I Am Adam Smith

Kango.com Announces $4m Venture Round

Techcrunch reports that travel search engine Kango.com closed a $4 million venture round led by Shasta Ventures.

alarm:clock post on Online Travel

The startup watcher blog Alarmclock has a post on online travel companies. Gives mention to a SF Biz Journal article from November '05. Talks about how VCs are putting money into travel startups.

John Dean, VC and Entrepeneur in Hawaii

Greater Good Radio article on John Dean.

BIO:
John C. Dean
A graduate of Holy Cross College, a former Peace Corps Volunteer in Western Samoa, and a graduate of the Wharton School with an MBA in Finance, John spent 30 years as an executive in the financial services industry, focusing for the last 10 years on technology startup companies. He is presently Managing Director of a small private equity fund, Tuputele Ventures Fund, investing in fund-of-funds, venture capital funds and startup technology firms with investments primarily focused in Silicon Valley and Hawai`i. He is also the managing general partner of Startup Capital Ventures.

Entrepreneur’s Foundation of Hawaii

Startup Capital Ventures
Tuputele Ventures

Rehab of Consumer Internet VCs

Venture Capitalist Bill Burnham talks about consumer internet companies becoming respectable investments again.

About time, I still think there's tons of innovation and money to be made out there. The entire sector shouldn't be stigmatized forever because of a bubble.

Rich Barton, Former Expedia CEO, Joins Benchmark Capital

Rich Barton, founder and former Expedia CEO, has joined Benchmark capital. Adds competence to Benchmark to evaluate travel startups.

Pilot House Ventures: VC Investors in CheapFlights.com

Looks like Pilot House Ventures, a Boston-based VC firm, has a stake in CheapFlights.com. Its not clear if Pilot House is an investor or an operator.

Cheapflights started off as an online travel firm in the UK, and are branching out to the US. They don't let customers book travel, they just point people towards other sites where you can book.

They're mission is to "To be the USA's No.1 guide to cheap flights."

Not sure I get the business model here. I need to find out the story on this one.

Tim Oren on 2 Stage Software Startups

I found Tim Oren's piece on the emergence of a two-tier software venture useful.

He argues that software startups will get going on the cheap. They'll develop their first product with with open source tools and will send nonessential work to India for cheap/rapid development. They'll use founder/angel money to build a useful and differentiating application. Then market it through word-of-mouth, Google Adwords, and other cheap options.

If things pan out from there, VCs can step in to provide funding to build a sustainable business.

This is more or less the approach we're taking with TripInvite. We have a good concept and a good team. Before I visit any VCs though, I want the software to be launched, well tested, tweaked, and to have our first 100 customers. Since we're developing on the cheap anyways, there's no reason not to do this... remove as much risk as possible beforehand. If we were developing nano-something-or-others, this obviously wouldn't be the case. The technology there is still super expensive, and bringing VCs in at an early stage still makes sense.

Tim argues that the commoditization of IT is what drives this model. Its not the technology, or access to technology, that makes you special in software. Its about having a good idea, doing something that's hard, and executing well.

Anybody with a good idea can start a software company. We 100% outsourced  our beta website, with a significant amount of code behind it, to Bangalore. Neither my partner Dave nor I knew how to write 1 line of code.

Notes on the Churchill Club VC Meeting

Jeff Clavier gives his impressions of the Churchill Club meeting "Venture Capital: Whats Hot, Whats Not"

Below is the section that useful in thinking about funding for TripInvite. I think one of our big differentiating points is going to be bringing a very strong revenue model to an internet-based social service.

Consumer/Internet plays were mentioned by the panel as an area of major opportunity: digital home, community plays, peer-to-peer media sharing and blogging, etc. The issue is always the business model at scale, and how to monetize gazillions of users.

Unless you have a proven track record in building such (.com) companies, you will have to find ways of bootstrapping your initial go to market  (on angel/friends and family funding). I have heard quite consistently that a million users (give or take) is the magic number that would get VCs potentially excited.
Because these bootstrapping costs are limited thanks to LAMP-based open source architectures, there will be a plethora of services that will be developed and released by very small teams, and will be delivering value to their users upon launch. Great examples of such services are del.icio.us or Memeorandum, developed by Gabe Avalos (who I met at BloggerCon III). He got exposure through Robert Scoble, who really liked his hack and blogged about it. Now the issue is to figure out how to turn this very cool feature into a product, and a company (if this is of interest, I'm leading a BMA Roundtable on that topic mid-february).

This discussion led to a mention of a 2003 Hot sector: social networking, with a claim from Bill that we will be blown away by the revenues of such companies in the next couple of years. Benchmark invested in Friendster back then, LinkedIn just launched their (paying) job feature, and Redpoint is investing in Myspace, a site which has developed a very impressive traction lately. We'll see.

2004 Venture Capital Stats

Via Jason Caplain, South East Ventures

2004 Venture Capital Numbers - Quick Observations

The Q4 VC numbers are out. Venture One & E&Y announced their numbers on Friday. The MoneyTree Survey by PWC, NVCA and Thomson Venture Economics came out today. The numbers are fairly close:

Amount of VC invested in 2004: Venture One says $20.4 billion, MoneyTree says $20.9 billion

Amount of VC invested in Q4: Venture One $4.5 billion, MoneyTree $5.3 billion

Percentage of VC going to early stage companies in '04: Venture One 17%, MoneyTree 19%

Top Ten Questions to ask a Perspective VC

Via the Dispatches blog

I have never raised a VC round before. We intend on speaking with some VCs in the Boston area in late February about TripInvite. Not sure if I'll head to Silicon Valley at that point or not.

The relationship between the startup and VC really needs to be a non-zero sum partnership. So, while the VC is certainly going to do due diligence on you and your team, you'd better do some on your investors.

I'll need a standard set of questions to ask the VCs we talk to. Some I've got in my notes from Sloan courses, but some of the below look helpful, particularly  numbers 4, 8, 9, and 10.

1. How big is your fund?
   There is no point trying to raise $1 million from a $1 billion fund.
2. How much is left in the fund after commitments and reserves for follow-ons are accounted for?
   Is there enough "dry powder" in the fund to support your company's needs over time?
3. When do you intend to go out fundraising?
   In other words, are you going to disappear for six to 12 months immediately after making an investment in my company and joining my board of directors?
4. When you fundraise and tell the story of your three most successful investments, how will you describe how value was created for LPs?
   The answer to this question will give you some insight regarding how you might be expected to create value.  For example, if the firm's biggest success came as a result of increasing valuation multiples through the consolidation of a fragmented industry, your company's strategy of creating value through innovation and organic growth might not be a great fit.
5. Who is on your firm's investment committee?
   Depending on the firm, your primary contact may not be among the small group of founding partners who may be making key investment decisions.
6. What was your firm's advertised IRR when you raised your last fund?
   If the firm raised its most recent fund based on an advertised trackrecord of, say, a 60% internal rate of return, you might want to question whether your plan's forecast of, for instance, a 30% IRR is really going to maintain your investor's interest over time.
7. May I get a copy of the "book" you sent around when you raised this fund?
   What promises did the general partners make to their limited partners when they raised their last fund?  How might those promises impact the fund's relationship with your company?
8. What do you think the exit will be on this investment?  Do you think it will be a financial buyer or a strategic buyer?
   You are going to be asked this question.  It's only appropriate that you find out up front what the expectations of your investors are regarding this critical issue.
9. As you think about how to shape the company so that it is optimally positioned for that exit, what three things do you think need to be done in my company?
   The general partners are measured against their ability to deliver value to their investors.  By what metrics will you be judged?
10. What was your firm's biggest disaster as an investor?  How did the investment go sideways?
    There is a difference between a bad result and a bad investment.  Does the investor know the difference?  How did they behave?