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Posts Tagged ‘VC investments’

Here is some intriguing new opportunities for iPad developers.

“Venture capital firm Kleiner Perkins Caufield & Byers said Wednesday that it is doubling a fund that focuses on the iPhone and iPod Touch to $200 million to include new applications for the upcoming iPad.

Partner John Doerr said Kleiner Perkins has exhausted its original $100 million iFund that it began two years ago. Now with the iPad coming, he said the application boom that began on the iPhone will extend into a new wave of iPad apps that transforms the way people interact with computers.

“We will move beyond spread sheets, word processors and Web sites limited by a browser to an interactive, connected world with incredible speed and fluidity,” Doerr said during a press event near its headquarters.

The public support from a respected venture capital firm lends more momentum to the launch of the iPad this Saturday and gives developers more incentive to develop dedicated iPad apps. The fund could help seed a new generation of iPad app companies that help define the device much the way early iFund recipients led the way for the iPhone.

The original iFund supported 14 companies, including the well-known Ngmoco, Pinger, Shazam and Booyah. The companies have collectively made more than $100 million and accounted for more than 100 million downloads.

Doerr said those companies have more than 20 iPad specific apps in the works with at least 11 to be released Saturday when the iPad goes on sale.

Many of the iFund companies have had a chance to work with the iPad. Some executives on Wednesday talked about how the device will create more engaging and longer experiences that require more thought and can lead to more profitable and memorable apps.

“We’re really trying to take advantage of the added real estate, and we’re trying to leverage the way users want to use the device,” said Neil Young, CEO and founder of gaming company Ngmoco, which is bringing three new games to the iPad. “The iPad has the opportunity to revolutionize gaming in the home in the same way the iPhone and iPod Touch revolutionized gaming on the go.”

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Here is a good commentary from Seattle Times.

“Don’t be surprised if you see a few limos driving slowly down Elliott Avenue, doing a little window shopping.

Big tech companies are expected to be on the prowl again for acquisitions this year, and the Elliott corridor along Seattle’s waterfront is lined with prime targets.

Actually, companies around the region could be acquired in the coming year as bigger tech companies feel comfortable that the recovery has taken hold and begin spending the cash they’ve been accumulating.

“Now that the equity market is back up they’re jumping in and catching up,” said Nat Burgess, president of Corum Group, a Bothell firm that advises companies on mergers and acquisitions. “If you look out for the next six to nine months, it’s going to be fantastic in terms of deal volumes, in terms of valuations.”

Venture capitalist Matt McIlwain at Madrona Venture Group is expecting deals to roll over the next year or two.

The biggest tech companies, such as Microsoft, Cisco Systems and Google, did a remarkable job managing costs through the downturn and may now be realizing that they “underinvested in innovation,” he said.

“To get growth and innovation, next-generation products, they’re going to have to make some acquisitions,” he said.

Interest rates are still low and the seven biggest tech companies together have $200 billion in cash and could generate $75 billion more this year, he said.

“That sets the stage for at least a 12-to-18-month cycle of acquisitions,” McIlwain said.

Deals may be good for investors, but there’s also a chance the acquiring companies will cut employees or even relocate the businesses.

Buyouts would also continue the Seattle syndrome that leaves the region with an uneven mix of tech companies — a few giants and lots of smaller ones, but not much in between. Companies with promising technologies tend to be sold before they get too big, creating a void in the middle.

But that won’t stop the pinstriped buyers from cruising Elliott with trunks full of cash.

The unusual cluster of tempting opportunities begins with F5, the crown jewel with a market valuation of $4.4 billion as of Friday.

F5 dominates the market for application delivery systems, creating what it calls “strategic points of control” in corporate networks. It’s expecting sales of about $200 million this quarter.

Rumors about F5 being sold have come and gone for years. Some analysts said the big opportunity passed in November when likely buyer Hewlett-Packard bought 3Com instead.

One of those analysts is Jeff Evenson, a Bremerton native at Bernstein Research in New York.

Evenson said F5 would be a strategic fit with a number of companies, but he thinks it could be a challenge to get a deal done.

“The most obvious buyers have an issue that I think is almost insurmountable for them,” he said.

Cisco would be a natural, he said, but it might have trouble getting antitrust approval for a deal if regulators focused on the niche F5 serves.

Within that segment of the network-switching market, the combination of F5 and Cisco would control 80 percent of the market.”

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Here is an article from SF Chronicle´s tech section worth reading.

“Intel Corp. and 24 venture capital firms will invest $3.5 billion in U.S. technology startups over the next two years, as part of a broad initiative to boost the nation’s competitiveness and create jobs.

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Here is a good VentureBeat article.

“Now that 2009 is over, we can add up the numbers on how much venture firms invested in startups during all of 2009 — and, well, it was a lot less than in the past. Over the course of the year, VCs invested a total of $17.7 billion in 2,795 deals, the lowest total since 1997, according to the MoneyTree Report from the National Venture Capital Association and PricewaterhouseCoopers.

On the bright side, the worst hit came from numbers that we’ve already reported on, since investments really plummeted during the first half of this year. Funding went up in the third quarter, and more-or-less held steady in the fourth. The amount invested went down from $5.1 billion in the third quarter to $5.0 billion in the fourth quarter, but the numbers of deals went up from 689 to 794. So VCs were making smaller bets, but they placed more fo them. Another reason for optimism: There were more seed and early-stage deals in Q4 than in any other quarter this year, so new ideas are still getting money.

Two of the industries we spend a lot of time covering at VentureBeat took a big funding hit in 2009. Internet-specific companies received $2.9 billion dollars, down 39 percent from 2008. Cleantech fell even further to $1.9 billion, a decline of 52 percent. Meanwhile, VCs put more money into biotech ($3.5 billion) than any other sector, and even then, biotech saw a 19 percent drop from 2008.

NVCA President Mark Heesen acknowledged the drop in a statement released with the report, saying, “The venture industry had no choice but to slow the investment pace in 2009.” But he also offered an optimistic view of the year to come.

“Now that the economy has begun to show signs of improvement, we expect to see dollars flow more freely back into those sectors that offered the most promise before the recession began — clean technology, life sciences and IT,” Heesen said. “The seed and early stage pipeline needs replenishing across all industries and the health of the startup community in the next decade will be dependent upon more robust first-time financings. 2010 should be the year to begin that process in earnest.”

Read the complete article here.

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Here is some interresting thoughts from MondayNote.

“Limited Partners, LP, institutions or individuals put money into the fund. We, the General Partners, GP, make and manage the investments and we split the profits with the LP as the sole compensation for our services.

Over time, the split has varied with the industry’s prosperity and the fund’s reputation, it went as high as 35% of the profits for the GP but, as this WSJ story belatedly explains, is now back to about 20%. In our vernacular, that number is called the Carried Interest or, for short, Carry.
A second number, the Management Fee, needs a bit more elaboration.
As the Carry did, it varied and went up to 2.5% of the fund’s capital; it is now pegged at a fairly standard 2% per year. The Management Fee provides the money needed to run the firm’s operations, pay the rent, associates’ salaries, travel expenses and the like. It also provides fodder for misunderstandings.

The Management Fee is a loan, not a stipend. For the GP to get its 20% of the fund’s profits, both the capital, the money invested by the LP and the Management Fee must be repaid first.
When funds become very large, say a billion dollars or more, the Management Fee gets correspondingly large and can encourage spending habits, thus generating criticism the GP is more interested in the fee than in making money for its investors.
But, you’ll object, the advance must be repaid before profit-sharing kicks in. Yes…, and what happens if the fund doesn’t make money? Are the LP losing money while the VC enjoys a good time, living off the Management Fee? The answer depends upon the way the fund agreement is written. If it contains a Clawback clause, the GP is obligated to return the “unearned” fee. As you can imagine, this leads to interesting exchanges during the fund’s formation and, much later, if it turns out it loses money.

To summarize: profit sharing (Carry) of 20%, a yearly advance of 2% of committed capital (Management Fee), to be repaid before profit sharing kicks in.

Let’s move to the heart of the matter: making investments. Here, let’s focus on a basic, oversimplified but usable formula:

We like to invest between $3M and $15M to end up with 20% of a company worth $250M when it “exits”.
“Exit” can mean going public through an IPO (Initial Public Offering). IPOs are rare these days, they’ll come back when the economy does. In the meantime, exits are achieved through M&A (Mergers and Acquisitions) deals, that is the company is sold to a larger one such as Cisco, Google and countless others who thus get access to valuable technology and/or people. In may respects, we, the VC, have become an engine of “externalized” R&D, of technical innovation for larger companies. We make and manage speculative investments in riskier technologies on the big companies’ behalf. This is a meaty topic all unto itself, maybe for a future Monday Note.

Going back to the numbers, they need three qualifications. First, they’re only valid for a mid-size fund, in the $200 to $400M range. Larger funds, billion of dollars, can’t make “small” $5M investments, they deal with bigger projects requiring larger amounts of capital such as infrastructure investments, semiconductors or biotech.
Second, the $3M to $15M bracket covers the total amount poured in over the life of the investment, that is 2, 3 or more rounds, over 3, 5 or more years.
(Add to this we never invest alone, for financial reasons, more capitak, and psychological, we don’t want to “fall in love”, a small (2 to 5) group of investors, called a syndicate, provides more viewpoints, more objectivity.)

Lastly, the $3M, $5M, 20%, $250M set of numbers is a neat simplification, reality gets much more complicated, from outright failures, to so-so, middling results, to the occasional “out-of-the-park” success. It’s not called venture capital (capital risque in French) for nothing.
If we invest “only” $3M and get 20% of $250M, that is $50M, this is more than 15 times our investment. If we risk the “full” $15M, we get about 3 times our money. Either way, it looks good, even if you keep in mind a few hard failures.
But you need to introduce time: how many years did the adventure take? 3 times your money over 7 years yields “only” 17% in compound interest, but 44% if the exits happens after 3 years. (Readers interested in geekier Excel simulations of cash-flows can go back to the May 17th, 2009 and May 24th, 2009 Monday Notes.)

The permutations, the possibilities for success and failure are, pardon the bromide, endless; they make our profession so fulfilling as it engages so many dimensions of human endeavor, from technology to psychology, from the fleeting desires of customers to the hard realities of time-expiring cash.”

Read the full article here.

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