Venture Capital post web 2.0

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Brief update on how the web2.0 world differs from an investment point-of-view for web startups.

Brief update on how the web2.0 world differs from an investment point-of-view for web startups.

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  • 1. Venture Capital in the Web 2.0 world Edward French, 14 th June 2007
  • 2. Background
    • Enterprise Ventures: Mid-sized fund manager~ £60m
      • Mostly in technology funds
    • RisingStars Growth Funds (I & II)
      • 38 Early stage technology investments
      • ~40% software (no “pure content” deals, sorry!)
      • £50,000 - £1.4m per company
    Pen computing Social mobile game EDA tools Diagnostic webservice Mobile phone UI Enterprise Mashups E-learning E-tail
  • 3. Contents
    • Background 
    • A couple of sample investments
    • Changes in technology investing
    Enterprise Mashup Software
  • 4. Investment Preference
    • Early-Stage
    • IP delivers commercial value
    • Where small investment works
    • Opportunity to build management
    • Big Market Opportunity
  • 5. nCapsa
    • Software for Consumer Electronics UI
    • Modest first investment to build team and test route to market
    • Larger sum followed to build out product and engage with customers
    • Pursuing £2m series A round
  • 6. Yuuguu
    • Instant, free, screensharing
    • Worked with the founders for around a year prior to launch
    • Growing at 20% per month
    • We introduced two new people to the team, and follow-on investors
  • 7. Changes in technology investing
    • Technology cheaper and quicker
      • Good side
      • Bad side
    • Audience is larger and broader
    • New sources of revenue are possible
  • 8. Cost of technology is lower
    • Lower costs:
        • Opensource software- LAMP
        • Outsourced development- lower prices
        • Better prototyping tools- e.g. Ruby
        • Cheaper servers etc.
        • AJAX provides lower cost, consistent, web UI
    • Therefore lots of market entrants!
        • Many, (often low quality), competitors cause a high “noise” level
        • Nothing is ever really “new” (lots of web1.0 recycling)
        • VC’s waiting to follow user numbers
  • 9. Audience is larger/broader
    • 2bn mobile phones- coverage for ~90% of world’s population
    • ~300m broadband users globally
      • Growing by 9-10% p.a., faster post WiMax?
    • Real online communities- early adopters can be found
      • E.g. “The TechCrunch effect”
  • 10. New Sources of Revenue
    • Advertising revenue is real!!
        • But only significant once you have millions of users
        • Rumour: “Youtube $7m/month on 70m users”
    • Corporations can be sold to “guerrilla-style”
        • But you need to tread carefully…
        • Expect major change in this sector- consolidation?
    • People can be “up-sold” on a freemium basis
        • But free model must be genuinely useful and viral
        • Premium model must be modestly priced
    • BUT subscription revenues still thin
  • 11. What’s the same!
    • Commercial relationships are no faster/easier
      • 12-24 months to get cash for something new from someone large
    • “ No-brainer” management is very scarce
      • UK has few precedents
    • Lots of money around, but…
      • it’s never enough!
  • 12. So we don’t need VCs?
    • True if you …
      • If cheap-to-build features will be enough create user growth
      • If you wont suffer from delays whilst partners take decisions
      • If you can take your time as no-one else is chasing the opportunity
      • If you don’t need backing to attract new world class people
      • If you don’t need cash to get above the “noise level”
  • 13. Summary
    • Web 2.0, spread of broadband, stunning exits, and real advertising have changed opportunities and risks for new ventures
    • Venture Capital is less obviously essential to software companies now, but is still going to be essential for many
  • 14. Contact Details
    • Edward French
      • Email [email_address]
      • Phone 07966 347407
      • Yuuguu ID [email_address]
      • Website
      • Blog