Software and Web Apps Still Sweet Spot For Investing

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/

Venture Capitalists So Far Unsuccessful In Picking Games

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

Unprofitable Square Valued at $1.6 Billion

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

G.E. Invests in 10 Clean Energy Start-Ups

G.E. and its venture capital partners have been working with green technology and clean energy start up companies in hopes that one of the products will be a breakthrough for the company. G.E. has already acquired multiple companies and products in the US and plans to start a similar program in China this year.

BY EVELYN M. RUSLI

General Electric, the huge global conglomerate, has entrepreneurial aspirations.

On Thursday, the company announced $63 million of investments in 10 home energy companies as part of its so-called ecomagination Challenge. The initiative, announced last July, is a $200 million commitment to invest and develop partnerships with promising clean technology start-ups.

The company along with its venture capital partners — Emerald Technology Ventures, Kleiner Perkins Caufield & Byers, RockPort Capital, the Carbon Trust and Foundation Capital — have so far deployed $134 million.

“It allows us to connect to these incredible, innovative companies,” said Mark L. Vachon, the vice president of G.E.’s ecomagination effort. “We can help get these ideas faster into the commercialization process.”

For General Electric, which spent $1.5 billion in 2009 on clean technology research and development, the program is a low-cost way to identify promising start-ups with potentially breakthrough technologies. So far, it has made 22 investments and one acquisition, FMC-Tech, a power grid technology company.

The latest batch of investments includes GMZ Energy, a company that helps convert heat to energy, and Hara, an energy management software maker. Kleiner Perkins, an early backer of Google and Amazon, participated in both financing rounds.

While it is still unclear what these investments will yield, G.E. announced on Thursday that it was planning to expand the program. It will open a similar ecomagination Challenge in China later this year that will represent about $100 million in financial commitments.

In addition, it is partnering with the Carbon Trust to establish a $5 million seed fund in Europe for clean technology start-ups. According to Mr. Vachon, General Electric may eventually apply the ecomagination Challenge strategy (of investing in a broad swath of early stage companies with venture captial firms) to other parts of the company.

“This platform has a lot of applications, it could work with other parts of G.E.’s portfolio,” Mr. Vachon said. “We’ll start with China, and that will certainly keep us busy for awhile.”

For more information please reference the original article here