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.

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Venture Capital post web 2.0

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