The annual survey of venture capitalists by National Venture Capitalists Association is out and VCs are predicting moderate growth in the worldwide venture capital market in 2008. They also forecast fewer venture capital firms, larger funds, and continued recovery of the IPO market.

Research firm IDC sees the software as a services sector growing 32% annually over the next few years. So, it seems likely that VC investment in cloud computing startups and software startups delivering products over the web as a service will also grow.

Overall, VCs peg the entire venture capital market at $20 billion to $29 billion in 2008 -- putting it on par with 2007 levels. The majority of those polled also see the IPO market strengthening as well, and mergers and acquisitions increasing, though they are split as to the value of those deals.

If the VCs are right, bad news for the US economy: 60% say it will be on the decline in 2008, even though most think the sub-prime mortgage meltdown will be contained. The next president? If VCs have their way, there will be another Clinton in the White House come January 2009. But maybe we should take VC predictions with a grain of salt.

Along with the survey, the NVCA distributed some prognostications from top VCs, including Patrick Ennis, from ARCH Venture Partners, who demonstrated his love of alliteration by predicting, "In 2008 we will experience another strong year for venture funded startups. Never believe the negative predictions from professional prognosticators of pervasive pessimism - they sound like a broken record. The benefits of technology continue to spread through all aspects of the economy and around the world, across many sectors such as biotechnology, materials science, advanced computing, telecommunications and energy technologies."

That sounds like great news for tech companies, but John Cook reminds us that last January Ennis also made some predictions, including this one, ""The new Apple iPhone will be a flop." Oops.

In M&A transactions, most of them occurred in the consumer sector of online media - 329 transactions, representing 46.5% of the total transaction volume in 2008.

The 2008 reported M&A deal value by sector:

• Consumer - $6.2 billion (36.7%);
• Business - $4.8 billion (28.4%);
• Mobile - $592 million (3.5%);
• Enabling - $2.5 billion (14.6%); and
• Commerce - $2.8 billion (16.7%).

In terms of venture capital, in 2008 $3.5 billion flowed into all sectors of media according to Peachtree. This was a 22% increase over the $2.9 billion in capital raised in 2007 in this sector. Peachtree stated that the "Enabling" category had the largest increase in the amount of capital raised, up 124% with $892 million in 2008. The Mobile sector also saw big gains in investment capital, with $341 million in investment capital in 2008 - a whopping 488% increase over the $58 million raised by that sector in 2007.

The consumer category was the biggest, with 48% of capital raises.

The top five sectors in terms of volume of transactions (not reported deal value) for equity raises in 2008 were as follows:

• Video & Online Games - 59 capital raise transactions;
• Social Networking - 57 capital raise transactions;
• Web Applications/Enabling/IT - 47 capital raise transactions;
• Mobile - 35 capital raise transactions; and
• Blogging/User Generated - 27 capital raise transactions.

It'll be interesting of course to see how the M&A and investment sector pans out in 2009. There were 27 capital raises in 2008 in the Blogging/User Generated sector alone, and I can't imagine there being that many in 2009. Tell us your thoughts in the comments.

Marcus explains a little bit about the differences between venture technology and venture capital models and how his firm adopts good ideas and "A team" executives-in-training to create living, breathing tech startups without blowing through ungodly amounts of cash. He also talks about the need for a solid revenue model for even the best of tech ideas.

Remarkable Wit is a little bit TechStars, a little bit Idealab, and a little bit outside any box.

The firm's flagship project, an expertise marketplace called Moontoast, launched this spring at South by Southwest.

While our readers' responses were pretty evenly split, the split between startups that seek capital first far outweigh those that seek to make equity-for-services deals. Also, the number of VC firms (well in excess of 700 in the U.S. alone) is far greater than firms offering services or a mix of cash and services.

Are we just too used to capital? Are "venture services" firms still too new? Why don't we have more services-for-equity programs?

"You need money to buy services, and most of the time, since you do not know where exactly to shop, you overpay or pay for something you do not need," wrote commenter Marfi.

Commener Jorge made a good case for mentor-driven accelerators when he said, "Just getting the cash won't get me some good mentors[...] The main reason why startups need cash is because the model is either not clear or not set to work in the short term[...] Just cash ins't enough unless you're an experienced entrepreneur."

Power commenter Warren Bendetto spoke to the sometimes arbitrary nature of valuation, saying, "When you're starting out, you really have no idea what you'll need. You base your anticipated amount of capital you need to raise based on assumptions and guesstimates that are 99% bullshit.

If you're lucky, you'll raise too much money[...] So you buy servers you don't need, you hire too many people, everyone gets 36" double LCD monitors, and your kitchen has a vending machine that spits out free MacBooks.

That's all fun, until you realize that you gave away 80% of your company in exchange for the funding. By the time you realize that you could have raised less and kept more equity, it's too late."

Salient points, all.

So, what is it about the magic and allure of VC that keeps startups pitching for more funding when they might be better served to take services instead?

Chris Wanstrath, founder of the bootstrapped and profitable GitHub, was in the to-VC-or-not-to-VC panel I moderated at SXSW yesterday. When I asked him if he'd ever considered taking capital to get his business up and running, he said that he absolutely hadn't. He had instead chosed to make business deals, strategic partnerships that would allow him to get the goods and services he needed without being financially dependent on others or having to give up equity.

In that panel, I asked audience members in the packed room how many were currently considering seeking or were actively trying to secure capital for their startups. Between 80 and 90 percent of folks indicated that they'd be making the rounds on Sand Hill Road.

I wish I'd had the chance to ask them if VC was still their preferred option after the panel was over. It seems now that there are more options and alternatives for smart, lean startups to get further with less reliance on the complicated and sometimes predatory business of venture capital.

As for why there aren't more venture services firms in existence, some have said it's because getting the capital to run a VC firm is a heck of a lot easier than building the infrastructure to offer startups mentorship, office space, and other business-building services.

Do you think there's enough justification - both in terms of demand from startups and in terms of return on investment for firms - to warrant more of this new breed of startup support? We'd appreciate your thoughts in the comments, particularly if you're involved in the VC/startup ecosystem.

Let me explain: Most of the time, when a startup goes after venture capital, they're still in the process of building a product and bringing it to market. They need things like servers, developers, marketing tools and sometimes office space. Do they need money per se? Or is capital an increasingly arbitrary and unnecessary step in building a tech startup?

We are all familiar with the idea of trading equity for funds through angel financing and venture capital; we're also familiar with the TechStars and Y Combinator programs that help to incubate and accelerate startups through minuscule amounts of capital and significant amounts of mentorship.

But most of us are less familiar with models such as Mike Trotzke's SproutBox or Marcus Whitney's Remarkable Wit. These firms provide services (and sometimes keeping-Ramen-on-the-table amounts of cash) to early-stage startups in exchange for equity. They provide development, marketing and other services that most tech startups need without delving into the complicated issues of valuation and funding rounds. These guys are focused on the absolute bottom line of technology, which has nothing to do with money: Making a great product and finding people to use it.

So, we're interested to know from our friends in startups who aren't taking the bootstrapping route, given the choice between pure capital or business-building services, which would you choose? Take the poll, and let us know the reason behind your decision in the comments. We'll be following up soon based on the results.

1. The average deal size is increasing. The average went from $2.12 million in November to $4.11 million in December to $6.06 million in January.
2. California still rules, but global investment is happening. In the US, venture capital is still dominated by Silicon Valley, but we are seeing a few more global deals, specifically in the UK, Canada, and English-speaking India.
3. Total diversity was apparent, without any market-segment bias. This is a good sign that ventures are being evaluated on the fundamentals rather than on what's hot.

Which Ventures Received Money?

December:

• NetShelter
• dotblu
• InnerRewards
• KZOInnovations
• smartfundit
• Appcelerator
• Wordstream

January:

• HubDub
• Sittercity
• Appnomic
• CloudSwitch
• GoInternetMedia

Which VCs Wired the Money?

December:

• Rho Canada
• GrowthWorks Canadian Fund
• JLA Ventures.
• DE Shaw, Maple Investments
• Valhalla Partners
• Baytech Venture Capital
• Storm Ventures
• Sigma Partners

January:

• Pentech Ventures
• Apex Venture Partners
• Norwest Venture Partners
• Atlas Ventures
• Matrix Partners
• Kennet Partners

Regardless of whether you use Amazon services, if you are a Web 2.0 company, it makes sense to keep these firms to keep in mind for funding. And if you are using Amazon web services and are looking for money, you might want prepare your elevator pitch and contact one of the below:

Of course, the competition for their attention may be strong, as a full room came to hear a presentation focused mainly on Amazon's developer offerings and what they can do for business owners. One claim repeated several times was that Amazon eliminates 70% of the non-differentiating work for web startups. That means, things like building server farms, maintenance, and any operation that doesn't distinguish you from your competition. 70% strikes me as a bit high, but then my company produces desktop applications so I may not be the best judge. The other 250 people in the room were generally nodding their heads in agreement.

If you're already familiar with the Amazon web services pitch, there wasn't much new in the presentation. However, a question and answer session led by Andy Jassy, Senior VP of AWS, to clarify that Amazon is in fact building a distinct line of operation with its own investments and not using idle capacity sitting around until the next Christmas season, was interesting. True, they have not yet opened up Elastic Cloud Computing, but the servers currently running EC2 are dedicated for that purpose.

Some Take-aways

One participant wondered why Amazon hasn't started its own venture capital arm to make strategic investments in their AWS platform. Then we looked around the room and noticed all the engaged VC representatives and came to the conclusion they didn't need to.

The question of 'What happens if <Big Company> moves in on this space?' is becoming more common, and the big company on everyone's mind in this part of the world (Seattle) is Microsoft. To this, the only thing the AWS folks could do was smile and claim first mover advantages. However Matt McIlwain of Madrona Venture Group mentioned that he had just returned from a Silicon Valley forum where people thought Microsoft simply can't ignore what's happening here much longer. I did hear a rumor that the first Microsoft data center has come online in the last month, and one can only speculate about Google and Akamai, so stay tuned...

Speaking of data centers, there was a question among some attendees about whether Amazon actually owns or leases them. If someone from Amazon would like to clarify this in the comments, that would be appreciated.

Finally, something to watch for. Up to now, most of Amazon's success stories are in the consumer market. Since Amazon runs one of the largest consumer web sites, this makes a certain amount of sense. However, they must have designs on the business market too. While they have the technology, and events like today's certainly show developer interest, it may take a bit more effort to convince corporations their platform is secure enough for enterprise data. Once corporate IT departments begin buying in to Amazon's vision, the other big technology houses will be forced to respond. Given the recent stock market activity on AMZN, that time may come sooner rather than later.

Russia-based Quintura Search Engine has received substantial backing from Mangrove Capital Partners of Luxembourg, an early-stage investor in Skype, ABRT Venture Fund and the partners of OpenView Venture Partners of Boston. This is an interesting deal for several reasons. The first is the Skype connection. Another one is that Quintura is the first Internet Russian company to receive investment from a Western VC. And then, of course, the product itself is very innovative.

Quintura is a visual search engine and it claims to apply the natural way that people think about concepts, to search. One of the most difficult problems that modern search engines are trying to solve is resolving ambiguity. Quintura solves it by presenting the user with a cloud of concepts relevant to the search. For example, when we searched for readwriteweb we got the cloud shown in the picture above. This type of cloud helps to refine results. And when a user clicks on a word, the search results below re-arrange accordingly.

The current version of Quintura supports just generic and image search, but it is likely that more will be coming soon. Users are also able to save and share the results that they find relevant. The results window could use some polishing, but the cloud navigation definitely compensates for any shortcomings. It is clear, as the company claims, that some very sophisticated neuron networks and clustering on the back end are powering this cloud.

Yakov Sadchikov, co-founder and CEO of Quintura, said in the press release:

"We plan [on] using the venture capital to take the Web by storm and reach millions of web users globally when launching the Quintura visual find engines for various user communities."

We think this is very ambitious, given that search is a tough and crowded space. But with a bit of polishing, this one may have a chance of breaking through. Could it be that Mangrove have found another big winner? Only time will tell. For now give Quintura a try and tell us what you think.

125% more than all previous rounds of investment in Twitter combined, this brings company's total financing to $360 million. What on earth will it do with all that money? It will attempt to become the communications platform it has always wanted to be. That will probably mean acquisitions, it will probably mean a lot more sales people and advertising and it definitely means that if anyone is going to acquire Twitter, it will need to be for multiple billions of dollars. More likely the company will file to go public on the stock market.

Minutes after Swisher posted, the Twitter company blog made a formal announcement. That post included some other numbers: Twitter says it added 100 million new users this year and grew its staff from 130 to 350 people.

It's no co-incidence that this giant round of funding has been announced within weeks of Twitter's having promoted business-oriented Dick Costolo to CEO, announced the commercial availability of its user data and unveiled the beginnings of a wide open advertising platform. The company is also rumored (though they deny it) to be opening an office in New York City, advertising capital of the world.

Get ready to see what Twitter looks like with a well-heeled foot on the gas.

Real Venture Capital (RVC) is anything that takes a risk and works hard to create something fundamentally new. Many classic VC funds fall into this category. So do many angels. But I would also put entrepreneurs who bootstrap their ventures into this category. I would also even put Private Equity and Hedge Funds that do turnarounds and transformations.

This is very different from Momentum Venture Capital (MVC). The old asset class categories make less sense in this context. You get all kinds of MVC that would traditionally be called VC, Angel, Entrepreneur, Private Equity or Hedge Fund. But they are fundamentally different from Real VC. MVC jump on trends and amplify them. If they are lucky and smart, they get out in time. They are the bubble inflators. Their core competency is timing trends. They ride momentum.

In a downturn such as this, MVC get crushed. MVC that timed it well and got to cash are sitting pretty, playing golf ready to jump in a gain when the cycle turns. But MVC left "holding the bag" at a time like this get crushed.

RVC is contrarian. They invest when most people are scared and sell when everybody is bullish. MVC is the opposite. Smart MVC invest when the trends are obvious and get out quick, the classic "flip artist". Dumb MVC invest when the trends are obvious and don't get out in time. But both smart and dumb MVC are primarily trend spotters.

Warren Buffet is the RVC Hero

Warren Buffet ignores Mr. Market and buys companies that generate lots of free cash flow. RVC build the kind of companies that Mr. Buffet would want to buy (which mean that anybody would want to buy and that you don't need to sell until the right buyer comes along).

Sure, But Safe??? Look At Alternatives

No asset class looks safe now. Remember that the objective is some cash after inflation, and inflation has certainly reared its ugly head again. Here are some of the usual assets that people turn to in difficult times. (In brackets are the classic "Chicken Little" fear mongering questions that you hear today).

1. Cash (in what Bank? After Inflation? In what currency?)
2. Money Markets (frozen assets in panic, no inflation protection)
3. Muni Bonds (what did Schawzenegger say about California needing emergency funds?)
4. Property, "safe as houses, right?" ('nuff said).
5. Oil (will drop if global economy slows)

I could go on and on. The point is that when nothing is safe the risk/reward of investing in a new business that you really understand, with people you trust, suddenly looks less out there on the risk curve.

The Playing Field Just Tilted To The Little Guy

This is what we wrote about yesterday related to SaaS and traditional IT vendors.

That maybe part of a bigger historical shift of power from BigCo to SmallCo, reversing what happened in the last 50 years when the share of US GDP controlled by Fortune 500 went from 1/3 to 2/3. Coase's Law and the reduction in transaction friction created by the Internet are the theoretical underpinning of this shift.

This historic shift makes it safer to build disruptive innovation from scratch than defend an incumbent position. To put it more simply, today it is better to be a Barbarian than a Roman.

In short, it is time for Real VC to be bold. Some will be bold. Some won't. Enough will be bold for this to work out just fine.

Image credit: Thomas Hawk

Today's Companies

Relay Rides allows us to borrow cars from our neighbors, instead of renting a car. SpareFoot helps us find storage space, even for short periods of time (this would have been awesome for college summer breaks!).

Kik raised the most amount of venture capital today and is poised to become another big group messaging app, which is interesting in the context that Beluga (a similar messaging app) was just acquired by Facebook last week.

Gigya helps Web companies navigate social media platforms such as Twitter, Facebook and Linkedin. ZoomSafer provides risk management software aimed at keeping employees from using their mobile phones while driving, a dangerous idea and a serious liability for the company. Qriously replaces traditional ads on our mobile devices with questions about the would-be product or company, while gathering location information of the user and real-time feedback.

With six very different companies receiving funding today, which one will you keep an eye on?

]]> Discuss]]> http://www.readwriteweb.com/archives/6_tech_companies_that_raised_venture_capital_today_which_will_change_the_world_poll.php http://www.readwriteweb.com/archives/6_tech_companies_that_raised_venture_capital_today_which_will_change_the_world_poll.php Venture Funding Mon, 07 Mar 2011 17:30:00 -0800 Leela Cyd Ross Techcrunch is reporting that last week's rumors about Google being close to acquiring RSS feed management and advertising firm Feedburner have been confirmed. The purchase price is in the ball park of the rumored $100 million, in a mostly cash deal that locks the founders in for a couple of years.

This is a great deal for both Feedburner and Google. For Google it gives them access to over 720,000 feeds including, 111,000 podcast or videocast feeds, many of which can now be added into the Adsense network. It also gives Google access to a wealth of data and information about how people consume blogs and information across the greater blogosphere.

]]> For Feedburner, which has raised around $10 million from Mobius Venture Capital, Portage Venture Partners, Sutter Hill Ventures, Draper Fisher Jurvetson and Union Square Ventures, it gives them access to Google's muscle and resources (not to mention a nice exit).

The price itself seems like a steal to me. Feedburner's 422,000 publishers may not seem like a lot for a $100 million investment, but that 422,000 publishers actually translates into access to many millions of readers that Google can push advertising to.

]]> Discuss]]> http://www.readwriteweb.com/archives/feedburner_purchased_google.php http://www.readwriteweb.com/archives/feedburner_purchased_google.php News Wed, 23 May 2007 11:35:11 -0800 Josh Catone Kim, CEO of SpikeSource: "the world has completely changed for building a software company."

Joe: talking about Jotspot, "DIY publishing" - wikis next step after blogs for web publishing. Jotspot heading towards "DIY apps".

Joe talking about Jotspot mistakes this year - not focusing on revenue. "Jotspot was in beta for way too long" --> not measuring the right things; refers to Google being in betas for so long --> people want feeling of reward which betas don't provide. Joe now wants to skip beta phase in his products.

John: both of you have grown quickly, have you gotten to point where you lose community etc of the culture?

Kim: not yet grown that big.

Joe: everyone can still see each other. want little bit of "standing room only" so has energy etc. Inspired by Google's hiring philosophy. Jotspot's hiring philosophy is "no false positives" --> everyone you get in the company will be "great".

John: what about contracters?

Kim: development team is distributed --> set up offshore operations in India.

John: venture capital. what's the profile re financing?

Joe: myth of entrepreneurship - some people need VC backing, some don't. clear matter of economics, supply and demand. lot of companies are "features wrapped up in company's clothing" - those ones shouldn't take VC capital. need to get to $30-40million to get a decent return, which is rare. The VC is not the prize, wrong thing to focus on.

John: arc of kleiner-backed start-up (potential for billion dollar company etc)

Kim: not trying to do that. "let's get this right", scaling correctly etc.

John: excite going public - did you enjoy that (as goal of company)?

Joe: "private piece of the market feels very frothy right now"... "bootstrap froth" - can be a good thing, but if inject lots of money and pump up the valuations, it can be a problem ("venture froth")

John: death by bootstrap "fratricide"

Joe: it's so cheap to start a company these days. jotspot took $100k to go to market, much cheaper than excite. cheap infrastructure, offshore development. Tons of angel or bootstrap companies - "you'll see a ton more entrepreneurship". Will cause its own set of problems, but it's fantastic.

John: is it different this time personally?

Kim: more calm experience, people have families so not burning midnight oil, don't have to kill yourself to build a company - still long hours, but exciting.

Joe: is equally "paranoid, neurotic"; the desire, drive, nervousness - he's "wired that way". Wants to make it successful. Joe thinks he's "no more calm than I was in Excite."

]]> http://www.readwriteweb.com/archives/the_alumni_repo.php http://www.readwriteweb.com/archives/the_alumni_repo.php Web 2.0 Conference 2005 Fri, 07 Oct 2005 11:14:23 -0800 Richard MacManus According to the Wall Street Journal, Twitter is about to close a $100 million funding round from as many as seven investors, including T. Rowe Price, Insight Venture Partners, Spark Capital, and Institutional Venture Partners. Even though Twitter has yet to actually make money, these investors are valuing Twitter at about $1 billion. The Wall Street Journal, which is relying on information from an anonymous person "close to the deal," states that the deal could close today and would be Twitter's third and largest round of VC funding to date.

]]> Rumors about this new round started to appear about one week ago, though at the time, the actual amount was rumored to be around $50 million. Around the same time, we already wondered a bit about Twitter's $1 billion valuation, which seems somewhat disproportionate to Twitter's current revenue stream. While companies around Twitter are using the ecosystem that Twitter has created to make money, Twitter itself still hasn't announced how it plans to make money.

This kind of valuation is going to give Twitter a long runway before it actually has to make money, but at the same time, it also makes it unlikely that anybody is going to acquire Twitter in the near future.

We will obviously keep an eye on this developing story and will update it once we get more information.

Image used courtesy of Flickr user tao zhyn

]]> Discuss]]> http://www.readwriteweb.com/archives/wsj_twitter_will_raise_another_100_million_in_vc_f.php http://www.readwriteweb.com/archives/wsj_twitter_will_raise_another_100_million_in_vc_f.php News Thu, 24 Sep 2009 09:28:14 -0800 Frederic Lardinois We published the first A-Team post in October, when only three web tech ventures got through our qualifying criteria: a minimum of $1 million in Series A funding from an institutional VC. Well you may not have noticed, but on one count the economy got better in November. In November, eight deals got through our filter.

However, we've also lowered our cut-off to $0.5 million. Tougher times lead to smaller rounds, which is not necessarily a bad thing because tough times force you to do more with less money. This got our list up to nine deals in total for November.

]]> The Eight Ventures Where Champagne Corks Were Popped

Below, we have linked each company's name to its entry in the Trade Vibes-powered ReadWriteWeb Company Index (or to the company site if there is no entry). You can use this as a starting point for research and comparison, referring to the venture's own site when needed.

• Machinima
• CarWhale
• Maxplore
• Open Candy
• Zuberance
• Carbon Flow
• Casual Collective

Note: a commenter pointed out that in our original A-Team post we missed Siri, which raised $8.5 million in October, although we have written about them before.

So please tell us who we missed in November. We will correct it in December.

Which VCs Are Wiring The Cash?

We identify only the lead VC in the following list (assuming that the first one listed in the PR material is the lead). We aim to make this more in-depth next month by showing all of the VCs that participated.

• Pond Venture Partners
• MK Capital
• Sierra Ventures
• Emergence Capital Partners
• Bessemer Venture Partners: check out its Anti-Portfolio.
• Clean Pacific Ventures
• Lightspeed Venture Partners: it has one of the best blogs in the venture business.

Emergence Capital Partners did two Series A deals in November (Maxplore and Zuberance). That is pretty cool.

If you want to talk to the firm, here are the basics:

Investment categories:

• Software-as-a-Service (SaaS)
• Consumer services
• Digital and social media
• Information services
• Business services
• Cloud computing

Investment criteria:

• Early and growth stage
• Compelling customer value proposition
• Market leadership potential
• Experienced and passionate management team
• $1 to $10 million initial investment
• US preferred

Emergence is riding the enterprise SaaS wave. Most VCs missed that wave, as we found when we surveyed gritty entrepreneurs. That sector was out of favor at the time, and most ventures simply did not get VC funding then.

Where Are Ventures Getting Funded?

It looks like California is still doing the dreaming, with six out of the eight ventures residing there. The other two are from outside the USA: one from England and the other from India.

Which Sectors Are Getting Funded?

The biggest theme was video, specifically games, but there were also two that had a green focus.

Here's hoping that December will be an even better month.

]]> Discuss]]> http://www.readwriteweb.com/archives/good_news_a_team_score_for_november.php http://www.readwriteweb.com/archives/good_news_a_team_score_for_november.php Tue, 09 Dec 2008 05:00:00 -0800 Bernard Lunn