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Archive for September, 2012

Article from GigaOm.

After making a public appeal for investors, MiaSole has found a suitor in Hanergy, a large renewable energy company in China that just bought another solar equipment maker in Germany. The $30M sales prices of MiaSole shows how cheap solar manufacturing assets can be picked up.

Thin Film Solar Underdog MiaSole Looks Ahead to New Plant, Solar Shingles

The search for a financial suitor is coming to an end for solar thin film startup, MiaSole, which has agreed to be bought by China-based Hanergy, according to a shareholder letter.

Hanergy plans to buy MiaSole for a measly $30 million, according to the letter, and also reported by the San Francisco Chronicle. While the Silicon Valley solar company has been mum about how much venture capital it’s raised since its inception in 2001, published reports have put the figure somewhere between $400 million and $500 million by the end of 2011. Earlier this year, the company raised $55 million.

MiaSole was desperate for a white knight to rescue it from oblivion. After years of research and development, the company seemed to have finally nailed its manufacturing process to making solar panels out of copper, indium gallium and selenium (CIGS) that are more efficient than many rivaling CIGS thin film companies. But it was running out of money and needed to expand its production and attract customers. CEO John Carrington joined MiaSole late last year, and he made a public appeal in December for investors and partners who could bring money and sales and marketing expertise.

Hanergy may not be a well-known company in the U.S., but it’s large renewable energy producer in China. We pointed out in this post back in June that Hanergy is a company worth watching not only because of its large hydropower and solar panel production plants in China, but also because of its involvement in installing solar energy equipment. Hanergy won a 3-year deal to install solar panels on Ikea’s stores in China. The company also has built a wind energy generation business within China.

With the purchase of MiaSole, Hanergy is knitting together a global solar thin film empire. Last week, the company completed the purchase of CIGS thin film maker Solibro from Q-Cells in Germany. Hanergy said it would increase Solibro’s production for the European market. With MiaSole’s purchase, Hanergy, of course, will have a CIGS thin film manufacturing base in the U.S.

Solar startups have been picked off one by one cheaply – or filed for bankruptcy – over the past 19 months because the global solar market has been plagued by a glut of solar panels. The fast-falling panel prices – roughly 50 percent in 2011 alone and 30 percent so far this year – have put an enormous pressure on companies to lower their prices. That pressure is particularly difficult to handle for startups, which often have higher manufacturing costs initially when they are scaling up production of their technology. And many of them indeed were trying to raise more money and make that leap to mass production when the financial market crisis hit in late 2008, followed by the oversupply of solar panels starting in 2011.

One of the remaining CIGS thin film company from Silicon Valley, SoloPower, hopes to reverse the trend. The company inaugurated its first large factory in Portland, Ore., last week and plans to start making use of a $197 million federal loan guarantee to expand production.

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By Russ Garland

Pickings are slim for most firms on the fundraising trail, but the path is crowded.

Dow Jones VentureSource took a look at data compiled for the October issue of Private Equity Analyst, a sister publication to VentureWire, and found 330 open U.S. venture funds looking to raise about $26 billion.

Bloomberg News

It’s safe to say that some of those funds are not being actively marketed as the dismal fundraising climate has caused firms to back off, hoping that better days will come. Plenty were looking for Facebook’s IPO to signal a new dawn–but we all know how that turned out.

Limited partners still appear skeptical of venture returns and willing to commit only to well-established firms who seem to be consistent performers. Those firms can pretty much raise what they want. The $2.6 billion fund recently closed by New Enterprise Associates is Exhibit A.

But NEA found lots of interest in venture as an asset class, perhaps a sign that the pendulum is swinging back. Despite the Facebook debacle, a healthy lineup of venture-backed companies is waiting to go public and VCs remain optimistic about investment opportunities. Also, pension funds, a traditional source of venture capital, are under pressure to generate better results.

As of July, U.S. venture fundraising stood at $13 billion, up 31% from the first six months of last year, but four funds raised just over $6 billion of that. Notable, however, was that 82 funds had held closings, up from 73 a year earlier.

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Article from WSJ Online.

It looks so easy from the outside. An entrepreneur with a hot technology and venture-capital funding becomes a billionaire in his 20s.

But now there is evidence that venture-backed start-ups fail at far higher numbers than the rate the industry usually cites.

About three-quarters of venture-backed firms in the U.S. don’t return investors’ capital, according to recent research by Shikhar Ghosh, a senior lecturer at Harvard Business School.

The Wall Street Journal reveals its third annual ranking of the top 50 start-ups in the U.S. backed by venture capitalists.

Compare that with the figures that venture capitalists toss around. The common rule of thumb is that of 10 start-ups, only three or four fail completely. Another three or four return the original investment, and one or two produce substantial returns. The National Venture Capital Association estimates that 25% to 30% of venture-backed businesses fail.

Mr. Ghosh chalks up the discrepancy in part to a dearth of in-depth research into failures. “We’re just getting more light on the entrepreneurial process,” he says.

His findings are based on data from more than 2,000 companies that received venture funding, generally at least $1 million, from 2004 through 2010. He also combed the portfolios of VC firms and talked to people at start-ups, he says. The results were similar when he examined data for companies funded from 2000 to 2010, he says.

Venture capitalists “bury their dead very quietly,” Mr. Ghosh says. “They emphasize the successes but they don’t talk about the failures at all.”

There are also different definitions of failure. If failure means liquidating all assets, with investors losing all their money, an estimated 30% to 40% of high potential U.S. start-ups fail, he says. If failure is defined as failing to see the projected return on investment—say, a specific revenue growth rate or date to break even on cash flow—then more than 95% of start-ups fail, based on Mr. Ghosh’s research.

Failure often is harder on entrepreneurs who lose money that they’ve borrowed on credit cards or from friends and relatives than it is on those who raised venture capital.

“When you’ve bootstrapped a business where you’re not drawing a salary and depleting whatever savings you have, that’s one of the very difficult things to do,” says Toby Stuart, a professor at the Haas School of Business at the University of California, Berkeley.

Venture capitalists make high-risk investments and expect some of them to fail, and entrepreneurs who raise venture capital often draw salaries, he says.

Consider Daniel Dreymann, a founder of Goodmail Systems Inc., a service for minimizing spam. Mr. Dreymann moved his family from Israel in 2004 after co-founding Goodmail in Mountain View, Calif., the previous year. The company raised $45 million in venture capital from firms including DCM, Emergence Capital Partners and Bessemer Venture Partners, and built partnerships with AOL Inc.,  Comcast Corp.,  and Verizon Communications Inc.  At its peak, in 2010, Goodmail had roughly 40 employees.

But the company began to struggle after its relationship with Yahoo Inc. fell apart early that year, Mr. Dreymann says. A Yahoo spokeswoman declined to comment.

In early 2011 an acquisition by a Fortune 500 company fell apart. Soon after, Mr. Dreymann turned over his Goodmail keys to a corporate liquidator.

All Goodmail investors incurred “substantial losses,” Mr. Dreymann says. He helped the liquidator return whatever he could to Goodmail’s investors, he says. “Those people believed in me and supported me.”

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Daniel Dreymann’s antispam service Goodmail failed, despite getting $45 million in venture capital.

How well a failed entrepreneur has managed his company, and how well he worked with his previous investors, makes a difference in his ability to persuade U.S. venture capitalists to back his future start-ups, says Charles Holloway, director of Stanford University’s Center for Entrepreneurial Studies.

David Cowan of Bessemer Venture Partners has stuck with Mr. Dreymann. The 20-year venture capitalist is an “angel” investor in Mr. Dreymann’s new start-up, Mowingo Inc., which makes a mobile app that rewards shoppers for creating a personal shopping mall and following their favorite stores.

“People are embarrassed to talk about their failures, but the truth is that if you don’t have a lot of failures, then you’re just not doing it right, because that means that you’re not investing in risky ventures,” Mr. Cowan says. “I believe failure is an option for entrepreneurs and if you don’t believe that, then you can bang your head against the wall trying to make it work.”

Overall, nonventure-backed companies fail more often than venture-backed companies in the first four years of existence, typically because they don’t have the capital to keep going if the business model doesn’t work, Harvard’s Mr. Ghosh says. Venture-backed companies tend to fail following their fourth years—after investors stop injecting more capital, he says.

Of all companies, about 60% of start-ups survive to age three and roughly 35% survive to age 10, according to separate studies by the U.S. Bureau of Labor Statistics and the Ewing Marion Kauffman Foundation, a nonprofit that promotes U.S. entrepreneurship. Both studies counted only incorporated companies with employees. And companies that didn’t survive might have closed their doors for reasons other than failure, for example, getting acquired or the founders moving on to new projects. Languishing businesses were counted as survivors.

Of the 6,613 U.S.-based companies initially funded by venture capital between 2006 and 2011, 84% now are closely held and operating independently, 11% were acquired or made initial public offerings of stock and 4% went out of business, according to Dow Jones VentureSource. Less than 1% are currently in IPO registration.

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Article from TechCrunch.

No one got just how powerful it was that Facebook recently said it would allow ad targeting to lists of email addresses. Today at the Dreamforce conference it became clear, as Facebook ad chief David Fischer formally launched “Custom Audience” ads and how they tie into CRM. I’m convinced they’re going to be hugely profitable for advertisers and Facebook.

Why? A hotel company like Starwood has email addresses of its customers and could target “Come stay at the luxurious St. Regis” to high-end customers who’ve stayed there before, while targeting “Find cheap hotels nearby” to those who’ve stayed at its low-budget brands. That means more sales and more loyalty for advertisers, and more revenue for Facebook.

On August 30, Facebook told press that Custom Audiences was coming, but now it’s live with eight ads providers. Custom Audience ads let businesses submit a text or CSV file of privacy-protected hashed email addresses, phone numbers, or Facebook User IDs and have Facebook target those people with a specific ad. Businesses can also layer on additional ad targeting parameters, such as age or interests to reach a specific demographic within a customer segment.

Salesforce who brought in Fischer for its Dreamforce conference is uniquely suited to take advantage of custom audience ads because it owns both its massively popular eponymous customer relationship management system, but also a Facebook ads buying system Brighter Option that it got with its acquisition of Buddy Media this summer.

I’ve attained from Facebook a list of the seven other vendors working with custom audience ads, but none have their own CRM. They are AdParlor, Alchemy Social, GraphEffect, Kenshoo, Nanigans, Social Moov, and Optimal.

Custom audience targeted ads will be much more relevant than ads just targeted to a business fan’s or some biographical demographic. They can reach people who a business is sure purchased its products before, or that haven’t thanks to exclusionary targeting. Yes, businesses could just email these existing customers for free. However,  Facebook can help them hone in on certain demographic segments of their customers by overlaying additional targeting parameters, and reach them vividly through the news feed instead of their dry inbox.

Here are a few more examples of industries that could use custom audience ads:

  • A car company with email addresses of its customers could target “buy a new SUV” ads to people who bought an SUV 5+ years ago, while targeting “Find nearby charging stations” to those who recently bought an electric vehicle.
  • A bank company could target different ads to customers with savings of $5,000 versus customers with $5 million.
  • A Facebook game developer could plug in the user IDs of its gamers, targeting ads for its newest war-strategy games to those who played its old strategy game, while targeting ads for its latest shopping game to users who played its fashion game.
  • A B2B vendor could submit a file of the phone numbers of its biggest clients and target ads for a premium service to them to increase revenue, while targeting its newest clients with ads for discounts to increase loyalty.
  • Instead of targeting general ads to all its Facebook fans encouraging return visits, Amazon could advertise specific products to segments of its customers who’ve bought similar things.

Precise targeting of segments of existing customers like this could produce huge return on investment for advertisers and command high ad rates for Facebook. CRM-equipped companies might spend more when they know who they’re reaching, and that could help Facebook please Wall Street with higher revenues. In fact, it’s such a smart idea to plug CRM into ads that I bet we’ll see more advertising platforms integrate like this soon.

Read more here.

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Bunchball, gamificationArticle from GigaOm.

Gamification is thought of as a hyped buzzword by skeptics, but it’s increasingly being used by corporations to incentivize consumers and motivate employees. As enterprise adoption of gamification grows, that could make gamification startups the next hot acquisition target in the coming years.

Social enterprise acquisitions have been the all the rage in the last year. But if you want to find the next big acquisition target, consider gamification startups.

Bunchball founder and Chief Product Officer Rajat Paharia told me he expects it won’t be long before gamification companies will be buyout targets soon by the SAPs, Oracles, Microsofts and Salesforces of the world. Obviously, he has a vested interest in this, but there are some compelling reasons for why this theory may come true in the near future.

Badgeville, gamificationGamification, with its reliance on points, badges, leaderboards and rewards, appeals to some basic human desires for fun, competition, interaction and achievement. The concept has been around for year and has been traditionally used to incentivize consumer behavior; think of frequent flyer programs and other loyalty systems. But corporations are increasingly seeing this as an effective way to get more productivity out of workers. As more work moves online and goes virtual, firms are looking for new tools to encourage their employees and push them toward their goals.

“Gamification is a core offering for the enterprise,” said Gabe Zichermann, the chairman of the Gamification Summit. “Today it’s a tactic but over the the next couple of years it’s going to be a core feature set for enterprises driven by the consumerization of IT.”

Zichermann doesn’t think there will be a lot of immediate acquisitions of gamification startups this year. But in the next 12-24 months, he believes big enterprise companies will start to make moves in this space as their top executives realize the strategic benefits of gamification.

Bunchball, gamificationFor many big software companies, adding gamification can complement social collaboration tools such as Yammer and Chatter and can work alongside existing HR performance software and customer relationship management programs. It can become part of a complete suite of services that software companies offer their clients, who want to engage both consumers and their own workers. Many of the big players are already making investments in this area.  Salesforce last year bought Rypple, a social performance management platform that employs game mechanics. IBM has been working on its own product called Innov8, which has been effective in generating leads and traffic to its website.

Gartner has predicted that by 2014, more than 70 percent of Global 2000 organizations will have at least one “gamified” application and half of organizations that manage innovation processes will gamify those processes by 2015. While some companies are already dabbling with their own in-house gamification efforts, many other enterprise companies are turning to startups like Bunchball, Badgeville, BigDoor, Gigya and others to implement game mechanics into their processes.

Paharia, who founded Bunchball in 2007 before the term “gamification” took hold, said his company now has more than 200 customers including names such as Warner Brothers, Comcast, Hasbro, Mattel and others. About 90 percent of the business through the end of last year was selling to corporate customers, who used gamification to engage consumers. But now, about 35 percent of Bunchball’s deployments are for companies using game mechanics to motivate enterprise workers.

badgevilleHe said enterprise software companies and their customers are realizing that gamification can be an effective tool in addressing the constant struggle over getting workers to use software.

“They’re all making software but whoever figures out how to get their software used regularly will win. It’s a problem of motivation,” he said.

A year ago, Bunchball introduced a product called Nitro for Salesforce’s AppExchange, giving Salesforce customers an easy way to add on gamification tools. Bunchball has also teamed with Jive to integrate its game mechanics into Jive’s social business platform. Rival Badgeville has partnered with Yammer to improve employee performance and launched its own program to integrate with enterprise software applications from Jive, Omniture and Salesforce.com.

The big question is will the big enterprise software players be content to partner with gamification startups or will they seek to buy the technology or try to build it themselves. If these companies can develop the gamification knowhow in-house, that could keep them from looking to acquire any of the dedicated gamification startups.

Gamification still faces plenty of hurdles. It will need to prove it can produce consistent, tangible results. And it will also need to overcome the skepticism of critics, who see a lot of hype and buzz in the concept. Many still see gamification as a passing fad or old methods dressed up in new terminology.

But if this crop of gamification startups continue to win over corporate customers and prove their worth in the enterprise, don’t be surprised if we see them get snatched up in the next couple years.

Read more here.

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  • September 13, 2012, 6:45 PM

Investors Weigh In With Convertible Note Caveats for Start-Ups

By Lizette Chapman

Tech entrepreneurs take note: Convertible notes are not free money and, if not structured properly, can prevent you from raising additional financing.

Investors speaking at the TechCrunch Disrupt SF 12 conference in San Francisco this week had this gem and a few other choice observations about early-stage financing for start-ups.

“We’ve had companies come in for their Series A and not realize  that  they’d already given up 25% of their company” in the seed round,” said Sequoia Capital Partner Alfred Lin, referring to the fact that convertible notes are unpriced, but convert to equity stakes when founders go on to raise a priced Series A round. He added: “That you raise money at a higher valuation than your friend? That’s a false milestone for you.”

Another false milestone, according Google Ventures Partner Joe Kraus, is thinking that raising a bigger round is better for the company when a smaller one will do. While Kraus said he “had no bones to pick” with the convertible note structure, he cautioned it can lead to companies over-raising their seed round and then  ending up with a “weird” cap table that makes  backing a  company at the Series A level difficult  for new investors because there’s  not enough equity left to go around.

While none of the investors speaking (Cowboy Ventures Partner Aileen Lee, SV Angel Managing Director David Lee and Greylock Partners Partner James Slavet were also on the panel) mentioned Y Combinator companies specifically, they might as well have.

Many of the 75 companies who graduated from the three-month accelerator program last month have been talking to investors to raise capital on top of the $150,000 offered to all YC graduates by the Start Fund. Along with the note structure, valuation (which sets expectations for the Series A round) has become an unusually public discussion, with YC co-founder Paul Graham last week accusing Google Ventures of lowballing YC companies on valuation and following up on a prediction last spring that valuations may be dropping.

Although the Start Fund (which is backed by Yuri Milner, SV Angel, General Catalyst Partners and Andreessen Horowitz) offers the cash at no cap and no discount, other early seed investors have been unwilling to offer a similar blank check lest their equity gets washed out in a later round.

And, judging from investor comments–Lee said he’s now seeing down valuations in more sectors than previously–the amount and valuations of convertible notes are becoming more disciplined.

“It’s feast or famine,” said Slavet, of start-up  funding. “Seed valuations fluctuate on the ability of seed companies in the previous months to set Series A funding. Seeds, in many ways, are a lagging indicator of Series A valuations.”

Write to Lizette Chapman at lizette.chapman@dowjones.com. Follow her on Twitter @zettewil

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Article from TechCrunch.

Dave McClure’s 500 Startups is looking for participants to join its next incubator program, which will run from October through January. And for the first time ever, it’s going to open the process up to allow anyone to apply. To help it get through the process, 500 Startups Accelerator will be using AngelList, making it the first incubator to leverage the platform for applications.

McClure told me that historically, the program has avoided having an open application process and instead has taken on Accelerator startups only through referrals. So far, that has worked out just fine for 500 Startups: It’s had four successful incubator programs, usually with 20 to 35 startups participating.

As a result, McClure & Co. have been able to avoid the frustrating, time-consuming process of reviewing applications. That said, McClure told me that, while referrals have helped it to find a ton of interesting startups — and avoid sorting through a lot of crap — he also recognized that he’s probably missed a few that might not have been part of his network.

That’s where AngelList comes in. The professional network for startups and investors will help 500 Startups vet applicants through a mix of algorithmic ranking and curation from mentors and others. The AngelList platform will help speed up the process by weeding out unqualified applicants. It will also allow 500 Startups to scale up the application process without having to manually review all the applications by hand.

Not everyone in the next class will come from AngelList — 500 Startups expects to choose between five and 10 startups through this process. It’s already picked a few to participate and is reviewing several others. But McClure said that it was important to open up the applications process in a way that would allow it to review companies that it might not have seen. That’s especially important because so much of 500 Startups’ focus is on startups that are somewhat non-typical, for instance those that are in international markets.

In addition to opening up the application process, 500 Startups is changing the terms of its investment for companies that have already raised some funding. Typically, it provides $50,000 for 5 percent of equity, with an option for up to $200,000 in later rounds. But companies that have raised at least $250,000 will be able to join the program for only 3 to 4 percent of equity.

The fifth 500 Startups Accelerator will begin in October, with Demo Days in late January or early February. Companies interested in applying can do so on AngelList at angel.co/500startups.

Read more here.

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