Yesterday MSFT announced their new cloud computing service, “Windows Azure.” I’m not going to get into detail here on it because it has clearly been beaten to death by much more talented writers, and I’m also a day
late to the party. However, given the recurring theme on this blog about cloud computing I feel the need to comment. I believe that the Microsoft cloud computing heralds the enterprise’s acceptance of the cloud – and that is big.
My prediction is that enterprises will dip their toes into the cloud by taking advantage of the cloud’s compute power, putting computationally intensive crunching into the cloud first. Likely this will be non-core or lower sensitive data in a non-mission critical process. As SLAs are better understood and security is, well more secure, other things like backup and redundancy will likely scoot towards the cloud. Eventually we’ll get full blown enterprise applications in the cloud.
Here is a good post on the MSFT cloud effort if you want to learn more.
One of the more important venture fund raising decisions a startup entrepreneur has to make is around their Series A VC deal syndication strategy. Specifically, an entrepreneur needs to decide if he or she wants to raise capital from a single venture capital firm or “syndicate” the investment with two or more funds at once. VC deal syndication is a pretty funny dance, with the entrepreneur trying to get VCs to converge, and venture capitalists trying to feel out each other and the company to see how/where/when an investment might come together. Given the added complexity of getting two VCs at once, many entrepreneurs consider raising capital from a single fund and screwing the whole “syndication” thing.
Venture funds of the size of Atlas (my employer), about $400 million in the current fund (Atlas Venture VII), can easily cut the check for most reasonable Series A rounds. However, most Series A rounds are syndicated. I would postulate that startups with two strong Series A VCs are in a much better position than firms that raised capital with only one VC, and have outlined some of the reasons for and against syndication at the Series A. Some of these reasons are magnified given the difficulty in the current capital markets.
(While I think most people coming to this blog are familiar with basic VC terminology, as a reminder the first institutional investment in a startup is usually called a “Series A” investment, the second is called the “Series B,” etc. Also, when I say first institutional fund raise I am specifically talking about the first investment in the startup where a formally organized venture capital firm provides some of the cash invested.)
Reasons to Syndicate:
- More potential capital for your business. There is a limit to the amount of capital that a venture fund can commit to any given startup. If your company has two VCs invested in the Series A, the theoretical amount of capital available to your startup is greater.
Little overwhelmed right now, but thought I would share two links I’ve recently come across that I’ve found quite interesting. One is on the freemium business model for startups and the other is data on recent Series A venture capital financings in New England.
Freemium is Not a Business Model, by Mark Evans. Mark is a Canadian writer/entrepreneur. The comments section here is really interesting; worth scrolling through. I agree that many startups underestimate the difficulties of making a real business via a freemium. However, enough startups have succeeded with this model that it has to be taken seriously. To prove that you’ve got a startup capable of really creating huge revenues via a freemium model you’ve got to have a serious marketing and conversion engine (that’s my two cents…)
Quarterly Review of Series A Financings in New England, by Foley Hoag. (download the pdf for the report) Foley Hoag is a respected corporate law firm. Their attorney’s provide the following commentary: “Series A rounds are getting done despite the general economic climate; and yes, they are getting done at a more modest level because of it.” “The first two quarters in 2008 saw a general decline nationally in Series A transactions (down 8% from the same period in 2007), with a more marked downturn felt in New England (down almost 30% from 2007).” Keep in mind they are using a small sample set for their analysis, but it’s still an interesting read.
It’s becoming increasingly clear that the generic advertising based web 2.0 business models are struggling, and I am wondering if lead gen business models are a much more effective model for the current downturn. Some of my partners are saying that 100 million in the new 10 million, as in a startup now needs 100 million monthly views to generate venture style revenue returns based off of a pure advertising based business model. While this is a bit of a cynical joke, there does seem to be statistically valid slipping in online CPMs, particularly around untargeted display advertisements. Targeting definitely helps, and some startups that I interact with are earning $25 to $60 CPMs… however, these are for highly desirable user groups. If you really think your startup has better targeting but doesn’t have huge users maybe you should consider using lead generation to do the monetization yourself.*
My general thought process is as follows:
- Targeting requires work and advertisers can be lazy.
Your startup can survive this recession. The stock market might be crap and financiers may be pissing themselves with fear, but other entrepreneurs before you have fought through these tough times and had tremendous success. In the light of depressing powerpoint presentations on the state of the market created by some venture firms, I thought I’d highlight companies that you may have heard of that got going when the economy was hurting.*
The Late 1930′s – Europe is at war and the US economy is limping through the Great Depression. Dave Packard and Bill Hewlett conduct some experiments in a garage in Palo Alto… and in January 1, 1939 formally launch the Hewlett-Packard Company. Yes, that’s right. The cornerstone corporation of Silicon Valley was founded during the Great Depression.
Early 1980′s –