Posts Tagged ‘Venrock’

Article from SFGate.

It’s suddenly a lot harder for venture capitalists and startups to raise funds, as investors fed up with low returns turn their backs on the sector.

Most industry observers agree that lots of young firms will simply not be able to raise their next round of funding, commencing a period of belt tightening, consolidation and closures. At a minimum, it seems to mark the beginning of a more level-headed investment climate in Silicon Valley, after years of insatiable lust for all things mobile and social.

But if the drop-off is too sudden and steep, this new austerity could spill over into an economy highly dependent on the tech sector. Indeed, as The Chronicle reported last week, the industry has an enormous impact, with each tech job creating 4.3 indirect jobs in the community, according to a Bay Area Council Economic Institute report.

The investors and venture capitalists I spoke to insisted that we’re not on the verge of anything like the dot-com meltdown, characterizing the shift as a minor and healthy correction, or a “rationalization.” One suggested it was little more than the usual process of separating good and bad ideas in the marketplace.

But the numbers suggest something new is afoot. In the third quarter, the amount that U.S. companies raised in venture capital dropped 32 percent from the prior year, according to Dow Jones VentureSource. Venture capital funds themselves raised 17 percent fewer dollars from the second to third quarter, even as the number of funds grew, according to a joint report from Thomson Reuters and the National Venture Capital Association.

Economic uncertainty

Some partially blame the economic uncertainty surrounding the outcome of the election and the “fiscal cliff.” But the main problem seems to be that many of the “limited partners” that fund venture capital are pulling back after years of frustration.

Ever since a brief period in the late 1990s when venture capital burned bright, the industry has been delivering consistently weak returns on the whole.

In fact, despite requiring greater risks and larger capital outlays, venture capital has been underperforming the stock market over the past decade, according to a report this year by the Ewing Marion Kauffman Foundation.

Joe Dear, chief investment officer for CalPERS, told Reuters this summer that venture capital “has been the most disappointing asset class over the past 10 years as far as returns.” The huge pension fund for California’s public employees didn’t return repeated calls from The Chronicle.

Investment horizons have steadily spread out, from five to 10 to sometimes 15 years, as exit opportunities like acquisitions and initial public offerings fail to materialize. This has sometimes forced investors to put in more money to protect their initial funds.

‘Pretty grumpy’

“The industry definitely, for the last decade, has been a tough place to be,” said Ray Rothrock of Palo Alto venture capital firm Venrock. “We’re all pretty grumpy right now.”

Some of this is due to macroeconomic conditions outside the control of venture capitalists, notably the housing and banking crises. But at least some of it has to do with poor picks and herd mentality, funding companies with few real prospects and driving up the entry price for legitimately promising companies beyond what they could pay off.

“The market overfunded the number of companies in the system,” said Hans Swildens, founder of Industry Ventures in San Francisco. “There’s a glut.”

Even the grand promise of Web 2.0 companies that lured so much recent money hasn’t generated the hoped-for returns. The ones that managed to go public were often disappointments, including Facebook, Zynga and Groupon, in some cases leaving late-stage investors underwater on their holdings.

That was a final straw for some.

Last week, Forbes dug up figures from CB Insights that highlighted a wide and growing gap between the number of companies that raised initial funding and companies securing the follow-on investments, known as a Series A, generally necessary to keep going. This year, there have been 1,747 seed or angel rounds but only 688 Series A deals, underscoring the coming crunch.

Bad businesses

Based on as scientific a survey as the PR pitches in my inbox, there’s a tremendous number of silly, redundant and poorly executed companies out there that don’t warrant additional funding. The real problem isn’t that many of these companies won’t raise more money; it’s that they raised money in the first place.

For the venture capital industry to get back on track, it needs to embrace a renewed sense of discipline – on company picks, deal terms and total spending.

But hope springs eternal in Silicon Valley.

Rothrock stresses that the industry’s trend-line averages mask very strong results and ongoing investment at top firms, as well as growing venture capital activity among corporations like Google. Companies are just being more selective and looking beyond consumer Internet opportunities.

“We’re steady as she goes in terms of funding enterprise,” he said.

Secondary opportunity

Swildens oversees a secondary fund that buys shares from limited partners and venture firms looking to liquidate part of their holdings. He sees this period as a ripe opportunity for bold investors to get into promising companies at suddenly reasonable rates.

“Ours is one of the few firms aggressively putting money into these funds,” he said.

Mark Heesen, president of National Venture Capital Association, is similarly optimistic. He says the industry could be primed for a strong comeback in 2013, as long as the broader economy strengthens.

Above all, what the industry needs are some wins – acquisitions or initial public offerings that put investors clearly in the black and start to restore some lost confidence.

“If we see these exit markets start to generate good returns, I think you’ll see limited partners look at this asset class again,” he said.

James Temple is a San Francisco Chronicle columnist. E-mail: jtemple@sfchronicle.com Twitter: @jtemple

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Article from SFGate.

“Here’s how effortless it is to move your digital music collection from Apple’s iTunes software to Amazon’s new Cloud Drive music service:

1. Visit Amazon.com, enter your user name and password, and find the link that says “upload files.”

2. Agree to the terms of service and solve a Captcha, one of those tricky image-recognition puzzles that prove you’re an human being.

3. Download Amazon’s MP3 uploader software, which scans the music on your hard drive.

4. Select about 1,000 of the gazillion songs you own and mark them for upload.

5. Wait around six hours for the upload to finish.

6. Download Amazon’s separate Cloud Player app for Android to stream that music to your phone, or use a Web browser to listen to it from any PC.

Sounds easy, right?

Welcome to the awkward stage of the digital music revolution. Online song sales have stagnated, depriving the endangered music industry of one of its last remaining lifelines. Yet digital music continues to be a vital battleground for Google, Apple and Amazon to try to lure users to their other devices and online offerings.

Now, Jeff Bezos & Co. have boldly tried to leapfrog Google and Apple in the quest to liberate people from the decade-old practice of buying and downloading digital songs to a computer and then manually transferring them between devices.

The idea behind “cloud music” is to let people stream their music collections from the Web to any computer or device. Analysts believe such services are inevitable – even if Amazon stumbles.

“Having access to your music on all your devices has to be the starting point of any next-generation music service and product,” said Mark Mulligan, an analyst at Forrester Research.

That’s the vision, but right now, the convoluted uploading process is the result of key trade-offs Amazon made to get to the cloud music market before its rivals.

Licensing deals

First, major labels want new licensing arrangements for cloud services and a bigger cut of the online music pie. Their demands have slowed down the introduction of cloud music features, and Amazon designed its service without their permission, instigating a wave of complaints from Sony Music Entertainment and Warner Music Group.

“We’re disappointed by their decision to launch without a license,” said Brian Garrity, a spokesman for Sony.

Bill Carr, Amazon’s vice president for music and movies, claims Amazon “highly values” its relationship with the labels, but compares uploading songs to the legally harmless practice of attaching a hard drive to your PC and transferring music files to it.

Amazon primarily designed a service to comply with copyright laws – not to make shifting music to the cloud seamless. Amazon requires users to upload their own copies of songs that it could more easily supply from its digital store. Services like MyPlay and Mp3tunes have tried the same basic approach over the years. None attracted many users.

Amazon, which controls only about 13 percent of the digital music market despite four years of battling iTunes, apparently believes it has unique advantages in the coming cloud music battle.

Thanks to the massive server capacity backing its successful cloud computing business, in which it rents computing power to other companies, Amazon can offer its streaming music users 5 gigabytes of music storage for free, or 20 GB if they buy just one album from Amazon. The company is also prominently advertising the service on its home page.

“We observed from our other digital media businesses that buy-once, play-anywhere really resonates with consumers,” Carr said.

The service Amazon released last week has been criticized for being difficult to use and incompatible with Apple iPads and iPhones.

Not social

“There’s nothing social about it. How can you launch anything on the Web today that doesn’t integrate social?” said David Pakman, the former chief executive of eMusic and a partner at Palo Alto venture capital firm Venrock.

David Hyman, founder of Berkeley music subscription service Mog, says of Amazon’s cloud offering: “It’s a stepping-stone. This is Amazon putting its feet in and testing the waters.”

So what does the future of cloud music look like? Google, Apple or Amazon might finally get the major-label licenses that will allow them to make storing music collections in the cloud seamless for users. (Instead of uploading each song, the service could simply scan the names of songs in a collection and reproduce them in the cloud.) Or subscription music services such as Mog, Rdio and Rhapsody that offer unlimited access to a broad catalog of Web-based music for a monthly fee may find the mainstream success that has long eluded them.

Such an unlimited cloud music offering may be Amazon’s ultimate goal; Carr doesn’t rule out developing a music subscription service and offering it for free to members of Amazon Prime.

“This is an exciting Day One,” he said of Cloud Drive. “We always have an open mind.”

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Here is an excellent article I found at NY Times blog section.

“For a group accustomed to looking outward for the next big thing, Silicon Valley’s venture capitalists are getting very introspective these days, The New York Times’s Claire Cain Miller writes.

Much of the soul searching along Sand Hill Road in Menlo Park, where many of the venture capitalists have offices, is leading to the same conclusion: venture capital needs to go back to basics. The biggest names in the industry are concerned about low returns and are blaming several factors: funds that have grown too large, the M.B.A.’s that have invaded the industry and older partners who have lost touch with what is new in technology.

“I personally believe and I think the evidence proves that the venture industry has gotten too big, the funds have gotten too big,” said Alan Patricof, an investor for 40 years, who backed America Online and Apple, at a recent venture investing conference in San Francisco. “Our biggest challenge today for venture capital is to think smaller.”

Mr. Patricof is part of a growing chorus of voices calling for the amount of money in venture funds to shrink drastically to levels last seen two decades ago. His firm, Greycroft Partners, is taking a retro approach with a $75 million fund that makes smaller investments.

Many in the industry predict that a third to a half of the 882 active venture capital firms could disappear, if only because poor returns will force underperformers to shut down. It is already happening: Investment in venture capital funds shrank to $4.3 billion in the first quarter, from $7.1 billion in the same quarter a year ago.

There will be “a ton of venture capitalists who disappear over the next 18 to 20 months, and it’s going to be painful for a while,” Bryan Roberts, a partner at Venrock, told The Times. “But the best thing that could have happened to V.C. is this economic crisis, because it’s lowering the flow of capital into these funds.”

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