Silicon Valley Watcher - reporting on the business of technology and media

Vinod Khosla is one of Silicon Valley's most successful VCs. I was at the recent SDForum Visionary Awards where Mr Khosla was one of four winners of the 2009 awards.

His acceptance speech was short and very good. Excellent advice for entrepreneurs.

Also, he talks about failure, which I have long advocated is Silicon Valley's strength.

A couple of years ago I met with a delegation of Russian diplomats, VCs, and government officials. They were visiting Silicon Valley and wanted to meet with me as part of their tour. They were looking for ways to create several silicon valley-like regions in Russia.

During our meeting, I told them I would tell them the secret of Silicon Valley. I paused. They all leaned in a little closer...

[Guest post from Georges van Hoegaerden, an accomplished entrepreneur, CEO and venture catalyst "turned conservationist of the technology asset class." His articles also appear at http://venturecompany.com. Here are extracts from a longer essay: How LPs should deal with VC. ]

By Georges van Hoegaerden

The technology sector which is my passion for the last 30-years is at the beginning, not the end of its emergence. Perhaps the top-level indicator of the innovative runway we have ahead of us is the following: more than 5/6 of the world's population does not yet use a computer connected to high-speed/broadband internet today. And all should and will, given the right technology.

That's where technology innovation comes in; not just in connecting people to the internet but in deploying innovation that uses the internet as a distribution mechanism. The way we use the internet today is rudimentary, and many new technology stacks will emerge to improve its impact on everyday citizens.

On Sand Hill Slave, Slave Girl gets her mid-year performance review . . .

In my case, partners always catch me for the review when I’m in the middle of something that has my complete and undivided attention.

Partner: I have time for that review now.

SlaveGirl: Okay, can you give me a few minutes? I’m wrapping something up...

Partner: Well, I’ve only got a few minutes-

Sensing his tone, I immediately close out my YouTube window and scamper into his office.

Continues . . .

Sand Hill Slave: Even Though I Walk Through the Valley in the Shadow of Tech, I will fear no VC...

I recently caught up with Jurgen Popp, one of the top European angel investors. He was in town attending a VC conference and also tending to some of his US investments, including the rapidly growing Smart Health Buyer -- a US version of a very successful German startup.

From his perch in Zurich, Switzerland, Mr Popp gets to mix in European and US VC circles. And because he is an angel investor, he is often able to say things that others can't. Here are some notes from our meeting:

- I recently attended a large VC conference in San Francisco. The VCs all seemed interested in what types of new fees they could charge their investors rather than looking for new startup ideas.

- There were about five angel investors at the VC conference and it was easy to spot each other because we were the only ones asking questions about business rather than about fees. We all ended up sitting at the same table.

- The US VCs love to portray themselves as risk takers but they are not. It's the entrepreneurs that take the risks.

- There is very little VC activity in Europe right now, it seems to have virtually disappeared.

- There's a lot of activity among VC firms selling and buying portfolios, but a lot are being sold at 15% to 25% on the dollar.

- The way some of the US VCs behave they are killing innovation. They will join together to drive down valuations and take as much equity as they can from the founders.

- There are a lot of companies waiting in the wings to IPO. But I wonder if it is worth it for some of them. If they raise $50m on a $200m valuation much of that money will go in fees to bankers and lawyers.

- I believe there will be a rebound in VC investing in 2010 because by that time there will have been a rebound in stock markets -- maybe a doubling of where we stand today. That will free up money to be invested in startups.

- I'm already seeing a bit more activity. More people are calling, and there is a lot more interest in investing in small companies. That will grow over the next few months.

I'm so happy. My favorite bitch goddess, Sand Hill Slave is back!!!

[Guest column by Greg Gianforte, CEO of RightNow Technologies and a serial entrepreneur.]

By Greg Gianforte

Raising venture capital for early stage start-ups seems to be the prevailing path for most entrepreneurs; however, most would-be founders should reconsider.

Here are some reasons why:

- If you start by selling your concept to potential prospects (rather than stock to VCs), you will either end up with initial customers or a conviction that your idea won't work. Why raise money and then find out which one it will be?

- Raising money takes time away from understanding your market and potential customers. Often more time than it would take to just go sell something to a customer. Let your customers fund your business through product orders.

- Adding VCs to the mix early gives you an additional set of masters you must serve in addition to your customers. It is always hard to serve two masters, especially in a startup.

- With no money you can't make a fatal mistake. This is a blessing. Without VC money, you are forced to figure out how to extract funds from your customers for value you deliver. Ultimately that is the only thing that really matters.

- Money removes spending discipline. If you have the money you will spend it - whether you have figured out your business model and market or not.

-Raising VC money determines your exit strategy. You will either sell the business or take it public. What if you end up with a very profitable, modest sized business that you want to just run? That is no longer an option once you raise VC money.

- You sell your precious equity very dearly before you have a proven business model. This is the worst time to raise money from a valuation perspective. I know this is a contrarian view. And some of you are saying that might be fine for a small company.

Don't forget Dell, HP, Microsoft all originally started without VC funding; you can build a big business with bootstrapping and without VC money. At RightNow, we doubled our revenue and employees every 90 days for two years before we took any outside money, and even then the employees retained more than 75% ownership after raising $32m.

- - -

[I see a lot of companies that are seeking VC money, or have VC money but need more, as if that would make their business viable. VC money isn't always smart money and it isn't always the smartest thing to do. I republish Greg's column at least once a year because it contains lots of common sense.]

Greg Gianforte is the author of: Eight to Great: Eight Steps to Delivering an Exceptional Customer Experience

His previous book is: "Bootstrapping Your Business: Start and Grow a Successful Company With Almost No Money."

If you would like to contribute a quest column please let me know: Tom(at)Foremski.com.

[Guest post from Georges van Hoegaerden, an accomplished entrepreneur, CEO and venture catalyst "turned conservationist of the technology asset class." His articles appear at http://venturecompany.com.]

The auto company's plan to fixing VC

By Georges van Hoegaerden

The National Venture Capital Association (NVCA) has released its recovery plan (4-pillar plan) to fix Venture Capital that is eerily similar to that of the auto companies. It focuses on the prolongation of (their) life rather than on the quality of its product; the ability to spawn meaningful innovation.

Now I am sure Dixon Doll, from his perch atop a $1.6B Venture firm, means well but his purview is severely limited by his role as chairman as one of the most closely held investment clubs in the nation. Its members, ninety-something percent of the U.S. VCs are simply not incented to present all options for improvement, and certainly not one that would include self-cannibalization.

Nothing in this plan covers the stimulus and meritocracy required to spawn and monetize disruptive innovation. The plan mentions entrepreneurs, as the real value creator in this equation - in passing - only once (slide 11) amongst its thirty slides. The plan seems to forget that the entrepreneur is the real value creator, not the VC.

[Guest post from Georges van Hoegaerden, an accomplished entrepreneur, CEO and venture catalyst "turned conservationist of the technology asset class." His articles appear at http://venturecompany.com.]

Idiot CEOs

By Georges van Hoegaerden

That's how one of the many CEOs that contact me recently described his colleagues who submit to Venture Capital (VC).

This alternatively funded CEO describes other CEO's that seek VC funding as idiots -- with a 1 in a 1000 shot at a lousy valuation (52% Round A, 25% Round B and 15% Round C). He continues that many of the serial entrepreneurs trumpeted by VC's have no money themselves despite "successful" previous exits.

He is not alone about the ineffectiveness of Venture Capital, I frequently hear from other successful entrepreneurs about it. And the situation may get worse before it gets better. The economy is offering VCs even more excuses to turn the screws, and control of companies is gained in more ways than a simple equity stake.

I believe technology investing today is largely a sub-prime asset class as described in a plethora of sub-prime articles in this blog, and find many entrepreneurs discouraged by both the process as well as the outcome of fundraising, even when that yielded a round.

Because of the ineffectiveness of VC and the rampant false positives and false negatives I refuse to believe VCs (and the NVCA collectively), who suggest that the sum of Venture Capital equals the sum of technology innovation. We see great entrepreneurs actively pursuing more creative investment vehicles (high-net-worth individuals, private equity firms, investment bankers, sovereign funds...anyone with money), and rightfully so.

In the meantime, oblivious to recognizing their own flaws, VCs are further descending down the sub-prime spiral by restricting investments to compliant entrepreneurs, evidence that they remain clueless about the fundamental risk management of high yield returns.

Smart CEOs should simply refuse to work with many technology investors for the following reasons:

VC firms are keeping their powder dry these days and that means very few new ideas are being funded. Bob Ackerman from Allegis Capital was recently on CBS 5 speaking with KPIX reporter Sue Kwon.

A few key points from the interview (thanks to Steve Kaufman):

- Stiff U.S. regulations and tax policy is slamming Silicon Valley VCs. “It’s killing the goose that laid the golden egg,” he said. The evidence is not merely the decline in U.S. fund-raising but the concurrent increase in VC funding offshore – a record $8 billion was invested in Indian and Chinese startups last year. Many of startups that corralled the money were started by entrepreneurs who were educated in America and then worked for U.S. technology companies before returning home. “They are returning to their roots, and the capital is following them,” Ackerman said, adding that this trend is delivering body blows to the traditional wellspring of U.S. technological innovation.

- Even though some of the greatest technology companies, such as Cisco, were created during economic downturns, local VCs have become exceedingly risk-adverse. Ackerman says 75-80 percent of VCs have stopped investing in new startups. Instead, they’re focused on mitigating failures among startups they have already backed and are investing fresh capital only in those they deem most promising. They’re missing the boat because it’s almost impossible to determine which startups will ultimately succeed. One Ackerman-backed startup, IronPort Systems, founded in the middle of the dot.com bust in 2001, was acquired by Cisco in 2001 for $830 million.

- VCs have been spoiled by evolutionary industry trends. This decade, as VC funds grew bigger and bigger, VCs became more hands-off and less hands-on, paying insufficient attention to most of the entrepreneurs they backed. VCs need to return to their roots and work much more closely with entrepreneurs, sharing their successes, failures and experiences to improve the overall possibility of success.

- If these trends are not soon reversed, Silicon Valley will completely lose its waning reputation as the world’s greatest technology innovation center, initially created by the convergence of great universities, a disproportionately large number of local VCs, a strong entrepreneurial culture and the lack of stigma in failure. All this explains why the Valley, at least until recently, consistently attracted so many bright Indian, Chinese, Russian, British and French engineers as the technology haven for the best and brightest. As noted above, this long-standing trend is now in serious jeopardy.

Here's the interview:

http://cbs5.com/video/?id=48599@kpix.dayport.com

Investments in the IT industry fell to their lowest level since 1998, a 39 per cent drop compared with the year ago period. Overall, US venture capital investments fell 30 per cent, compared with the year ago period, to their lowest level since 2005 reports Dow Jones Venture Source.

"The data confirms what we've being hearing anecdotally for some time that many venture capital firms are circling the wagons to weather the downturn and are focusing more on the health and vitality of current portfolio companies rather than new investments," said Jessica Canning, director of Global Research for Dow Jones VentureSource.

Healthcare also fared badly, dropping 42 per cent from a year ago.

The bright spot was energy investments which more than doubled from the 2007 Q4.

Here are the 2008 Q4 details:

Deals: 554

Investment: $5.5 billion down 30 per cent from 2007 Q4

Total 2008

Deals: 2,550

Total 2008 investment: $28.8 billion down 8 per cent from 2007

Here are the sector details:

Scott "Dig" Scheper is an analyst at a venture capital firm in Orange County. He recently put together this short presentation on lessons in venture capital. He has some excellent advice for startups such as don't wait in the car park to pitch again!

I wasn't able to attend the recent Under the Radar Dealmaker LA Roundtable on the VC Outlook 2009 but TechZulu was there. Here are some video segments from the conference:

Jason Nazaar, Founder, DocStoc (Moderator)

David Travers, Associate Rustic Canyon Ventures
Brian Garrett, Managing Director, Cross Cut Ventures
Jim Armstrong, Managing Director, Clearstone Venture Partners
Mark Suster, Partner, GRP Partners

This is a guest column written for Silicon Valley Watcher by Greg Gianforte, CEO of RightNow Technologies and a serial entrepreneur:

Raising venture capital for early stage start-ups seems to be the prevailing path for most entrepreneurs; however, most would-be founders should reconsider.

Here are some reasons why:

-If you start by selling your concept to potential prospects (rather than stock to VCs), you will either end up with initial customers or a conviction that your idea won't work. Why raise money and then find out which one it will be?

-Raising money takes time away from understanding your market and potential customers. Often more time than it would take to just go sell something to a customer. Let your customers fund your business through product orders.

-Adding VCs to the mix early gives you an additional set of masters you must serve in addition to your customers. It is always hard to serve two masters, especially in a startup.

-With no money you can't make a fatal mistake. This is a blessing. Without VC money, you are forced to figure out how to extract funds from your customers for value you deliver. Ultimately that is the only thing that really matters.

-Money removes spending discipline. If you have the money you will spend it - whether you have figured out your business model and market or not. -Raising VC money determines your exit strategy. You will either sell the business or take it public. What if you end up with a very profitable, modest sized business that you want to just run? That is no longer an option once you raise VC money.

-You sell your precious equity very dearly before you have a proven business model. This is the worst time to raise money from a valuation perspective. I know this is a contrarian view. And some of you are saying that might be fine for a small company.

Don't forget Dell, HP, Microsoft all originally started without VC funding; you can build a big business with bootstrapping and without VC money. At RightNow, we doubled our revenue and employees every 90 days for two years before we took any outside money, and even then the employees retained more than 75% ownership after raising $32m.

- - -

Foremski's Take:

I see a lot of companies that are seeking VC money, or have VC money but need more, as if that would make their business viable. VC money isn't always smart money and it isn't always the smartest thing to do. Greg's column needs to be republished from time to time because it remains relevant.

Greg Gianforte is the author of a new book:Eight to Great: Eight Steps to Delivering an Exceptional Customer Experience

His previous book is: "Bootstrapping Your Business: Start and Grow a Successful Company With Almost No Money."

If you would like to contribute a quest column please let me know: tom(at)SiliconValleyWatcher.com.

Sramana Mitra rightly takes to task Lightspeed Venture's new $800m fund supposedly focused on early stage investments in IT and cleantech.

With that much money you'd have to make a couple of hundred early stage investments which is clearly not possible. The VCs wouldn't have enough time to find, make, and nurture such investments.

Sramana Mitra:

There is only one reason for raising these humongous funds: Raw greed for larger and larger Management Fees.

It's not the first time Sramana Mitra has taken on VC firms in boasts that they finance early stage startups.

Here’s an excerpt from one of NEA’s press releases: “Practicing classic venture capital for over 25 years, NEA focuses on early stage investments, playing an active role in assisting management to build companies of lasting value. With $6 billion under management, NEA’s experienced management team has invested in over 500 companies, of which more than 150 have gone public and more than 200 have been acquired."

NEA is a great firm, indeed one of the classical institutions of the industry. Precisely why they should be slightly embarrassed to utter “early stage” and “$6 Billion under management” in the same breath!

I agree. It's the angel investors who take the risks and invest and nurture Silicon Valley startups. It is angel investor networks such as TiE and Silicom Ventures that do the real heavy lifting around here.

BTW TiE's excellent annual conference is coming up May 16 -17 in Santa Clara. Don't miss it!

Excellent article by Jeff Nolan, an ex-VC, writing in SandHill.com on venture capital investments and locating the next big thing.

Incrementalism and "The New New Thing" - With all the venture capital moving around in the Silicon Valley, where is the real innovation?

He makes many good points especially that there is a lot of money flowing into companies that only offer incremental improvements over what is already available.

The situation may leave the technology industry in another downward spiral if none of the "incremental" ventures hit it big and no other genuine innovation appears soon.

Incremental innovation just won't cut it. In my opinion innovation has to be disruptive otherwise it won't succeed, because there is little incentive to change.

I certainly agree with the Web 2-point yawn factor:

In my opinion, the worst thing that happened in these last couple of years is that damn versioning of what is a simply the broader continuum of the evolving Web. Define Web 2.0… just try it and you will see the futility.

I totally agree with Mr Nolan on this point:

I am waiting for venture investors to once again discover that there is money to be made in enterprise software.

But what is next?

As I survey the landscape of consumer- and business- focused software and service providers I am struck by how much incrementalism there is at the moment. Something like Twitter is ground breaking in terms of breakout adoption, but what about the other 10,000 startups? There are few bold "aha" ideas, lot's of social "-this or -that", and mostly a bunch of companies hoping to draft on the perceived success of a few gorillas. . .

. . .The venture capital will no doubt continue to flow to these companies in the hopes that a few will rise to the top and get acquired. With the melt down in non-VC private equity I am sure that institutional investors will surge back into VC with abandon and this will prop up the Valley for the foreseeable future.

But I'm still left with the uncomfortable question of "What’s next?" When Facebook doesn’t deliver world peace, and FriendFeed fails to be better than sliced bread, what will we do?

SandHill.com | Opinion : Incrementalism and "The New New Thing"

I know when the next new thing will emerge...

It will emerge from this coming recession. The next new/big thing has always emerged from the bust cycles in Silicon Valley.

This last one produced a two-way communications technology platform based on RSS (a blogging platform) that led to the flood of collaboration apps known as Web 2.0. The next big thing will emerge from the same roots. Because it is during a recession that we have time to think about and invest in the next generation of innovation. Intel (an SVW sponsor) makes its investments in chip fabs during the bust cycle in the chip industry, then when the boom cycle comes it is ready to crank out tens of millions of chips.

If we are going to go into a recession the silver lining is that there will be gold at the end of the rainbow (mashup metaphor #34 :-)

Sramana Mitra makes a great point about venture capitalists and angel investors. She notes that huge VC funds continue to be raised. This means VCs can't do as much mentoring and guiding to help startups, they have to make large investments to justify their funds (and more importantly, their management fees.)

She cites figures for 2007 that show:

Angels invested $26 billion in 57,120 companies.

VCs invested $29 billion in 3,813 companies.

What I find disconcerting is that some of the best early stage venture firms are basically putting themselves in a situation whereby they cannot do early stage anymore!

From: Sramana Mitra on Strategy.

What happens to Silicon Valley startups if the angel investors can't do the job as well as they used to because of their exposure to numerous financial crises that abound?

This is what seems to be happening, as I found out last week: Out & About: Entrepreneurs Talking About Recession- Are Angel Investors In Trouble?

The loss of the angel investors is potentially a big problem because Silicon Valley VC firms have outsourced much of the seed investing to the angels. The angel investors are a more important generator of the next wave of startups now than ever before, this could hurt Silicon Valley.

As US acquisitions of European startups grow more costly due to falling US dollar, Swiss-based Index Ventures Tuesday announced it has created the first European fund to invest in mature, late stage, European startups. The fund raised 400m euros, or about $576m at today's exchange rate.

The goal of the fund is to invest between 20m euros and 50m euros, in mostly European companies, which are at a stage where they are considering being acquired.

"In many of these cases, investing additional capital and time in the business will result in a much greater long-term payoff and allow the entrepreneur to continue growing his or her company into a market leader," said Dominique Vidal.

MySQL, which Sun Microsystems last week agreed to acquire for $1bn, is one of the firms' portfolio companies. It was also an investor in Skype, which was sold to Ebay for $2.6bn. Index has invested in 100 European and US startups.

Betfair, and FON are among other hot investments in its portfolio.

But a falling US dollar and a devaluation of Ebay's Skype investment has created a poor acquisition market for European tech and life sciences companies, which are often sold to US corporations.

Index was founded in Geneva in 1996.The latest fund will be managed by "Index co-founder Giuseppe Zocco; Dominique Vidal, previously CEO of Yahoo! Europe; and Guido Magni, formerly the Global Head of Medical Science at F. Hoffman-La Roche."

Index Ventures - News

Technorati Tags: indexventures

Monday I met with a Russian delegation that is part of an ambitious Russian government program investing billions of dollars in creating several Silicon Valley type innovation regions across Russia. This includes passing new laws, deregulation of controls over some types of investments, and possibly even creating a stock market for its high tech sector.

The group is here to build connections with Silicon Valley and to learn from some of its best and worst practices. There is a two-day conference on Thursday and Friday: Silicon Valley Open Doors 2007.

The delegation was eager to hear about my views on SIlicon Valley. They leaned forward when I said I would tell them Silicon Valley's most important secret--and then I stopped. They laughed, and then I told them the secret, knowing that it can't be torn away from this region: Failure.

Silicon Valley tolerates, and funds, massive amounts of failure. Only about one out of twenty startups succeed.

Probably no other culture allows people to fail as many times as Silicon Valley. Inside every succesful Silicon Valley entrepreneur is a failed entrepreneur.

I know plenty of successful people but they failed many times. Other countries and regions don't tolerate failure on such a scale, you rarely get a second or third chance let alone 23 chances, as one entrepreneur I met recently claimed.

"We don't want to build a clone of Silicon Valley, we know that wouldn't work. But we believe we can learn how to avoid some of Silicon Valley's problems and eliminate its bottlenecks," said Yuri Ammosov, a senior policy officer in the Russian Ministry of Economic Development and Trade.

Mr Ammosov is also a serial entrepreneur, he was very successful with a Russian version of Hotmail. Because of that experience he was chosen to advise the Russian government on technology policy, and he also teaches business studies and entrepreneurism to Russian graduates.

Creating Russian Venture Capital Funds

A key part of his job is in helping to channel more than $1.25bn of government money into establishing several large venture capital funds along with capital from wealthy individuals and Russian financial institutions. This initiative was created earlier this year as the Russian Venture Company (RVC).

RVC invests in each VC fund up to 49 per cent, with the rest of the capital raised from private and non-public sources. Each RVC affiliated venture fund agrees to invest 80 per cent of its capital in early stage startups.

Along with Mr Ammosov, I met Yan Ryazantsev, a senior investment director in RVC, Nikolay Dmitriev, consultant with RVC (also introduced as Mr Ammosov's brightest student), and Anna Dvornikova, who is based in San Francisco and is a director of the American Business Association of Russian Professionals.

Culture of innovation and change

Mr Ammosov acknowledges that there are many cultural, infrastructure, and legal changes that need to be made in Russia, and it will take time. For example, he tries to teach his students to take risks in establishing a startup, risk taking is essential for an entrepreneur.

The Russian government is also willing to pass laws that will help stimulate investment, an equivalent Regulation D - Rules Governing the Limited Offer and Sale of Securities Without Registration, which was very important in stimulating US investments in high tech companies.

SOX - no thanks

Sarbanes-Oxley, however is not something that the Russians want to copy, they see it as one of the problems to avoid. Yes, transparency is important for Russian companies but not the way SOX has been implemented, and the burden it imposes on young companies.

The Russian government is also creating stronger IP laws and training its courts on how to implement them. "Stronger IP laws are important to help protect Russian companies," said Mr Ammosov.

There are also plans to establish tax-free economic zones, and a willingness to pump further billions of roubles into making sure Russia's innovation centers rival those of China, India, Israel, and the US.

To achieve those goals, RVC has a very impressive board of directors, which includes Yigal Erlich, who helped establish Israel's "Silicon Wadi" second in size only to Silicon Valley; and also Esko Aho, former prime minister of Finland, who brings with him some of the "Nokia" pixie dust.

Exit here

Venture capital is important but so is an exit event, so that the cycle of investment and development can regenerate investment capital. And that is why the Russian government is studying markets such as NASDAQ and AIM with an interest in possibly establishing a market to trade Russian high-tech companies.

- - -

Find out more about Russian innovators this week:

Come to the Computer History Museum this Thursday and Friday for a two-day conference "Silicon Valley Open Doors 2007." (SVOD.org)

Here is the agenda.

And here is an impressive list of speakers.

And here is SVOD's anthem:

"Another Riskmaster"

Lyrics by Silicon Valley's own Tim Draper(!) [I have no idea what the tune is, obviously something stirring, I can imagine something between Red Army chior and Welsh chior.]

Hey! You want to start a business?

Russia seems to show some promise

While weighing all your choices

“Go to Moscow!” you hear voices


Google founder came from Russia

Parametric? - Not from Prussia!

Genesis and PayPal too

SVOD and what is new?


With luck you’ll become a

Master!

From Soviet biology

Comes really cool technology

Software immunology

From Nukes we get ecology


Ukraine’s Orange Revolution

Good for all-freedom solution

And then political pollution

Now it’s all in execution


Chorus:

With luck you’ll become a

riskMaster!

All you need is a faster chip

A million rubles

A couple of engineers


riskMaster!

Technorati Tags: SVOD2007

Whenever I meet with VCs lately I've noticed they have a growing distaste for Web 2.0 startups. The "Web 2.0" term, in connection with a startup, and as a collection of concepts, is very tired in this community.

For example, Kleiner Perkins Caufield & Byers, Silicon Valley's leading VC firm, has stopped investing in Web 2.0 startups.

"We have absolutely no interest in funding Web 2.0 companies," says Randy Komisar, a partner at Kleiner Perkins. He mentioned this during an after dinner conversation last week. He said he had recently told John Battelle, one of the organizers of the rapidly growing Web 2.0 Summit conference, that the term no longer had the same positive cachet it once had. In the VC community it clearly has a negative one.

For the organizers of the Web 2.0 conference, that must be a tough thing to hear, since it comes from one of the country's top VC investment firms. Mr Battelle, CMP, and O'Reilly Media, have created a highly popular and lucrative conference. They have even taken legal action to prevent others from profiting from the term "Web 2.0" and they have plans to expand their franchise to larger audiences.

I didn't get a chance to ask Mr Komisar when his firm stopped funding Web 2.0 companies. But we did talk earlier in the evening about some of the fundamental changes he is seeing in Internet trends. [I wrote about part of it here: "Aggregate Knowledge . . ."

It won't be just Kleiner Perkins that has lost interest in Web 2.0 companies. The firm is one of the trend setters in Silicon Valley, with a long string of massively successful investments over several decades. And Silicon Valley VC firms always invest in trends, rather than companies. They certainly won't be attending "Web 2.0" conferences, and without VCs attending, there is no point in startups showing up and preening for their next capital raising event.

Reinvent, redefine, and reprint

Web 2.0 companies will now have to reinvent and redefine themselves. And reprint their business plans. They should also remove any mention of "long tail economics."

I have a bad feeling about the longevity of that term in the investment community. It sounds a touch too W2.

Nixing anything "long tail" is an easy way to future-proof a business plan for a few months longer.

"Social graph" is doing great right now, so make sure you pepper your business plan with that term. "Social platform" still has legs. And "attention economy" is a ricochet term with a bullet.

. . . too 1.5?

Steve Rubel won't be crying for Web 2.0 companies. [The Web 2.0 World is Skunk Drunk on Its Own Kool-Aid] And other people are certain to find pleasure in the very possible demise of Web 2.0.

My line has always been that "The thing about Web 2.0 is that it is so 1.5..." Because Web 2.0 as a concept grew out of an intermediate time in the evolution of the Internet.

We are witnessing an emerging Internet better described as an "Internet 2.0" world, where technologies such as RSS have nothing to do with the "Web" yet are unique to this phase of the Internet. It clearly looks to me that we are building an Internet 2.0 world and anything "Web 2.0" would be a subset.

UPDATE: Tim O'Reilly replies:

Posted in comments at 3.51am.

Either KP is getting sucked in by the hype end of Web 2.0, and failing to understand what it's really about, or else, more likely, they are using another term for the same thing.

At the end of the day, there is a deep, long term trend towards the network as platform, and to applications that leverage the true strength of that platform. That's what *I* call Web 2.0, and I know that KP is still investing in that trend.

(They are, however, also taken with many other important areas, such as energy and the environment, that are increasingly distant from the web.)

But I think the real way to interpret this comment is to say that if a company needs to identify itself as a "Web 2.0" company rather than describing the problem they are solving, or the opportunity they are creating, then they are just playing the buzzword game, and aren't worth investing in, regardless of the buzzword!

Tom certainly has stirred up a tempest in this tea pot, but that is good for the blogging business isn't it. As much as the controversy is interesting, it must have been difficult to hear me clearly across the table.

Tim's comments are more to the point. What is the definition of Web 2.0? Nobody would know better than Tim, but for me the moniker is getting threadbare and seems to focus backwards, not forward. I am looking for the next set of innovations - and I will let Tim name them since he seems to have a knack for it.

I am afraid that the noisy room may have garbled Tom's hearing. KPCB certainly has invested in some of the greatest "Web 2.0" companies like Amazon and Google. And we have selectively continued to fund terrific consumer internet entrepreneurs, like Paul Martino of Aggregate Knowledge who was the host of our dinner that evening. I am sure there will be plenty more, whatever you ultimately choose to call them :)

Reply from Tom: Randy, my hearing was fine. You made the comment as we were getting ready to leave. We were all standing and you were just a yard or so away from me. We were all talking about Web 2.0 and how the term was over used and too many companies using it, and you said that Kleiner Perkins had no interest in investing in these companies.

My apologies if my article may have put you in a delicate position but I think that many of the reactions have been confusing the agenda of investors with that of publishers and marketers.

As for past investments, I'm sure that Web 2.0 had some meaning and Kleiner did invest in companies that would describe themselves in that way. And today, as you rightly point out, VCs such as yourself are interested in new emerging trends and technologies that the term "Web 2.0" doesn't capture, and that is perfectly understandable. VCs have a forward time horizon of five to seven years so it is perfectly OK not to be interested in terms used to describe unique qualities of older companies.

However, there are a lot of publishers and companies that have invested a lot in the term and have a strong self-interest to defend that term and make sure that it is seen to be current and leading edge. That has nothing to do with Kleiner Perkins' investment strategy and nor should it. They are two different agendas.

Please see Silicon Valley Watcher:

August 2006 - A plethora of Web 2.0 = Way too many Swiss-army-knife-collaborative-platform-technologies

November 2006 - Web 2.Uh Oh Week in SF - Where are the Users?!

November 2006 - Tired of all the 2.0 hype? Here comes Web 3.0

Technorati Tags: internet2, long tail, puppy

Is there any investor in Silicon Valley startups that can match the current track record of Jeff Clavier? His self-funded Softech VC fund has had an extraordinary run of success, selling five companies out of 20 investments in less than 4 years.

Truveo (acquired by AOL for a rumored $50 million), Userplane (acquired by AOL for a rumored $35 million), MyBlogLog (acquired by Yahoo for $10 million), Kaboodle (acquired by Hearst for a rumored $30-40 million), Mayas Mom (acquired by BabyCenter for $7 million), Dogster, Kongregate, Edgeio and many others.

From: TechCrunch - Jeff Clavier launches $12m venture fund

And Mr Clavier just turned 40 this month. Can he do it again with other people's money? Past performance is not a guarantee of future success but clearly Mr Clavier is doing something right.

If he succeeded in selling one of two of his portfolio companies that might be considered lucky but his list of successes shows that luck has little to do with his performance as an investor. It is Mr Clavier's approach to investing that makes the difference.

He was one of the first investors to write a blog about investing and Web 2.0 topics. This provided 2 key advantages as an investor:

1- By being an active participant in blogging and online discussion groups he could see early trends and know the people that shape them.

2- He became highly visible within the Web 2.0 community which helped his deal flow tremendously.

Here is Mr Clavier talking about his successes and his investment criteria on a recent VC panel. He is joined by Gordon Ritter, from Emergence Capital Partners, a successful investor in the software as a service space; and M.R. Rangaswami of the Sand Hill Group - successfully sold to CMP; Jai Das from SAP Ventures; Sam Argus from law firm Fenwick & West - moderated by Sean Wise. From TechOne.

Part 1

Part 2

- - -
MORE INFO:

Here is Mr Clavier from his blog "Jeff Clavier's Software Only" :

VC funding is up but has shifted over to later stage financing:

VCs Invest Record Amounts but Rush Towards The Exits

Charles Beeler, a general partner with El Dorado Ventures writes a long piece on PEHUB, that there are "3 myths and 1 reality about early stage investing."

The 3 myths:

Myth #1
There’s too much money chasing too few deals

I’ve been hearing this one since entering the business in 1996, and know that it was being said long before I came along...

Myth #2
Valuations for venture-backed companies are going through the roof.

Truth is, overall valuations for VC deals are going up. From a trough in the first half of 2003 of $10 million pre-money, the average VC-backed company is now worth $20 million pre-money, a 100% increase...

Myth #3
The “flavor-of-the-month” market is overheated

Pick your favorite market – networking, storage, software, nanotech, cleantech, Internet – and at some point, someone will say it is overheated. Part of our job as VCs is to chase opportunities in what we perceive to be hot markets, so you’re going to see certain markets get flooded with investment when VCs decide it’s the place to be...

 3 Myths and 1 Reality about Early-Stage Investing

The reality is that early stage investing is "not even back to the level of early-stage Internet investing of the first half of 2002." And that was a very bleak time.

Yet Mr Beeler writes that "reports of early-stage VC’s death have, in fact, been exaggerated."

I get where Mr Beeler is heading, but I think it would have been better to write the piece this way:

Strong rebound predicted for early stage VC funding because of the high valuations in later stage funding.

 ----

Additional Info:

Charles Beeler is a General Partner with El Dorado Ventures, a Menlo Park-based venture firm that specializes in early-stage technology investing. For more information on visit www.eldorado.com.

VCs Invest Record Amounts but Rush Towards The Exits

Foremski's Take: Here's my topline analysis on the VC investment figures just released for Q1 2007. VC funding is up but most of it is crowding into later stage financing. The early stage financing has fallen, which shows that the... [Edit]

Posted by Tom Foremski on April 24, 2007 12:19 AM

Foremski's Take: Here's my topline analysis on the VC investment figures just released for Q1 2007.

VC funding is up but most of it is crowding into later stage financing. The early stage financing has fallen, which shows that the VC funds have become much more conservative and risk averse--exactly what Paul Kedrosky has been saying for some time.

The spin from the VC community is that VC funding has "broken out" to its highest level since the dark quarters of the dotbomb years, in 2001. But early stage funding has dropped significantly and if that continues that is very bad for the next crop of startups.

Have the VC funds been scared off by the lack of decent investment opportunities? Maybe. I wouldn't blame them for looking at many Web 2.0 companies and walking past the window decorations. 

Money is shifting from IT and into life sciences and clean tech. Biotech is not doing well, medical devices are doing very well, clean tech has dropped a bit but the 12 month rolling average looks good for many sectors.

[Whenever the statisticians resolve to 12-month or five year, or in the case of the chip industry 40-year rolling averages (because the chip industry can...) you have to nod and wonder if there might be some other factors in play.]

Take a look tell me what you see in these tea leaves :-)

(This is some of the raw material that is provided to journalists...)

Here is the webcast, highlights, and the media release:

I popped into the Web 2.0 Expo and conference Monday afternoon at the cavernous Moscone West in downtown San Francisco.

I needed to get to the top floor to get my press credentials. Joining me in the elevator was Matthew, from an East Coast music startup.

We started chatting and we got onto a fascinating subject. He said hedge funds and private equity funds on the East Coast were moving into early stage funding for startups.

"The hedge funds have so much money. They're doing deals such as giving $5m for 10 per cent of the company," he said. "And they couldn't care less about board seats."

Wow. That is going to hurt the VC industry out here, I said. VCs will take as much as 60 per cent of a company in exchange for funding. Or in some cases, they take a big piece of a startup and let it use their computers, it's called "incubating."

OK, the hedge funds won't be hanging around and giving sage advice on building a company, or plotting how to evict the founders. But so what?

With that type of financing a startup can hire an experienced management team, and consultants that know how to build a business. It's a lot cheaper, the startup team gets to keep control, and they can raise more money in subsequent rounds. Sounds great.

If hedge/private equity funds get into the VC business in a big way, that will very easily generate the next bubble in Silicon Valley.

Here is a snapshot of VC investments over the dotcom-dotbomb period:

Source: PricewaterhouseCoopers Global Insights & Solutions MoneyTree™ Survey Report

In Q1 2000, the investment peak reached $28.421bn and the dotcom bubble reached its zenith. 

Some VC funds have as much as $1bn to invest. Private equity funds are larger and getting larger. A $5bn fund was considered huge a couple of years ago. Last month Goldman Sachs Groups announced plans to raise a $20bn fund.

With so much capital around, and fewer places to put it to work to get big returns, investing in Silicon Valley startups will become very attractive. We could easily see another bubble forming in the next couple of years. [I've got a killer business plan for the East coast funds...]

Sramana Mitra has an informative post about Sequoia Capital, one of the leading Silicon Valley VC firms investing $11.5m in microfinance company SKS.

SKS currently provides loans to its 600K members in 7,200 villages in rural India. The company says that the new capital will go towards providing financial services to over 5 Million poor families by 2010. SKS estimates that its loans have a return on equity of 23%. That’s a high interest rate, but, it also makes it viable for a venture fund to invest in the company.

She adds that:

This is not philanthropy but pureplay capitalism.

SKS will be required to exit within 3-5 years, or else Sequoia will get out of the deal. Naoko Felder furnishes some examples of prior IPOs in the sector: “I just wanted to add 2 cases regarding IPOs related to MFIs 1) BRI of Indonesia,(Nov 2003) then a state-owned bank, released 39% of its shares to the public by listing in the Jakarta Stock Exchange. 2)In 2006, Equity Bank Limited listed in the Nairobi Stock Exchange (2006).”

There is, ofcourse, a fortune at the bottom of the pyramid. It just takes work to get to it.

Link to Sramana Mitra on Strategy » Blog Archive » Sequoia Enters Micro Finance

Is it a good idea to have VC firms invest in such companies? After all, their motivation is to make a lot of money and get out after about five years--that is not what SKS wants to do. How will SKS provide the VCs with an exit?

If VC firms want to portray themselves as doing something good, then they should do it some other way, such as providing pro bono services to help such organizations grow, imho.

I've been waiting for a few minutes inside VC firm Emergence Capital Partners' swank offices in San Mateo as general partners and co-founders Gordon Ritter and Jason Green walk in. "I see that you've managed to escape the Sand Hill Road gulag," I tell them.

They laugh and we sit down to talk about their VC investments and philosophy. They tell  me that getting out from the Sand Hill Road VC community in Palo Alto was important.

"We got fed up with the same scene, and seeing startups go from one firm to the next, all day long," said Gordon Ritter.

"We also wanted fresh and independent thinking and so getting out was important in that regard," said Jason Green.

The four year old Emergence recently announced a second fund, $175m, an increase of $50m over its first fund. And its focus is on what they like to call technology enabled software and services startups.

The first fund had an early success with an investment in Salesforce about a year before it went public. And the other investments have been in similar types of companies in the software as a service sector.

"We decided from the beginning that we would specialize in one type of investment rather than have many different investment sectors," said Mr Ritter. Most other VC firms invest in startups in different sectors. But Emergence decided that focus and specialization would enable it to establish through leadership and expertise--and that would produce more successful investments.

Mr Green says that this has paid off in that they are now known for their expertise and that their portfolio companies have succeeded in raising additional funds.

"Startups in our space know about us and they come to us." He said that Emergence gets to see about 68 per cent of all dealflow in their areas of expertise. That's about 600 business plans per year.

Technology enabled service startups are attractive because they offer a regular services revenue model. Mr Ritter does not believe in hybrid models where companies offer a license for the software, or a software as a service.

 RightNow Technologies, for example, offers its software to customers to run in their data centers or they can purchase it as a service.

"Hybrid models won't work because not everybody will upgrade to the new software and so that limits development of new features and services," said Mr Ritter.

The small and medium business market is a natural target market for the type of companies Emergence funds--a huge opportunity and one that IBM, Hewlett-Packard, Oracle, Microsoft, SAP, etc are also targeting.

How about exit strategies? "It's too early to think about IPOs and selling companies," Mr Green said.

But when the time comes, the two men are confident there will be plenty of opportunities for exits. The large IT vendors are obvious potential buyers for their portfolio companies.

Emergence is emerging as new rules VC firm. I define a new rules venture as: take a few specialists in a specific area; focus on the most efficient and productive business processes; and wrap open source and web services IT around them (Mr Green says their in-house IT capabilities are far more sophisticated than at the $1bn VC firms where he used to work).

In many ways, Emergence is a technology enabled services company itself.

Additional Info:

 Don Dodge points to some interesting VC figures on his blog that can be summarized as:

Exits have averaged $18B over the past 6 years while investments have averaged about $40B over the same time period.

Link to Don Dodge on The Next Big Thing

For every $1 invested only 45 cents is returned through the sale of a startup or through an IPO. (Maybe all those Web 2.0 investments will pull the funds out of the ditch?)

Don says:

Microsoft acquired as many companies as Google and Yahoo combined. Microsoft acquired 19 companies last year. Google acquired 10 and Yahoo acquired 9. IBM also acquired 9 companies. Of course Google spent more on acquisitions, spending $1.65 Billion on YouTube alone.

Link to Don Dodge on The Next Big Thing

If you don't know Don:

Don is currently Director of Business Development for Microsoft's Emerging Business Team. The goal is to help VC's and start-ups be successful with Microsoft, and together, provide great products for our customers.       Don Dodge

(Via Tim O'Reilly) Venture capitalist Jeremy Liew says any investment needs to have potential to reach $50 million. If your brilliant idea is for an ad-supported Web 2.0 site, here's how big you'd have to get to make Liew's investment pay off. With today's CPMs, really big.

1. Be a site with a broad reach (say general social networking, communications, news). At large scale, without a great deal of targeting possible, a startup’s “run of site” or “run of network” advertising might be able to get to the $1 RPM range (Revenue per thousand impressions). To get to $50m in revenue you would need 50 billion pageviews in a year, or just over 4 billion per month.

2. Be a site with demographic targeting (say a Latino portal, or a sports site (targeted at men) or a social network targeted at baby boomers). Although in TV and in magazines, demographic targeting can generate double digit CPMs, online at scale, RPMs tend to be in the low single digit range. Lets assume a $5 RPM. To get to $50m in revenue you would need 10 billion pageviews in a year, or just over 800 million per month. (More than Microsoft.com.)

3. Be a site with endemic advertising opportunities (say a site about movies that movie studios will want to advertise on, or a site about cars that auto manufacturers will want to advertise on, or a site about travel that hotels and airlines and online travel agencies will want to advertise on). If you have a highly targeted audience that is interested in buying a specific product, you can command RPM’s well into the double digits. Lets assume a $20 RPM. To get to $50m in revenue you would need 2.5 billion pageviews in a year, or just over 200 million per month.

Pretty nasty stuff. So you don't want an exit strategy, just make enough to pay the bills and have a good time, as Tim suggests. He also thinks there's an aggregation option:

The other option, implicit in Chris Anderson's long tail hypothesis, but not mentioned by Jeremy, is that you aggregate a lot of other sites. There are different models for this: Gawker and Weblogsinc launched multiple sites, publishing blogs like they were books, with some expected to succeed and others to fail; FM Publishing (in which I am an investor) doesn't aggregate ownership, but provides marketing services to an aggregate of clients.

So, it's a humbling experience, making the rounds on Sand Hill, making your well-honed elevator pitch. Why not compress the whole sordid affair into a rapid-fire afternoon? That was the idea behind VC3 - part of EntrepreneurshipUSA - give budding startups three minutes to pitch and VCs three minutes to respond. Then move on.

It was a humbling experience for some of the hopeful, the Mercury News reports.

Eric Frenkiel, a purposeful, bespectacled 21-year-old Stanford junior, recently launched what he coyly described as a site ``in the fashion-media space.''

In a session with young venture capitalists John Vrionis and Chris Sun -- themselves Stanford alums now working at Lightspeed Venture Partners and Storm Ventures, respectively -- Frenkiel talked at a fevered clip ... At the end, Vrionis handed Frenkiel his business card, but Frenkiel took it glumly. ``Are you giving your card to everyone?'' he asked plaintively. His demeanor brightened when Vrionis said no.

But it's hard to hold a VC's attention even for three minutes. In reality you probably have 15 seconds to get someone's attention. After that, it's just politeness.

Brian Ong, a 24-year-old Stanford graduate student who launched an online services marketplace in December with four friends, said some VCs were:

``actually checking their BlackBerrys while I was talking. We're talking about a three-minute pitch,'' he said, incredulous. ``Maybe some of them need to see who's e-mailing them at every single minute of the afternoon, but I kind of doubt it.''

Doesn't seem like the financiers were seriously giving each pitch serious attention. Steve Kompolt, who started a digital signage company two years ago, concluded:

``A lot of this is these guys being cordial and giving feedback. What they're really looking for is that needle in the haystack.''

Latest data from PricewaterhouseCoopers/National Venture Capital Association MoneyTree report, shows decent sized increase in VC deals and money invested. This means steady investment rises and no sign of over funding mania:

Venture capitalists invested $25.5 billion in 3,416 deals in 2006, realizing a 10 percent increase in deal volume and a 12 percent increase in dollar value, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Financial.  The year, which marked the highest level of investment since 2001, saw quarterly investment levels remain steady in the $5- to 6-billion dollar range, as the venture industry invested in the traditional technology and life sciences sectors and began a deliberate foray into the energy sector.  

The year was characterized by significant growth in the life sciences sector, with biotech and medical device investing both reaching record high levels.  Other areas of growth included Media/Entertainment, Energy and Internet-Specific companies.  Seed and Early-Stage companies received more financing and dollars in 2006 but the largest gains were in the Expansion Stage deals during the year.  First-time financings reached the highest level since 2001.  

Investments in the fourth quarter of 2006 totaled $5.7 billion in 802 deals, down from $6.6 billion in the third quarter of 2006, but were well within the range of $4.3 to $6.9 billion investments seen over past five years.

Here is the breakout (I added the bold in this section):

 

The Life Sciences sector (Biotechnology and Medical Devices industries, together) set the pace for investing in 2006 with $7.2 billion in 731 deals compared to $6.0 billion going into 647 deals in 2005. The increase was driven equally by significant increases in the Biotechnology and Medical Device sectors, both of which had record high levels in 2006.   For the year, Life Sciences accounted for 28 percent of all venture capital invested, consistent with historical percentages .   Life Sciences was also the number one investment sector for 2006.

Software investing remained relatively flat in 2006, with $5.0 billion going into 865 deals compared to $4.8 billion going into 869 deals in 2005, but still remained the largest single industry sector for the year and the fourth quarter in terms of both deals and dollars.  

The Industrial/Energy sector experienced a sharp gain of more than 107 percent in dollars invested in 2006 with 183 companies receiving $1.8 billion, compared to 136 companies in 2005 receiving $851 million.  The alternative energy subsector accounted for 40 percent of the dollars invested in this category.  

The Media and Entertainment sector saw more venture capital dollars in 2006, with $1.6 billion going into 299 deals compared to 2005 when $1 billion went into180 deals.  Telecom companies also saw an increase, although less substantial, with 294 deals getting $2.6 billion dollars in 2006 compared to 263 deals receiving $2.5 billion in 2005.  The wireless subsector accounted for 44 percent of the Telecom sector in terms of dollars, with 128 deals garnering $1.2 billion during 2006.

Internet-specific companies received $4.0 billion in 645 deals in 2006, a notable increase over 2005, when these companies received $3.2 billion in 494 deals. "Internet-specific" is a discrete classification assigned to a company whose business model is fundamentally dependent on the Internet, regardless of the company's primary industry category.  These deals accounted for 16 percent of all venture capital dollars in 2006.

 

Early stage up, later stage down, showing exit strategies have changed:

Funding for Seed and Early Stage companies increased by 16 percent in deals and 11 percent in dollars, with $5.0 billion going into 1,176 deals in 2006 compared to $4.4 billion going into1,018 deals in 2005. The percentage of total deals in the Seed and Early-Stage was 34 percent in 2006.  Average post-money valuations of Early Stage companies fell to $12.14 million for the 12 months ending Q3 2006 compared to $14.59 million for the period ending Q3 2005.  (Valuation data lags one quarter.)

Expansion Stage companies saw a significant increase in both deals and dollars in 2006, with $11.2 billion going into 1,283 deals, compared to 2005 when $8.6 billion went into 1,092 deals. The increase reflects a higher confidence level in companies that reached the expansion stage.  Expansion deals accounted for 38 percent of the total deals done in 2006.  Average post-money valuations were $67.56 million for 12 months ended Q3 2006 versus $61.88 million for the year-ago period.

Later Stage Investing decreased in deals and dollars on both an absolute and relative basis in 2006.   Venture capitalists invested $9.3 billion in 957 companies this past year, compared to $9.7 billion in 990 companies in 2005.  Later Stage deals accounted for 28 percent of all deals in 2006.  Average post-money valuations were $108.32 million for Q3 2006 versus $77.61 million for the year-ago period.

First Time Financings
First-time financings increased in deals and dollars to the highest levels since 2001, with 1,093 companies receiving $5.8 billion in venture capital for the first time.   This marks an increase of 10 percent in the number of companies entering the venture-financed arena.

The top industries for first-time financing growth in 2006 were Software with 234 deals valued at $1.2 billion, followed by Biotechnology with 127 deals for $773 million.  This follows 2005's pattern, when 249 Software companies garnered $1.2 billion.

Seventy percent of first time financings in 2006 were in the Seed/Early Stage of development, followed by Expansion Stage companies at 23 percent and Later Stage companies at 7 percent.

International Investing
In 2006, U.S.-based venture capitalists invested $856 million in 71 deals in India and $1.1 billion in 105 deals in China.  These figures are reported separately and are not included in the aggregate totals above.

Additional info and conference call replay:

Digitized Replay: Scheduled to begin on:  1/22/07 at 08:00P   end on: 1/29/07 at 11:59P (TZ: Eastern)
Telephone: (800) 230 1059              
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Web URL -- http://www.pwc.com/webcast
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Note that the password is case-sensitive and there is no space between the letters and numerals. Each person accessing the webcast will be required to complete a brief registration on the site.
Conference Call Speakers:
John Taylor, VP Research, NVCA
Tracy Lefteroff, global managing partner, Venture Capital & Private Equity Practice, PwC
Darrell Pinto, director of global private equity performance, Thomson Financial
Terry McGuire, Polaris Venture Partners
Steve Krausz from US Venture Partners

IBM, the world's largest computer company, has a successful venture capital group operating  in the heart of Silicon Valley, yet it makes no investments in startup companies. Instead, it tells VC firms what types of startups it might want to acquire and waits for the Silicon Valley innovation machine to do the rest.

It's a very good system for IBM. There is no need to make risky investments, to spend years on boards helping to nurture and grow startup companies, and certainly no need to hit the road to raise new venture capital funds.

It is a beautiful system that leverages tens of billions of dollars of other people's money, and it can all be done with just a few people. IBM's Venture Capital Group in Menlo Park consists of just half-a-dozen specialists plus some support staff.

Because there is virtually no tech IPO market to provide exits for investors in thousands of startups, VCs are more than happy to offer IBM the cream of the startup crop. Since the IBM Venture Capital Group was formed in 2000, it has had a hand in 15 acquisitions, and that rate is increasing.

But acquisitions are just one way IBM benefits from Silicon Valley's bountiful crop of startups.  It also partners with about 1200 startups in various endeavors in which it uses their technologies in IT services deals through business partnerships. Business partnerships as a whole account for one third of its annual revenues, or about $27bn.

There is also a very nice business to be had in selling technology licenses to startups. IBM has a massive portfolio of patents and it offers favorable terms to startups. This might be a good insurance policy since Big Blue has lately become much more aggressive in pursuing companies that it believes are using its technologies without payment.  (See News.com: IBM: Amazon violates our patents – October 23, 2006.)

Tomorrow on Silicon Valley Watcher: Interview with Drew Clark, co-founder of IBM Venture Capital Group - find out what types of startups are on his shopping list.

- - -

Additional info:

VC-backed ISVs: Open Source Opens Doors

Startups to have access to IBM's entire patent portfolio with simplified terms

IBM announces formation of Venture Capital Advisory Council

IBM launches new initiative to help developers in emerging markets build skills and open standards solutions

By Richard Koman for SiliconValleyWatcher

The Valley is back. How do you know? Follow the money.

AP reports that VCs sunk $6.35 billion into 856 startups in Q2 - the hottest quarter for VC investing since Q4 of 2001. And surely you remember that quarter with fond memories. VCs also set records in fundraising for future investments - $11.2 billion.

VCs delivered first-time financing to 282 companies for a total of $1.2 billion in the quarter. That's the most in five years.

And what are they funding? Yup, Web 2.0. PricewaterhouseCoopers just compiled a list of Q1 funding to W2s (.xls file) and it comes in at $870m, up from $786 in 2005's Q4. But Ajay Sanghani at ITVidya.com notes that the list is a little funky, as it includes such back-end companies as Riverbed and Netli

So Bubble 2.0? Ajay talked to Tracy Lefteroff, the global managing partner of PwC's venture capital practice. "People are trying to contrast this with the Internet bubble, and want to know if we're getting in the same risk category we saw developing in late 1999, early 2000.You always run that risk, but I still don't see the frenzy to invest in these companies that we saw in the late 1990s."

Seven of the top W2 deals in the first quarter were in Silicon Valley, it's Seattle that's grabbing headlines this week. Jobster, a Web 2.0 approach to head-hunting is now valued at $100m, the Merc's Matt Marshall reported last week.

And yesterday, Zillow.com, which provides value estimates on homes, landed a $25m round and has now raised $57m.

All of which leaves Jason Wood in a cold sweat. He commented: "Seeing some of these new rounds is absolutely sending a chill down my spine as a public investor. Where's the exit strategy? I would love to know the post money valuation Zillow got for this round. Wow."

. . . and the launch of Ingres and Wyse Technology--two well established companies with large market potential

I recently met with Terry Garnett of Garnett & Helfrich Capital--the venture buyout firm behind behind Ingres and Wyse Technology. These are two very interesting companies that had caught my eye and I didn't realize the same investment team was behind both ventures.

I have been writing a lot abut Ingres because it is a small open source software company that has been assembling a dream team of top executives more suited to running multi-billion dollar business groups. So you can bet that Ingres won't be sitting on its hands. (Please see SVW: The ambitions of Ingres: A small company with the executive team of a giant )

And Wyse Technology is another interesting company, essentially reinventing the whole thin computer concept and renaming it Thin Computing. It takes a systems approach to driving down the cost of installing and operating large numbers of PC systems which can be replaced with Thin Computing systems and the users don't even know it. (Please see SVW: Wyse says in talks with Google and Yahoo on thin computing)

Garnett & Helfrich Capital has a modest buyout fund by the standards of Silver Lake Partners and others that have raised multi-billion dollar funds. But, it's not the amount of money you have, its the operational abilities, and long experience in the industry to be able to read the evolving trends--that Mr Garnett and his partner David Helfrich bring to the table.

Their current fund of $350m has done some very interesting deals and there are more to come plus plans to raise yet another fund around the end of the year.

I popped in on Mr Garnett last week, in the "VC Gulag" a raggle taggle sprawl of small office buildings on Sandhill Road (they are moving to larger quarters in Hillsdale). We covered a lot of ground, here is part of our conversation:

Mr Garnett said he used to be a venture capitalist at Venrock but he also has a long career in the software industry at many different companies. Here is his bio:

From 1990 to 1994, he worked with Oracle Corporation reporting to Larry Ellison, as Senior Vice President, Worldwide Marketing and Business Development and other positions. He has helped establish and build CrossWorlds, Lightyear, he has worked at McKinsey & Company; and held management positions with Tandem Computers. From 1995 to 2003, he was at Venrock where he led early stage financing and served on the boards of: New Era of Networks acquired by Sybase, Niku, CrossWorlds Software acquired by IBM, Neoforma, Netobjects; he was an early stage personal investor in Siebel Systems and Checkpoint Software.

It's clear that he understands the enterprise software market and his partner David Helfrich has led what he calls, a "parallel career." The two met at a horse riding school for their kids, and they spent two years "at the rail" getting to know each other before they decided to pool their skills and created Garnett & Helfrich Capital in March 2004, with an initial fund of over $250m, soon expanded to $350m.

"I sometimes explain what we do as 'there is a little bit of chocolate in my peanut butter' by which I mean it is a little bit of venture capital investing combined with venture buyout."

The investment firm was founded on the belief that there were decent sized business groups within larger tech companies that were good businesses but were not getting the attention or the funds from their parent organisations.

The firm analyzed hundreds of IPOs and acquisitions over the past few years and started to identify business groups of at least $50m in revenues, that could survive a buyout, and the temporary disruption that such events create for a business.

Ingres was one of those businesses, a database software group spun out of Computer Associates, a business with great revenues, large numbers of customers and a solid reputation within enterprise software markets.

"It was important that Ingres had a long history, it wasn't a new startup with an uncertain product and an uncertain future. Enterprises want to buy from companies that are stable and will be around for a long time" Mr Garnett said.

But spinning out from CA was not easy because of the huge management shakeup that was going on in the wake of a scandal that is currently in the courts (Please see: Former CA chief Kumar pleads guilty to fraud.)

The deal was further complicated in that Mr Garnett had to recreate three offices from scratch, set up the telephone systems, the billing systems etc. He had to create the entire infrastructure for a 100 plus employee company from nothing, and hire the executive team, and act as the CEO.

He says he would love to give up the CEO position and get back to his regular work but that, "Finding a CEO is more difficult because of the A-list caliber of the current executive team, they are going to demand an A-list CEO." Mr Garnett said he loves to recruit and his philosophy is to recruit 10 A-list executives because they will bring in another 40 top people.

Buyouts are very popular these days, and Silver Lake is one of the top firms in this area. But Mr Garnett points out that its much easier for Silver Lake to write a check to take, for example, Serena Software private--there is no infrastructure building that had to be done, as in the case of Ingres. That's why Silver Lake might find it difficult to compete against Mr Garnett's team, if it wants to target this middle sector of the buyout market.

Mr Garnett hopes to do about five or six deals with the first fund, and he sees lots of opportunities to buy out healthy business groups from within tech giants such as Siemens for example. "In a lot of cases the seller is not getting any credit from Wall Street for owning those business groups," he said. So the deals can be very compelling for these large tech businesses. Usually, the seller will retain about a 20 per cent stake in the new company, which helps with customer continuity.

A good example is the blade server switch business bought out from Nortel. Here is a list of deals.

Mr Garnett's many years in the enterprise software business have given him an understanding and an appreciation for brands, and the realization that brand building is long and difficult. Therefore if he can acquire products such as Ingres and Wyse, that have long established brands, that brings with it a significant amount of credibility among customers that is very valuable.

I think this is an important understanding of how markets and customers buy products. During Internet 1.0 and the dotcom boom, there was a lot brand building attempted, but throwing money, billboards, and cute sock puppets at the challenge of establishing lasting brands didn't work. Brands are built slowly, over time, they are trust-built relationships just like human relationships.

What's the exit strategy? The same as for other ventures: IPO or sell to larger players. But building a $50m to $100m dollar revenue businesses to the next stage, is a lot less riskier than trying to build a startup and take it beyond several millions dollars in revenue. It's smart investing and there are still plenty of deals to be done. It'll be interesting to see which other players emerge in this field.

By Tom Foremski for SiliconValleyWatcher

Who says Big Brother/Sister isn't coming? It is but under a different guise...Here is mesh/sensor network company Arch Rock, who today announced $5m in funding for:

Arch Rock’s vision is to help customers create and manage billions of sensor-based touch points with the physical world of matter and space and generate new actionable intelligence that can be leveraged in a wide variety of new industrial and consumer applications.

An investor said:

By being able to measure anything, monitor it on the Internet and act on the information, businesses will be able not only to predict the outcome of a situation, but actually influence or control that outcome. That’s the promise of wireless sensor and control networks” said Forest Baskett, general partner with NEA.

The Series A funding comes from New Enterprise Associates, Shasta Ventures and Intel Capital. And the Berkeley inventors of TinyOS (DARPA funded) are the founders of the new company.

I predicted such investments two months ago: Big Brother brings business opportunities

Here is the release:

By Tom Foremski, Silicon Valley Watcher

Pamela Mahoney from the veteran venture capital firm Mohr, Davidow Ventures (MDV) invited me to stop in and chat with a couple of their in-house entrepreneurs about media technology products they are developing.

Ted Shelton and Nick Chim showed me some of their work and I'm glad I got to see it because I got to glimpse a new class of emerging internet applications that could provide that next, defining edge that is lacking in the morass of so many similar "web 2.0" applications out there.

By Tom Foremski for SiliconValleyWatcher

M.R. Rangaswami is a venture capitalist who produces one of the best enterprise software publications. I'm a big fan of his online magazine Sandhill.com, and also his conferences, with one coming up in early April. He just sent out his latest edition of the Software Pulse newsletter, with an interesting opinion piece by Geoffrey Moore. (More here. . .)

M.R.'s interest in the subject of enterprise software comes from a different direction than traditional publishers, he's interested in the trends and issues so that he and other investors can better understand the deal flow and improve on their funding decisions.

A traditional trade publisher such as an IDG with Computerworld, or a ZDNet, takes a different approach to the subject--writing from the users/customers/decision makers' points of view. Both approaches, it turns out, produce equally high-quality editorial products.

I tend to favor M.R.'s approach: I like to look at companies and products as existing within a framework of business models; pulled by trends in markets; and all bobbing around within the fluid dynamics of their capital markets.

I found this in my comments . . .

Fear and Loathing in VC Land? Try a pleasure to hard to resist...

Sneers and roasting are abundant in the realm of http://www.sandhillslave.com

Rants on Life in VC through the eyes of an assistant.

You should go and visit this site. This is very se.x.x.x.y writing (!)

By Tom Foremski for SiliconValleyWatcher

SVW reader Penguin points to VC Rick Segal's recent post about the quandary venture capital is in.

To summarize: Web 2.0 companies don't need much capital and GOOG, YHOO and MSFT can step in and buy them just for the heck of it for a few million and the VCs don't get a look in. Plus there is not much distinction between the Web 2.0 startups.

Welcome to the world of the new rules startups; no VCs required, although an Angel or two helps... It's a knowledge capital world these days and GOOG and pals offer the largest platform for rolling out Web 2.0 services/products. How can VCs compete against that?

But also, there is widespread animosity towards VCs today. I've been covering Silicon Valley since 1984 and I haven't come across as much hostility towards VCs from startups, as I have over the past 18 months.

Why? Because of the many outrageous VC practices during the dotcom boom and afterwards. VCs always get their pound of flesh and then some.

But what goes around comes around. We live in a serial entrepreneur community here in Silicon Valley, and memories are still very fresh.

The strategy for startups these days is to bootstrap--go for Angels if you need money. And if you do need to pitch the Sandhill row, first raise your valuation as much as possible through your own efforts and financing.

I have a lot of respect for many VCs. Those are usually the ones I come into contact with, because they are out and about and pitching their investments.

There are hundreds of VCs that I never come across and seem to be baffled about what to invest in; they follow each other with a herd mentality and thus mess up the markets for all; and with almost no IPO market exit strategies rely on selling out to one of a small number of large companies--which keeps valuations in check.

When I recently met with VC M.R. Rangaswami of Sandhill.com, he said there were still too many VCs, and that the industry must come to terms with the fact that future returns on investments will be far lower than at traditional levels.

That means VCs have to tell investors in their funds to expect smaller gains. That's a tough sell, especially since the risk has not decreased. I could argue that the risk of failure for VC-backed startups has increased. . .(more on that in future posts).

While some VCs are twiddling their thumbs thinking about what to fund, they would do well to hire a PR agency to spruce up their image. Something along the lines of a benevolent "uncle" looking out for the best interests of their young charges might be an appropriate image to shoot for :-)

- - -
Please also see SVW: That giant sucking sound...will massive tech companies vacuum up all the cool/hot tech companies?

With all the chatter about Big Brother, and government subpoenas for internet usage data, there are business opportunities to be had...

Take a look at my idea for the Big Bro Co-investors VC fund--focusing on telemetry applications. Monitoring advertising, or network performance, or people--it's all the same: essential to both commerce and government.

It's a huge business opportunity. Take a look at my ZDNet blog/column IMHO and let me know what you think.

A new VC fund to help develop the next-stage internet technologies

Interesting survey results from Foley & Lardner on startup companies--things we knew but sometimes forget.

Who was surveyed: "The survey, measuring the attitudes and perspectives of top executives, advisors, outside consultants and investors in the emerging technology industry."

Here are my takeaway points:

-There is a lot of capital wanting to invest in startups but there is a lack of good managers.

-60 per cent said quality of management is single most important factor for success: "Overall market dynamics (18 percent), access to funding (10 percent) and quality of the business plan (eight percent) were distant choices."

-Only 3 per cent said intellectual property was the most important aspect of founding a startup.

My take: This means a good, even great idea for a startup is not enough, you need a great team. If all you have is a great idea you don't really have anything of much value. Many startups I meet won't talk about their "great idea" beyond a certain point but you should be free to talk about your great idea because only you can execute on it. Otherwise, anybody can run with it.

-More than 75 per cent said M&A is most likely exit strategy in next few years.

-IPO is unattractive because of high costs in being a public company and all the other related issues.

-It is very difficult to find directors for startups. "A majority (64 percent) cited “management” as the most important factor—over cash compensation (36 percent) and equity incentives (32 percent) —for attracting qualified directors."

My Take: This is exactly why I have been saying that the next generation of emerging companies, the new rules enterprise/venture will be private. Being private also means your competitors cannot benchmark themselves against you.

And, my favorite quote from one of those surveyed:

“VCs should take more V and act less like a bank.”

My take: Too true. In fact, I meet more ex-VCs these days, using their venture knowledge to run their own companies. It is a knowledge capital world now, uppercase V and lowercase c, is how the Vcs should present themselves, and the better ones do. imho.

More here: http://www.foley.com/ecsurvey

By Tom Foremski, Silicon Valley Watcher

I haven't been able to post much because of preparation for moderating at the IDB Under the Radar event. I got to moderate all two tracks of the morning session on enterprise mobile apps and the second session of enterprise RFID (radio chip tags).

What was fascinating was how few companies were able to explain what they do. But, let me backup a second and tell you what the event is about.

The Under the Radar series organized by Debbie Landa and Alison Murdock has become almost an institution. It brings startup companies in front of panels of venture capitalist judges. They get rated on their presentation, their business model, and their strategy.

I've been to several of these Under the Radar events and they are always different. This time around there was a lot more energy in the air, a real feeling the valley is back (again...maybe this time, for sure.)

The overall winner of the event was our old friend Zimbra--the AJAX poster child software company.

And overall, the 32 startups presented and interesting mix. But what continues to puzzle me is how few of the startups can say what they do. At least in less than 30 minutes--which is a problem at Under the Radar, because you only get five minutes (moderators are armed with stun guns to enforce the time limit very strictly:-)

I didn't have to reach under the podium and stun anybody--my lot were very well behaved. A mobile apps company called Soonr won the audience vote but the judges preferred Funambol, an open software middleware stackette for the mobile space.

Soonr, I think, deserved a bit more attention. Because when asked what was their business model, they said we have none. Smirks all around, as you can imagine.

But on later reflection, I think Soonr is on the right track. Yes, they lack a business model but, they are focusing on users And this is precisely the right strategy because if you have users you know you have a useful product. If you don't have a useful product, it doesn't matter how clever your business model is.

- - -

The RFID companies on my second panel were a good contrast to the first lot. Interestingly, most of the senior management of those companies had some connection or background in supply chain management.

And supply chain management is one of the big failures of enterprise software markets...so who is to say that RFID will improve this? But at least the people running thse companies knew what a tough problem it is, and were still working at trying to solve it,

- - -

The Under the Radar event was at the Microsoft Silicon Valley center, which is a couple of stone- throws from Google.

This time, in contrast to past visits over the past few years, the MSFT car park was full, and it was early in the morning and there was bustle about the place. It used to be not very busy at all...

Oh, and I spotted Robert Scoble in the cafeteria, MSFT's second most famous employee!

More under the radar stories later in the day...

PS: I will soon start writing a blog for ZDNet, in addition to here, and lately also AlwaysOn.

. . . will content finally be king?

Manish Chandra over at TiE, has put together an interesting event Tuesday, July 26 in Santa Clara featuring Roger McNamee. Mr McNamee has had a midas touch over the past five years with investments at SilverLake Partners. And those years have been the toughest ever for Silicon Valley.

Also, Mr McNamee is very interested in new media which, happens to be an interest of mine also.

From the TiE pitch about the event:

The confluence of technology, new delivery mechanisms from podcasting to TV on the cell-phones is creating a revolution that remains only partially understood. It is changing how we create, consume and distribute entertainment. The emphasis on distribution technologies has overlooked the role of creation of content for the new media.

...let freedom reign

By Tom Foremski for SiliconValleyWatcher

Jim Moore and John Palfrey have launched RSS Investors with $100m of capital. It is the first VC fund with a focus on Really Simple Syndication, (RSS), the syndication technology at the heart of media technologies such as blogging and corporate news communication.

Jim Moore, RSS Investors partner says:

RSS is emerging as the next great tool in the spread of information and ultimately freedom: freedom of expression, freedom of communication and freedom of information.

This reminds me of years ago when Kleiner Perkins launched a $100m Java fund in 1996. It is milestone for RSS and its use.

RSS is very much a core technology for this next phase of the internet. It is a unique animal: neither email or web page, but with characteristics of both. It is opt-in, in that users or applications subscribe to RSS feeds which are pushed out — it is, in fact, a pushme-pullme technology (a nod to Dr Dolittle ;-)

By Tom Foremski for SiliconValleyWatcher

There was a good turnout at the IBD "Under the Radar" consumer technologies event Tuesday as 32 young startups paraded in front of very skeptical panels of VCs.

The event is partly promoted as one in which startups can potentially raise funds from the exposure to VCs. But at the previous Under the Radar event, VCs told me they would not consider funding any of the startups appearing because they had no exclusivity in the deals.

By Tom Foremski for SiliconValleyWatcher

I've often discussed how best to fund development of new media technologies - and I've said that I believe many new companies will use private funding, rather than venture capital. So it was interesting to talk recently with Alex Gove and Steve Eskenazi from WaldenVC, one of the last VC firms in San Francisco.

I was delighted to find that these guys "get" this whole thing I'm calling media technologies. WaldenVC has been quietly making some very astute investments in digital media companies, leading rounds for ten companies. They've accumulated an interesting portfolio with a lot of diversity.

I saw MR in his element on Tuesday, when I dropped into Software 2005, the second annual enterprise software conference organised by MR and his team at the Sand Hill Group. And judging by the Silicon Valley hack pack and top exec and VC turnout at the VIP lunch, MR's hustling and bustling has been rewarded.

I spent an interesting afternoon at Software 2005, which surprised me because I have found the enterprise software space much less interesting now that consolidation has reduced the sector to a few giants and many smaller software-as-a-feature companies :-)

I sat with MR at lunch, (he is a big SiliconValleyWatcher fan BTW). Here are some notes from my chat with the "swami of the software sector".

M.R. Rangaswami:

by Tom Foremski for SiliconValleyWatcher.com

VCs are managing large funds, which means they need to make decent sized investments, much larger than before. The trouble is that there isn’t the type of deal flow that can accommodate those large sized investments and provide decent sized returns.

Most VCs know the IT enterprise sector, chip design, networking, software applications. The largest investment area has traditionally been the IT enterprise sector, but with all the consolidation of recent years, the handful of large dominant IT vendors are formidable competition to startups. They have a large customer base and that customer base is very conservative and reluctant to buy from small private companies--unless they are partnered with a large IT vendor. This means the encumbent IT vendors have great control over valuation since the exit strategy these days is to sell the business to a larger player.

In chip design, with the fabless model, and with offshoring work, some of the chip design deals are too small for many VCs. And in networking and software apps, there is little room for manouvre in those markets. In security, there is way too much competition. And mobile and wireless markets are also overcrowded. So, where do the VCs invest?

There are many other sectors, but there are problems with most of them. VCs generally don’t like pharma because the capital investments are too high and drug development is too risky. Many life sciences investments are also capital intensive and they don't understand those markets. VCs don’t like consumer based businesses because brand building is difficult, extremely expensive and consumers are fickle.

So what’s left? I see a lot of companies being formed, deals being made where the startup capital costs can almost be covered by pooling credit cards. This is also the terrain where angel investors are very active, and where they bring many advantages compared with VC firms. In fact, there are VCs in many of the angel networks, betting their personal money on some of these deals.

And why not? I heard you still get paid generous management fees even if you don't invest the funds. I’d like a job like that. I'm sure I would be very good at it too. I can hack most business plans to pieces, (I've done it many, many times). I would come to work on time and be a team player, and I'd share insightful things. Anybody have any vacancies?!

I should point out that the VCs that I meet are a hard working bunch because they are a self-selected group. The VCs I meet are the ones that are out and about, talking up their investments, working their networks, scouting for deals. I don't know the other guys, but their LPs probably do.

by Tom Foremski for SiliconValleyWatcher.com

IBD Network recently put together another one of its popular Under the Radar events, which features hand-picked startups performing in front of a panels of VCs. It was interesting, but not for the reasons you might expect.

The startups are allowed a six-minute pitch and the judging panels are separated into categories, such as security, the digital home, etc. At the end of the day, the VCs give their feedback and highlight which companies they liked. This is part of the pre-cocktail panel called VC Outlook, which featured Neeraj Bharadwaj from Apax Partners, Lara Druyan from Allegis Capital, Robert Simon from Alta Partners, and Chad Waite from OVP Venture Partners.

by Tom Foremski for SiliconValleyWatcher.com

I've had lots of chats about Silicon Valley lately and I’m of the Bachman Turner opinion that you ain’t seen nothing yet.

When I arrived here November 8, 1984, Silicon Valley was going through the down cycle following the PC boom. A hundred PC companies wanted just 10 per cent of the market, wanting to strike it rich, as rich as the Apple IPO—the Google celebrity IPO of its day.

Hundreds of Apple staff became millionaires, including secretaries and the guy that ran the parking lot. The media coverage was massive. VCs rushed in like a herd and funded a huge number of PC companies and when the bubble popped, the down cycle was harsh. Stories about Silicon Valley’s death were constant and grinding for several years. I’ve seen several business cycles and the same thing happens in each down cycle, endless speculation about Silicon Valley’s future. What future does Silicon Valley have?

I think I can answer that question very easily—and I’ll accept any size bet on this call: when Silicon Valley comes back, it will be bigger than before. (Actually, it’s been back for a while--hence this venture.)

I was chatting with Ron Piovesan, from Cisco on this topic recently, and he says has also seen signs of improvement. He laughed when I said I own the dotcom name: SiliconValleyIsBack.com.

I said I’m serious, I do own it. I also have SiliconValleyisBackBaby.com! I'm going to set them up as headlines--heck, they were only $8 apiece. I bought SiliconValleyGarage.com for $8 too. Maybe I'll set it up as a tribute to HP?

By Tom Foremski - SiliconValleyWatcher.com

Wall Street’s delight with Google’s first quarterly financial report late last week led to a big jump in Google’s share price as analysts boosted their earnings estimates. This seemed a little worrying in that it reminded some of the internet bubble years when analysts were accused of hyping dotcoms with large upgrades…and we know the rest of the story.

It’s not quite the same this time around. The Google jump stems more from analysts getting to grips with Google’s business model and understanding the dynamics of the surge in online advertising. Analysts now have more information to make a better judgement on Google’s future performance.