Archive for the 'Venture Capital' Category

Diggnation #85 - We’re There!

Published
by
Brian Berliner
on February 14, 2007
in Startups, Technology and Venture Capital
. 1 Comment

Last night, Amy and I attended the live taping of the 85th episode of Diggnation. Diggnation is one of the properties of Revision3, and perhaps their most popular property (shout out to my colleague Mike Maples, an investor in Digg and Revision3). Diggnation is a weekly video podcast, hosted by Kevin Rose (co-founder of Digg) and Alex Albrecht. The hosts sit on a couch, drink beer, talk about some of the top stories submitted to the digg.com site, and generally crack me up. I find it quite entertaining. Thank goodness the FCC does not regulate video podcasts!

This particular show was held at the Beach Chalet Brewery and Restaurant in San Francisco. And, it was packed. Amy and I made a night of it. Ate some tasty seafood, enjoyed the sunset over the beach, drank some stout, and enjoyed the show.

The Laughing Squid folks wrote a blog article and took some great pictures at the event. Here’s a sample:


Photo credit: Scott Beale / Laughing Squid

And, the Discovery Channel was there taping with a nice, big HD camera. Not quite sure what they were planning to do with the footage, but I look forward to seeing it in bright HD on the home theatre.

Finally, here’s a shot of my ugly mug (and half of Amy’s pretty mug), captured by one of the attendees (licensing does not allow me to show it to you here; you’ll have to click through).

We even scored a couple of free Diggnation T-shirts thrown out to the audience. Unfortunately, they were both of the female variety. Amy looks awesome in hers, but I can’t quite pull off the chick T-shirt look. Kevin… Alex… Please send along a Large male T-shirt to me so that Amy and I can be a proper Diggnation couple in public!

I don’t use digg.com. But, I do enjoy the show. Good times.

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The MoneyTree Shook - Q4 2006

Published
by
Brian Berliner
on February 13, 2007
in Venture Capital
. 0 Comments


Colleague Mark Radcliffe was kind enough to invite me to today’s Shaking the MoneyTreeTM event held at the DLA Piper offices in East Palo Alto. PricewaterhouseCoopers and the NVCA put out the report quarterly, based on data provided by Thomson Financial. The report is in its 12th year. The Master of Ceremonies for this event was Steve Bengston of PwC, who did a very nice job talking to the current trends in the Venture Capital industry.

I don’t have a pointer to the slides presented, but you can find the Q4 2006 Press Release here.

Panel attendees (who also did a very nice job and kept the discussion lively) included:

Some highlights that I found particularly interesting include:

  • 2006 VC investments of $25.5B ranked it as fourth largest year ever (beat out only by 1999, 2000, and 2001).
  • 1980 total VC was just $600M - compare that to 2006, where a single investor, Intel, made an investment of more than that amount in a single deal!
  • Called this the "Decade of Life Science and SoCal".
  • My previous home state of Colorado had a tough Q4 in terms of deals, withh only 16 deals, down 70.8% from the previous quarter (on the year they were down 4.9% from 2005).
  • Current VC investment levels "feel" like what it was like in 1996-1998, depending on the metric you dig into (e.g., Q4 2006 Series A dollars invested were higher than the Q1 1999 Series A numbers for Silicon Valley, but comparing # of deals feels more like 1997).
  • The money is slowly moving to Biotechnology and Medical Devices. While Software investments continue to lead, Biotechnology is right behind, and if you combine Biotech and Medical Devices, they exceed Software by some 50% margin.
  • "About one-third of the money is going into Life Science". Good thing I’m invested in 5AM Ventures!
  • First investments, or "Series A", used to be exclusively the domain of Seed-Stage or Early-Stage companies. Today, we find about 30% of Series A dollars going into Expansion-Stage companies. This is a notable change from the VC investments in days gone past.
  • Early-Stage companies are getting roughly $7-9M Pre-Money valuations, which seems about the right number to me.
  • However, what’s interesting about the valuations is that the Later-Stage companies are seeing Pre-Money valuations of $80-90M. That’s hard to reconcile with the fact that the average M&A exit valuation for VC-backed companies is just north of those numbers. I.e., lots of Later-Stage VC investors are making poor deals/not making much money on each deal. This is also a more recent development in the industry.
  • Most VCs are "Early-Stage" because that’s where the money is, historically. Early-Stage still leads the 20-year return numbers over pretty much everybody else (Later-Stage, Buyouts, Mezzanine, etc). However, returns of late for Earl-Stage have been pretty crappy. Personally, I’m an Early-Stage guy and an Early-Stage investor. I agree that it is the best place to get the best returns (and the best investors will prove that out way beyond what the "averages" in these reports show).
  •  "Overhang continues to grow" - i.e., there’s plenty of money out there for the best companies. Raising money should not be a problem. If it is, you’ve probably got a fundamental problem with your business.
  • Advertising dollars to Internet/Mobile is currently about 5%. However, we spend about 20% of our time online and mobile. I.e., massive amounts of ad money will be flowing into these spaces, enough to support 4 more Google’s in the next 10 years, perhaps. Lots of opportunity.
  • Interestingly, 13% of US marriages in 2005 were from couples that met online! That’s an amazing amount of growth. I met my fiancée online as well!
  • Average life of an S&P 500 Company in 1938: 100 years. Today: Just 20 years.
  • 50% of VC General Partners will be gone in the next 5 years. If you are a VC and are reading this, I hope you are working on your next gig as we speak. That’s a lot of turnover.
  • Lots of discussion about VC in China & India, and the need for startup companies to go global much sooner than they used to (for both outsourcing as well as to get access to humongous new markets). India has 300M product-consuming middle-class families, for example. Asia gets mobile phones and being continuously connected through their devices (PC at home is less important than mobile access everywhere).
  • Conversation even strayed to cover VC vs PE/Buyout guys vs Hedge folks.

All in all, a very good use of a couple hours. Many thanks to PwC and the panel for their thoughts.

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As Predicted, VMware will IPO in 2007

Published
by
Brian Berliner
on February 8, 2007
in Software, Technology and Venture Capital
. 1 Comment

In October, 2006, I wrote the article, "VMware as LBO Opportunity for EMC?" The article examined the impact that the VMware acquisition has had on the EMC bottom line and speculated on some ways that EMC could benefit its shareholders by spinning out the EMC asset with an IPO in 2007.

Looks like I was pretty close to right on this call.

Yesterday, EMC announced that they will sell approximately 10% of VMware in an IPO to happen sometime in the summer of 2007.

Just as it was a smart move for EMC to acquire VMware back in early 2004, this is also a smart move on their part. And I’m not just saying that because I thought it was a smart move last year. Well, OK, I am saying that (a bit). Briefly, it’s smart because:

  • EMC shareholders will see increased shareholder value. The positive uptick has started already, as EMC gained 6.62% in the first day of trading after the announcement. Witness:
  • VMware, as a separate and public entity, will be better positioned to offer transparency to their shareholders.
  • VMware will be much better able to attract, reward, and retain the key talent they will need to ride the Virtualization market as it blossoms over the next 10 years.
  • EMC retains 90% ownership of the public entity. So, if the Market Cap of VMware hits $20B in 5 years, then EMC is sitting on an $18B gold mine. Of course, we’ll know much more when we see the S1. The high-level breakdown of the cap-table will tell us what’s left for recruiting and acquisitions.

So, let’s do some more speculation. I reported on VMware’s Q42006 numbers earlier. They did $232M in revenue in Q42006, total revenues for 2006 of $709M, and EMC is projecting $1.2B total revenues for 2007. Since their CAGR numbers are astronomical, I’d be comfortable pricing them right now at 4x forward revenues, or about a $5B Market Cap (give or take $1B). If EMC sells 10% of the company, we’re looking at a $500M IPO. This move could very well jump-start the IPO market for high-tech companies back into existence.

The only downside to this that I can find is that the company will not truly be held by the public. We just get to join along for 10% of the ride. I would much prefer that Joe Q. Public had a larger stake in any public entity.

Other interesting blog coverage includes:

All told, however, this is certainly an IPO that anyone would want to be a part of…

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VMware Q42006 Results Exceed Expectations

Published
by
Brian Berliner
on February 8, 2007
in Software, Technology and Venture Capital
. 1 Comment

Last October, I wrote an article titled "VMware as LBO Opportunity for EMC?"

In that article, I projected Q4 revenues for VMware to be about $200M, with the resulting FY2006 total VMware revenues of about $677M. Needless to say, I was a bit on the low side.

Last month, EMC announced their Q42006 results. VMware grew total revenues 101% year-over-year to $232M. They also grew total revenues 83% year-over-year to $709M for 2006.

On the conference call, EMC projected revenues of $1.2B for VMware in 2007. That’s another 69% year-over-year growth rate. I don’t doubt it. In fact, sources on the street tell me that internally VMware believes they can do $1.5B in 2007. That’s a bit harder to grok, but, as witnessed above, I have underestimated VMware before. Many congratulations to VMware and their hard-working employees. I look forward to adding them to the elite list of $1B+ revenue software companies in 2007.

Looks like the Virtualization market is finally maturing. Hallelujah!

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5AM Ventures Closes $150M Fund II - I’m In!

Published
by
Brian Berliner
on January 8, 2007
in Personal and Venture Capital
. 1 Comment

I am thrilled to report the recent closing of 5AM Ventures Fund II.

Thrilled, in part, because I am lucky enough to be a Limited Partner in the fund!

Fund II is a $150M fund focused on early-stage biotechnology and medical device companies. VentureWire Professional reports it here (subscription required). In particular:

5AM Ventures has closed its second health care venture fund at $150 million and has funded three early-stage companies from the new vehicle, Managing Partner Andrew J. Schwab told VentureWire.

The Menlo Park, Calif., firm held a final closing on Dec. 19 for the fund, which had a $150 million target. The fund more than doubles the $65 million debut partnership the firm raised in 2003.

So, why did I invest in 5AM Ventures (and, indirectly, in their Portfolio companies)? Simple:

  1. I always invest in the people. John Diekman, Andy Schwab, and Scott Rocklage are guys with the proper moral compass. I’ve spent a lot of time with these guys, and their entire team, and consider myself lucky to know them all. In addition to being very good and knowledgeable investors, they are very good people. In my most recent interaction with John, as an example, it was natural for me to end my time with him with the following: "John, you are a consummate gentleman, generous, and gracious." If you know John, you will know what I’m talking about. 5AM Ventures has also assembled an extremely impressive Scientific Advisory Board which brings them some clear advantages.
  2. I always invest in the market. The biotechnology and medical devices markets are focused on bringing life-changing advances to mankind. These are big-money markets today, and the next 10 years will see some amazing breakthroughs (pay no attention to my review of Next). Early-stage investors, like 5AM Ventures, are investing at the right time to see some seriously big returns. At $150M, it’s a relatively small fund for biotech (which, I think is to their advantage), but the likes of John, Andy, and Scott have the knowledge and contacts to find and win the right to invest and grow the best companies. In essence, a smaller fund focused on early-stage investments with a well-connected team in a booming and liquid sector means, to me, that their chance for one or two very big wins are higher than most.
  3. I always invest in firms that can execute. 5AM Ventures is young, to be sure. Founded in 2003 with a $65M Fund I means that there has not been much time to measure their success as a firm. However, their portfolio speaks for itself. That’s great progress for a $65M fund over a 3-year investment period. VentureWire reports that Fund II already has 3 investments in Fund II (which are not yet on the Portfolio page).

Bottom line: I don’t know how to invest in biotech. I believe in the market and the timing for the market, but I couldn’t pick the winners. No chance. I’ll stick to what I know (Enterprise/IT, Virtualization, Open Source, Mobile, Internet Services) and leave the biotech space to these folks, thank you. I’ll invest in the investors and, wherever I can, help them be successful.

Best of luck to the entire 5AM Ventures team!

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Daylife: A Beta That Rocks

Published
by
Brian Berliner
on January 4, 2007
in Startups and Venture Capital
. 0 Comments

Marc Hedlund over at the O’Reilly Radar announced the launch of Daylife today.

A quick peek at Daylife really impressed me. Take a look at the Daylife Tour.

Looks like they are indexing both news web sites as well as blogs. I expect they will compete with folks like TechMeme, TailRank, and Newsvine, and Buzzfeed (in the Social News category) for your attention.

The visuals on the site are stunning.

Very nicely done for a Day-1 launch of a Beta product.

Congratulations to the team… I wish them the best of luck!

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Michael Crichton: Next Review

Published
by
Brian Berliner
on January 4, 2007
in Books, Technology and Venture Capital
. 1 Comment

I’m a big fan of Michael Crichton, so I was thrilled to receive his current book, Next, as a Christmas gift.

The book was pretty classic for a Crichton novel. Lots of technology, speculation on how that technology may be used (or abused) in the future, lots of characters, a few chase scenes, industry espionage, political soapboxing, legal and moral issues, the role of the venture capitalists, a hint of sex, and a story line that tries to tie it all together.

For this book, though, I didn’t think that the "novel" parts of the book were particularly interesting. I liked that there were multiple story lines happening all over the world and they (mostly) all came together at the end, but the "coming together" parts seemed pretty forced to me.

The technology side of the book is quite good, as usual. Crichton provides some great discussion on the Biotech industry, gene therapy, transgenic species, gene patenting, the use and ownership of human tissues in research and development, legal issues galore, and the commercialization of the University research programs. All great stuff. Crichton is no dummy.

Bottom line: This is way better than Airframe, but not as good as Jurassic Park. In about the same league as Disclosure. Worth a read if you are interested in the technology, but don’t buy it for the story.

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2007: The Year of Enterprise M&A

Published
by
Brian Berliner
on January 4, 2007
in Startups and Venture Capital
. 0 Comments

    +   

First week of the new year, and we have a nice-sized ($830M) acquisition of IronPort Systems by Cisco. Here’s a link to the press release.

All Hail The Return Of The Enterprise M&A Market!

OK. So, maybe I’m a bit premature with my celebration… But, I don’t think so.

IronPort got started in 2000 and toughed it out through some slow years for the enterprise market. They persisted and grew. Their products are not sexy, but certainly are needed. The uptick in IT spending in 2006 likely brought them a nice valuation kicker to support the lovely acquisition price of $830M.

There are many Enterprise/IT startups that are in a similar position right now. Increasing sales traction, no real IPO market available, but the big boys still need them to grow their product/technology portfolio, customer base,  and market share. And, where else will they get to an exit?

My 2007 prediction is for a marked increase in M&A transactions for Enterprise/IT focused startup companies. Bigger valuations, combined with the need for VC firms to wind down some of their 1999 and 2000 vintage funds will add fuel to the fire.

So, was the IronPort deal a good deal? Some data:

Not much else out there for Joe Public. My sense from these numbers and some other digging was that IronPort was likely looking at 2007 forward revenues of $160M+. Many congratulations to the IronPort founders, CEO Scott Weiss and VP Corporate Strategy Scott Banister for building a great company.

Om Malik covers the story here. And, VentureBeat covers the story here.

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New Year’s Resolutions from Alexis Lakes

Published
by
Brian Berliner
on January 3, 2007
in Blogging, Startups and Venture Capital
. 0 Comments

My good friend Alexis Lakes, CFO of RWI Ventures, kicks off the new year right with some New Year’s Resolutions over at peHUB.

Alexis is a new VC blogger, and this is a great post.

Topics included:

  • HIDING THE DILUTION
    Resolve to never lose sight of ownership percentage and expected terminal value of your investment.
  • GOING ON HOPING SYNDROME
    Resolve to be bigger than your ego and do the right thing by your investors with respect to under-performing companies.
  • TAKING OVER PAYMENTS STRATEGY
    Small Fry: Resolve not to be star struck by big firms wielding crappy deals in hopes of getting on their holiday party invite list.
    Player: Um. Gee. If you can find a sucker to delay a fire sale of your company - possibly buy it a lottery ticket chance of success, what can I say? More power to you, as your actions benefit the company and your investors. Of course, I couldn’t do your job, that is for sure. I need my sleep.
  • DELEGATION DISASTERS (DDs)
    Resolve to trust your partners and to be worthy of their trust.

Thanks Alexis! And… Happy New Year!

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The Winner: Best Geek Holiday Card

Published
by
Brian Berliner
on December 28, 2006
in Startups and Venture Capital
. 1 Comment

The folks at Meetro win. I love their style:

Happy Holidays!

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