Sep 14
Matthew RoszakVenture Capital
Getting started as a venture capitalist is a risky but rewarding activity. Knowing the ins and outs of the company a venture capitalist might invest in is always of prime importance because this determines whether the risky investment will flop or pay off with above average results. Knowing exactly what venture capitalism is and what it means to be a venture capitalist is just as important. Research is required to become knowledgeable of exactly what to expect, especially since the majority of projects one invests in will fail, however, once that specific company is found that does succeed with a venture capitalist’s help the payoff can easily make up for previous lost investments. The article below is a good start on the road to determining if venture capitalism is for you and how to begin.
by: Low Jeremy
Venture capitalism is a system wherein a venture capitalist invests money in small and fledgling companies to finance its start up or restructuring with the hopes of greater yield in the years to come. Instead of providing a loan, venture capitalists exchange their investments for a stake in the company often in the form of shares, which they will later unload.
Often, venture capitalists target companies with innovative products and services, which they feel have the potential to become successful brands in the years to come. Other times, people with ideas for products and services seek venture capitalists with the hope of being provided with start-up funds. These are the people who are just starting in the industry and therefore have no access to other forms of traditional financing like those provided by banks and financial institutions.
Often, they will provide the company with about three to seven years’ support. Venture capitalism may seem really fruitful when it comes to generating profits but not all investments that venture capitalists go into pay off.
In fact, most of the companies that they invest on will probably fail to return their investments. Remember that investing in new or troubled business is pretty risky. According to statistics, about 20 to 90 percent fail. They, however, recoup their losses with the companies that do go well. The return of their investments can reach from 300 to about a thousand times over.
Oftentimes, venture capitalists do not only provide money for the company but also managerial and strategic advice. They will often help the company stand on their own feet when they are just starting. Venture capitalists can also help in terms of providing contacts and in opening doors of opportunities.
If you are looking for a venture capitalist, make sure that you have researched the person or the company thoroughly. This is because there are venture capitalists that are more into providing seed money for companies that are starting up. Others concentrate on investing funds for restructuring and expansion.
Those with high growth potentials are good investments for these venture capitalists especially those in fields that are rapidly expanding like Information Technology, Bio-Technology and the Life Sciences. There are some that specialize in buyouts, turnarounds and recapitalizations.
It is important that you choose the right venture capitalist on your project. Do your homework and find out whatever you can about the venture capitalist that you are targeting. Otherwise, you will only be wasting your time and will just be turned down by these people.
A company is formed after someone is able to invent something. Take for example Henry Ford who was able to invent the first vehicle using an engine instead of it being drawn by a horse. This classic example is just one of many. The only difference is during that time; Henry had the funds available so there was no need to borrow from the bank.
But these days, those who want to start something have to borrow money. A student who wants to continue further studies on a project has to be a given a grant from the school. In the world of business, the entrepreneur can go to a bank or get someone to work with as an investor and as a partner.
This partnership is better known as venture capitalism. The cycle looks for simple as an entrepreneur will prepare the details and then submit the proposal to an investor. If after rounds of meetings, everything is sound and both parties have agreed on the details, then the funds are released and the business can begin.
But the venture capital cycle is not just for startups. The same thing can also be done to help expand an existing business. The same details are prepared by the person with the hopes that the creditor will approve the request.
The time it takes to do the research to the moment the business becomes a reality takes months. This is because the entrepreneur will have to do the research first. This means checking on the feasibility of the business given the location and the market, the cost of the machines, sales projections and of course the return of investment.
When this is ready, the proposal is sent out to a list of prospective partners. Some people will respond quickly while there are those who don’t. This is because of the other proposals given by other entrepreneurs. There is usually a meeting that will happen if the documents submitted are promising. This will give the investor an idea of who the entrepreneur is. Some investors feel a good vibe and take it from there while those who don’t will turn down the proposal.
An effective way to make a good impression will be by answering each question instead of stuttering there which does no help at all. It won’t take long anymore after that to hear a response from the investor. The answer is either a yes or a no which could make the entrepreneur happy or strive harder.
Sep 07
Matthew RoszakVenture Capital
Below is an interview with famed venture capital pioneer Bill Draper. This is an opportunity to get into the mindset of one of the most successful west coast investors. Draper talks about what it means to invest in a company as well as what to look for, and finally what mistakes you can avoid by following his advice. Keep reading to get inside the head of a successful venture capitalist and learn a thing or two that can help your own investment strategies.
By Leigh Buchanan
Bill Draper of venture capital firm Draper Richards offers advice to entrepreneurs on raising capital.
The Draper family is to Silicon Valley venture capital what the Gallos are to California wine. The three-generation dynasty began in 1959, when William H. Draper Jr., a retired U.S. Army general, created Draper, Gaither & Anderson—the first VC firm west of theMississippi. The family’s youngest investor is the general’s grandson, Tim Draper, co-founder of the prominent early-stage investment firm Draper Fisher Jurvetson. Connecting those two formidable players is William H. (Bill) Draper III, the general’s son and Tim’s father. Bill Draper helped shape the modern VC industry, most notably at Sutter Hill Ventures and at Draper Richards, where he is a general partner. He has invested in companies such as Skype, Hotmail, and OpenTable. In January, Palgrave Macmillan will publish his memoir,The Startup Game: Inside the Partnership Between Venture Capitalists and Entrepreneurs. Editor-at-large Leigh Buchanan talked with Draper, 82, about the VC industry and what it takes to succeed as an entrepreneur—no matter where your money comes from.
What was it like launching a VC firm at a time when most people didn’t even know what venture capital was?
Actually, people in the East did know about venture capital through the Whitney family in New York andAmerican Research and Development in Boston. But no one out here had heard the term. In 1962, when my partner, [Franklin] “Pitch” Johnson, and I started our first company, Draper & Johnson, we got no action. We would sit around waiting for the phone to ring. It didn’t, so we drove out into the fruit orchards—remember, it wasn’t Silicon Valley back then. We’d look for companies with names that sounded like they might have something to do with technology or at least like they weren’t warehouses for prunes. When we saw a promising sign, we’d knock on the door and ask the receptionist, “Is the president in?” A man would come out—usually our age, early 30s. And he’d ask, “What do you do?” We’d say, “We’re in the venture capital business. We buy a minority interest in a private company and help it grow.” Then we’d ask, “What do you do?” And he’d talk about his business—they loved to talk about their businesses. We had a lot of fun and wasted a lot of hours that way. But once in a while, we got someone interested in expansion who hit our hot button. Then, as the banking community in San Francisco learned about us, we became the go-to guys for small, growing companies that might one day have a public offering.
With which entrepreneurs have you had the best working relationships?
One of the most passionate and energetic entrepreneurs I know is Jonathan Bush, whom I met in New Hampshire when he was 18 years old and out campaigning for his uncle, George H.W. Bush. Jonathan was everywhere—knocking on doors, working phone banks, driving around on a truck with a megaphone. He really inspired people.
Later, he connected with me when he wanted to start Athenahealth, which offers billing, electronic records, and other services for medical providers. We supported him, and I also got the Rockefellers to invest, as well as my son’s firm. Athenahealth became a fine, rapidly growing company and had a very successful IPO a few years ago, in which we got back 10 times our investment.
I also became close to Dave Bossen, founder of Measurex, which made computer controls for the paper industry. Dave is that rare entrepreneur who is equally competent starting a company from dead scratch as he is running it all the way up to the New York Stock Exchange and beyond. [Honeywell acquired Measurex in 1997.]
Draper & Johnson was the first firm you started. What did that experience teach you about entrepreneurship?
First, that you need other people. Starting with the money. I had $25,000 and a $20,000 mortgage on a $40,000 house. I needed $75,000 and a partner with another $75,000, because the SBIC [Small Business Investment Company—a private-public partnership] would leverage that money three to one. So I teamed up with Pitch. And luckily, I had a father and Pitch had a father-in-law who loaned us what we needed.
Read the full article here
Aug 31
Matthew RoszakVenture Capital
We talk a lot about venture capital on this blog; how to attract it for your business, how to increase yields from business you invest in, etc. But to those who might be new to this blog and/or the idea of venture capital this article is designed to get your mind wrapped around just what exactly venture capital means. In a nutshell venture capital is money that has been invested into a start up company that can not get money the traditional way such as getting a loan from a bank or a company that might potentially be failing and plans to restructure using the raised money. The idea of venture capital is one of high risk for high reward.
By: BMA Editorial Team A
Business needs money to grow and thrive but their business plan is not always understood by traditional banking who is not keen on risk and has criteria that isn’t generally conducive to building a better business. That’s where venture capital can help. But what is venture capital?
Venture capital keeps business booming! It is a way that new business can get start up capital and begin to thrive and it’s a way that established business could expand. That’s because venture capitalists are looking for new and innovative ventures that have the potential to have huge yields. They are not interested as much in businesses that are already flourishing they are interested in expansions that have a risk attached to them and to restructuring. Think of them sort of like a risk junkie that needs a fix.
Venture capital is money that a venture capitalist puts forward to a business venture in return for having a stake in the company. Venture capital is not a loan. Venture capitalists invest in hopes that there will be a big yield in the future that will make them a whole lot of money. That means whatever the future profits are the venture capitalist will share in it.
There is no question that venture capital is risky but it is also the main source of funding for start up companies that have few other sources they can rely on. It’s a well known fact that those with ideas have no money and those with money are often lacking ideas so venture capital is a great way to marry up the two in a way that benefits both parties.
When venture capitalists look for venture capital investments they look for a company that is small and new with a very promising future. In this way they can bring very little cash to the table and have the chance of making millions if all goes well. Although venture capitalists take big risks the gains can also be enormous.
Venture capitalists have their own team that spends their time watching what’s happening in the business front. They watch for companies that are struggling and very vulnerable but have extreme growth potential. Other capitalists will enlist the services of a private equity firm, or something similar, which has the job of matching up entrepreneur with venture capitalist.
Having an idea and a business plan is what entrepreneurs do. They are also a breed of individuals that are willing to take risk, and they are willing to lose everything, because they are confident their idea is sound and will make them money. Thankfully the venture capitalists couldn’t be bothered to come up with their own idea of what to do with their money instead leaving the ideas to you while they become the investor.
Now that you know what venture capital it, do you think it is right for your new business? Do seriously consider it, because venture capital is a way to catapult your business into an entirely different dimension…
Read more here
Aug 24
Matthew RoszakVenture Capital
The economy in shambles and the most recent stock market downturn has made it hard to raise venture capital in this current pessimistic climate. However, with certain tried and true “secrets” it is still possible. Part of the secret to success is good old fashioned hard work and sense, but there is more to it than that. The article below details 6 tips one can use to bring in that oft hard to find venture capital money.
By Jon Olafsson
With fear running amok on Wall Street and the future economic picture so uncertain, it can be hard to raise venture capital these days. Over the last 12 months, though, we’ve managed to secure $23 million from both institutions and friends and family.
Part of the trick, we found, was having a well-researched and clearly articulated business proposition that clearly demonstrated a very substantial upside for investors. We cast our net wide, using our own personal networks as well as those of professional fundraisers. And while we were prepared to be flexible on terms, we refused to entertain low-ball offers.
Ultimately, though, our fundraising success came down to a few factors. Here are our secrets:
Keep it simple – The market for bottled water is well established. We had the advantage of an existing product, but that was hardly a guarantee.
We condensed the investment proposition to four essential “pillars” – the market, the source, the product and the distribution – and demonstrated how we had competitive advantages in each area.
Go with what works – A core strength of our product is the spring we draw from, located in Ölfus. Investors , we quickly learned, liked the idea of owning a part of this highly valued resource.
Emphasize the positive – Communicating success signals the potential value in your company. We were fortunate to boast a strong sales performance during the fundraising period – something we regularly communicated to potential investors. Along the way, we also highlighted our growing U.S. sales and international distribution.
Eliminate the negatives – It’s easy for VCs to say no. And it’s incumbent upon you, as the business owner, to remove the reasons for them to give that answer.
During the process, we addressed three concerns that, admittedly, were specific to our industry, but showcase what any prospective fund seeker should think of in advance:
- No track record – We ensured we had a company history, proving to investors that the product had legs.
- No distribution – We obtained distribution in US, Canada and China, showing we weren’t a product that would be landlocked in Iceland.
- No control of source – We bought the land that houses our spring, giving us the rights to the source in perpetuity.
Follow-up on all leads – We used all of our personal networks as well as those of two international investment banks to look for potential investors. We were prepared to incentivise people to find investors, offering placing commissions of up to 4 percent. We followed up assiduously on all leads giving further information, access to the data room, samples of the product and offering site visits to Iceland. A successful first meeting was always a result of a personal engagement with the project on the part of the potential investor.
In the end, roughly half of the funding has come from investors who are my personal friends, with the rest coming from South African institutional investor Bidvest.
Believe in the business – There are always dark days in a business and fundraising can be especially frustrating in the current environment. We continually reminded one another about the quality of the product and the latent demand for it in international markets.
Some potential investors offered us terms that were much poorer than the ones we finally achieved. It was our confidence in our business that gave us the strength to say no. Our existing shareholders helped support the business and the pricing by continuing to invest in the business during the process.
About the author: Icelandic Water Holdings, ehf, Chairman & Founder, Jon Olafsson has spent the last 30 years building successful companies from the ground up and transforming them into industry leaders. Best known as the chair of Northern Lights Communications — Iceland’s premier integrated media, communications and entertainment company — Olafsson has served as a critical player on the executive boards of more than 15 companies across multiple sectors including investment banking, entertainment, media, construction and land development.
Read more here
Aug 16
Matthew RoszakVenture Capital
Angry Birds game developer Rovio is currently seeking a $1.2 billion valuation of the company in an upcoming fundraising round. Angry Birds is a simple game that first appeared in app stores and smart phones and quickly spread like wildfire. Rovio is counting on the popularity of this game to launch it ahead of other large online casual gaming companies, at least in total worth. Rovio is expanding quickly both in terms of employees and investments in the company. Only time will tell how this all pays off for the record making company.
By Matthew Lynley
Angry Birds maker Rovio is in the process of a fundraising round that would value the company at $1.2 billion, according to a report by Bloomberg.
That would make the casual games company worth more than Plants vs. Zombies creator PopCap, which games publisher Electronic Arts bought for $750 million. Rovio is still well short of social games maker Zynga, which is valued somewhere between $10 billion and $20 billion and is looking to raise up to $1 billion in its upcoming initial public offering.
Wibe Wagemans, Rovio’s head of global brand advertising, hinted that the company was raising money at VentureBeat’s GamesBeat 2011 conference in San Francisco last month.
“We’re in fast growth mode, so we’re always on the lookout for good money,” Wagemans said. “We’re always interested.”
Angry Birds is a popular game on mobile devices in which players fling birds at structures to try to destroy pigs. It started on smartphones like the iPhone and on tablets like the iPad. It has since expanded to a large number of other platforms like web browsers and TV boxes that are powered by operating systems like Android.
The company finished raising its last round of money — $42 million – in March this year. Rovio has been expanding through 2010 and 2011 and currently has 50 employees in Finland.
Read more here
Aug 09
Matthew RoszakVenture Capital
The United States has decided to invest a significant amount of money into manufacturing solar panels. The U.S. manufactured under 10% of the world’s solar panels last year. This investment will be a boon to proponents of increasing manufacturing on our home soil as well as helping the planet by moving forward with green energy solutions. This is just a step in the governments SUNPATH program which hopes to eventually get the every day consumer off of fossil fuels and into more sustainable energy forms like solar energy, once the costs come down enough to make it feasible.
By Matthew Lynley
The U.S. Department of Energy announced today that it is investing $50 million in the SUNPATH program, which is designed to promote solar panel manufacturing in the United States.
The United States manufactured only 7 percent of the world’s solar panels last year, according to the Energy Department. That’s down from 27 percent in 2000 and 43 percent in 1995. Most solar panels are now manufactured in China, where more lax labor laws make it cheaper to manufacture and deliver solar panels.
“This certainly helps, but just to put it in perspective, the chinese government is dealing in billions when they support these areas, not millions” Craig Lund, vice president of business development at 1366 Technologies, told VentureBeat. “U.S. market share has dropped precipitously in the past decade while China has done a lot to subsidize manufacturing.”
The new investments, which will come over the course of two years, are geared toward companies that reduce the cost of manufacturing solar panels and scaling up solar-panel production. But reducing the cost of manufacturing solar panels won’t necessarily give the U.S. a competitive edge in producing them, Kachan & Co. managing partner Dallas Kachan told VentureBeat.
“The biggest challenge in solar-cost reduction is not module price, but balance-of-system costs,” he said. “It takes time and money to fasten panels in place, run cabling and install inverters.”
But there is renewed interest in manufacturing in the United States thanks to favorable exchange rates. That’s prompted companies like silicon wafer producing company 1366 Technologies, which recently filed for a conditional Department of Energy loan, to reconsider manufacturing stateside. The investment from the Department of Energy is a small step in that direction, Lund said.
“Generally, the exchange rate is moving in our favor,” Lund said. “The time is right. It’s as good as it’s been in a while.”
The investment is part of the U.S. Department of Energy’s SUNSHOT initiative, which is attempting to bring the cost of electricity for solar panels down to around 6 cents per kilowatt-hour. That would make it more competitive with other kinds of power like fossil fuels, which enjoy much lower costs per kilowatt-hour of electricity and do not carry the same upfront capital costs solar panels have.
Read more http://venturebeat.com/2011/08/02/sunpath-doe-50-million/
Aug 02
Matthew RoszakVenture Capital
Google is currently in the market looking for the next Google. Google is sinking large amounts of its ample profits into the venture capital market trying to find the next big thing. In today’s market it seems more and more companies are playing venture capitalist, and why not when a large company can benefit from its successes and buffer its losses easier. Google has said that it is using data to determine its investment choices but investors doubt this will be a successful formula given that most, if not all, of these companies are start ups and do not have much hard data associated with them yet. Given Google’s success it is a hard sell to bet against them, after all, all success comes with at least a little bit of luck–and success in venture capital is no exception.
By CLAIRE CAIN MILLER
Google thinks it can be young and crazy again. And it is betting $200 million that it is right.
In the hottest market for technology start-up companies in over a decade, the Silicon Valley behemoth is playing venture capitalist in a rush to discover the next Facebook or Zynga.
Other pedigreed tech companies are doing the same, as venture capital dollars coming from corporations approach levels last seen in the dot-com bubble era of 2000.
To some, it is a telltale sign of an overheated industry, symptomatic of a late and ill-advised rush to invest during good times. But Google says it has a weapon to guide it in picking investments — a Google-y secret sauce, which means using data-driven algorithms to analyze the would-be next big thing.
Never mind that there often is very little data because the companies are so young, and that most venture capitalists say investing is more of an art than a science. At Google, even art is quantifiable.
“Investing is being in a dark room and trying to find the way out,” said Bill Maris, the managing partner of Google Ventures, the corporate investment arm. “If you have a match, you should light it.”
Corporate venture funds invested $583 million in start-ups in the first three months of the year, according to the National Venture Capital Association, up from $443 million in the same period last year and $245 million in 2009, before tech investing began its rapid turnaround.
Today, 10 percent of venture capital dollars comes from corporations, nearing the previous bubble-era high of 15 percent in 2000. Facebook, Zynga and Amazon.com are investing in social media start-ups. AOL Ventures restarted last year after three previous efforts, and Intel Capital expects to invest more this year than the $327 million it invested last year.
Google Ventures says it has invested as much money in the first half of this year as in all of last, and Larry Page, the company’s co-founder, who became chief executive this spring, has promised to keep the coffers wide open.
Corporate venture arms have sprung into action before during boom times, like the early 1980s and the late 1990s, but they have had mixed records.
“When the corporate guys get involved, it usually means that we’re at the top of the market,” said Andrew S. Rachleff, who teaches venture capital at Stanford and was a founder of Benchmark Capital, the venture firm.
Mr. Rachleff also questioned Google’s reliance on its algorithms. “There’s no analysis to be done when you’re evaluating a company that’s creating a new market, because there’s no market to analyze,” he said. “You have to apply judgment.”
Although even Mr. Maris compares venture investing to “buying lottery tickets,” Google says it has faith in its algorithms. At the same time, it is taking the unusual step of providing the chosen start-ups with access to its 28,770 employees for engineering, recruiting and business advice, and offering office space at the Googleplex and classes on building a business.
Mr. Page, who declined a request for an interview, has already promised Google Ventures $200 million this year and says a virtually unlimited amount is available, Mr. Maris said, as Google reconnects with its start-up roots. “I’ve had conversations with Larry when he says, ‘Do as much as you can, as fast as you can in as big and disruptive a way as possible,’ ” he said.
Google says its approach is paying off. One of its investments, Ngmoco, was acquired by a Japanese gaming company, DeNA, for up to $400 million, and another, HomeAway, for renting vacation homes, received a warm welcome from investors when it went public last month. A third, Silver Spring Networks, a smart-grid company, filed to go public last week.
Google Ventures invests in various areas — the Web, biotechnology and clean technology. It puts large amounts of money into mature companies, but it is also investing small amounts in 100 new companies this year.
To make its picks, the company has built computer algorithms using data from past venture investments and academic literature. For example, for individual companies, Google enters data about how long the founders worked on start-ups before raising money and whether the founders successfully started companies in the past.
It runs similar information about potential investments through the algorithms to get a red, yellow or green light.
Read more http://www.nytimes.com/2011/07/20/technology/google-spending-millions-to-find-the-next-google.html?_r=1&ref=venturecapital
Jul 26
Matthew RoszakVenture Capital
In an investment slump, that is still recovering from the 2008/2009 low-point, web apps and software are continuing to be money makers for investors. Web apps and software, specifically for the myriad social media sites, are dominating the investment pool right now with continued profits and growth even in today’s lackluster economy. The article below provides specific details and figures to illuminate how well this section of investing is doing.
By Jolie O’Dell
As overall VC numbers leveled off in the second quarter, web apps and software continued to be sweet spots for investment through the first half of 2011.
According to data from Dow Jones, even as other sectors slumped, software, including downloadable and boxed applications as well as web-based apps, showed strong signs of recovery from the late-2008/2009 investment nosedive. And the consumer information services sector, which includes all consumer-facing websites, apps and services, had a strong quarter, as well.
In combination, software and consumer web companies raised $2.66 billion in a total of 281 deals.
The consumer information services sector also includes social media web apps. This particular category received a larger amount of funding and a smaller number of deals year-over-year, raising 25% more capital than in Q2 2010.
And a Dow Jones rep confirmed to VentureBeat that mammoth rounds such as a $565 million round for local deals service LivingSocial and a $138 million round for luxury-brand deals site Gilt Groupe aren’t necessarily driving up the median for the whole sector.
In a statement, Dow Jones VentureWire editor Scott Austin said of the consumer services category (which is 70% web apps), “The median round size for [these] deals is creeping up, which means it’s no longer just a few abnormally large funding rounds driving up investment levels. The wealth is being spread to companies across the industry.”
Over the past two years, the median dollar amount for funding deals in consumer services has ranged between $2.5 and $3.5 million. However, in Q2, the median round size rose to $4.7 million for that category.
Read more http://venturebeat.com/2011/07/22/venture-capital-q2-2011/
Jul 19
Matthew RoszakVenture Capital
According to Google Ventures partner Joe Kraus, it seems most venture capitalists haven’t discovered the formula for picking winners in the gaming industry. It’s a tricky task to undertake because these days making a successful game can cost almost as much as making a movie, but it’s success is determined by a much more fickle consumer base. It is hard to see which games will appeal to how large an audience and base a monetary value to that franchise. On the other hand, some simpler games that require much smaller initial investments can balloon up and bring in huge revenues like social game maker Zynga. The gaming culture is here to stay and figuring out proper ways to evaluate a companies potential revenues will be important for venture capitalists now and into the future.
By Matthew Lynley
Investors haven’t been very good at figuring out which gaming companies will be successful, said Google Ventures partner Joe Kraus.
That’s not limited to social gaming companies like Zynga or Kabam but also hardcore game makers like Trion Worlds, he said.
“Half the deals for fund makers were under-subscribed in A and B rounds,” said Kraus (pictured right) in a panel at GamesBeat 2011 Tuesday. “The data suggests that we’re actually really bad at picking even as professional pickers.”
Trion Worlds, maker of the online game and World of Warcraft competitor Rift, raised $70 million just before the recession hit full swing. It involved a little bit of luck, said company CEO Lars Buttler, in the same panel discussion. None of the well-known firms like Accel Partners and Kleiner Perkins Caufield & Byers invested in Trion at the time — instead, that round was led by Act II Capital.
Then Kleiner Perkins’ Bing Gordon backed mobile gaming firm Ngmoco, which was bought by DeNA for $403 million. Kleiner Perkins Caufield & Byers also invested in Zynga. Accel would also later go on to invest in Angry Birds maker Rovio. Just about everyone else missed the boat with social games and gaming, Kraus said, because there wasn’t any indication that the companies would be successful and they required a lot of capital.
One of Zynga’s early funding rounds was only $29 million, when the company was bringing in around $35 million in revenue. The company has since exploded, growing to more than $500 million in revenue each year. It recently filed to go public in order to raise up to $1 billion, valuing the company somewhere between $10 billion and $20 billion.
“At the time, Zynga’s round of $29 million seemed like a lot of money,” said social game company Kabam CEO Kevin Chou. “It was actually the right amount of money.”
Nowadays, social gaming companies raise a lot more money than that. Angry birds maker Rovio recently raised $42 million, while hardcore social game maker Kabam recently raised $85 million. Kabam entered the social gaming space in 2009 because it raised enough money that it was able change directions. It was originally an enterprise social network when the company was founded in 2006, but shifted to games later.
Some of the most successful gaming companies have grown because they have better access to analytics and information about their players. Zynga, for example, is able to figure out a lot of information about their players — such as what games they are playing, and for how long, and even what goods they are buying, Chou aid. This enables Zynga to optimize the game for its players and make it more likely that the players will buy virtual goods or play longer.
“We’ve moved from the gaming space from the age of artists to the age of mathematicians,” said Menlo Ventures managing director Shervin Pishevar. “I don’t think Zynga is a gaming company, it’s a business intelligence company.”
For more information please reference the original article here
Jul 12
Matthew RoszakVenture Capital
Square is the mastermind behind the tiny credit card reader that attaches to ones cell phone. Small businesses are taking advantage of this product, due to its simplicity and convenience factor. It helps make sales much easier, quicker and more convenient.
BY EVELYN M. RUSLI
Square, the fast-growing mobile payments company, does not suffer from a lack of buzz.
Helmed by Jack Dorsey, one of the founders of Twitter, it is garnering significant attention for its bite-size credit card reader, which facilitates payments on mobile devices. The company, based in San Francisco, processes almost $4 million in transactions a day for individuals and small businesses like limousine drivers and beauty salons. It’s also attracting capital from the largest investment firms in Silicon
Early Wednesday, the start-up announced the completion of a $100 million financing round, led by Kleiner Perkins Caufield & Byers, a leading venture capital firm that has backed Google and Amazon. The round values the company at $1.6 billion, according to two people briefed on the matter.
Square’s valuation has soared in a short period of time. In January, the company raised $27.5 million in a financing round led by Sequoia Capital. The deal, which also included several private and strategic investors — like Khosla Ventures and Jeremy Stoppelman, Yelp’s chief executive — valued the start-up at $240 million. In late 2009, Khosla Ventures invested $10 million in Square, at a modest $45 million valuation.
Even as Square’s war chest rapidly grows, it remains unprofitable. According to one person who has reviewed the company’s financials projections, Square is on track to notch gross revenue of about $40 million. But its adjusted operating income is expected to be in the red, at negative $20 million. The hope, the person said, is for Square to reach profitability in 2012 with gross revenue of at least $200 million.
A lack of profit is not a unique to Square, a young start-up that opened its service to the public late last year. Groupon, the popular social shopping site, recorded $713 million in revenue last year, but its loss topped $450 million, according to its latest filing. Pandora, which went public earlier this month, posted a loss of $1.8 million last year.
To get to profitability, the company is banking on hockey-sticklike growth. Earlier this year, Mr. Rabois told DealBook, he hoped to “end the year processing billions of dollars of transactions on an annual basis, with millions of businesses in the U.S.”
The company is trying to broaden its appeal by targeting various pain points in payments processing. In addition to its marquee card reader, Square has introduced Register, an application that turns the iPad into a digital register for merchants, and Card Case, an application for consumers that helps them find local businesses and pay through online accounts.
Still, analysts have expressed caution on Square, because it is operating in the highly competitive market of mobile payments. The technology giant Google, which has some $37 billion in cash on hand, recently introduced Wallet, a mobile application that lets users pay by swiping their smartphones at retail terminals. Another rival, Intuit, sells GoPayment, a similar service to Square’s original card reader.
As its competitors bulk up, Square is trying to build on its momentum by stacking its board with well-known figures in the technology community. The company announced on Wednesday that a Kleiner Perkins partner, Mary Meeker, once called the Queen of the Internet, is joining Square’s board. She joins Mr. Dorsey; the company’s chief operating officer, Keith Rabois; a Sequoia Capital partner, Roelof Botha; Lawrence H. Summers, a former Treasury secretary; and the venture capitalist Vinod Khosla.
http://dealbook.nytimes.com/2011/06/29/unprofitable-square-valued-at-1-6-billion/?partner=rssnyt&emc=rss
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