23:55 PM

One of San Francisco's last venture capital firms quietly bets on the next generation of media tech companies

By Tom Foremski for SiliconValleyWatcher

Walden VC.gifI'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'm sure there is a ten-bagger in there. Maybe it's Shawn Fanning's new digital music distribution company Snowcap. Shawn, of course, is the founder/creator of Napster, the former scourge of the music industry. Now, everybody is good buddies and Hilary Rosen, his arch-nemesis when she headed the Recording Industry Association of America, is on his board.

I know Alex, he's a former hack at Red Herring who joined WaldenVC in 1999, just before the dotbomb. But this is my first time meeting with Steve Eskenazi, general partner.

Here's a summary of some of the conversation.

Valuations of startups in the online marketing/advertising sectors are going through the ceiling. Usually, private-company valuations tend to be 40 per cent below comparable public valuations, depending on the sector. Now, valuations of private companies are at a premium over the public valuations. [Ouch.]

Some startups in the online sector already have very healthy revenues and so they don't need investment capital. But the founders are taking money off the table by selling stakes to VCs. [Interesting to see such liquidity events because no IPO or sale of company was involved]

Many young startup companies are seeing fantastic revenues - but they can't collect what they are owed fast enough, so they are burning precious reserves between the time they invoice and when they get paid. The VCs can provide a float. For example, with a $5m monthly revenue it's typical to take 60 days to collect payment from large companies, so it needs a float of $10m, which VCs can provide.

Is that the value proposition for VCs these days - provide the float, I ask? Steve says no, it's also the expert management you get. Most of these companies are run by ad/marketing people and they need help growing the company. I say that it all sounds like an expensive way to go, taking VC money and handing over a hunk of company in order to bring in professional management. Of course Steve disagrees. I guess we will have to wait and see what happens.