Feeds:
Posts
Comments

Archive for June 5th, 2012

FACEBOOK FALLOUT: Y Combinator’s Paul Graham Just Emailed Portfolio Companies Warning Of ‘Bad Times’ In Silicon Valley

Nicholas Carlson     | Jun. 5, 2012, 12:01 AM | 58,513 |


Facebook has flopped on the public markets, and now we have vivid evidence of how badly Silicon Valley is reeling in the fallout.

Paul Graham, cofounder of Silicon Valley’s most important startup incubator, Y Combinator, has sent an email to portfolio companies warning them “bad times” may be ahead.

He warns: “The bad performance of the Facebook IPO will hurt the funding market for earlier stage startups.”

“No one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle.”

He says that startups which have not yet raised money should lower their expectations for how much they will be able to raise. Startups that have raised money already may have to raise “down rounds,” or at lower valuations than they previously had.

“Which is bad,” he writes, “because ‘down rounds’ not only dilute you horribly, but make you seem and perhaps even feel like damaged goods.”

He warns:

“The startups that really get hosed are going to be the ones that have easy money built into the structure of their company: the ones that raise a lot on easy terms, and are then led thereby to spend a lot, and to pay little attention to profitability. That kind of startup gets destroyed when markets tighten up. So don’t be that startup. If you’ve raised a lot, don’t spend it; not merely for the obvious reason that you’ll run out faster, but because it will turn you into the wrong sort of company to thrive in bad times.”

Graham’s email is eerily reminiscent of the infamous “RIP Good Times” presentation another Silicon Valley investor, Sequoia Capital, gave its portfolio startups in fall 2008.

Here’s a full copy:

Jessica and I had dinner recently with a prominent investor. He seemed sure the bad performance of the Facebook IPO will hurt the funding market for earlier stage startups. But no one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle.

What does this mean for you? If it means new startups raise their first money on worse terms than they would have a few months ago, that’s not the end of the world, because by historical standards valuations had been high. Airbnb and Dropbox prove you can raise money at a fraction of recent valuations and do just fine. What I do worry about is (a) it may be harder to raise money at all, regardless of price and (b) that companies that previously raised money at high valuations will now face “down rounds,” which can be damaging.

What to do?

If you haven’t raised money yet, lower your expectations for fundraising. How much should you lower them? We don’t know yet how hard it will be to raise money or what will happen to valuations for those who do. Which means it’s more important than ever to be flexible about the valuation you expect and the amount you want to raise (which, odd as it may seem, are connected). First talk to investors about whether they want to invest at all, then negotiate price.

If you raised money on a convertible note with a high cap, you may be about to get an illustration of the difference between a valuation cap on a note and an actual valuation. I.e. when you do raise an equity round, the valuation may be below the cap. I don’t think this is a problem, except for the possibility that your previous high cap will cause the round to seem to potential investors like a down one. If that’s a problem, the solution is not to emphasize that number in conversations with potential investors in an equity round.

If you raised money in an equity round at a high valuation, you may find that if you need money you can only get it at a lower one. Which is bad, because “down rounds” not only dilute you horribly, but make you seem and perhaps even feel like damaged goods.

The best solution is not to need money. The less you need investor money, (a) the more investors like you, in all markets, and (b) the less you’re harmed by bad markets.

I often tell startups after raising money that they should act as if it’s the last they’re ever going to get. In the past that has been a useful heuristic, because doing that is the best way to ensure it’s easy to raise more. But if the funding market tanks, it’s going to be more than a heuristic.

The startups that really get hosed are going to be the ones that have easy money built into the structure of their company: the ones that raise a lot on easy terms, and are then led thereby to spend a lot, and to pay little attention to profitability. That kind of startup gets destroyed when markets tighten up. So don’t be that startup. If you’ve raised a lot, don’t spend it; not merely for the obvious reason that you’ll run out faster, but because it will turn you into the wrong sort of company to thrive in bad times.

http://www.businessinsider.com/facebook-fallout-y-combinators-paul-graham-just-emailed-portfolio-companies-warning-of-bad-times-in-silicon-valley-2012-6?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Business%20Insider%20Select&utm_campaign=Business%20Insider%20Select%202012-06-05#ixzz1wxLb6QS

Read Full Post »

Article from TechCrunch.

Looks like the seed funding wave continues to get stronger. The latest evidence: Khosla Ventures, the Silicon Valley venture capital firm headed up by tech industry veteran Vinod Khosla, appears to be raising a new seed fund, according to regulatory documents filed with the Securities and Exchange Commission this afternoon.

According to the filing, the new fund is called “Khosla Ventures Seed B.” At the moment, details are very scarce: No money has been raised just yet, the filing says, and there is no maximum or minimum amount ascribed to the offering.

Khosla Ventures’ last seed-related fund raise was closed in January 2010, when the firm raised $300 million for a fund called “Khosla Ventures Seed.” This past fall, the firm raised $1 billion for its more general venture fund, Khosla Ventures IV.

Want to eventually get a piece of Khosla’s newest seed fund? Here’s what the firm’s website says it looks for in its earliest stage investments:

At the seed stage, what we’re really looking for is a crazy idea that may have a significantly non-zero chance of working. We want good teams. We don’t need complete teams or even complete plans, but the key technology risks of your approach—and the economic and market benefits if it is successful—need to be identified. From a seed perspective, planning for risk elimination at the lowest possible cost is the key variable we look for. Your seed plan should validate your hunches about the market and help you decide what market segment you want to enter.

We’ve reached out to the folks at Khosla Ventures for more details on the raise, and will report back with any additional information we receive.

Read more here.

Read Full Post »

Dear Colleagues and Friends – by Motti Abramovitz, Chairman of Bruno Art Group and long time family friend of Itzhak Tarkay

Last night, Sunday June 3rd, Itzhak Tarkay one of the greatest
artists, passed away while on a tour in Detroit Michigan.

Born in Yugoslavia in 1935,  he spent his childhood under Nazi
regime and was later sent to a concentration camp. In 1949 Tarkay was
able to leave Europe and immigrate to Israel with his mother and
sister. Tarkay was a soldier in the wars of independence, and is noted
among those who built our country.

Tarkay started his art career in the early 60′ with the support  of
my father, Bruno. They became best friends.  Itzhak was part of our family.

In the 80′ Tarkay’s art reached the USA and Japan.  His art is found
in hundreds of thousands of homes around the world. The vivid colors
and happy subjects bring joy and happiness to any one who looks at it.

After the passing away of my father in 2006 Tarkay became like a
second father to me. We shared many times of great conversations
about art, family and life experiences.

We will remember Itzhak through his art.

Thank you and most respectfully yours, Motti

Motti Abramovitz – Chairman & CEO

Bruno Art Group

Read Full Post »