Raises $10 Million from Austin Ventures

Austin Ventures is betting that after flights and hotels, limousine rentals will be the next sector ripe for transformation by the Internet.

The venture capital firm announced on Tuesday that it had invested $10 million in, a start-up focused on bringing online reservations to black-car bookings. Specific terms were not disclosed, though Mike Dodd, a partner at Austin Ventures, told DealBook that the firm would take a significant stake in the business and two seats on its board.

Led by several co-founders of the online travel site, aims to bring the same sort of online reservation model to the much more fragmented world of town car service operators. (The executives bought from a another car operator in early 2008 for about $5 million, and have run the business on what T. J. Clark, the company’s chief executive and a former vice president at IAC/InterActiveCorp, said was a tight budget.)

The team and Austin Ventures see the industry as one with high potential: private cars generate some $17 billion in revenue, but less than 5 percent of bookings are made online, the two say. That could improve if customers ultimately see lower prices from more transparent pricing.

“We think this market is in its first inning,” Mr. Dodd said. “Having town car service with similar pricing to taxis, that’s pretty unique value proposition that hasn’t been told yet.”

But building on the business has meant a lot of dialing up limo operators and convincing them of the benefits of joining one Web-based reservation system, executives say. So far, has signed up about 2,000 limo operators of an estimated 8,000 across the country, Mr. Clark told DealBook. is also expanding a new corporate arm, Limos for Business, that is meant to tie into corporations’ backend systems. The company has signed up 750 companies, who have more than 10 employees using the system so far. had not been looking for venture capital, Mr. Clark said, but had crossed paths with Austin Ventures, which had been interested in new investments in the travel industry. The new capital will go toward more marketing and investing in the company’s technology systems, including G.P.S.-enabled Web apps for smartphones.

It will also go toward expanding abroad, where it has already established outposts in several dozen countries, including China, India and South America over the last year.

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Investing Like It’s 1999

Banks pouring money into technology funds, wealthy clients and institutions clamoring to get pieces of start-ups, expectations of stock market debuts building — as Wall Street’s machinery kicks into second gear, some investors with memories of the Internet bust a decade earlier are wondering whether this sudden burst of activity spells danger for the industry once again.

With all this exuberance, valuations are soaring. Investments in Facebook and Zynga have more than quintupled the implied worth of each company in the last two years. The social shopping site Groupon is said to be considering an initial public offering that would value the company at $25 billion. Less than a year ago, the company was valued at $1.4 billion.

“I worry that investors think every social company will be as good as Facebook,” said Roger McNamee, a managing director of Elevation Partners and an investor in Facebook, who co-founded the private equity fund Silver Lake Partners in 1999 at the height of the boom. “You have an attractive set of companies right now, but it would be surprising if the next wave of social companies had as much impact as the first.”

Funds set up by Goldman and JPMorgan Chase have invested in Internet start-ups like Facebook and Twitter or in funds with stakes in those start-ups. Even the mutual fund giants Fidelity Investments and T. Rowe Price have stepped up their efforts, placing large bets on companies like Groupon and Zynga.

Thomas Weisel, founder of an investment bank called the Thomas Weisel Partners Group that prospered in the first Internet boom, says he is “astounded” by the amount of money now flooding the markets.

“I think it’s much greater today,” he said. “The pools of capital that are looking at these Internet companies are far greater today than what you had in 2000.”

Yet there are notable differences between the turn-of-the-century dot-com boom and now. For one, the stock market is not glutted with offerings. In 1999, there were 308 technology I.P.O.’s, making up about half of that year’s offerings, according to data from Morgan Stanley. In 2010, there were just 20 technology I.P.O.’s, based on Thomson Reuters data.

More important, the tech start-ups that have attracted so much interest from investors have real businesses — not just eyeballs and clicks. Companies like Facebook have fast-growing revenue. Groupon, which has been profitable since June 2009, is on track to take in billions in revenue this year. And since 1999, when 248 million people were online (less than 5 percent of the world’s population), broadband Internet and personal computing have become mainstream. About one in three people are online, or roughly two billion users, according to data from Internet World Stats, a Web site that compiles such numbers.

“In those days, you had tiny, little companies going public that hardly had a business plan,” Stefan Nagel, associate finance professor at Stanford University, said. “And now you’re talking about only a few companies — companies that are already global and with revenue.”

With such a small, elite group, the potential fallout if things go badly would be limited, some investors say. “Yes, we have a frenzy again,” said Lise Buyer, a principal of the Class V Group, an advisory firm for companies considering initial public offerings. “But the frenzy is on a very select group of companies. Facebook is clearly Secretariat, but there are a few other championship horses they are looking to bet on.”

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P&G, Teva Form Venture to Market OTC Drugs


Procter & Gamble Co. and Teva Pharmaceutical Industries Ltd. plan to form a joint venture that combines their over-the-counter drug businesses outside North America, as both companies seek to expand their consumer health-care businesses.

The venture merges P&G brands like Vicks, Metamucil and Pepto-Bismol, with Teva’s over-the-counter pain medicines, cold/cough drugs and digestive treatments. Sales of those products totaled more than $1 billion in the markets included in the joint venture, and the two companies said they envision sales of up to $4 billion by the mid to later part of the decade.

The plan also brings together P&G’s brand …

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The Search for Ingredients to Replicate Silicon Valley


With the rocketing valuations of social media companies, there is again hope that our economy can compete globally. The hope belies a sobering reality. Governments cannot create or even know what will be the next great entrepreneurial success. The Web’s latest hits show the pitfalls of such efforts.

Facebook, Groupon andTwitter are successes backed by venture capital at an early stage.

These companies had a timely idea, but entrepreneurial efforts and vision may have carried them to fortune. It was not just the founders, but advisers, employees and other companies that helped stir this creative spirit. Investors and advisers like lawyers exist side by side with gaggles of venture capital-financed companies and their most important resource: talented, innovative employees.

These networks have been a crucial driving force for venture capital. There are few successful venture capital communities in the United States. Silicon Valley is the one everyone knows, but Austin, Tex., and Boston are also prominent. Other emerging venture capital communities are in Boulder, Colo.; Chicago; and New York.

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Money Rushes Into Social Start-Ups


As Wall Street and other investors clamor for a piece of social-networking giant Facebook Inc., Silicon Valley venture capitalists are betting on a new generation of companies that hope to unshackle social networking from personal computers—and shift it to the cellphone.

On Thursday, Color Labs Inc., a phone-based social network founded by veteran entrepreneur Bill Nguyen, is opening its doors. The Palo Alto, Calif., start-up recently secured $41 million from top venture-capital firms including Sequoia Capital even before the company’s iPhone and Android apps were ready to debut.

The idea behind Color is that a phone’s location-sensing abilities can build a user’s social network for them, allowing users to share photos, video and messages based simply on the people they’re physically near. The company’s view on privacy is that everything in the service is public—allowing users who don’t yet know each other to peer into each other’s lives.

Color is just one of a growing number of social start-ups betting on smartphones that are now attracting a venture-funding rush. Many of the companies feature photo taking and sharing at their core, such as Path Inc., founded by former Facebook executive Dave Morin. It received $8.5 million last month from Kleiner Perkins Caufield & Byers and Index Ventures. It has also had conversations withGoogle Inc. about a buyout, according to a person briefed on the discussions. Google declined to comment.

Another phone photo-sharing company, Instagram, was barraged by inquiries from nearly 40 investors before settling last month on $7 million from Benchmark Capital.

“We would have people show up at our offices every other day wanting to meet while we were trying to get work done,” said Instagram co-founder Kevin Systrom. Since launching in October, the service has nearly three million users, he said.

In addition, Yobongo Inc., a three-week-old iPhone app that lets users chat with people located in their geographic area, said Wednesday it raised $1.35 million. In January a group-texting service called GroupMe said it raised $10.6 million.

The flood of venture capital into mobile social start-ups is the latest sign of Silicon Valley’s Web-fueled boom. In recent months, investors have driven up the valuation of Facebook above $60 billion and social-gaming company Zynga Inc. to $10 billion.

Behind the spurt of new services is also the idea that the phone, carried by people at all times, can reinvent the notion of a social network by sharing more real-time information about where people are, what they’re seeing and even who they’re around.

The phone “provides a platform for developers to build experiences that are more personal in nature,” said Path’s Mr. Morin. What’s different now is the ubiquity of smartphones and tablets. “Now you have an opportunity to create these experiences at scale,” he said.

The rush into mobile social companies also comes as Facebook is honing in on phones. Facebook, which has more than 200 million users of its services on cellphones, this week bought mobile-technology company Snaptu and earlier this month acquired group chat room service Beluga.

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Nordex announces joint venture with Michigan firm

JONESBORO, Ark. (AP) — Nordex USA Inc. and Michigan-based Beebe Community Wind Farm are announcing plans for construction of a wind farm in central Michigan.

The turbines for the farm will be manufactured at Nordex’s plant in Jonesboro. The companies say in a news release that Chicago-based Nordex will provide 125 of its new wind turbines that are designed specifically for low wind sites.

The turbine includes longer blades that Nordex says produces an average of 15 percent more power than previous turbines.

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Water’s Scarcity Spells Opportunity for Entrepreneurs


Hydrovolts, a start-up company in Seattle, has developed a portable turbine that generates energy from water flowing in irrigation canals. BlackGold Biofuels, based in Philadelphia, takes fats, oils and grease out of wastewater to createbiodiesel.

Last week, Hydrovolts won the 2010 Imagine H2O prize, an annual competition established in 2007 to encourage innovation in water technology. BlackGold was one of two runners-up. Both are poster children for the flourishing “blue tech” economy that is drawing innovators, entrepreneurs and investors into the water industry.

“Water is mission critical in everything that we produce, eat, need, and underpins pretty well all economic development,” said David Henderson, a partner at XPV Capital in Toronto, a venture capital firm that focuses on water technology.

According to a World Health Organization report last year, about 884 million people worldwide lack access to improved drinking water supplies and 2.6 billion lack access to basic sanitation. Developed countries, too, have water problems: Infrastructure is aging, causing leaks and pollution.

Meanwhile, micropollutants are a growing hazard to health and the environment, the global population is rising and climate change is making water supplies increasingly unpredictable.

Historically, water’s definition as a common good, publicly owned and closely regulated, has made entrepreneurs and venture capitalists reluctant to get involved.

But that is changing with the growing awareness of the challenges of climate change and energy supply.

Water and energy are closely linked. The nuclear plant crisis in Japan is a stark example: Nuclear plants require huge amounts of cooling water, and the cooling systems require large inputs of power.

Hydraulic fracturing to extract U.S. shale gas and oil-sand mining in Canada are opening up huge new hydrocarbon reservoirs, but both techniques use a lot of water and cause pollution.

Climate-change science and policies are pushing companies to measure and reduce their carbon footprints. As they take stock of their environmental effects, many companies are measuring their water footprints as well, recognizing that saving water saves energy and money.

Bill Wescott, vice president for innovation at the North America operations of Veolia Environnement, said water footprinting programs, which aim to quantify direct and indirect water use, “allow us to have a language and metrics around water that I think was missing to some degree in the past.”

There are security issues around water, just as there are around energy, Mr. Wescott noted.

In addition, population growth and urbanization are expected to drive demand for water up 40 percent within 20 years, according to a 2009 report from the 2030 Water Resources Group, an association of the World Bank, major industrial water users and the consulting firm McKinsey.

Industrialization lifts people out of poverty, Mr. Henderson said, but “the Achilles’ heel of that process is people move to a protein diet, which is very water intensive, and they start consuming things like jeans, shoes, cars, and smartphones that have huge underlying water footprints to produce.”

To entrepreneurs and investors, all of this is starting to signal opportunity. Mr. Wescott said the resources group report showed that “in many cases, there’s a fair amount of money to be made in addressing some of these water issues.”

Tamin Pechet, who founded the Imagine H2O competition in 2007, said he did so because at that time “most entrepreneurs weren’t aware of how big a human and environmental issue water problems were and also a potentially commercially attractive market opportunity.”

In 2009, the contest focused on water-efficiency solutions. In 2010, the focus was how water and energy were linked. The cash prizes are relatively modest, but the main benefit to entrepreneurs is Imagine H2O’s incubator program.

Rob Steiner and Peter Yolles co-founded WaterSmart Software, which was the runner-up in the competition in 2009. Their software helps residential users track their consumption to save water and money.

“The process of applying for the prize helped us define our business strategy and refine our concept,” Mr. Yolles said.

When they were chosen as finalists, they had to develop a business plan and a presentation for investors. To assist them, they were assigned a mentor, the chief financial officer of a solar company.

The process, and the exposure to investors, paid off. “We’ve gotten commitments for funding for at least half of our seed round that have come directly or indirectly from the Imagine H20 competition,” Mr. Steiner said.

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Google Ventures Leads Financing of Biofuels Start-Up


Google Ventures has led a $20 million financing round in CoolPlanetBiofuels, a Southern California start-up that is developing mobile refineries to turn wood chips, agriculture waste and other biomass into biofuels.

CoolPlanetBiofuels, an 18-month-old company, has also attracted the attention ofConocoPhillips, GE Capital and NRG Energy, which participated in the financing round along with North Bridge Venture Partners.

CoolPlanetBiofuels declined to disclose the total capital that it had raised, but it noted that Google Ventures was a major participant in the series B round announced Thursday.

“We take biomass such as corncobs, yard clippings wood chips and fractionate that biomass into discrete gas streams,” said Mike Cheiky, CoolPlanetBiofuels’ chief executive and a longtime technology executive. “Those individual gas streams aren’t really useful by themselves, so we run them through catalytic conversion columns that convert them to useful fuels.”

One limitation of using biomass as a feedstock for biofuels has been the expense of trucking low-value waste long distances to a refinery. So CoolPlanetBiofuels plans to take the refineries to the fuel source by packaging its machines in tractor-trailers.

“Biomass cannot be transported very far because in raw form it has a very low energy content,” Mr. Cheiky said.

He said a typical refinery would consist of a cluster of tractor-trailers that can process 10 million gallons of fuel a year.

“There’s a very large market opportunity here with a lot of headroom for innovation,” said Bill Maris, Google Ventures’ managing director. “These are early days and this space won’t end up with a single winner but any progress Mike and CoolPlanet can make will have a profoundly positive impact on consumers, the industry and the world.”

So far CoolPlanetBiofuels has built a small pilot plant that is producing biofuel for evaluation by oil companies, Mr. Cheiky said. He declined to identify the companies, citing a confidentiality agreement. The company expects to have its first one-million gallon mobile refinery operating within a year.

Mr. Cheiky said CoolPlanetBiofuels would initially make a 105-octane gasoline additive to help refiners meet California’s low-carbon fuel standard.

“We can produce an additive to reduce the carbon footprint and increase the octane of conventional gasoline,” he said.

Next up will be a biofuel that can run in conventional gasoline engines. Eventually, CoolPlanetBiofuels intends to produce a soil additive as a byproduct of the refinery process.

“We can sequester carbon as we make the fuel and make a soil enhancer for crops,” Mr. Cheiky said. “We will have a negative-carbon fuel.”

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Tech Start-Up Bliss: Dogpatch Labs

By Olivia Oran

Silicon Valley, which reared Apple(AAPL_), Google(GOOG_)and countless important, cutting-edge start-ups, still dwarfs New York City when it comes to fostering technology innovation.

But the Big Apple’s start-up scene is blossoming. While Silicon Valley captured 39% of all venture funding last year, investment in the New York area increased to 9% in 2010 from 6% in 2007, according to PricewaterhouseCoopers and the National Venture Capital Association.

Taking advantage of the boom are more than a dozen Manhattan incubators, accelerators and so-called co-working spaces, which have emerged to foster entrepreneurs and their next great idea.

Meet Dogpatch Labs, a 3,000 square-foot loft space in Manhattan’s Union Square district that hosts 45 workers from 15 start-ups.

Founded by Boston venture firm Polaris Ventures, Dogpatch — named after the San Francisco neighborhood where the original Lab was located — hit New York City two years ago. Dogpatch provides companies with free office space for six months (after the allotted time, they’re replaced with another firm), and hosts workshops, conferences and networking events that connect entrepreneurs.

Well-known Dogpatch graduates include iPhone photo sharing service Instagram, which recently passed its 1 million user milestone, and Q&A website Formspring, which has raised $14 million in funding.

Matt Meeker, co-founder of network facilitator and an entrepreneur-in-residence at Polaris who helps advise start-up founders at Dogpatch, said the lab’s focus on collaboration is tremendously helpful when trying to help a fledgling company off the ground.

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Is Groupon Ruining Retailing?


Recently, a 30-year-old woman came into my custom framing business with a designer purse and a question, “What kind of coupons do you have out there?”

It is indeed a new world. Thanks mostly to Groupon, which is based about two miles from my framing business, this social coupon craze has become a big thing. For retailers, the question is whether it’s a good thing or bad thing. The coupons can drive an awful lot of people into your store, but not every store is prepared for the onslaught. And there’s another issue, one that has gotten less attention: the daily-deal sites are also training people to expect that they can get a coupon for almost anything.

Groupon didn’t invent this problem. There have been coupons all over the Internet for years, but it’s getting worse. As Jessica Bruder wrote in The Times last week, there are hundreds of companies chasing Groupon, many hoping to create a regional niche or a product niche. I suspect there will soon be a shakeout among these Groupon clones, but for now, the upshot is that most small businesses that sell a product or service are getting deluged with offers to partner with one or more of the coupon sites. Those offers are producing a lot of confusion and anxiety for businesses. To deal or not to deal, that is the question.

In a previous post, I emphasized that Groupon is advertising and while you don’t pay anything up front, it can be very expensive advertising. I went through the math that I suggest small businesses use to try to figure out whether social coupons make sense for them. There are many variables, including whether a customer spends more than the face value of the coupon, how many  existing customers purchase a coupon, what percentage of the discount customers become regular customers, how many coupons are sold to each customer and the true cost of delivering the additional sales driven by the coupons.

The difficulty is in determining — or in some cases guessing — what these numbers will be. It’s been two years since I used Groupon at my frame shop. Few of the sales have turned into repeat customers, which is not typical of my business — we have a percentage of repeat customers. And that’s one reason I am concerned about the potential damage a daily deal can do to a company’s brand. The deals are a threat to what I call price integrity.

When you charge some customers full price and others half price, you make some happy and others unhappy. Worst of all, you make the wrong customers happy! The regulars are unhappy because they feel they overpaid; the discount customers are happy — but they’re probably not coming back because they’re used to shopping at half price. When you decide to do a daily deal, you are training your existing customers to wait for the next coupon. Does that sound like a recipe for success?

It has been noted that this kind of promotion works best for a business that has big fixed costs but low, if any, variable costs — a yoga class, for example. Whether there are 5 people in a class, or 20, the cost of delivering the service is basically the same. There is, however, a potential for conversion. You risk converting an existing customer into a coupon customer. Or, you may even replace a full-price customer with a coupon customer because you have exceeded capacity.

Let’s do the math on a simple example. A yoga class charges $20 per person and can take 20 students. The class has been averaging 14 people at $20 each, or $280 per class. The owner decides to run a daily deal to fill the class and attract new customers. It works splendidly.

The class is now filled. There are now 10 people paying $20 each (two regulars bought coupons and two regulars signed up too late and got bounced). Ten people pay $10 each, revenue that is split 50/50 with the deal site. That means the total for the class is $200 from the full-price customers plus $50 from the coupon customers, which equals $250. The studio is busier, the parking is lot is full, but the cash drawer holds fewer dollars — 30 fewer in fact. That might not sound like a lot but that’s 10 percent of sales, which might represent the company’s entire profit. What’s good for the customer could prove fatal to the business.

The scary thing about this scenario is that it’s something of a best-case scenario. The coupon sales didn’t generate additional expense for the yoga business (the way they would for, say, a restaurant); the numbers could be far worse for a business that is selling a product or service. Busier does not necessarily mean more profitable.

Of course, the deal could still pay off if the new customers turn into repeat customers. Will they? Maybe. But a typical new customer is gained because a business is near the customer’s home or office, or because the customer heard something good about the business, or because the customer needed the product or service. These sales were generated because of a deal. Maybe the customers will move on to the next yoga studio that offers a coupon deal — or maybe they will decide not to try yoga again, especially not at full price. And how many existing customers did the yoga studio lose by doing the deal?

I recently spoke to about 150 retailers at a trade convention. One of the board members of the trade association asked the retailers if they had used Groupon. One person in the audience said he had used a competitor and was satisfied with the results. No one in the room asked the important follow-up question, so I asked it: “What was your average sale to the coupon customers?” He said it was a good bit higher than the face value of the coupon, which is probably why he came out O.K. on the deal. But how many times can he do it without damaging his brand?

The board member then asked the crowd, “Who thinks that Groupon will be out of business in three years?” Almost every hand went up. They are wrong. Groupon is here to stay. Daily deal coupons are here to stay. I’m sure they work for some businesses. Lots of businesses will try them at least once — and there are lots of businesses out there. But all of us, even those of us who never try a daily deal, will have to accept that we are training customers to believe that the next discount coupon is always an e-mail away.

Over time, I think the competition from all of the Groupon clones may force the deal sites to let the retailers keep a higher percentage of the coupon split. Perhaps the discount to the customers will go down, as well. And then maybe daily deal sites will work for more businesses as well as for the customers and the coupon sites.

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