VC in October
Of all the months this year, 2010, I was surprised by the fundings in October. There were quite a bit of interesting fundings. Interesting to me because there were a good number of fundings in the online and new media space. Here are a few and some of these are the typical online models that have been raising capital for years. Others are similar to other current and seem to be profitable business models.
October Startups Travel Ad Networks : An advertising network that aggregates travel sites as publishers and allows advertisers to reach them.
SkillSlate : Find individuals to do your work in New York, think Angies List for New York.
Buddy Media : a social media platform and software to manage your social world.
Venture Capital
Find more vc fundings at Venture Capital Update.
Seed Investors Making Money
In a press release Thomas Reuters put out entitled partially US PRIVATE EQUITY SHORT-TERM PERFORMANCE TURNS SHARPLY POSITIVE, they provide statistics on private equity investment performance. They track quarterly statistics of over 2,044 US venture capital and private equity partnerships totaling over $980 billion in capitalization. They provide 1 Yr , 3 Yr, 5 Yr, 10 Yr, and 20 Yr statistics on Early/Seed VC, Balanced VC and Later Stage VC. As a startup guy I like to see positive Early/Seed numbers. For the last year the growth was 4% for Early/Seed, even higher for the other VCs however over 20 years the highest performance is the Early/Seed VCs at 23.2% return. But why do you care?
Why You Care
You care because if these early stage funders are making money then they will invest more and attract more early stagers and seed investors, or so the theory goes. But I think it’s a pretty good theory that if 20 years of results shows the highest rate of return for VCs is early/seed stage investments then more capital will be available to pure startups in proportion to other stage companies. So keep doing what you’re doing if you are an entrepreneur because the money is out there and may be available if you need it and want it.
Venture Capital Investments
According to a Dow Jones VentureSource Press Release VC investment is on the rise. They state that investment is near pre-recession levels. Which I guess means it’s almost as good as it was before the economy began to have issues. Which I assume is a good thing. Here is what they compared, they say that the second quarter of 2010 (April, May, June) had $7.7 billion invested by venture investors which is the largest amount in a quarter since Q3 of 2008. Comparing Q2 this year to last year they state that the deal count is up 13% and capital raised is up 26%.
$7.7 Billion of Venture Capital In Three Months
Having raised VC myself and been involved with startups for years, it still blows my mind to see how many billions are are invested. The article has much more detail and is a good general read.
This website is worth $100 Million. Why? Because I said so, so write the check already. The story of Ning follows.
First, to know me is to know that my sarcasm precedes me, so here we go with a little story. Here is how most people buy a car. They walk onto a car lot and say to a salesperson “Is this is a good car?” and the salesperson says “Why yes it is and you can get undercoating, it’s your lucky day” and of course the customer replies “sold”. Right? Wrong. You would first do some research on car types, brands, fuel economy, crash testing, etc. Otherwise known as “due diligence”.
Due diligence in the legal community typically means lots of work and billable hours, haha, it actually means looking under the covers to assure what one person is telling another is true. Due diligence in the VC (Venture Capital) community usually means the same, and can be the most important step in the process. The only individuals that do not like it are usually those not telling the truth. Everyone seems to believe it is a necessary evil but hate to waste time. However if it uncovers a key factor that will either kill a deal or lower an evaluation – it can be very useful.
In the Ning story read at Gawker here the accusation is that she (Gina Bianchini) provided false information for the due diligence and therefore the valuation was much higher than it should of been. That is a serious accusation, and if true means those that invested may have vastly overpaid.
Bottom line is that due diligence needs to be taken seriously. The process should be allowed to run its course, done by those with experience in the business and industry they are evaluating. Too many times due diligence is not done properly, by someone without the relevant experience to perform the diligence or too hastily. This may just be another example. If I were investing millions I would certainly have a vested interest in the due diligence.
As an entrepreneur or individual seeking investment for a company be sure that you present data properly.
Each week there are more venture fundings. Our site Venture Capital Update lists the most recent online business fundings. Below is a snapshot of recent fundings of interest. All the fundings can be found at the site. I chose these three, Videoplaza, Smartling, and FirstRain, to highlight.
Videoplaza is a Swedish company. They help publishers monetize online video through advertisements. This is an ongoing and ever changing industry, new competitors pop up constantly with the promise of better optimization and higher revenue for video. This is another company to watch.
Smartling is a real time translator for websites. Another fascinating industry and technology that seems to evolve daily. The ability for a website to be instantly available in any language greatly increases the availability of information.
FirstRain provides market intelligence on companies. Find information on other companies or your own to find out what is available. Market intelligence is an interesting industry particularly with the availability of information online.
The venture capital site I author, Venture Capital Update is glad to sponsor The Fourth annual Digital Signage Investor Conference.
Whether you’re a Venture Capitalist, Private Equity Company, Corporate Investor, Institutional Public Investors or an Investment Banker trying to better understand the dynamics of the digital signage industry, you should look to attend The Fourth annual Digital Signage Investor Conference, being held on October 6th and 7th, 2009 at Embassy Suites, New York City.
Discount for Attendees
You can receive an exclusive discount of 10%, please enter VCU10 at the time of registration to claim your discount.
Venture Capital Update was up and running for two years. The system it was built on was not able to scale and provide the functionality I wanted it to have.
Currently the site is live, however all the content, thousands and thousands of records of companies that were funded, venture capitalists, founders and more.
That site is a great example of what one person, with a great programmer, can put together online. The content is created daily but as long as it is excellent content you can grow your traffic regardless of the topic or subject matter.
I have been involved with online startup companies for over 10 years now. An interesting issue is how you actually sell your company or otherwise become liquid meaning obtain cash in your pocket, the business owner. Obviously there is salary, bonuses, profit, and other cash or cash equivalents that you would receive in any company, however what about the valuation. Is there any way to turn part of your ownership in a company into cash?
Startup Investment
You are probably familiar with receiving investment in your company. A common form of investment is selling stock in a company with a price per share. The investors expect that money to be put into a bank account and used to further grow the business. Once you have taken investment you now have other stock holders and typically a board that can control what the company does and does not do. Here is a possible scenario.
Investment Example
For sake of argument let us assume your startup took investment and sold 40% of the company for a $500,000 dollar investment two years ago and you have the remaining 60%. You are marginally profitable and based on different valuation methods you and your board believe the company to now be worth $4,000,000. Therefore the value of the investors stock is $1,600,000 and yours is $2,400,000.
Board Has Control of Private Company Stock
The board has control and decides they do not want to take additional investment and they do not want to sell the company, they cannot go public in the U.S. due to both the economy and the fact that over regulation in the U.S. makes it too difficult and cost prohibitive, they do not want to go oversees just yet to go public, nor do they intend to give you a raise.
Your Situation
You started the company and were told you needed to have “skin in the game” so your salary is half what the going market would be for someone with your skill and abilities, you have had your first child and you and your wife, or husband, would like to buy your first home. The company could loan you money but if your stock is worth $2,400,000 why can you not just cash in $100,000 pay taxes on it and use the remainder for a down payment?
No Market for Private Company Stock
Remember this is a private company and this stock cannot be sold on a stock market. A stock market makes the market and brings buyers and sellers together. However there is no private market for stock like yours. Your stock holders agreement says that you can sell your stock but you obviously have to find a buyer, and there are restrictions on pricing and right of first refusal by your current investors.
If you could only find a market for the stock. Your current investors are not taking new investment, as they claim they do not want to dilute their position. If you could just find an investor and sell them a portion of your stock then the current investors are not diluted and you now have the money you need.
Thank you gTrade gTrade represents the next generation securities exchange (in their words). Essentially their platform allows everyday investors to purchase shares in companies that have not yet listed publicly. You can sell stock in your company and you can invest in startups.
“As opposed to traditional venture capital, gTrade brings a start-up company to the collective attention of millions of Internet users, letting the people decide in a start-up’s future by investing their own money.”
As they point out, liquidity is difficult (turning the stock into cash through IPO or other sales event), and raising money can be a lengthy time consuming process (as I know all too well).
Take a look at their site. They are currently in private beta. The video below describes their technology as well as screen shots.
I first posted about the Go BIG Network in November of last year.
Sell Stock
If you are looking to raise capital for your business it is an excellent resource. What I realized recently is that it is also a great resource if you are looking for work with a startup or to earn equity for your services.
Get Stock
They allow companies to post projects and jobs. If you would prefer to obtain equity in multiple new ventures you could work on various projects for multiple companies and search based on your skill set. In other words assist only those that need web design, coding, etc., for financial services if that is your niche. You can also search the job postings. Many of the projects and jobs are for equity. Might as well consider yourself your own venture capital group, work for many, obtain stock and many and diversify your own portfolio. I would suggest you do this in your spare time as of course your day job and cash is king, but that is only my opinion.
Recent GoBig Stats
Here are some stats as of today, they have a tally of requests and currently there are 11,618 funding requests, 3,084 project postings and 965 jobs.
Create a Member Profile and Search
As a member you can create a free profile. You can also search other profiles of members to learn more about them (and contact them). The site is completely tailored toward the needs of startup and small businesses, the profiles on Go BIG are highly targeted and specific. Search projects, jobs and more.
Make Requests
Requests are just like classified ads. You post anything from requests of “Looking for Funding” to “Jobs Available”. When you post a Request “looking for funding” the system can alert all investors on the system who invest in that type of deal. You can customize the types of updates you would like to receive.
Founder Background of GoBig
The Go BIG Network was founded by serial entrepreneur Wil Schroter. After starting his first Internet company at the age of 19 (Blue Diesel), Wil grew the company to over $65MM in billings in just five years. At 22 Wil sold his company into a larger ad agency (inChord), joined their board, and helped grow the agency to over $600MM in billings within four years. Wil started Go BIG and obviously has the experience to understand what services are desired.
I was corresponding with the author of Smart Startup Guide today. Having been through multiple startups myself I was obviously interested in his guide.
His startup manual is 210 pages, a well thought out guide.
Reading The Smart Startup Guide is akin to spending a week with the founders of successful fast growth companies. Imagine being able to pick their brains and learn how they formulated their strategies for fast start-up and growth.
The guide points out that finding venture capital is not an easy task, and most never do. But hope is not lost, with this guide he explains how you can start without venture capital.
The Guide’s Smart Start-up Model distills the lessons of America’s most successful start-up companies for you to use in your venture. You can use the model as a screen to evaluate your current strategy for viability. If it doesn’t pass the test, you can use the model to deconstruct it and formulate a stronger new strategy.
To learn how the author stopped waiting for investors and started building companies, read more about the Smart Startup Guide here
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