For Entrepreneurs, a Lesson in Keeping Control

By STEVEN M. DAVIDOFF

“A Stanford M.B.A. named Roy Raymond … comes up with an idea for a high-end place … and calls it Victoria’s Secret. After five years he sells the company to Leslie Wexner and The Limited …Happy ending, right? Except two years later, the company’s worth $500 million and Roy Raymond jumps off the Golden Gate Bridge.”

That’s a scene from “The Social Network.” The real story is that Victoria’s Secret was nearly bankrupt at the time of its sale. And The Limited bought the company for $4 million, paying far more than Mr. Wexner’s board thought he should pay. It was Mr. Wexner’s marketing genius that turned a nearly failed business into a success.

So that scene might not be completely accurate, but it, like other parts of the movie, has a kernel of truth. With start-up companies, entrepreneurs are focused on the business’s life and death. They may make heat-of-the-moment decisions that will affect control and whether they can profit.

In the real-life case of Facebook, Mark Zuckerberg is a rare entrepreneur who has not only maintained a substantial interest in his company, but also control. Many others receive needed money, but lose control of their business. There is a saying that once you accept venture capital, you have sold your company. V.C. funds require a return on their investments and will need to cash out through a sale or an initial public offering.

A venture fund will negotiate a set of agreements with the founders at the time of its investment with this goal in mind. Not only will the fund negotiate to ensure that an exit occurs, but the V.C. will insist that it be paid back before the founder.

The key for entrepreneurs in negotiations is to make sure that when they do raise V.C. money, they have options. If they can get multiple term sheet offers, then they can negotiate to sell the smallest part of their company on the most lenient terms. If you only have one term sheet, you are not going to fare well.

When the company is not performing to expectations, these legal rights negotiated at the beginning of the founder-V.C. relationship come into play. The venture fund will exercise control of the company primarily through the board. While V.C. funds will not always appoint a majority of a board’s directors, these investors often require that a board consist of a number of independent directors who can break any dispute between the founders and the venture capitalists. But these directors are often independent in name only. When things go bad, they typically side with the more experienced venture capitalist.

Venture firms also invest by buying preferred shares that are more senior to the founder’s common shares. These shares often require that the venture firm be paid back first with interest in any sale or exit.

In addition, there will often be terms negotiated if money is subsequently raised at a lower valuation, a “down round.” These provisions are known as anti-dilution rights, and their strength can vary. The strong form is known as a full ratchet and provides the initial venture capital investor full protection from dilution in any down round, at the expense of the founder. “Drag-along rights” will sometimes be included — they force founders to sell their shares when the venture capitalist does. Most important, a venture capital firm will often provide investment capital for a short, preset period. The V.C.’s thus control the company by ensuring that the founders will need to return for more capital.

All of these terms can come back to haunt. A founder is often desperate for capital, and there is little negotiating leverage at the beginning of the company’s life. Simply obtaining capital appears enough. But this can change as time passes and the founder may no longer be the right person to run and expand the business.

Worse yet, preferred-share provisions that give venture firms shares that are senior to the common shares could leave the founder with nothing.

In the recent Delaware case of In re Trados, a start-up business was sold but the sale price was sufficient only to pay back the V.C.’s. The court in that case upset the venture capital world by saying the other shareholders could still sue the board for failing to obtain payment for them. The case may give hope to founders who are given nothing in a sale, but the National Venture Capital Association has responded by suggesting that V.C.’s negotiate even stronger sale rights, including one that would effectively force the company to sell itself without a return to the founders.

This need for an ultimate cash-out for the V.C.’s is paramount. Even Mr. Zuckerberg will ultimately have to find an exit for his V.C.’s, most likely in an initial public offering. Mr. Wexner did so years ago and now owns only 16.3 percent of The Limited Brands, the successor holding company to The Limited. Yet he’s still firmly in charge, and Mr. Zuckerberg has a good chance of staying as well.

The real lesson from the story told in “The Social Network” is that businesses are not sold too soon or too late, but that they are instead sold when the founders can no longer take them forward.

View Article: http://www.nytimes.com/2010/11/10/business/10dealprof.html?_r=1&partner=rssnyt&emc=rss

A Dim View of Betting on Start-Ups

BY ANDREW ROSS SORKIN

“There’s too much money chasing too few deals.”

Sean Parker, the entrepreneur behind Napster and Facebook now turned investor, was talking about the state of the venture capital industry last week over coffee. At 30, Mr. Parker, who was recently portrayed by Justin Timberlake in “The Social Network,” has been thinking a lot about innovation — or the lack of it — in the United States.

And he’s come to a depressing conclusion about the money industry that he says used to be “the engine of innovation” for this country.

“The risk-reward doesn’t work out in favor of putting money into venture capital anymore,” he said, even though he himself is a partner in a venture capital firm that owns stakes in Facebook and SpaceX, the private spaceflight company run by Elon Musk, a co-founder of PayPal.

Mr. Parker, a night owl who had awakened before his usual rising time of noon to meet with me, said the problem plaguing the venture business represented  a “systemic risk” to the country that he believed meant “innovation could gradually grind to a halt or at least become less effective.”

Mr. Parker may tend toward hyperbole, but ever since the bursting of the dot-com bubble, there has been a steady drumbeat of “venture capital is dead.” In the last year, however, that drumbeat has gotten louder as it has become clear that many of the best-known venture firms in Silicon Valley and elsewhere have returned a pittance to their investors.

According to the Cambridge Associates U.S. Venture Capital Index, venture capital returned a paltry 8.4 percent to investors in the last decade, starting in 1999. Ernst & Young reported last month that venture capital investing had fallen off a cliff this year, down 47 percent in the first half of the year compared with the period a year earlier.

“You’ll see big old established firms that everybody thought were here to stay probably splintering,” Mr. Parker said. That’s in part because he is convinced that the industry’s biggest backers — institutional investors — are going to seek a haven elsewhere. “I can’t name names but certain large university endowments have lost as much as half of their value,” Mr. Parker said.

For every Facebook, there are dozens of start-ups that never make it. That is the model — it is all about swinging for the fences. Even Facebook, still private, having not pursued an initial public offering, has yet to see the big payoff for its largest investors.

One of the problems often cited for depressing the venture capital world is the perception of a tight market for I.P.O.’s. Bill Gurley, a partner at Benchmark Capital, which was an early investor in eBay and OpenTable.com, says he believes exaggerated expectations are the problem.

“We may also have a perturbed notion of what a healthy I.P.O. market looks like,” he wrote last week on his blog. “The I.P.O. market of 1999 was a myth, a facade, a once-in-a-lifetime mirage that you will never see again.”

That the market for initial offerings is dead may also be a myth, however. It may just be Silicon Valley. Only 11 of the 42 high-tech, venture-backed offerings since 2008 came from Silicon Valley. As Mr. Gurley pointed out, “In other words, 74 percent of these I.P.O.’s hail from outside of the S.V. echo chamber.”

Silicon Valley’s latest, greatest hopes — clean tech and green tech — also seem to be failing despite big investments from the likes of John Doerr of Kleiner Perkins Caufield & Byers and Vinod Khosla, a former Kleiner partner.

“It is not clear anyone will make money on their green-tech investing. It looks like it was a bubble, “ Mr. Parker said.

But worst of all, from the standpoint of innovation, entrepreneurs may be changing the way they are thinking — they are becoming less ambitious.

“Ten years ago, venture capitalists would ask the question: Do you want to build a company and flip it or do you want to build a company and I.P.O. it? It’s a trick question. The correct answer was always, ‘I want to build an incredibly valuable stand-alone business and maybe we get bought, maybe we go public but we’re going to build an incredibly valuable company,’ ” Mr. Parker said. “Now it’s actually not clear that that’s the right answer. There’s a lot of venture firms that are clearly interested in building something and selling it either to Facebook, Google, Microsoft.”

That’s not to say that Mr. Parker is all doom and gloom. His firm may actually have another venture capital-backed winner on its hands in Spotify, an online music service that some analysts suggest could one day challenge Apple’s iTunes.

But before you get too excited about great leaps in innovation in the United States, consider this: Mr. Parker didn’t discover Spotify in his backyard. It was founded in Stockholm.

Given his own status as a rock star entrepreneur, just how did Mr. Parker feel about Justin Timberlake’s portrayal of him in the “The Social Network?”

Pausing for a moment, Mr. Parker reflected: “It’s hard to complain about being played by a sex symbol.”

To read more: http://dealbook.nytimes.com/2010/11/22/a-dim-view-of-betting-on-start-ups/?partner=rssnyt&emc=rss

Photo Sharing on the Go Is the Latest Hot Investment Niche in Silicon Valley

By CLAIRE CAIN MILLER

SAN FRANCISCO — In Silicon Valley, the three words on the tips of everyone’s tongues are mobile, social and local.

Add a fourth word and venture capitalists get excited: photos.

A flurry of new start-ups is focused on mobile photo-sharing, some of which plan to make money from local advertising. The smartphone apps transform cellphone photos so they look better, tag them with location data and post them in real time to social networks on phones and the Web.

The apps, like Instagram, Hipstamatic, DailyBooth and PicPlz, are generally free or cost a small amount. So far, they have been small-time projects for the people who built them. But now a few are trying to transform themselves into real businesses.

Mixed Media Labs, the company that makes PicPlz, will announce on Thursday that it has raised $5 million from Andreessen Horowitz, a prominent venture capital firm.

“It is annoying to take photos with your cellphone and have them look good and get them off your phone,” said Dalton Caldwell, co-founder and chief executive of Mixed Media who previously co-founded Imeem, the now-closed music site. “That solves a real need.”

PicPlz offers an Android and iPhone app and a Web site. People take photos with their phones and can apply eight different filters to change their look, such as “the ’70s” or “Russian toy camera.” They can upload them to PicPlz, where others can view photo streams from a particular user or location, so it is like a visual version of Twitter. They can also send them to Facebook, Twitter or Foursquare.

PicPlz is one of the newest wave of consumer tech products being built first as mobile apps, with the Web site as second priority — an idea that would have seemed foreign just a few years ago.

“I think for the next generation of companies, the application they deliver on the mobile side is way more important than the Web site,” Mr. Caldwell said.

He and some of the other photo app developers talk about still-vague goals of expanding the apps into mobile networks, based on location or groups of friends. Mixed Media plans to build many location-based apps.

Though Mr. Caldwell says he still doesn’t know exactly what the company will do, he knows what it will not do — repeat the mistakes he made at Imeem.

He sold Imeem’s assets to MySpace last year at a loss. He blames its failure on the impossibility of negotiating with music companies for digital music, but also said he made every mistake in the book while running it.

For example, he said he waited too long to figure out how to make money at Imeem. He plans to make revenue his first priority at PicPlz, possibly with location-based advertising.

He is also trying to avoid peaks and plunges in PicPlz’s growth. The app has been downloaded 130,000 times since the Android app was introduced in May and the iPhone app in August. Instagram, a competitor, was introduced last month and already has more than 300,000 users.

But Andreessen Horowitz chose PicPlz over the company that makes Instagram, called Burbn. Earlier, the firm invested small amounts of money in each, before Burbn scrapped its original mobile check-in service to focus on the photo-sharing app. But since venture capitalists avoid investing in competing companies, Andreessen Horowitz can’t invest in both as they are now.

As part of the investment, Marc Andreessen, co-founder of Andreessen Horowitz and of Netscape, will join Mixed Media’s board, a rarity since the other boards he serves on are much bigger companies: eBay, Facebook, Hewlett-Packard and Skype.

Even beyond the other photo-sharing apps, there are many other competitors. Facebook and Twitter are already hugely popular on cellphones, as are mobile services like Foursquare. And other apps, like TwitPic and Yfrog, let people upload photos from their phones to Twitter and other sites.

“It’s very hard to get people to pay attention when there’s so much noise,” said Greg Sterling, an analyst who studies the mobile Internet. “I think, by and large, they’re not going to be very successful, but there will be one or two that break out.”

View Article: http://www.nytimes.com/2010/11/11/technology/11photo.html?_r=1&partner=rssnyt&emc=rss

For Entrepreneurs, a Lesson in Keeping Control

By STEVEN M. DAVIDOFF Published: November 10, 2010

“A Stanford M.B.A. named Roy Raymond … comes up with an idea for a high-end place … and calls it Victoria’s Secret. After five years he sells the company to Leslie Wexner and The Limited …Happy ending, right? Except two years later, the company’s worth $500 million and Roy Raymond jumps off the Golden Gate Bridge.”

That’s a scene from “The Social Network.” The real story is that Victoria’s Secret was nearly bankrupt at the time of its sale. And The Limited bought the company for $4 million, paying far more than Mr. Wexner’s board thought he should pay. It was Mr. Wexner’s marketing genius that turned a nearly failed business into a success.

So that scene might not be completely accurate, but it, like other parts of the movie, has a kernel of truth. With start-up companies, entrepreneurs are focused on the business’s life and death. They may make heat-of-the-moment decisions that will affect control and whether they can profit.

In the real-life case of Facebook, Mark Zuckerberg is a rare entrepreneur who has not only maintained a substantial interest in his company, but also control. Many others receive needed money, but lose control of their business. There is a saying that once you accept venture capital, you have sold your company. V.C. funds require a return on their investments and will need to cash out through a sale or an initial public offering.

A venture fund will negotiate a set of agreements with the founders at the time of its investment with this goal in mind. Not only will the fund negotiate to ensure that an exit occurs, but the V.C. will insist that it be paid back before the founder.

The key for entrepreneurs in negotiations is to make sure that when they do raise V.C. money, they have options. If they can get multiple term sheet offers, then they can negotiate to sell the smallest part of their company on the most lenient terms. If you only have one term sheet, you are not going to fare well.

When the company is not performing to expectations, these legal rights negotiated at the beginning of the founder-V.C. relationship come into play. The venture fund will exercise control of the company primarily through the board. While V.C. funds will not always appoint a majority of a board’s directors, these investors often require that a board consist of a number of independent directors who can break any dispute between the founders and the venture capitalists. But these directors are often independent in name only. When things go bad, they typically side with the more experienced venture capitalist.

Venture firms also invest by buying preferred shares that are more senior to the founder’s common shares. These shares often require that the venture firm be paid back first with interest in any sale or exit.

In addition, there will often be terms negotiated if money is subsequently raised at a lower valuation, a “down round.” These provisions are known as anti-dilution rights, and their strength can vary. The strong form is known as a full ratchet and provides the initial venture capital investor full protection from dilution in any down round, at the expense of the founder. “Drag-along rights” will sometimes be included — they force founders to sell their shares when the venture capitalist does. Most important, a venture capital firm will often provide investment capital for a short, preset period. The V.C.’s thus control the company by ensuring that the founders will need to return for more capital.

All of these terms can come back to haunt. A founder is often desperate for capital, and there is little negotiating leverage at the beginning of the company’s life. Simply obtaining capital appears enough. But this can change as time passes and the founder may no longer be the right person to run and expand the business.

Worse yet, preferred-share provisions that give venture firms shares that are senior to the common shares could leave the founder with nothing.

In the recent Delaware case of In re Trados, a start-up business was sold but the sale price was sufficient only to pay back the V.C.’s. The court in that case upset the venture capital world by saying the other shareholders could still sue the board for failing to obtain payment for them. The case may give hope to founders who are given nothing in a sale, but the National Venture Capital Association has responded by suggesting that V.C.’s negotiate even stronger sale rights, including one that would effectively force the company to sell itself without a return to the founders.

This need for an ultimate cash-out for the V.C.’s is paramount. Even Mr. Zuckerberg will ultimately have to find an exit for his V.C.’s, most likely in an initial public offering. Mr. Wexner did so years ago and now owns only 16.3 percent of The Limited Brands, the successor holding company to The Limited. Yet he’s still firmly in charge, and Mr. Zuckerberg has a good chance of staying as well.

The real lesson from the story told in “The Social Network” is that businesses are not sold too soon or too late, but that they are instead sold when the founders can no longer take them forward.

View this article: http://www.nytimes.com/2010/11/10/business/10dealprof.html?_r=1&partner=rssnyt&emc=rss

A Silicon Bubble Shows Signs of Reinflating

In a memorable scene in the “The Social Network,” the actor Justin Timberlake, who portrays the Silicon Valley investor Sean Parker in the movie, leans over the table and tells the founders of Facebook in a conspiratorial tone: “A million dollars isn’t cool. You know what’s cool? A billiondollars.”

These days in Silicon Valley, a billion dollars seems downright quaint. The enthusiasm for social networking and mobile apps has venture capitalists clamoring to give money to young companies.

The exuberance has given rise to an elite club of start-ups — all younger than seven years and all worth billions. Successive investments in Twitter have reportedly increased its value 33 percent, to $4 billion, while Zynga, creator of the popular Facebook game FarmVille, is worth more than $5 billion.

Google was willing to pay $6 billon for Groupon, an online coupon company that was valued at $1.35 billion only eight months ago. And Groupon was willing to reject the bid on Friday evening, presumably because it could sell for even more money later.

Less than a decade after the dot-com bust taught Wall Street and Silicon Valley investors that what goes up does not keep going up forever, a growing number of entrepreneurs and a few venture capitalists are beginning to wonder if investments in technology start-ups are headed toward another big bust.

The chief evidence, according to industry experts and analysts, is the way venture capitalists and established companies are clamoring to give money to young companies, including those with only a shred of an idea. They are piling into me-too start-ups that imitate popular Web companies that already received financing.

Companies that involve social shopping, mobile photo sharing and new social networking are finding it easy to attract investors because no one wants to miss the next big thing.

Yammer, a system for sending Twitter-like messages inside businesses, recently raised $25 million, while investors reportedly signed a check for close to $30 million for a niche blogging site called Tumblr. GroupMe, a new group messaging app for cellphones, raised $9 million. Path, an iPhone app for sharing only photos on a social network limited to just 50 people, received $2.5 million. Its competitor, Picplz, scored $5 million. And those are just within the last few weeks.

It has some venture capitalists scratching their heads.

“I’m not saying Quora, Foursquare, Square aren’t eventually worth a lot of money, but the price to pay to get into those games is kind of amazing — $50 to $80 million?” said Dave McClure, founding partner of 500 Startups, a technology incubator in Silicon Valley. “These companies are in big markets with proven founders, so maybe not absolutely crazy but certainly eyebrow-raising.”

Fred Wilson, a prominent venture capitalist, said he had watched the trend accelerate over the last six to nine months. “I am seeing many more unnatural acts from investors happening,” he said in a recent blog post. He attributes it to competition among investors eager to participate in popular young start-ups. And he notes, “I have never seen phases like this end nicely.”

No one really knows if there is a bubble until after one pops. Nevertheless, there are many signs of froth. For example, enthusiasm for closely held Facebook shares has run so high that private investors are trading derivatives of it.

“I always get a little nervous about bubbles when five different angel investors ask me to join their brand new angel funds” in one week, said Alex Gould, leadership scholar of the Stanford Institute for Economic Policy Research. And although the rapid-fire pace of investment in popular Web companies feels reminiscent of the investing craze that led to the dot-com bust a decade ago, there are a few significant differences.

For starters, this is not a stock market bubble. None of the companies are publicly traded.

Mr. Gould said that while “bubble behavior doesn’t change,” the culture of high-flying start-ups like Flooz.com, Pets.com and theGlobe.com making initial public offerings is largely nonexistent. Those did not fare well, though companies like Amazon have continued to prosper.

Instead, entrepreneurs are increasingly looking to large technology companies like Microsoft, Apple or Google with mountains of cash, not the stock market.

Those three companies have about $90 billion in cash on their books. McKinsey & Company calculates that the largest software and hardware companies have enough excess cash on hand to buy nearly all of the tech industry’s midsize companies.

Although the volume of deals is expected to swell, financiers are much more conservative in the amounts they are investing in each company.

“Back in the ’90s, companies got funded for five times the amount that Tumblr raised and didn’t have anything close to a business model,” said Roger Ehrenberg, founder and managing partner of IA Ventures. “People were getting $50 to $200 million a pop and it brought down an entire industry.”

The frenzy is as much the result of simple laws of supply and demand as the herd mentality. Thanks to the constantly falling cost of computing power, a start-up needs less money to get off the ground.

Meanwhile, more wealthy people are viewing investing in technology as a hobby, which has increased the competition.

“Investing in technology has become fashionable,” Mr. Ehrenberg said. “It used to be that angel investing was the province of wealthy men. Now its become the province of everyone.”

Some venture capitalists — hungry for growth and troubled by weak returns — have moved toward smaller investments, hoping to catch the next Facebook in its infancy.

“I think at the high end, it’s not that frothy, but there’s a lot of exuberance in the early-stage stuff,” said Chris Sacca, an angel investor who has decided to temporarily hold off on new investments until valuations drift lower. “A lot of the valuations there don’t make a lot of sense.”

Most Silicon Valley investors still see no signs of gloom and doom. Ron Conway, a San Francisco financier who has invested in more than 500 companies, including Facebook, Zappos, Google and Twitter, says he does not think there is any bubble.

“All the start-ups today have business models and business cases that make them viable,” he said in an e-mail. “In 1999 when the bubble happened many companies did not have business models and advertising on the Web was very immature.”

Jeff Clavier, managing partner at SoftTech VC and a well-known Silicon Valley angel investor who has financed companies like Mint and Ustream, said that over the next 12 to 18 months the real challenge for start-ups flush with venture cash would be proving they were worth the investment or risk having to fold their companies.

“There may not be a big implosion, but down the road there will be a bunch of blood and tears,” he said.

“The music is going to stop and people will realize there aren’t enough chairs for companies to get the next round of financing.”

To read more: http://dealbook.nytimes.com/2010/12/03/a-silicon-bubble-shows-signs-of-reinflating/?partner=rssnyt&emc=rss

Federal Money for Alternative Energy Is Drying Up

The relationship between the government and renewable energy has always been a close one — but also a difficult one. The relationship is going to get more difficult as stimulus programs and tax cuts run out in two weeks — and that may throw America’s alternative energy programs up in the air.

The problem is this: The renewable energy sectors — including companies that make technologies for wind, biofuels and solar energy — depend on government subsidies. The solar industry, for instance, relies almost entirely on government dollars. The Cape Wind project, which appears close to becoming the first offshore wind farm in the United States, will rely on government loans to make up at least some of the $2 billion it needs to get started, according to people briefed on the matter.

It does not help the financing outlook that renewable energy has been snubbed repeatedly during this session of Congress, while old-line energy, including nuclear energy, still gets significant government subsidies.

For instance, Congress seems to have dispensed with one major program that has been a boon to solar and wind companies: a grant program that provides 30 percent of the cost of developing alternative energy projects through tax breaks. That has disappeared from the Congressional agenda twice, including in the tax-cut bill that Congress is working on. The end of the tax breaks are likely to result in the loss of about 15,000 jobs, according to industry estimates.

That loss may be mitigated if a provision in the tax bill survives that would allow some companies getting some grants in cash, instead of tax breaks, but this is still uncertain at this point.

The tax bill also does not provide any more money for an advanced manufacturing tax credit — a $2.3 billion program that gave tax breaks to companies that manufacture solar energies.

The bigger energy companies could embrace more renewable energy, but they are unlikely to make up the shortfall in government money. In the first half of this year, according to the Cleantech Group, which collects data on the sector, corporations invested $5.1 billion in clean technology — a 325 percent increase from the comparable period last year. That is promising, but the trend in clean-tech financing has been choppy — with investors of all kinds pouring money in one year and pulling back sharply during another — and so it is difficult for young companies to rely on it. If corporate profits fall, the older energy companies may well back away from supporting new technologies.

Meanwhile, the dependence on government has become more apparent as venture capitalists and private equity firms reduce the number of companies they are willing to back. The Cleantech Group found that venture capitalists invested $4.02 billion in clean-technology companies in the first half of 2010 — a 43 percent increase from the comparable period in 2009 and nearly tied with the record in 2008. Those private investors are, however, choosing fewer deals.

This results in what Paul Dickerson calls “the commercialization valley of death,” in which clean-tech companies run out of financing before they can actually produce a viable product. Mr. Dickerson is head of the clean-tech practice group at the law firm Haynes & Boone and a former chief operating officer of the Energy Department’s office of energy efficiency and renewable energy.

Mr. Dickerson noted that venture capital and private equity firms can often be daunted by the amount of money and the long time it takes clean-tech investments to pay off.

Experts say that something in this equation has got to give — and it might as well be the government. They only differ on how.

Mr. Dickerson, for instance, suggested that government should do more to lure private investors, like providing more loan guarantees. Or, he said, government should stop focusing so much on the early stages of renewable energy and provide subsidies for the manufacture of it. If government provides loans or manufacturing tax breaks, Mr. Dickerson argued, it would drive down the technology risk and encourage private equity firms to get in the game.

Others think the government is not doing enough to encourage research and development — at least the right kind.

Government subsidies for developing clean energy technology are inefficient and favor the wrong kind of investments, said Jim Nelson, a former private equity investor and the chief executive of Solar 3D, an alternative energy company that is backed by a number of individual investors and produces a new kind of solar chip that aims to maximize the amount of energy it pulls from the sun. “We have a great government system, but they get confused by accomplishing objectives versus getting re-elected,” Mr. Nelson said.

Mr. Nelson said, for instance, that solar energy provides less than 1 percent of all the energy in the world, but accounts for around 50 percent of government renewable energy financing. The problem, he argued, is that the government is backing technologies that are too expensive or inefficient to be widely adopted. That, he said, creates a sinkhole for government dollars.

“Government is never going to be able to subsidize enough to make solar and other green-tech technologies take a place in significant energy production,” Mr. Nelson said. “The role of government should not be to encourage people to install economically broken systems.”

Mr. Nelson’s solution is to have the government replace or imitate the venture capital and private equity investors before they lose interest and put more money into research and development of early-stage technologies. “If I were in government, I would completely abandon subsidies to technologies that do not provide economic means of energy generation,” he said. “I would focus the money spent on that on subsidizing potential game-changing technologies and hire very smart people to figure it out.”

Link:http://dealbook.nytimes.com/2010/12/14/federal-money-drying-up-for-alternative-energy/?partner=rssnyt&emc=rss

Twitter Financing Raises Its Value to $3.7 Billion

Twitter has raised a big new round of venture capital, $200 million, valuing the company at $3.7 billion.

The financing brings the total raised by the three-year-old company to $360 million. It was last valued at $1 billion when it raised money in September 2009.

A new investor, Kleiner Perkins Caufield & Byers, contributed $150 million, and existing investors, which include Union Square Ventures, Benchmark Capital and Spark Capital, invested $50 million.

The fresh capital comes as Twitter tries to prove that in addition to being an Internet phenomenon with 175 million registered users, it can also be a serious business. It has recently introduced several types of advertisements, courted big businesses and promoted Dick Costolo, its business-minded former chief operating officer, to chief executive.

In an unusual move, a Kleiner Perkins partner did not join Twitter’s board, but the company did add two new board members: Mike McCue, a co-founder of TellMe and current chief executive of Flipboard, which transforms Twitter feeds into a more attractive format; and David Rosenblatt, former chief executive of DoubleClick, the advertising company now owned by Google.

The Twitter investment is a big win for Kleiner Perkins, a firm that made its name in the 1990s investing in Web companies like Google and Amazon.com, but was late to get into the social networking trend. Recently, it has been trying to join in, with investments in companies like the game maker Zynga and a new fund for social networking start-ups.

“As part of the Twitter team, we look forward to helping build the next great Internet treasure,” Kleiner Perkins said in a statement.

News of the investment was first reported by the blog All Things D. Matt Graves, a Twitter spokesman, confirmed the details, and Mr. Costolo wrote about the funding in a company blog post.

Article: http://bits.blogs.nytimes.com/2010/12/15/twitter-financing-raises-its-value-to-3-7-billion/?partner=rssnyt&emc=rss

Federal Money for Alternative Energy Is Drying Up

The relationship between the government and renewable energy has always been a close one — but also a difficult one. The relationship is going to get more difficult as stimulus programs and tax cuts run out in two weeks — and that may throw America’s alternative energy programs up in the air.

The problem is this: The renewable energy sectors — including companies that make technologies for wind, biofuels and solar energy — depend on government subsidies. The solar industry, for instance, relies almost entirely on government dollars. The Cape Wind project, which appears close to becoming the first offshore wind farm in the United States, will rely on government loans to make up at least some of the $2 billion it needs to get started, according to people briefed on the matter.

It does not help the financing outlook that renewable energy has been snubbed repeatedly during this session of Congress, while old-line energy, including nuclear energy, still gets significant government subsidies.

For instance, Congress seems to have dispensed with one major program that has been a boon to solar and wind companies: a grant program that provides 30 percent of the cost of developing alternative energy projects through tax breaks. That has disappeared from the Congressional agenda twice, including in the tax-cut bill that Congress is working on. The end of the tax breaks are likely to result in the loss of about 15,000 jobs, according to industry estimates.

That loss may be mitigated if a provision in the tax bill survives that would allow some companies getting some grants in cash, instead of tax breaks, but this is still uncertain at this point.

The tax bill also does not provide any more money for an advanced manufacturing tax credit — a $2.3 billion program that gave tax breaks to companies that manufacture solar energies.

The bigger energy companies could embrace more renewable energy, but they are unlikely to make up the shortfall in government money. In the first half of this year, according to the Cleantech Group, which collects data on the sector, corporations invested $5.1 billion in clean technology — a 325 percent increase from the comparable period last year. That is promising, but the trend in clean-tech financing has been choppy — with investors of all kinds pouring money in one year and pulling back sharply during another — and so it is difficult for young companies to rely on it. If corporate profits fall, the older energy companies may well back away from supporting new technologies.

Meanwhile, the dependence on government has become more apparent as venture capitalists and private equity firms reduce the number of companies they are willing to back. The Cleantech Group found that venture capitalists invested $4.02 billion in clean-technology companies in the first half of 2010 — a 43 percent increase from the comparable period in 2009 and nearly tied with the record in 2008. Those private investors are, however, choosing fewer deals.

This results in what Paul Dickerson calls “the commercialization valley of death,” in which clean-tech companies run out of financing before they can actually produce a viable product. Mr. Dickerson is head of the clean-tech practice group at the law firm Haynes & Boone and a former chief operating officer of the Energy Department’s office of energy efficiency and renewable energy.

Mr. Dickerson noted that venture capital and private equity firms can often be daunted by the amount of money and the long time it takes clean-tech investments to pay off.

Experts say that something in this equation has got to give — and it might as well be the government. They only differ on how.

Mr. Dickerson, for instance, suggested that government should do more to lure private investors, like providing more loan guarantees. Or, he said, government should stop focusing so much on the early stages of renewable energy and provide subsidies for the manufacture of it. If government provides loans or manufacturing tax breaks, Mr. Dickerson argued, it would drive down the technology risk and encourage private equity firms to get in the game.

Others think the government is not doing enough to encourage research and development — at least the right kind.

Government subsidies for developing clean energy technology are inefficient and favor the wrong kind of investments, said Jim Nelson, a former private equity investor and the chief executive of Solar 3D, an alternative energy company that is backed by a number of individual investors and produces a new kind of solar chip that aims to maximize the amount of energy it pulls from the sun. “We have a great government system, but they get confused by accomplishing objectives versus getting re-elected,” Mr. Nelson said.

Mr. Nelson said, for instance, that solar energy provides less than 1 percent of all the energy in the world, but accounts for around 50 percent of government renewable energy financing. The problem, he argued, is that the government is backing technologies that are too expensive or inefficient to be widely adopted. That, he said, creates a sinkhole for government dollars.

“Government is never going to be able to subsidize enough to make solar and other green-tech technologies take a place in significant energy production,” Mr. Nelson said. “The role of government should not be to encourage people to install economically broken systems.”

Mr. Nelson’s solution is to have the government replace or imitate the venture capital and private equity investors before they lose interest and put more money into research and development of early-stage technologies. “If I were in government, I would completely abandon subsidies to technologies that do not provide economic means of energy generation,” he said. “I would focus the money spent on that on subsidizing potential game-changing technologies and hire very smart people to figure it out.”

To see this article: http://dealbook.nytimes.com/2010/12/14/federal-money-drying-up-for-alternative-energy/?partner=rssnyt&emc=rss

Twitter Financing Raises Its Value to $3.7 Billion

Twitter has raised a big new round of venture capital, $200 million, valuing the company at $3.7 billion.

The financing brings the total raised by the three-year-old company to $360 million. It was last valued at $1 billion when it raised money in September 2009.

A new investor, Kleiner Perkins Caufield & Byers, contributed $150 million, and existing investors, which include Union Square Ventures, Benchmark Capital and Spark Capital, invested $50 million.

The fresh capital comes as Twitter tries to prove that in addition to being an Internet phenomenon with 175 million registered users, it can also be a serious business. It has recently introduced several types of advertisements, courted big businesses and promoted Dick Costolo, its business-minded former chief operating officer, to chief executive.

In an unusual move, a Kleiner Perkins partner did not join Twitter’s board, but the company did add two new board members: Mike McCue, a co-founder of TellMe and current chief executive of Flipboard, which transforms Twitter feeds into a more attractive format; and David Rosenblatt, former chief executive of DoubleClick, the advertising company now owned by Google.

The Twitter investment is a big win for Kleiner Perkins, a firm that made its name in the 1990s investing in Web companies like Google and Amazon.com, but was late to get into the social networking trend. Recently, it has been trying to join in, with investments in companies like the game maker Zynga and a new fund for social networking start-ups.

“As part of the Twitter team, we look forward to helping build the next great Internet treasure,” Kleiner Perkins said in a statement.

News of the investment was first reported by the blog All Things D. Matt Graves, a Twitter spokesman, confirmed the details, and Mr. Costolo wrote about the funding in a company blog post.

To read this article, visit: http://bits.blogs.nytimes.com/2010/12/15/twitter-financing-raises-its-value-to-3-7-billion/?partner=rssnyt&emc=rss

Venture-Backed Buyouts at Record Volume as Increasing Pace of Exits Mark Possible Recovery

Initial public offerings and acquisitions surged for venture-backed companies during the fourth quarter of 2010. The results suggest a recovery in the overall pace of “liquidity events” since the capital crisis of 2008, which triggered a painful economic recession throughout the U.S. and elsewhere.

Most of the IPO activity was driven by Chinese companies going public on U.S. exchanges, according to a report by Thomson Reuters and the National Venture Capital Association (NVCA). But there are signs of overall improvement as the post-IPO performance of venture-backed companies strengthened, along with acquisition values in 2010.

The report counted 32 venture-backed IPOs with a total value of nearly $3.6 billion during the last three months of 2010—almost three times the 12 IPOs that took place during the full year in 2009. Of those 32 deals, 17 were ventures based in China, including SinoTech Energy, a Beijing-based provider of enhanced oil recovery services that raised almost $168 million on the Nasdaq exchange.

Altogether, the report counted 72-venture-backed IPOs for full-year 2010—a six-fold increase over 2009. Another 42 venture-backed companies have currently filed with the Securities and Exchange Commission for an initial public offering, according to the report.

In a statement from the NVCA, president Mark Heesen says, “In 2010 we moved from ‘abysmal to viable’ in the venture-backed IPO market. The number of offerings has improved in large part due to Chinese venture-backed companies going public on U.S. exchanges. We would like to see U.S. company IPOs grow at this pace in the coming year.”

For the rest of this article:

http://www.xconomy.com/national/2011/01/03/venture-backed-buyouts-at-record-volume-as-increasing-pace-of-exits-mark-possible-recovery/