SF Venture

Is Venture Broken? - No

I’m a bit late to the part of reactions to the Sevin Rosen announcement that it was ending after its 10th fund and the related New York Times Article.  I felt compelled to post after reading a series of posts and comments on Fred Wilson’s blog.  I have seen no commentary that acknowledges the underlying math and attempts to take a constructive look ahead.

First, the math is simple.  The vast majority of returns to limited partners of venture firms have come from the value created after IPO.  Some funds have made money through M&A, but YouTube is the exception, not the rule.  However, M&A is not enough to drive aggregate returns to levels much above public market returns. 

Let's not delude ourselves. If you invest $20-40 million and take 5 years to build company from nothing to $20-30 million in revenues and profitability, selling out for even $150 million does not seem to justify the effort and risk.  Buyers typically bury fail to grow acquired technologies.  The goal of venture exercise is to create new, large companies. 

Looking at the long history of venture, the vast majority of growth in revenues and value occurs after IPO, with the IPO validating new markets and/or competitive position against incumbents. Given IPO hurdles, one could argue that the venture market will remain "broken" until there is a more receptive IPO market.  Fortunately, there are signs that the IPO market is returning to accept companies with revenues under $50 million.  Recent deals like Riverbed and Acme Packet have demonstrated strong after-market stock performance.  Failure of bubble IPOs created a fear of investing that has lasted many years.  If investors see a few deals working, the mood could turn from fear back into greed, with a reasonable number of technology IPOs introduced each year. 

Video Ad Campaign

One of my portfolio companies just launched a "You-Tube" ad campaign, with banners linking to web videos.  This post is intended to highlight the creative work of Barak Kassar and his team at Rassak, who produced it.  It's a one of the first examples I've seen of the use of made-for-the-web content that is potentially compelling and commercially viable.  It's funny and is generating customer leads.  In addition to using banners, the videos are posted on YouTube and AOL, with the hope of viral spread. 

The series can be found on the BigFix site. 

Here is one of the multiple video clips from the series. 

Video Of First Fight

With YouTube's sale to Google, I figured it was past time I posted a video of my first amateur bout last year.  It was a hassle to get it converted from a DVD format, but thanks to Jeff Small for figuring it out.  It was also difficult to paste the YouTube code into Typepad.  There is definitely room for improvement in video blogging technology. 

Guess I've been slow to be convinced that personal videos are ready for the masses to share.  Easy to see how YouTube has facilitated the delivery of video clips, both copyrighted and individually produced.  I wonder how much the split will evolve between personal video shared among friends, video produced by amateurs for a mass audience and repurposed video.  Makes sense to share revenues as Revver has demonstrated. Expect it will be reasonably easy for Google to ask forgiveness from the movie/tv studios/networks, as they open up a new avenue for revenue. 

Back to business, I've just started training for my second fight.  The founder and co-owner of the Third Street Gym has agreed to help.  Paul Wade is great.  He'd been a very successful kick boxer in Ireland.  His training method is different from Seamus.  It's more in line with martial arts.  I've gone back to the basics of footwork, punch timing, defense and offense.  It's great to learn a new approach.  Looking back on the video a year after the fight, I can see what I lacked and I am fully engaged in the preparation process for the second fight.