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The ultimate seed investment(s)!

October 8, 2009 by Seedcorn

The story of Jeff Bezos’ $250,000 investment into Google in 1998 makes for amazing reading. Whilst this story has been covered across traditional print and the web, I concluded that this was worth re-publishing for those who have not read about this. I have tried to add some flesh to the bones, and further reading has revealed that amazingly Bezo’s is also reported to be an early investor in Twitter! I wonder if he got the same terms as his initial investment in Google! For those who have not heard of Jeff Bezo, he is the founder of Amazon and he has a net worth of c.$10 billion.

In 1998 when Larry Page’s and Sergey Brin’s (the founders of Google) offices were based in a Californian garage, Bezos invested $250,000 into the search engine in a c.$1 million investment round. When Google went public in 2004, that $250,000 investment translated into 3.3 million shares of Google stock. At Google’s initial public offering that represented a position worth over $280 million! Bezos does not disclose how many of those shares he still holds, at the current price of Google stock they would represent an investment position of over $1.5 billion. Even Michael Moritz would envy the stage and scale of this investment.

Posted in Early Stage Investments, Hot ideas, Venture Capital | Tagged , , , , , | 1 Comment »

Just-Eat confirms trend towards local search on-line

September 9, 2009 by Seedcorn

Congratulations to Jesper and the guys at Just-Eat for their recent £10.5 million series A round with Index Ventures. Index is renowned as probably the best technology venture capital firm in Europe and is recognised for its investments in Skype and Last.fm. The Just-Eat investment seems like a play it safe bet for Index. The startup has been around for a few years now and the site has 6,000 restaurants in its database, with close to 3,000 in the UK alone, 1M meals are ordered per month, moreover it does not have large competitors and people need to eat, recession or not. The Just-Eat story confirms my previous posts on the growing trend towards local search on-line. The Just-Eat concept is pretty basic really – users search for ‘local’ food that can be delivered and then order online, simple as that. Could Just-Eat follow in the footsteps of OpenTable, a table bookings company in the US, which enjoyed one of the best IPO’s on the Nasdaq since late 2007, delivering a gain of 59% on its trading debut offering price of $20 a share! With the help and support of Index Ventures this is definitely a possibility.

Posted in Local, Online Content, Search, Uncategorized | Tagged , , , | Leave a Comment »

Google going real-time…

May 14, 2009 by Seedcorn

Google is moving closer to becoming a real-time search engine by launching a set of new tools that allow users to see only the most up-to-date results. Moreover, It has unveiled a filter that allows users to see only certain types of content, for instance blog posts, product reviews. The new tools also include a timeline function, a link to related searches and a visual map of related searches – this is definitely a move to capture the appeal of real-time search (a topic I have blogged about before). Rumours have been circulating that Google will buy Twitter in order to mitigate competition. Both companies have denied that a deal is in the pipeline.

Posted in Search | Tagged , , , | Leave a Comment »

Cloud-Computing – VC opportunity?

May 12, 2009 by Seedcorn

The concept, quite simply is that vast computing resources will reside somewhere out there, rather than in your computer room, and we’ll connect to them and use them as needed. With cloud computing, the efficiencies of a centralised computing infrastructure that can be easily accessed via the internet are very compelling – especially for SME’s. Moreover, I think there is a huge opportunity for Venture Capitalists to make some money from this sector. .

I have tried to weigh up the pros and cons of cloud computing below: .

+Ve: Positives

• Reduced Cost: Cloud technology is paid incrementally, saving organizations money. There are no more upfront costs buying/maintaining technology and software. Think of the benefits of cloud-computing for SME’s! My friends at Invitemedia.com have recently launched Bid Manager, a next-generation ad server and buying platform that is built entirely on cloud-computing.

• Increased Storage: Organizations can store more data than on private computer systems. .

• Highly Automated: No longer do IT personnel need to worry about keeping software up to date. .

• More Mobility: Employees can access information wherever they are, rather than having to remain at their desks.

• Allows IT to Shift Focus: No longer having to worry about constant server updates and other computing issues, government organizations will be free to concentrate on innovation. .

-Ve: Negatives

• Lock-In: Cloud computing has been criticized for limiting the freedom of users and making them dependent on the cloud computing provider. .

• Lack of flexibility: In the long-run you’ll be able to get any kind of software or service you like for a very low price – as long as it’s a piece of software or service that the cloud think is appropriate. .

Google and IBM have recently joined forces to promote cloud computing – since economies of scale are at the heart of cloud computing the two could achieve a very dominant position. For Google and IBM the benefits are tremendous, there is an opportunity for them to take a whole host of applications and services you use on a daily basis and simplify them and make them cheaper and better! What’s best for the customer in the end is having plenty of choices, there is no doubt that cloud computing is a great thing, but there needs to be plenty of clouds to choose from, not all of them run by Google or IBM! .

Posted in Hardware, Hot ideas, Online Content, Software, Venture Capital | Tagged , , , , | Leave a Comment »

VC funding – an explanation

April 21, 2009 by Seedcorn

By now you have probably read the TechCrunch post looking at the latest US Venture Capital numbers from both both PricewaterhouseCoopers/NVCA based on data from Thomson Financial. There is nothing overly surprising about the slowdown in funding, but nobody seems to explain why it happened – I will take a shot at offering an explanation. I will run through the numbers again for those who have not seen the reports. Whilst the numbers do not paint a pretty picture, Adeo Ressi of thefunded.com makes a good argument in his latest note, suggesting that the numbers are not as dire as they look and he offers some good analysis going forward – I will take a look at this too.

The Numbers…..

The two, quarterly reports both found that venture volume dropped in the first quarter, with PwC/NVCA reporting $3.0 billion in 549 deals nationally, and Dow Jones VentureSource reported $3.90 billion across 477 deals. The results were the lowest venture level since 1997, according to Pwc/NVCA numbers, and the lowest since 1996, according to Dow Jones VentureSource. Information technology investments fell 53% year-over-year to $1.7 billion—the lowest since 1997, and the lowest volume of deals since 1995. Clean tech fell by 74% to $117m.

Why have the numbers deteriorated so much?

1. Portfolio companies needed cash: As a result of the downturn some cash strapped portfolio companies needed immediate support. As a result venture capitalists did a large number of internal funding rounds. This often results in complex penalty terms, lower valuations, and smaller investment amounts – putting downward pressure on the average deal size.

2.Nothing can go public (due to market volatility) and mergers and acquisitions are few and far between – where is the exit going to come from? There is no obvious high growth sector to invest in and their investors have been hit in nearly every nook and cranny of their portfolios. As a result VC’s have held back their investments or have driven extremely hard bargains.

3.Limited partners have pulled from VC as an asset class: The number of new venture capital funds that were backed by limited partners fell by 81% between 2008 – 2009 . Venture Capitalists have been complaining that traditional sources for venture financing have stopped supporting the asset class.

4.New compliance rules for venture capitalists: A large number of LPs asked their Venture Capital partners to comply with a mark-to-market accounting rule, FAS 157, which is better at valuing mature private companies with public market comparables than six-month-old startups. VC’s were forced to go through a time consuming process to figure out the reporting standards which one could argue distracted them from making investments.

5.Limited partners asked VC’s to stop investing: Various limited partners had engaged in a popular strategy of accumulating debt, and they did not have the cash on hand to honor every investment commitment after both the equity and debt markets collapsed.

Looking forward…

Adeo Ressi’s highlights that three major causes of the slowdown have passed. Limited Partners will have more liquidity with the rising value of public market equities (if the recent recovery was not a dead cat bounce). Most venture funds have addressed FAS 157 reporting processes and determined which portfolio companies to save

Venture investments will start to surface as venture capitalists take a step back and evaluate what investments to make given the new shape of the economy. New investments will start to surface towards the end of Q2 and in Q3 2009. Since new investments are smaller than later-stage support, the amount invested in 2009 will be significantly smaller than any amount in the last 10 years, but the volume of deals will start to normalise by the end of the year.

Posted in Venture Capital, Venture Capital Research, Venture Fund | Tagged , | Leave a Comment »

New Seed Fund – EFC

April 19, 2009 by Seedcorn

Whilst relaxing in the park reading the Sunday Times I stumbled upon some great news for the tech start up community looking for funding. Two icons of the UK’s tech startup world are joining forces to create a new fund to address the funding gap in Europe. European Founders Capital (EFC) is being led by Michael Birch, co-founder of Bebo, and Brent Hoberman, who set up Lastminute.com but is better known more recently for being a serial angel investor and co-founder of MyDeco. The two are being joined by a former city research Analyst at Salomons as well as Peter Dubens who built Pipex.

EFC will have an initial £20m of seed funding but is aiming for £50m in total. The idea is to increase the availability of early-stage funding in Europe, which historically lags behind the US, and has led to a gap between early stage and Series A funding. All the money comes from founders – people who have done it before… They are betting on some great, disruptive companies, coming out of this downturn. It would appear then that Europe’s former founders are getting their acts together at last.

Posted in New Funds, Venture Capital, Venture Fund | Tagged , , , | 2 Comments »

UK consumers do not mind online ads!!!

April 7, 2009 by Seedcorn

An interesting article was in the FT this morning which has got me thinking about the power of Freecomincs and the viability of FREE as a business model for online content. According to a survey by KPMG about 60 per cent of people polled said they would rather watch advertising on the internet in return for free content, rather than pay for it. Only 16 per cent of consumers said they would rather pay for content and avoid ads. Even on mobile phones, 40 per cent of consumers said they would watch adverts in exchange for free music, while 28 per cent. said they would do so in exchange for access to free instant messaging.

The figures send a strong message to companies that advertising, rather than subscription-based business models, are likely to work for Internet and mobile content businesses in the UK. This article reignites the Freeconomics argument which Nic Brisbourne at DFJ Esprit has written extensively about. From an economic standpoint the marginal cost of delivering a digital good is $0 – and in a competitive market over time the price of goods trends towards the marginal cost of distribution – in the Internet world this would be $0. The result is that digital goods should be free to consume and businesses will have to make money from advertising or by selling related goods – tickets to gigs, memorabilia etc.

The downturn is testing the viability of the Freeconomics argument as a viable business model for distributing content over the internet. Advertising supported services have recently been struggling, as the economic downturn has forced advertisers to retreat. I am a sceptic of basic economic theory that the marginal cost of distributing content over the internet is actually $0. To distribute online content businesses have to pay for server costs, which are needed to transport files from computer to computer. One could argue that the website itself is a form of distribution hub used to transport content around the digital highway – hence these costs are directly related to distributing the product and the marginal cost would not actually be $0. What alternatives are there to FREE… How about an all you can eat model, whereby users pay a fixed monthly amount to download unlimited content!!

Posted in Online Advertising, Online Content | Tagged , | Leave a Comment »

Google to buy Twitter….I saw it coming!

April 3, 2009 by Seedcorn

An interesting follow up to my previous blog on the value of Twitter…it seems as if Google has clocked onto this and is now in late stage negotiations to buy the business (Michael Arrington, the author of TechCrunch reports). Michael believes Google would have to pay well above the $250 million (£170 million) valuation of Twitter suggested by a recent round of venture capital funding. The deal seems as if it is already tied up especially when considering the senior executives of both companies have a history of dealing with one another. Mr Williams and Mr Stone of Twitter sold their start-up, Blogger, to Google five years ago. Google would benefit by developing its search offering, taking advantage of the real-time information provided by users of the micro-blogging site. Twitter’s founders would make money by being bought out of a business from which they had struggled to reap significant revenues….

Posted in Search | Tagged , , | Leave a Comment »

The Twitter discovery engine

April 3, 2009 by Seedcorn

I have just started playing around with Twitter, there has been a lot of hype in the press about this site, so I thought I would see what all the fuss is about. I have to admit that the reason why I am so late joining Twitter is that I was a big sceptic – why should I use Twitter when I already have LinkedIn and Facebook accounts? My initial impressions of Twitter are very positive, I have already tracked down some of the venture capitalists and entrepreneurs I follow, and I have found it both useful and amusing following their Tweets. Why is Twitter useful?

The value of ‘Real Time’….

What makes Google and other search engines so valuable is that they capture peoples intentions – what they are looking for and what they want to learn about etc. They don’t capture what people are doing or what they are thinking about. For thoughts and events that are happening right now, searching Twitter increasingly brings up better results than searching Google. Twitter may just be a collection of random thoughts, but in aggregate it has value. In aggregate, what you get is a direct view into any kind of sentiment. For companies trying to figure out what people are thinking about their brands, searching Twitter is probably a good place to look.’Real Time’  tweets certainly have a use for providing updates on ”Saved Alerts”, if for example I wanted to know what people are saying about this blog, I can type in ‘Seedcorn Capital’ as an alert and find out what is being said about this from the moment someone Tweets. Furthermore I can see the value of ‘Real Time’ for trends, words or phrases which are being referenced with more frequency, suggestive of something interesting which might be happening at this moment in time.

 What happens to old Tweets….search maybe?

I cant stop thinking that whilst the ‘Real Time’ element of Twitter is very useful, it is not clear what happens to relevant search content that is a week or a month old (this has value for search purposes). Twitter’s current search is extremely crude. It simply brings up the most recent Tweets with the keyword you are looking for. Twitter needs to figure out how to extract the common sentiments from the Tweets. It is not exactly clear how to do this. OneRiot.com a search site set up on the back of Twitter,  indexes tweets, looking for messages with embedded links, then crawls and indexes the content being linked to – the results are quite good. I am starting to see huge potential for Twitter to reinvent itself as a search engine of some sort if they manage to do this they stand to make lots of money – just look at the growth rates for search engine advertising in my last post!

Posted in Search, Social Networks | Tagged , , , , , | Leave a Comment »

Online advertising growth slows…

April 2, 2009 by Seedcorn

Just read an interesting article in the FT highlighting that online advertising growth slowed in the second half of last year. Figures from the UK’s Internet Advertising Bureau and PricewaterhouseCoopers found that online advertising spending increase to £3.35bn last year, up 17.1 per cent like-for-like on 2007. That compares with 38 per cent growth in 2007.

Drilling down on the numbers further…

Display advertising, such as banners and videos, was flat in the second half, down from 16 per cent growth in the first.

Search engine advertising, which is dominated by Google, continues to be the strongest part of online advertising, up 22 per cent for the year.

Conclusion

The trend seen in the numbers above reflects a move towards advertising bought based on performance, such as click-throughs or purchases, rather than just the number of times it is seen.

Posted in Online Advertising | Tagged , , | Leave a Comment »

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