iControl Networks, a Palo Alto, Calif.-based startup working on broadband-based home security solutions, said today that it’s raised $23 million in third-round funding from investors including Cisco (s csco), Comcast Interactive Capital (s cmcsa), GE Security (s ge) and Tyco International’s ADT Security Services. Existing investors Charles River Ventures, Intel Capital (s intc) and the Kleiner Perkins Caufield Byers iFund also participated. The funding highlights how the wider availability of broadband and faster speeds are enabling a new business opportunity for broadband providers. Read More about iControl Gets $23M Thanks to Better Broadband
Venture firms were still shy about making investments in startups during the second quarter of 2009, and the industry as a whole will likely return to 1996 funding levels, with VCs investing between $11 billion and $14 billion for the year, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association. Venture capitalists put $3.7 billion in 612 deals in the second quarter of 2009, a 42 percent drop in deals from the same period last year, and a 51 percent decrease in dollars, based on data provided by Thomson Reuters. Read More about VC Funding Heading Back to Pre-Bubble Levels
When in doubt, diversify. That’s the underlying logic behind diversifying. The benefits of diversification with respect to risk come at a cost — that of losing whatever edge you might have been able to gain from skill. If you seek extraordinary performance, focus on what you know very well, have conviction and take a stand. It’s the right way to build a product or to build a company.
Wireless dealmaking has remained a fairly bright spot during the recession, according to an overview of venture investment and M&A in the industry released today by Rutberg & Co. The boutique investment bank focuses on digital media and wireless deals, and says it’s seen the dollar amount of deals in the wireless industry fall to $1.2 billion, a 43 percent drop from the first half of 2008. The number of deals, meanwhile, fell 31 percent, to 121. The most active investors in the space? Qualcomm (s qcom) and Intel (s intc).
Qualcomm is defending its mobile turf against Intel’s encroachment, and strategic investments appear to be a weapon both are deploying in an attempt to get an edge. Read More about Intel and Qualcomm Are Dueling With Dollars
The majority of second-round-and-later venture funding deals during the first quarter of 2009 showed a decrease in valuation. Fifty-one percent of the financing during the period were so-called down rounds, which means the price per share of a new security is less than the price of the security issued in the previous round, according to data from Wilson Sonsini Goodrich & Rosati, a tech law firm. Essentially, the business is worth less to investors. Check out the chart from the WSG&R Summer 2009 newsletter:
The data points to what we already know — the irrational exuberance appears to be leaking out of the venture industry as exits stay scarce and returns stagnate. Read More about VC Valuations: What Went Up Has Come Down
[qi:101] Balancing the interests of investors and entrepreneurs is an ongoing topic of discussion in Silicon Valley. But while numerous efforts to create new types of investment classes aimed at removing this imbalance (for examples, see the Founders Fund, Adeo Ressi’s The Funded and the newly launched SharesPost) have recently emerged, they fail to address the root cause, that of founders and investors being trapped in illiquid investments. Seeking downside protection, such as liquidation preferences, makes sense as investors are being asked to take a long position that could range from years to never. This problem is compounded by the fact that it’s very difficult to value early-stage companies, especially in industries like information technology and cleantech, in which there are so many external factors at play.
What’s needed is an instrument — call it Class R stock — that’s halfway between a conventional investment and a loan. Read More about Class R (Revenue) Stock: A New Class of Investment?
The venture capital industry needs shave about $13 billion a year from its investments in startup companies, writes Paul Kedrosky in a research paper released today by the Kaufman Foundation. The report not only offers data showing how the U.S. venture capital industry is too big, but links such size to depressed returns. It’s a data-rich, authoritative look at the issues I wrote about yesterday after the NVCA released a survey that shows how ill-adapted many venture firms are to the changed world of technology investing. Read More about Kedrosky: Cut the VC Industry in Half
After a period of “looking inward,” venture firms are ready to start putting money to work during the second half of this year, according to Terry McGuire. The co-founder and managing general partner at Polaris Venture Partners spoke on a conference call today detailing the state of the global venture capital industry — a state that isn’t rosy, even if the folks on the call tried hard to avoid saying that. The call, sponsored by the National Venture Capital Association and Deloitte, highlighted a survey of 725 venture capitalists around the world that determined that the economic downturn has made Asia a more attractive market for venture firms, and that larger venture firms are more likely to focus on late-stage investing and decrease their investments in new companies overall.
In a series of charts, Mark Heesen, president of the NVCA, showed how now is a terrible time for early-stage companies looking for venture capital. The presentation also made me wonder if greed and complacency have broken the industry by allowing too much capital to flow into it. Read More about Don’t Blame Venture Woes on the Economy; It’s the VCs’ Fault
In 1964, Justice Potter Stewart, who was having difficulty explaining what exactly he meant by “hard-core” pornography, famously said, “I shall not today attempt further to define the kinds of material I understand to be embraced…but I know it when I see it.” When entrepreneurs ask investors what they’re looking for in a startup, the response they get is often something along the lines of “traction.” And when asked to describe traction, most investors channel Justice Stewart, saying only, “I know it when I see it.”
Investors seek to take on the risks they can control and minimize the rest. The biggest unknown variable in the risk equation is usually the market, as in, “Is there even a market for your product?” This is especially challenging when it comes to products aimed at consumers, as you cannot possibly speak with several million people to get their feedback on a product before it’s even launched. So investors want to see enough usage of your product to give them confidence that there is both a big enough market to generate a large exit, and that you have nailed the product/market fit. That is what we mean by traction.
Misunderstanding the objective of traction, a number of Silicon Valley entrepreneurs have mastered the art of driving millions of people to a site or application regardless of whether the product solves a real problem or not. At best, this approach skews the data used to discover if a product is getting the kind of usage that would indicate there’s a big enough market for it. At worst, it’s spam. Read More about Hacking Traction: The Dark Side of Marketing Optimization
Updated with additional details: Rajeev Motwani, one of the savviest angel investors in Silicon Valley, a Stanford professor and most importantly a close and personal friend passed away earlier today. My feelings and thoughts on the passing of one of the quiet influencers of Silicon Valley.