Seed and early stage deals getting larger

PEhub is reporting on some interesting early stage/seed stage fund raising date. Seed and early stage rounds are all the rage and the number of investments is up – 464 in Q2 2011 vs 374 in Q1. However, it was flat vs the previous Q2, so I think we are seeing some of the typical Q2 deal bump.

More interesting is the fact that deal size is increasing, per the chart below:

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MSFT Loses Money to Fight Online

Techcrunch has an article on how Microsoft’s online division has lost money for the past 22 quarters. That’s a long time.

The article takes a pretty negative tone toward Microsoft. The comments seem to indicate that people think Techcrunch is continuing it’s Google and Apple lovefest and is attacking Microsoft because of this bias.

Regardless of TC’s bias towards or against Microsoft, I think the piece could be written about Google – if you replaced “MSFT” with “Google” and replaced the highly profitable “Windows and Office Divisions” with “Adwords” and replaced the loss making “online division” with “everything else at Google.” Basically, Google is still struggling to make money in other divisions that are not search and ad driven.

The battle between Google and Microsoft isn’t a battle for sissies. They aren’t fighting for second place – they are trying to destroy each other. Google doesn’t mind losing money in Chrome (OS or browser), Android, or Docs if it hurts Microsoft where their chief source of cash flow is (i.e. Office and Windows). Microsoft is willing to lose lots of money to try to make Google’s primary source of income, online search/advertising, hurt. They each also understand the importance of the other’s core divisions, and they both want a real piece. Disrupting either is going to be hard and expensive.

That’s the reason each is willing to have their profitable divisions subsidize their losses in the other divisions.

So, is this an opportunity or threat for startups trying to compete in or around these spaces?

Well, it’s a little of each, IMHO. It’s an opportunity, since if you manage to get traction in either area you have two fight-to-the-death potential acquiring companies. But it’s a HUGE threat too, because if you choose to enter one of these areas you are competing with two huge titans who are willing to make economically insane losses to get marketshare. For example – let’s say you are trying to do an email startup (this is just an example). You are competing against two companies that likely have a very different business model than you can afford. They just want users/marketshare of their email services, and the revenue and margins are not particularly relevant. So if your business model requires making money… well, you could be in a really tough spot.

To compete against either you need either an enormously better understanding of the customer, translated into a massively better product… or amazingly deep pockets.

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Traditional Internet Map Usage Shrinks

Ok, to be a little less histronic, internet map access from fixed computers (i.e. ‘landlines” if you will) shrank, while mobile map app access grew a lot. In fact, according to Comscore, it looks like internet map usage is up almost 9%, but this is totally because mobile map usage is up 39% (ie access from a mobile device and not a computer).

Are we seeing the innovation around mobile maps? Or is this space totally dominated by Google Maps? It’s hard to think of a more valuable piece of mobile real estate, although to be honest I don’t know if Google is really monetizing it all that well. I tend not to be hit by ads when I look up addresses or directions on my phone’s map app.

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35% of adult Americans have smart phone

I tweeted this the other day and got some good retweets, so I figured it was interesting to other people too!

35% is a lot, but it is also clear that there is still room to grow. (see the report here.) I don’t think we’ve yet hit the point where growth in mobile advertising will slow down (the pundits are saying mobile advertising will be $1.1 or $1.2 billion in 2011), and the itunes of the world that I continue to say is the major distribution engine for today’s most interesting startups is just revving up.

So, basically, if you are an internet startupper, it is in your best interest to have the latest and greatest smart phone. Looks like I”ll have to be in line for the next iPhone I guess!

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Fewer VCs funds raising money in 2011

The first half of 2011 wasn’t great for venture capital funds looking to raise funding. While the total dollar amount for 1h 2011 is higher than 1h 2010 – $10,419 million from $6,132 million – the number of funds raising that capital continues to shrink. My source is a PEhub article.

Number of VC funds raising capital in first half of the year

  • 97 : 1h09
  • 93 : 1h10
  • 79 : 1h11

PEhub also points out something else being hidden by the increase in dollars raised figure:

Adding insult to injury, half the amount of those funds raised — $2.7 billion -– went to Accel Partners. The Palo Alto, Calif.-based firm raised an $875 million growth fund and a $475 million early-stage fund in less than two month’s time, according to a release that Accel issued several weeks ago.

It’s not a great time to be a third tier VC…

The industry is shrinking. With fewer and fewer funds (even if the overall dollar amount invested with funds stays constant) it will be harder and harder for startups to find funding. Maybe angels will be able to fill the gap for some internet startups, but traditional VC industries like biotech and cleantech and computer/telecom equipment will be really hurt by this trend.

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