or Brian Wilcove; software, Alain Azan. 

Contact:
140 Geary Street
10th Floor
San Francisco, CA 94108
Telephone:  (415) 228 3380

Menlo Park Office
850 Oak Grove Avenue
Menlo Park, CA 94025
Telephone:  (415) 228 3380

FirstMark Capital (New York, NY) is the new name of the spun out venture arm of Pequot Capital. The decision to separate the businesses and also add a new name comes at a time when it is growing increasingly hard for these funds to raise capital. While the firm has had a lot of success in the past 18 months having closed 7 funds, completed 8 successful exits and made 12 investments, the timing of this announcement is a bit interesting. More and more funds are finding it increasingly hard to generate the same type of interest that they have in the past and many blame economic conditions for this. Spinning out the VC part of the business allows Pequot Capital to focus more on the hedge fund side of their business and less on the VC part - but which can still be presumably leveraged by FirstMark Capital. The new named firm will still remain in NYC and focus on the following sectors:

• Applications & Services
• Infrastructure
• Emerging Media & Advertising
• Data & Analytics

The firm will also maintain oversight of its previous and existing investments such as Clickable, WePlay, Live Gamer, Elance and others and based on their press release, they are looking for other opportunities. No word on whether FirstMark Capital will be seeking new offices independent of their digs 153 East 53rd street but as soon as we know, we will publish it.