Nov 21
Matthew RoszakVenture Capital
By Fred Wilson
The term “lead investor” is often misunderstood. I have seen VCs negotiate to be called a co-lead or a lead in the term sheet. But you don’t get given that designation. You earn it.
Glenn Kelman (a long time AVC regular) has a great blog post on this featuring former Sequoia partner, now Khosla partner, Pierre Lamond in the lead investor role:
Then Pierre Lamond, the Sequoia partner on the deal, began working out of our office, acting as the virtual CEO. Pierre made a point of being there the day one of his other companies went public. We looked at a news photo of all the smiling people, who seemed to be living in a gated community, on a planet I would never visit. Then Pierre said “that company was once even more screwed up than you are.”
Glenn describes a strong parental figure providing support, encouragement, and criticism in equal doses. And he goes on to explain why:
That anyone gave us money was a miracle. But once we get the money, we prospered, eventually becoming one of only two technology companies to go public in 2002. I wondered why Sequoia went to such great lengths to get Plumtree funded when it would have been easier to write off the few hundred thousand dollars invested in our company. And the simple answer was that Sequoia cared about its reputation and stood by its companies.
That last bit is the key point. It is what every VC firm I respect and admire does. It is what VCs should do. It is the bargain we make with entrepreneurs when we invest.
I am old fashioned. I was trained by a couple VCs who are Pierre’s age. This is how they taught me to do the VC business. It is how I do the VC business. It is how USV does the VC business. And I think it is ultimately the only way you can do the VC business.
Read more here
Nov 09
Matthew RoszakVenture Capital
By Jolie O’Dell
Kohlberg Kravis Roberts (KKR), a private equity fund, is looking to raise $6 billion to establish a new pool for Asian startups.
Reuters reports that the new funding will be raised during the beginning of 2012 and that the firm had originally planned to raise $4 billion but will now be aiming as high as $6 billion.
Already, KKR represents the largest Asian-focused fund from a private equity firm. The firm maintains a $4 billion fund raised in 2007 to support Asian investments as well as a $1 billion China growth fund. The former is currently 70 percent invested, sources told Reuters, which has prompted the new fundraising efforts.
KKR now has investments in China, Singapore, Korea, Japan, Vietnam and Taiwan.
According to recent reports from KKR, it expects less volatility in markets like China where the government debt load is lower. “Both Europe and the U.S. are likely to face increased political unrest and social discord as they try to stimulate growth and reduce debt at the same time,” the firm stated in its statements on global macroeconomic trends.
Analysts at the firm also pegged Asia (with the exception of Japan) as a key point of global economic growth but also cited Chinese inflation as a point of concern.
As we’ve noted in recent months, a shaky market in the U.S. as well as distinct advantages in the pan-Asian arena are making the region more and more interesting to investors. Singapore in particular is a hotbed, with a tech-savvy workforce and startup-friendly government regulation.
Read more here
Nov 02
Matthew RoszakVenture Capital
The business profile that can be found at the link found below may be of interest to my fellow venture capitalists and business partners. This Bloomberg Businessweek profile details by professional background and current employment positions. Please take a moment to look over my profile found here.
Matthew Roszak
Thank you!
Nov 02
Matthew RoszakVenture Capital
Steve Blank has a great post up on his blog suggesting that VCs should require startup CEO experience in their partners’ resumes. He quotes from me in that post but I’m not going to state which one came from me. You can guess if you want.
You might be surprised to know that I agree with Steve. I have never run a startup company. By Steve’s measure, that is a weakness in my background and experience. And I agree that it is. I’ve managed to overcome that weakness, but it is a weakness nevertheless.
I particularly like this paragraph in Steve’s post:
What running a company would do is give early-stage VC’s a benchmark for reality, something most newly-minted partners sorely lack. They would learn how a founding CEO turns their money into a company which becomes a learning, execution and delivery engine. They would learn that a CEO does it through the people – the day-to-day of who is going to do what, how you hold people accountable, how teams communicate, and more importantly, who you hire, how you motivate and get people to accomplish the seemingly impossible. Further, they’d experience first hand how, in a startup, the devil is in the details of execution and deliverables.
Newly-minted partners are a big problem for entrepreneurs (and VCs too). And Steve’s suggestion that they get a dose of reality before opining on stuff in board rooms is great. If a super talented young person in our firm shows an interest in a partner track, I would strongly consider Steve’s approach.
John Doerr famously said that it takes $30mm of losses to train a VC. I am proof of that theory. But as Steve points out, you can start a company and operate it for a year for less than $500k these days. That sure sounds like a less expensive way to learn how to be a VC.
Read more here
Oct 26
Matthew RoszakVenture Capital
By CLAIRE CAIN MILLER
SHELBY CLARK, the founder of a start-up called RelayRides, was honored last week as a rising star in clean technology. But as he took the stage alongside companies creating new kinds of energy, he felt out of place.
RelayRides is a car-sharing start-up. Since when did encouraging people to drive carbon-spewing cars qualify as clean tech?
In Silicon Valley, where venture capital dollars nurture fledgling technology companies, clean tech is getting a makeover. Many investors are shying away from the high risks and costs of creating new forms of energy. Instead, they are doing what they do best — using software to cope with problems, in this case caused by climate change.
RelayRides, which lets car owners rent their vehicles to others, takes cars off the road because people can avoid owning them and the service’s users drive less than other people, Mr. Clark said.
“You can have a major impact on an individual’s carbon footprint by re-creating business models or behaviors without inventing a new energy,” he said.
This strategy has been percolating among some in Silicon Valley for a couple of years. But for many investors, doubts about alternative energy were confirmed last month when Solyndra, which made solar panel arrays and had raised more than $1 billion in venture capital and $528 million in government loans, filed for bankruptcy protection.
“A lot of people see it as a symbol of what they do not like in green investments or government involvement in tech,” said Nathan E. Hultman, director of the environmental policy program at the University of Maryland and a fellow at the Brookings Institution. “If the V.C.’s pull back, then a lot of these companies are going to have to fold, or at least put their plans on hold.
“This is a very familiar stage in the energy industry called the valley of death,” he said.
Green tech investing had been declining even before Solyndra. Venture capitalists invested $891 million in 80 such start-ups in the third quarter, an 11 percent decline from $1 billion in 88 companies in the second quarter, according to the National Venture Capital Association.
Investors, accustomed to financing low-cost Web start-ups, had grown wary of spending the money needed to pay for basic research and build factories to produce energy. Adding to their caution is uncertainty over whether Congress will exact a carbon tax, an increase in natural gas production in the United States and the difficulty of competing with the established energy industry.
But the Solyndra bankruptcy further spooked venture capitalists and particularly the pension funds, endowments and foundations that invest in venture capital, said Mark Heesen, president of the National Venture Capital Association.
Investors, he said, would continue to shift from investing in alternative energy to investing in companies that cope with climate change by, for example, using software to make buildings and cars more efficient.
Venture capitalists are on track to invest $275 million this year in start-ups that make software and other technologies that conserve energy or manage its use, up from $234 million last year and $104 million in 2009.
“Capital-intensive companies that take long cycles to create things, whether they’re solar voltaic cells or giant wind turbines, are not very scalable, so those are really tough businesses to imagine as venture-funded opportunities,” said Bill Maris, managing partner at Google Ventures.
His firm has invested in RelayRides and other start-ups that stretch the definition of clean tech investing. They include the Climate Corporation, for extreme weather insurance; Clean Power Finance, which runs an online marketplace for financing residential solar panels; and Transphorm, which makes tools that reduce power loss when electricity is converted in data centers or industrial motors.
“It’s tech companies that are applying their technology to this industry,” Mr. Maris said. “Those are the kinds of companies we tend to really understand and like.”
At first glance, companies like the Climate Corporation, which insures rural farmers, seem to have nothing to do with either technology or climate change. But David Friedberg, a Google veteran who is the company’s co-founder and chief executive, said its goal was “to help all the world’s business adapt to and understand climate change.”
For farmers, that means analyzing “crazy big data,” Mr. Friedberg said, from weather stations, government data feeds, soil moisture models and Doppler radar images. The Climate Corporation simulates the weather for the next two years and runs a Web site where farmers can enter their location and crop, buy insurance coverage and automatically receive payments for bad weather.
Soybean farmers in the Dakotas were recently paid for delayed planting because of an unusually rainy spring, and wheat farmers in Oklahoma and Texas were covered for a intense drought.
Read the full article here
Oct 19
Matthew RoszakVenture Capital
By Dean Takahashi
Ben Horowitz, a co-founder of the venture capital firm Andreessen Horowitz, says he and his famous partner Marc Andreessen hope to carve out a different path in creating a new kind of venture capital firm.
They hope to capitalize on their fame going back to the days of the founding of Netscape, their startup successes, and their love for technical CEOs to beat other venture capital firms to the best new startups. Horowitz also said he hoped to be more transparent about his firm’s approach by telling entrepreneurs what his company is doing.
Horowitz reflected on what it was like to start Netscape, which went public in 1994, just 15 months after its founding by Andreessen. He said that kind of accelerated growth, which is not so uncommon anymore, is tough on founders who have to learn how to run a big operation under the public limelight. Back in the old days, it was common for venture capital firms to bring in professional CEOs to run a company after the founders got it off the ground.
But based on their experience, Andreessen and Horowitz say they don’t want to push founders out of companies.
“Today it would be nuts to replace guys like Mark Zuckerberg (founder of Facebook), Dennis Crowley (founder of Foursquare), and Mark Pincus (founder of Zynga),” Horowitz said in a conversation with journalist John Heileman at the Web 2.0 Summit in San Francisco today.
“We wanted to design a venture firm to help technical founders become CEOs rather than replace them,” Horowitz said.
Founders can make good CEOs because they know every decision the company has made, they understand customer feedback, and have the “moral authority to make decisions,” Horowitz said.
If there are mistakes to learn from, the founding CEOs are the best ones to recognize them, Horowitz said. The founding CEOs also have a clear commitment for the long-term, not the quarterly view.
“That is hard for a professional CEO to do, and having the moral authority can be very powerful,” he said.
Founders aren’t perfect, but Horowitz felt that venture capitalists developed a bias against founders as CEOs. Offering advice to founders about how to avoid pitfalls as CEOs is something that helps distinguish Andreessen Horowitz, according to Horowitz.
“Entrepreneurs come to us because, if you take money from us, the engineers you hire have heard of the investor,” Horowitz said. “That makes them more comfortable about taking a job.”
That matters these days when the ability hire good engineers is becoming harder in places like Silicon Valley, were certain kinds of talent are in short supply, despite the recession.
As for major trends, the “giant trend” is the shift from early web-based businesses, or Web 2.0, to a new kind of business. These businesses use cloud computing in the back-end data centers and mobile computing on the front-end.
“It’s the biggest change since we moved from mainframe computers to PCs,” Horowitz said. “It is changing the way that networks are being built.”
Heileman got Horowitz to make comments about some of the fund’s investments. Horowitz said he felt like Facebook is one of the best-run technologies companies. He said Groupon is the fastest-growing company in the history of business. He said Instagram is very innovative. Rockmelt has a great team with a great idea. Twitter is changing the world. He loves Zynga.
As for Steve Jobs, Horowitz said, “It’s spectacular what he did for the world and his life. People have compared him to Thomas Edison. That’s right in terms of the importance of the impact he has had on the world.”
Read more here
Oct 12
Matthew RoszakVenture Capital
A Kansas City firm turns the traditional VC funding model on its head and captures new opportunities.
By Gwen Moran
The typical venture capital story goes something like this: An entrepreneur gets an idea and plots out how to turn it into a business. Then he or she goes searching forventure capitalists to fork over dough to fund it.
But Steven St. Peter, managing director of Boston-based venture capital firm MPM Capital, prefers to flip that story around. He uses MPM’s funding and resources to locate ideas in the marketplace, then goes out and finds the best people to build the company.
“It’s not a formal ‘they work for us and they pursue ideas,’” St. Peter says. “It’s a collaboration.” And it’s working. MPM’s model has catalyzed three Boston-area pharmaceutical companies: Idenix Pharmaceuticals, Rhythm Pharmaceuticals and Verastem.
Now MPM has turned its attention to animal health with Kansas City, Kan.-based Aratana Therapeutics, which launched in December 2010. St. Peter recruited Dr. Linda Rhodes, a veterinarian who founded and built animal health research company AlcheraBio and sold it to Argenta, a New Zealand-based pharmaceutical research company; and Dr. David Rosen, also a veterinarian, who was previously an entrepreneur-in-residence at MPM and executive at Pfizer.
Rhodes and Rosen are developing therapies for pain relief and weight loss prevention in dogs. “People are treating companion animals as family members and are more willing than ever before to spend dollars on medical care for pets,” Rhodes says. “If you can bring something that’s unique to an unmet need or an underserved need in the animal health industry, it’s very likely to represent a significant market opportunity.”
MPM also lines up funding–for Aratana, $20 million of its own cash plus investments from firms like Avalon Ventures, Cultivian Ventures and the Kansas Bioscience Authority. St. Peter says this model, which focuses on the development of just one or two products, is highly effective. While development of a new animal health therapy from concept may traditionally take 10 to 12 years, Rhodes estimates that Aratana will have its first drug to market in about four to five years.
“I’m a veterinarian. I’m a pet owner. Our animals deserve this kind of innovative medicine,” she says. “It’s time to take those biotech and chemical breakthroughs that have happened on the human side and translate them to the animal health side.”
Read more here
Oct 05
Matthew RoszakVenture Capital
Kevin Rose, found of Digg.com, has decided to pull out 20% of his shares in Twitter in the most recent funding round. However, Rose is still quoted as saying that he, “still believed in the company.” Rose goes on to say that he simply needed the funds to invest in other investment opportunities and companies he wishes to invest in and work with. Clearly, this should not be taken as any kind of sign of Twitter faltering because Twitter is currently valued at $3.7 billion pulling in over $200 million a year. Twitter will have no trouble maintaining a positive image to its investors.
By Matthew Lynley
Digg founder Kevin Rose, an investor in Twitter, Zynga, Ngmoco and a later investor in Facebook, has cashed out 20 percent of his shares in Twitter.
Twitter’s most recent funding round gave the company’s shareholders an option to sell 20 percent or 100 percent of their shares if they wanted to cash out. Rose did not specify which option he took, but he said he sold shares in Twitter and “still believed in the company.”
Rose is also an investor in former TechCrunch editor Michael Arrington’s new early-stage investment fund, the $20 million CrunchFund. He is an investor in SV Angel and Greylock Partners as well, and his angel investing activities have slowed down while he starts working on his own startup, Milk.
“When you’re not actively doing angel stuff and you’re running a company, funds just make it a lot easier,” Rose said. “When you’re doing the active angel stuff you meet with companies back to back to back to back.”
Twitter confirmed that it is raising a large funding round from Russia’s DST, the investment company that has backed Facebook, Groupon and Zynga. The round is rumored to be around $800 million across a two-part funding round, which would value the company at nearly $8 billion.
Twitter has more than 300 million registered users who post more than 200 million tweets a day. Valued at $3.7 billion after its most recent round of funding in December, 2010, Twitter makes $200 million each year, according to analysts cited in the report.
Read more here
Sep 28
Matthew RoszakVenture Capital
Securing venture capital money these days, and especially in this economy, is tougher than ever. However, there are ways to look for it more successfully than just randomly picking a venture capital firm in the dark. One of the best ways to get potential venture capital money is to research the firms and find out exactly what kind of industries they prefer to invest in. Some like start up companies, while others prefer acquisitions or buyouts. Below the article explains what different companies are looking for and how one can target them.
There are many kinds of venture capitalists who invest in different types of opportunities. Some venture capitalists prefer to provide only seed capital; others prefer investing in mature companies looking for expansion capital. Some venture capitalists might only invest in specific industries and locales.
Here’s a quick primer on those factors that might influence a venture capital firm’s funding decision. Finding out what a specific venture capital firm is looking for can help narrow your capital search and put your business plan in front of the most appropriate investors.
Industry: Many venture capitalists specialize in a narrow set of industries. Some specialize in semiconductors, others in health care devices, biotech, or Internet services. Still others invest in “low-tech” businesses. Determining what industries a venture capital firm invests in will disclose whether or not it will consider funding your venture and show you where it has placed its bets in the past.
Geography: Just because some venture capitalists are located in Silicon Valley doesn’t mean they only invest in Silicon Valley companies. Some venture capital firms like to invest only in companies that are located near them, while others have a national or global scope.
Stage of development: While some firms like to invest early in the infancy of a start-up, others prefer to invest in later stages of development. Here are some key stages of development that venture capital firms consider:
Early Stage Financing
Seed financing is the initial investment required to prove a concept (e.g., to build a prototype or conduct market research) and qualify for start-up financing.
Start-up financing is what is typically required to build a management team and bring a product (or service) to market.
First-stage financing is often sought when start-up financing is depleted and a young company needs to expand its production, marketing, and/or sales capabilities to “ramp up.”
Expansion Financing
Second-stage financing is used by companies that are shipping products (or delivering services) and growing but need additional sources of funds to fund working capital requirements and grow faster than internally generated cash flow will allow.
Mezzanine financing is typically used to fund substantial growth and/or expansion of companies that are already up and running and are often at or beyond break-even volumes. Capital to fund a plant expansion or to move into a new geographic market is often categorized into this class of funding.
Bridge financing is sometimes needed when a company is about to go public within the following year. Bridge financing, as the name implies, is used to get the company to the IPO. Usually, the bridge financing is short term and is paid off with proceeds from the public offering.
Acquisitions/Buyouts
This type of financing is used to fund the acquisitions or buyouts of existing businesses that are up and running. Many times these are mature businesses that are funded with a large component of debt and a small level of equity capital (leveraged buyouts). The K.K.R. acquisition of RJR/Nabisco was one of the more famous (and largest) examples of this type of transaction.
Read more here
Sep 21
Matthew RoszakVenture Capital
Every entrepreneur has that one great idea that they need funding to achieve. A common approach to a new business is to search out venture capital firms and raise VC to fund your new business. However, this isn’t always a strategy that pays off as it is difficult to obtain the money from venture capitalists. Sure, there are the occasional mega-success stories, but those are few and far between. The article below illustrates this idea and also provides viable alternatives to fund your start up business, which then in turn can look to venture capital as an additional source for money to further expand once the business is up and running.
I do not mean to discourage you entrepreneurs in your quest to launch the next Big Thing. Many of you look at your path as write a compelling business plan, make a few presentations to the well-known venture firms, get $3 million for 5% of your company pre revenue, and launch.
Product development progresses without a hitch, you hit all of your milestones, you get a second round at an even more favorable valuation, and you land the big high-profile account. Two years later, you do an IPO with a market cap of $350 million. Fast forward another two years and you are the subject of a bidding war between Microsoft, Google, and Interactive Corp. You finally agree to a buy-out at $3 billion. Life is good.
Wow, that was easy. Unfortunately that is one in 10 million. I was listening to CNBC this morning and they were reporting on a new test developed by a Stanford PHD that would identify people two to six years in advance of developing Alzheimer’s Disease.
This is an ideal venture play – huge potential market, company founder with great credibility, and a great way to reduce future health care costs. On the surface this would seem like the sure fire bet for the venture guys, but the CNBC reporter said they were having trouble raising venture capital. What a shock.
If this company is having trouble, think about the battle you face. Because no one has a crystal ball, seven out of ten venture investments totally fail.
With that backdrop, venture capital investors look to achieve a thirty times return on their investment in three years. Many potentially successful companies fail to achieve the promise of their great idea because they get caught up in the venture trap. They are passionate about their idea and believe that it will become the next big success story.
They tend to be very optimistic which is essential for one that takes the kind of risks that a start-up requires. Their biggest flaw is that they focus way too much of their efforts on the venture dance. Endless meetings and presentations followed by delays and more presentations to other members of the same venture teams.
There are other alternatives. How about a strategic alliance with a bigger company in your industry? What about a licensing deal with a big player? Can a value added reseller play a role for you? What about an outsourced sales effort? Should you sell your company?
If you do have a great idea and are meeting an important market need, it is likely that there are other companies out there that have the same or very similar solutions. In today’s business environment that translates into a very limited window of opportunity to achieve scale. You are on the clock to achieve scale before your funds run out or before a well funded competitor simply captures your market.
Venture is very glamorous, but do not be myopic in your approach to cashing out on your big idea. There are several very important alternatives including building a solid, profitable small company under the radar and then raising venture to achieve scale and take it to the next level…
Read more here
Older Entries
RSS