Startable – Healy Jones’ & Prasad Thammineni’s Blog

Groupon is getting ready to go public… and it might happen below the prices the company was getting in the private stock markets. This is going to test my thesis that there will be lawsuits after the secondary markets companies start going public for less than they were “worth” privately…

And here you can read a piece by Henry Blodget on what he thinks Groupon will be worth once it goes public. Henry is suggesting a $10 to $15 billion valuation… supposedly Groupon was valued as high as $30 billion or so earlier this year.

Wait a second!

The MoneyTree/PWC Q2 venture capital dollars by region shows Boston still on top over NYC for dollars invested in Q2 2011!

NYC vs Boston VC investments

This does not mesh with the data from CBinsights that was released just a few days ago.

I’ve reached out to my contact at CBinsights to see if he has any info on this. I bet there are just some differences in how the data is collected. But in the PWC data above New England is quite a bit over NYC.

At the end of the day this doesn’t really matter too much as long as all the regions software investments are up. I don’t believe that this is a zero sum game, and there can be multiple regions outside of the valley that have thriving internet hubs. NYC and Boston should both be among these. I dream of a interconnected Northeast coast internet hub from NYC to Boston along the Acela route… it makes sense give how connected these two regions are that startup talent, dollars and ideas flow along the coast in a giant melting pot of new startups, people and exits.

MoneyTree/PWC just released Q2 venture capital numbers – and the high level amount of VC investment in Q2 isn’t looking good.

But Software VC dollars are up.  So is IT services.

Software VC Dollars

In fact, according to PEhub, “Countering the decline was 23% jump in funding to software startups. With $2 billion invested – 29% of the total – the sector generated the highest quarterly investment level in 10 years, or since the fourth quarter of 2001.” Dollars per software startup was also up a lot.

By stage of development there are some interesting numbers as well… one is that seed investing seems to have taken a dip. Not too surprised – we’ve read a lot about the seed crunch recently. The good thing is that the early stage dollars are hanging in there, so the best seed deals seems to continue to get funding… (I hope.)

Lots of reports of the end of Massachusetts as a startup hub due to the fact that NYC raised more venture funding in Q3 2011 than Boston.

First of all, I am not upset that New York is becoming a real startup hub. Let’s got those technologists out of the backrooms of hedge funds and out there making some awesome products that people can actually use!

Secondly, I don’t think that there is a zero sum game here; if more and more companies do well there should be enough capital to go around.

Third, Mass has been huge in healthcare investing and has been less than stellar in Technology investments for a while now. As healthcare venture capital investments have dropped pretty agressively it makes sense that Massachusetts would dip.

IMHO, the thing that Massachusetts needs now to get it’s tech/internet mojo back is to have a few major exits take place – followed by the employees of those companies starting the next generation of startups + the local VCs recycling money back into the area.

I see some great companies in Boston that are ripe for doing just this. I hope that we see success with a few of them and can get the startup juices flowing again. I feel that the NYC to Boston Acela line could be the next startup super cluster, and I’d like Boston to pull its weight. Check out the CBinsights report for all the details; it’s the source of these charts.

While we all knew that VCs are actively investing in startups, we now have some solid data from two of the most important law firms that help startups – Cooley and Fenwick. I think it’s great these two firms release reports on the aggregate level data the collect during their work. They have both just come out with info on the second quarter 2011, and it’s both positive and pretty interesting.

Cooley’s Q2 report is here, and Fenwick’s is here.

2011 Q2 VC Activity

Valuations are solid! According to Cooley, “Average valuations for Series A deals were $8 million, a level not seen since Q3 2010.”

Coley is also reporting that the average startup’s Series A valuation was $8 million, and Series B was almost $22 million.

Follow rounds are healthy! Here are the % of rounds that up, according to Fenwick (this means that the subsequent round of financing for any given company increased from the previous. For example, comparing Series B to a previous Series A for the same company.

Both reports are packed with info worth checking out. Again, thanks to these firms for helping keep the entrepreneurial community up to date on the VC economy.  You can also read peHUB’s reaction to the reports (and thanks to them for tipping me off to the reports.)

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.

A really great startup investor and CFO, Mark MacLeod, recently let me know that his fund, Real Ventures, is hiring for a junior VC.

You want to work there. Click here for access to the entire job description and to apply. I’m not at all involved in the hiring process, so don’t email me your resume or anything. If I was a little younger and not currently having a ton of fun with OfficeDrop I might apply myself! And I’d finally get to use my French language skills in a business context…

Here is a little bit about what they are looking for, from the job description on their site:

Preference for someone with a technical or software programming background

- Strong excel modeling skills a plus

- Bilingual (French / English) a plus

- Strong analytical skills

Ideal Person:

- Excellent communication & listening skills

- Creativity and high energy

- Aggressive, self starter

- Passion for new technologies – an active user of web and mobile applications

At the Associate Level (additional requirements):

- Previous experience (~2 – 4 Years) in a venture backed or private equity / venture capital role. Must have some prior equity based transaction experience

- Thoughtful about the ever changing web and mobile landscapes

- Strong network in the startup World

2 quick links

1) The definition of a venture capital fund – from the SEC

The only people who’s definition of a venture capitalist matter are the SEC and investors in private equity funds. And, well, the SEC just decided what a venture capital fund is. I’ve been following Dan Primack as he writes this one up. See the definition here.

2) Apps rule; the web is dead

Scroble has a solid piece on how it is clear that apps are beating the web, yet many tech industry experts are not willing to believe it. His basic point is – look at how normal people use their devices, and you’ll see that it is totally app centric. Ignore users preferences and workflow at your own peril. Check out my last post on app usage surpassing web browsing for more data…

Interesting post today by Mark Boslet of PEhub on secondary markets and lawsuits. Specifically, can private companies take steps to shield themselves from lawsuits by disclosing private info such as financial results? Hmm. Wasn’t part of the reason to not go public the fact that you don’t have to disclose this stuff?

According to Mark’s piece:

“I think companies are saying, ‘I do want some information out there so there won’t be disparities of information,’” says Francis Currie, a partner at the law firm of Davis Polk & Wardwell.

According to Currie, the information most appropriate for disclosure includes a list of material risks facing a company’s business and recent financials, but not projections. The Securities and Exchange Commission hasn’t yet weighed in on the topic, but it is examining issues associated with secondary market trading, particularly the 500 shareholder threshold that forces private companies to disclose financials and other data. So more clarity could come from the SEC over time.

I have no idea why this subject fascinates me so much. I think it’s because we are seeing the evolution of a new type of stock exchange in response to market and regulatory pressure. Pretty cool stuff.

It is becoming a big deal in the Boston ecosystem when another VC decides to leave “Mount Money” aka Winter Street in Waltham for trendier digs in Cambridge. Scott Kirsner has a recent post on ATV preparing to move to Cambridge to be closer to the startup action.

I don’t think it’s a big deal if the remaining venture capitalists in Waltham stay there.

Boston/Cambridge doesn’t need more venture capitalists downtown. What is one of the biggest problems for startups trying to operate on the Red Line? Rent. It’s crazy expensive to find decent offices in Cambridge. Who doesn’t mind paying too much for rent? VCs and their service providers like accounting firms and lawyers. There is a really limited amount of space in Cambridge. We don’t need it taken up by venture capitalists. Startups will have to move to the burbs if rents continue to climb.

Having the local startups clustered along the Red Line is really important. A huge amount of knowledge sharing happens due to this proximity. For example, my CTO gets together with other CTOs at least once a month. I get together in the evenings with other startup folks pretty regularly. This wouldn’t happen if everyone was out in the burbs; or at least would not be as easy for startupers who live in the city (note that most senior VCs tend to live in the suburbs).

Scott highlights a very cool story about how Zuckerberg had to get a cab to get out to see Battery Ventures when they were considering raising capital. How do you think Zuckerberg got to the VCs on Sand Hill Road in Palo Alto? It’s not anywhere near public transportation. Getting there is a total pain in the ass if you live in the city, unless you live along 280 (I know because I did that commute for almost three years.) In fact, Sand Hill is a lot like Mount Money, with the VCs in their own little world, surrounded by investment banks, law firms, etc. There are a few startups on the street, but it’s really expensive. (Stanford is really close, which is a major advantage.)

Sand Hill has another advantage, in that it’s in the geographic center of the startup scene in the Bay Area, in between San Francisco and San Jose. I guess Waltham does NOT have that going for it. But being active in the startup community still requires the California VCs to get out of their offices and visit with startups and attend events. Boston area VCs can achieve the same thing if they get out and about and attend local startup events. If Mount Money VCs feel cut off from the action, I bet it has less to do with their geographic location and more to do with their attitude. You see a few of the same VC faces at most of the “cool” events, and there are some venture capitalists who make an effort to speak various startup panels. Instead of encouraging Waltham VCs to move to the city we should be encouraging them to get out of their offices more often.