Venture Capitalists: We’re Doing Fine! Really!

4444 students from 25 schools in Gwalior

Image: AFP/Getty Images via @daylife

From my Forbes.com blog The New Persuaders:

With so much turmoil in the venture capital business, from the rise of competing super-angel investors to tepid fund returns for the past 10 years to some big IPO duds this year from the likes of Facebook, the future of this economic engine of innovation is pretty murky. But to hear VC investors on the opening panel of the Silicon Valley Venture Summit held annually in the coast-side community of Half Moon Bay by business media network AlwaysOn, there’s not much to worry about.

On the panel addressing the “VC & Investor Outlook for Global Silicon Valley” were host Packy Kelly, partner and co-head of KPMG’s U.S. Venture Capital Practice; Norm Fogelsong, general partner at later-stage VC Institutional Venture Partners; Neal Dempsey, managing general partner at early-stage VC Bay Partners, which has gone through its own travails in the past couple of years; and Gaurav Tewari, director of SAP Ventures. Here’s what they had to say about the state of the VC business:

Q: Where are we in terms of the VC cycles today?

Fogelsong: The industry’s healthy. Things got quite excessive in the bubble, and now we’re back up to $15 billion to $20 billion that’s healthy for the industry.

Dempsey: Companies are going to have major exits, and I’m convinced it’s going to be fine over time.

Tewari: The pace of innovation and entrepreneurship is just accelerating. It’s a very exciting time. The numbers are mixed. The number of folks in the industry has shrunk 30% in recent years.

Q: Is there still ample capital to invest?

Fogelsong: Yes. But we’re still burning off the excess of the bubble.

Q: How have things changed in terms of the choices entrepreneurs have now–angels, seed funds, accelerators?

Dempsey: It’s only better for the industry. The angels provide this huge infrastructure of small investments that we can’t make. We can see what trends or companies are working. When we get involved, [unlike angels who make dozens of investments a year], we’re hands-on.

Fogelsong: But if you’re thinking of getting angel financing, get an experienced angel. Some of the new ones don’t realize their investments are going to need follow-on financing. …

Read the complete post at The New Persuaders.

About these ads

What Are Those Twitter Founders Up To Now? Still Not So Obvious

Biz Stone and Evan Williams, co-founders of Tw...

Biz Stone and Evan Williams (Photo credit: Wikipedia)

From my Forbes.com blog The New Persuaders:

With Twitter apparently on a path to profits, or at least revenues, two of its cofounders are now on to other things.  Biz Stone’s and Evan Williams’ new company is Obvious, whose motto on its spare website is “We do various things.” A bit more specifically (but not much), Obvious’ goal is to “build systems that help people work together to make the world a better place.” Its first effort, called Medium, might be viewed as Twitter 2.0, seeking to figure out what to do with the firehose of information Twitter has helped create.

In a “fireside chat” with Hunter Walk, a Google director of product management working at YouTube, at the TechCrunch Disrupt conference in San Francisco today, Stone and Williams fleshed out their vision, admitted they didn’t get everything right at Twitter, and offered advice on how to build Internet companies today:

Q: You don’t still work at Twitter, right?

Williams: I’m on the board, but we don’t work at Twitter.

Q: It’s not an incubator, not an investment fund, and you’re building Medium. So what is Obvious?

Stone: It’s an excuse for me and Ev to work together. Really cool, good stuff comes from an organic atmosphere of working on things. We do whatever it takes to help people and projects philosophically aligned with us succeed.

We have marketing capabilities, design and engineering prowess, and money, and we deploy them wherever it makes sense.

A: Now you are older and wiser and wealthier, and parents. How does that change how you run a company?

Williams: I tried to be a ski bum when I left Twitter, but it didn’t work. We’re driven to do interesting things in the world. We decided to let it evolve as the products evolve, figure it out organically as we go. That’s satisfying. It’s a hell of a lot more fun than skiing every day.

Q: The first product you’ve come out with is Medium.

Williams: We came out with a preview, not a real product yet, a few weeks ago. We have a team of engineers working on it every day.

Medium is essentially a publishing platform, along the lines of what we’ve done before, with Xanga and Blogger. We’ve been obsessed with the democratization of media on the Internet. We just thought there’s still more stuff to do.

Q: Only a select few can publish on Medium. Why?

Williams: We want to help high-quality content succeed and get attention. Not everybody can write. It’s not to limit who can publish. It just happens to be we launched in private beta. It’s hard to throw open the doors in closed beta. It’s definitely not the ethos of Medium to be closed in any way.

Stone: We learned a few things about opening up the doors….

Read the complete post at The New Persuaders.

Benchmark VC Matt Cohler: Mobile Ads Will Be Even Better Than Web Ads

Image representing Matt Cohler as depicted in ...

Image by Facebook via CrunchBase

From my Forbes.com blog The New Persuaders:

Despite rising doubts about whether mobile advertising will ever amount to much, Benchmark Capital partner Matt Cohler says he’s more jazzed than ever about the prospects.

In an interview with TechCrunch founder Mike Arrington at the TechCrunch Disrupt conference this morning in San Francisco, the former vice president of product management at Facebook said he has made zero investments this year, though he wasn’t entirely clear why except to say he made more than the usual number last year. But he said he’s looking actively for opportunities in “mobile marketplaces,” as well as products and services that use the smartphone as a “remote control for your life.” Here’s what else he had to say, in edited form:

Q: You haven’t made any investments lately. Why?

A: I haven’t made any investments this year. Last year I made more than a typical venture investor would.

It wasn’t a single specific decision. We’re at an interesting moment in time where aspects of various platforms are starting to shift. But I’ll do it if the time is right.

Q: Do you regret not making some investments?

A: I’m sure I passed on some things that will probably be successful.

Q: You criticized Groupon awhile ago when it was hot. That looks pretty smart two years later. But you have invested in a deals site in Brazil.

A: I think daily deals are a good idea. Any ad people view as content is a good ad, and that’s true for daily-deal ads too. But I’m not sure it’s smart to build a company around that one thing. Groupon has some interesting assets. The question is what can it do with them? …

Read the complete post at The New Persuaders.

No ‘Pinterest For Cats’: Google Ventures’ Kevin Rose Shoos Away Copycat Startups

Worlds Collide Onboard the S.S. Jeremiah O’Bri...

Photo: Wikipedia

From my Forbes.com blog The New Persuaders:

Few people have seen the ups and downs of startups more up close and personally than Kevin Rose, partner at Google Ventures and cofounder of Digg, the social news site that could have been Reddit but faded and is now trying for a comeback under new owner Betaworks. In an interview at the TechCrunch Disrupt conference this morning in San Francisco, Rose talked about his relatively new role as a venture capitalist.

Among the highlights: He said that he has helped speed up the way Google makes investments, that Google isn’t trying to lowball startups on valuations, and that he’s avoiding copycat startups (um, not to be too impolite, but like those dozens of companies in the conference’s demo hall?). Here’s what else he’s thinking about today, sometimes paraphrased:

Q: How has it been as a full-time venture capitalist?

A: I was doing angel investing for three or so years before joining Google Ventures. It was always a part-time thing, a casual investment every month or so. Now I’m seeing 10 or 15 companies a week. I always like seeing cool new ideas.

Q: Is it hard keeping them all straight?

A: Absolutely. I’m terrible at names.

Q: What’s up with the apparent drama between Y Combinator and Google Ventures, where the former accused the latter of lowballing startups on valuation?

A: We’re absolutely not going out there and trying to lowball companies. Some companies are worth $15 million and others are worth $6 million or $8 million. I’m closing three YC deals, all three we took the terms straight up. Another one, we just saw too much risk, so we didn’t do the deal.

Q: A couple of companies I talked to said the due-diligence process is longer with Google Ventures.

A: I don’t know that we’re more strict about that. I took $200,000 from GV for my last startup, Milk. The diligence process was a little longer. But I’ve been working personally on streamlining that. We do $5 million to $10 million that absolutely take good due diligence, when you’re investing that much. I think we’re in a great place now.

I have nothing bad to say about Y Combinator. I’m investing in several of their companies. Nobody’s mad at anyone.

Q: What YC companies have you invested in?

A: We just closed on BufferBox, kiosks for people to get packages at, like Wal-Mart stores.

Q: Are there certain kinds of companies you like?

A: I’d be lying if I said I have this grand vision. When I see a company that’s really doing something disruptive, that gets my interest. I don’t want to do a Pinterest for cats. I’m more of a surgical investor. The only way to do that is to pare down the total number of deals you do. I may do 10-12 deals a year, but they’re companies I really believe in. …

Read the complete post at The New Persuaders.

Reid Hoffman: Social Networking Isn’t Over Yet–And Neither Is Facebook

Reid Hoffman

Photo: Wikipedia

From my Forbes.com blog The New Persuaders:

Reid Hoffman is one of the most prolific angel investors in tech startups from Facebook and Zynga to Airbnb and Zipcar. It’s a talent he transferred to more traditional venture capital in 2009 when he joined Greylock Partners. He’s also a cofounder and executive chairman of LinkedIn.

In a “fireside chat” at the TechCrunch Disrupt conference in San Francisco today with TechCrunch founder Mike Arrington, who has since joined the VC world as well with his own CrunchFund, Hoffman proffered comments on everything from Facebook’s struggles to Twitter’s battles with developers. Here, paraphrased at times, is what he had to say:

Q: You are exceptionally wealthy. What changes?

A: There is a bunch of weird things. I had had a long-term plan to be affiliated with universities, like teaching. Overnight all those changed to donor relationships. Also, I would never have imagined I would fly in a private plane by myself, and now I have. It has its advantages.

Q: You wrote a book [The Startup of You]. How’s it doing?

A: It’s sold 120,000. In the consumer Internet space, we’re used to much higher numbers. I don’t think we’ve created a movement yet.

Q: You were one of the very first investors in Facebook.

A: $37,500 at a $5 million valuation. [That means he made 3,000 times his investment, or $111 million.)

Q: So you did very well. What do you think of Facebook’s stock now?

A: I’m a big believer in Facebook’s long-term position. The real question is how it plays out over the next year or so. People’s hand-wringing about not making money on mobile is an innovation problem that is not that hard to solve.

Q: Did Facebook screw up its IPO or was it inevitable it played out that way?

A: In some ways, it was inevitable. You had unprecedented demand, and you couldn’t know NASDAQ servers would go down. We at LinkedIn were criticized for leaving too much money on the table. …

Read the complete post at The New Persuaders.

Uber-Entrepreneur Jack Dorsey To Startups: Don’t Just Disrupt, Start A Revolution

Image representing Jack Dorsey as depicted in ...

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

Jack Dorsey is a latter-day legend among entrepreneurs, and no wonder. Not only did he help found Twitter, where he serves as executive chairman and head of product development, but he’s also founder and CEO of Square, which is trying to foment a revolution in payments by allowing people to use their mobile devices as wallets.

Revolution, in fact, not simply disruption of the existing way of doing things, was Dorsey’s main message in a keynote talk this morning at TechCrunch Disrupt, a startup tech conference in San Francisco. “We need to change the name of this conference,” he told thousands of attendees hanging on his every word. Here’s a sampling of what he had to say, mostly aimed at dashing precious beliefs of entrepreneurs:

I never wanted to be an entrepreneur. I never woke up one morning and thought I need to get a ticket to San Francisco. I actually wanted to be Bruce Lee.

Actually I wanted to be a sailor, to explore the world. I wanted to be a tailor, to build things myself that I could share with other. I wanted to be an artist, specificallly a surrealist.

Along the way, I realized life really happens at intersections. Literally for me. I was fascinated by cities.

I thought about founders–in particular the Founding Fathers of the United States. They realized they wouldn’t get everything right at the start. There would not be one founding moment but many. A lot of the ideas they had at the time were wrong (slavery, for example, or women’s suffrage).

So there’s a massive amount of energy spent on the founding moment. At Twitter, not so. Companies have multiple founding moments. I consider CEO Dick Costolo a founder. He’s really reconsidered everything and made the company better. Same at Square with its COO. Same at Starbucks with Howard Schultz, who was not a founder. Marissa Mayer, not a founder of Google or Yahoo, but with the drive and smarts to create another founding moment at Yahoo.

So a founder is not a job, it’s a role. An idea that can change the course of the company can come from anywhere.

Science fiction writer William Gibson said the future has already arrived, it’s just not evenly distributed yet. Our job is to distribute the future that is already here. We need to make sure it spreads all over the world, as quickly as possible, and with the right values.

We have the change the name of this conference. What we really want is not disruption, but revolution. It pushes people to do the right thing. It doesn’t always have to be loud or violent. It’s just as powerful in its stillness.

So the key is how we recognize disruption. We want to distribute the future more quickly. We don’t want to just disrupt things and move them around. We want purpose. …

Read the complete post at The New Persuaders.

Next-Generation Venture Capitalist Ben Horowitz On How To Build A Company Today

PandoMonthly - June 2012 - Sarah Lacy intervie...

Photo: thekenyeung

From my Forbes.com blog The New Persuaders:

Few venture capital firms have been more aggressive in recent years than Andreessen Horowitz, which has invested in dozens of the hottest companies from Facebook to Groupon to Pinterest. It has become one of the largest VC firms in just the three years since it was formed by onetime Netscape cofounder Marc Andreessen and his longtime partner Ben Horowitz, former CEO of Andreessen’s company’s LoudCloud, later sold as Opsware to Hewlett-Packard for $1.6 billion.

Today at the TechCrunch Disrupt conference in San Francisco, one of the year’s largest conferences for tech entrepreneurs (streaming live here), Horowitz was interviewed by legendary Silicon Valley VC and adviser Bill Campbell, known in these parts at “Coach.” Here, paraphrased at times, is what Horowitz had to say about how best to build a company today:

Q: What do you mean by “Software eats the world” as your basic investment thesis?

A: Weak form: Software is eating the technology industry. The stronger form of the hypothesis is that software will eat every industry eventually. Retail, movies, radio and music. We see software eating every industry from agriculture to finance.

Historically, the technology industry has been sized at a certain size. Only so much new technology could be absorbed. But as software eats other industries, technology will actually expand.

Q: Apple defies some part of that with software and hardware integration. How do they do that?

A: Increasingly, such as with Amazon, it’s software, hardware, and content.

Q: Why did you go over to the dark side–venture capital?

A: I’m considered a much better CEO now that I was when I was a CEO. Venture capital had become too abstract when it came to building a business–it was about business models. When you’re building a business, it’s about the struggle and the horror. I thought it would be good to have a firm that knew how to actually build a company. …

Read the complete post at The New Persuaders.

Is The Tech IPO Deep Freeze Finally Thawing?

Courtesy 20th Century Fox

From my Forbes.com blog The New Persuaders:

Facebook’s initial public offering in May was supposed to be the bellwether for an expected pile of IPOs this year, but the subsequent dive in the social network’s shares appeared to put new offerings into a deep freeze. Now, it looks like the mini-Ice Age for IPOs is starting to thaw.

Today, two companies that were widely expected to file for an IPO before Facebook’s IPO faceplant, said they plan to go public this month. Internet security firm Palo Alto Networks aims to raise up to $175 million with an offering at $34 to $37 a share.  Kayak, which had put off an IPO expected late last year, also priced its offering, hoping to raise $87.5 million at $22 to $25 a share.

Given that Facebook’s IPO was supposed to be a sure thing–and most assuredly wasn’t–there’s certainly no guarantee that these two companies will help bring back the IPO market. Investors will be cautious about every new IPO, not only because of Facebook, but because of the poor subsequent performances of tech IPOs such as Groupon and Zynga. What’s more, the economy is simply too uncertain to bet on a momentum-driven market like IPOs.

Nonetheless, successful IPOs by Palo Alto Networks and Kayak–on top of another recent IPO success by ServiceNow in June–would inject new life into the technology investment cycle. Indeed, investors such as YCombinator’s Paul Graham have warned that Facebook’s face plant has already cooled early-stage tech investment. So any revival would be positive for the innovation and growth that comes out of that cycle. …

Read the complete post on The New Persuaders.

The Top 10 Tech Trends, Straight From the Top 5 Tech VCs

Cross-posted from my Forbes blog The New Persuaders:

Everyone in Silicon Valley wants to know what’s coming next, and every year for the past 13 years, a panel of the most forward-thinking minds in technology and tech finance convenes here to provide a look at what innovations are likely to emerge in the next few years.

Last night it was time again for the Top 10 Tech Trends dinner, hosted by the Churchill Club, which puts on a bunch of Valley events with top tech folks every year. I wrote about last year’s here as well.

This year, the 14th, the panel is especially venture capital-heavy, but these folks are also, to a person, heavyweights in the Valley, so their opinions carry special weight. On the panel: Kevin Efrusy, general partner at Accel PartnersBing Gordon, investment partner at Kleiner Perkins Caufield & ByersReid Hoffman, partner at Greylock and executive chairman and cofounder of LinkedIn; panel regular Steve Jurvetson, managing director of Draper Fisher Jurvetson; and Peter Thiel, president of Clarium Capital. Moderating the festivities in place of longtime emcee  Tony Perkins, Churchill Club cofounder with Forbes Publisher Rich Karlgaard, are Forbes’ Eric Savitz, San Francisco bureau chief for the magazine, and Managing Editor Bruce Upbin.

The panel portion of the dinner, which attracts several hundred people (you can watch it live here for a fee), starts at 7 p.m. Pacific at the Hyatt Regency Santa Clara. The audience gets to vote–in past years, with red and green cards as well as electronic voting devices. This year, they’ll be using a Twitter-based polling system. Panel members have similar red-green paddles they hold up. I’ll post the highlights as they happen.

And we’re underway. Eric and Bruce will describe each trend and then the owner of that trend, one of the panel members, will explain it.

1) Radical Globalization of Social Commerce: Efrusy explains that companies today will be instantly global, or they will fall behind those that aren’t. For the previous Web generation, international was a distinct minority. Groupon, for example, was half international when it went public last year. If you want to be the leading global player, just leading the U.S. might not be enough. You can’t wait to win the U.S. and then open an office.

The other panel members wave half-red, half-green panels. Gordon, who waved a red, says that’s going to take awhile. Hoffman, also red, said the U.S. is still the most important. Thiel’s in-between, I think, but because he thinks it’s not very interesting. Jurvetson says it’s true, but 12 years old. It’s what every consumer Internet startup has been doing for 12 years. Thiel on second thought thinks it’s a worthwhile rule to go international early to avoid local copycats.

The audience shows mostly greens, matched by about 70% supporting the trend on TwitPolls.

Continue reading

What’s Coming in Internet Advertising: 12 Predictions for 2012

I did my annual predictions first on my Forbes blog, The New Persuaders, since they’re focused largely on the Internet media and advertising I cover there. On that blog, they’re done as separate posts, but I wanted to gather them up in one place here, as I’ve done in previous years. So here’s what I think will happen (or in some cases, not happen) this year in my corner of the technology and startup world:

Facebook goes public, but won’t start an IPO landslide: Facebook will make the signature stock offering of the decade, one that reportedly will value the social network at up to $100 billion. But it won’t launch a thousand IPOs as a gazillion venture capitalists and angel investors hope.

Of course, the first part of that prediction is a gimme. But I can’t go without mentioning it because the Facebook IPO will be one of the biggest stories of 2012. Assuming Goldman Sachs or Morgan Stanley don’t stumble in pricing and selling the offering, Facebook’s IPO will be every bit as important as Google’s in 2004. It will be a sign that Facebook is a real, sustainable company (if there was any doubt left by now), but also a sign that social networking is getting woven into the fabric of our entire online experience.

The second part of the prediction depends less on how the Facebook IPO goes than on how (or whether) the economy recovers. If the recover remains slow to nonexistent and the stock market reflects that, IPOs will be sparse. If we get the slow but growing economic improvement we seem to be seeing now, more companies will go public but not a gusher. But the point is that Facebook is such a singular success that it’s not going to set the tone for lesser (often far lesser) Internet companies.

Facebook’s ad business booms–but not at Google’s expense: Facebook’s social advertising looks promising, but won’t come close to challenging Google’s huge success in search ads this year–maybe ever.

Obviously, Facebook is having no problem raking in the bucks from advertisers eager to reach its 800 million-plus audience–or more specifically, the millions of people in whatever target markets they choose. EMarketer reckons the company will gross nearly $6 billion in ad revenues this year, up from $4 billion in 2011. And that’s before we know anything about Facebook’s likely plans for mobile ads or an ad network a la Google’s AdSense that would spread its ads around the Web.

From reading a lot of articlesyou’d think Facebook is stealing all that money directly from Google. That’s not mainly the case, given Google’s own considerable growth in display advertising, though Facebook’s success may well blunt that growth in the future. Instead, Facebook currently is eating Yahoo’s and AOL’s lunches, and those of many ad networks that, until Facebook ramped up its ad business, were the main alternative for advertisers looking to target sizable audiences.

What would make Facebook a huge Google-scale company is the theft of an entirely different meal: television advertising. After all, Facebook shows much more promise as a brand advertising medium than a direct-marketing medium like Google. It needs only to draw a small fraction of the $60 billion or so spent on television advertising, the biggest brand medium, to be enormously successful. But even then, it’s not mainly a Facebook vs. Google contest.

Facebook still needs to answer a big question, however. That’s whether its “social ads,” which incorporate people’s friends in ads in a 21st century version of word-of-mouth marketing, will have nearly the effectiveness in driving attention and ultimately sales as search ads, which appear in direct response to related queries, often involving products people are looking to buy. The potential is intriguing, and there are some nice examples of how well social advertising can work.

But despite Facebook’s considerable work in providing new kinds of metrics on marketing and advertising impact on its users, marketers and agencies aren’t yet universally convinced they need to spend a lot of money on Facebook ads. After all, they can get a lot of mileage out of their free Facebook Pages and Like buttons around the Web. (Not to mention, it remains to be seen whether these ultra-personal ads will cross what blogger Robert Scoble calls the Facebook freaky line.)

Bottom line: If Facebook is to be the Google of the this decade, its advertising has to at least approach the engagement of search ads, especially as Google itself moves to become more of a brand advertising platform with YouTube and continues its push into display ads. While Facebook is building what seems likely to become a great business on anew vision of advertising that could change many decades of tradition,2012 won’t be the year it closes that deal.

Continue reading

Follow

Get every new post delivered to your Inbox.

Join 81 other followers