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Archive for the ‘Sillicon Valley Business Jouranal’ Category

Jan 6, 2014, 7:38am PST

Series A funding crunch be damned, VCs say full speed ahead!

500 Startups, led by co-founder Dave McClure, was the most active VC seed investor again in 2013, according to a new report from CB Insights.

Senior Technology Reporter- Silicon Valley Business Journal

Seed funding by venture capital firms hit a four-year high in 2013, according to a new report, despite growing concerns about pending Series A financing crunch.

There was $893 million invested in 843 seed deals last year, according to funding research firm CB Insights, the most since 2009.

The report only examined the seed rounds that included funding from venture firms, a growing proportion of total startup funding over the past four years.

The surge in seed funding by VCs comes despite concerns that a swelling number of startups won’t be able to attract later stage money from venture firms when they need Series A funding to grow.

The top three seed venture investors were the same as in 2012, with 500 Startups repeating at No. 1. Andreessen Horowitz moved up to No. 2 and SV Angel dropped to No. 3.

The number of VC firms actively investing in seed rounds remained level at 112, but that is nearly double the number from 2012 and almost triple the 2011 tally.

The amount of seed financing by VCs in 2013 was 22 percent higher than in 2012 and 74 percent higher than in 2011. Last year’s third quarter was the biggest in this time span, with $257 million invested across 253 unique funding deals.

The average amount invested in each deal in the fourth quarter of 2013 was $1.5 million, up 50 percent over the last four years. The median was up nearly two-thirds in that same time.

The number of seed funding deals more than doubled in two startup sectors: education/training and human relations/work force management. Funding also more than doubled in those two sectors, as well as for startups in the payments business.

The biggest declines were in photography, gaming and news.

Click here to read CB Insights blog about seed funding by venture firms in 2013 and here to see its blog about who the top VC seed investors are.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

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AngelList’s Ravikant makes urgent plea for changes in new crowdfunding rules

Vicki Thompson

Naval Ravikant grew AngelList into the world’s™s foremost meeting place for founders and funders. Now he is laying plans to broaden its mission and make money.

Senior Technology Reporter- Silicon Valley Business Journal

AngelList co-founder and CEO Naval Ravikant sees potential disaster in proposed new crowdfunding regulations and is urging others on his founders and funders networking site to speak up.

In a letter to the Securities and Exchange Commission this week and an interview with me on Friday, Ravikant warned that the agency’s new Form D filing rules set to take effect on Sept. 23 could bring “disastrous unintended consequences for the startup community,”

“The proposed rules appear to be tailored to how Wall Street raises funds, not the startup community,”Ravikant said in his letter.

“My sense is that the SEC knows that this is an issue and is not going to put into effect some of these rules,” he told me in an interview late on Friday.

The agency last month voted to allow startups and private investment groups to openly solicit money, with restrictions that Ravikant and others in the angel investor community are very unhappy about. Ravikant’s letter was sent when the agency solicited feedback before enacting the new rules.

One of Ravikant’s biggest concerns centers around the proposed penalties. He worries that proposed sanctions may be too draconian, resulting in severe punishment for unintended violations. He notes that violating the rules could result in startups being banned from fundraising for a year and that AngelList could get swept up in those penalties.

“Rules that may be easy for Wall Street are a death sentence for startups. They are easy to break accidentally and the penalty for noncompliance is severe,” Ravikant wrote.

Businesses like AngelList, incubators, and VCs that surround startups are built to avoid getting in the way of a startup’s autonomy, Ravikant wrote. “they should not be penalized for activities that a startup undertakes on their own that the business can’t control.”

He also urges the SEC not to reduce the costs of compliance and keep filings confidential.

“Startups often want to control the timing of their financing announcement and prefer not to reveal amounts raised for competitive reasons,” he wrote. “If more of the Form D information was confidential rather than public, compliance rates would jump dramatically.”

Ravikant proposes that third parties like AngelList be allowed to make SEC filings on behalf of startups and serve as a repository where startups can update information about their fundraising.

The Angel Capital Association, which represents 200 investor groups and 10,000 accredited investors across the country, last month also strongly protested the new rules.

AngelList has 100,000 startups and about 20,000 accredited investors on its platform and Ravikant’s views are quite influential among them.

The new rules are coming to implement the federal JOBS Act, which was passed and signed into law more than a year ago.

They retain the requirement that only accredited investors (those with a liquid net worth of more than $1 million) can make equity investments in private companies. They also require private companies and funds to document that their investors meet that net worth standard.

The new rules also require anybody doing a general solicitation to file a Form D with the SEC at least 15 days before starting their campaign. They must file a followup within 30 days of ending the solicitation.

Ravikant wrote in his letter that the requirements probably won’t hinder startups that can afford the bankers and lawyers that will be needed to comply.

But, he warns that “the same rules applied to early stage startups will prevent them from forming. Since young companies are responsible for most of the job growth in the US, we believe this is against the spirit of the JOBS Act.”

“Startups are constantly raising money, sometimes before they have even hired a lawyer,” Ravikant told me. “With tech startups, it’s all loose-goosie. You raise money as you go, often from friends, family and investors. These companies will trip all over these rules and break them left and right.”

Ravikant’s specific complaints:

1” “The requirement to file a Form D 15 days prior to the financing, or at the close of financing even if a financing doesn’t close, is meaningless in our world. Startups are always financing.”

2” “The requirement to formally file all written materials provided to investors with the SEC is not feasible in a world where the materials are updated continuously.”

3” “The requirement to include disclosures every time you mention a financing doesn’t™t work for most places those appear (try tweeting boilerplate legal text in 140 characters, or requiring reporters to include it in stories).”

4” “These technical legal requirements place burdens on startups at a stage before they may have legal advice, and the very severe penalty for non-compliance (not fundraising for a year) is a death penalty for a not-yet-profitable business.”

Click here to read the profile of Naval Ravikant and AngelList that was the July 26 cover story in the Silicon Valley Business Journal.

Click here to subscribe to TechFlash Silicon Valley, the free daily email newsletter about founders and funders in the region.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

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Why star VCs matter (and what doesn’t)

Joi Ito / Creative Commons license

Having a big name VC on a firm such as Marc Andreessen matters more to startup founders than being funded by a big name firm, according to a new study.


Senior Technology Reporter- Silicon Valley Business Journal

Startup founders want big-name VCs like a Marc Andreessen or a Reid Hoffman on their side, not no-name firms.

And having women on the team at the firm matters more than funders think.

Those are two of the findings of a big brand study done for the National Venture Capital Association by Desantis Breindel and Rooney & Associates.

An overwhelming majority of founders in the study said VC brand means a lot to who they seek funding from.

But they disagree strongly in key areas about what is most important in that branding.

More than half of the venture-backed CEOs in the study (57 percent) said they care most about the reputation of a firm’s individual partners. Only 38 percent said they focus on the firm’s overall reputation and a mere 5 percent care about the reputation of the firm’s portfolio companies.

The gender gap may be a result of more women founders starting up companies than there are women making partner at VC firms.

One in four founders said the gender makeup of a VC firm mattered to them while only one in 10 VCs said they thought it mattered. But two-thirds of women founders said it matters to them.

Other findings of the brand study include:

— Proximity matters: About half of both founders and funders said that being located near their funders mattered to them, with about the same number saying that firms located in Silicon Valley, Boston and New York City are most attractive.

— Friendly but not too much: CEOs said they want a VC firm that is entrepreneur-friendly and collaborative but they are turned off if the firms have too much of a hands-on reputation.

— Peer networking: CEOs said the most important activity that VC firms can provide is a summit or meeting where they can learn from other founders.

Click here to read more about the National Venture Capital Association branding study.

Click here to subscribe to TechFlash Silicon Valley, the free daily email newsletter about the region’s founders and funders.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

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Ben Horowitz warns startups: You’re worth less today, and you need to be OK with that

Andreessen Horowitz Partner Ben Horowitz says the fundraising environment for startups is particularly tough today. He says investors are increasingly pushing for more equity for less capital, and founders need to be OK with that.Andreessen Horowitz Partner Ben Horowitz says the fundraising environment for startups is particularly tough today. He says investors are increasingly pushing for more equity for less capital, and founders need to be OK with that.

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Contributing writer- Silicon Valley Business Journal

Legendary venture capitalist Ben Horowitz (who makes up the second half of Andreessen Horowitz) has a particularly bleak message for entrepreneurs raising money in the Valley right now: You’re probably worth less to investors today than you were the last time you raised money.

“If you are burning cash and running out of money, you are going to have to swallow your pride, face reality and raise money even if it hurts,” Horowitz wrote in a blog entry Tuesday. “Hoping that the fundraising climate will change before you die is a bad strategy because a dwindling cash balance will make it even more difficult to raise money than it already is, so even in a steady climate, your prospects will dim. You need to figure out how to stop the bleeding, as it is too late to prevent it from starting. Eating s— is horrible, but is far better than suicide.”

He’s partly talking to founders raising an A or B round—entrepreneurs who’ve been to the table at least once before, and raised earlier rounds at a particularly high valuation. The fundraising climate is tougher now, he says. Investors have more leverage and they’re increasingly pushing founders to accept “down rounds,” defined as funding that values their company for less than they were worth in a previous round.

“After, God willing, you successfully raise your round and it’s a down round or a disappointing round, you will need to explain things to your company,” Horowitz writes. “The best thing to do is to tell the truth. Yes, we did a down round. Yes, that kind of sucks. But no, it’s not the end of the world.”

Horowitz knows the feeling.

Twelve years ago, he and Marc Andreessen were entrepreneurs themselves, running a red-hot startup called Loudcloud. In June 2000, they raised $120 million from investors, at an $820 million valuation. By the end of the year, the dot-com bubble was popping fast, and they couldn’t raise another round. To stay afloat, they were forced to take the company public in 2001, at a $560 million valuation.

Describing that experience, Horowitz writes, “In some sense, you are like the captain of the Titanic. Had he not had the experience of being a ship captain for 25 years and never hit an iceberg, he would have seen the iceberg. Had you not had the experience of raising your last round so easily, you might have seen this round coming. But now is not the time to worry about that. Now is the time to make sure that your lifeboats are in order.”

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SEC lifts ban on open fundraising by startups, VCs, other funders

Senior Technology Reporter- Silicon Valley Business Journal

The Securities and Exchange Commission lifted a decades-long ban on open solicitation of funds by startups and fund managers on Wednesday.

The move was mandated by the JOBS Act more than a year ago, but was held up while the SEC studied how to implement the new rules.

The ban on general solicitation had forced founders and funders to solicit funds in private meetings and through word of mouth, although some new platforms such as AngelList have provided ways to be more transparent about fundraising.

The SEC said investment in funds and startups will still be limited to accredited investors whose liquid net worth is more than $1 million.

It also said that reasonable steps must be taken to assure that the investors meet that net worth standard.

Further, it will now require anybody doing a general solicitation to file a Form D with the SEC at least 15 days before starting their campaign. They must file a followup within 30 days of ending the solicitation.

It isn’t clear that established funds in Silicon Valley will start advertising since they prefer to raise money from large institutional investors.

Emergence Capital Partners founder Brian Jacobs told me, “Most VCs I know don’t want to raise money from individuals.”

Jacobs said that many VCs got started by raising money from their friends and from successful entrepreneurs but shifted to institutional backers later on.

“Those aren’t particularly reliable investors over the long haul,” Jacobs said. “Ultimately most venture funds want the stability of institutional backing.”

Alex Mittal, CEO of the FundersClub online venture capital platform, expects a wave of new offerings from funders and founders.

“In this new normal, issuers will be put under increased pressure to demonstrate the merits of the opportunities as well their own qualifications to investors, and investors will be wise to heavily scrutinize the reputation of issuers and the quality of offerings before proceeding with an investment,” he said in an email to me.

One immediate result of the SEC ruling was a satirical Twitter stream of possible hedge fund advertising slogans, such as, “Fee all that you can fee.”

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

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Jun 26, 2013

Whoever’s behind ‘My Startup has 30 Days to Live’ is hitting a chord

Senior Technology Reporter- Silicon Valley Business Journal

A Tumblr author claiming to be a startup entrepreneur is hooking techies, investors and the press with his My Startup Has 30 Days to Live blog.

Whether the anonymous author is telling a true tale, or whether he’s uncovered as the 2013 version of 2006 YouTube hoaxer “lonelygirl15,” his sad story of dashed entrepreneurial dreams is gripping Silicon Valley.

The writing has a ring of truth. The author claims to have been on the hamster wheel for about two years, getting into a top accelerator. He “hit the top of TechCrunch” and became viewed as a “rising star in the technology world,” the blog claims.

After compromising some vision for funding, the author claims to have gotten traction — but it didn’t keep the funders happy.

“I found myself sitting at my desk, afraid, alone and overwhelmed,” the blog says.

The first day’s blog ends with the author realizing he or she can’t make payroll and needing to fire the company’s first employee before he leaves on a planned vacation.

The second post, which went up today, is headlined “We’re killing it bro.”

“One of the first things you learn as an entrepreneur is that on some level, you’re only as good as your pitch,” it starts out. “The accelerators reinforce this by teaching you the art of storytelling, a skill that helps an investor sign a term sheet as much as it helps the father of a young child decide to take a pay cut to be part of something that’s amazing.”

This one could be the work of a writer hoping for a TV, movie or book deal. There is a lot of entertainment industry industry focus on Silicon Valley, evidenced by Mike Judge’s new HBO show and Bravo’s “Startups: Silicon Valley.”

Eventually, we will likely find out who is behind “My Startup Has 30 Days to Live” and will truly be able to evaluate its worth.

But for now, it has our attention.

Click here to subscribe to TechFlash Silicon Valley, the free daily email newsletter about the region’s founders and funders.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal.

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 Jun 17, 2013, 6:31pm PDT

Orchard Supply bankruptcy: What’s next?

Orchard Supply Hardware filed Chapter 11 bankruptcy. Lowe’s will pick up the majority of the retailer’s stores.

Real Estate Reporter- Silicon Valley Business Journal

Click here for more on the impact of the Orchard reorganization and what’s behind it.

UPDATE: Orchard Supply Hardware’s San Jose headquarters will largely be spared layoffs related to the company’s acquisition by Lowe’s, a spokeswoman said.

San Jose-based Orchard filed for Chapter 11 bankruptcy protection on Monday, and Lowe’s is stepping in to buy most of the company’s assets — including 60 of roughly 90 California stores — for about $205 million in cash, according to company statements issued this morning.

In a statement, Orchard said the stores would operate as normal during the restructuring and had secured $177 million in debtor-in-possession financing from Wells Fargo to continue meeting financial obligations. Orchard said it would operate as a separate standalone company within the Lowe’s umbrella after the sale is completed.

That “business as usual” status includes the headquarters on Via Del Oro in San Jose, where it occupies 75,000 square feet and has hundreds of workers.

As of Feb. 2, 2013, Orchard counted 5,360 employees, with 533 at Orchard’s San Jose corporate offices, its Tracy distribution center, or part of field operations.

In court records, Orchard said it expected “continued employment for the vast majority of the Company’s employees.”

Spokeswoman Leigh Parrish said there was no list available of which stores Lowe’s was buying. But she said current construction projects and remodels would continue as planned. Orchard also said in court filings it expected most creditors to be paid.

Commercial real estate brokers told me today they expected Lowe’s to retain most if not all of Orchard’s San Jose-area stores given the region’s strong housing market and high barriers to entry.

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