Venture Capital post web 2.0

Venture Capital in the Web 2.0 world Edward French, 14 th June 2007

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

Contents
Background 
A couple of sample investments
Changes in technology investing
Enterprise Mashup Software

Investment Preference
Early-Stage
IP delivers commercial value
Where small investment works
Opportunity to build management
Big Market Opportunity

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

Yuuguu
Instant, free, screensharing
www.yuuguu.com
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

Changes in technology investing
Technology cheaper and quicker
Good side
Bad side
Audience is larger and broader
New sources of revenue are possible

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

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”

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

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!

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”

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

Contact Details
Edward French
Email [email_address]
Phone 07966 347407
Yuuguu ID [email_address]
Website www.rsgf.co.uk
Blog techgain.net

Venture Capital post web 2.0

by edfrench on Jun 16, 2007

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Venture Capital post web 2.0 — Presentation Transcript