Startable – Healy Jones’ & Prasad Thammineni’s Blog

I hope that this post will be helpful to you as you prepare to meet with a venture capital firm’s EIR. This is the second of three posts about entrepreneurs in residence at venture capital funds and how you might interact with them during your VC financing process. The first is a general introduction to the concept of an entrepreneur in residence and the third will be some tips for your interactions with an EIR.

Preparing to meet with an EIR

The better your discussion with the entrepreneur in residence goes, the better your chances at raising venture capital. Here are some things to prepare before your meeting:

1. Research the EIR’s background. By knowing their bio/background you can get a feel for the lens they will use to think about your business. They might have something knowledgeable to say about some aspect of your startup or have some connections that could be useful to you. Try to take advantage of this. Also see if you can understand where they had difficulty, as they may attack similar parts of your business plan.
2. Figure out how the EIR could fit into your startup. Remember that the EIR’s primary goal is likely to be finding a company to run. Assuming that there was a good fit with your startup, what role would you like to have them in? Get ready to ask questions around this particular function (at the right times during your discussion)… you may get some good advice and they will get to show off their experiences.
3. Search for shared connections with the EIR.  Read the rest of this entry »

2008 proved to be solid from an online advertising perspective, showing impressive growth according to the 2008 Internet Advertising Revenue Report, released by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers LLP. $23.4 billion was spent on online advertising last year, up from $21.2 billion in 2007 – a 10.6% growth rate. 

I am still digesting the report, but there were a few interesting tidbits. As you would expect, search really grew robustly last year by almost 20%. Display also grew by 8%, not bad considering that overall advertising supposedly shrank last year. Digital video advertising grew by over 125% to $734 million – still a small amount, but moving quickly into becoming a real category.

A couple of other interesting items:

Approximately 57 percent of 2008 full year revenues were priced on a performance basis, up from 51 percent reported in 2007.

Approximately 39 percent of 2008 full year revenues were priced on a CPM or impression basis, down from 45 percent in 2007.

and

Financial Services advertisers represented the second-largest category of spending at 13 percent of 2008 full year revenues or $3.0 billion, down from the 15 percent ($3.2 billion) reported in 2007.

Automotive advertisers accounted for the third-largest category of spending at 12 percent of 2008 full year revenues or $2.8 billion, up slightly from the 12 percent ($2.5 billion) reported in 2007.

How did auto manage to increase ad spending while financial services shrank? I guess we know who is using their bailout dollars to try to sell their product vs. having it sit on their balance sheet…

Of course, none of this mitigates the fact that venture capitalists are not very interested in investing in pure “advertising” based business models (i.e. sites trying to generate their revenues off of their users’ eyeballs…)

Forrester, as mentioned in Adweek, recently found that 75% of advertisers have budgets of less than $100k for social media in 2009. However, the study also suggests that just over 50% of advertisers intend to increase their spend on social media this year, while only 5% will decrease it.

Startups seeking venture financing need to realize that VCs are pretty skeptical these days around using destination social media sites with ad-driven business models. Advertising focused startups that are succeeding in raising financing are like Quattro Wireless (just raised $10M) – infrastructure type plays that are providing platforms or tools used to advertise across multiple sites.

Here are a couple of interesting links I found today; too busy for a real post:

Google’s search share up to 72%

Well, not too surprising. At the bottom the article also notes that longer searches are increasing in frequency. Wonder what kind of implication that will have on online paid search results/key word purchases?

How to make display ads suck less

Funny title to an article addressing a real problem – display advertising is often lacking in the creative department. I heard this several times at the OMMA conference a few weeks ago. Agencies and advertisers want to have better and more targeted display ads but don’t know how to create it. Although, I wonder if they would know enough to buy it if there was a technical solution to the problem…

There has been a lot of talk recently on Yahoo’s reorganization and impending doom. I agree that the company faces some really challenging times. The ad market that they generate their revenue from is going to shrink this year. But I think that the rumors of Yahoo’s impending death are a bit premature. Here are my:

5 Reasons why Yahoo isn’t going to die

1) Solid #2 in search

Ok, I know, I know, Yahoo’s search results are not as good as Google’s. That’s why I don’t use Yahoo for search… but still, they have a solid number two position in the search market. Which means they should have enough data to improve. From Comscore’s January 2009 search engine rankings: 

Google Sites led the U.S. core search market in December with 63.0 percent of the searches conducted, followed by Yahoo! Sites (21.0 percent), Microsoft Sites (8.5 percent), AOL LLC (3.9 percent) and Ask Network (3.7 percent) 

Yahoo has the number 2 slot in what may be the most important industry in the technology industry. Come on people, they should be able to do something with this!!

2) Ad powerhouse  

165 million unique visitors through their ad network in December, the number two position to Platform-A. Reaching something like 87% of the US internet population. Recent innovation from this group bodes well for the company as a whole. Their new ad retargeting solution is really pretty darn cool. It uses data/views from search and display ads to generate better targeting/ROIs for advertisers. If only the search group could innovate like this. Read the rest of this entry »

According to a report by the Pew Internet American Life Project, the internet is “maturing” (that was a pun) as older users begin to more aggressively spend time online. The biggest group of new internet users since 2005 is the 70-75 year old category. The Center for Media Research has a great summary of the reports findings. 

The Pew report points out that older age groups use the internet more for transactional services, such as research, shopping and banking. Younger groups are more focused on networking/hanging out.
However, more mature age demo’s are getting into the online entertainment phenomena too:

Some 13% of G.I. Generation internet users (age 73+) reported downloading videos, up from 1% in 2005, and another 13% of the online Silent Generation (ages 64-72) say they download videos, up from 8% in 2005. 

That is a pretty serious data point for people making the case for online videos becoming more and more mainstream. Perhaps the era of true on demand entertainment will actually reach all generations of Americans!

The report is an interesting and quick read, and may contain useful figures for entrepreneurs building an internet based business. You should check it out!

There has been a lot of blogging on the new realities of venture capital industry (Fred Wilson’s “Is the “Traditional” VC Model Broken?” is probably the best). Venture capitalists, journalists and experienced founders of technology companies have begun to internalize that the go-go late nineties were a blip and that we’ve entered a new model of making money (or not making money) from startups. However, there is another group of professionals impacted by this new technology/funding landscape, and that is the option-granted employees of technology startups. Has the world come to grips with the new reality of stock options for employees of technology startups?

The new reality of stock options

The financial upside of stock options is not as rosy as it once was. Fred Wilson talks a little bit about the new exit landscape in the post I link to above; $100 to $250 million exits for VC backed companies have somewhat replaced the $1+ billion exits we saw during the dotcom boom. (I’m going to ignore the whole expensing of stock options, even though it is something that I hate.  While I enjoy picking on the accountants as much as anyone at the NVCA, these rules are only part of what has made technology options not as valuable…)

A $100 million exit, for a company that have conservatively raised VC, can result in a good outcome for the founder. Not amazing, but getting a few million dollars taxed at a capital gains rate is nothing to scoff at. However… the sad but true fact is that most employees of technology startups will not become stinking rich off of their stock options if the trend of $100 millionish exits persists.  In fact, that employee might be able to buy a nice Subaru or something. In other words – it’s not jet money. 

Read the rest of this entry »

US eCommerce sales supposedly shrank by 3% in the final months of 2008, according to the “comScore 2008 Digital Year in Review.” (You’ll have to fill in a form to get the report, but I’d recommend it - I like this report because it has some pretty compelling charts on eCommerce spending, online traffic growth by categories, search trends, online advertising, online video and mobile.)

eCommerce hits the skids

I’m going to blatantly copy one of the reports charts on US online spending and hope that the content police don’t yell at me: 

The poor US consumer, and the even poorer US eCommerce company who ramped up their capacity for the holiday season. I sense a coming shake-out in the middle market online retail business.

Techcrunch is reporting on Facebook’s new “opener” API. Facebook is trying to encourage outside developers to create tools and applications that play off of the status update on Facebook, similar to how developers have embraced Twitter and created many useful tools like TwitterBerry and Twhirl. 

I can remember how, about a year ago, a typical venture capitalist question to web startups was “what is your Facebook strategy?” That irrational Facebook exuberance has been replaced by an understanding that FB and Twitter are more of marketing tools than anything else for most web companies.

I feel that Twitter’s status updates are evolving into more of a useful marketing channel than Facebook. I’m not personally sure if it is because of the differences between the two services’ APIs… My theory would be that Twitter is benefiting by the different type of relationship that the service fosters. While Twitter encourages simple, very public interactions between people with little to no off-line (dare I say “real?”) relationships, Facebook is based on dialogs between more deeply connected individuals. Thus, I follow people on Twitter I would not have a relationship with on FB (such as IBM’s Center for Social Software, ctr4socialsoft – sorry IBM, you can’t be my Facebook friend). 

Would love to get other people’s opinions!

As I found out this morning, there are actually entrepreneurs who read this blog, so Happy Thanksgiving to all of you! I’ll be off the grid until next week, so don’t let the markets fall further apart while I’m up in rural New Hampshire.

-Healy